Using Other People to Make You Money

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Using other people money

While leveraging assets and capital are fundamental wealth-building techniques, these techniques cannot succeed without also leveraging people. At the end of the day, every deal, investment or transaction needs people to manage or oversee it. No matter how rich you are, you still only have 168 hours per week. To our knowledge, no one has figured out how to be in two or more places at one time. As a result, the single most powerful type of Leverage is the Leverage of people. By properly leveraging people, you can have multiple levers working at once. This is where greater wealth is created.
This chapter is going tUsing Other Peoples Moneyo explain why—and how—to get the most out of leveraging people. More specifically, we will focus on:
1. Leveraging employees
2. Leveraging advisors

Leveraging Employees
The most common method of leveraging people is by hiring employees. Those with financial means can afford to hire other people to do jobs for them. The employer has successfully Leveraged people if the collective group of employees helps the owner earn more money than the amount it costs the employer in salaries and benefits.

Simple Leverage: Pay Less Than Productivity
The more employees you have, the more potential Leverage opportunities you have. Sometimes you hire staff to support these employees. That is an investment that you hope increases the productivity of the other employees by more than the cost of the administrative help.
To Leverage your employees successfully and yield a profit, a simple rule is to pay people less than the value they provide your firm. Law firms have followed this lesson for years. For example, law firms may bill out attorneys to their clients at $200 per hour and require the attorneys to bill out 2,000 hours per year. Though the firm collects $400,000 for the services of the particular attorney, they may only spend $300,000 for that particular attorney’s salary, benefits, and allocated overhead. The firm earns $100,000 per attorney. If they can afford to hire 10, 20 or 100 less-experienced attorneys and can find enough work to keep them busy, the senior partners of the firm can earn a very nice living-10 to 25 times that of Average Americans and 5 to 10 times that of a less experienced attorney. In doing so, law firms are leveraging their employees’ productivity. They are training less expensive attorneys to do the work. This, in turn, enables the senior partners to focus on very profitable activities like landing contacts and building relationships for the firm.

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Benefits to Leveraging Advisors

Posted by & filed under Business, Business Owners, Doctors, Team Members.

Leveraging Advisors

Leveraging Advisors
Leveraging advisors is one application of Leverage that the wealthy believe is integral to their success, yet many Doctors ignore or undervalue it. Look at any wealthy person’s inner circle and you will almost always see key business and financial advisors who are involved in most of their decisions. The advisors’ charge is to help develop a plan, analyze how every step fits (or doesn’t fit) into their plan, and help them avoid numerous pitfalls that could arise from straying from the course.
Simply put, most successful business owners recognize that it makes more sense to hire advisors to help them handle their planning than it does to try to do it themselves. Doing it them-selves is not only a bad idea because the client undoubtedly does not have the experience and expertise in all the areas needed in planning, but it also violates the principles of Leverage.
By “doing it themselves,” Doctors would be spending their time sub-optimally, instead of in the desired highest and best use of their time. In other words, does it pay for a neurosurgeon to spend three hours of his time researching a disability policy when a disability expert could do it in one hour? Also, consider that those three hours could have been spent seeing patients and making more money than the disability expert will be paid. And do you think the Doctor would enjoy this research more than he would enjoy playing golf or relaxing on the beach? Probably not.
Finally, what is the likelihood that the Doctor will make the right analysis and decision on the policy? Is he an expert? Has he looked at hundreds or thousands of policies in the past? Why would you think he would do any better job performing this task than would the disability expert in performing a neurological exam?
Despite the obvious pitfalls of fighting the principles of Leverage, some Doctors make the mistake of foregoing advisors and attempting to “do it themselves.” They are stuck in the mindset of saving a penny and losing a dollar.
This leads us to a very important statement that may seem crazy at first:
Doctors must realize that time is worth more than money.
Instead of looking for ways to save money by doing things themselves, Doctors must look for highly qualified people to handle as many tasks as possible so they can focus on the best possible use of their valuable time. Since the right advisory team has expertise that physicians don’t have, the right advisors can do the job in much less time than the physician or the wrong advisors could. Since a job done poorly will need to be repeated, doing it right the first time, even at a higher hourly rate, can actually save money in the long run. Additionally, when a Doctor can pay someone to do what they do best, this gives the physician more time to do what he does best—which undoubtedly is what will make the most money (seeing patients, running a practice, investing in real estate, etc.).

Complexity Demands LePeople meeting at computer - Contemporaryveraging Advisors
We have found that, the greater the wealth of the individual or family, the more important the role of the advisor team. As the client’s wealth increases, the more complex the comprehensive financial situation becomes. As the situation grows more complex, the client’s need to Leverage the advisors’ expertise and experience to save time and maximize total benefit increases exponentially.
To illustrate how complexity grows exponentially, let’s consider the following two situations. The first chart below shows the relationship between two people. The second chart shows the six different relationships that exist when you have four people in a group.

Situation 1: Relationship Between Two People
In the chart above, you can see that John and Paul have one relationship. There is only one relationship when you have two people. This seems relatively easy to manage as you have two people and only one relationship. Let us see what happens to the complexity of the interactions when we have four people in a group. This is illustrated in the next chart.

Situation 2: Relationship Between Four People
In the chart above, you will see John, Paul, George and Ringo. There are two additional people than we saw in the first chart. Doubling the number of people in the group actually increased the unique interactions by 500% from 1 interaction to 6 interactions (John and Paul, John and Ringo, John and George, Paul and Ringo, Paul and George, George and Ringo). Though it only takes one good relationship for two people to work together, it takes six good relationships for a group of four people to work well together. If one of the six relationships is strained, the entire group may have to be disbanded.
This same analogy can be applied to the elements of your financial plan. All elements of your plan, and all advisors in your plan, must work well together. That means that it is at least 500% more work to manage four businesses or elements of a comprehensive financial plan than it is to manage two businesses or elements of financial plan. If you have eight businesses or elements of a plan, then you have 56 different interactions to monitor. You can see how the complexity of the situation increases quickly!

To see how this general theory of complexity can be practically applied to planning for physicians, we need to understand what the physician’s concerns are. Below is a partial list of common financial planning concerns among physicians:
· Managing growth of the assets
· Managing lawsuit risks from employees, patients, and competitors
· Protecting assets from eventual lawsuits
· Managing the investment risk while attempting to grow assets
· Managing tax liabilities to maximize after-tax growth
· Managing business succession and estate planning concerns
· Protecting family members against a premature death or disability
· Protecting family’s inheritance against lawsuits, taxes, and divorce
Surprisingly, physicians worry about all of the More