BiggerPockets Money Podcast - 296: Finance Friday: How Do I Get Out Of This Cash Flow Crisis?

Episode Date: April 29, 2022

Everyone has experienced negative cash flow. If you have a troublesome rental property, you may experience negative cash flow. If you have a low income but an appetite for expensive eateries, you may also experience negative cash flow. But, more common than most, if you’re in the early stages of building your small business, negative cash flow may be a harsh but hard to mitigate reality.  Chris is feeling the sting of sinking purse strings every month. At the start of 2020, Chris left his old job as an engineer to start working for himself. He hired a couple of employees and started taking on more and more work. But, he’s spending too much time training his junior engineers and not enough time locking down high-value contracts, leaving him in the red every month. Surprisingly, more business owners face this problem than you would think.  Scott puts on his CEO hat to dive deep into the finances of Chris’ business and gives some challenging, yet reasonable, advice on how he can immediately improve his financial situation. With suggestions from both Mindy and Scott, Chris may have a better picture of how he can go from cash flow negative to very comfortable with highly positive cash flow in the near future. You may not be in Chris’ position now, but if you ever plan on starting a business, or have already, this episode is a MUST.  In This Episode We Cover Cash savings and why it’s always important to keep a strong safety reserve (especially as a business owner)  How to break down your negative cash flow situation to find the most costly expenses  Starting a business vs. continuing to work at a job and why entrepreneurs should be prepared for risk (and loss) How to establish whether or not an employee truly brings value to your company  KPIs, goals, and getting on the same page with your team and employees Executive assistants and why high per-hour earners may need them the most  And So Much More! Links from the Show BiggerPockets Money Facebook Group BiggerPockets Forums Finance Review Guest Onboarding Scott's Instagram Mindy's Twitter Apply to Be a Guest on The Money Show Podcast Talent Search! Subscribe to The “On The Market” YouTube Channel Listen to The “On The Market” Podcast: Spotify, Apple Podcasts, BiggerPockets  Check Out Mindy’s 2022 Live Spending Tracker and Budget 6 Steps to Improve Your Financial Situation 15 Things Every Newbie Needs to Know About Starting a Business How to Know When to Hire Your First Employee 10 Challenges to Seriously Consider BEFORE Quitting Your Day Job Check the full show notes here: https://www.biggerpockets.com/blog/money-296 Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to the Bigger Pockets Money podcast show number 296, Finance Friday edition, where we talk to Chris about the sometimes harsh realities of running your own business. Well, when I was putting together my little summary for you guys today, this is the first time I've sat down and looked at my business financials in a while because I've been working 60 or 70 hours a week without doing the financials. And I was coming to kind of the same conclusion that obviously what I'm doing is not working the way I'm running it right now. Hello, hello, hello.

My name is Mindy Jensen. And joining me today is my smart cookie co-host, Scott Trench. What a fully baked introduction, as always, Mindy. Scott and I are here to make financial independence less scary, less just for somebody else. To introduce you to every money story, because we truly believe financial freedom is attainable for everyone, no matter when or where you're starting. That's right. Whether you want to retire early and travel the world, go on to make big-time investments in assets

like real estate, or start, or. Reset. Your own business will help you reach your financial goals and get money out of the way so you can launch yourself towards your dreams. Scott, today we are going to speak with Chris, a man who lives up in Canada, but all the information still applies to anybody, no matter what area of the world you're in. He lives up in Canada. He would like to be financially independent within the next 10 years. But he's got some interesting curveballs being thrown at him right now. Most of them stem from the fact that he owns his own. business. Yeah, I mean, I think, you know, we'll get into this, but Chris is upside down. His business is not bringing in enough income to support his lifestyle. And he's got several employees and some real problems there. And I think this was a particularly interesting

Finance Friday situation we have not come across before. And I think we had some tough, unfortunate advice that I think we hope we're wrong on, but but but think probably might need media to be implemented by Chris. Strongly considered. And, you know, we'll get to that in just a moment. I do want to stress that this is advice specific to Chris, but not really specific to Chris because he is, you know, he's running his own business. And I think there's a lot of business owners who will listen to this show today and say,

ooh, I feel seen. And, you know, we gave Chris several options. We didn't just give him one option. This is what you have to do. And that's the only path to success. There are a lot of things to consider. And I hope that if you're listening and this is making you feel seen, you think of the different options that we've given Chris and see if those can apply to your situation as well. Absolutely.

Well, should we bring him in? No, we have to tell about the. contents of this podcast. We have to talk about our attorney saying the contents of this podcast are informational in nature and neither Scott nor I nor Bigger Pockets is engaged in the provision of legal tax or any other advice. You should seek your own advice from professional advisors, including lawyers and accountants regarding the legal, tax and financial implications of any financial decision you contemplate. Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, investments,

the whole thing. And if you're like most folks, it can be a little eye-opening. That's why I like Monarch. It helps you see exactly where your money is going, and more importantly, where your taxed refund can make the biggest impact. Because the goal isn't just to look backward, it's to actually make progress. Simplify your finances with Monarch. Monarch is the all-in-one personal finance tool designed to make your life easier. It brings your entire financial life, including budgeting, accounts and future planning together in one dashboard on your phone or your laptop. Feel aware and in control of your finances this tax season and get 50% off your Monarch subscription with the code pockets. What I personally like is that Monarch keeps you focused on a cheap, not just tracking. You can see your budgets, debt payoff, savings goals, and net worth all in one place. So every decision actually moves in Edle. Achieve your financial goals for good with Monarch, the all-in-one tool that makes money management simple. Use the code pockets at Monarch.com for half off your first year. That's 50% off at Monarch.com code pockets. I love Matt, said no one ever. Nobody starts a business thinking, you know what would make this more fun, calculating quarterly estimated taxes? But somehow every small business owner ends up doing it.

Your dreams of creating, selling, and growing get replaced by late nights chasing receipts, juggling invoices, and wondering if that bad sushi lunch with Scott counts as a write-off. Change all that with Found. Found is a business banking platform built to take the pain out of managing money. It automatically tracks expenses, organizes invoices, and even preps you for tax season without you doing the heavy lifting. You can set aside money for business goals, control spending with virtual cards, and find tax write-offs you didn't even know existed. It saves time, money, and probably a few years of life expectancy. Found has over 30,000 five-star reviews from owners who say,

Found makes everything easier, expenses, income, profits, taxes, invoices even. So reclaim your time and your sanity. Open a found account for free at found.com. That's FODD.com. Found is a financial technology company, not a bank. Banking services are provided by lead bank, member FDIC. Don't put this one off. Join thousands of small business owners who have streamlined their finances with Found.

Audible has been a core part of my routine for more than a decade. I started listening years ago to make better use of drive time and workouts, and it stuck. At this point, I've logged over 229 audiobook completions on Audible alone, and I still regularly re-listen to the highest impact titles. Lately, I've been listening to Bigger Leaner Stronger for Fitness, the Anxious Generation for Parenting Perspective, and several Arthur Brooks' audiobooks that have been excellent for mental well-being. What makes Audible so powerful as its breadth. Beyond audiobooks, you also get Audible Originals, podcasts, and a mass.

massive back catalog across business, health, parenting, and more, all accessible in one app. If you're looking to turn everyday moments into real progress, Audible has been indispensable for me over over 10 years. Kickstart your well-being journey with your first audiobook free when you sign up for a free 30-day trial at audible.com slash BP money. Chris and his wife are looking to hit five within the next 10 years, but they have incredibly variable income. Anywhere from $1,000 a month to $7,000 a month.

His most burning question is how do I plan for expenses when money is so unpredictable? Chris, welcome to the Bigger Pockets Money podcast. Thank you very much, Mindy. I'm happy to be here. I am excited to talk to you. You have a lot of interesting aspects to your financial situation. So let's jump right into it. What is your income and where's it going?

I guess I already answered that question. Your income is whatever. And where does it go? Precisely whatever. That's a very good way of putting it, actually. Yeah, I'm running my own business, so it is very variable, and it has been kind of a ride for the last six months. Plus, my wife is currently on medical leave. So, all told, I've got two rental properties bringing in about $850 a month.

My wife is employment insurance is bringing in about $2,000 a month. Canada has, I'm Canadian, Canada has this baby bonus, basically, that's bringing in about $300 a month. And then my business, I mean, generally most months, it's mildly profitable. But it, you know, averages out to maybe $1,000 to $3,000 a month. So all told, I've got income at around $5,700 a month, Canadian. So you can translate that to American if you really want to. We'll just go with dollar for dollar and call it because it's the same. The math still works.

Canadian math is the same as American math. What does your business look like six months to a year from now? Ideally, I really need to stabilize. So I just hired on a new employee about two weeks ago. My first employee came on just longer than six months ago. So right now I'm looking to stabilize and bring it up to a steady. I'm bringing in $5,000 to $7,000 a month after expenses. And then I can look to grow again.

So that would be the six-month-ish plan. How much? What would you expect annual revenue for your business to be? Revenue? I'm really aiming for somewhere in the $190 to $210,000 range sometime in the next year. Yeah, that pretty much sums it up. It is obviously very variable. So your annual revenue is $200,000.

What does an employee cost? Sorry. I'm hoping my annual revenue was going to be $200,000 in the next six months. Right now, I'm bringing in somewhere in the range of $120,000 annual. I've got a couple of bigger projects lined up, so hopefully they bring me. up to 200 grand. My employees are costing me roughly 50k a year each, roughly. In base salary or base bonus? That includes kind of everything. Taxes, everything. Okay, great. We'll come back to the business in a little bit here for sure. Where's all the,

so we're bringing in $5,700 a month, where, on average variable, where is that money going? About half of it goes towards my housing, so that includes mortgage, insurance, everything, $3,200 a month utilities as well. My three-year-old costs us about $1,500 a month of that $1,250 is going towards child care. Household and food were just under $1,000 a month with food taking $600 of that. My wife and I spend about $325, or sorry, $375 each a month, so $750 for us. And that's haircuts through alcohol, through, I don't know, a new microphone for my computer for a bigger pockets interview. And then we've got travel was $350 a month last year, which was all kind of combined into one big trip.

I am Canadians, so we have universal health care, but I do pay for some private health insurance for dental, vision, any kind of pharmacare stuff. giving includes gifts and charities at about $300 a month all told my cars $750 a month the vast majority of that is payment towards a $30,000 car loan and then rest are on to $150 a month so if you add all that up it runs into about $8,250 a month so that's negative $2,600 is the difference if you might have noticed yep we can definitely definitely see that okay where is um how much cash do you Oh, go ahead, Mindy. I was going to say right here, I can see a couple of things to discuss.

But Scott's got a better point. Let's finish up the numbers first, and then let's go back and talk about these. Where are your assets and how much cash do you have? So cash, I used to have a lot more cash. We've been living off of my savings for a while. So I'm down to somewhere in the $10,000 in cash. And then assets, if you add my cars together, they're worth about $35,000. $1,000, but my wife's car being the vast majority of that.

And then my business has about $5,000 in it, something like that, a bunch of outstanding invoices. And are we getting into equity now? Do you want to get into equity now as well? Yeah, let's do all your net worth. So we have $15,000 in cash. And then I've got two rental properties with total equity of about $210,000, and my primary residence with almost $370,000.

in it in equity. Awesome. So just shy of 600K net worth. Okay. So, you know, you obviously can see that you're cash flow negative right now and have $15,000 in cash. I'm sure that that is somewhat stressful for you. Yes, it's starting to come to a head.

For a while it was okay. Now it's starting to feel very, very stressful. So what's the, do you have a plan of action or a set course there to resolve the situation? Or what is your thought process there? I mean, temporarily, obviously there's things we can cut out of that budget that we might need to for a little bit. And there's a few different ways we're going to approach that. I mean, restaurant spending and personal spending both have to come down temporarily, hopefully temporarily, I suppose. And the child care spending, we just filed our taxes two or three weeks ago.

And theoretically, we will now qualify for a subsidy for child care spending because our income was kept very low last year in 2021. So I'm kind of hoping to bring that down by almost $1,000 a month. And then obviously some of these variable expenses or expenses we can control more has to come down as well. And of course, at the same time, I'm focusing on actually invoicing my customers as opposing to leaving the invoices on the side as something I'll get to eventually. Okay. Okay. Well, yeah, let's talk about paying yourself first.

And your company needs to get paid first. And I don't know how a job works. Is it do you do the work and then you bill for the entire thing at the end? Or do you bill hourly every week? Or can you set it up in a different way? So there's a different stream of income? So there's kind of two different streams of income for the business, the energy audits that I do, typically residential.

And those are organized through a service organization. So I bill them directly for that. And that I typically do monthly, relatively straightforward. and it's about half of the revenue I'm getting right now. The other half is engineering projects where typically there are only $1,000 to $3,000 in size and I have been generally billing after work complete. And the issue that I've had with that is work tends to stretch on.

And even if I'm charging extra for the extra work, I'm not sending out the invoices. So I'm actually owed around, what is it, $35,000 right now. in my business, that hasn't come in. Okay. So with the energy audit, this sounds like it is set up through, like, a government agency? Sort of. They're a nonprofit, but it is a government-run program, which is why it's quite so busy right now.

We have a program in Canada where houses can get up to $5,000 back to do green things, basically, and they require the energy audit to begin with. Are you doing this personally, or is this being done by an employee? So to follow the rules, which of course I do, I have to go in and actually do the pictures and taking the, do the actual energy audit. My employee does the background math and work, and then I sign off on it before it goes into the organization. Okay. And let's see. I'm trying to think if you're doing these jobs weekly, you should be billing them weekly. And is there any difference in a job? Or is it just it pays $100? So here's a bill for $100.

Or is it, like, how does that bill work? There's minor differences, but for the most part, it's $300 per house, roughly. And my contract with that company says I'm supposed to bill them monthly. Oh, okay. So let's just forgetting about the step in away from invoicing the customer and the timing of cash collections, which I don't think is your fundamental problem. It could be any problem, but it may accelerate the payments to some degree. but let's just do some simple math.

You said your business is going to do $120,000 annually right now, and it could do up to $210,000 with its current situation, right? Roughly, yeah. You just hired your second employee, and both employees cost $50,000. Yes, although I did forget to mention that one of those employees is subsidized for the next six month at 80%. So that 50K becomes 10K for six months, if that makes sense.

Say that one more time? One of my employees comes with a young, engineers grant basically to the business. So he costs me 50,000 and then somebody pays me back 40,000 of those, of that salary cost. So yes. What you said was correct, except I forgot to mention that I am getting a subsidy for one of those employees. Okay, so we have, we have $60,000 in expenses on $120,000 in current run rate revenue. Yes. Okay. So that's your fundamental problem right there is $60,000 in revenue with your business is not enough to sustain your lifestyle, right? So you do not yet have a viable business. Let's do the math on your end state

six months to a year from now. You think best case scenario you're going to get to $210,000 per year in revenue, right? Best case might be strong. I think that's my expected case looking at the projects I'm quoting on right now. Okay. Your anticipated case is 210,000. $200,000, let's call $200,000 in revenue in a year from now, and you're going to have two employees each being paid $50,000 the grant will be over with at that point? Yeah, it will be. Okay, so you're going to net $100,000 in revenue or in gross margin, I guess we'll call it at this point.

You will have other expenses you will have to pay for your business besides the employees. What are some of those expenses that you have? It's actually a relatively low overhead business, but yes, there are expenses. It's roughly $3,000 a year in insurance. Another, let's just call it $3,000 again in terms of engineering licenses and keeping up to date with all that stuff. And then the only other one I really pay for regularly is paying myself a mileage allowance for my car. What about your engineers? Will they have mileage allowance?

No, they are work from home and aren't going anywhere. Do they have equipment that you pay for? Nope. I'm limited. Our contract has them paying. I pay for paper if they print. That's about it. And then there's a couple of software licenses as well. So it's another $1,000 or so on top of that. All told, expenses are running in at about $10,000 to $12,000 a year except for employees. And I had some set up costs, obviously, but those are all done at this point. Okay. So your employees, so we have 200,000 in income, earn revenue. We have $100,000 in employee expense, and we have $12,000 in other incidentals as a conservative estimate for your business, right? So that brings you to $88,000 per year in income that you all then pay taxes on, the net of

which is what you can use to fund your life. Your lifestyle costs 80 to 50. Sure. So that will, 82.50 times 12 is 99,000. Yep. That's the basic problem that I'm struggling with from your business perspective here. So something has to change in order for that to work out. Either the expenses have to get, have to get, and by the way, that's a year from now, right?

Sure. from that. So something has to change in order to do this. What do you, where do you think the biggest leverage is? I just want to throw in there that I do have the two rental properties, which are cash rolling a little bit, pretty safely, as well as my wife is going to go back to work as soon as she is able to. And hopefully until then, the employment insurance keeps coming in. So there is a little bit of a buffer there. My wife was making about 45 to 50,000 a year before we started taking this medical leave.

Got it. Okay. So we have another 45,000 to 50,000 in income there. What are your goals? Six months ago, I would have said, stabilize my income and buy a couple more rental properties. Right now, what I really want to do is stabilize my business income at a much higher level. I want to grow the business and actually make it.

I don't want to make $88,000 a year. That wasn't why I got into it. I could make $88,000 a year as an engineer at a job tomorrow. if I really wanted to. So that is my focus right now is growing that business income up and making sure my bottom line makes sense for all the work I'm putting in, which is a lot. Great.

That's what I figured your goal would be. I wanted to make sure, though, that was the right case here. So let's go through the workload again. What do you need the two employees to do? I need them to do a lot of the technical stuff where I am just double-checking and providing my stamp. I don't know how it works elsewhere, but in Ontario, the stamp is sort of the engineer's seal.

Without the stamp, things can't get built or pass building code. So generally how it works in engineering firms is the junior engineers will do a lot of the background, basic math, the basic drawings, that kind of thing, put it all together. And then the senior engineer will come in and review and stamp and provide to the customer. How long does the work? that the engineers are doing take you to do?

Oh, I mean, that's very variable. I'm charging roughly $160 an hour for my time, and I'm charging $60 an hour for the junior engineer's time, if that kind of helps with that. And that's probably fair in terms of how long it takes them to do something that I would do as well right now. Here are some thoughts that are occurring to me. I do not believe you can afford a full-time employee right now.

I think you can definitely not afford two in full-time employees. I think that based on the high-level things that I'm observing, I'm going to go drilling into this. You can tell me if I'm wrong with this, but my instincts say that a reduction in force or a layoff is in your business's future for this, because it's going to come down to you depleting your cash reserves or you continuing to pay your employees

with what is currently going on in this business. And that is not good news. I'm not going to pretend that that is good news or anything. But that's what I see with my CEO hat on in looking at your business as an outsider from this. When you say my time is built out at $160, and my team time is built out at $60 an hour, that's viable if you're paying your team,

you're paying your team $25 an hour, roughly with $50,000 a year. But you are not actually getting that arbitrage because your income is so variable at this point. So you're not filling up, I can tell immediately that you're not filling up these engineers' time with billable hours in that 30 plus hours a week range that you can actually charge off to customers downstream. If you could fill that pipeline with 30 to 40 plus hours per week of time for

engineers to actually be doing that work, you might have a viable arbitrage business model there. But the simple unit economics don't appear to be working out. So how much time are these engineers billing in your business? Yeah. I mean, right now I have one, as I said, just started. So he is basically just doing training right now. And I did accept that there was going to be, I mean, obviously almost zero build hours out of him for a while. But your guy who is billing hours.

How many, how many hours is the guy who is billing hours getting? She was billing about 25 hours a week, roughly. A lot of that I was putting towards the background math for the energy audits, as I also trained her up. She is a new engineer, so I was also training her up to do the drawings and the heat load calculations and the math, basically. So she's billing $25 hours a week at $60 an hour to your clients. you should be bringing in $6,000 a month in revenue from that employee alone. Is that happening? That would be the goal.

Like I said, right now, she was doing a lot of the background math for the audit. So I was paying out about $80 for her to do an audit, and I was getting paid $300 to get that audit finished. And obviously, I spent an hour and a half on it as well. Okay. So you've got a services business here. So that means that the economics here are billable hours times rate times arbitrage. Sure.

Right. So you've got pretty easy math there. And maybe this is a good first step. Build a KPI dashboard that you're looking at on a weekly basis. How many hours am I billing out per week at my rate, which is, do you said 320? 160. 160, yeah. Okay, my rate's 160.

What is my target goal for billable hours? And how do I get that number up? That is your number one job as the CEO of your small business. That's your highest revenue driver. If you're not billing 25, 30, 40 hours a week, something's wrong. With that and you're like what why do you have employees if they're not putting you on the clock? Um, billing that time all the time, right? So if you're doing let's just do that real quick. If you if you can do, um, uh, 25 hours a week, you're going to do $16,000 a month and now you're, now you're bumping against $200,000 in annual income alone just from you.

Is that possible? Is it possible to get you to $25 hours a week in billable time? just for me. Yes. I mean, the work is there. Yes. I think I spend a lot of time in the background right now as well doing the sales, the counting, all the other stuff. But 25 hours is roughly what I'm doing at the moment. It's just not all of it is, sorry, it would be 25 hours.

This is complicated because I fix price jobs generally, which is something else I have to stop doing. I need to start doing time and materials because things go over. through no fault of my own. But I'm working more than 25 hours a week for customers. I'm just not billing for all of those hours, if that makes sense. Oh, I got no trouble believing you're working more than 25 hours a week. Yes. Don't worry about that.

No one's worried about that. The question is, yeah, are you billing that to customers there? So that needs to be, like, I would set up, I would come off the call today. I would go back for the last three months, and I'd say, how much billable time am I putting in? how much bill and then putting it daily and weekly weekly dashboard and saying how many hours my billing at my rate and what is my blended rate right if you're doing contract projects and they take you six hours and you're billing them and you're and you're billing them at like 300 bucks you're doing 50 hour an hour work um with that so you need to be honest with that and say my goal

my number one business goal is to get my time build out as close to 40 hours a week as possible not to get my employees time build out at $60 an hour right That's way worse arbitrage. Your revenue is coming from your time with this. And then that would inform your employment, your employee strategy, right? You may not even want an engineer if you come to that conclusion. You may say, no, an executive assistant is what I really need because they will be booking me and keeping track of my billable hours, hounding the customers for payment, invoicing them,

doing all of the other stuff that is taking my time away from billable hours. That is a unit of value in your business right now is you and your time. Unfortunately, yes. And that's fine. That's how you get started, right? And then after you get booked fully out, okay, now I'm going to bring on the next person and build their time out at $100 an hour and pay them, you know, in the $150 an hour range, the $100 grand range.

Now you've got even better arbitrage than I think with these other engineers. It sounds like there's work there is for the $160 an hour team, but that's how you build a scalable enterprise here with services-based business, I think. Yeah, I can't disagree. I think that is my goal. Right now I've been spending a lot of time training and bringing my new engineers up so that I can get them doing some of the more background work and actually build them out.

and I have been tracking every hour I spend is tracked. It's too expensive to do that, right? You can't do that with your business model. You can tell that by looking at the very simple high-level math here. Your time's worth $160 an hour. Their times worth $60 an hour. You're arbitraging at best $30 an hour time, right? So if you're working, if you work a 40-hour week for billable hours, we're talking,

what is that? That's $25,000 per month. In income, that's, that's a 300 grand annualized. Every hour that you're not working training your employee, they're going to arbitrage you $30 an hour, maybe, which you... At some point. Yes, not today. At some point. And they're not going to get up to that full level.

So you're spending $160 an hour time to make $30 an hour, maybe downstream. And so that's, I think, your fundamental problem here and why you're upside out on your cash flow situation is these employees are killing you. from your bottom line. They may be good people. They may be doing all the right things. But the unit of value in your business is not their time. It's your time. So I have a question.

I don't disagree with Scott as much as I want to because we're talking about two people and their jobs. And I would love to disagree with Scott and be like, hey, I've got a great solution, but I don't. I'm wondering about the energy audits. Yeah. You're getting $300 for these. but how much time does it take to do an audit?

I'm talking like from the time you leave your office, you drive to wherever this property is located, take the pictures. And I'm a real estate agent. I'm out there looking at houses all day long. I'm not even looking at their energy stuff. It is really easy to spend an hour in a house, just looking around and taking pictures and, you know, talking to the people.

But then you have to come back and do the engineering work, which your employees may be doing and write the report and submit the bill. I think these are taking a lot longer than two hours total, which is your time. And I mean, I'm thinking it's probably more like three or four hours. So now you're down to what, $60 an hour making on these audits? Roughly, yes. And that has definitely been at the front of my mind recently. I started doing the audits more as a filler than as something I wanted to do full-time.

And the demand for them, like, I'm booked out through the end of June for them already right now, just because there's been so much demand for them. So I've had, I did start pulling back. I'm down to doing, at the beginning of June, I'll be doing three a week instead of five a week. And I'm hoping to bring them back even further. but yes, the time, the dollar per hour rate for them is nowhere near as high as what I get when I'm engineering. Is it five hours? No, it's less than five hours.

I batch them together, so I'm doing two or three in a day on the road, and then it takes another day to get through those. So that's $900 bucks over two days, roughly. 900 bucks over two days? So 900 divided by 16. What is that? I don't know. Let's get a calculator.

56 dollars an hour. And that's about what I've worked it out to be hourly for those for me. That's why you have a lot of demand for that. Your time is worth $160 bucks and people are getting you for $56 an hour. So you're going to have to be that all day. That's okay. That's $100 grand a year from that. But that's not okay if you have two employees who cost $100 grand a year.

Right. So you cannot do activity. If you have two employees that cost that, you cannot be doing activities that are less than $100 an hour, in my opinion. And you have to be doing a lot of activities that are $100 to $150 an hour or to make up for that. You can do fewer activities that are $500 or $1,000 an hour with two employees with that. But you cannot be doing – this will bankrupt you. It won't bankrupt you right away because you've got a strong core financial position. You obviously made a lot of good decisions in the past and are strong with money overall.

So you're not in like an emergency mode here. No, not yet, although we are heading that direction. I've noticed when I'm tracking my, like, my net worth keep going up because housing prices are so ridiculous on my own three of them. But my cash on hand and actual cash flow numbers have certainly not been trending that way. Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, investments, the whole thing. And if you're like most folks, it can be a little eye-opening. That's why I like Monarch. It helps you see exactly where your money is going. And more importantly, where your taxed

refund can make the biggest impact. Because the goal isn't just to look backward. It's to actually make progress. Simplify your finances with Monarch. Monarch is the all-in-one personal finance tool designed to make your life easier. It brings your entire financial life, including budgeting, accounts and investments, net worth, and future planning together in one dashboard on your phone or your laptop. Feel aware and in control of your finances this tax season and get 50% off your Monarch subscription with the code pockets. What I personally like is that Monarch keeps you focus on achieving, not just tracking. You can see your budgets, debt payoff, savings goals, and net worth all in one place. So every decision actually moves in a needle. Achieve your

financial goals for good with Monarch, the all-in-one tool that makes money management simple. Use the code pockets at Monarch.com for half off your first year. That's 50% off at Monarch.com code pockets. You just realized your business needed to hire someone yesterday. How can you find amazing candidates fast? Easy. Just use Indeed. When it comes to hiring, Indeed is all you need. That means you can stop struggling to get your job notice on other job sites. Indeed's sponsor jobs helps you stand out and hire the right people quickly. Your job post jumps straight. to the top of the page where your ideal candidates are looking. And it works. Sponsored jobs on Indeed get 45% more applications than non-sponsored posts. The best part? No monthly subscriptions or long-term

contracts. You only pay for results. And speaking of results, in the minute I've been talking to you, 23 people just got hired through Indeed worldwide. There's no need to wait any longer. Speed up your hiring right now with Indeed. And listeners of this show will get a $75 sponsored job credit to get your jobs more visibility at Indeed.com slash bigger pocket. Just go to Indeed.com slash BiggerPockets right now and support our show by saying you heard about Indeed on this podcast. Indeed.com slash bigger pockets. Terms and conditions apply. Hiring, Indeed is all you need. When you want more, start your business with Northwest Registered Agent and get access to thousands of free guides, tools, and legal forms to help you launch and protect your business all in one place. Build your complete business identity with Northwest today. Northwest Registered Agent has been helping small business owners and entrepreneurs launch and grow businesses for nearly 30 years.

They're the largest registered agent and LLC service in the U.S. With over 1,500 corporate guides who are real people who know your local laws and can help you and your business every step of the way. Northwest makes life easy for business owners. They don't just help you form your business. They give you the free tools you need after you form it, like operating agreements, meeting minutes, and thousands of how-to guides that explain the complicated ins and outs of running a business. And with Northwest, privacy is automatic. They never sell your data. And all services are handled in-house because privacy by default is their pledge.

to all customers. Visit Northwest Registeredagent.com and start building something amazing. Get more with Northwest Registered Agent at Northwest Registered Agent.com slash money free. At Desjardin, our business is helping yours. We are here to support your business through every stage of growth, from your first pitch to your first acquisition. Whether it's improving cash flow or exploring investment banking solutions,

with Desjardin business, it's all underw. one roof. So join the more than 400,000 Canadian entrepreneurs who already count on us and contact Desjardin today. We'd love to talk. Business. Well, okay, so let's come up with some actions here that we can do here. Right? We've discussed some, I think we've zeroed in the problem, and it's an uncomfortable one, but do you agree that we've zeroed in the problem? I think so, yes. Yes. Okay, so first option, and the one that I would recommend here, would be helping, explaining the situation to your employees and helping them find a new home with that.

That may not be something you're willing to consider there, but it's a good market. I'm sure they'll be able to find other work. If you give them, you know, hey, in two months, I'm not going to be able to do this. I'm going to keep paying you until then, but here's the deal. I got to fix this. So that's option one. Option two is to try to stick it out and perform a deep analysis in, say, how much $160 an hour work is there for me? How many billable hours can I get in per week

in a realistic long-term scenario for me? And do my current employees aid me in actually realizing that income? Right. I think that's going to be difficult because I think that in order to maximize your time, you need to sell the client, which you're not going to get paid for. for these deals, and you've got to do that. Then the best case scenario is that that's an hour pitch or something like that. Your executive assistant books all of the things, all of the meetings, takes care of all of the billing, collects all the revenue, drives your schedule, make sure that those are the appointments. I think best case scenario, you're getting in 25 to 30 hours a week of billable time, and you're working 50 hours a week in order to get that billable time.

and you're working 50 hours a week in order to get that billable time. So that's not bad. That'll get you to $200,000-plus,000 in net revenue before you pay the executive assistant with that. But that's what I think is the best-case scenario here within a six-month to 12-month period for your business. What do you think? How has that logic working out? Well, when I was putting together my little summary for you guys today, this is the first time I've sat down and looked at my business financial. in a while because I've been working 60 or 70 hours a week without doing the financials.

And I was coming to kind of the same conclusion that obviously what I'm doing is not working the way I'm running it right now. There's certainly, I do think there is enough work on the table, like enough engineering projects that if I, once at least one of these guys is up and running, I'm able to hand it to them, continue getting the sale on the next project and doing the same. stamping. Yeah, I feel there is enough business there, at least for one employee, but I do definitely agree an executive assistant is probably very much worth the time, because I spend way too much time, and I do track every hour while I'm working.

An executive assistant is only worth the time if you can arbitrage your time for that, that amount, and you don't have your two employees. So this is not, this is not, this is not get an executive. I'm not saying, go get. No, no, no, I'm not thinking I should also hire another. executive insistent. Great. Now, here's one thing to think about with regards to your current employees, right? There is an arbitrage opportunity here for you. You are getting business that they can perform for the most part,

and you just put your stamp on the approval. I don't know if that's the right motion for a stamp. You probably have a digital stamp. Close enough. Yeah. Yeah. So you, what you could, this is where I would consider using contractors instead of an employee, right? And you say, hey, guys, this is not, but what I can,

do is I can help you find a good home that will have similar compensation overall with peers of my network. And I will contract you for this work for a higher dollar per hour rate. Right? So right now you're paying them $25 an hour. Pay them $45. Try them $45 method so that when you actually get the work, you can bill it out to them and pay them $45 an hour. That's an enormous raise for them for the work that they're actually doing that's adding value. And they can do it on a side project or afternoon, evenings, and weekends if they so choose. I'm sure a lot of of people would jump at the opportunity to make that kind of those kinds of dollars. And you can build these out on a contract basis.

It'll cost you more per unit, but you don't have the risk of paying somebody $50,000 per year on your variable income. You only pay when you make money. And then once you get to a certain scale, okay, now it's time to bring back the full-time employee because I know I've got enough consistent work of this nature that it will lower my overall costs and increase my profitability to bring in the employee. Yeah. I do want to clarify that they are paid hourly right now.

It's not a salary. And it is understood that if I don't have things for them to do, they will not be getting those. You've already mitigated that risk. I have. I'm not guaranteeing them 50 grand a year. I am paying them at about that rate. And right now I have been having them work for about that amount of time. But like I said, a lot of it has been training, so not revenue generating.

Okay. So you will get to that level downstream. So the problem really is your billable hours are not, instead of putting your billable hours out, you're essentially generating work for these employees and arbitraging that. And that's not, that is not enough to cover your expenses. Yes. At the moment, that is pretty much exactly where I said. I think it comes back to this energy audit.

That's a lot of work. And I would be, I know you're tracking a lot of time or a lot of your expenses, but I would really be curious as to exactly how much time that audit takes you, not just the typing up the math and all of that stuff, but driving there, taking the pictures, coming back and doing it. And even if you're batching it, like at what point you said you have to do it, they can't go and take the pictures and do the audit themselves. At what point could they?

And at what point would it be worth it for them to do that? or is it just, I mean, I really come back to this thinking, this doesn't sound like these audits are really worth it. Do you have a contract that you have to fulfill obligations for? Or, I mean, I don't think it's fair that you just say, oh, I'm not going to do any more of these at all, you know, do whatever through June and then stop taking audits. You also said something about engineering work you're billing at the end of the job.

And you said you're doing fixed price jobs instead of price and materials. And I'm not sure what sort of materials you're doing. That's more of just a phrase. It's basically just time. Yeah. Occasionally travel allowance if I have to drive to site, that kind of thing. But for the most part, time. Okay.

So do you know how much time it takes to do a job? Like, oh, you want me to do X, Y, Z job. That is probably going to be a 25-hour job. So at 25 hours, it'll cost this. And if you need to increase the scope, then I'm going to need to increase my price. And I don't know how to phrase that, but I think setting up expectations up front is going to be really important and structuring the contracts differently. So you get paid in a different way, like 30% upfront to start the work.

And 30% when you deliver your first report or halfway through or whatever. And then 40% upon completion. So there's incentive for you to complete the job, but there's also you're not waiting until the end for this $35,000 that, you know, all of a sudden plops into your account. It'll be a nice day when it happens. Well, but, yeah, you know. I'm sitting over here in perfect world. But yeah, that's where an executive assistant, I think it could be very powerful for your business. Like that would be the first place I would be looking in your shoes for an employee by starting over and appraising my business as an outsider.

saying, great, like, you shouldn't be, like, you should have somebody research a, you know, like put in place in these terms and then they enforce that for you, right? Work does not begin or get scheduled on your calendar to begin until the first payments received. You get going, finish the project through to completion, take a couple of sales calls for the next, for you to build up your pipeline and go from there. That's what a healthy business of your, in your industry would look like to some degree. And it's not, this is not going to make a billion dollars, but what it's a, I think, a clear cut path to to $300,000 in annualized income per year, maybe more if you're willing to put in 50, 60 hour weeks to get that billable time up. And another thing to think about is, is $160 an hour a good rate for your level of experience and your level of engineering prowess?

I'm clearly not an engineer, so I don't know what I'm asking, but like is that the going rate? are you billing yourself a little bit low? So that is a little bit low against the current rate for an engineer of my experience. It's all actually published if you're paying the right fees. So that's like a 25 or 30% discount. And part of that is that I don't have the overhead. And part of it is that I have the experience from my own old jobs, that kind of thing. But I don't have the track record yet.

So I don't, I mean, my business started two years ago. But if you remember, two years ago was March 2020. So I didn't do a whole lot for six months. I'm not laughing at you. Yes. No, it was great. I actually incorporated on like March 16th. And then Canada shut down as a whole on March 17th.

So yes, it was a great start. But what I was trying to say there is I don't have, I was pricing low to begin with. And it is on my like this summer as things start. to ramp up construction projects are ramping up again to raise that rate for my own billable hours and yes i do want to start quoting not as fixed price but as estimates based on the job and then tracking my hours uh because i already track all my hours and that's the way i should be doing it so two years from now you're telling me you could be billing 200 or 225 an hour for for these services and putting your income closer to three to four hundred thousand dollars per year right

So now we're talking. Now we got a little dental practice here or something. I don't know if that's what the dentist makes, probably more. Probably more. But yes, it could be in that similar time range. I think a big part of it is I don't mind working 40 to 60 hours, or sorry, 50 to 60 hours a week, and I've been obviously doing it. I would like to, part of the reason I was bringing on employees,

maybe early, was to make sure that I can shove some of the work onto them and not work the 50, 60 hours of sitting there designing ducks, which, yeah, I don't know if you've ever designed duck work, but it's not fun. I think that continuing to study the art of business and building a business is going to be really important for you because you're, I don't, I think I'm just sensing you did not optimize for unit economics here and say, what are the actual things that drive revenue and profit in my business. And we've identified them here.

The number one thing is your time, right? It's a senior engineer's time. Arbitraging, you know, unless you could also start with a different thesis, which is I'm going to actually arbitrage junior engineer's time for these projects, and I'm going to need 40 of them in order to drive this level of profit with that. That would also be a viable business model, right? Right. With that, but I don't think that's what you're necessarily going for.

here. It sounds like the path to easy street financial freedom to a certain degree is get your time up to 35, 40 hours a week, move your rates toward the 225. Say two years from now, I want to be billing out 30 to 40 hours a week, 25 to 40 hours a week, whatever you think is reasonable there, in billable hours at $225 an hour and say, what do I need to do to back in there? Well, first, I've got to start billing out my time right now at $160 an hour. That should be, easy because I'm undercutting the market by 40% with all of these things. In theory, the business should be there. How do I get that business? Well, I've got to sell it, then I've got to schedule it, then I've got to book it. Some of those things are things only I can do, and some of those things

are activities that someone much less skilled than I can do. And which of those activities can be done there? Great. If I'm hiring an executive assistant, and they're idle much of the time, but it's saving you from having to do 10, 20 hours a week of work, you're making really good arbitrage on that executive assistant in that particular case. And if you can get a fractional, someone fractional or can do that 10, 15 hours a time at time with that. But that's the path I see for that. The third option here, so we had two options.

First one was continue working your current business and consider layoffs for your current employees or finding them a new home. The second option is part of that first one, enacting part one, but then also saying, okay, let's consider hiring an executive assistant and mapping out my time so that I'm moving that business towards the maximum number of hours. I guess that's really the same option there. The third option here, though, is the next option is just close the business and go get a job in this space. Let's, let's, but like, and I don't, I don't want to dismiss that out of hand. What does a job you could get a W-2 job pay? It's called a T4 in Canada. 80 to 120,000 would be kind of the expectation. That depends if I go on the technical side where it's probably more in the 80 to 100 or the sales side, which is where I used to be, which would be 100 to 120 roughly. Great.

So that would immediately, either option would immediately result in a huge increase in income over your current state. And the second option would be more than the best case scenario for your business or the expected case for your business one year from now. without any major changes. So I think you should look at those and coldly appraise that math and think through, okay, if I'm going to run a business for myself, I got to make much more than that because that's 40 hours a week, 45 probably, and you're home and relaxing after that. So there has to be a premium above that if you're going to work 50 to 60 hours or some sort of advantage to your business, which I could guess right now is going to be. lot of work that is frustrating and hard, perhaps rewarding too with a lot of the, you know,

with a lot of that, but that's not giving you the income that you could be getting from a, yeah, from a W to T4, yes. A T4. Exactly. Sorry about that. I didn't know that it was called T4 in China. Yeah, it's, I don't know. We have our own tax-free savings account as well.

We tend to name, like you guys have what, the Roth IRA, the all the, all the, you these other ones that I hear about all the time on your show. We've got tax-free savings account, which is exactly what it sounds like. We put money in and it grows tax-free and we can take it out at any time. RRSP, which is the one where we put in, that's pre-tax dollars. And those are kind of the two. That's about it. There's employee plans and stuff.

But, yeah, RRSP is a registered retirement savings plan. Just a simpler way of life up there. Everything is just a little bit different. But I like our TFSA because I can put money in and take it out at any time tax-free. Yeah, so. Yeah, I want that too. I want to take money out tax-free any time instead of at age 55. You're not allowed to do some, like you're not allowed to day trade in it.

There's some rules. But as long as it's just general savings and investing, you can pull that money out tax-free. Wow. Nice. Scott, I've got a couple of things. Before we shudder your business and I'm not, again, I really want Scott to be wrong. But I don't think that he is. Can you hire a salesperson to sell your time so you're billing at 160 instead of not,

instead of pitching these jobs? And your wife is currently on medical leave. Does she have any capacity to help out with executive assistanting in any way? So we did try that, and that actually is her general role in, in real life or before my leave was exactly the assistant thing. She's just really not able to right now. Okay. Okay. Okay. We tried and it wasn't going to work. As for hiring a salesperson, I find that, I do find it difficult.

A lot of the sales I am getting is from people I know in the landlording community, basically. And it's starting to come in cold where my website is just generating. I'm getting cold calls from people now, which is nice as opposed to going out to them. Obviously, there's background work there, but that can maybe is more of an executive assistant than it is a salesperson, I think. Because there's certainly enough work to keep me busy. Like the projects I have just lined up right now

could keep me alone going for two or three months probably. At $50 an hour? No, at my. At $160, okay. At $160. Okay. So what, if they can keep you going for two or three months, what is preventing you from billing at 160 an hour for two or three months?

And I'm not like, I'm not trying to be mean. No, no, I'm just because I mean, there's more to it than just, you know, sit down and bill at $160 an hour.

Like, that would be so easy. Well, after this conversation, I've noticed that it is all the time on spending training my employees and not billing and the energy audits, which, you know,

I'm not contractually obligated to do. You had asked earlier if there was a contract. There is not. I could theoretically just say no, I'm not doing it anymore at any time. But those obviously take up quite a few hours as well as training employees and getting them up to speed has been taken quite a few hours. So that's kind of why I haven't been billing at 160 bucks an hour straight. Okay. And with regards to the audit, where do your employees have to be in order to be able to do the audit? Do they need more schooling or do they just need more years of experience?

So they would need to pass a exam. But as soon as they pass the exam, they have no need of me, if that makes sense. There's enough demand right now that they could go directly to a service organization and just start doing them on their own if they wanted to. Which I have pointed out to them that it is a possibility in the future. One of them could probably pass the test today. the other one could pass the test in a month pretty easily if they wanted to go that route. Not everybody wants to do their own thing. True.

What does it cost to take this test? Nominal amount, not enough to worry about, yeah. I wonder if there's any benefit to having the one who could pass it today, take the test and take over the audits? She is actually based about 400 miles away from me, roughly. Ah, okay, so no benefit whatsoever. No benefit to me. If we are talking about finding them other homes and she could pass that test tomorrow, she could start doing them for a service organization in her area if she wanted to. I'm not sure she wants to. She hasn't really expressed the interest, but it could be an option.

Well, I think based on what I'm hearing, this is a great place to stay away from, from your business. you know or conversely if you go into if you just embrace these those audits and you say I'm not going to have any employees I'm just going to do audits all day that's a hundred K a year right there if you can do if you can do them right there so so it is a viable income income stream for sure it's not going to get you to the several hundred thousand dollars in income but you could you could certainly make a living and and fund all your expenses and maybe begin building wealth especially when your wife goes back to work with that.

Yeah. It's a full-time. I also don't have to be scheduled this far in advance for them. So what I just thought about when you said that is I could obviously say, okay, nope, don't book me anymore at the end of June. Like, don't fill my calendar anymore with those. And then if I have downtime in the engineering work, there's nothing stopping me from calling them and saying,

hey, can I take two this week? And I'd be able to get two that week, absolutely. They've got a cancellation list a mile long. And they will for at least six or eight months from now. So, yeah. Yeah, that actually does make a lot of sense on that side. We talked a lot about the business today, and I think for good reason, that's the big item in your situation with this that we have to figure out here. But is there anything else that you want to talk about besides the business?

No, I mean, I know we need to cut back on our personal spending, and we know where we can do that, as I think I mentioned kind of early on there. It's not easy. We have gotten used to living, you know, I used to make $110,000. a year in the sales role and my wife was making 50 and we didn't have a kid at that time. So yeah, that, you know, we started spending money. And it's hard to pull back, but it's not impossible at all to pull back. And we know we have to for a bit here. One of the biggest expenses that I see just jumping out is the child care expense. Yes.

$1,250 a month. And this is going to sound super, super insensitive. Please email me, Mindyatbiggerpockets.com, and tell me what a terrible person I am. But if your wife is on medical leave, $1,250 a month can go really far in other places. We tried this as well. I mean, I was a stay-at-home mom. Kids are a full time and a half job. It's not like she's just laying on the couch eating bonbons all day and watching TV while your child goes to school. She's typically on medical leave for a reason. And that's what it comes down to. She is on

medical leave for reason. And we did try. We had my son home for two weeks straight, just without canceling daycare, because daycare spots are impossible to get in Ottawa. Impossible. So, you know, we spent two weeks with my son at home, and it just, it was not feasible, unfortunately. I know someone's listening and saying, why didn't you ask about that? Yeah. So that's fair. And it is a fair question. We try. And, you know, there is cheaper daycares available, but once again, it would take months just to get into them, potentially. And it's something, we love our current daycare. It's not really where we want to cut.

We have other opportunities to cut. So we're going to start there. And we don't have any family that's capable of taking care of a child either. So before anybody else, yeah. Yeah, yeah. No, there's, I mean, child care is a difficult one to try and cut. And like you said, getting a good child care, it's, worth paying it just to test it out.

That was a really smart move. And then, you know, just because she's on medical leave now doesn't mean that she's not, that she's going to continue forever. When she goes back to work, you would need the child care again. How old is your son? Three and a bit. Okay. So you've got a couple more years of that.

Yes. And he's a January baby. So it will be as long as possible before he actually makes it into preschool. Yes. Yes. I had a November baby. Same thing. Well, how about any other areas that we can talk about?

I'm just looking over my income and debt statements here, but I don't think so. Yeah, I don't really think so. I mean, I've been spending a fair amount of time with my rental properties lately as well because we had a sewage backup in one of them. Yes, that face exactly, Mindy. I've had a sewage backup. Yeah, it took insurance almost eight months to get through that. and we haven't actually rented that apartment back out yet.

We're hoping to get it on the market for early May. So I spend a lot of time there, but the cash flow and the appreciation we've seen on that has been ridiculous. So that $350 a month for rental one, once we get that running again, we're probably looking at almost $800,900 a month of cash flow there as well. And that's after I put aside money for furnaces, roofs, all the other stuff. It's nice. It's a good property. That's great. Other than that, I don't really have anything else and any questions. I think this has been very useful.

I'm going to have to sit down with my employees and see where they want to go. I would like to take advantage of the 80% grant for six months. Because if I'm paying him 20 cents on the dollar, at the very least he'll be able to run through the energy audit background stuff for me. the other stuff for a while. Yeah, that makes perfect. Yeah. And it is an internship, so theoretically there's no obligation to keep going after that.

But yes, anyway, I'll have to sit down with them and see where they want to go and how we can approach this. Before you sit down, I would take out your spreadsheet and I would say line item, KPI 1, key performance indicator one, is my billable hours. How many hours did I bill? What was my blended rate? How many did I bill at 56, effectively? how many did I bill at 160, right? And say, okay, that was this this week.

Next week, I'm going to move it up from $75 to $77 an hour. Then I'm going to move it up, and I'm going to get 15 hours instead of 10 billed. And I'm going to go, and if you just put that on your scorecard as your number one thing, then you can put secondary one is employee number one, billable hours, rate charge to customer, rate paid to employee, spread, right, with that. So if you can come up with just a simple set of KPI as on, you know, half a page of a word document, but put in a spreadsheet, you know, 15, 20 lines in a spreadsheet and just update them, populate them once a week.

I think you will see magic happen over a few months in terms of your revenue output. And the thing is, I have all the background information. I have how much money I'm billing, how much time I'm working on each job, how much time they're working on each job or trading. Like, it's all there. I just need to put it together. And call your employees in together and show them, right? After you've done it for a couple weeks, have your weekly KPI meeting and say, here's where we're at. Like, you know, like people understand capitalism with this.

Like, they need to produce more economics than they cost in order for it to be a viable employment arrangement. Yeah. Right. And you can say, great, this is the goals of the business. And, hey, here's a little reward if we start hitting some of these bigger goals. That would be one way to begin salvaging things with the current folks if you wanted to do it. Yeah, I'll have to sit down and run through. All of that.

Yeah, lots of good ideas and options here. Well, some not so great, but things that I might have to do anyway. So, yeah. Yep. You have three to six months before you run out of cash. So not an emergency, but time is ticking to think. I mean, I started this process. I'm conservative when I estimate these things, I will say.

I started this process with three to six months of cash. And that was two years ago. And I still have three to six months of. of cash. But yes, you're 100% right. I have seen that it's been trending downwards anyway. So, yeah. Yep. Well, Chris, thank you for sharing this. This is a valuable perspective that I think a lot of people are struggling with. And I think that you're, I think we're really grateful that you've come on to talk about this. I know there was some hard conversations or hard,

hard feedback that we had for you. But I think this is going to help a lot of people to hear what you're going through because I think that this is going to be much more common than we then we'll hear from a lot of that. There's a lot of, I think it's tough as a business owner to kind of come in and say, I don't really know how to get this thing to the profit level that I want to get it to from that. And that's, I think it takes a lot of courage. And I think we're really grateful for you to come on in.

I will say that when I originally applied, I was making 100K a year as an energy auditor and without any employees. And it was going to be very straightforward. And then I tried to, I started growing. and it's six months later. So, yeah, things change. But I'm glad I came on anyway. I didn't need to talk about it.

You know what? That's a really good point. Life changes really quickly. And your plans, I bet your plans six months ago were a little different than what's going on right now. A lot of my plans six months ago are different than what is the reality of my life. And that's, you know, that's something to keep in mind. Your plans should be fluid because life is fluid. Yeah, absolutely.

Okay. Chris, thank you so much for. for your time today. Thank you for sharing your story. I really appreciate it. Thank you guys very much for having me. This was kind of fun, mostly fun. It was interesting. Yes. Okay. We'll talk to you soon. Got. That was Chris, the engineer from Canada. And I really, really, really, really wanted you to be wrong with your suggestions. I don't think you are. I think that it's kind of a harsh reality for a lot of business owners listening to this. Just because you own a business does not mean that it will be instantly profitable.

And, you know, what a lot of business owners do is hire too late. They're swamped with work and they're so swamped and they're working, you know, 90, 150 hours a week. And then they hire somebody. And I think maybe in this instance, Chris hired a little too soon. I yeah I I I I hope I'm wrong as well um I think that the the the the real problem for entrepreneurs and see first time CEOs and and a lot of this is it's really hard to get the structure of your organization right in the early days what actually what skill set and employees do I actually need and how does that work with where I want to get to a year two years?

three years from now. And so that's where, you know, I think it's really hard to be able to come up with that, right? An engineering firm needs engineers. That seems logical. Well, when we unpack it, maybe it's more logical that the unit of value in Chris's business is Chris's time. And the employees that maximize the ability for him to bill hours are more valuable than many Chris's. many chrises being more junior chrises that are able to do some of the work, the engineering work, but not all of the engineering work. And so that's, that I think is hard. And it's a guessing game.

And hindsight's 2020, maybe, you know, it's easy for us to look at the situation now. Oh, we could have done this. It's really hard to do that in the act of building a business, right? A year ago, his situation could have looked like, hey, I'm doing all this, all this, this, this, these jobs that look like this. here's what this employee will help me do and free up my time and all that kind of stuff. I think it's just a challenge there. So no blame game going anywhere in the discussion today. I just think a cold look at the reality of the situation to me suggests that that business is not going to sustain two employees and Chris's family.

And I, like I said, I want you to be wrong, but I don't think you are. And another option, another viable option is to go back and get a job. to get over this hump while his wife is on medical leave. That could be, you know, you don't shudder the business necessarily. You put it on hold. Maybe you do one extracurricular job instead of, you know, a whole full-time jobs worth of extracurricular jobs while you're waiting for, you know, life to kind of stabilize. But I think being fluid in life is the best.

way to live life. Make good plans, but be fluid with them. It makes you wonder, I don't know, but I wonder aloud whether service professionals that offer their time and build them out, you know, what the difference between a W-2 and starting their own practice really is? Is there, is there, you'd imagine there's going to be a period where there's going to be a lot less income and a period where there could be a lot more income, but I bet you the spread isn't massive for most folks in kind of the mid-career phase of that. Perhaps the advantages of going into business for yourself need to be in the form of much higher income

or scalable opportunity or lifestyle benefits in order for the switch from a W-2 in a field like Chris's or law or something like that to owning your own practice with that. Or you need to be willing to put in the 70, 80 hours a week, 60, 70, 80 hours a week for many years to get that off the ground to then have, you know, the cake and eat it to, the more income and the better lifestyle.

Yeah, I think you hit the nail right on the head there, Scott. If you don't have, if you're not making more money and you're not having a better income or a better lifestyle, you know, if you reduce your income, but you're also working, you know, 10 hours a week, that's great if that's what you want. But if you don't have either, then it may be time to really seriously reassess. Yep. Okay. Scott, should we get out of here?

Let's do it. From episode 296 of the Bigger Pockets Money podcast, he is Scott Trench, and I am Indy Jensen saying got to go, Buffalo.