Will Our Kids Approve The $25B Automaker Bailout?

Los Angeles Times, November 21st, 2008:

Congressional leaders agreed yesterday to give the Big Three automakers more time to make their case for a $25 billion emergency bailout, but they demanded that General Motors, Ford Motor, and Chrysler provide detailed plans for using the money to assure their long-term viability without more handouts.

Apparently, the CEOs of these three automakers flew in the Capitol Hill without a plan to explain what they would use the money for. Worse, all three of them flew in with their corporate or private jets instead of boarding commercials. When asked by a congressman, if the bailout was approved, would any of the CEOs sell their jets? No one raised his hand. In fact, Chrysler does not own a corporate jet, but the CEO released a private jet for the trip. For you information, it costs $60,000 for the three jets to fly just ONE trip.

What's wrong with this picture?
The story reminds me of a friend of mime who was starting his business at the time and was shopping for office furnitures. In order to get a bargain, he purposely left his luxury Mercedes-Benz car at home and drove his 12 year old wagon to the shop instead. The reason, he later explained to me, was not to give the shop owner a motivation to jack up the price, because he looked like a rich man. Some of you as small business owners scout the flea market for things that you may be able to sell on eBay or your online stores. Would you wear suits and ties or dress up like a big shot businessman and negotiate with the merchants at the flea market for a few dollars less?

Secondly, when asked how they would spend the bailout money to rescue their business, the Big Three CEOs showed no detailed plans but vague words. It was like saying: "Just give me the money, and I'll figure out how to spend it." Some of you may have experience with getting fund from venture capitalists for your startups, getting a credit line from a local bank for your business payrolls, or trying to convince a potential business partner to join your business venture. Would any of you show up at the meeting without a carefully crafted business plan or any documents that demonstrate all the homework you've done, the best judgments you'll exercise to spend that money, and the efforts you'll dedicate to assure the return of their money?

It just sounds to me the Big Three CEOs somehow lost grasp of commonsense and did not do what small business owners do to survive. Perhaps, they did not care anyway. Even though not interested in a big reward of the bailout package, we - tax payers at least do not want to look stupid in handing in $25 billion to people who do not appear serious about it.

Change the culture driven by the short-term interests
All of us know the Big Three have been losing market shares and revenues for a long time. They are blamed for producing cars that are not as competitive as their rivals. The most obvious problems include low quality and the lack of innovation. But, the root cause of their failure is that these companies have been operated under an atmosphere very much like politics in Washington, DC. Like politicians who only focus on short-term interests and getting re-elected for the next term, the CEOs of the Big Three have focused solely on their quarterly reports and how to pump up their stock prices. That is why you see GM Chairman and CEO Rick Wagoner decided to terminate the EV1 electric car program and opted to produce gas-guzzling vehicles like Hummer. To assure their long-term viability, we must demand these automakers to change that culture from top-down and start focusing on addressing the long-term problems. If we want to see the investment of our hard-earned $25 billion bailout returned, we must demand the same kind of changes we've recently accomplished on the Capitol Hill.

Will our kids approve the $25 billion bailout?
Let's not forget that the $25 billion bailout which is part of the $700 billion rescue package has to be paid for by all of us, our children, and our grand children. Shouldn't we at least ask our children whether they would approve the bailout of the automakers in this picture?

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Choices Of Business Setup

[Updated 11/23/08 with more info about LLC]

A reader has asked me how the business of Project BKO is set up. Good question. There are obviously several choices here in terms of business setup. Which one best suits Project BKO? Let's understand what each form of organization means:

Sole proprietarship
This is the most simplest and easiest form of a business, because the business is operated by one person - the business owner. Generally speaking, everyone can be qualified as a sole proprietor and start his or her own business immediately. The owner can choose to register the business under a different name, but many of sole proprietor simply has the business operated under his or her exact legal name. The owner is responsible for paying tax of the business, which can be done in Schedule C of his or her personal tax filing. The owner pays self-employment taxes (Schedule SE) including Social Security and Medicare taxes.

Although convenient, the downside of sole proprietorship is that the owner is legally bound to and held liable for his or her business. There is no legal protection of the business owner against the potential lawsuits against the business in this form of business organization.

Partnership
This form of business organization extends sole proprietorship to include business partners. Since business partners are independent legal entities, their roles and responsibilities should be written down and agreed upon. In addition, the structure of business ownership and financial responsibility must also be discussed and agreed upon to avoid future disputes. For tax purpose, each partner reports his or her profits or losses from the partnership in the personal tax return. The distribution of profits and losses can be flexibly determined and agreed upon by partners.

Limited Liability Company (LLC)
LLC allows you to bring in the investors as your business partners. There is no limit on the number of partners. Tax wise, LLC is very much the same as partnership. More importantly, LLC provides the business owner and partners legal protection of a corporation. That is, they are not personally liable to the actions taken by the corporation.

Incorporation
Incorporation is the most complex corporation structure that I have not done enough research at the moment.

Project BKO as a sole proprietorship
I choose sole proprietorship for its simplicity, since Project BKO is still at its infancy. I'm also not considering hiring any employees other than my two kids for the time being, so I don't have to worry about payroll taxes (e.g. social security and medicare taxes). In fact, hiring your kids of 18 years old and younger as employees has some tax benefits, because they are at a much lower tax bracket. On the other hand, I'm very interested in LLC for the benefits of legal protection, if the project goes well and my businesses grow. In any case, a business is not stuck with its initial form, and can evolve into a different form according to its needs.

There are companies that provide online filing services for registering your business with state and local government, if you decide to do it yourself. Read the hub written by Glass Visage for comparison of some popular products and services.

As a disclaimer, this post serves as my personal understanding. You should definitely discuss with your business consultant or tax adviser for your business.

What Do You See Yourself 10 Years From Now?

A reader of Project BKO has noticed my newly posted avatar and asked why I appears to be at a beach in a Hawaii shirt.

Good question! I have had this picture in my head for a long time - someday I'll be retiring in Hawaii, laying on the beach with palm trees, watching the blue ocean and sky, and maybe still be blogging, since it has become a habit and part of my life. Isn't that the "American Dream" everyone has been talking about? Or, is that too much to ask? There are probably not enough islands for all of us. I probably can't afford an apartment over there, because "Rich Dad" has been and is still doing his real estate business over there.

In any case, that is the "10-years-from-now picture" I have painted in my head and is what I am shooting for with Project BKO. Regardless of your age, job, and condition today, we all should start painting a picture in our head. You don't need a crystal ball to see it 10 years from now. Rather, put down whatever you are doing now and close your eyes for just a few minutes. When you do, you'll start seeing many things or concerns coming into the picture. You have to start sorting out and navigating through those issues, before you can clearly see yourself 10 years later. You see, the problem with people living in a modern world is that everyone is rushing to get ahead of someone else and to get somewhere. They don't even have time to stop and say hello to people passing by. You'll be amazed by how fast 10 years can go by. How often do we stop and ask ourselves:

"Am I at the place I wanted to be 10 years ago? Am I going along towards the direction I want for myself 10 years later?"

It is so easy to get lost in a world where everyone seems to be so busy in doing what they are doing, especially during this economic condition. But, maybe it is the perfect storm that slows you down a bit to catch breath and start painting that picture.

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Teaching Your Kids Family Values

[Updated 11/23/08]

Family values describe the principles members of a family practice and live by. Values vary in each family, depending on its cultural roots and background. As young members arrive and grow in a family, their concept formation and behaviors are naturally influenced by their parents as well as one's family values. Even so, it is necessary to constantly remind your young children of the principles and the values you believe in. How would you do that? I'll share with you some of the mechanisms my wife and I used and still use in raising our two kids, now at 11 and 14.

#1 Spending time alone with each of your kids
Many kids do not care about what their parents tell them to do or not to do. They have totally different thoughts - something their parents do not understand, either. I have found that communication with kids is perhaps the basic foundation of parenting and that communication must be conducted at personal level. I have personally spent lot of my time with each of my kids privately. We talk about all kinds of things from what they did at school that day to why the world has become "flat." I also take opportunities to discuss articles I find interesting in the newspaper or magazines. The more time you spend with your kid(s), the stronger bond you will have with him or her. To me, this is the most important practice, that I want to show my love of my children through connection and understanding.

#2 Set clear expectations
It is very common that new students make more mistakes or violate more rules in class. It is not because they are not as good as the other students who have been around, but because they do not know the expectations of their teacher. That is why experienced teachers spend the first day of school telling their students about the effort and behavior expected in class. In elementary schools, the most common way the teacher does this to write down the class rules and maintain a behavior chart for tracking purposes. In my family, all four of us have agreed on a set of rules that we would like every family member to follow. We call these rules our "Family Laws" that reflect our family values. In making our family laws, we discuss and explain to our kids the concerns as well as reasons. The rules will be more effective if we have buy in from our kids. While practicing our family laws, we maintain a chart on our refrigerator that shows the accumulated points rewarded by following the rules. Of course, there are penalties stated in our laws when the rules are broken. We also review our rules every quarter to address the needs.

#3 Reward points or celebrations instead of cash
Many kids do not have a good understanding of money. Needless to say, they do not know how to manage it. My wife and I prefer not to give our kids money, until they have a better grasp on the concept. We taught them the concepts of liabilities vs. assets and saving vs. spending. We discussed why Americans are perceived as reckless spenders with a personal savings rate of 0.7% of their income (as of October 2008 in contrast to 25% in China.) That is why we choose points over cash for rewarding good behaviors or accomplishments. (It is the opposite of the rewards that you expect from your credit cards, though.) We also celebrate almost every week about anything, such as, being a good helper, being a good citizen according to our family laws, or getting a complimentary comment from the teacher. We prefer to recognize a good effort they make, even if it is tiny, rather than having a huge birthday party.

#4 Be a good role model
Our family laws are for all members in our family, not only for the kids. Parents earn respect from their kids by following and not violating the same rules. Kids not only inherit genes from their parents, but also mimic their behaviors. If you do not want your kids to smoke, quit smoking yourself.

#5 Play by rules not emotions
One purpose of our family laws is to teach our kids to handle things by law, not by emotion. Many parents get upset by nature, when their kids make a mistake or conduct bad behaviors. The problem with that is sometimes kids get too many penalties or too little depending on how upset their parents are at the time. That is both unfair and confusing to the kids. That is not the way our society works, either. Both prosecutors and judges must abide by the law regardless of their personal feelings towards the defendant or the case being handled.

#6 Start early
It is much easier to correct a behavior before it becomes a habit. Whatever principles you want to follow in teaching your kids, it is always more effective to start earlier than later. All of the ideas I have discussed in this post can be practiced in many different ways according to the maturity of your kids. Even though babies are not able to speak, you will be surprised that they do sense or feel differences from various responses of their parents.

Summary
There is no end when it comes to educating our kids. There is always room to learn more and improve. I hope you found these ideas useful. Before you try any of them, keep in mind that every kid is unique. You may have to apply the ideas to accommodate uniqueness of your kids. Lastly, do not forget your love with your kids is the foundation of all these ideas.

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Prepare Kids For Entrepreneurship

[Updated 11/15/08]

As I mentioned in the Birth of Project BKO, I took the challenge of this business adventure as a way to teach my kids what entrepreneurship is about and what opportunities it would lead to.

My son is 14, and my daughter is 11. My son is a freshman in high school, and my daughter is in the 6th grade, respectively. Although both have done a great job at school, I have wondered if they would grow up to be middle-class workers like myself. If they were not given opportunities to be part of a business, they would probably have no ideas about how to start one of their own. I think the best way to "teach" our kids is to engage them directly in what we want to show them. Engagement is the key part of parenting, in which I have believed in.

Book Smart v.s. Street Smart
Education is key to one's success, though not everything. We have seen in Donald Trump's Apprentice show on TV, that the people who were hired must be both book and street-smart. We have seen college drop-outs like Bill Gates have huge success in his career and create one of great of the greatest companies in America's history. I admire his great courage at such a young age. Be aware that Mr. Gates did not make a blunt move, after he woke up early one morning. He had been working on something alongside his studies for some time, and was able to make a brisk decision when the opportunity came by.

Entrepreneurship is the Life-Blood of America
Entrepreneurship does not always begin with a business. There are steps to prepare kids before they can get the hang of a business. The key here is that they must take actions on a business-related idea. For example, they can start with a lemonade stand at the front of the house. They can also get a summer job in a fast-food restaurant or another organization. They can start selling candy door-to-door, with adult supervision, of course. I even consider trick-or-treating on Halloween a fun exercise for entrepreneurship, because kids gain confidence in door-to-door selling by knocking on doors, and then gaining a reward.

That is the kind of preparation in which I would like my kids to be part of at their young stage in life. It is fine, if one is not aware of the existence of an opportunity, but is depressing, if he or she finds himself or herself unprepared, when the opportunity finally arrives.

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