Photo by lovelypetal

Back February, I had a meeting with my accountant and my bookkeeper to discuss the various tax returns we had to file for 2009. My accountant started asking some questions about one of my businesses. The finances for this business were handled by one of my long-term employees who left in 2009. My bookkeeper wasn’t able to answer my accountant’s questions because various bank account statements were missing.

We looked everywhere for these bank statements, but couldn’t find them. Finally, we requested the missing statements from the bank and paid to have them pulled from archives.

The statements received from the bank showed several online transfers into my employee’s personal bank account. All totaled, these transfers were in excess of $57,000.

I was obviously alarmed by this and sent my former employee an email asking why there would be over $57,000 transferred into their personal account. The response I received indicated that they weren’t able to transfer the money into the business’s savings account because it wasn’t available online. The employee indicated they transferred the money into their account and then moved it into the businesses savings account.

Makes perfect sense, right?

Needless to say, the savings account statements were missing, too. So to speed up the process, I asked this person to show me the money being transferred from their account back into the business’s savings account. A day or two later, I received copies of this person’s bank statements showing online transfers from their account into the businesses saving’s account. Thank god!

To be safe, I decided to request all of the missing saving’s account statements from the bank just to make sure everything matched up. When I finally received these statements, I couldn’t find corresponding deposits. I took all of the statements to the bank to get to the bottom of this once and for all. Believe it or not, my former employee sent me factitious statements of their account showing fake transfers into the business’s savings account. The money was never returned.

This person stole over $57,000 and then tried to cover it up. The hardest part of this is the betrayal. My wife and I felt sorry for this person and included them in holiday dinners. We sent this person on vacations at our expense. We even paid for a dinner reception after their father’s funeral.

This person was stealing money from us the entire time.

This person was recently charged with grand theft, which is a 4th degree felony and will probably do time. I share all of this with you because I’m hoping to prevent something like this from happening to you. I made a few costly mistakes, which allowed all of this to happen. Here they are:

STUPID MISTAKE #1: This employee had check signing privileges and access to the business’s online bank account.

It was very easy for this person to transfer money out of the account. For every other business I own, I’ve personally signed all of the checks. This was the one business where I delegated check signing. Never, ever delegate check signing. This includes delegating to partners and/or employees. You should sign every check personally. I know it’s not convenient. However, it’s vitally important if you’d like to keep your money!

STUPID MISTAKE #2: The bank statements for this business were mailed to the office.

As you know, I work mostly from home. This employee was the first one to get the bank statements. In fact, I never even saw them. Even worse, I didn’t have access to the business’s bank account online. I had no idea what checks were written or what money was transferred out. I completely trusted this person. Shame on me.

Believe it or not, all of the other bank statements for every other business I own, are mailed directly to my home. I’m the first person to open them and can see everything flowing through the account. You should be the first one to receive and open your bank statements. If they go to a partner or employee, you’ve opened up the opportunity for theft. Simply change the mailing address for all of your bank accounts and have them sent where you’re the first person to open them.

STUPID MISTAKE #3: Make sure all incoming money comes directly to you.

In my various businesses, money was sent to my office. This includes my rental properties, too. Tenants would mail their rent to my office or would drop it off in person. And in many cases, tenants paid their rent in cash. My employees had access to this money and could redirect it into their own accounts. Today, I have a P.O. Box and I’m the only one with a key. All incoming rents, checks and other payments are now sent to this P.O. Box and I’ve eliminated the possibility of theft.

STUPID MISTAKE #4: I felt sorry for this employee.

Every single time I’ve felt sorry for someone, I’ve been burned. This has happened with tenants in my rental properties and it has now happened in business with one of my longest, most trusted employees.

I realize this sounds terrible, but you cannot allow yourself to feel sorry for an employee, a business partner, or anyone else you do business with. You have to take emotion out of your business decisions. If you want to help other people, do so outside of your business.

Please understand that what I’ve shared with you applies to business partnerships, rental properties and your employees. Anytime your money is accessible by someone else, you have to pay attention and you have to exert control over key areas.

I’m not suggesting that you handle the bookkeeping for your business. Paying bills, preparing financial statements and balancing your checkbook is not a good use of your time. You should definitely higher a competent bookkeeper to handle these activities for you. However, you should still manually sign every check. You should have the banks statements sent directly to you. You should also remove access to all incoming checks or payments. My bookkeeper didn’t handle this one business. My employee did. I broke my own rules and suffered a significant financial loss.

Don’t read this article and think this can’t happen to you. It can and will, if you don’t set things up properly.

Please feel free to share any other theft prevention ideas in the comments to this article! Or if you’ve had something similar happen to you, tell your story and hopefully others can learn from what happened to you!

Time to make the doughnuts!

One of the most challenging parts of our business is that we have to constantly sell more homes to get paid. I’ve often felt like the doughnut guy in this commercial. I’m sure you have too! It’s a never ending cycle and it can wear you down. Almost as if you’re stuck on a treadmill and can’t get off.

Several years ago, I spent an entire day at Panera Bread thinking about my real estate business. I left my cell phone in the car and completely shut myself off from the outside world. I made a list of other professions and which ones seemed to be the most profitable. Believe it or not, an author gravitated to the top of my list. The reason why an author was at the top of my list was because the author writes one book and gets paid over-and-over again. In other words, they make doughnuts one time and get to sell them multiple times. As an example, Napoleon Hill’s estate is still receiving income from his legendary book “Think & Grow Rich.” He died in 1970.

Will your family receive income 40 years from now from the home you sell today?

Not likely.

After thinking through all of this at Panera Bread, I made the decision to change my entire business. I wanted to focus on opportunities that provided recurring income. I didn’t want to have to work forever like the doughnut guy. I wanted to engineer my life so I could work when I wanted to work and play when I wanted to play. I wanted to have the lifestyle of John Grisham, one of my favorite authors. He writes books because he wants to, not because he has to.

From that day forward, I vowed to only focus on opportunities which provided recurring revenue. And thankfully, I’ve followed through with this decision. I’ll be honest – it wasn’t easy. Everyone said I was crazy. My agents didn’t agree. It didn’t matter what anyone else said. I stuck to my guns and transformed my business.

I think there is a BIG opportunity for agents to engineer attractive recurring revenue in their businesses. I’ve detailed this opportunity in a new 11-page report you can download right now at this link:

Listing Income-PDF

In this report, I share how you can create 3 new income streams from sellers. One of these income streams is recurring monthly revenue. I also share how I evaluate new ideas for my businesses. I think you’ll find this little exercise to be very helpful for your business, too!

Can money buy happiness?

Every person over 30 years old has realized money doesn’t buy happiness. When they started their businesses, they had dreamt of massive wealth, beautiful homes, high-end cars and lots of toys. As they grew older, they began to realize that money what wasn’t what it was all cracked up to be.

Two years ago, I read a book titled “How to Get Rich” by Felix Dennis. Felix Dennis is a multi-millionaire and shares his journey to wealth throughout his book. It’s a fantastic book. In one of the final chapters, he wrote the following:

“Ask me what I will give you if you could wave a magic wand and give me my youth back. The answer would be everything I own and everything I will ever own.”

Here’s a man who dedicated most of his life to building wealth who is willing to trade it all to be young again. This is very powerful and has had a big impact on me over the last year or so. In real estate, we tend to work 7 days a week, week-after-week.

He wrote:

“Seeking substantial wealth is almost always a fool’s game. The statistics show that very few people ever succeed. Most of them should never have made the attempt in the first place….the search will take up a great deal of your waking life for many, many years….Time is finite. Which is a fancy way of saying that you only have so much of it – then it will run out.”

Felix is saying that the price he paid with his time to accumulate wealth was too high. In other words, he overpaid and is suggesting that we be careful of overpaying, too. Felix has realized that TIME IS MORE VALUABLE THAN MONEY. I’ve been fond of saying “Time is Money.” This is actually incorrect.

Back to Felix…

“If you are young and reading this, then I ask you to remember just this: you are richer than anyone older than you, and far richer than those who are much older. What you choose to do with the time that stretches out before you is entirely a matter for you. But do not say you started the journey poor. If you are young, you are infinitely richer than I can ever be again.

Money is never owned. It is only in your custody for a while. Time is always running on, and the young have more of it in their pocket than the richest man or woman alive…And yet you wish to waste your youth in the getting of money? Really? Think hard, my young cub, think hard and think long before you embark on such a quest. The time spent attempting to acquire wealth will mount up and cannot be reclaimed, whether you succeed or whether you fail.”

Here’s another great quote from Douglas Adams:

“Human beings, who are almost unique in having the ability to learn from the experience of others, are also remarkable for their apparent disinclination to do so.”

An incredibly wealth man has said that he would trade every dollar he owned to get his time back. Will we learn from his experiences?

Maybe.

I think the recession and market crash has given us the opportunity to re-evaluate what’s important in our lives. Many of us now realize that our health, friends and family are the most important of all. My concern as the economy turns around is that we will fall back into the trap of focusing entirely on selling more homes and making more money. Will these lessons we’ve learned stay with us going forward?

Consider a little more from wealthy Felix…

“Am I happy? No. Or, at least, only occasionally, when I am walking in the woods alone, or deeply ensconced in composing a difficult piece of verse, or sitting quietly with old friends over a bottle of wine. Or feeding my stray cat. I could do all of those things without wealth….”

Felix’s book, “How to Get Rich,” is 300 pages long. This little section about the price of wealth I’ve been referring to is only five pages long. I didn’t expect to find these thoughts in a book titled “How to Get Rich.” When Felix concluded these five little pages, he wrote:

“I suspect it will have little effect on you, though…. the last one thousand five hundred words was an “important bit.” In my heart of hearts, I know it was the most important bit you will read in this book.”

Felix has indicated that the most important thing he wrote in his 300-page “How to Get Rich” book is NOT to get rich. The price you must pay with your time isn’t worth it.

Thomas Stanley, Ph. D. is back at it again with his newly released book “Stop Acting Rich.” His name should be familiar to you because he is the author of “The Millionaire Next Door” and “The Millionaire Mind.”

I loved his first two books and when I saw his new book, I couldn’t resist buying it. The message that permeates each book listed above is that  most people look rich because they live in big homes or drive expensive cars, but when examined closely, they have accumulated very low levels of wealth. In other words, they wear big hats but have no cattle.

For some reason, we seem to measure our success in life by how we compare to others. Is our house bigger than theirs? Is my car nicer than Jim’s down the street? To feel successful, many people fall into the trap of buying things simply to impress others.

A few years ago, I almost made this same mistake myself. My dream was to own a large lakefront home in North Carolina. My wife and I toured numerous homes and finally made an offer on a 8,000-square-foot home in an exclusive residential community. During negotiations my wife shared that she didn’t think she would feel comfortable in the neighborhood. Almost as if we didn’t fit in. As we talked about it more, I realized she was right. Everyone in this community belonged to the country club, drove high-end cars and took exotic vacations. We don’t belong to a country club. Hell, I don’t even golf. I’m too busy working! I drive a 6-year-old car. Nothing exotic about us.

We decided to let this home go and stay put in Cleveland. Turns out it was one of the smartest decisions we’ve ever made because, soon after, the real estate market crashed and the economy took a nosedive.

One of the main lessons Mr. Stanley makes throughout this book is that the amount of wealth you accumulate in your life correlates directly to the size and value of your home. Here’s a very telling quote from the book:

“If you examine homes by value from the lowest to the highest, you would find that as the value of the homes increases, so does the proportion of people who are living well above their means.”

The more expensive your home, the more you’ll be forced to spend on home repairs, maintenance and upkeep. This is hard enough, before you factor in what you’ll have to spend to keep up with your neighbors. If you buy a high-end home, you’ll end up sending your kids to expensive private schools and you’ll be forced to buy them all of the expensive clothes and gadgets the other kids have in the neighborhood.

The reason this happens is because it’s hard to avoid copying what you see every day. You won’t want to look like some schmuck who drives a rusty old car and sends his kids to the public schools in out-of-style clothes from Kmart.

The trick is to live in a nice home in a nice neighborhood that allows you to live below your means. It’s better to be a high earner in an average neighborhood than it is to be a low earner in a high-end neighborhood. Remember the old saying about “buying the worst house on the best street?” Well, as it turns out, this “best street” might actually lead you to the poor house.

Most of the millionaires profiled by Mr. Stanley live on less than 80 percent of their income. They are frugal and focus their attention on investment rather than consumption. Their goal is to convert income into wealth, which is significantly different than people who act rich.

A psychology study by Ryan Howell, which was written about in the book, found that having “things” isn’t what usually makes us happy. If “things” do, it’s short-lived happiness.

Instead, what makes us happy are life experiences. The good news is that life experiences are free.

Here’s an interesting quote from the article:

“I know he would not approve of my mortgage, my car payments, my credit card, my monthly “nut,” which I can sometimes cover, but which often overwhelms me. That’s a gambler’s term – the minimal expense he needs to support his family. My father has always kept his “nut” to a minimum – rented apartments, cheap secondhand cars, no frills. No matter what, he always told me, a man has to meet his “nut.”

Both of these examples reveal the same lesson – keep your fixed monthly expenses to the bare minimum. The lower your “nut,” the more freedom you have in your business. The higher your “nut,” the less freedom you have in your business.

What it really seems to boil down to is:

If your “nut” is lower, you own your business.
If your “nut” is higher, your business owns you.

Or I can put this another way…

If your “nut” is lower, you can work less and enjoy life more.
If your “nut” is higher, you must work more and enjoy life less.

Bottom line – Your “nut” ultimately dictates how much happiness and freedom you’ll have in life.

Another way to think about your “nut” is that for every dollar your business spends, you must generate $5.00 of revenue after factoring taxes and other related expenses. Eliminate the dollar spent and you’ll have to generate $5.00 less in commission income. Aka – less work & fewer homes to sell!

How to Lower Your “Nut”

Let’s analyze some common business expenses your business incurs on a regular basis and see how we can minimize, eliminate or offset them:

1. Real estate licensing/CED/e-boxes/signs
2. Rent/Desk Fees/Commission Splits
3. Advertising
4. Payroll
5. Business Utilities
6. Website
7. Auto-Related Expenses
8. Dues & Subscriptions
9. Business-Related Equipment

In my new report, I detail exactly how to handle these 9 expenses using the 5 strategies listed below:

1. Eliminate: This is easy to understand. Simply stop using the service or product and eliminate the expense all together. An example from my business was a voice broadcasting service I used to use in my marketing. I would send automatic voice broadcasts to prospects marketing various items for my business. The “Do Not Call” laws virtually eliminated voice broadcasting. This expense became easy to eliminate.
2. Minimize: Try and reduce your expense. You might be surprised to find that you could get a reduction in many of your expenses simply by asking. Or if you can’t minimize, see if you can use the product or service less and negotiate a lower rate. For example, I have a bookkeeper help out with paying bills, reconciling accounts and preparing financial statements. She works one day a week. I could change her schedule to one day every other week. This would cut this expense in half.
3. Reversing the Negative Cash Flow: This is a profound concept and can literally change your business dramatically. The idea of reversing cash flow is to generate income specifically to offset the expenses you must incur in your business. I’ll give you a few examples of how to do this later in this report!
4. Targeted Investing: Investing into an asset that provides you with income to cover a specific expense for your business. For example, let’s assume you pay $100 a month for utilities. Can you invest into something which pays the equivalent of $100 a month or $1,200 a year to offset this expense? There are many stocks available that pay dividends. A few examples would be Nike (pays a quarterly dividend of 27 cents a share) or Campbell’s Soup (pays a quarterly dividend of 27.5 cents a share) and Sysco (pays a quarterly dividend of 25 cents a share).
5. Restructure Expenses to Pay When Income is Received: The last way to eliminate negative cash flow in your business is to try and restructure or renegotiate expenses so they’re only paid when income is received. Almost as if they are to be deducted from your commissions. This way you don’t have to pay for the expense before getting paid.

NOTE: I’m only going to sell 100 copies of the new Zero Negative Cash Flow report and 57 have already sold to agents who signed up for the pre-release notification list. Watch for an email from me on Wednesday January 6 with the subject line “Eliminate Negative CF NOW!”

No!

I'm sure others may disagree with my answer, and that's to be expected. I never worked for a large real estate company and seemed to do just fine. The key to your success isn't the size of the real estate company you work for, it's the effectiveness of your marketing.

If you can generate and convert leads, you can be successful in any size company. In fact, I'd argue that you should start your own company and build some equity in the process of building your business. Why not get paid twice from the same work?

Now when an agent asks me about where they should work, I ask them the following question:

Are you a good marketer?

If they hem and haw with their answer, I usually tell them to work for the largest company and try and secure as many deals from the marketing of the company or other agents in the firm. However, it's important to remember what business this large company is in. They're in the "agent" business. Their goal is to recruit and retain agents. This goal is significantly different than your goal to sell homes. I know they run image advertisements on TV. I know they provide great training programs. The purpose of these advertisements is to make the company look attractive to new agents. Buyers and sellers don't care very much about your company name. They care about what you're able to do for them specifically.

If the agent responds to my marketing question indicating that he or she is a good marketer, I usually tell them to look for the company with the most favorable commission splits. Use the additional commission income to invest back into your marketing to buy more clients. The company name doesn't matter; the amount of commission you receive does.

The one thing you should definitely avoid at all costs is thinking that your real estate company is going to provide you with sales. More than likely, they won't. It's best for you to learn how to generate and convert leads on your own. This eliminates your dependency and makes you a better overall business person.

Becoming a good marketer is how you eliminate dependency in your business. Once you've obtained the skills, they cannot be taken away from you. You can use your skills in any market, any company or in any business. These skills can provide income to you for the rest of your life.

We work our asses off.

Let's face it, most of us work seven days a week. We work evenings, weekends, holidays and skip vacations — all to make a sale.

Why?

Because we operate on commission. If we don't work, we starve. Plain and simple. We've got to "git 'r done," as Larry the Cable Guy would say.

The problem is, for many agents, we have nothing to show for all of our hard work. Our commissions are quickly eaten up by business expenses or to put food on the table for our families.

There are two primary ways for real estate agents to get rich. The first way is to build a business with value that can be sold for an attractive price. The second way is to focus on converting commission income into wealth.

I believe it's important to do both at the same time.

Understand this …

Commission income does not turn into wealth. Commission income is usually spent. To get rich, you must consistently and proactively turn commission income into wealth!

How you might ask?

Save and invest a portion of every commission check you receive. Think about all of your home sales over the years. How much wealth would have today if you automatically saved 10 percent of every commission check you received? Did you shudder at your answer? If so, now is the time to do something different. Every single home sale should make you richer.

Our big challenge is we don't have any special automatic savings plans like a 401k plan. My suggestion would be for you to do the following:

1. Estimate how many homes you typically sell each month.

2. Estimate your average net commission.

3. Multiply your average commission by the average number of homes you sell to get your estimated average monthly income.

4. Multiply your average monthly income by 10 percent.

5. Set up an automatic withdrawal from your bank account to suck the amount determined in No. 4 out of your bank account each month.

This little five-step process, if followed and implemented, will make you wealthy. As an example, let's assume you sell an average of two homes a month and your average commission is $5,000 per sale. This would mean your average monthly income is $10,000. You would set up an automatic monthly withdrawal so that $1,000 a month was sucked out of your bank account. At the end of the next 12 months, you would have turned your 24 home sales into $12,000 of wealth – automatically.

You can set up this "Get Rich" account up just about anywhere. Consider E Trade, Vanguard, Fidelity, a money market account or a self-directed IRA.It really doesn't matter. What matters is that you turn your commission income into wealth.

Now, the final trick is to not touch this money once it leaves your bank account. Don't go withdraw the money and use it to pay for your expenses. Fight to keep the money tucked away. Instead, do something to create additional income for your business. Go sell another home and protect your "Get Rich" account.

I realize most of you who read this won't follow this advice. This simply means that you won't be any wealthier 12 months from today. That's a shame because you work extremely hard every single day and you should have something to show for it. You can change this by setting up your "Get Rich" account and having money automatically sucked into it.

"Git 'r done …"

Photo by Tim Riley

For those of you who have been in business for anytime at all, you realize that cash flow is the life-blood of our businesses. It's the Holy Grail.

Today, many real estate agents are struggling to manage their cash flow because of fewer home sales, lower home values and commission pressure from clients. It's not hard to see that our incomes drop as the value of homes decline in our area. These factors make cash flow management critical for our survival.

Here are 6 ways you can increase cash flow in your business:

1. Reduce and control expenses:

I'm amazed at how my business takes on expenses. It's a constant battle to whittle these expenses down. Just this week, I spent some time going through every expense and found several hundred dollars worth of monthly expenses that weren't providing any return on investment. You must analyze every expense in your business and measure the return on investment. Is the expenditure providing a financial return? If not, you probably need to reduce or minimize the expense. As an example, I had a special Seller's account at Amazon.com to sell my books. This special account cost $39.95 a month. This account was no longer needed when I decided to give my book away for free. However, I've been paying $39.95 a month, month after month without any return on investment. Dan Kennedy once said, "It's not my nature to pinch pennies, but I've learned that controlling expenses is another way of making money, no less important than any other."

2. Delay Payments

As I was building my business, I constantly struggled with cash flow. Commissions earned always seemed to come after big expenses. One of my largest expenses was, and still is, advertising. To manage cash flow, I turned my advertisers into partners and delayed payments as long as possible. I realized that I could run an expensive advertisement, generate tons of leads and turn some of those leads into home sales before paying for the big expensive advertisement. This float helped me buy more clients faster. Try to negotiate extended terms with your vendors. You might be surprised at their willingness to work with you.

3. Only Work In Situations Where You Know You'll Get Paid

Do you spend time with unqualified prospects? If so, you're making a massive cash flow mistake. Don't show homes to a buyer unless you know they can qualify to buy. Be very firm about your time. Every minute you spend with someone who cannot or will not make a move is costing you hundreds of dollars. This includes sellers, too. DO NOT LIST AN OVER-PRICED HOME. Let your competitors waste their time and money, not you. Be very firm in your qualification of prospects, and don't be afraid to say "I'm not the best agent for you." Spending valuable time with a person who won't turn into a commission is like having thousands of dollars automatically sucked out of your bank account. Stop the bleeding right now.

4. Increase Sales By Attracting Higher-Quality Prospects

Where do your best clients come from? Focus more on acquiring and attracting higher-quality prospects. This will help you sell more homes in this challenging environment. Modify your lead- generation advertisements to repel unqualified prospects. If a prospect is unqualified, you don't want to waste a penny trying to convert them into a client. The highest-quality prospect is a referral. The problem is that referrals are typically limited in supply and dependent upon someone else. Instead, create strategic joint ventures to attract high quality referrals in large numbers. For information on how to do this, read this article: "Referrals on Steroids." Working with referrals is one of the best strategies for increasing your cash flow because you don't incur any advertising expenses, leaving your entire commission as profit. Referrals are your highest-margin clients. Reallocate time and money away from low-quality prospects into creating high-quality referral joint ventures.

5. Create BIG Pay Days

You have a huge advantage in today's market because you get to see great "deals" before anyone else. In today's market, you don't need to qualify with a lender to buy a great deal. In many cases, the seller would be happy to finance the sale of their home for you. Acquire a great deal and rent it for monthly positive cash flow or resell it for a big pay day. There is more opportunity for profit and cash flow in today's real estate market than there was two or three years ago. Use this situation to your advantage.

6. Use "Up-sells" to Increase Your Income From the Same Clients by 20% to 30%

This past week, I had to buy a new printer for my home office. The sales person tried to get me to purchase their upgraded printing package and extended warranty. I passed, but I appreciated the attempt to up-sell. There are countless ways for you to use up-sells in your business. One way is to create a higher level service for prospects. This service would include additional assistance and support for an additional fee or higher commission rate. Another up-sell would be marketing other targeted products and services to your clients and/or database. A great example of an up-sell most agents use is the Home Warranty. What other products and services can you offer to your clients and earn a fee? Moving assistance, home staging, home security systems, passive investment opportunities, etc. The opportunities to up-sell are unlimited. The problem is most agents haven't taken the time to add this cash flow opportunity into their businesses. Be sure you follow all applicable disclosure requirements with up-sells you implement into your business.

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For this article, I read David Nasaw’s biography titled “Andrew Carnegie.” It is a fascinating book, and I highly recommend it. Anything in quotes was excerpted from this book. 

Andrew was what everyone would consider a “rags to riches” story. His family immigrated to the United States from Scotland when he was 13 years old. He began working at a cotton mill upon arrival. After a short time, he changed jobs and began to work as a telegraph messenger for the Pennsylvania Railroad. During his employment with the railroad, he started to invest in companies that supplied the railroad. Soon after he made these investments, these companies began paying big dividends. At the age of 26, he had enough money to travel whenever he chose. His dividend checks arrived whether he was in Pittsburgh or Scotland, working or playing. His railroad salary constituted only 5 percent of his income.

At age 30, he resigned his railroad position to go into business for himself with his former bosses at the Pennsylvania Railroad. By his early 30s, he had accumulated his first fortune in oil wells, iron manufacturing, bridge building and bond trading.

At the age of 66, he sold his steel empire for $400 million dollars. Andrew Carnegie’s share came to $226 million, nearly $120 billion in today’s dollars. He went from zero to $120 billion in 53 years, which translates into $2.3 billion a year. This was accomplished during a time when there were no phones, no fax machines, no Internet, no e-mail, no cars and no smartphones.

In fact, I was amazed to learn that his workday was confined to only a few hours in the morning. He typically would accomplish as much in these hours as most men do in a week. He left the day-to-day decision-making to his partners and managed his businesses remotely via mail and telegraph.

Andrew Carnegie was fascinating. He built an enormously profitable empire in his spare time. Andrew Carnegie’s career started out in the railroad business. He rose to high ranks within the organization and was able to see the future of the railroads, as well as the business opportunities available. The railroad was entering a period of steady and unparalleled expansion. Andrew decided to invest his money in companies that supplied the railroads. He invested in more than 10 companies that sold their products to the railroads. In fact, one of the companies he invested into was a company that built bridges for the railroads. Andrew Carnegie, with partners from the Railroad Company, launched a bridge building company. The company profited from contracts with his former employer, the Pennsylvania Railroad. He had an inside connection because his silent partners remained employed in high-level positions at the railroad. This would probably be illegal today.

His bridge company was spending a great deal of money on ore to manufacture the bridges. So he started an ore company to supply his bridge company. Now, he and his partners made money on both ends of the deal. “They profited from the contract between the railroad and the bridge company; then profited again when the bridge company purchased its iron from their iron mill.”

When he turned 33, he sat down and analyzed his finances. His net worth was about $75 million (in today’s dollars). His annual income in dividends was more than $10 million. He figured that “if he carefully managed his assets over the next two years … he would, he estimated, be able to guarantee this level of income in the future.” Although he could have retired at the age of 35, he didn’t.

At the age of 37, he began to focus all his attention and capital on the steel business. Andrew and a few partners started a steel manufactory. They named this new business “Edgar Thompson” after the nation’s most respected railroad executive.

In 1873, there was an economic panic and Andrew used this situation to buy out many of his partners. These buyouts gave him the controlling interest in the growing steel business.

In 1880, Carnegie decided to purchase about 11 percent of H.C. Frick Coke Company when the owner needed capital to expand his holdings. This was a good deal for the Carnegie because Frick’s company supplied coke to his steel companies. Two years later, Carnegie would increase his ownership to 50 percent. By 1888, Andrew Carnegie would own 74 percent of the stock in Frick’s coke company.

Let’s stop for a moment and summarize four lessons. They are:

1. He was able to foresee the demand for railroad transportation and the unlimited opportunities surrounding this demand.
2. He put all of his eggs in one basket by investing in companies that supplied the railroads. His mission was to supply the railroads with whatever they needed and make a profit while doing so.
3. He had calculated his “enough is enough number” and was focused on obtaining it in order to retire.
4. He consistently increased his ownership percentages of the various businesses by buying out his partners. Usually, this occurred when times were tough or his partners needed money. He turned adversity into opportunity.

These actions by Andrew were obviously very smart, but his true genius came from his overall business strategy. Andrew Carnegie profited from his business expenses by controlling the companies providing his companies with supplies or raw materials. This strategy allowed him to profit from every step in the manufacturing process. Most companies only profit from one step, while he was profiting from multiple steps. 

His bridge company purchased ore from his ore company. His bridge company also purchased steel from his steel company. His steel company purchased coke from his coke company. This means he was extracting multiple profits at the same time.

Now this is all fine and dandy for Andrew, but how does it apply to us? How can we use his overall business strategy ourselves?

I believe there are two separate ways to apply his strategy to our real estate sales businesses.

First off, we can look at where our money is going and try to own or profit from our expenses. Where do the majority of your business expenses go? Do you do a lot of printing? If so, could you own a print company? Do you do a lot of advertising in the newspaper? If so, could you create and own your own newspaper? Do you spend a lot of money on rent for your office? If so, could you own the building and pay rent to yourself? Take some time and study where your money flows. Think of how you might be able to profit from your expenses. Andrew set himself up to profit from his expenses by owning businesses that supplied his steel manufacturing business.

Granted, Andrew Carnegie used inside information and applied strategies that would be considered illegal today. I’m not suggesting that you break any laws. However, I am suggesting that you consider his “profit from your expenses” strategy and decide if you can leverage it yourself in some fashion — legally!

Let’s move on to the second way to use Andrew’s overall business strategy. I am going to flip this around a little, but hopefully you will still be able to see the connection.

Andrew started at the top of the business chain and worked his way down. He went from bridge company to suppliers. Could this strategy work going the other way? Could you start at the bottom of the chain and profit going up?

The idea is to build secondary businesses serving the same customers on top of your real estate sales business. I have built secondary businesses on the back of my real estate sales business. I have leveraged one business into new businesses. However, it is important for you to note that this idea does not work unless you specialize. It is very hard to build secondary businesses if you don’t have a target market.

Think about Disney – they specialize in families. They have built multiple secondary businesses on the back of their primary business, all targeted towards families.

Andrew specialized and leveraged one business into many other businesses. This is an extremely valuable wealth-building lesson.