Transcripts from speech at the New York City Business Solution Center on November 7, 2007

My name is Thomas McGovern I' am the president of Advantage Brokerage and Advantage Tax Service we are a local income tax preparation and accounting service company.  We help small business get in business and guide them through the steps of becoming financially successful. 

The first topic I would like to speak to you tonight about is the difference between being an employee and being a business owner.  If you want to become wealthy in America you have to move from becoming an employee to becoming a business owner.  A business owner not only makes money on his own labor he makes money on the labor of the people who work underneath him.  He invests money now developing an infrastructure, which will create an operation income for him.  Every time somebody pays for one of his good or services he has one of his employees who he pays at a lower rate perform those services.  He makes a profit from the fruits of the labor of his employees, that's one source of his income.  When you're an employee you get a weekly paycheck you have to try and save some of that weekly paycheck and put it in the retirement account and save up to hopefully accumulate money.  As a business owner you own the fruits of your labor, you own the name of your company, you own the assets of the company, you own the inventory of the company. 

All these, in addition to the operating income, make your business grow and become worth money.  How much money does it become worth?  It becomes worth millions of dollars. This is how you become a millionaire.  When you sell your business at the end of the five-year plan that you created.  That's how you become a millionaire. 

How much is value of a business, if you're buying a business or your selling a business does anyone know how to value a business?  What is the worth of a business?  If you make $200,000 a year in a business and the average worker makes $30,000, there is $170,000 dollars per year that you are selling.

The$170,000 per year multiplied by as many years as the buyer thinks that cash flow will exists.  Will the profit go up in the future, will the profit go down, these are all calculations, you have to put into your business mode.  If you were talking about technology in1999 everyone was saying it was going to go threw the roof,. If your talking about a record store or CD shop and it is 2007, we know that that is a dying business and that we can't count on that $170,000 profit to last for too many years because the technology is changing.

If they make $170,000 extra over the average worker and your trying to sell that cash flow, we multiply that by the number of years you think its going to exists for.  Lets say its going to exist for 10 years, that's 1.7 million dollars that you can sell your business for.  That is how you become a millionaire. 

This is not the most difficult concept to grasp and it is something that everyone here at this seminar can achieve.  The problem with it is that you don't make your money tomorrow.  The word is called capitalism, we in a capitalist society which means if you need capital whether its your own personal time, whether its your own personal money, to build an own infrastructure in which you are going to deliver these goods and services.

The first thing you have to do before you open up this business is you have to look at your personal expenses and you have to cut your personal expenses to the bone, so that you can free up the time and energy to invest in your business because you don't know if your ship is going to come in next month or next year.

I guarantee you that if you work on this, and this becomes your life long project, you will definitely find success, but if you say, "I don't have any income, I don't have any cash and I want to open up a business and I want to make money next month" well that's not how the game works. 

The greatest anxiety that people have when they're opening up a business is how to find customers, how are they going to make these sales?  10 million people live in the NY metropolitan area, 10million people who have hopes, dreams, desires wants and needs ------your goal as the entoupeanur is to find that group of people who will pay the most for your goods and services. That is your challenge as the marketing director, as a sales person,--- to find that group of people.

If I said I had a bottled water and I was going to sell my bottle of water for $1,000 dollars, does anyone think I am a good enough salesperson to sell this bottle for $1,000 dollars.  Can anyone think of a strategy I might use to get $1,000 dollars for this bottle of water?  (Audience speaks) if you look in your folder (Picture of man crawling in the desert looking for water) you can see that perhaps there might be a place where I have a ready target market, that will be willing to pay me $1,000 dollars for my bottle of water.

Everyone has a different tolerance, a different level of need.  If you find a group of people who desperately need your service and the value of your product is worth more to them then the paper they have in their pocket, the more they will beg you for your service.  Out of the 10 million people that live in the NY metropolitan area, your job is to find these people.  Who are they?  Where do they live?  How much money do they make?  What type pf advertisement do they respond to?  What type of television shows?  What type of radio shows?  What is the adverting medium is going to make them find you at the precise moment in time when they need you to perform that service?

If I got out f the desert, I don't want to pay the $1,000 dollars for the bottle of water anymore, but yesterday, when I was stuck in the desert, then I would of begged you for that $1,000 dollars bottle. So the time that the customer,  you are trying to reach in that median is  of great importance. 

I have a person who sells vacuums as a client; he sells vacuum cleaners for $3,000 dollars.  People say,  "who will buy a vacuum cleaner for $3,000 dollars?". He has people begging him to buy these vacuum cleaners. He finds a nitche market in which the vacuum cleaner is worth more to them than the $3,000 dollars they have in their pocket.  His nitche market is wealthy business owners, lawyers, doctors, entorpenuars who make over $200,000 per year. That is one part of the equation and then he cross-references that with people who have bronchial and asthmatic illnesses.  If people who make 4 or 5 thousand dollars a week are sick for a week they lose 5,000 dollars, if his vacuum cleaner cleans the air, purifies the air and saves them from being sick once a year.  The customer makes a profit on that.  It is an investment for them.  He cross markets, the two categories and finds his nitche market, then his job is to explain to them, in a credible way, where they believe him, and he demonstrates to them how this product works, and if it does work successfully, they beg him for the product. The reason is because the product is worth more to them, than the paper money in their pocket.

When were going into business, it is like being going into in a desert. It is like going into a maze.  There are thousands of different directions you can go. You can get lost and you can lose a lot of money very quickly.  You can waste a lot of your time and that's why you need to have relationships with people who have been in the trenches, who have fought the battles, who are in the war and  here to help you.

Speach at New York City Business Solutions Center

Date October 17, 2007

The 1^st topic I would like to speak to you about today is the difference between being a business owner and an employee. As an employee you go to work every week and you sell your hours to the company. You do not own what you are creating. The company owns what you are creating. The company owns the assets that you are creating through your labor. As an employee you get paid an hourly rate. At the end of the week you take your money your cash money don't know how much cash money your getting at the end of the week and you spend it on your personal expenses. You try to put a little aside into 41k or retirement plan or saving account and you try to save what you're retiring. When you put money in a bank account you get 5% interest. The government takes about 2% in taxes and about another 4% goes to inflation. Which means when you save money your actually losing money.

As a business owner however you own the fruits of the labor. You own the company name, you own the client list, you own the machinery, you own the inventory and you can sale your business at some point in the future. As a business owner you have two sources of income one it is the operating income and the other is the capital appreciation of your business.  The operating income is the money that comes in through sale - the expenses. As the owner of a business you try to look at every aspect and every particular part of your business and make sure it's contributing to your operating income. If for example your business makes $300,000.00 (three hundred thousand) a year and the average employee makes $30,000 (thirty thousand) a year. The value of a business is going to be determined by taking the $300,000.00 (three hundred thousand) a year - the $30,000.00 (thirty thousand) the average employee makes which is 270,000.00 (two hundred seventy thousand) a year. Now you multiply that times the number of years that you expect this cash flow to be coming to you and that is the real value of the business.  When you go to sell the business you can sell your business for multiple cash flow. So when we look at that model compare to the model making $600.00 a week putting a little bit in the saving account we can see on one hand somebody is going to stay ___ a an larger income and someone is going to become an millionaire and we can see the way to get wealthy in America is to be a business owner.

            Any questions? Ok

Now the 1^st thing that you have to decide is what to type of business you want to go into?  There are many different types of businesses out there. One of the answer to that question is you want to into business that has the highest job skill level that you achieved in your lifetime. For example if you are a nurse, you want to start a business relating to nursing. That has all the skills you have acquired through out your life style.  You don't want to go to a flea market and start selling socks, because if you go to a flea market and start selling socks, anybody can sell socks and the person they are going to purchase from is the person that can sell the socks for the lowest price. Look at your life and say how can people not compete with me.  People cannot compete with me if I have acquired a high skill level. Now if we take 2 polarized examples list. Lets say you have brain cancer who would you go to cure your brain cancer? Would you go to the cheapest doctor that cures brain cancer for $100.00? Or would you go and spend every last dollar you have finding the best professional you can afford?  So which profession you want to be in? Do you want to be selling socks or the guy down the ail selling it for $1.50 or you want to be a specialist in some high skill area where you can say no. Pay me or that's it.

            So when you are deciding in what type of business you go into that's what you have to look at. You have to look at your life your skills where you worked before what skills you have acquired and chose that as the type of business you want to go into. For example if you are a bus driver and you are going to quit from being a bus driver into a chef in a restaurant. Well you know nothing about being a chef in a restaurant so is that a good move? Now perhaps if you worked as a master chef for 20 years and now you want to own your own restaurant and you know how to own a restaurant and how to run a restaurant and that's a high skill level that you have achieved and your probability of success is going to be high. The thing of a business is that anybody can go into a business but not everybody can succeed in a business. The difference between success and failure is your skills level your acquired knowledge.

            The higher the skill level the harder it is to break into that profession and because of that when you do break in the more money you would make. Take the example of selling socks at the flea market. Well if I take a box of socks and go to the flea market I know people are going to buy socks from me. Why because they don't care whom they buy socks from. They will buy socks from anyone that it is selling it cheaper than the next one. However if I am picking a brain surgeon I am not going to walk out in the street and say hey he looks good he looks like he can operate on my brain. The person is going to need licenses and certain criteria then they are going to be have to be referred by somebody that have to develop a profession develop a skill set and develop professional reputation So you when you are deciding to what business to go into you have to pick your highest level of skill and then you have to think how am I going to sell this and how am I going to market this? There are 10 million people in New York Metropolitan who all have different needs and wants. And think about the act of selling the act of selling is somebody saying that your product is worth more than the paper money in my pocket.

            So therefore your products are going to be worth more to different people in this population. If I have a bottle of water and I was trying to sell this bottle of water $100.00 would anybody purchase this bottle of water from me for $100.00? Can anyone imagine a time when you would purchase that bottle of water? Where?  Exactly. This picture is the key to marketing and think about that concept. You will pay me $1.00 for a bottle of water right here in New York but if I was in the dessert and you were in the dessert your life depended on that bottle of water once again you will pay me every last dollar for that water. So what does this prove to you? This proves to you that the products are worth different amount to people in different circumstances and you as a sale person as the marketer have to focus your time and energy finding the people that wants these products and will pay premier for your products.

            If I was a brain surgeon and I charge a #1,000.00 (thousand) an hour and I am in a country with no universal health care well the only segments of the population which will pay for my services. A person who sick a person who is healthy won't pay for my services and a person who has no money won't pay for my services.  So if I am going to advertise or going to market going to find people that cause those fractals. One is that they have to have the money to pay for my services and they have to be sick so I would look for two types of lists the cross of two lists. There's a list with people with brain cancer and the people who have money and when does to match up that becomes my target market. And that's the place I want to spend my money educating people coming known and selling people the product. So you when you look at your business you have to say who are the people that need my product the most and who are going to pay the most for.

            I have a client that sales vacuum cleaner he sells vacuum cleaners for $3,000.00 (three thousand) he would come and knock on your door. Hi would you like to buy a vacuum cleaner. Maybe? How much is it? $3,000.00 (three thousand) would you say yes? Now what he does he takes the list of people with high income Doctors, Lawyers, Business executives and take the list of people that have asthma and respiratory problems and now his job is to educate them that his product is worth more than $3,000.00 (three thousand) that is in the pocket.  They can go to down K-Mart and buy a vacuum for $79.99 but they going to think $3,000.00 isn't going to take $3000.00 explains to them if you lose a week a work you are going to lose $3000.00. That's because of a high income so therefore if this vacuum cleaner prevents him from getting sick once or twice a year they got there $3,000.00 back. So the value of that product is worth more than the paper money in that person pocket.

            Now if you take a person who doesn't work than perhaps the value of there times is not worth that much. That's the secret to marketing.

            And now that you set up your business you have to think about how you are going to protect your business we live in an extremely litigates society. And you as the business owner are taken more and more risk. Every time you have a transaction there's some numerical risk along with that transaction. For example you are a truck deliver driver you are a good driver you have a standard insurance policy and you a low risk lets say your business grows and now you have 12 trucks your trusting 12 people to drive around with your name right on there forehead. If they hit somebody, they go out and drink at work at lunch hour you are going to be responsible for everything they do. I actually had a client that had 12 trucks and 1 of his drivers unfortunately went out and had to many of couple of drinks during lunch and ran over a small child. It was a $200 million settlement his insurance policy for $300 thousand and he would have been liable except the fact that he formed a corporation.

            There are two barriers of defense one the insurance and one is the corporation. The corporation is a separate legal entity that you create that becomes responsible for the activity in the company. If you look in the yellow pages almost every business outside hot dog vendor, flea market stand is a corporation and the reason is because they want to limit their liability.  They are trying to limit their liability to the assets of the business. We all read the newspaper today? Madison Square Garden got hit with 1. No 13.2 million I think OK 11 ½ million for a sexual harassment lawsuit. And Mr. Golden Chairman has to pay that and I guess the stockholders have to pay that settlement. Now if he wasn't a corporation and if he didn't have so much assets as he does he would be personally liable they can take his house ruin his credit all to settle that judgment.

So as of forming your business you have to realize business chess game you only have so many pieces on the table if you lose your Queen it will be a lot harder to win that chess game. What are your assets? Your assets is your credit your capital your knowledge your business licenses. If you lose these chess pieces its going to be much more difficult. So if you start off a business and you get a lawsuit and your credit gets ruined and you lose your capital your chances of being successful in your business is going to be severely diminished. So as you are forming your business model you have to form it with the form of protection. And the two ways to protect it are going with insurance and after insurance to corporation.

Any Questions? Ok

When you are thinking about going into business the SBA says you need 3 people an accountant, an insurance broker, and a lawyer. And the reason is because these people will have accumulated knowledge lifetime knowledge of business. Which you may not have. Especially in the area of expertise. I would like everyone to think about if you went in a far environment lets say I went to the dessert. Lets say a plane dropped me off in the middle of the surf Ian dessert. I lived my whole life in New York. How am I going to survive in the surf Ian dessert? Yet there are better wins and tribute people who live there for centuries. It's no problem for them. Why because they have specialized knowledge that I don't have. They have what? And they have adapted. So therefore I was going to travel through that dessert would I travel that dessert by myself or would I hire one of these people to help me? And that's very important because what comes to us is people after who has disasters. And when you do this everyday you can sit there and in 2 seconds you can say that's a disaster. Why Why did you think that? Why did you make that decision? Many times in business the answer is not mathematical and when you come up with an mathematical answer debating it 2 + 2 = 4 you have one on this side and 2 + 2 = 4 side. There is no risk your going to pick the better option. But the better option comes from your mathematical knowledge of the business structure. In every action in business there's a mathematical formula behind it. Every moment of time, every piece of inventory,  every right we spend has a mathematical formula associated with it and if u understand the mathematical formula you can reduced your probability of failure to almost zero. When you talk to the S.B.A (small business administration) people they say 50% of the businesses fail within 5 years. Well, 50 % of the businesses fail because these are people who don't know what there doing. Yet the people who succeed end up being multi millionaires what's the difference? Its not dumb luck, it's the fact that these people study, these people understand it and that's also why when you look at the population as a whole certain generations are poor from one generation to the next generation to the next generation. Other people are rich from one generation to the next generation to the next generation. Why? Because its just like the better on in the Sahara desert the rich people are passing down this knowledge to their children and that's why you end up with polar opposites on both sides of the on the income equation the poor and the rich. The rich become richer and richer because they have this knowledge and the poor become poorer and poorer. So you as a beginning entrepreneur you want to associate yourself, you want to make connections with people who have this knowledge. You can take classes in it, you can read books in it, and you can have associations with people who are involved in these fields.  Any questions? Ok, thank you.