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The Market Ticker - Riiiiight (CPI)

The Market Ticker - 16 April 2014 - 4:42am

Pull the other one, fuckers.

That's the official government "claim"; let's square it against...

A recent survey of 148 insurance brokers shows that ObamaCare is sending premiums rising at the fastest clip in decades.

"For the last, about, five years they've been doing this survey, so this was the largest percentage increase in any quarter since they've been doing (it)," says Scott Gottlieb of the American Enterprise Institute.

....

"There are specific states with exorbitant increases," says Gottlieb.  "Delaware had 100 percent increase, Florida had a 37 percent increase, Pennsylvania 28 percent increase, California had a 53 percent increase in their premiums."   

Someone is lying.  

Guess who it is....

For extra credit you may hazard a guess as to the odds that the rest of the report so-presented this morning is truthful.

Categories: Economics

Why the Feds Want to Cripple Home Businesses

The Daily Reckoning - 16 April 2014 - 3:57am

Imagine you’re out of work. But you’ve got capital in your talents, your home, and your family and friends. You might try to start a microbusiness at home to earn a little extra income and make ends meet. That is, unless you live in certain U.S. states.

A few years ago, Mark Stambler started a business in his California home that became a flashpoint in a legalization battle. That might sound like he had a few marijuana plants growing in the closet. Actually, he was making and selling bread. Yes, bread. He did it so well, in fact, that Stambler was featured in the May 31, 2011, issue of the Los Angeles Times.

The next day, Department of Public Health authorities shut him down. There was no customer complaint; Stambler was simply “not in compliance” with regulations.

Stambler decided to take the food off the black market. He helped draft the California Homemade Food Act, which went into effect in January 2013. According to a January Forbes headline, it created over a thousand local businesses.

The episode raises a host of questions. Should home businesses be regulated? Should they stay in the black market? It’s hard to say. But one impact of the Homemade Food Act is clear: When government loosens control of commerce, businesses and jobs get created.

Governments protect favored businesses by discouraging home industries that would otherwise compete in the marketplace.

The Forbes articles explained, “In Los Angeles County, there are [now] almost 270 cottage food businesses. Statewide, over 1,200 homemade food businesses have been approved.”

California desperately needs employment. In January 2013, when the act came into effect, California’s official unemployment rate was 8.9% — 2.3% higher than the national average of 6.6% reported by the Bureau of Labor Statistics. A separate Forbes article suggested that the national rate might have been as high as 23.0%.

Whatever the true figure is, people are looking to work. And yet, most states continue either to regulate home businesses out of existence or to make the requirements for entry so expensive as to be prohibitive.

Consider Florida, where it is a criminal offense to cut hair without completing 1,200 hours of training at a barber college at a cost of $10,000 to $15,000. By contrast, Florida’s Emergency Medical Technicians “need only about a month of training before they can be licensed,” the Sun-Sentinel reported,

“Why are state and local governments generally so hostile to small industry — especially home businesses? The answer lies in the definition of the businesses themselves.”

Home industry consists of gainful work conducted in a dwelling. The specific businesses are so wide-ranging as to defy classification by product or service. They include businesses based on crafts, accounting, car repairs, writing or editing, foodstuffs, pet grooming, web design, hair styling, sewing, alternative medicine, day care, and carpentry.

They usually address niche markets and often involve personal contact with customers to whom there is high incentive to provide satisfaction in order to secure repeat business. Home industry is integral to the American dream because it offers a path to prosperity through hard work, merit, and innovation.

Home industry is particularly important to the poor for at least four reasons. First, the business overhead is usually low. Second, it allows people to use their labor as equity to develop a business for which financial or capital equity is not available. Third, it does not require higher education. Fourth, people own the means of production, such as an equipped kitchen or a garage with tools.

Home industry also has the advantage of not draining the public purse — that is, production does not draw on government subsidies or privileges, which benefits individuals as producers, taxpayers, and consumers.

But does it benefit governments? It is government’s nature to control; that is its raison d’etre. It is also in government’s nature to tax. Home industries are often black-market activities through which commerce flows without government skimming off resources.

Thus control- and cash-hungry governments seek to ban home industries or to legalize them with both punitive and lucrative regulations. Lucrative regulations enrich the government by establishing an income stream. The benefit of punitive regulations is often more subtle. In many cases, the high bar set for entry into a marketplace is a form of protectionism for politically favored businesses.

Crony capitalism is defined as “an economy in which success in business depends on close relationships between business people and government officials.” The two general ways in which protected businesses succeed are through protectionism and privilege. The specific ways can include the selective granting of licenses and permits, subsidies, special tax breaks, zoning, and other State interventions.

Governments protect favored businesses by discouraging home industries that would otherwise compete in the marketplace. Civil liberties watchdog The Institute for Justice (IJ) describes its economic mission:

“Arbitrary licensing and permitting laws foreclose many occupations that are ideally suited to people of modest means. The Institute for Justice challenges these laws to secure constitutional protection for the right to earn a living and to demonstrate the importance of entrepreneurship.”

A dramatic example came in 2006 when IJ attacked “the Maryland Home Funeral Cartel.” Funeral homes are often family businesses in which the owners also maintain a residence. Clark Neily, a senior attorney with IJ, explained the situation then present in Maryland.

The state “arbitrarily restricts who can own a funeral home. As a result, consumers pay more than they otherwise would, and opportunities for would-be entrepreneurs are blocked. Maryland’s law is a racket designed to protect the state’s funeral cartel from competition, and that’s not a valid use of government authority.”

Only licensed funeral directors and “politically favored corporations and individuals” could legally own a funeral home. The license required two years and thousands of dollars to secure. Neily continued, “But owning does not mean operating. Under Maryland law, a person is not allowed to own a funeral home even if he or she hires a licensed funeral director to oversee the funeral home’s day-to-day operations.”

She likened this to saying you must be a pilot to own an airline. In October 2007, a federal judge struck down Maryland’s exclusionary law. Calling it unconstitutional, the judge added that the law was “the most blatantly anti-competitive state funeral regulation in the nation.”

Austrian economist Murray Rothbard summed up the purpose of government intervention:

“The intervention . . . was designed, not to curb big business monopoly for the sake of the public weal, but to create monopolies that big business . . . had not been able to establish amidst the competitive gales of the free market.”

Regulation of home industry is a source of revenue and social control for government, but it is also a means by which businesses with political clout cripple their competition. There is nothing new under the sun.

Government should remove itself from all business transactions. But it is particularly important to the unemployed and to the poor that government release its choke hold on home industries.

Regards,

Wendy McElroy
for The Daily Reckoning

Ed. Note: Small businesses are supposed to be the backbone of the economy, but to politicians, they’re more like a cash cow they can tap when they need to pay for one of their big programs. But that doesn’t have to be the case… In fact, there are ways to earn tax free income which you can use to generate that seed money for your small business idea. A way to keep and use your potential tax dollars on something that will actually create value. Readers of the FREE Laissez Faire Today email edition got a unique opportunity to access a long list of these methods for keeping the government at bay. Now it’s your turn. Sign up for Laissez Faire Today, for FREE, right here.

This article originally appeared here on the Foundation for Economic Education website.

This article was also prominently featured at Laissez Faire Today.

Categories: Economics

14 Firms to Watch Based on Friday’s Jobs Report

The Daily Reckoning - 16 April 2014 - 2:17am

Some important economic information was lost during last week’s stock market meltdown.

In fact, Friday’s jobs numbers were completely buried under the Nasdaq’s rubble. While everyone continues to fret over stocks this morning, let’s take a closer look at the forgotten (yet all-important) jobs numbers—and a key industry that stands to benefit from a strengthening trend.

The economy added 192,000 jobs in March on top of the 197,000 jobs gained in February. So far, so good. Even better is the fact that nonfarm private staffing hit 116.087 million – a surge past the previous peak seen in January 2008.

It must be time to rejoice, right? The slow, steady economic recovery is finally coming together.

Or maybe not…

“It turns out that private sector job gains have lagged the growth in adult working age population since 2008,” explains Rude researcher Noah Sugarman. “In 2008, there were about 2 working-age adults for every private sector job. Today, that ratio has widened from 2 to 2.13. That means we’d actually to total more than 123 million jobs to really get back to where we were before the recession.

Even more significant is the fact that temporary jobs have far outpaced their permanent counterparts in this recovery…

“So maybe job-seekers aren’t out of the woods yet. But this slow-growth recovery is perfect for one particular sector of the economy – the staffing industry,” Noah continues. “That’s right—temp agencies are enjoying a big boost from the labor market’s sluggishness.

“In some parts of the country, temp jobs have accounted for more than half, if not all of net job creation since 2009. That’s the sweet spot for temp firms that connect the dots in this dodgy environment. Since private payrolls bottomed in early 2012, temp positions have grown by 42%, compared to the overall private jobs growth rate of 8%.”

As businesses aren’t quite confident enough to make permanent hiring decisions en masse, demand for flexible staffing will likely remain high.

“Numerous forecasts see the labor market remaining in this mild state for at least the next couple of years, with industries like manufacturing, IT and financial services becoming more comfortable with the flexibility that temp work provides,” Noah says.

Here’s a quick list of staffing and outsourcing firms you can add to your watch list:

Regards,

Greg Guenthner
for The Daily Reckoning

P.S. The staffing industry has shown investors impressive gains since late 2012. If these stocks can continue their strong performances after a period of consolidation, more gains are in store for alert traders. Sign up for the Rude Awakening for FREE today to see how you can trade these stocks for big gains…

Categories: Economics

The Market Ticker - So It's Tax Day Again

The Market Ticker - 16 April 2014 - 12:28am

How often do you sit down and think about this?

If you're a W2 employee, it should be every payday, but it probably isn't.  Indeed, you probably only think about it once a year, when you file your taxes, and then you get it exactly backward when the IRS sends back your money that you foolishly overpaid and let them have free for the entire rest of the year.

If you're an independent (such as myself) then you probably think about it four times a year, because you're making estimated payments.  But in that case most of you probably don't think about it the right way either, because in your quest to not get penalized you intentionally overpay to remain in the "safe harbor" instead of taking your best guess (which can be wrong and if it is will result in a penalty for underpayment.)  You then wind up with either an overpayment that is "refunded" (again, you let the government have the money without paying for its time value) or you let them keep it for two years (applying it against the next year's tax liability.)

Have you ever considered exactly how insane it is that we allow either situation to exist?  In what sort of other environment do we have a circumstance where you are expected to overpay for a good or service -- without being compensated for the other party having free use of your money?

Never would we allow this in auto repairs, new roofs, water heaters or air conditioners.  But we not only tolerate it when it comes to our taxes we actively celebrate when the overpayment is returned to us without interest!

And that's just the first bit of stupidity.

The second is found here, in the GDP tables -- and that materially understates the truth.

Federal government is claimed to be $1,224.7 billion (that is, just over $1.2 trillion) on an annualized basis.  This is an outright fraud; Federal spending alone for FY 2014 will be $3,650 billion or three times the claimed rate from the GDP tables!

That is more than one dollar in five.  Yet that one dollar in five of every dollar spent in America is doled out by 536 people who quite-clearly believe they're better than God himself, to the point that they then employ legions of individuals who are tasked with making sure they can continue to collect those funds -- at gunpoint, should you not willingly turn them over.

Now let's think about exactly what we get for our money.

First and foremost, we get a group of people in DC who believe they don't have to follow the same laws the rest of us do.  They can (and do) drive drunk, hit their spouses, bounce checks ("postal bank" anyone?) and grossly cheat on their taxes.  All of these offenses and more would (and do) land common people like you or I in jail or prison.  Oh sure, not all the time to be certain, but often enough.  When was the last time you saw a Congressperson or Senator wind up actually go to jail for any of the above?  Has it happened?  Well, yeah, once or twice (e.g. Jackson) but the better question is how often does it not happen (that would be "nearly always.")  Further, in what other profession is using your former job as a means of extracting favors from others after you quit legal?  In most professions this would be considered bribery and prosecuted.  In Washington DC it's called lobbying and is not only legal it's arguably the largest "industry" in the city!

Next, we get a group that passes laws and then intentionally and blatantly refuses to enforce them.  Obamacare is just one example that has been in the news of late; arguably the worst is in fact The Federal Reserve Act, a law that specifically lays forth a duty to regulate both money and credit supply so as to prohibit inflation.  This law is in fact exactly correct in that it identifies both money and credit as fungible and imposes the correct duty upon the FOMC.

Congress and the Executive have, however, factually not only permitted but egged on the willful and intentional violation of that law for over 100 years serially by our banks, allegedly regulated by The Fed, and not once has that law been enforced against the banks nor has sanction been applied to The Fed for their willful and intentional refusal to enforce the law despite the fact that they publicly and loudly proclaim their willful and intentional violation of same.

This is why a dollar earned when you're 20 only buys 26 cents worth of product in constant terms when you turn 65.  This is not an accident, it is in fact a stated policy of The Fed in direct and blatant violation of the very statute that enables The Fed to exist.

We, the people of this nation, deserve what we get from our government.  It would be one thing if these abuses were hidden and not blatantly in your face, as one could claim ignorance.  But over the years these rank violations of law and refusal to enforce them equally, including against Congress and the Executive itself, have become so openly brazen that we factually allowed an entire county (Jefferson County, Alabama to be precise) to be robbed through hinky derivative deals that were proved in a court of law to be undertaken in part as a consequence of outright bribery and yet the entities that were beneficiaries of the outcome of those bribes were not prosecuted and the people who live there, totaling roughly a million citizens, are still being forced to pay, in perpetuity, for the outcome of that corruption!

There comes a time when one must concede that a people abused are in fact masochists, for they are openly and notoriously consenting to the gross and outrageous acts that are perpetrated against them.

As we pass Tax Day perhaps it's time to reflect and ask that singular question: Are we there yet?

Categories: Economics

Pop-up Stores Build Local Economies Through Sharing

Energy Bulletin - 15 April 2014 - 11:44pm

The idea behind pop-ups is to allow new businesses to test their products without having to invest in expensive long-term leases and infrastructure.

Categories: Peak oil news

Don't Leave BitCoin to the Libertarians! (Or, why Your Movement Needs Open Source Money)

Energy Bulletin - 15 April 2014 - 11:32pm

Among activists one often finds an aversion to even thinking about money.

Categories: Peak oil news

The Buzz Tour: walking across England to pollinate change on climate

Energy Bulletin - 15 April 2014 - 11:10pm

“What can I do about climate change?” “Very little. What can WE do about climate change? EVERYTHING.”

Categories: Peak oil news

Living Dangerously

Energy Bulletin - 15 April 2014 - 10:28pm

It's happening again, a TV presentation intended to wake people up to the challenge of the age.

Categories: Peak oil news

Mobilizing for the common: some lessons from Italy

Energy Bulletin - 15 April 2014 - 10:24pm

What can organizers elsewhere learn from Italy’s movements?

Categories: Peak oil news

Local Food is Not a Local Food System

Energy Bulletin - 15 April 2014 - 9:51pm

Many people are now familiar with the phrase “farm-to-fork” but most of us haven’t a clue about all the steps in between.

Categories: Peak oil news

Kashagan – Back to the drawing board?

Energy Bulletin - 15 April 2014 - 9:47pm

The recent shutdown of Kashagan oil field in Kazakhstan represents one of the most scathing riches-to-rags stories in modern oil history. 

Categories: Peak oil news

Houses open doors to show how to save energy - West Sussex Gazette

Transition Towns in the media - 15 April 2014 - 8:06pm

West Sussex Gazette

Houses open doors to show how to save energy
West Sussex Gazette
Steyning 10:10 Climate Action Group, Low Carbon Trust, Brighton Permaculture Trust and Transition Town Worthing worked in collaboration with Green Open Homes to launch the trails over two weekends this month. The Worthing houses opened on ...

and more »
Categories: TT news

Houses open doors to show how to save energy - Shoreham Herald

Transition Towns in the media - 15 April 2014 - 8:05pm

Shoreham Herald

Houses open doors to show how to save energy
Shoreham Herald
Steyning 10:10 Climate Action Group, Low Carbon Trust, Brighton Permaculture Trust and Transition Town Worthing worked in collaboration with Green Open Homes to launch the trails over two weekends this month. The Worthing houses opened on ...

and more »
Categories: TT news

Peak delineates - Upstream Online

Peak Oil - Google - 15 April 2014 - 2:09pm

Peak delineates
Upstream Online
Australia-listed Peak Oil & Gas has shored up a number of leads based on a seismic survey over the South Block A in Indonesia. Peak holds a stake in the production sharing contract through its subsidiary Renco Elang Energy, which is the operator of the ...

Did Crude Oil Production Actually Peak in 2005? - OilPrice.com

Peak Oil - Google - 15 April 2014 - 11:30am

Christian Science Monitor

Did Crude Oil Production Actually Peak in 2005?
OilPrice.com
"Wait a minute," you must be saying. "Haven't we been hearing from the oil industry and from government and international agencies that worldwide oil production has been increasing in the last several years?" The answer, of course, is yes. But, the ...
Crude Oil Flat Near Monthly PeakRTT News
Oil Jumps to a 6-week Peak as Ukraine Crisis Exerts PressureForexMinute.com
Has crude oil production already peaked?Christian Science Monitor
Wall Street Journal -Yahoo Singapore News
all 718 news articles »

The 7 Biggest Tax Scams and How to Avoid Them

The Daily Reckoning - 15 April 2014 - 9:42am

Getting caught up in a tax scam can occur at any time of year. But your chances of getting scammed peak during that jolly season when you dutifully file your taxes. This is why, leading up to April 15, the IRS releases a list of the top tax scams they see being perpetrated around the nation.

It’s important that you be aware of these and take precautions to protect yourself. Failing to do so can result in not only significant penalties and having to pay interest but even possible criminal prosecution.

With that, let’s go through them one by one.

1. Identity Theft

At the top of this year’s list is tax fraud through identity theft. This occurs when someone obtains your personal information and then uses it to commit some crime. One of the more typical examples is when a thief uses your information to file a tax return on your behalf and then claims your refund for themselves.

What to do: You can mitigate against this by filing your taxes as early as possible. A fraudster can’t claim your refund if you’ve already received it. But if you believe you’ve been the victim of identity theft, you should contact the IRS immediately. In fact, they have a special section on their website dedicated to protecting your identity and what to do if you think it’s been stolen.

2. Pervasive Telephone Scams

The IRS has witnessed a huge rise in telephone scams. What happens is you receive a call from someone claiming they’re from the IRS and they’ll tell you either that you’re entitled to a large refund or that you owe the IRS money. Don’t be fooled. The objective in both cases is to steal your personal information and/or money.

Do not open emails that appear to be from the IRS, as they will never attempt to contact you by email.

Victims of this scam report being threatened with hefty fines, loss of driver’s license, and even arrest.

The fraudsters perpetrating this can be quite sophisticated. They may be able to tell you the name of your employer and even your Social Security number. They’ve been known to use fake caller ID numbers, too, so that it appears they’re calling from the IRS. And sometimes they will follow up their call with an email that looks it’s from the IRS, to further convince you they’re legitimate.

What to do: Never disclose your Social Security number to someone who calls you. If you know you owe the IRS money, you can call them directly at 800-829-1040 to arrange payment. If you know you don’t have any taxes outstanding, you can call the IRS to report a phone scam at 800-366-4484.

3. Phishing

With this particularly sneaky scam, fraudsters send you an unsolicited email that appears to be from the IRS. The email will typically contain a link directing you to a website that looks legitimate — but it’s a fake. Once there, you’re directed to hand over your personal and financial information.

What to do: Do not open emails that appear to be from the IRS, as they will never attempt to contact you by email (or through text message or social networks).

4. Do Not Hide Income Offshore

There are many opportunities today for people to hide income overseas. But the IRS is unequivocal. If you try to evade taxes by using such a strategy, you can face substantial penalties and even criminal prosecution.

What to do: You must declare to the IRS if you are using overseas bank accounts, brokerage accounts, or any other kinds of foreign entities. If you have one of these accounts and not disclosed it to the IRS, you should consult a tax attorney about your options.

5. False Promises of Free Money

It’s common during tax time for criminals to pose as tax preparers. They attempt to lure you in with promises of big tax refunds and rebates. Often, these scammers will get the word out about their services at churches and community groups, where there is a high level of trust. They’ve even been known to set up fake storefronts!

What to do: Take care when choosing who prepares your taxes. The IRS holds you legally responsible for what’s on your tax return. A few signs of a legitimate operator: They enter a Preparer Taxpayer ID Number, sign returns as the preparer, and provide you with a copy of your return.

6. Return Preparer Fraud

Some unscrupulous accountants claim nonexisting deductions and tax credits to fool you into thinking you have a terrific tax preparer. I met one person who raved about his accountant because he gave him $5,000 more in charitable deductions than they paid for. If and when the IRS finds out about such deceitful accountants, though, it will go back and audit every one of their clients.

What to do: Similar to the advice in No. 4, be sure to exercise good judgment when choosing a tax preparer.

7. Fake Charities

It’s not uncommon for scam artists to impersonate legitimate charities and attempt to solicit money or personal information from potential victims, particularly after major disasters.

What to do: Never give away your personal information to someone who’s cold-calling you seeking money. If you donate to a relief effort, do not give cash. Instead, for security and tax purposes, donate by writing a check or using a credit card.

Regards,

Sandy Botkin, C.P.A., Esq.
for The Daily Reckoning

Ed. Note: Sandy recently ran a free tax summit which detailed:

  • Tax implications of a gift or inheritance
  • Tax deductions on weekly meetings
  • How to handle the sale of a hard asset
  • Which tax software to use
  • Taxation of foreign currency exchange
  • How to avoid AMT
  • Writing off college expenses… and more!

And in today’s issue of the Daily Reckoning, readers were given a unique chance to grab all this great info, completely free. Don’t miss out on another great opportunity like this. Sign up for the Daily Reckoning email edition, for FREE, right here.

Categories: Economics

Climate Change 2014: Mitigation of Climate Change - headlines

Energy Bulletin - 15 April 2014 - 9:19am

What's in the latest IPCC report?

Categories: Peak oil news

Strange But Legitimate Tax Deductions

The Daily Reckoning - 15 April 2014 - 8:01am

Tax season is in full swing and people are trying to deduct all that they can. The United States tax code allows for many unusual but legitimate tax deductions, tax credits, and exemptions. For example, hot tubs and swimming pools are not just for the rich and famous. If you have a medical condition that a good soak or swimming regimen could help—you could write off the expense of a new pool… as long as you’ve got a doctor’s note. Here is a sampling of some of the more noteworthy unusual tax breaks that have been successfully claimed. Some of these might even apply to you.

- The state of South Carolina gives you a $50 tax credit for every butchered deer you donate to charity.

- Bodybuilders spending money on body oil to grease up for competitions are allowed to deduct the expense from their taxable income.

- A man who felt he was a woman trapped in a male body was diagnosed with gender-identity disorder. In the U.S. Tax Court’s view, the costs of the hormone therapy and the sex-change operation – a total of $14,500 – qualified as deductible medical expenses because those procedures helped treat a disease.

- A swimming pool can be deductible if it’s necessary for medical care. Get a doctor to recommend swimming for health reasons and you may be able to deduct the installation, chemicals, heating costs and the insurance as legitimate medical expenses.

- Does you child have an overbite? If so, you might want to enroll them in clarinet lessons. Both the clarinet and music lessons are tax deductible thanks to a 1962 provision added after orthodontists argued that playing the clarinet helps with a child’s overbite and may qualify as a medical expense.

- A gas station owner offered free beer as part of a promotion to entice customers. The Tax Court allowed the write-off as a legitimate business expense.

- One woman managed to get a prescription for three bottles of Evian water a day, allowing her to deduct $1,095 of bottled water from her taxes.

Deductions That Were Denied:

- One woman tried to deduct her gambling losses as a charity donation.

- The owner of a failing furniture store paid an arsonist $10,000 to burn down his store, then tried to write it off on his tax return as a “consulting fee.”

Categories: Economics

Genetically engineered trees hailed as environmental breakthrough - Vancouver Sun (blog)

Transition Towns in the media - 15 April 2014 - 5:59am

Genetically engineered trees hailed as environmental breakthrough
Vancouver Sun (blog)
Host Randy Shore welcomes Village Vancouver founder Ross Moster, sustainable agriculture advocate Bonita Jo Magee and Sustenance Festival founder Brenda Racanelli of the Vancouver Park Board. We find out just what a transition town is and why the ...

Categories: TT news

The 2 Most Important Words for any Retirement Business

The Daily Reckoning - 15 April 2014 - 4:38am

The trend is well underway. Research indicates that more and more baby boomers are starting a business. Whether it’s consulting, taking the reins of a franchise, or developing a home-based enterprise centered on a personal passion or hobby, starting a business in retirement can offer many benefits. Done properly, a retirement business can not only help fill a retiree’s time and replace their work identity, it can also help make their retirement savings last longer.

Obviously, the most important part is “done properly.” Unfortunately, I see many people make the jump to entrepreneurship unprepared for the mental and financial toll it can take. Instead of providing joy, fulfillment and reducing the burden on their savings, it can consume both them and their nest egg. There are a variety of good online tools and resources for new business owners to get started, but I want to share some ideas and advice I’ve accumulated helping clients make the transition. I don’t wants to talk you out of following your passion, but instead to put it and your approach to it into a realistic perspective.

New business owners who develop their own product or service often endure criticism and disappointment. When you’re employed or selling someone’s widget you’re usually less attached to it emotionally. That makes it easier to criticize the operation and shift responsibility or blame when things don’t go well.

If it’s your own idea or service, however, you not only carry the financial burden, but the emotional load as well. We live in a capitalistic society, which means you’ll run into people who don’t like what you have to offer, who don’t want you to succeed, doubt your ability to make it work, and will let you and others know how they feel through online forums and web comment sections.

Not everyone is wired like Colonel Sanders, who was told “no” over 1,000 times before he got his first “yes” on his famous chicken recipe. And that’s okay.

If you’re not prepared to deal with the mental anguish and the trials and tribulations that come from hanging out you own shingle and developing your own product or service, consider buying into an existing business with a proven track record, or partnering with someone who will help share the emotional liability.

You can’t spend your way to success. Too often, I see new business owners spend unnecessarily trying to fulfill their idea of being a business owner. Even before they get their first client they invest in the latest and greatest tablet, cell-phone, CRM software, website, or office space to prove to themselves and others that they are in business and ready to make money.

However, starting and running a successful business has very little to do with how much stuff one has, or how new it is. It’s more about your mindset and the sacrifices you’re willing to make in order to make it work.

One of my clients, who was near retirement, lost his job and decided to start a new consulting business. He was still in the planning and development phase yet was about to sign a long-term lease for an office with a training room. He felt it was important for the sake of credibility to have a business location.

I discouraged him from taking on such a large and lengthy financial commitment until he had several paying customers. Thankfully, he took the advice, which saved him thousands of dollars and helped him realize that most of the training he was hoping to provide in his office has moved online.

Instead of draining personal savings to create what he thought a business consultant should have, he only had to buy a webcam system and new microphone to secure his first customer. It proved to be a major difference between the financial hole he would have dug himself into and his new break-even point.

A basic rule of thumb: Use business revenue to grow your business not retirement savings.

My wife and I enjoy watching home renovation television shows and even interviewed Jonathan and Drew Scott (aka The Property Brothers) about the business of home remodeling. One of their most important steps is building in a “contingency” … a budget for unexpected problems.

Should they find mold, asbestos, or outdated electrical work, they have funds set aside to address the issue. This contingency fund usually helps them avoid overspending, altering the project’s time frame, or abandoning it altogether.

New business owners need to build in contingencies as well. Among the biggest threats to any new business is under-capitalization; not having enough money to carry on in face of difficulties, industry changes, or franchise requirements. Another client of mine bought into a franchise and was told there would be no royalty fees until registering his first event.

He thought that was saving him $500 a month, but then reality struck. He soon discovered that these fees were only being deferred, not eliminated for those prior months. It ended up being a $2,000 setback for him.

Nobody wants to part with $2,000 unexpectedly but it was in his contract and, fortunately, he had the funds available. If he hadn’t been prepared he could have easily become bitter, soured on the franchise relationship, and even let it impact the sports program he was teaching. By meeting the challenge head on, he positioned his business to grow instead of stagnate.

Understanding the financials of a new business can be one of the most difficult and frustrating things for new entrepreneurs. A business, especially your own, can start out exciting as you dream of the freedom, financial gain, and ability to impact someone else’s life.

But businesses live and die based on how much work it takes to make it succeed, not the numbers on paper. Take multi-level marketing for example. I don’t doubt that it can work, but a lot of people fail at it because they fall in love with the numbers, not the work.

You’ve probably heard the pitch whereby all you have to do is sign up six people to work under you. Then each one of those six, in turn, get six more people working under them and, in no time, you have a hundred people working for you. On paper, it sounds easy and logical. Surely, you know at least six people who would like to make more money doing things they already like, or buying stuff they regularly use, right?

What many fail to realize, though, is that it may require seeking out and talking to 100 people just to get one qualified person signed up. Therefore, it’s more likely that they’re going to have to call 600 people to reach their goal, not just a few family and friends.

Aspiring writers represent another good example of the need to understand the numbers. It’s doesn’t seem farfetched to be able to transform your idea for a children’s book, murder mystery, or cookbook into a $10 paperback and sell it to a thousand people. Based on the numbers alone, how could any retiree balk at adding an extra $10,000 to their retirement account?

Attractive numbers combined with the seeming ease of making a book available through major retailers, such as Amazon.com or Barnes and Noble and it’s easy to see how a post-retirement writing career is born. Retailers, however, can take up to a 55% cut from your book’s final sale price ($5.50 from a $10 item).

On the surface, that may not seem like a terrible split, considering the web traffic they bring to the deal. Still, you have to factor in the cost to produce your book (say, $3.50 per copy) plus another $1.00 or so to ship each one to the retailers. That means you could wind up actually paying people to read your material, not making extra money.

That doesn’t mean it can’t work, it just means there’s more to it than some simple money-making math on paper.

Starting and running a retirement business may not be for everyone. Like other areas of life, it takes time, energy, practice, patience, and money to succeed. A rule of thumb is that it can take three to five years for a new business to be profitable. That’s a realistic expectation with which to go into any form of self-employment. If you can be profitable before then, you’re ahead of the curve.

Robert Laura
for The Daily Reckoning

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This article originally appeared here on Forbes.com.

Article posted on Laissez Faire Today

Categories: Economics
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