Originally Published: January 15, 2005
My personal history has been that I worked for a salary in my early years -- until I left the Philippines in 1972. I joined the staff of my Church then, in Los Angeles, and worked there for a few years. When I left I got a job with a combination of low salary and commission -- selling janitorial services. I didn't earn much money at that job and so the risk at leaving a salaried job and starting out as an independent janitor did not seem high. I was, of course, probably the only Harvard MBA cleaning toilets for a living! I was then remarried and my new wife, Bonnie, had a job and was willing to support my new venture.
I came to realize (when I was 77 years old) that, at that date in 2008, I had not held a salaried job since about 1968 -- FORTY YEARS OF SELF-EMPLOYMENT -- had earned my living entirely on my own business activities. The attitude of a person with forty years of self-employment may well be far different from a person who has never been a successful entrepreneur, even for a few years.
So I started a janitorial company in about 1975 -- at first I was the only janitor. Slowly I added clients, new janitors and eventually built that business up to about $30,000 sales per month, 30 sub-contractor janitors, with exactly 60% of client payments going to the janitors and 40% being used to cover our expenses and "profits."
I started this janitorial business as a tiny operation with my "office" consisting of a small closet in the garage of our rented apartment.
These were the days when the janitor company earnings initially might be measured in the "few hundreds" of dollars per week -- and we could only survive because Bonnie had a "regular job" and earned a weekly paycheck.
As the janitorial business increased in monthly sales it became obvious that I needed more help in the office, so Bonnie quit her "regular job" and started working in the company. We also moved the office into our apartment!
During almost ALL of our business life together, Bonnie and I found that we very much preferred to operate our business out of our home. We work well together and I have found that the ability to work at all odd hours of the day suits my style nicely. Our business has been a legal "partnership" but has been a true partnership in many other ways.
During the years I was fully engaged in the janitor business I slowly graduated out of having to do janitorial work, personally, so that I could sleep at home at night. Prior to this time I was spending my time in the day making sales calls and in the nights often doing janitor work. I probably worked at least 100 hours per week as I built this business to the point where I could sleep home most nights. Since I knew nothing about the janitor business I had to learn all the factors of "cleaning."
The most important thing I learned was the "secret of the janitor industry!"
The janitor must be able to see dirt!
Even then I had a policy, and all the janitors knew it, that any janitor could call me at any time of the night to ask any question about a job, and I promised to answer the phone on the first ring. I don't think I ever missed a ring.
Eventually, with the business bringing in some $30,000 every month I decided (reason below) I wanted to sell that business and start a different one. I sold it to Bob Boyd and he moved into my garage at our new house -- operated out of that garage with me helping him learn the business and take over.
He never did spend as much time on the business as I did, and particularly he never spent as much time making sales calls as I did, so his monthly income started to drop and he had to make smaller monthly payments on his purchase price for the business.
I started negotiating the sale of the janitorial business in early 1981 and later in 1981 my mother died and I had an unexpected inheritance of some $50,000 which I immediately invested in rental property, purchased at the height of a real estate boom. My son, Garth, moved to Fresno where he could manage the rental properties so I didn't have to do much with that business, but eventually every one of our properties went into foreclosure. My son moved back east and I had to find a way out of the mess. Not only had we lost the $50,000 original investment, but I had been pumping several thousand dollars into the real estate business every month -- trying to keep it afloat. At the height of our real estate venture I had rental income of about $10,000 per month at full occupancy, and mortgage payments of about $11,000 per month. The income was based on full occupancy and we had regular rental vacancies meaning that the monthly shortfall was usually much more than $1000.
The shortfall was financed out of the janitorial earnings until I sold the business, then out of the payments made by Bob Boyd on his purchase of the business. He bought the business and took charge in 1982.
I read a Policy Letter written by Mr. Hubbard, "Production and One's Standard of Living." From that Policy I realized that the janitor business was inherently incapable of growing to a large size because "the industry" was paying a standard 60% to the contractual janitors and that did not leave enough for the company to invest in promotion and overhead to create growth. I simply decided that I could do better if I sold the business and got into something else. The something else had to fit the newly understood criteria of the staff (or "me") being able to live on one fifth (or less) of the income. The janitor business provided 60% of the gross income to the janitor and the janitorial industry was such that clients would not pay enough for the janitor to live on 20%.
Corrected Gross Income divided by staff has to be at least 5X the cost of the standard of living of the individual staff member for that standard to be barely maintained. This does not mean staff pay should be 1/5 of that figure. It means that all the things (pay included) that go into maintaining their welfare and work environment would have to be covered by 1/5th of that figure. A fairly efficient and prosperous org with a hatted, industrious, gung-ho staff can very easily maintain quite acceptable standards at 1/10th that figure.
One cannot, in fact must not, increase the standard of living of a group in ways that violate the above law. It will eventually bring calamity on that group.
An executive has to pay attention to the basic law about a standard of living. If he doesn't pay close attention to it, the standard of living of himself and of his group will cave in.
He can be "a good fellow" and seek popularity by attempting to raise the standard above what is earned. He and his group will crash. (HCO Policy Letter of 28 February 1980, "Production and One's Standard of Living," page 315, OEC 0)*
When the organization has to buy products for sale (rather than delivery of "service") the Corrected Gross Income has to also be the source of purchase of inventory. In 1974 Mr. Hubbard wrote (not official Policy) that staff pay should be 30% of the CGI, but those organizations did not purchase and sell products out of inventory so naturally their staff pay could be higher than 1/5th the CGI. The more writing on this, a Policy, excerpted above, was written in 1980.
There is another observation I've made of successful organizations. They don't have "worker oriented" executives. When the ED, or another executive, puts the interests of the staff before the interests of organizational solvency, the staff ultimately lose, as do the customers. This "worker orientation" is described by Mr. Hubbard in this way:
A good manager takes care of the workers. He also takes care of the organization. A worker-oriented fellow -- union leader, agitator, do-gooder -- cares only for the worker and thus does the worker in. So he is actually a suppressive. For the whole bang shoot goes to pieces and the end product is dismal unemployment, depression, malnutrition, starvation. You have to have lived through such a period to learn dread of it. And that's what caring nothing for the organization finally results in.
A worker-oriented person is deficient in pan-determinism. he or she cannot see that the health of all demands he take into account workers and the org. Therefore he or she is below the ability to determine both sides of things and so makes a very poor executive, being lopsided, given to "them and us," playing favorites and unable to see two sides of a question. Such abilities are vital in an executive, so he isn't one. (HCO Policy Letter of 10 November 1966, Issue I, "Good Versus Bad Management," page 340, OEC 7)*
I believe that violation of this Policy has helped hold the Company sales growth down.
I had money from the sale of the janitor business and a completely free hand at choosing a "new career." I decided I wanted to be a public speaker and joined three different Toastmaster's Clubs, became active in the Toastmaster organization, and started giving lots of free speeches at Service Clubs in the area. I figured that a very successful public speaker could easily earn $1000 or more for one speech and that I could live on the 20%, or $200 -- as long as I could also get enough of those public speaking events to keep me going.
It seemed difficult to make money as a "public speaker" even if I were very good at it, and I decided that I would take my public speaking skills into a new use -- I joined a Multi Level Marketing company, selling vitamins, and started giving lectures on heart disease and oral chelation.
Bonnie and I went around to restaurants and got their agreement to allow me to come in, use a room, and give a free lecture on heart disease. We would then place notices on store windows, bulletin boards and anywhere we could. Sometimes 20 people would show up, sometimes none.
At these lectures Bonnie would sit in the back with our small supply of bottles of vitamins to sell and I would give the lecture. Soon I realized that I would never make much money working in an MLM, left it, took the formula to a laboratory and asked them to improve on the formula and sell me a modest first inventory. I started Vibrant Life with my wife and a small inventory of bottles of oral chelation.
I remember well the small steps of progress and growth, but the primary characteristic of these small steps was that they were also slow. It was a long time before we measured the first week in which we had sales of $1,000. One of the first big steps in making our business more capable of expansion was when I taught myself how to program computers in 1985 and designed what is still in use in 2005 as the "Master Entry Program." This time of learning to program and still run the business involved many 20 hour days, but with great excitement and joy.
During this period a friend discovered a cancer clinic in Tijuana. I visited it and liked what I saw so much that Jimmy Keller also liked me and accepted me to be his "US Liaison" person, to provide information about his clinic. Later when I was a radio talk show host, Jimmy was one of my regular guests -- he on the phone from Mexico. Eventually the owners of the radio station told me they had such pressure from "Washington" that they had to remove me from the air -- seems that some powerful, hidden people didn't want Jimmy's message going out to the public. I have many pages about Jimmy HERE.
When I talked to Jimmy about this job he told me that the three others who held this post included his son and two women -- all three of whom were picked up by police and held in jail, with no charges, until they each signed a statement that "Jimmy Keller is a fraud." He wanted me to know this. I told him that I would not bow to such pressures, and, in fact, I worked for him for a couple years with no trouble from the police. I may have been too prominent on the radio for them to do this?
During all the years described above, including both janitorial and vitamins, I generally viewed my personal "work week" as 24x7 with a few hours of time out for sleep. During this time I never really regarded the business as "work," but "my life" and while I would take off for personal, non-work activities, I never regarded the clock as measuring my time to work on Company affairs. I've been discouraged at finding so many staff who could otherwise become executives but instead watch the clock. I've even written a Company Policy describing this as a negative factor in promoting someone to a higher position or salary.
I started getting myself on various radio programs as a guest talking about vitamins and this progressed until I was a guest for 6 hours, one night, on KIEV, and subsequently took over that show and became a radio talk show host -- on the air, live, from midnight to 6 AM, five nights per week. I had the radio program at night and helped Bonnie during the day as we continued to operate the vitamin business.
I was on the air, live, for 30 hours per week -- probably more than any other radio talk show host in the nation.
That was never a profitable activity, although it was great fun.
I had discovered a method of handling our income taxes that was legal and reduced the taxes we would otherwise have to pay. The loophole in the tax laws was closed and I found another method involving foreign trusts. The particular foreign trust system which we initially used went out of business and I started my research in the "offshore trust industry." I would drive the Law Library in downtown Los Angeles and spent thousands of hours there -- researching the laws involved. This "trust business" was all self-taught. There were no experts around -- only the law.
Bonnie didn't always understand or agree with these "wild flights of fancy" but she supported me throughout.
My "graduation present" when I retired out of the trust business was the ending of my court case with the IRS. The IRS wanted me in jail and I defended myself in Federal Court without a lawyer for a couple years. Finally, the Federal Judge told me that he disagreed with the findings in a higher court, being used by the IRS as precedent, and would have to rule against me, but would include his recommendation that the Ninth Circuit Court of Appeals REVERSE the conviction. I won a precedent-setting victory over the IRS in the Appeals Course. The entire story is here.
Eventually I became one of the world authorities, wrote several books and was regularly traveling around the country and in the Caribbean to lecture and arrange for these same services for others. All THIS while Bonnie was handling the vitamin business with some part-time help from me.
I retired from the "trust business" and returned to Vibrant Life, wrote two editions of my Book, Life Flow One, The Solution For Heart Disease. This was when my most intensive research and writing started, including my decision to take my public speaking skills into writing on the web instead. The research included really getting into "vitamin formulation." In the first years we just copied the formula of another company and asked the laboratory to change it slightly to "make it better." But, I learned the subject of vitamins so well that I could and did formulate several vitamin products. Again, this was all done on a self-taught basis.
That entire Book is on the web here.
At about the same time as I wrote this Book, and had already done all the above, I received the full services of my Church referred to as "The L's." I know that these services increased my abilities as an executive, but I had already demonstrated many of those abilities before these services.
The many years I have spent in research and writing on the subject of health has included break-through reports, for instance on "plaque" and "cholesterol" as well as many other subjects. These reports would, generally, rank as some of the most powerful in the entire field of health except that they have been introduced into the teeth of extremely suppressive influences by drug companies and the medical establishment. Our vitamin business succeeds IN SPITE of the very hostile environment into which the message is delivered.
There are, literally, at least some hundreds of people who are living today, who would have been dead some time ago, had it not been for my writings and products. Not many people can make such a claim. Ourselves, Bonnie and Loren, have had repeated tests for arterial blockage by sonogram and tested with zero blockage -- undoubtedly due to the oral chelation concepts and formula which I have developed and marketed for some 30 years.
My research into cancer and germanium, and the astounding success of using this information to cure Bonnie's cancer is a true miracle -- one day will be widely seen as such.
In an entirely different area I have developed no less than four web sites devoted to morals and the "common sense moral code" embodied in The Way To Happiness. My pages have attracted thousands of visitors and we have given away more than 5,000 free copies of the book. Since these books were "asked for" and not just "given without request" this stat is unparalleled in the group that values the distribution of this book.
I taught myself web design. I remember well starting with a web design program published by Microsoft -- it was the very first version of their Front Page program. Tutorials and help were not available and I spent countless hours publishing web pages that just had to be done over again and again to fix errors and make them better. We started with ONE web site www.karlloren.com and now have more than 30 and more than 100,000 web pages that I have published.
There is a standard way of measuring the success of your web sites -- one of those ways is the measure how popular the web site is in the search engines. My pages have routinely ranked among the highest of any other webs having anything to do with the product we sell. We had been getting about 8,000 to 10,000 visitors per day to our web sites. As of the time of this writing we've started to have 11,000 visitors per day.
During all these years probably the one large problem I never did solve was "staffing the business for expansion." I've hired, and fired, some dozens of people. I could and did find a very few who did good work at the lower level of handling orders, shipping, and simple administrative tasks. I was never successful at finding and hiring any executive level staff to help the Company grow into a much larger business.
One reason for including all the above personal information is to illustrate the amount of work (measured in weekly hours) and the willingness to plunge into and learn new things without the benefit of teachers, usually. As I look back these are the entrepreneurial and owner's attitude that were the keys to my success.
Here are a couple comments from others.
First an article about those who achieve to "status of partner" in the architectural profession:
At a time in our practice when principals are working an average of 70 hours a week, cutting their bonuses to make up for inefficient project managers whose projects have soared over budget, and being required to manage, market, network and manage and serve as referee, therapist and parent, many of those in an ownership position are asking themselves, "What's it all for?" Scott Simpson of Boston-based Stubbins & Associates, talks about what it takes to become and stay fulfilled. (source)
Next, From a book entitled, "Fire in the Belly."
According to the author, the conventional view is that the decision to be your own boss is straightforward. The difficult part is to effectively and successfully run your own business. That's why the focus of Start Your Own Business programmes is almost exclusively on skills. According to Fachler, the emphasis in current entrepreneurial training is on what you have to do, not what you have to be, to start your own business.
In this book, Fachler shows that this thinking is back to front. He claims that the critical stage in the entrepreneurial process is the realisation that you want to leave the security of paid employment and go out on your own. Once that decision has been taken, he says that anyone of average intelligence should be capable of mastering the necessary business skills.
The author does not seek to undermine the need to learn management skills. But the theme of the book is that before you go and start your own business, you have to successfully navigate the mental transition from the world of employment - the ladder world - to the entrepreneurial world. (Source)
This Program is written because I am concerned that I still have my "old" problem in hiring and motivating executives who can do what I did to create and expand this business.
The Company has grown to the point where a very few weeks showed sales of $20,000 or more, and the average for many years was about $12,000. These sales averages had remained stagnant for more than a few years. That did not change when I brought in Maia Mulvena to be the ED -- the sales were actually in a slow decline for the first 8 months of 2004.
I decided, in mid-2004, that the change needed in our Company was to implement more of Mr. Hubbard's management technology.
I didn't see how we could afford a person experienced in implementing Mr. Hubbard's technology and asked my son Garth for assistance. He agreed to give me a gift of $8,000 per month for six months -- we both expected that the stats would go up enough in those six months so that the new person's salary could be paid out of Vibrant Life income, not the subsidy.
For that we brought in Tracye Bell who had worked for Vibrant Life many years before, and then had obtained extensive training and experience as an "Establishment Officer" implementing Hubbard business technology in business. She has been the ED of the Company, now, for about six months and her salary has been met by the subsidy paid to us by my son, Garth.
The stats have NOT increased enough to make it possible for the regular allocation for salaries to cover her salary. I've asked Tracye to analyze our financial condition to determine what level of salaries we can afford to pay to various people. Thus, there is now a need to re-calculate her salary and I want to do that on some sort of "bonus system" or "incentive system" that we can eventually use for all, or most all other staff members. This bonus system should also be designed so that Tracye can regain her former salary as fast as possible -- from the very increases in sales she will create.
There is also obviously a larger need to figure out what it takes to increase our stats at a much higher rate. THIS program approaches that problem by "stiffening ethics" since the steps laid out in this Program should have been done even though they were not laid out previously in writing.
Also, for other reasons described in the next paragraph, I had set the Company Goal to reach sales of $85,000 per week within one year of that target being set on September 20, 2004. That target was set during a week when the sales were $17,000, and we've had many weeks since then when the sales were much lower -- thus we don't seem to be making adequate progress toward that goal.
This new year, 2005, is a watershed in one very new and important respect. We have lived comfortably in our house on Bel Aire Drive for more than 10 years. Perhaps part of the reason we have not been able to expand has been that our business is located mostly in this home and there is not room for putting new staff members. Our warehouse was moved from the garage to the new space some years ago and that gave us room for expansion, but more is needed.
We have loved this home and its beautiful sunsets -- but it is time to change.
So, I decided many months ago that I would not seek any extension of our lease beyond 2005 -- that I was committed to moving to a new location sometime during 2005. Also, at my age I want to retire into a more permanent (owned, not leased) structure that could be stable for the rest of our lives. Since we have never tried to accumulate enough money for a regular down payment and purchase of a home we have a strong need to increase the income so that it becomes feasible to finance a new space for the Company as well as our own home. We are well agreed on a new concept of a residence for us, along side a large office space for the Company, all contained within a warehouse of about 10,000 square feet. I think we can arrange the financing for all this if we meet our sales goal -- set in September at $85,000 per week.
We cannot handle the financing of this type of new space with the modest sales growth that has gone on since Tracye was in charge.
A considerable improvement in sales, therefore, is also now needed to provide for the long term housing of Bonnie and me, as well as the business.
Finally, I have spent an intense past 12 months, with Bonnie, helping her overcome cancer. I do not want to go back to the work-schedule I put in for many years. I am serious about retiring and living well with Bonnie in our retirement years. As I wrote elsewhere, I do not ever want to leave Vibrant Life completely, but it IS time for one or more others to act like an entrepreneur and owner and take charge of our expansion. Owners have a different attitude about work and business -- I think that attitude has been missing and it is needed now.
THIS Program deals with the need for change -- my demand that change must occur, and my hope that it will. The help I'm looking for, just now, must be from Tracye and/or Maia.
I expect to be more active in the Company than I have been for the past year -- but it will be in the area of pointing out areas where change is needed and providing whatever new Company Policies and such guidance as may be needed.
There is a smaller project just now, also. That problem is also intended to be solved with this Vibrant Life Program since it deals with the creation of a staff bonus system and, specifically, this Program is needed to make it possible to create a new pay system for Tracye. Tracye has agreed to stay here at least until she has handled a financial obligation she agreed to. As part of that agreement it is understood that the monthly payment made to Gordon will not be affected. The work that he is doing is not only vital to our long term future, but is clearly out of the league of what I or anyone else in the Company could do. So, the new bonus system that will apply initially to Tracye will have to include a "regular" weekly pay allocation from Financial Planning to cover Gordon's salary.
Another part of that agreement with Tracye was that if it became necessary for her to renegotiate a new salary arrangement, Maia's salary would not be subject to change. Also, Bonnie and I indicated that we would continue to withdraw the same amount of salary and profits from the business as we had been for some years.
The creation of that staff bonus system can best be done using the tool called Excel, and developing further the Excel spreadsheet I designed many months ago to test and perfect a bonus system that would be viable. I note that Maia has had the use of the program I designed more than one year ago -- but I don't know that Maia has ever spent time learning the Excel program so that she could create, rather than just use, this type of spreadsheet.
This is, then, the first test of the leadership needed to bring this Company into the modern era -- and to increase the stats to meet our target.
I want Maia and/or Tracye to LEARN how to use this important management tool, called the Excel Spreadsheet. It is one of the basic tools of any business activity -- and the learning of the use of this tool should demonstrate Maia's or Tracye's or both, willingness to learn this management tool.
This need to be willing to learn new tools is something I've observed is lacking in society as well as in this Company. I wrote a Company Policy about this and want those who read THIS Program to read or reread this Policy.
I think that Tracye now has a new necessity level and may be ready to take on a new level of responsibility.
Maia doesn't have anything new in necessity level except what she can see into the future. She stands to inherit this business at some point and it COULD be earning her some millions of dollars per year in not too many years from now. It may or may not take a "severe reality adjustment" for both Maia and Tracye to recognize this new necessity level.
Another type of "necessity level" that should indicate to Maia is that business history shows that the second generation of owners of companies started by the parents -- that history shows the second generation often never rises to the level of responsibility that the parents showed in creating the business. The article from which the following quote is excerpted may hold some useful insights for Maia:
The world facing second generation entrepreneurs is more complicated than the one in which our parents had success. Technology, competition, and workforces are ever changing in today's business environment and make up some of the most difficult challenges for "new" entrepreneurs. Couple these issues with the fact that the founder may still be actively involved and the job of running a family business by the second generation becomes monumental. (Source)
and this further quote:
But in reality, very large numbers [of second generation owners] fail to make the leap. Only a third of businesses successfully make the transition from each generation to the next, says Mr. Astrachan—“and that figure has been very stable, and is true around the globe.” The majority are either sold or wound up after the founder's death. Some studies suggest that only 5% of family firms are still creating shareholder value beyond the third generation. (Source)
I would like to think that BOTH Maia and Tracye will now commit themselves to the EXTRA hours in the week that may be needed to learn a new tool -- Excel -- and to then use that tool to design the spreadsheet that will take into account all the requirements for an electronic financial planning procedure, including the design and testing of different types of bonus or incentive systems that could be applied, immediately, to Tracye's income, and ultimately to at least all executives in the Company.
Maia also has to learn the tools for handling the traditional bookkeeping, including, probably, Quick Books and Turbo Tax. We have had Quick Books on our computers for many years but have used it only for keeping track of checks. There is a total system within this program that can make preparation of our tax return very simple -- this area of "tax return preparation" is one that Maia must master soon, since I have been guiding this process for many years. She needs to learn how this is done so she can do it when I am not available. Because of the unusual nature of our tax reporting system and my age, it is vital that Maia master this aspect of the business if she wants to continue that system. The Turbo Tax system, of course, presupposes an existing double-entry bookkeeping system in place.
Another area where Maia, probably, needs to learn new tools is in the use of our programs to improve the ranking in search engines for our web sites. This also includes understanding and analyzing the "Urchin Reports" of the number of daily visitors to various webs and pages.
Gordon Bateson has been doing work for us from his location in Japan -- his work involves the new electronic information system. Someone within the Company needs to fully understand what he is doing and be able to supervise it.
While I was doing the work to change the FP procedure for handling allocations to replacement of inventory I found a program I wrote years ago -- a vital program -- and noticed that it WAS being run on a regular basis. However, there was a simple error message appearing on the screen every time it was run -- letting any curious person find out that the purpose (back up of files) was not being accomplished. So, for two years this program (ENTERF) was apparently being run daily, without accomplishing its entire purpose. And, so would be an uninformed ED at the mercy of his or her own ignorance of this technology.
If I die tomorrow, the question is, who will take over the hats that only I have been wearing for many years??
Criteria For Bonus System Design
Many years ago I approached the task of figuring out how much of our weekly income could be spent on what items -- this is a task usually called "Financial Planning" within the Hubbard Management System.
Then I designed a method of figuring these weekly allocations on a rote basis, putting the earlier concepts into application and this is what Maia has been using for some years. THIS method, using simple printed forms, is reproduced on this web HERE. It is very well suited to placing onto an Excel Spreadsheet since it uses many different percentage and other arithmetic relationships.
About a year ago I used Excel to produce a sophisticated program for testing various methods of figuring bonuses -- I gave that to Maia and asked her to use it and come up with a system she thought we could use. She hasn't yet done that and this new stress on learning and using Excel should be made easier because I have already done much of the initial work. My program did not cover the full FP procedure, and that now needs to be done.
A first approach to learning Excel could be to simply convert the above paper form to an electronic form -- that, alone, would greatly facilitate the job Maia has of filling in the paper form, manually, every week.
The next gradient of learning to work with Excel would be to incorporate some options, on the spread sheet, for making changes in some of the figures that are now set by rote by the paper form.
Next would be to incorporate the changes I describe below.
Philosophical Concept Of Financial Planning
Financial planning is done every week. It is the decision making process of calculating how much money can and should be spent on what types of items from the income of that week.
This process starts with the Gross Income of the Company for the week ending at the close of business on each Friday. Gross Income is defined here.
After you have identified the Gross Income for the week, you then subtract (or add) any items that are covered by the definition to arrive at something called "Corrected Gross Income."
That amount, called the "CGI" is the beginning figure for Financial Planning purposes, and can be regarded as "100%."
There are then a series of "allocations" from this CGI. Presently there is a rather complex, but fairly rigid set of rules that govern what should be allocated from this CGI figure.
For instance, there is a division of CGI into two figures -- one related to MSM products and one related to other Vibrant Life products.
Another decision is what percentage to "take off the top" of CGI for reserves and reserve-type funds. Bonnie and I have insisted that our income must not drop below a stated amount, including whatever "personal" expenses may be paid out of the business. This may seem "fair" or not, but it is one of the rules of this game.
Next, usually, the most important allocation is the one used to replace the cost of the inventory sold during that week. We have been using some rote formulas for this allocation and with the new importance of the sales of germanium (where our profit rate percentage is not as high as it is on other products) we would not be allocating enough to the replacement of inventories if we continued to use the "old formula."
When I started the business all products had a retail price of about five times our cost. The retail price was in the computer system, as well, of course, as the actual selling price. We use a standard discount system and one of the computer reports shows the average amount of discount from retail for each week.
When a product costs us, say, $10.00 per bottle, we set the retail at $50.00 per bottle, and then sell it for $37.50 per bottle (25% discount), that will show up on the report as a 25% discount. If we sell larger quantities at larger discounts, as we do, then the average discount could be more than 25% and if there are considerable sales at retail, the average discount would be less than 25%.
With this logic in place it became easy, in the early years, to "take 30% of CGI" off the top each week and put it into a "product account" from which we paid for inventory replacement.
When we added MSM to the business, it did not use the same discount structure. The prices for MSM did not have a separate retail price and selling price. The discounts were "built into" the actual selling prices.
Thus, we virtually had to take 100% of the sales value for MSM products out of the CGI (separately calculated for MSM) to place in the product account.
Now that we will be selling germanium in 100 gram jars at only 200% of our cost, or a 25% discount from the retail price, we can no longer use the rote 30% figure to take off germanium sales and have enough to replace the inventory.
There will be more complexities like these, making it more difficult to find a simple formula for allocating money each week for "product replacement."
The ultimate solution will be only when we have the database on the server, the new programs, and include the ACTUAL cost of each separate product -- to come up with an exact "cost of sales" to allocate out of CGI for "products."
The use of the Excel program allows us to introduce three (for now) different categories of product sales, and figure the "cost of sales" for each of these separately. (We now do this for two categories.)
Likewise, it appears that "special discounts" have recently been an important factor in boosting sales. We need to look carefully at these sales to be sure they are still profitable enough to continue of depend on them for sales increases.
The method of "replacing inventory" calls for some sophisticated Excel manipulation of various categories of weekly sales. The final sophistication in this area will probably only be possible when Gordon delivers the "server based database" where "cost of sales" can be calculated exactly, based on an electronic system that we don't have yet.
There are then needed allocations for "promotion" and "administration." It is usually the nature of this Financial Planning process to use "promotion" as the lowest priority for allocations and this usually leads to slow or no-growth for sales. So, the weekly allocation for promotion (and the definition of what can be counted as "promotion") is very important.
Finally, believe it or not, the last figure to be allocated should be expenses for salaries. Here is where the famous advice by Mr. Hubbard guides us as quoted above -- by restricting total expenditures for staff, including salaries, taxes and any overhead connected with staff to 20% or less of the CGI.
When more of our sales are products like germanium, where our profit rate is low, the percentage allocated for salaries will have to be much less than 20% -- this is a critical factor to watch.
That makes it a tough calculation for Financial Planning -- but it is the staff who create the sales in the first place and it is they who stand profit from a well-calculated incentive system, and they who should bear the brunt of reduced sales in any week. The new bonus system should include some method, even contracted for the future, to allow executives to make very large incomes -- out of comparably increased sales.
I will want to review the process of turning the above general criteria into the specific electronic formula developed with the aid of the Excel Program. IF a decision on salary is needed (for February salary payments, for instance) before the Excel Program is done and approved, then we will use the simple default of the Hubbard formula -- salary should not be more than 1/5 of the CGI. Since we are relying more and more on sales of products at less than the original profit-rate, and since MSM sales have been treated differently (profits shared with India), I'll use the figure of "1/6th of CGI."
This means that when we received $8,000 per month of subsidy that our CGI would have to increase by $48,000 per month to be able to afford the staff pay for the people hired because we counted on that subsidy. An increase of $48,000 per month is about $12,000 per week.
Since sales were about $12,000 per week when the subsidy started, that means that when sales rise to about $24,000 per week, steady, we can replace the subsidy with our own income stream.
The sales during the last eight weeks are as shown:
|Week Ending||VSD (simulated CGI)|
|Nov. 26, 2004||$11,222|
|Average -- Eight Weeks||$14,238|
Since sales increased only a little over $2,000 per week, not the $12,000 needed, we can afford to take about 20% (or even 1/6th) of THAT increase out of our own weekly income, or about $400 per week to pay for salaries that had been covered by the subsidy. In fact the increase in the "salary sum" would be not even enough to pay Gordon's salary with nothing left over for Tracye. That is the reason for the severe reality adjustment referenced at the beginning of this page. As an arbitrary default I suggest we continue Gordon's salary, without change, since that was the original plan, but pay Tracye $500 per week, subject to some loan repayment amount. This will mean reducing expenditures in some other vital area, and cannot be sustained without a further increase in sales. We can use a "moving average of 8 weeks' income" or any other logical formula for figuring Tracye's salary on an ongoing basis if that seems logical. If the Excel spread sheet can demonstrate the logic of a different amount for salaries, and stay within the proper formulas, that is what we will adopt.
We have very little time to see the Excel spread sheet finalized and a more accurate salary figure calculated. I have written another Company Policy describing some of the conceptual requirements for this Excel spread sheet -- HERE. This page also includes a link to another page that describes changes I have made in the "Master Entry" program so we can use the program and computer to calculate the exact "cost of goods sold." This means that our Financial Planning for inventory replacement is much easier than it had been.
If Tracye feels that she cannot continue to abide by the promise she made to remain employed, with a salary renegotiation, and wishes to leave, then the loan would have to be paid back immediately, or converted to a formal signed agreement for repayment with collateral or co-signer and an interest rate comparable to what, in fact, we are paying personally on our credit card debts -- the one that could have been eliminated by the amount otherwise used for the loan is costing us 19% interest.
Effective February 1, 2005, Tracye Bell has been terminated as a Vibrant Life staff member, Karl Loren resumes the post of ED and Maia is put into the new title of Deputy Executive Director. These changes are also announced HERE and HERE.
The primary responsibility of the Deputy Executive Director is to be the Product Officer of the Company. The primary responsibility of the ED is planning and coordination. The primary plan I am working on is the expansion of the Company to meet the goal I set HERE (and which Tracye told me was unreal! That viewpoint was enough to end her value as ED -- it should have been her responsibility to PLAN for that level of expansion). The hallmark of that expansion plan should be our success in handling the move of the business into its own new space.
Since Tracye was acting as the ED, I had to step in from above and apply the next reference. The best reference to explain the departure of Tracye Bell is with the data on this page and the further references to one LRH Policy excerpted here:
The first major failure of an Esto would be a failure to hat the product officer of the org or div.
THIRD SITUATION: The head of div or org flies about, looks busy or just sits there. He is not getting out production. He will tell you all about "not being hatted," "doesn't know the tech," on and on, excuses, excuses. But no production from him or staff. Correction action: He has to be made to understand that he isn't doing his job no matter how busy he looks or how many reasons he has. He probably has not noticed and does not know that he is faking work. People with low confront don't see. If he is really doing his job and getting out his products and forcing any staff to get out theirs, you have a pearl. Cherish him, and don't consider doing this third action on him. But, one is easily fooled. Only real products tell the tale. A busy exec or division is not necessarily a producing exec or div. So if no products from him or staff for whatever reason, he's below Danger. You don't have a head of div or org if you don't have produces coming off and exchange occurring. Only these, not excuses or motions, tell the tale. You can get "PR" and glowing (but false) reports. You can get all sorts of things. But where are the products? So you bait (tease) and badger (nag) the head of div (or org) to IMPINGE ON HIM (draw his attention) until he snarls or cries or screams AND SPITS OUT AN OUTPOINT. You don't ask him like repetitive commands "Why aren't you working?" You ask in many ways "Where are the products?" And he'll eventually tell you an outpoint. Like "But I can't get out any products because they aren't products until they are back home telling people how good we are so how can I _____ ." Or "I just keep running around here and nothing happens." Or some other nonsense that is nonsense.
Tracye's outpoints? "Karl told me to act like an owner so I knew it was OK to NOT work extra hours, it was OK to not learn new tools (Excel), it was OK to make personal purchases with Company credit cards and it was OK to take time off without making it up. That is what an owner does." This nonsense, and the failure of THIS Program to raise Tracye's necessity level, led to Tracye's out-ethics and eventual termination.
That's his Why. So you tell him, "Look, you don't get out products because you don't think you can!" Or "You are just trying to look busy so you won't be thought idle." And if you're smart and on the ball you got him out of the Esto PL Series 13 state into a confront. This is "Bait and Badger" to get him broken out of nonconfronting. That's all that's wrong with him really. He doesn't look.
SITUATION FIVE: The exec goes into shock. This is a symptom of no confront. He won't fight back. He will propitiate. But he won't do anything either. Correction action: Get a new exec. Tame execs who won't fight and can't work will never get a staff to work. After getting a new exec, salvage the old one with processing. Do steps one to four on the new one.
Tracye went into shock. We are not in the business of processing.
(HCO PL of 24 April 1972, Issue I, Hatting The Product Officer Of The Division, page 400 Management Vol. 2*)
Another good piece of understanding comes from the LRH Bulletin, "Prediction and Consequences." When a person cannot predict the consequences of his out-ethics activity then that activity is likely to continue and leads to non-survival. Tracye was unable, or more usefully, unwilling, to predict the consequences of her viewpoint of "an owner's prerogatives" and she has damaged herself as well as Vibrant Life. We are also responsible for allowing her to become out-ethics without earlier detection and correction.
Probably the reason overts of omission and commission are done at all lies in man's inability or faulty ability to predict and to realize consequences.
Men are rather thoroughly stuck in the present and so involved with its confusions that they rarely foresee anything and are mainly oblivious to any consequences of their own actions or failures to act.
HCO Bulletin of 6 June 1969, "Prediction and Consequences," Page 436, Tech Vol. VIII. *
Started February 5, 2005
This section started after Tracye was discharged for cause.
The need for leadership continues and, at the moment, I see no help available, and have thus decided to take back control and push the expansion as I can. The main tool I expect to use in establishing the growth of the Company is the incentive pay system that will reward staff members based on Company statistics and also based on their individual contribution to those statistics.
The planning and implementation for the incentive pay system is HERE.
October 4, 2003
Last Revised: May 23, 2012 4:50 PM