Friday, March 24, 2017

Borrowing Money to Run Your Business

A few days ago I put a note on Facebook about a new financing opportunity from PayPal. If you have a lot of income via PayPal, you can get a loan and pay it back by dedicating X% of your sales to payments.

There's a onetime up-front fee that varies with the amount you borrow. For example, when I checked, a $20,000 loan would have a $1460 fee - that's 7.3%. Not the cheapest money in the world, but way better than putting things on a credit card. The percentage rate varies depending on the amount borrowed.

Next, you choose the percentage of each sale that will be used to make loan payments. So, instead of having one big monthly payment, you make payments every time money arrives via PayPal. You also get to choose this percentage - within limits. Your interest rate above is also affected by the payent percentage you choose.

For example, you might choose to have 20% of every sale go to your payments. Thus, a $1,500 managed service payment would automatically make a $300 loan payment. It might be a little painful BUT if you manage the money you borrowed properly, you should always have the cash flow necessary so that payment doesn't hurt too much.

If you do your credit card processing through PayPal, your payments will flow out on a regular basis.

ANYWAY - I'm not necessarily advocating this program, but I think it's a very clever way to finance something if you need it.

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Danger Will Robinson!

As soon as I posted the one-sentence note about this on Facebook, my friend Andrew posted a comment that you shouldn't be borrowing money for your business. Andrew helps figure out the value of businesses as a part of his job as a business broker. So I take his advice seriously.

But I believe there are lots of legitimate reasons to borrow money for your business. You just need to have a mini business plan that includes a specific way to pay it back.

There's one big reason NOT to borrow money. But, first, here are some very good reasons you might borrow money.

1. Buying hardware and software for resale. When you buy something from Ingram, Synnex, D&H, etc. you are borrowing money. You order a server and pay for it within 30 days on your company credit. Personally, I get paid in advance for all hardware and software orders. But if a supplier will let me pay 30 days later, I usually do that. After all, it just means I get to use that money for an extra 30 days.

2. Marketing. This is a little more dangerous. If you borrow money to do marketing, you better be darn sure it will work. You know the old saying, "Fifty percent of my marketing doesn't work. I just don't know which fifty percent." But if you've got something you know will work, then borrowing money here should result in a positive result.

3. Expanding your business. Again, also potentially dangerous. If you need to add a staff member to fulfill a contract, or you want to open a second office in another city, it may make sense to borrow money to get that done. But once again, you should have a mini business plan to make sure you really understand the cost of expansion.

Many businesses go out of business exactly at the moment of expansion. This is because they borrow a lot of money, start the expansion, and something happens. It might be that they underestimated the expense, or the economy went down, or that there were delays or problems of some kind. So, instead of staying comfortably small, they borrow to grow and the whole thing collapses.

4. Special Projects. This might include buying hardware for a HaaS (hardware as a service) offering, or prepaying for certain materials in order to get a better deal. There are lots of opportunities that require a little more cash up front than you happen to have. But have a budget for the project. Know how you'll pay it back. If you can't point to the dollars that will repay the loan, don't take it out in the first place.

Five minute video on this topic.

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The Big Danger

When should you NOT borrow money. In my opinion there is one very bad time to borrow money: To fund the daily operations of your business. In other words, if you need to borrow money one or two or three times per month just to keep things going, that's a danger sign.

Full disclosure: I've done this. It hurt. I paid the price. Some lessons are learned by paying the tuition in full.

If you have to borrow money on a regular basis just to make payroll or pay the rent, you have a cashflow problem. That is a real danger sign. It means three really important things are going on. First, and most importantly, it means that you either need to increase revenue or decrease cost.

You might say, "Duh." But 99% of the people with cash flow problems are in total denial. It will be okay, they think. We'll get another sale, they say. After all, you're a positive attitude kind of person. So you know the money will flow. But if you're in this situation again and again, you need to wake up to the dangers of cash flow.

The second thing that happens is that you borrow a little money here and a little money there. And because you have a cash flow problem, you don't always pay it back within thirty days. Because you can't. Because you have a cash flow problem. The result is that you go deeper and deeper into debt.

First it's a few dollars here and a few dollars there. But it keeps adding up. Soon it's a thousand here and a thousand there. And then you realize you owe tens of thousands of dollars and you have no way to pay it back - because you have a cash flow problem.

The third thing that happens is that you have no way to save for retirement. Why? Because you have to borrow money just to get through the month. There's nothing left over to invest in the future.

Borrowing to run the daily operations of your business is the canary in your coal mine. That's because it's hard to reverse, the longer you do it. And eventually, when you want to get out, your books will show that you have an unsustainable business. It may have a very low valuation simply because you have bad cashflow.

So the bottom line is . . . It's okay to borrow money. But be extremely clear about why you're borrowing and how you will pay it back. One of the things I like about the PayPal program is that the "paying it back" part is built into the loan agreement itself.

Take care. Go slow. Use money wisely.


Friday, March 17, 2017

Want to Be Successful? Learn IP, TCP, DHCP, and DNS!

Last year, I wrote a blog post for SolarWinds MSP entitled "If It's IP It Belongs to Me." See:

There's Danger in not learning TCP/IP !

By IP I did not mean intellectual property. I meant Internet Protocol. Like TCP/IP. That post was about the trend of all "things" to use IP as their preferred communication system. Gradually over time, all technologies are moving to IP and TCP/IP.

If you don't know the difference between IP and TCP/IP, then you need to go to school. I literally just got off the phone with my friend Robb Patterson, talking about how the phone installers all think they're going to take over YOUR business. But they won't - unless they hire a network engineer who really understands how to set up and troubleshoot all things IP.

It's much easier for you to learn about phone systems than for them to learn the intricacies of troubleshooting IP networks. More and more, IP is becoming the standard for moving data across all kinds of equipment and technology. Your competition will do well to learn more than the absolute basics of IP, TCP, and DHCP.

Troubleshooting an IP camera system? An IP security system? An IP telephone system? The most important skill you’ll need is a good thorough understanding of TCP/IP. If you have a grasp of the 7-layer OSI model, that’s even better.

I posted a related video on this today:

As always if you have any thoughts to share, feel free to leave a comment below!


Thursday, March 16, 2017

Webinar - The Most Important Rules for Running a Managed Service Business - March 28th

I'm super happy to announce a brand new webinar I'll be doing with SolarWinds MSP on Tuesday the 28th

The Most Important Rules for Running a Managed Service Business

Tuesday, March 28, 2017
8:00 am Pacific Daylight Time (11am Eastern)

Register for Free

Here's the scoop:

Over the years, I've put together a list of the definitive rules for my business(es). These are the twenty-two rules that make us successful, keep us profitable, and virtually guarantee that we will deliver excellent service.

OK - I'll be honest. We will not be able to go into detail on all twenty-two rules. But I *am* giving you a free handout that includes all twenty-two. every bulletin board in your office. And we'll cover enough so that you'll see how they all fit together.

I'm not kidding when I say that I could easily turn this into a 22-chapter book on the absolute best practices for running a successful and profitable IT business.

So please join us live on the 28th. I promise you won't be disappointed.

Register for Free

Thanks to SolarWinds MSP for making this possible.


Friday, March 10, 2017

Monkey Hooks and Marketing

99% of businesses don't need what you're selling 99% of the time. So how do you market in a way that people think they NEED you?

No one needs a monkey hook (that thing pictured here). So whey do they buy it?

Because they need to hang a picture!

You've heard it before: No one needs a 1/2" drill bit. They need a half inch hole. In other words, clients don't buy from you because they need a "server" or a NAS or a router.

They buy because they need a place to store their stuff or they need to get to the Internet. They buy solutions, not products.

In my latest video I talk about what clients are looking for and how you can position your company to provide the solutions clients need. Not Servers, Backup Systems, or Anti-Virus. Instead, they're looking for Security, Peace of Mind, Uptime, and Efficiency.

Check out the video. Subscribe to the channel. And pass it along to a friend.

More SOPs at


Wednesday, March 08, 2017

Scattered Client Doesn't Mean Scattered Data

I got a nice note from my friend Mark asking about a specific client challenge (which probably sounds familiar to many of you):

Hey Karl,

I am looking forward to the next service board class and my wife enjoyed the recent QuickBooks training. Thanks!

I have a question about your cloud setup. I just got out of a meeting with a client that has sbs2011 and is moving to D.C. Long story short we have moved them to Office 365 and disabled exchange on their server. Next step was to setup a newer smaller server to handle AD, DHCP, DNS and File Server. Problem is she is now considering working from home and having the other users (only 2 other users) work from their homes. By the way you explained your system it sounds like yours would work in this scenario. We already have her on VOIP so her phones are good. Only thing I am not sure is how they can do file sharing in a similar way they are doing now. Also do I join them to an Azure domain for authentication?

Appreciate any input.


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My response:

Thank you for the very positive feedback.

You need to attend my cloud roadshow !!!

Seriously: We use and recommend JungleDisk with storage at Rackspace. to get started. They are re-starting their reseller program so I’m not sure if that’s an option yet. But it’s still the right solution. We put the whole thing on our credit card but use the client’s [email protected] email address for the account. That way they could control it if we disappeared.

Anyway, with JungleDisk, their data appear on a mapped drive. It’s identical for everyone everywhere, just like hosted exchange mailboxes.

I don’t sell O365 direct because it’s about a hundred times easier to manage via Intermedia, Rackspace, Appriver, etc.

Once you’ve got hosted exchange mailboxes in place, setting up hosted active directory is easy. Obviously, it’s best if these are with the same service provider.

I go into a lot of detail about putting bundles like this together in the roadshow. This client sounds like a perfect fit!

If you sign up for any city, you can log on, get all the downloads, and listen to the recorded sessions from past cities.

Hope that helps. Sorry to sound like a salesman.

- Karl W. Palachuk

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Followup: Is there a discount if I bring one of my techs?

Yes! Second (attendees pay only $299).


Thursday, March 02, 2017

Form Good Habits and Become Their Slave

One of my favorite Og Mandino quotes is:

"I will form good habits and become their slave."

I like it so much, I had post cards printed with that slogan.

In the last week, I've had several interactions that highlight how my "good" habits have served me well. On three different occasions I've been asked some version of how I get so much work done. Do I edit my own videos? Do I write all my own books? Do I write every day?

Yes, yes, yes.

And the last of these is the key. I read every day. I meditate every day. I write every day. These are the muscles of my success and I exercise them every day.

I travel a lot, and there are plenty of temptations on the road. One obvious temptation is drinking. Everyone gets together in the evening, hanging out together, and it's a great social atmosphere. But those who are successful traveling a lot have learned to limit their drinking. At some point you have to.

One of my habits of success that makes this easy is: I don't drink shots. Ever. Period. From time to time someone will show up with a round of shots and I'll just adamantly decline. Some people are very pushy. Even when I tell them I have a "rule" about this, they say I should do it just this once.

The more you do something (including declining to do something), the easier it is.

Another rule: With only a few exceptions, I don't leave the conference hotel. I don't go to clubs downtown. I don't go out to events. And even if someone starts strong-arming me at ten o'clock because they want to go party hours later, they never wear me down.

Because I have rheumatoid arthritis, I literally cannot go partying all night, even if I wanted to. And when I run out of steam, I need to go straight to the elevator and go to my room. If I'm somewhere else, that's not possible.

It becomes easier and easier to hold to these rules when I break them. Every time I wake up feeling tire and worn out, it's easier to say I'll never do that again - and mean it.

I know several people who sneak out of the evening entertainment while nobody's looking. I see these folks city after city, all across the country. They wander off as if to refresh their drink or use the bathroom, and they never return.

I never give them a bad time or ask, "Where did you go last night?" because I know that one of their habits of success is to get a good night's sleep. Or maybe it's to make a phone call to the family. Or maybe to get some reading in before bedtime.

They opt out of the fun in the moment because they're focused on the long term.

Over at, I have a "pith" page full of my favorite quotes. You'll see that a lot of them are around habits.

It can take a long time to un-do old habits and create new, good habits. But the longer you work on it, the better off you'll be. When your good habits become automatic, everything gets better. That's why i call them the muscles of success. The total combination of all these habits becomes the grand habit of being successful.

Of course your good (and bad) habits are not the same as mine. You have to figure out what they are and then work to build the good and drop the bad. And the worst excuse of all time is that you're too old to start now. If you're alive, you'e not too old to improve your life!

Start with the habit of taking some quiet time every day to think about what's working and not working in your life. Then start building your habits of success.