You are an investment for the bank. They invest in your ability to pay them back plus interest. The interest is their return. Your interest rate will depend on their assessment of your creditworthiness. If they deem that you are a good credit risk (ie, low risk), they will give you a low rate (ie, low return for the bank). If you are seen as a high credit risk, you will be charged a high rate.

This balance between risk and return is the entire basis of modern portfolio theory (MPT) and upholds the underpinnings of every investment made, by the bank, by hedge fund managers, and by you. However, just because Warren Buffett uses MPT when making investment decisions does not mean that it is too complicated or too difficult for you and your investments.

Yes, the underlying mathematical formulas are not simple. Harry Markowitz, Merton Miller and William Sharpe did not win the Nobel Prize for strolling in the park, but you do not need a degree in economics or finance to benefit from their award winning findings.

All assets have the same characteristics: risk and return. They also tend to have some correlation to each other, meaning if one particular assets changes in price, another asset will change in price as well, sometimes more, sometime less, and sometimes in the opposite direction (negative correlation).

The degree to which an asset fluctuates is called standard deviation. The higher the standard deviation, the greater the fluctuations are likely to be. If you do not like to see your portfolio move from great highs to great lows and back again over short periods of time, you would prefer to have your standard deviation as low as possible while your portfolio is growing at the highest rate possible.

By combining assets with low correlations into a portfolio, you can offset some of the risk in the riskier assets while still maintaining a higher return. The Nobel Prize was given for discovering the “efficient frontier” – that line along which a combination of assets can give you the best return for the lowest risk.

The problem with investing along the “efficient frontier” is that correlations are all based on historic performance, which if you have spent anytime listening to investment shows or reading about different assets, you will know that “historic performance is not predictive of future performance.”

So what now? Did I just lead you in a giant circle? Yes and no. Trying to build a portfolio of individual securities along the efficient frontier would be a useless statistical exercise because the volume of data that is constantly shifting would make it impossible to keep your portfolio on that frontier for any lengthy period of time.

Imagine trying to bake a cake by selecting just the appropriate number of sugar crystals and flour specs. It would take forever and would not yield a better cake than following the recipe by taking one cup of sugar and two cups of flour.

Basically, that is what your portfolio is, a recipe made to your taste, with each asset class representing a different ingredient. Tomorrow I’ll cover asset allocation and how to spread your investments across asset classes to lower your risk for a comparable return.

The drawback is everyone thinks so. When choosing to meet at a public place, make sure of the following:

• It’s not an issue to be meeting with the person you are meeting with. If someone sees you, would that scuttle a deal, be a cause for gossip, or start unfounded rumors.
• Don’t talk about anything or anyone in a negative light if you don’t want it to get back to that person. It’s amazing who knows who and someone might overhear a snippet of a conversation and pass it on.
• Be prepared to see people who you know and greet them. It’s embarrassing to see someone out and not recognize him or her.
• Be pleasant with people you know who are not in your party, but don’t spend more than 30 seconds talking with them. Not only does it interrupt his or her conversation, but it is also rude to the person you are meeting with.

Meeting in a public place is a nice way to mix business with pleasure; however, make sure you follow these simple rules to stay out of trouble.

Schedule:
April 21, 2008: Solicitation was issued for public release
May 19, 2008: DoD began accepting proposals
June 18, 2008: Deadline for receipt of proposals by 6:00 a.m. EST — plan ahead and submit early.

Also, don’t forget proposals for the latest NSF SBIR solicitation are due on June 10th at 5:00 pm.

Because the English language is complex, sentences can be interpreted in different ways. It would be too bad if one reading of your rules allowed everyone who is entered to win.

Therefore, always have two or three others read your rules for interpretation issues. It is best if those people are not like you at all. For example, if you are an engineer, have a marketing person and the receptionist read the rules.

Finally, always allow yourself an out. The last rule should read, “In the case of a tie or other dispute, the final winner will be determined by the judge/panel/committee. All such decisions are final and not up for debate.”

Theft and fraud can take many forms:

• Stealing of supplies and petty cash
• Creation of fictitious employees
• Exaggerating or fabricating expense reports
• Running a personal business on company computers
• Excessively using corporate time to complete personal tasks
• Shipping and billing scams
• Creating false vendors
• Stealing and forging checks

Most employers think that it can’t happen to them because they have hired trusted employees or their employees have been with them for multiple years. But what they don’t realize is that the typical perpetrator is a first-time offender.

The offense often starts because the employee is facing financial troubles and often just “borrows” money or supplies, but then has to steal again to cover the initial crime. In other cases, the employee feels justified, believing that the employer owes him more than he is being paid.

What should be really frightening is that the average time it takes for an employer to catch a fraud scheme is 18 months, and on average, 42 % of fraud victims recover none of their loss.

Prevention

• Segregate accounting duties and change who has what duty at random intervals
• Have easily readable and organized invoices and shipping records
• Minimize the amount of cash on-hand
• Keep blank checks locked up
• Have payroll additions done by a different person than the person who runs payroll
• Follow up on customer complaints about credit for payments
• Conduct background/credit checks on all employees
• Secure fidelity bond dishonesty insurance
• Include an anti-theft policy in your employee handbook

If you suspect employee theft, don’t wait to begin an investigation. If you find evidence of a theft, you should contact your attorney for steps how to proceed.

If you decide to confront the employee, keep calm and allow the employee to explain. Although you would not want to keep that employee, you may find in the explanation that additional fraud had occurred or other employees were involved. Don’t threaten the employee to get your goods or money returned as it may be seen as blackmail and hurt your case in the future.

The best way to stop employee theft and fraud is to prevent them from happening in the first place. Be clear in your policies and make sure that they are followed. Hire trustworthy employees and pay attention to them over time. Your business may be at risk if you don’t.

If your customer pays you in an arms length transaction within 90 days of declaring bankruptcy, you may be required to return that payment to the trustee. Not only that, but the trustee has up to two years to reclaim that payment. This is defined in Bankruptcy Code §547.

Example, you sell a carton of widgets to ABC Store for $10,000. Thirty-five days later (about 10 days after they normally would have paid), ABC Store pays your invoice. Thirty days after that, ABC Store goes bankrupt. If you don’t have any outstanding invoices, you might not even know. A year and a half later, the appointed trustee demands the $10,000 back. Is this valid and legal? Yes, it is, and without an accepted defense, you will be required to return the $10,000 and file a claim against the debtor.

Defenses to the recovery of a preference are found in 11 U.S.C. 547(c).  They include:

• cash transactions such as COD ( contemporaneous exchanges);
• payments made in the ordinary course of the business of the debtor and the creditor on ordinary business terms (i.e., the payment is not made late);
• security interests that secure debts that bring new value to the debtor (you get paid, then you send the goods); and
• amounts of subsequent credit extended and unpaid (you send more widgets after you were paid).

These defenses have to have occurred before the customer declared bankruptcy and must be raised in an answer to a preference complaint. It is up to you to provide the proof that the defenses are valid.

So how can you protect yourself?

Once the customer has declared bankruptcy, you can only gather your documentation and find a good bankruptcy lawyer. However, if you suspect that a customer is having financial trouble and may go into bankruptcy, you should immediately contact a bankruptcy lawyer to determine what actions you can take to protect any payments that you have already received.

Somewhere along the way in the last twenty or so years, companies realized how expensive it was to provide a defined benefit plan (meaning you were guaranteed a fixed sum per month upon retirement). Improved healthcare means retirees are living longer than was expected when the plans were originally set up.

With pressure from Wall Street and general economics, companies began cutting these plans in favor of defined contribution plans (meaning the company will put some amount in, but will not guarantee what will be there when you retire). The best known defined contribution plan is the 401k plan.

By switching from a pension to a 401k plan, the company saves significant money, but places the onus of saving for retirement entirely on the employee. At the same time, the savings rate of Americans has dropped from the 8-10% rate seen in the 60’s and 70’s to 1.2% in 2007.

What this means is that most people have no savings and no idea whether their 401k will cover their retirement or not. Let’s say you are retiring next year (at 66) and you have averaged $65,000 per year for the last thirty five years. You will receive about $22,000 in social security.

To make up the difference, you will have to have $43,000 per year to maintain the same standard of living. Ignoring inflation, if you expect to live another 17 years, you need $731,000. Saving that amount of money is hard, but it can be done.

A great place to start is the 401k offered by your company. In 2008, you can contribute up to $15,500 each year and at most companies, that amount is matched at a certain percentage rate. If you were able to do this for twenty years, you would have the money you need for your retirement. This is due to compound growth and the fact that your retirement funds grow tax-free.

Don’t miss out on this great benefit. Chances are you are already enrolled. The Pension Protection Act of 2006 encourages employers to automatically sign up their employees. All you need to do is start your contributions and you will be on your way to a fiscally healthy retirement.

One client has a board meeting which involved a full day of prep. Another has a business plan that needs completing, and another needs immediate consulting services around an upcoming event. Plus we had house guests and our babysitter graduated from college and moved away. Ugg.

This sort of week will happen to every entrepreneur sooner or later. Try to roll with it.

1. Remember, cash is king. When you get busy, don’t let that affect your cash flow. Don’t neglect sending out invoices or following up on overdue accounts receivable. Don’t forget to pay your rent or utilities.
2. Ask for support. If you need to work late, ask your spouse to take on the load with the house and the kids. Ask your staff to take on tasks that they can do that you don’t have time for.
3. Get enough sleep. When you are stressed and working double time, it’s easy to stay up late to get work done, but you will pay for it the next day if you are dragging.
4. Avoid bad habits and eat healthy food. For a week, you can skip alcohol or fatty foods. This can give your body the extra energy you need to make it through the week.
5. Plan time in the future when you can get to any of the things you have neglected. Then they won’t nag on your mind while you are completing the important stuff.

Being an entrepreneur will take you through a series of ups and downs on practically a daily basis. Work hard to stay on an even keel while you steer your business through rocky waters.

Joshua C. Karlin at Marketing & Fundraising Ideas submitted How Not to Ask for a Major Gift.

Jose DeJesus MD presents Business Loans - How to Get Funding for Your Business posted at Physician Entrepreneur.

Herrera at Life, Money & Development submitted the 7 Attributes of Leadership.

That concludes this edition. Submit your blog article to the next edition of venture capital using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page.

When you get together, ask your senior officers to prepare reports that detail the information that the directors would need to make decisions on the direction of the company going forward or to correct or assist in correcting problems that have come up on the past.

In addition to metrics on their divisions, the senior officers should provide a list of items of interest from the past period, what they plan on doing in the next period, and what threats they see to accomplishing their goals. This will allow the directors to discuss whether they think the company is heading in the right direction as a whole.

If you do not have a board of directors, a monthly or weekly meeting with your senior management should accomplish the same thing if they bring you the same information. However, if you are interested in growing the company significantly, you should consider building a board of directors so you have the advice you need to take the company to the next level.