Taking the Leap – Making Bold Moves toward New Horizons

It goes against my grain to stand on a soapbox and ask everyone to look at me.  I have to remember that what I have to offer is really quite good.  The people that need my software are going to be very happy they found it.  It’s worth being a little pushy for us both to benefit.  Many of the people that call with questions before deciding to buy my system say the had searched the internet at great length before they finally found me.  Anything I can do to make that search quicker is just a smart move.

I was buying something at a local music store and casually asked if they do in-house financing, in hopes that I might be able to buy some loans at a discount.  The person I was talking to said they did zero-interest-for-a-full-year on any purchase, which didn’t sound too appealing.  I groaned that I really want to make some loans, and the person that had helped me with my purchase asked if I would consider making a loan to an individual.  I said “of course!” and they mentioned that, as a semi-professional musician, she would really like to get a new instrument.  What a reasonable loan for a gainfully employed person!  Simply by talking about what I wanted, an opportunity made itself known.

It’s new territory, but it’s really exciting.  I’ve moved several times in my life, four times the move was over 1000 miles.  Learning a new city is time consuming.  At first, only the most notable landmarks and roads are familiar.  After repeated exposure, eventually the whole area becomes familiar, and I can actually get from point A to point B without looking at a map.  It’s similar in business.  Doing something new takes a lot of planning and research, but eventually it isn’t too difficult to accomplish the important stuff consistently once a workable route has been discovered.  The effort in the early days seems to give way to familiarity and convenience later.

Ultimately, when I miss a turn or make a misstep in business, as long as I’m moving in the right direction I know I’m getting closer to my goal.  When I’m driving on unfamiliar roads, I use the sun and bodies of water (the Fingerlakes and the Great Lakes make for handy landmarks around Rochester, NY / the San Francisco Peaks and Mt. Elden in Flagstaff), and do my best to orient myself beforehand to the things I know I’ll be bumping into along the route.  In business, giving myself the best chance to know which direction is right requires the same preparation – reviewing statistics, talking with peers, researching, testing.  By giving myself the tools to navigate effectively, I can make bolder choices with more confidence that I’m going to ultimately find my way to the treasures at the destination.

Get your bearings, remember what you've learned through the years, and get Moneylender Professional to service your new loans!!  Lend with confidence that you'll have no trouble managing the loan from open to close.

The Secret Sauce to Make Any Business Work

I’ve read a lot of business books.  Books on management, leadership, advertising, marketing, internal processes, hiring, motivational and inspirational books.  I link to think I’m somewhat well read on the subject.  If all these authors were my patient teachers, I don’t doubt I would hear a great collective sigh of relief that I am finally beginning to understand.

Moneylender is the primary product that my company produces.  It’s not surprising that the vast majority of my time is spent on Moneylender-related activities.  For fifteen years, I worked almost every day to build the best solution to the problem of managing loans that I could conceive.  I’m pretty happy with the result, now manifest in Moneylender 3.

That’s great, really it is.  Having a product that holds my complete confidence is a very important part of being a successful business.  But I missed the point.  Sometimes narrowly, sometimes entirely, but I definitely didn’t quite get the reality of the situation as it was being so masterfully described by authors and mentors.

I’m a shy person, of a sort.  I appear outgoing in most social situations, but I’m prefer not to talk much about myself until I feel like I really have the lay of the land.  I want to know how I can best fit into a situation first, and then I will contribute where I feel myself most useful.  It works well for not stepping on toes, listening first and talking second, making a good impression.  Great for a professional in a business community, or at the in-law’s family reunion, but only now do I really see how this attitude has impeded my businesses for the last twenty years.  My confidence in Moneylender at an all-time high, I’m finally willing to show the world all that it is, and I see just how silly my attitude had been across my professional career.

The start of the movie Cabin Boy has an apropos quote: “Nothing so liberates the heart as when a fool awakes from his folly.”

Half the books I’ve read have been sales books, advertising and promotion, marketing books.  I originally drew up the idea for this article around the observation that Richard Gerber’s The eMyth book spent half the time telling the reader to stop pretending the entrepreneurial spirit was some magic essence that some people possessed while others were lacking.  I misunderstood his message at the time.  While I heard “Entrepreneurs aren’t some unique thing, and you either got it or you don’t”, what he was really saying is “forget trying to be an ‘Entrepreneur’ at all, and just do what I tell you.”  If I had really understood the message at the time, I might have dropped my own notion that my software would be the best software and that’s why I would succeed.  His message was, yes, great software is essential, but it won’t make your business successful.

Robert Kiyosaki in Rich Dad, Poor Dad tried fruitlessly to explain the same message to an aspiring writer when he pointed out the key to his success was written right on the cover of his book: “best-selling author”, not “best-writing author”.  Like myself, that hopeful author was unable to cast aside personal visions of the world to hear the message from those that understand.

The ENTIRE second half of The eMyth is how to do marketing.  A subject I had read about so much that I again missed the simple truth.

So now my friends, at last, I get to the point of this article.  Half my efforts must be concerned with the business of getting people to buy my software.  Not one fifth, not one quarter, not 48%.  Half of my effort must be spent on promoting my software, on marketing.

The closest I had ever been to running a truly successful business was when I had very nearly found this ratio by happy accident.  I employed two full-time phone sales people, making cold calls all day long selling websites.  I had a part-time designer, a part-time writer, a part-time coder, and myself.  When the team was at its peak, we could design, write, code, configure, publish, optimize, market and register a website from scratch every three days.  The thing was, I only had two salespeople working full-time.  Making matters worse, while a straightforward and supportive manager, I was undoubtedly inexperienced.  I was in my early-to-mid-twenties, so I can cut myself a little slack.  If I had put a lot more of my attention into helping the salespeople get the tools and resources they needed to be really effective, if I had been willing to monitor and address performance problems among the sales staff, if I had hired two more salespeople.  Had I done those things, I would likely have been very profitable.

It took a full decade of distance to see the simple truth.  These authors are all correct – marketing is the single most important thing a small business does.  If no one know about you, thinks about you, hears about you, then you don’t have any revenue.  It has to be half, too.  The occasional flirt with marketing cannot sustain a real business.  It must be continuous, reliable, repeatable, innovative, collaborative, direct and touching. 

With four salespeople, we would have had a backlog of websites to build, a single person wouldn’t have been able to sink the ship.  There would be no shortage of revenue nor of work for the team.  As luck would have it, both salespeople had personal emergencies at the same time.  As the manager it was my fault for not getting new ones into their seats immediately instead of standing around and scratching my head.

So now, reflecting on the various ruins of my entrepreneurial fits and starts, Moneylender Professional the dogged exception, still bustling amidst the rubble, I can finally say I own this knowledge for myself.  I will, forevermore, dedicate one half of my effort on any venture into marketing.  I will not wait until I feel like my product is absolutely perfect, hiding in my comfort zone.  I will share my efforts happily and purposefully.

I’ll prove my understanding.  I am building a browser game.  It’s a silly game, and at present there’s almost nothing to do in it.  But I have it online, and I’m inviting friends to dink around with it.  I’m posting little status updates to the company Facebook page.  I’m building the game for fun, but I’m taking it seriously.  I’ve been building a robot, too. And I’m posting about that from time to time as well.  These things are well below the “perfection” I’m always chasing, but I need to talk about them.  Marketing for a project is like watering plants.  It will wither and die just the same without the sustaining force of an involved and growing community.

Most of my customers are professional lenders.  And most know that marketing, even when your product is money, is how you find those good borrowers and get those consistent loan payments.  The really desperate borrowers that are rejected by the easy to find lenders might trickle down to more obscure lenders to find a loan.  The creditworthy don’t need to look very hard to find money when they need it.  Most of my customers are WAAAYYYYY ahead of me in learning this lesson, thankfully.

If you’re getting started, or having a hard time finding good borrowers, put half your time into marketing.  Whatever way you can think of to market yourself, try it out and see how it works.  Try lots of things at the same time.  Keep changing it up.  Learn and grow.  Your business will reflect the effort happily on the bottom line.

And, of course, if you manage loans, use Moneylender Professional.  The result of fifteen years of loving craftsmanship.  I just helped a customer do some annual updates and she remarked that “everything you could ever want to do, it’s all just to easy in your software.”  I hope to eventually make that statement true for every customer that uses my system.

The Five Keys to Accounting for Loans at Tax Time

It might seem daunting to try to make sense of your loans when it’s time to do quarterly assessments or annual tax returns.  Business finances from loans are actually not too hard to manage, as long as you keep in mind two or three key ideas.

Interest, Fees and Points – This Is Your Profit

All the interest you receive, the fees you collect, and the points you were paid when the loan began – thee things are your profit.  They’re income, and taxable in most situations.  You don’t need to separate these numbers.  Their total is how much revenue you brought in from lending.  In some places, you can’t report the points or origination fees as profit all at once, you have to report them over the scheduled life of the loan.  In most other places, you report the fees and points as profit as soon as they’re received.

Charge Offs – These Are Your Losses

If you have given up on collecting a loan and have to take a loss, you write-off the unpaid principal balance.  You’re not writing off interest or fees that didn’t get paid, that was just profit you never got to make.  The principal you paid out but didn’t get back, though, that’s a direct financial loss.  It’s the same as any other business expense.  Something you had to pay in the course of ordinary business.  This number comes directly out of your business revenue.

Principal Outstanding – Money Still Invested

Your principal outstanding is the money you still have out.  Principal you disburse throughout the year isn’t an expense, because the money is converted directly into an asset of equal value.  Principal in and out isn’t revenue or expenses, so it doesn’t affect your taxable income.

Unearned and Earned Discount – When You Bought a Loan for Less than the Principal Balance

This situation is less common, but definitely worth mentioning.  Discount Earned happens when you buy a loan for less than its principal balance.  If you paid half of a loan’s balance to buy it, then half the principal that comes in is technically profit.  This profit is called discount earned.  In Moneylender, when you set a purchase price that’s less than the principal balance, your discount is paid out in proportion to the principal paid.  This discount should be added to the interest, fees and points for your total revenue.

The remaining discount from your savvy purchase remains theoretical on your loan as Unearned Discount.  This number is available as a column in Moneylender’s reports.  If you charge off a loan, you’ll need to subtract the discount unearned from the charge off amount before treating it as an expense.

Escrow Accounts – It’s Not Your Money, but You Have to Account for It

Escrow accounts are usually under strict regulations.  The money that comes and goes from the escrowing of taxes and insurance does not affect your profit or loss.  It is money that should be sitting in your bank account (or at least be somewhere highly liquid) that you hold in reserve for your borrowers to ensure your seniority on any liens.  While not money that affects your bottom line, you will have to be able to show on demand the full accounting for funds held in escrow on a borrower’s behalf.

That’s it!  Really not too complicated after all, right?  If you’re splitting the revenue among investors, that might throw a twang or two into the process, but you’re really just putting these same numbers together for each investor.  Moneylender can produce single-investor reports for exactly this purpose.

How much did you make?  How much did you lose?  That’s all you need to know to figure out your taxes on your lending activities.

Brought to you as always by Moneylender Professional – Loan servicing software for businesses and professionals.  Trusted by smart investors.  Scorned by its competitors!

 (Pricing accurate at the time of this post, subject to change.)

Got a situation that adds a fourth or fifth type of profit to the mix?!  Share it in the comments!  Thanks for reading.