Monday, July 4, 2011
Saturday, July 2, 2011
Starting a Business: Advice from the Trenches
If you’re like thousands of other designers, programmers and other creative professionals out there, at one point in time you’ve considered starting your own business. Unlike most, you’ve gone against common sense and decided to open shop for yourself. And not just freelance full-time, mind you, but file for the company name, get some stationery, and wade through the legal mumbo-jumbo. Maybe even get a real office with a water cooler.
This article offers real-world advice from the trenches of a small start-up, and is applicable to designers, web developers, copywriters, usability experts and all manner of service providers. Freelancers take heed: there are several items that are just as pertinent to your profession.
Write a Business Plan
The most important thing you can do to prepare for starting and operating your own business. Developing a business plan requires a lot of time and energy, but it’s invaluable for one primary reason — it forces you to come to terms with your business idea. You must decide how you will generate income, what your expenses will be, who your competitors are, and most important, WHAT YOUR BUSINESS DOES. This may seem obvious to you now, but write it down. Think about it. What sets your business apart? What service do you offer that is superior or unique? What’s going to put you ahead of the competition?
Beyond the mental exercises, a good business plan will give you a much better chance of getting a small business loan from a bank than walking in and saying, “I like Photoshop and maybe a can do some websites or something. Gimme money.”
A few years ago, new age business rhetoric said forget the business plan and just run with it. Obviously, that didn't work out so well, so if you go that route, God bless you. The business plan exists for a reason. There are libraries of books written on them and huge websites devoted to developing good ones. Some resources:
Take a few weeks and develop a strong and thought-out plan. Give it to friends, co-workers, even family to read. Your business will be immeasurably stronger because you took the time for this step.
File for a Fictitious Name
A fictitious name (called a doing-business-as or DBA in some states) is the government’s term for your company name. If you choose HyperGlobalMegaSoft as the start-up’s name, it has to be registered with the state to ensure no one else is using it. This will cost about $100, but prevents you from accidentally using someone else’s registered name, or from someone else using YOUR name. Also note that two companies can usually register the same name for different industries. For instance, Luigi’s (design studio) and Luigi’s (pizza joint).
Note the fictitious name is not the same thing as a registered trademark. A trademark involves a whole separate process, more paperwork and additional fees. Unlike a fictitious name, however, a trademark is not required.
Funding
This is a pretty involved topic, and enough books and articles have been written about it to make for years of boring bathroom reading. Advice in a nutshell: start the business with your own savings or borrow from a bank. I highly recommend the former or a combination that includes it, since it makes you pinch your pennies a little more. If you go the bank route, make sure the business plan is polished to a high shine. This may be a good time to hire a professional business plan writer/editor.
There is one Golden Rule: Don't borrow money from family or friends. 99% of the time, you won't be able to pay them back, and on the off-chance you are, it won't be for months or years. The amount is irrelevant; $1,000 or $100,000 can quickly create bad blood.
Get an Accountant
In starting your business and maintaining its future financial health, there is no greater ally than an accountant. He or she (or they if you go with a firm) will be able to give advice on innumerable aspects of your new venture. They can advise on what type of business entity to start with, setting up bank accounts, a means of invoicing and collecting, and more. Most importantly, they also guide you on paying taxes properly and punctually.
Brief advice on accountants:
Start with a Partner
If you can, start the business with a partner. This person should be another designer or programmer with a level of experience equal to or greater than your own, but with a different skill set. If you’re the God of Annual Reports, your partner can be the Overlord of Identity Design. Having two Annual Report Gods will make for some lacking identity work when the client requests it. And for the record, once again, it will be better if this person isn't family.
“But why a partner?” you ask. “I'm a darn good designer, and I'm really really gonna do this right.”
A partner will keep you on your toes. When you want to buy that $2,000 scanner, he or she should question why. If you want to design a promotional piece, it should be a group effort to get the best results. If you start to slack off, he or she will be there to remind you of business priorities. No one can do everything, and two complementary skill sets create an asset that cannot be reproduced when flying solo.
About Your New Office
When you start a business, the option of setting up an office outside your home has dramatic pros and cons that must be weighed carefully.
Good:
Not-So-Good:
Retain a Good Paper Trail
Make sure to keep a solid paper trail with clients, and that means a real, physical file with hardcopies of proposals, contracts, invoices, time sheets and anything else you can think of that relates to the project. This also includes all financial records, bank statements, receipts, deposit slips, etc.
Before beginning your business, establish several important things. First, design a consistent and scalable filing system for all the forms. Whether you organize by client or project is irrelevant, but make sure you can find the information when you need it. Second, make sure to have airtight contracts. I advise against writing them yourself. There are many places on the net where you can get generic forms, such as www.creativepro.com. You will also need to look for NDAs (non-disclosure agreements, for contracting work out to other freelancers), RFP (request for proposal) templates for clients to fill out, expense reports, invoices, and time sheets. Every project is different, so be prepared to make changes on these forms.
And please, when you sign a contract with a client, make sure you have a copy with BOTH signatures. Seems like an obvious thing, but you'd be surprised. Don't do any work without one, because legally, you will have a very hard time forcing a delinquent client to pay without one.
Part of maintaining a solid paper trail is having a good invoice system ready to launch at a moment’s notice. Make sure your invoices arrive in the client’s mailbox while the project is still fresh. Every invoice should clearly mark the amount to be paid and terms of payment (30 days, etc.), and clearly indicate any additional fees resulting from delinquent recompense.
If payment is late, don't be afraid to call the client. Sometimes they just misplaced the invoice. Other times they don't have the money and are trying to slink away. Sometimes, “the check is in the mail.” Regardless, the business that does not call to get paid won't get paid!
Start Small, Conserve Loot
Consider working from your house/apartment to start, especially if you have clients that will never visit you, or if you live in an expensive metropolis (NYC, LA, Chicago, San Francisco, etc). Keep your expenses down! Don't buy a new quad Xeon workstation if your current machine can cut it, or a truckload of networking equipment for two computers. Be cheap! Look for sales at OfficeMax, clip coupons, and just shop smart. You’re going to need the start-up capital down the road, so don't drain it on frivolous expenditures. (And yes, the folded die-cut business card with the metallic ink counts as a frivolous expenditure.)
Don't Undercharge, but Be Flexible
If there’s one thing to remember from this article, it should be this point. Proper pricing is the one thing that keeps the business alive, on multiple levels. When you charge appropriate amounts for the work, the client will feel like they hired the right people; when you undercharge, the client will know this and take advantage of you by demanding similar rates in the future.
If you give every client a discount just to get the job (and this will be tempting, especially in the beginning), you'll find yourself working twelve-hour days and not being able to pay the bills. Undercharging hurts the industry in general as well; undercharged clients come to expect and request absurdly low prices.
Legal Software
Make sure all the copies of your software are retail versions. Do not use “educational” or pirated software. This is very important, and should be part of the start-up budget.
Separate Personal and Business Finances
Nothing much else to say about this. It will save you innumerable headaches come tax season.
Marketing
Even the most reliable clients have dry spells, so make sure you are constantly putting your company’s name in the marketplace. Word of mouth is the best, but getting truly fresh work usually requires spending money.
The Importance of Image
The importance of maintaining a positive image in the eyes of your clients and potential clients cannot be overstated. Know your firm’s identity so you can project that identity to the customer.
The visual identity is critical. Get business cards, letterhead, and envelopes. Design a good logo or pay someone to do it if you’re not a design firm.
Dress the part. When meeting with a client, look like someone who’s come to do business, not some clichéd black-turtleneck half-shaven graphic designer who’s gracing them with your presence half an hour late. It sounds exaggerated, but it happens all too often.
Make the office welcoming. If you entertain clients, keep the office clean, organized and hospitable. Make good coffee. Purchase comfortable chairs. Make sure they have a place to park.
Use Outside Resources
Running a business takes long hours and a willingness to learn. However, there are many services that exist to help businesses succeed and get work. For instance:
You’ve got to have the “fire in your belly,” or you will fail. There are long hours, hard work, and incredibly frustrating and stressful times ahead. But the rewards — being your own boss, being able to work on a variety of projects, feeling that proverbial sense of accomplishment — these are all very real results.
A Special Note for Those Still in School
When I was in school, what I wanted more than anything was to start a business creating customized audio solutions for multimedia content creators. I asked my teachers — they said it was a good idea. I asked my classmates — they thought it was a good idea. Then I took a six-month internship at a “new media” company whose focus was streaming audio and met people so poor they slept in the warehouse with the equipment because they didn't have the experience to succeed in what they were doing. (Incidentally, they didn't have a business plan either.)
Before you start a business fresh out of school, wait and get some real world work experience first. I started my design company when I was 23, and the business clearly suffered because of it. Not because I was young and dumb (well, not that young and dumb anyway), but simply because I didn't have enough street smarts to REALLY succeed.
Technical knowledge and raw talent only go so far. When working at a company, you see how established businesses function: how workflow is managed, how clients are dealt with, how managers treat workers, and the absolutely critical nature of deadlines, no matter how tight. These are invaluable lessons that school does not teach.
by Kevin Potts
This article offers real-world advice from the trenches of a small start-up, and is applicable to designers, web developers, copywriters, usability experts and all manner of service providers. Freelancers take heed: there are several items that are just as pertinent to your profession.
Write a Business Plan
The most important thing you can do to prepare for starting and operating your own business. Developing a business plan requires a lot of time and energy, but it’s invaluable for one primary reason — it forces you to come to terms with your business idea. You must decide how you will generate income, what your expenses will be, who your competitors are, and most important, WHAT YOUR BUSINESS DOES. This may seem obvious to you now, but write it down. Think about it. What sets your business apart? What service do you offer that is superior or unique? What’s going to put you ahead of the competition?
Beyond the mental exercises, a good business plan will give you a much better chance of getting a small business loan from a bank than walking in and saying, “I like Photoshop and maybe a can do some websites or something. Gimme money.”
A few years ago, new age business rhetoric said forget the business plan and just run with it. Obviously, that didn't work out so well, so if you go that route, God bless you. The business plan exists for a reason. There are libraries of books written on them and huge websites devoted to developing good ones. Some resources:
- SBA
- Scott Kramer’s articles on A List Apart
- Businessplans.org
- Business Plan Archive
Take a few weeks and develop a strong and thought-out plan. Give it to friends, co-workers, even family to read. Your business will be immeasurably stronger because you took the time for this step.
File for a Fictitious Name
A fictitious name (called a doing-business-as or DBA in some states) is the government’s term for your company name. If you choose HyperGlobalMegaSoft as the start-up’s name, it has to be registered with the state to ensure no one else is using it. This will cost about $100, but prevents you from accidentally using someone else’s registered name, or from someone else using YOUR name. Also note that two companies can usually register the same name for different industries. For instance, Luigi’s (design studio) and Luigi’s (pizza joint).
Note the fictitious name is not the same thing as a registered trademark. A trademark involves a whole separate process, more paperwork and additional fees. Unlike a fictitious name, however, a trademark is not required.
Funding
This is a pretty involved topic, and enough books and articles have been written about it to make for years of boring bathroom reading. Advice in a nutshell: start the business with your own savings or borrow from a bank. I highly recommend the former or a combination that includes it, since it makes you pinch your pennies a little more. If you go the bank route, make sure the business plan is polished to a high shine. This may be a good time to hire a professional business plan writer/editor.
There is one Golden Rule: Don't borrow money from family or friends. 99% of the time, you won't be able to pay them back, and on the off-chance you are, it won't be for months or years. The amount is irrelevant; $1,000 or $100,000 can quickly create bad blood.
Get an Accountant
In starting your business and maintaining its future financial health, there is no greater ally than an accountant. He or she (or they if you go with a firm) will be able to give advice on innumerable aspects of your new venture. They can advise on what type of business entity to start with, setting up bank accounts, a means of invoicing and collecting, and more. Most importantly, they also guide you on paying taxes properly and punctually.
Brief advice on accountants:
- Go with an accountant or a firm in your state. Each state has different laws.
- Make sure the accountant knows business taxes. Do not hire a family-oriented accountant.
- Unless, you are really, really strapped for cash, hire an accountant who is not a family member. While it may be tempting to get a family discount, it is better to have an unbiased viewpoint about your finances, and also better to keep your family’s nose out of your funds in general.
- Try to trade services! Maybe your accountant wants a new logo, website, or brochure.
Start with a Partner
If you can, start the business with a partner. This person should be another designer or programmer with a level of experience equal to or greater than your own, but with a different skill set. If you’re the God of Annual Reports, your partner can be the Overlord of Identity Design. Having two Annual Report Gods will make for some lacking identity work when the client requests it. And for the record, once again, it will be better if this person isn't family.
“But why a partner?” you ask. “I'm a darn good designer, and I'm really really gonna do this right.”
A partner will keep you on your toes. When you want to buy that $2,000 scanner, he or she should question why. If you want to design a promotional piece, it should be a group effort to get the best results. If you start to slack off, he or she will be there to remind you of business priorities. No one can do everything, and two complementary skill sets create an asset that cannot be reproduced when flying solo.
About Your New Office
When you start a business, the option of setting up an office outside your home has dramatic pros and cons that must be weighed carefully.
Good:
- You have a place for clients to visit if they are local.
- Reinforces good image (see below). Proper presentation goes a long way, and making your office appear as if you’ve been in business for years (you didn't tell them you were a start-up, did you?) helps build client trust.
- You can write off all office expenses (rent, repairs, phone, etc). This will affect your bottom line drastically.
- Gets you out of the house. Having a real place to go to work makes the business more real, and forces you to take it that more seriously.
Not-So-Good:
- Money out the window. Renting an office costs $250-$10,000 a month, not including the initial deposit. This is a lot of money if you have a thin or inconsistent client base.
- Requires additional expense. You will need to get a fire inspection and a certificate of occupancy, not to mention additional phone lines, Internet connection, furniture, etc.
- Setting up an outside office for a new business is a case-by-case situation, and depends almost entirely on start-up money and cash flow. Some businesses truly require a place to host clients (ad agencies),and for others it’s not as important (web development). Weigh the advantages carefully against capital, because being locked into a lease without a means to pay is no fun.
Retain a Good Paper Trail
Make sure to keep a solid paper trail with clients, and that means a real, physical file with hardcopies of proposals, contracts, invoices, time sheets and anything else you can think of that relates to the project. This also includes all financial records, bank statements, receipts, deposit slips, etc.
Before beginning your business, establish several important things. First, design a consistent and scalable filing system for all the forms. Whether you organize by client or project is irrelevant, but make sure you can find the information when you need it. Second, make sure to have airtight contracts. I advise against writing them yourself. There are many places on the net where you can get generic forms, such as www.creativepro.com. You will also need to look for NDAs (non-disclosure agreements, for contracting work out to other freelancers), RFP (request for proposal) templates for clients to fill out, expense reports, invoices, and time sheets. Every project is different, so be prepared to make changes on these forms.
And please, when you sign a contract with a client, make sure you have a copy with BOTH signatures. Seems like an obvious thing, but you'd be surprised. Don't do any work without one, because legally, you will have a very hard time forcing a delinquent client to pay without one.
Part of maintaining a solid paper trail is having a good invoice system ready to launch at a moment’s notice. Make sure your invoices arrive in the client’s mailbox while the project is still fresh. Every invoice should clearly mark the amount to be paid and terms of payment (30 days, etc.), and clearly indicate any additional fees resulting from delinquent recompense.
If payment is late, don't be afraid to call the client. Sometimes they just misplaced the invoice. Other times they don't have the money and are trying to slink away. Sometimes, “the check is in the mail.” Regardless, the business that does not call to get paid won't get paid!
Start Small, Conserve Loot
Consider working from your house/apartment to start, especially if you have clients that will never visit you, or if you live in an expensive metropolis (NYC, LA, Chicago, San Francisco, etc). Keep your expenses down! Don't buy a new quad Xeon workstation if your current machine can cut it, or a truckload of networking equipment for two computers. Be cheap! Look for sales at OfficeMax, clip coupons, and just shop smart. You’re going to need the start-up capital down the road, so don't drain it on frivolous expenditures. (And yes, the folded die-cut business card with the metallic ink counts as a frivolous expenditure.)
Don't Undercharge, but Be Flexible
If there’s one thing to remember from this article, it should be this point. Proper pricing is the one thing that keeps the business alive, on multiple levels. When you charge appropriate amounts for the work, the client will feel like they hired the right people; when you undercharge, the client will know this and take advantage of you by demanding similar rates in the future.
If you give every client a discount just to get the job (and this will be tempting, especially in the beginning), you'll find yourself working twelve-hour days and not being able to pay the bills. Undercharging hurts the industry in general as well; undercharged clients come to expect and request absurdly low prices.
Legal Software
Make sure all the copies of your software are retail versions. Do not use “educational” or pirated software. This is very important, and should be part of the start-up budget.
Separate Personal and Business Finances
Nothing much else to say about this. It will save you innumerable headaches come tax season.
Marketing
Even the most reliable clients have dry spells, so make sure you are constantly putting your company’s name in the marketplace. Word of mouth is the best, but getting truly fresh work usually requires spending money.
The Importance of Image
The importance of maintaining a positive image in the eyes of your clients and potential clients cannot be overstated. Know your firm’s identity so you can project that identity to the customer.
The visual identity is critical. Get business cards, letterhead, and envelopes. Design a good logo or pay someone to do it if you’re not a design firm.
Dress the part. When meeting with a client, look like someone who’s come to do business, not some clichéd black-turtleneck half-shaven graphic designer who’s gracing them with your presence half an hour late. It sounds exaggerated, but it happens all too often.
Make the office welcoming. If you entertain clients, keep the office clean, organized and hospitable. Make good coffee. Purchase comfortable chairs. Make sure they have a place to park.
Use Outside Resources
Running a business takes long hours and a willingness to learn. However, there are many services that exist to help businesses succeed and get work. For instance:
- Your local Chamber of Commerce
- SCORE
- Attend business seminars. You can learn a lot and do some powerful networking. Many are free.
- Elance.com. A cause of dissention among many designers for the ridiculously low rates you have to work for, but a good place to find work when the rest of the world has shut its doors.
- If you still decide to start a business, there’s nothing more I can say except good luck.
You’ve got to have the “fire in your belly,” or you will fail. There are long hours, hard work, and incredibly frustrating and stressful times ahead. But the rewards — being your own boss, being able to work on a variety of projects, feeling that proverbial sense of accomplishment — these are all very real results.
A Special Note for Those Still in School
When I was in school, what I wanted more than anything was to start a business creating customized audio solutions for multimedia content creators. I asked my teachers — they said it was a good idea. I asked my classmates — they thought it was a good idea. Then I took a six-month internship at a “new media” company whose focus was streaming audio and met people so poor they slept in the warehouse with the equipment because they didn't have the experience to succeed in what they were doing. (Incidentally, they didn't have a business plan either.)
Before you start a business fresh out of school, wait and get some real world work experience first. I started my design company when I was 23, and the business clearly suffered because of it. Not because I was young and dumb (well, not that young and dumb anyway), but simply because I didn't have enough street smarts to REALLY succeed.
Technical knowledge and raw talent only go so far. When working at a company, you see how established businesses function: how workflow is managed, how clients are dealt with, how managers treat workers, and the absolutely critical nature of deadlines, no matter how tight. These are invaluable lessons that school does not teach.
by Kevin Potts
Thursday, June 30, 2011
5 Reasons To Keep A Work Diary
Many historical figures kept work diaries or journals. Ben Franklin, John Adams, Andy Warhol, and countless others have recorded the events of their day in some form. While these historic diaries are incredibly fascinating for us to read today, the benefit they gave to the writers was probably far greater.
Richard Branson has written bestsellers based largely off of his years of recording his daytime thoughts and working experiences into journals. Reading Branson's thoughts motivated me to keep a loose log of work and life experiences as well. The ritual has helped me immensely, probably more than any other work or time management "hack."
My process is pretty simple: At the end of each day I'll recount what worked, what didn't, and some other random things that happened during the day. There isn't a lot of structure, just merely stream of thought that lasts about fifteen minutes. Sometimes I'll vent in wordy prose, other times I'll just make a quick list. I've found that it's not so much what or how I write, but rather that I do it. The results have been profound for me. I'd recommend this practice to anyone. Here's why:
1. The release
If anything, it feels good to unwind and recount the bits of the day. There's something about the finality in writing something down on paper that makes it more real, and makes the memories stronger. I doubt I'd be able to remember half of what I did throughout the day if I didn't recount them. It also helps with answering that recurring question of "Where did the day go?!"
2. An honest overview
If you're like me, you keep lists of stuff that needs to be done throughout the day. I've had days where the morning started with 15 things on the list, and ended with 13 left undone. Ouch. Yet being able to recall the day allows me to see some of the other things I did get done that weren't on the list.
3. See the wins
We often forget the things that we got done during the day for lots of reasons. We're taught at an early age that what we do isn't as important as what we didn't do. After all, what we don't get done often impacts us more in work and other social settings. This causes us to automatically shove the stuff we did accomplish into the back of our minds, and fret about the undone. However, focusing on what we have done—the wins—in our day rejuvenates. Going to bed looking at what was accomplished can be a massive motivator to help start the next day, and can keep us from closing the day on a sour note.
4. Minimize your mistakes
One definition of insanity is repeating the same process over and over again, while expecting a different outcome. Similarly, it's easy to plow through each work day like the last, without giving a second thought to the events of the day. This is especially true for our bad days. On our worst days, we simply want to unwind and not have to relive the nightmare that was the previous working day. But it turns out the worst parts of our days are important to remember as well (even though it stings). Reverse engineering what went wrong is helpful to ensure it doesn't happen again, and work journals are perfect for this.
5. A new perspective on your day
The most helpful part of this exercise for me is getting perspective on what my days end up looking like. After a particularly bad day last month I reflected, stiff drink in hand, on all the events of the day. This helped me to see that my day wasn't as bad as I had remembered it. In fact, it was a really decent day, minus a couple setbacks towards the end. In my mind I had made these setbacks out to be more important than they were. The day wasn't a total loss after all! Perspective is everything.
As our days move by us faster and faster, it becomes that much more important to take a breath, and reflect on what happened during the day. Without the perspective of our days, we can't really take satisfaction in our big wins, nor can we learn from our mistakes.
Richard Branson has written bestsellers based largely off of his years of recording his daytime thoughts and working experiences into journals. Reading Branson's thoughts motivated me to keep a loose log of work and life experiences as well. The ritual has helped me immensely, probably more than any other work or time management "hack."
My process is pretty simple: At the end of each day I'll recount what worked, what didn't, and some other random things that happened during the day. There isn't a lot of structure, just merely stream of thought that lasts about fifteen minutes. Sometimes I'll vent in wordy prose, other times I'll just make a quick list. I've found that it's not so much what or how I write, but rather that I do it. The results have been profound for me. I'd recommend this practice to anyone. Here's why:
1. The release
If anything, it feels good to unwind and recount the bits of the day. There's something about the finality in writing something down on paper that makes it more real, and makes the memories stronger. I doubt I'd be able to remember half of what I did throughout the day if I didn't recount them. It also helps with answering that recurring question of "Where did the day go?!"
2. An honest overview
If you're like me, you keep lists of stuff that needs to be done throughout the day. I've had days where the morning started with 15 things on the list, and ended with 13 left undone. Ouch. Yet being able to recall the day allows me to see some of the other things I did get done that weren't on the list.
3. See the wins
We often forget the things that we got done during the day for lots of reasons. We're taught at an early age that what we do isn't as important as what we didn't do. After all, what we don't get done often impacts us more in work and other social settings. This causes us to automatically shove the stuff we did accomplish into the back of our minds, and fret about the undone. However, focusing on what we have done—the wins—in our day rejuvenates. Going to bed looking at what was accomplished can be a massive motivator to help start the next day, and can keep us from closing the day on a sour note.
4. Minimize your mistakes
One definition of insanity is repeating the same process over and over again, while expecting a different outcome. Similarly, it's easy to plow through each work day like the last, without giving a second thought to the events of the day. This is especially true for our bad days. On our worst days, we simply want to unwind and not have to relive the nightmare that was the previous working day. But it turns out the worst parts of our days are important to remember as well (even though it stings). Reverse engineering what went wrong is helpful to ensure it doesn't happen again, and work journals are perfect for this.
5. A new perspective on your day
The most helpful part of this exercise for me is getting perspective on what my days end up looking like. After a particularly bad day last month I reflected, stiff drink in hand, on all the events of the day. This helped me to see that my day wasn't as bad as I had remembered it. In fact, it was a really decent day, minus a couple setbacks towards the end. In my mind I had made these setbacks out to be more important than they were. The day wasn't a total loss after all! Perspective is everything.
As our days move by us faster and faster, it becomes that much more important to take a breath, and reflect on what happened during the day. Without the perspective of our days, we can't really take satisfaction in our big wins, nor can we learn from our mistakes.
Tuesday, June 14, 2011
"Buy Put" Stock Option Investment Strategy"
A stock option is a contract that gives investors the right, but not the obligation, to buy or sell 100 shares of stock at a strike price by a set expiration date. A "call option" enables investors to "lock-in" a price for a particular stock (the strike price) for a premium. If the stock price goes above the strike price by enough to cover the premium paid for the "call option" and any commission fees, the investor will make a profit. Should the stock price never reach that strike amount, the investor only loses the premium, and any commissions paid. In other words, "call options" have unlimited potential profit with minimal risk, which make them good investments during bull markets, where returns continue to outperform historical norms.
A "put option", however, is a better investment option during bear markets, when returns are below historical averages. A "put option" gives the holder the right (but not the obligation) to sell 100 shares of stock at the strike price to the writer of the option. In other words, the writer of the option is betting that the stock price will rise above the strike price. Using the "buy put" stock option investment strategy means that you are betting that stock prices will go down---and the lower the better!
The more "bearish" you feel about the market, the better the "buy put" stock option strategy becomes. Thus, for the price of the premium, the investor locks in the right to sell the 100 shares of stock reserved by the option to the writer at strike price.The lower the stock price goes, the more profitable the option becomes. The investor would be acquiring the 100 shares of stock at a cheaper price (if he/she does not already own it), but is guaranteed to sell the option to the writer for the (higher) strike amount. The larger the gap between the actual stock price and the strike amount (at time of expiration or when option is exercised), the greater the profit.
The maximum loss for an investor using the "buy put" stock option investment approach is the premium paid plus commission fees. If the expiration date arrives and the stock price remains above the strike price, then the loss is total, and the option is worthless. The break even point for a "buy put" option is the exercise amount of the stock, minus the premium and commissions.
"Buy put" options are also susceptible to decay, as their value continues to decrease as the expiration date grows nearer. The only variable that affects decay is the overall volatility of stock prices. When the market is more volatile, the rate of decay will slow. However, when prices are steady and consistent, the rate of decay will actually increase, since predictable prices mean that the time decay is also predictable. For investors who believe that they are in a bearish market, however, the "buy put" stock option investment strategy may be a good one with limited downside.
A "put option", however, is a better investment option during bear markets, when returns are below historical averages. A "put option" gives the holder the right (but not the obligation) to sell 100 shares of stock at the strike price to the writer of the option. In other words, the writer of the option is betting that the stock price will rise above the strike price. Using the "buy put" stock option investment strategy means that you are betting that stock prices will go down---and the lower the better!
The more "bearish" you feel about the market, the better the "buy put" stock option strategy becomes. Thus, for the price of the premium, the investor locks in the right to sell the 100 shares of stock reserved by the option to the writer at strike price.The lower the stock price goes, the more profitable the option becomes. The investor would be acquiring the 100 shares of stock at a cheaper price (if he/she does not already own it), but is guaranteed to sell the option to the writer for the (higher) strike amount. The larger the gap between the actual stock price and the strike amount (at time of expiration or when option is exercised), the greater the profit.
The maximum loss for an investor using the "buy put" stock option investment approach is the premium paid plus commission fees. If the expiration date arrives and the stock price remains above the strike price, then the loss is total, and the option is worthless. The break even point for a "buy put" option is the exercise amount of the stock, minus the premium and commissions.
"Buy put" options are also susceptible to decay, as their value continues to decrease as the expiration date grows nearer. The only variable that affects decay is the overall volatility of stock prices. When the market is more volatile, the rate of decay will slow. However, when prices are steady and consistent, the rate of decay will actually increase, since predictable prices mean that the time decay is also predictable. For investors who believe that they are in a bearish market, however, the "buy put" stock option investment strategy may be a good one with limited downside.
Sunday, May 29, 2011
Easy Answers to Tough Interview Questions
Q: “Tell me a little about yourself.”
What they’re really saying: “I’m trying to figure out why you want this job and if you’re a good fit.”
What they’re not saying: “Tell me a funny story from your frat days or what you watched on Hulu last night.”
There’s a way to be honest, express your individuality, and still tailor your answer to their expectations. For example:
A: “I studied social work at the University of Michigan because I knew it would be the best way to apply my passion for people. Since then, I’ve worked as a counselor for refugee agencies, where I became more informed of global, systemic issues. Those experiences paved a specific long-term career path for me, which is why when this position opened up, I knew it would be a good fit.”
Notice that the answer has a chronological, thematic structure. Your answer doesn’t have to be so formulaic, but the interviewer’s takeaway should be that applying for this job was the next natural step.
Q: “What are your weaknesses?”
What they’re really saying: “You’re not perfect, so how do you compensate?”
What they’re not saying: “What are your weaknesses?”
Employers are moving away from asking this question, but if you get it, avoid either extreme, i.e. sounding fake (“I work too much”) or too transparent (“I’m not very punctual, I tend to lose things,” etc.) It’s all in how you spin it:
A: I pay incredible attention to detail, but sometimes it causes me to miss the bigger picture. I’ve been working on that by approaching projects from a bird’s-eye view throughout the process.”
Q: “How do you handle stress?”
What they’re really saying: “Do you have good problem-solving, time-management, and decision-making skills?”
What they’re not saying: “How do you unwind?”
Cite at least one–if not all three–skills in your answer, and use a specific example. Sometimes a personal answer can work (e.g., I exercise three times a week to stay balanced), but it’s safer to answer how you handle stress or pressure on the job.
A: “In stressful situations, I take a step back and analyze the best ways to solve the problem. For example, in my previous position, there were moments of high volume that were stressful. In order to provide quality customer service to each individual, I prioritized their needs, quickly assessed which cases could be handled by colleagues, and addressed the most urgent situations first.”
Q: “What would others say about you?”
What they’re really saying: “Are you a good fit for our team?”
What they’re not saying: “I care what your friends and mom think about you.”
Always answer this question based on what previous colleagues and employers would or have said about you. Include any weaknesses to give a well-rounded answer, too. Don’t be afraid of commenting on relational skills.
A: “I’ve been consistently commended by employers for my initiative and ability to think outside the box. My colleagues would say that I’m willing to go above and beyond to get the job done, and that I value working relationships marked by mutual trust and respect.”
Q: “Where do you see yourself in five (or ten) years?”
What they’re really saying: “Do you know where you’re going in life, and are we a part of it?”
What they’re not saying: “Tell me the truth.”
If the job is an entry or even mid-level position, chances are that they know you won’t be there in five years. They’re testing to see whether you’re stable, reliable, and have clear goals. Start with the big picture, then narrow down to the specific company and/or position.
A: “I see myself at a creative marketing firm that pushes the envelope. My goal is to be a senior copywriter that oversees and ideates multiple projects, and I see this position as the starting point.”
These just scratch the surface, but remember these recurring principles when interviewing : be confident, be specific, and be honest–just not too honest. Looking for more interview tips? This video is full of gems that you can use to ace your next interview:
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