Making Your First Million.pdf - Association of Net Entrepreneurs and ...

Making Your First Million
In the early nineties my business partner approached me with a 10B(a) film investment
which looked fantastic. We were due to get a huge tax bill as usual and at the time there
were a number of promoters hawking tax minimization schemes through the Australian
Film Commission. The essence of the deal was that you could borrow $330,000 against a
film to be produced, invest the cash into the film, get a 120% tax deduction now, repay
the loan over 7 years at 10% interest on the borrowings to be matched by a guaranteed
120% of your money back in the future. The carrot was the 120% tax deduction now. On
paper it looked fantastic. But I was a little concerned about timing. For instance, we had
to borrow the money on June 30 and start repaying immediately. We didn't have to pay
our tax till at least October. Income from the film didn't come in for 3 years. So in spite
of our effusive enthusiasm for the scheme at first sight I sat down with Lyndon at my
kitchen table and said: "Look, just to satisfy me. Let's do the numbers."
We mapped it side by side. Film Scheme versus Pay Your Tax. Month by month for
seven years. For the first two years the Film Scheme came out on top, but at the end of
seven years we would be far better off just paying the tax. When we factored in
opportunity costs we realized that we would be $700,000 better off not running with the
film. Run the numbers. They may surprise you. It can be a real temptation, particularly
given what I've told you previously about nurturing your instincts, to regard your
judgement as infallible. After all, you've got this far. Surely no-one would dare to
question the great and mighty master of the universe. Question your judgement. You've
now got a lot more to lose. Run the numbers. Remember the Time survey. You assumed
that people went into Coles supermarkets to buy food. Don't trust your assumptions. Run
the numbers. The numbers will reveal strange, hideous and unpalatable truths if you will
only let them.
Take the time in your business to question your assumptions. Look honestly at the trends.
When the ship starts to sink, don't pray, jump. Change tack. If you're going the wrong
way change course sooner rather than later. Use SWOT analysis to give you the numbers
on whether you're going in the right direction and which new direction to take. Take
inventory of yourself. Analyse Strengths, Weaknesses, Opportunities and Threats. One of
our greatest threats in business is habit. We can fail to see creeping trends if we're
immersed in our comfort zone. Remember the Boiling Frog Principle. If you throw a frog
into boiling water it jumps out, but if you put a frog in cool water and slowly bring it to
the boil it sits there till it dies, thinking: "It's not too bad. Not much worse than a minute
ago." Don't just sit there. Jump.
Take risks but remember Adrian the squirrel. Get in and get out with minimal exposure.
Keep total personal control. Wake up a little bit richer every day. Just a little bit. Take
risks, certainly, but keep control. Don't take any risk where you're not in control of your
money. And look at the possibilities for losing control. Let me tell you a cautionary story:
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