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Paul Burri: Tired of Working for Someone Else?

Breaking down the Earning Quadrant — the four basic ways we earn our living

A couple of the reasons people start their own business are that they’re tired of working for someone else or they think that if it was their business they could run it better. Both are valid reasons. We all have to earn our living in one way or another, so why not be our own boss?

In Rich Dad, Poor Dad, Robert Kiyosaki talks about what he calls the Earning Quadrant — the four basic ways that we earn our living. Here’s how it works:

Most of us start out earning a living by working as an employee, usually for an hourly wage. You work 40 hours and you get paid, you work another 40 hours and you get paid again. The following week, you work only 25 hours so you get paid less for that work. Millions of people earn their living that way. That’s the First Phase of the Earnings Quadrant; you are an employee.

In time, some of us decide that we would like to work for ourselves and be “the master of our fate.” We think, “I’ll start my own business and get to take home all the profits.” So we quit our hourly job and start our own one-man business — George’s Auto Repair. And now we get to call all the shots — how long we work, what work we do, reap all the profits, etc. Oh, I almost forgot — we also have to pay all the bills, buy all the materials, do the sales, fix the toilet when it backs up, etc., etc. And we start to realize that just like when we were hourly employees, if we don’t work, we don’t earn any money.

Guess what? We don’t exactly have a business; instead we have become self-employed. This is the Second Phase of the quadrant. And there are lots of people who fit into this category — doctors, attorneys, dentists, consultants and auto repair guys, to name a few. The problem is pretty much the same, though. If any one of you doesn’t work (attorneys and doctors included), he or she also doesn’t get paid. But it’s still better than being an employee, you say.

But after awhile you start to realize that there ought to be a better way to earn your living. And there is. Build a business. So what’s the difference between being self-employed and having your own business?

Here’s an easy way to tell: You can wake up some Monday morning and call in to the office and tell your manager person, “Tom, I think I’ll play some golf today. I’ll see you tomorrow. Call me on my cell if you have any problems you can’t handle.” And you play golf all day, and next week you take home the same paycheck as if you had worked the whole week. If you can do that, you will know that now you have a business as opposed to being self-employed. I am being somewhat simplistic here, but you get the idea.

When you have built your business so that it has trained and trusted employees, policies and procedures in place, a reliable supplier base and a steady flow of customers, that’s when you know you truly have a business rather than being self-employed. This is the Third Quadrant; you are a business owner.

Years go by and you have been earning a nice living. Your house is almost paid for. Your membership at the golf club is within your means. You have amassed a nice portfolio of investments and the business can almost run itself. But you are starting to think about selling the business and retiring. And because it is well established, has trained employees, has policies and procedures documented and in place, you now have something that will attract a buyer.

It is no longer the one-man operation that it was in your self-employed days. Back then, without you, there really was no business except perhaps whatever tools and equipment you had. But how would a new owner run it without you? A self-employed “business” is not really a business that can be easily sold to a new buyer.

You find a buyer, sell your business, start to live off the investments you bought from the money you got for the business, and now you start playing golf all over the world. You are now in the Fourth Quadrant; you are an investor.

— Paul Burri is an entrepreneur, inventor, columnist, engineer and iconoclast. He has been a counselor with the Santa Barbara chapter of SCORE (Service Corps of Retired Executives) for the past eight years. SCORE offers free business counseling to local businesses. He is also the membership director of the Channel City Camera Club. The opinions and comments in this column are his alone and do not reflect the opinions or policies of any outside organization. He can be reached at .(JavaScript must be enabled to view this email address). Click here for previous Paul Burri columns. Follow Paul Burri on Twitter: @BronxPaul.

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