How to get rich, p.27
How to Get Rich, page 27
I’ve never had to declare bankruptcy, thank goodness, but I sailed fairly close to the wind a few times in the early days. I expect most entrepreneurs do. It has always amazed me how kind many suppliers are if you speak to them on the level. It’s the lying and ducking and diving, the wasting of their time calling you and never having their calls returned that really gets their goat. (They probably knew you were going to go belly up before you did.)
Don’t play it like that. Play it straight. Be honest with them and show them you’re doing your best. You can’t do any more than that.
And do your damnedest to see that the little people get paid, if you can. Your large suppliers will have built a bad-debt percentage into their budget for the year. You will become just another irritating percentage point in their annual accounts. But the lad you hired to answer the telephone doesn’t have a bad-debt percentage built in, or an accountant to keep it all straight. He expects to be paid. And he should be paid, even if you have to sell that nice office furniture you foolishly ordered.
The more honest you are about your misfortune with those affected by it, the easier the comeback will be. There is going to be a comeback, isn’t there? But the more you weasel and fib or tell outright lies or blame somebody else, the less likely it is that anyone will want to do business with you again.
Some people seem to think that out of sight is out of mind. That if they cheat you and a few months or years go by, you will forgive them, or, better still, forget about them. But we don’t forget and forgive people who weasel.
I can remember the name of a man who stitched me up for only a thousand pounds twenty-five years ago. I’ve spent more than that on a fancy business lunch since, and yet if his name comes up I will still cheerfully traduce him to anyone who will listen. If he’d said sorry and been honest with me, I doubt I would remember the incident had occurred.
Screwing up isn’t criminal or deliberate or malevolent. But covering up is, if you get caught. And you will get caught—ask the shade of Richard Nixon.
Closing down a business or going into bankruptcy is a miserable affair at any time. My advice is not to make it worse by omitting to apologize and shoulder the responsibility squarely. But don’t take it too much to heart. There’s always the chance of a comeback.
That sounds easy for me to say. But I came very, very close to having to declare bankruptcy back in the Kung-Fu Monthly days due to overtrading, and I went through many of the procedures I’ve just discussed. It’s a rotten job, so get it done as fairly and as responsibly as you can. Experience is only a name we give to our failures.
You are now a more experienced person. And next time around you’ll ensure that you do not duplicate your earlier mistakes. As old lags tell new inmates in the nick: “You’ve done the crime, now do the time. No whining.” It’s good advice.
Keeping It Straight
Lastly in this section on business catastrophes, I’d like to talk a little about company money, personal money, and keeping on the straight and narrow. About dealing with temptation and avoiding a particular type of catastrophe for which there is not the remedy of a bankruptcy petition or a sincere apology.
When you start a business, you are taking a risk. Sometimes a huge risk, relatively speaking. This can have the effect, if you’re lucky enough to have any success, of muddling in your mind just what money belongs to which party.
It seems simple. It’s your company, and therefore your money. But it isn’t, you know. That’s not how the law sees it and not how your creditors see it and not how the tax authorities see it. It took me a while to get all this straightened out in my own mind and to learn from one or two unhappy experiences.
If you’re game, I hope to be able to save you from the errors I made and that I’ve seen others make on the subject of what money belongs in which pot. It goes something like this.
A limited liability company or corporation is a legal entity. In theory, it is immortal. It has rights and duties just as you do. It cannot be used as a personal milk cow for you to plunder at will. You can certainly milk it, but only within reason, only when there is enough milk to do so, and only in certain ways. If you deviate from permitted methods, you can get yourself in a whole heap of trouble very quickly.
I have a friend, who must remain nameless. You’ll see why in a minute. He is a lovely bloke with a fantastic wife and two great kids. He started with a little more capital than I did (that wouldn’t have been hard) at about the same time I set out. His business is international in scope and must be worth tens of millions of pounds by now. The compilers of the Sunday Times Rich List certainly think so, and have placed him in the lower reaches of their list for years.
But he has a blind spot. He believes he is his company. He thinks he and his company are the same thing. Nothing will persuade him he is not. That’s a huge, potentially catastrophic, misunderstanding.
He has a home in Spain, and what a home! He has equipped it with phones, fax and computers and stays there a couple of months every year, with his family. The company owns the house. He used his company’s money to buy it. He claims he works from that house— and maybe he does, a little.
But there aren’t many people like me. I can sit (I am sitting) in one of the loveliest houses on earth and work. I work eight to ten hours every day locked away in a purpose-built work area. And I can prove I work. I make sure I can prove it. I am not pretending my house is a place where I work for several months every year. It is a place where I work and all the records of telephone calls, computer usage, fax communications and the resulting paperwork proves it. More important, I bought my house with my own money, not the company’s money.
That’s not my friend’s way. Not with a beautiful wife and children at an age when you want to spend time snorkeling and playing soccer with them on a Spanish beach. He doesn’t really work in his Spanish house. He pretends to. For years, I have warned him he is running a huge risk. His company is paying for a “benefit in kind” and that’s just not on. He is breaking the rules and breaking the law by having the company pay for everything and not declaring a “benefit in kind.”
And what’s so bad about that? Rather a lot, I’m afraid.
If (and I pray it is not when) the Inland Revenue catch him, he will be for the high jump. If you use your company’s money to buy yourself a fancy car or a house or a boat or anything at all of that nature without declaring it, you are a criminal. Full stop. And sometimes, the Inland Revenue and the VAT collectors put such criminals in jail. As well as fining them huge sums of money. So why does my friend do it? Because he founded the company. In his mind, he took all the risk and he thinks that whatever money the company has no use for belongs to him. But it doesn’t. Not unless it is paid as salary, or a bonus or as a dividend. This is the thing to keep in the forefront of your mind.
It’s the company’s money. Believe it or not, despite the fact that my friend is the sole shareholder in the company, he is not only stealing from the Inland Revenue by his actions, he is stealing from his own company. It sounds bizarre. But it’s true.
Now I hate taxes as much as the next man. We are ridiculously overtaxed in Britain and the clever-dick “stealth” taxes that our current government loves to worm into the fine print of every budget are a moral disgrace, as well as counterproductive in raising total revenues. So are our inheritance taxes, our so-called death duties. So are capital gains taxes, in my opinion. But my opinion doesn’t count. I do not have judges and police officers and Inland Revenue investigators and jails at my disposal. The government does. It’s crazy to take on an opponent with so much firepower and try to cheat it of what the law says is its due.
There are a thousand other ways sole owners can cheat the Revenue and bilk their company. There’s no need for me to list them here—I’m sure you can imagine them easily enough. But listen to me. Don’t go there. Just don’t go there.
Pay your taxes, remembering that no less a person than a lord chief justice of England once said that an English citizen has not only the right but a duty to pay only the minimum tax applicable to him. You see, even high court judges aren’t too keen on the Inland Revenue! Pay the least tax that is lawful. But pay it.
Because I own numerous companies, I have even set up a private office to ensure that one company isn’t paying for me to make calls on behalf of another. It’s a good system and has worked well over the years.
It needed to. When you are one of the richest people in the country, the Inland Revenue allots you a special “watcher.” This experienced civil servant keeps his or her beady eyes on you and your private and corporate tax affairs. I know he’s watching me—and he knows that I know he’s watching.
Recently, I was investigated by the tax authorities. It was a long investigation and cost the Revenue a good deal of money, I should think. I had never been investigated before. The arguments were complex and related to what tax was owed at what time, as opposed to whether tax was owed or not, or how much it all came to.
I was able to settle for a fair sum. (You always seem to have to settle in a tax investigation, or so I’m told. The taxman rarely lets you off scot-free.) My advisors and accountants demonstrated that I had never knowingly robbed the Revenue of a penny.
It cost me a lot of money to prove it; some of which will be defrayed against my next tax bill. But I wasn’t concerned during the investigation, because I knew I hadn’t cheated anybody. That’s another reason to keep on the straight and narrow. You don’t waste a lot of time covering up and wondering if you will be found out.
The directors of my companies, too, know that I do not “raid” those companies improperly for cash, or force them to buy me my Rolls-Royce Phantoms, Maybachs and Bentleys. Nor do I get the companies to send me abroad for vacations or ask them to purchase houses for me to live in.
This is not because I am a better man, or ethically and morally superior to my friend. It’s because I have been in prison once, for a short while, and I have no intention of going back there again. (I wasn’t sent to prison for anything to do with money—it was over a hippie magazine the government took exception to decades ago.)
My friend, however, has never been to prison. Let’s hope he never does. But I don’t fancy his chances much while he keeps up his idiotic belief that he is his company and he can do what he likes with his company’s money and cheat the taxman while he’s at it.
On a separate and happier subject, if you wind up investing and doing business in the USA, do make certain you become a part of “the non-double-taxation treaty.” This ensures you are not taxed on profits you made in the States and then taxed on them all over again when you bring the money back to Britain. Or vice versa.
As for becoming a tax exile (leaving a country to avoid paying tax by exploiting loopholes in the law), I tried it once, twenty-odd years ago. It may work for some people, but I found it tiresome, oddly disturbing and counterproductive. (Mind you, the capital gains tax in those days was astronomical—something like 80 or 90 per cent, so it was understandable that many of us were on the same Concorde flight on 3 April 1983! You see? The date is engraved on my soul. Exile of any sort is never pleasant and rarely worth the bother.)
How to sum all this up? I’m not an accountant, but it goes like this, I think. If your company can afford to pay you money, then that’s fine, as long as you declare that it has been paid and get ready to pay the tax on that payment. If you find other ways of moving the company’s money into your own pocket without reporting the movement or using a company asset for your personal life, you’re almost certainly milking the cow in a way that is not permitted.
It’s that simple. And my advice is to keep it simple, and to hire competent tax advisors just as soon as you begin earning money over and above your salary.
After all, what’s the point of getting rich and then sitting for a year or more behind bars in a nasty, dangerous environment while the authorities figure out just how much they are going to fine you and how long you are going to rot there? Prisons may have improved since the days of Newgate, but I can assure you they are not pleasant places to be.
There are a thousand professionals who will show you how to pay the minimum tax possible in return for a fee. I reckon that an investment in those services, extortionate as they may seem, is a far better one than fiddling what you should have paid the taxman in the first place.
Getting rich isn’t so difficult. But if you want to stay rich, then pay your taxes and don’t milk the cow without reporting it. End of lecture.
17
A Recap for Idlers
Here we all are in no-man’s land,
The lame and the halt, the sick and the damned;
Tunneling dirt and shoveling sand,
Here we all are in no-man’s land . . .
—FELIX DENNIS, "NO-MAN’S LAND”
Most of us love shortcuts, though they often lead us astray. Or magic bullets which we are told will solve an intractable problem, though we know they don’t really exist. Not in the real world.
This desire to “cut to the chase” is perfectly understandable. Our lives are short, and none of us is getting any younger. But if you’ve just picked up this book and have turned straight to this chapter, then I’m afraid you’re probably in for a disappointment. “A Recap for Idlers” is not a shortcut or a magic bullet to save you reading the rest of the book. Instead, I am going to attempt to recap the “important bits,” or rather, the bits that I now believe were important when I was getting rich myself.
So please be warned: parts of what follow won’t make much sense if you are unfamiliar with what came before.
The Quest for Wealth: A Health Warning
There is no fortress so strong that money cannot take it.
— CICERO, IN VERREM
Cicero was a subtle man. Money can reduce any fortress; but which fortress is he speaking of, do you think? The enemy’s (whoever the “enemy” may be) or your own? Let us assume it is the latter.
So what is your fortress? It is your inner core, your integrity, your belief in the worth of others and the love of those dear to you. Not to mention your own worth. It arises from belief in yourself. And, for a few, from a belief in their own destiny.
Excessive idolatry of money will “take” all those. It will corrode both self-belief and love. It will stretch integrity on the rack. It will “take” the fortress; and it will not be a pretty sight.
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. They aren’t suited to it, and if that sounds defeatist, then consider the fact that the search will take up a great deal of your waking life for many, many years.
You cannot get rich without “wasting” that time. Not unless you were born lucky—so lucky that luck has squatted on your shoulder virtually from birth. You would not need to get rich, then. You would already be rich, in one way or another.
Time is finite. Which is a fancy way of saying that you only have so much of it—then it will run out. When you are young, time seems to stretch into the distance for so far that surely it will always be on your side? When the young catch the old unawares, they may sometimes glimpse a look of naked envy, which is then instantly disguised.
And the old have reason to be envious. Truly, truly, they do.
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. In The Odyssey we read:
And Achilles replied, “Do not speak soothingly to me of death, glorious Odysseus. I would rather live on earth as a bondsman to the meanest peasant, than be king of all the shadows.”
Homer, as always, is right.
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. That is not sentimentality speaking. That is sober fact.
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.
Even should you succeed in becoming rich, unlikely as that is, what will you have achieved? Independence of a kind? The luxury to choose what you wish to do with the rest of your life? Happiness? No, no and no. You will not achieve any of those things. Not when you have too much money.
As Francis Bacon, one of the greatest minds ever to grace England’s corridors of power, warned in his Essays:
I cannot call Riches better than the baggage [hindrance] of virtue. The Roman word is better, impedimenta. For as the baggage is to an army, so riches to virtue. It cannot be spared or left behind, but it hindereth the march; yea, and the care of it sometime loseth or disturbeth the victory.
It does indeed. Wealth makes many demands and, by the time you have acquired it, you will be prey to certain habits. You will fear to lose it and must spend a great deal more time to defend it. No one is “independent” of the human race. “No man is an island entire of itself; every man is a piece of the continent, a part of the main.” Heed the words of John Donne, finest of poets: “And therefore never send to know for whom the bell tolls: it tolls for thee.” Aye, so it does.
No luxury of choices for rich little you. You will be too busy keeping the sea from washing away the sand you have spent so long collecting at such terrible cost to your health and your sanity and your relationships with others. It is always thus. There is no escape. You believe (I know you do) that it will be different for you. But it won’t be. It never is.
