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A Monthly Newsletter Source of Financial Sources • Many 55+ Who Need or Want to Change Housing Arrangements Are Often Uncertain • Can a Portfolio of Rental Homes Create Necessary Cash Flow in Retirement? • CDOs of CDOs -- Is Anyone Home at the Treasury or the Fed? • Why Choosing to Move to an Amenity-Rich, Friendly, Active Adult Apartment Community, Sooner Rather Than Later, Makes Sense Financially, Emotionally, and Physically • Small Business Owners Can Attract and Retain Top Employees by Offering Paid LTCI Insurance • Mortgage Modification Update • Re-thinking Business Development in these Tough Economic Times
---------------------------------------------------------------------------------------------------------------------------- Many 55+ Who Need or Want to Change Housing Arrangements Are Often Uncertain As To How to Proceed There are many reasons for pre-retirees to consult with a financial advisor, an attorney or a CPA, but none is more pressing than getting help from an advisor with expertise in real estate planning when a primary residence must be sold. There are many financial reasons to sell a primary residence and move to a community, either homes or apartments, that remove the stress, maintenance, and expense of a large home. Health is often the most provocative of reasons, but choosing to simplify a lifestyle, and be able to lock the door and spend several worry-free months in a warm weather area are equally important. So what stops people from deciding to sell and relocate? In this difficult economy, the top reason is very likely a decision to wait until the home’s valuation increases to what it was only two years ago. The next reason is confusion about the cost of carrying the property and delaying the implementation of a change in housing. “There is almost never a time that waiting to sell a primary residence makes financial sense,” says Rich Arzaga, Cornerstone Wealth Management, San Ramon, CA. "Most people use their gut feel about when the time is right, but when you put numbers to the decision, the outcome can be eye-opening," says Arzaga. Get help in putting all of your finances into a format where you can compare the costs of selling now at an appropriate price for the current market against the true carrying costs while you wait for an increase in real estate valuations. Once you create a baseline scenario, running various buy, sell or wait scenarios can be liberating. Some experts are predicting an 8 to 10 year wait in many markets before real estate values return to their 2006 highs. The present value of that future price may actually be less than the current value of the property. This holds true for residential and investment property. Often, says Arzaga, waiting turns out to be far more expensive than the back of the napkin calculations most home owners do. That's because owners fail to take into consideration the realities of real estate, the opportunities in a down market, and the time value of money. Take the case of Anne and Arthur Price from Phoenix, Arizona. At age 59, Anne is close to her early retirement age 60, and is looking forward to spending more time with her young grandchildren who live with their parents in Denver, Arthur is a business management consultant, does not ever plan to retire, and can do work from anywhere around the country. Over the past five years, they have been aggressively paying down the debt on their home with the goal of living debt free during financial independence. During this time, they have stood by helplessly as their home value dropped 50% to $225,000 from its all-time high of $450,000. They are stunned at the amount of capital lost, and have anxiety about selling it at its current market price. Their choice is to either sell it at the current market price, or wait until prices get back to the original high water mark. The decision to wait is difficult emotionally because every year they stay in Arizona is one less year with the grandchildren. On the other hand, the idea of losing so much value in the home is hard to stomach. If they decide to wait, they are certain that the market will rebound in the next two or three years, and then they can move forward with the move. There are a couple of fatal mistakes in this approach. First, their decision to remain in Arizona assumes that the market will rebound soon. If the Price’s target sales price is $450,000, then their home would have to grow by 100% from its current value of $225,000 to achieve their objective. The real estate market does not work the same as the equities market, where stocks have the capacity for quick growth. This type of market appreciation over two or three years has never happened in the history of the real estate market. Even worse, the average annual growth rate for single family homes nationwide since 1948 is under two percent. But let’s assume for a moment that home values rebound, and increase at a healthy five percent each year. It would take 14.2 years to reach the Price’s target sales price. By that time, the grandchildren will be much older, and may not likely be living together with mom and dad anymore. But, let's assume they have the patience for this and have in their sights a sales price of $450,000 as their highest priority. Assuming a five percent appreciation rate for the home, and a four percent inflation rate for the next 14.2 years, the present value of $450,000 in 14.2 years is $258,000. When you factor in the higher difference in the real estate sales fees, the Prices will net about the same as the value of their home in 2009. Another factor lost in the emotion of waiting for “their price” is the fact that real estate today is less expensive in Denver than it was three years ago, and that real estate will likely be more expensive 14 years from now. By waiting to get their price, the Price family might miss the opportunity to upgrade in a down market, and lose the opportunity to recover some of their loss. Keep in mind that real estate is valued when a willing and able buyer comes to terms with a willing seller. The value of $225,000 is not a loss of 50% because it is simply not a price that anyone would pay today. Too many sellers take the loss of home values personally. They focus on losses they do not control rather than take advantage of decisions they do control. The emotion of real estate values can cloud clear thinking. Sellers in today’s market would be helped by getting advice from a comprehensive financial advisor who can detail several scenarios for them to help explore the most suitable courses of action. Rich Arzaga is Founder and President, Cornerstone Wealth Management, San Ramon, California, a life planning company specializing in providing options and solutions for residential and commercial real estate investors. He is also an instructor in the nationally-recognized financial planning certification program at U.C. Berkeley, and teaches the highly-acclaimed Real Estate Investments course at U.C. Santa Cruz and U.C. Berkeley. Rich can be reached at rich@consultrich.com or toll free (888) 290-9900. Securities and Investment advice through Associated Securities Corp. (ASC), Member FINRA/SIPC and a registered investment advisor. Additional Advisory and Investment Services offered through Cornerstone Wealth Management Inc., a registered investment advisor not affiliated with ASC. CA Insurance License No. 0D92796 Can a Portfolio of Rental Homes Create Necessary Cash Flow in Retirement? Buying residential real estate as an investment is a major decision, made all the more difficult in the midst of the worst real estate market in this country ever. All real estate markets, throughout the U.S. have experienced declines over the last two years, the first time since the purchase and sale data was collected in the 1940s. But there are good reasons to buy real estate and now, more than ever, reasons to make sure a thoughtful and accurate analysis is completed before any purchases are made. The questions about real estate in an investment portfolio are pretty straight forward:
Take John and Joan Marsh. They want five rental homes, paid free and clear, that will generate cash flow for their retirement income. They expect the five homes to be a tool to provide financial independence. Investment real estate needs to perform at least as well or slightly better than other investments available to the Marshes due to a concept called risk adjusted rate of return, getting paid a premium for the additional risk taken. Each home that is considered for their portfolio must submit to serious analysis about how the home is likely to perform. Most of the information that the Marshes need is publicly available. Sales and purchases of homes are tracked, discussions with local property management companies can further confirm if the rental rates assumed are reasonable. Prospective buyers can all validate property taxes, insurance, and utilities if included in rental price, as well as garbage removal, and a prudent maintenance reserve. The cost of a legal entity for the properties, such as an LLC, or LP should be established to protect that asset from others owned my the Marshes. The cost of a property management service should also be added in, about 6% to 10% depending on the part of the country where the real estate portfolio is located, with an average of 8% property management fees for a well-maintained home in a major market suburb. Property management is not an area to skimp. For many people like the Marshes, these represent the single biggest investments in their lives. A good analysis will always include capital expenses beyond the management reserve. Such things as a new roof, driveway or hot water heater, plumbing, or major pool repairs must be included in the analysis. Then, the potential investors must be able to raise their rents on a regular basis. Most owners of residential real estate investments are afraid to raise rents because they do not want to lose their current tenants, or negatively impact their relationship. The loss of systematic rent increases can dramatically impact performance and the ability to achieve financial milestones. But rents must be raised to market standards or the cost of living to prevent erosion of cash flow. When the goal is to have five or 10 properties to feed their financial independence to allow the Marshes to live without running out of money, real estate is pure cash flow play. The properties’ appreciation will not benefit the Marshes. In their case and the case of many American's, appreciation is not the point; a thorough analysis that shows dependable cash flow and connects performance to investor goals is key. Rich Arzaga is Founder and President, Cornerstone Wealth Management, San Ramon, California, a life planning company specializing in providing options and solutions for residential and commercial real estate investors. He is also an instructor in the nationally-recognized financial planning certification program at U.C. Berkeley, and teaches the highly-acclaimed Real Estate Investments course at U.C. Santa Cruz and U.C. Berkeley. Rich can be reached at rich@consultrich.com or toll free (888) 290-9900. CDOs of CDOs -- Is Anyone Home at the Treasury or the Fed? The Wall Street Journal reported recently that many of the same investment banks that promoted the Collateralized Debt Obligations (CDOs), a product largely responsible for the housing debacle of 2008, will now, out of the goodness of their hearts, come to the rescue of the poor dumb investors in collateralized Commercial Mortgage Backed Securities who had bought that self-same trash from Wall Street in the first place. Not all the same investment banks, of course, just the ones still left standing. Actually “out of the goodness of their hearts” is something of an overstatement. They are also doing it for very substantial fees. That’s directly from the Mike Milliken’s old playbook. He was able to create a major profit center at Drexel Burnham by setting up a department that paid Drexel (from investors’ funds) to restructure defaulting junk bonds Drexel had previously sold them. This time these "CDOs of CDOs" (as a Wall Street friend of mine calls them) will be safe though. Why, you might ask? Because they will be rated by firms like Moody's so the banks and insurance company's and pension fund investors can have faith that the values and security are really there. Brilliant! Why did no one ever think of this before? This "Wizardry" as The Journal puts it, has the wonderful effect of letting the banks keep this large portion of junk presently on their books at high valuations and therefore they can avoid increasing their net capital requirements. So since you don't have to fatten up your bank balance sheet you can continue to pay.... What.... Oh yes, I remember, executive bonuses! It is being reported that the regulators and some of the banks are thinking of suing Moody’s and other rating agencies. So why (my friend asks) bother with paying for new ratings this time around for purposes of determining whether our insured institutions have enough net capital? One answer, a cynic could imagine, is that Moody's might need the money so it can afford to pay the damages on the litigation they are anticipating for their earlier questionable ratings. After all liability lawyers need to pay rent and feed their families just like the rest of us. Meanwhile, Moody's and Wall Street will continue business as usual. Remember the old joke about the fellow who lost a bet on Adam Vinatieri's 48-yard field goal attempt as time expired and the Pats beat the St. Louis Rams 20-17? It decided the 2002 Super Bowl. The fellow was disappointed but he confidently expected to make it back when he doubled down on the instant replay. In fact, the big banks are still mostly over-leveraged. Chase and Citi are in about the same net capital shape that was the case at Lehman a month before it imploded. Commercial real estate (according to Moody's) is now down 41% in the last 5 quarters, and 5.1% just the month of July. The sector is crashing and the rate of decline is not slowing. As my friend says: "If there were a reason for repackaging these CDOs (“repacks” as they are known in the trade) there would also be a right time to do that repack — and that time is not until after we have reached bottom in this sector. Any idiot would know that. All Wall Street wants taxpayers to do is catch a falling knife." He has a point, why would you pay millions for a repack tomorrow if you expected to have to do it again next year? And meanwhile, until things stabilize, what makes Moody’s think they are any better at telling people when to catch falling knives than they were a year or so ago when they were rating Lehman’s bonds? State insurance regulators seem to be the only ones complaining. Where are the Treasury and the Fed? Does the old guard at the big house on Wall Street really have that much influence on our regulators, as Matt Taibbi has been saying in Rolling Stone? Meanwhile, how can REIT investors be comfortable that new CDO debt is going to be available, or even old performing debt will be rolled over, if the entire system, capital ratios, rating agencies, executive bonuses and all the rest of the regulatory regime hasn’t changed a single significant bit? The funding and refunding of that debt won’t be coming from our banks any time soon. Our regional commercial banks have twice the exposure to commercial real estate of their larger cousins and they have so not decided to reduce their valuations of that exposure despite the fact that commercial real estate values are probably down about 40%. The regional banks’ exposure is on average 20% of their balance sheets. Their net capital is in the 10% range. There may already be a need to write that real estate exposure down by up to 40%. Two more months of 5% declines in commercial valuations and…. Well, you can do that math. Until someone at some institution can be seen as a reliable source of debt on reasonably predictable terms, we won’t have market-tested real estate values for much of the estimated $6.5 trillion U. S. real estate market. Is anyone home at the Fed or the Treasury? Anyone? Hello? Michael Dowd is Managing Director of Equity Research Collaborative, consultants to real estate investors and financial institutions. He can be reached at 781-893-4119 and at DowdBoston@aol.com. Why Choosing to Move to an Amenity-Rich, Friendly, Active Adult Apartment Community, Sooner Rather Than Later, Makes Sense Financially, Emotionally, and Physically Many people in good health assume that they will stay in their own homes until the end of their lives. There are many reasons, though, that encourage singles or couples 55 + to investigate an apartment community of friends who are celebrating life and the wit and wisdom they have acquired at this stage in their lives. These attractive communities can make your life more enjoyable and include a group of other residents who offer friendship, support, and company for shared interests and activities. Many residents report that the companionship of others is one of the best features of this type of living, not to mention, no more maintenance problems, overwhelming yard work, or the isolation experienced in a primary residence. The recognition of the enjoyment of likeminded friends with shared life experience is, in part, one reason for the growing development of friendly, apartment neighborhoods with amenities and services designed to attract those who want a neighborhood where individuality is valued and friends are next door. The apartment homes are maintenance-free living with your lifestyle in mind. No more ladders to climb for cleaning gutters and no more leaves in the fall. When a storm stops a town’s electrical service, these residential complexes have their own generators, so you are not sitting in the dark, alone, with no water or heat. Financially, it makes sense. In non-profit communities, there is typically an entrance fee that secures a life lease on the apartment. The entrance fee can range from as low as $199,000 for a one-bedroom home to upwards of $700,000 for a home that includes three bedrooms. It all depends on the market you are looking in and is based somewhat on the average home value in that market. In a Deaconess Abundant Life Community in Massachusetts, a non-profit organization, 90 to 100% of the entrance fee is returned when the resident leaves the complex. The entrance fee payment can be customized to meet the resident’s needs, such as deferring a portion or all of the entrance fee until the sale of a primary residence. Many such complexes feature well-appointed apartment homes with full-size kitchen appliances, large closets and handicapped-equipped bathrooms. A monthly fee (ranging from) covers 24/7 staffing, transportation for medical appointments and groceries, activities both at the community and outside, housekeeping services, elegant, restaurant-style dining services, fitness center, crafts and art room, library, comfortable lounges, salon, and access to rehabilitation and nursing services if they are needed. The fee also pays for electrical, water, sewer, heat, and air conditioning, surface parking, snow removal, emergency apartment maintenance, as well as year-round maintenance. “I find that many clients who can afford an apartment complex with amenities were skeptical that the move would work for them,” says Janice Gray, CFP, South Dennis financial advisor working through Ameriprise. “Once relocated, however, clients seem surprised and delighted with the social aspects of new friends, activities, and conveniences. Their children are also surprised at the appetite that their Mom and Dad have for their new life. Beloved pets are welcome as well in many of these full-service apartment complexes. Prospective residents may also be waiting for the real estate market to rebound before selling their current primary residence. “Experience shows,” says Charles Lawton, Century 21-Shoreland, Provincetown, “that when the house you have to sell has a lower value than in the past, the apartment complex you have identified for your next home may be willing to negotiate price as well. Some folks decide to leave their home on the market until it sells at the price they want, a dismal scenario given the current sales environment. Such homes become “stale” and realtors know they are not priced correctly. Lawton says it is far better to sell at a price that creates interest with buyers, sell when you want to, rather than keep a house that delays your plans for a move. Moving to a maintenance-free community is the right answer for many 55-plus adults who want to be property-free and enjoy their independent lives, their activities, and their friendships going forward. Kevin Comick, Seashore Point, a non-profit 55+ lifestyle apartment complex with personal services as needed, two blocks from the vibrant heart of the Provincetown, MA. kcomick@nedeaconess.com, or 508-487-0771. Stadion Money Management, Investment Advisor for the Stadion Funds, Announces Availability of Class C Shares of Stadion Managed Fund C (ETFYX) and Core Advantage Fund C (ETFZX) Stadion Money Management announces the availability of Class C shares of Stadion Managed Fund C (ETFYX) and Core Advantage Fund C (ETFZX). This share class adds a new option for advisors who can now choose how they want to access the unique money management strategy available at Stadion Money Management. For a description of the company's full line of products and services and to learn more about how Stadion manages money, please visit the Stadion website, www.stadionmoney.com and click on "How We Manage Money," or call 800-222-7636. An investor should consider the Investment objectives, risks, and charges and expenses of the Stadion funds carefully before investing. The prospectus contains this and other information about the funds. A copy of the prospectus is available by calling the Trust directly at (866)383-7636 or Stadion, Inc., the investment advisor, at (800)222-7636. The prospectus should be read carefully before investing. Stadion Funds are distributed by Ultimus Fund Distributors LLC. Small Business Owners Can Attract and Retain Top Employees by Offering Paid LTCI Insurance. Small business owners have to be creative these days to attract and retain quality people. “Thinking outside the box” is in order when coming up with innovative benefit offerings that might appeal to key employees, especially those in their 40’s, 50’s and 60’s. Most widely used employee benefits are tightly regulated these days such as employer subsidized health insurance plans or 401(k) plans and other retirement programs. Deferred compensation plans generally appeal to employees certain to stay on for the long haul and today’s very mobile workforce does not find deferred compensation as appealing as it once might have been. So what can a small business owner offer? Enter employer provided or sponsored Long Term Care Insurance. For key employees in their 40’s, 50’s and 60’s, Long Term Care Insurance is one of the newest forms of employee benefits and one which allows for broader discretion for how it’s offered and subsidized by the business owner. LTCI is not a glamorous topic. The benefits for many workers, particularly younger employees, might not be used for 20+ years Many business owners might find that offering LTCI to employees can lower their taxes and provide a benefit of real value to boot. But the tax nuances are different depending on the business structure, so it’s important for the financial advisor, accountant, or attorney to have a good working knowledge of how Long Term Care Insurance (LTC Insurance) is treated for tax purposes in the workplace. That way when the advisor is meeting with the business owner and has a limited time to make the case, they’ll be able to provide a summary that includes accurate information on the tax implications for their business. A business owner can offer Long Term Care Insurance to key executives and other employees without necessarily running afoul of ERISA and other Labor Laws. Paid LTC Insurance can be offered to highly compensated employees or a top performing salesman. Under current tax law, individuals who purchase LTC Insurance on their own don’t get much tangible tax relief from the Federal Government. The only real help comes when Long Term Care Insurance premiums (up to age based caps annual caps—see table 1) are bundled with other medical expenses. Then the only portion that’s deductible is the amount above 7.5% of adjusted gross income. Benefits received under a Tax Qualified LTC Insurance policy are however generally tax free. But when Long Term Care Insurance premiums are paid by the business owner on behalf of non-shareholder employees, the business owner gets a tax deduction for the full amount of premiums paid without that pesky limit that otherwise applies to individuals. And the benefits are still generally tax free as above. For the self-employed person, S Corporation shareholder employee, partners in a partnership, and LLC members who are taxed a partnership (Table 2), the deductions that can be taken again fall back to those age based limits that apply to individuals. That still can be a significant value depending on the age of the employee. There is a limitation for the rare situation when a self-employed person or their spouse is also eligible for fully or partially subsidized LTC Insurance. Be sure to consult a tax advisor for help if you have questions. So when your Small Business client is looking for a way to take care of their key employees with something whose value is rising in the eyes of the perceptive public, suggest LTC Insurance to them for the selectivity and the tax relief.
Stuart Armstrong, CFP®, CLTC is a Senior Financial Advisor with Centinel Financial Group of Boston and Wellesley, MA and be reached at 617-424-0005 and sharmstrong@jhnetwork.com The information contained in this newsletter is not intended as tax, legal or financial advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek such advice from a your professional advisors. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Long-Term Care Insurance is underwritten by John Hancock Life Insurance Company, Boston MA 02117 and in New York as John Hancock Life & Health Insurance Company, Boston, MA 02117. 501-10052009-16892446 Mortgage Modification Update The mortgage modification world has been very quiet lately. The general feeling is that nothing much is happening but that is not necessarily the case. The Making Home Affordable Mortgage program (“HAMP”) is on track to meet their goal of 500,000 modifications by November 1, 2009 according to Dave Stephens assistant secretary of HUD. He projects that 4 million modifications will be accomplished over next 3 years. He adds that 571,000 loan modification offers have been made and 360,000 have begun the process of modification. The program has had growing pains. The results have depended on the efforts of the individual mortgage servicer. Some of the mortgage servicers are with the program and some are not. Bank of America and Countrywide are getting much of the criticism. Wachovia joined the program in August. Many of the servicers have not staffed up to deal with the defaulting loans. Some of the results broken down by servicer as of the end of August are as follows: The servicers and banks complain about the additional effort required to modify a loan even though the financial system and the taxpayers are big losers when a bank forecloses on a loan. According the Joint Economic Committee of Congress, the average foreclosure costs $77,935 while preventing a foreclosure costs $3,300. There has been substantial progress on the loan modification front as more and more servicers allocate the needed personnel to their HAMP program. As more servicers ramp up the number of modification begin to grow. Hope for Homeowners In the H4H program, the existing 1st mortgage holder is expected to provide the refinancing on a voluntary basis to qualifying homeowners. It gives the bank a chance to re-qualify the buyer and make a new 90% loan guaranteed by FHA. The homeowner does not have to make the down payment but does pay a 3% origination fee. The lender has a chance to get their money back by participating in the sales proceeds of the home over the mortgage amount when the home is sold. This program is for owners of single family homes whose house payment including taxes, insurance, dues, and payments on subordinate mortgages are more than 31% of their income. The objective of this program is to provide 30-year amortizing loans of not more than $550,440 at market interest rates to qualifying homeowners. The loan can be up to 97% of the current value of the home based on a new appraisal. The borrower pays an origination fee of 3% of the new mortgage amount and an annual fee of 1.5% of the unpaid balance. The proceeds of the loan will be applied to extinguish all outstanding mortgage debt on the home. The holder of the 1st mortgage is obligated to negotiate a settlement with the holders, if any, of any subordinate financing. If your home is now worth $300,000, your existing loan is $400,000 and you qualify for the H4H program, then your new loan will be approximately $285,000. The $115,000 difference between your old loan and your new loan would be forgiven. When the house is sold, the lender’s 1st mortgage is paid off and the profit, the difference between the loan amount and the sales price, is divided between the homeowner and the lender. In the first year the lender receives 100% of the profit, 2nd year 90% and the percentage goes to 50% by the end of the 5th year. If you sold the house for $400,000 at the end of the 10th year, the loan payoff would be $231,000 and the excess proceeds would be about $169,000. The homeowner and the lender would each get $84,500. The principal and interest payment on a $285,000 loan at 5.0%, the estimated current interest rate, is $1,251 per month and the mortgage insurance payment is $350 per month. If your taxes and insurance are $500 per month your housing cost is $2,329 per month. Therefore, you must make at least $6,800 per month to qualify for the H4H loan. The administration and congress are determined to fix the housing problem, save the banks and get them through this crisis, and help homeowners continue to live in their homes. If you need help, it is time to work on the problem. William G. Campbell, President of RPC Group, Little Rock, AR, has spent his career structuring real estate projects for financial planning and brokerage firms, and serving as the chief financial officer at corporations. He has worked on hundreds of projects that required debt negotiation and debt modification for highly complex real estate transactions. In these roles he helped corporations stabilize their financial relationship with their major shareholders and lenders, and directed the reorganization of the accounting and legal divisions of businesses. He has helped high net worth individuals organize their real estate holdings to preserve income, save taxes, and reduce their debt. In work with a major international bank, Campbell analyzed the financial statements of the banks holdings, particularly its REIT portfolio, to enable the firm to build a defensive portfolio of high yielding securities with strong balance sheets for clients seeking income and safety. Given the current mortgage turmoil, Campbell has turned his energy to assisting homeowners with home mortgage refinancing or modification under the "Making Home Affordable" program. He can be reached at 501-225-1211 or wgc@therpcgroup.com. Re-thinking Business Development in these Tough Economic Times Business development doesn’t have to mean using the same old expensive tactics. Holding seminars, doing mailings and buying advertising can seem more of an expense than an investment. It’s no wonder most business owners stop doing “business development”…it’s too expensive! Replace the word “Business” with “Relationship” and step back for a moment. Can you see the difference in the way this activity can be approached? Most of the revenue your business receives now is most likely because of the relationships that have been built over the years. People will buy from, hire and refer people they like. There are dozens of ways to create profitable relationships without spending a lot of money. Many business owners stop investing in their success when the economy is in the dumps and revenue streams are drying up. No doubt you’ve heard the old adage “you have to spend money to make money”, but there is some truth n “old adages” and “rules of thumb”. You don’t have to spend much if you re-think your business development efforts. Here are several suggestions for low cost business development. Much like the advice financial planners give to those who have lost their jobs or experienced a significant decrease in income, business owners need to be careful how they spend their limited cash by thinking strategically and in new directions. You are looking for ideas that won’t break the bank. Take advantage of your downtown office location or your office building. In all likelihood, you know the owner of a restaurant, bakery or coffee shop. Why not host an “open house” or “happy hour” at your location and invite all the local business owners and professionals to stop by? Have some fun with it; create a theme that is a play on the dire economy that we are all experiencing. If it’s close to a day like Halloween or Thanksgiving build an “Economic House of Horrors” theme or “Be Thankful You Have a Business” theme. Be outrageous – everyone could all use some fun. To pay for it; barter with the restaurant/bakery/coffee shop owner for services in exchange for the exposure. Be sure to mix and mingle with the guests. Here’s a bit of advice - don’t talk business - just get to know them. Another inexpensive idea takes you out of the office, every day for the next ten days, to meet another business owner. The goal is not to sell them your product or service but rather to find out what is important to them. Most people are delighted to tell you their story. Start by asking how they came to be in the line of work they’re in and what they like most about it. Ask what advice they would give to someone who was entering their line of work. Finally, just before you’re ready to head out, turn and ask them, “how would I know when I am talking to a good prospect for you?” Can you imagine? You’ve just offered something valuable and made a friend, all without asking them to buy what you sell. As a follow up, send a handwritten note saying how much you enjoyed the conversation and look forward to the next talk. Invite them to your “happy hour” while you’re at it! Paying attention to relationships during stressful economic times is crucial. Creating opportunities that allow you to expand your network will continue to pay you dividends as you build your business. Dave Moran, CFP, is a business development consultant and coach based in Parkland, Florida. He can be reached at dmoran10@comcast.net and at 305-342-3535. |
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