EntreLeadership - Cashflow Secrets for Long-Term Business Success

Episode Date: December 11, 2023

Today we’ll hear about: •       The best way to maximize the use of your profits to scale your business •       A business owner who increased his profits by 10x in his first year of business •       What to do when leadership doesn’t want to fire people that are bringing the team down •       How to manage your profits so the business can continue to grow and you can enjoy the reward of your hard work  Links mentioned in this episode: •       The EntreLeadership Podcast •       EntreLeadership Elite •       Have a question for The EntreLeadership Podcast? Leave a voicemail at 844.944.1070 or submit your question for a chance to be on the show with Dave Ramsey: https://www.entreleadership.com/ask Start growing in business and leadership with the EntreLeadership Newsletter. Sign up to receive tactical tools, advice and resources in your inbox every week: https://bit.ly/3IRWnsL   Support our sponsors: •       NetSuite •       BELAY •       Payority •       Trainual Learn more about EntreLeadership Events: •       EntreLeadership Summit •       EntreLeadership Master Series Learn more about EntreLeadership Coaching: •       Elite •       Advisory Groups •       Executive Coaching •       Workshops Find out what stage of business you’re in and what you can do to level up with our Stages of Business Assessment Listen to all the Ramsey Network podcasts anytime, anywhere in our Ramsey Network app: https://apple.co/3eN8jNq Learn more about your ad choices: https://www.megaphone.fm/adchoices Ramsey Solutions Privacy Policy: https://www.ramseysolutions.com/company/policies/privacy-policy Learn more about your ad choices. Visit megaphone.fm/adchoices

From the headquarters of Ramsey Solutions, this is the Entree Leadership podcast, where I take calls from leaders like you about what it takes to win in any stage of business and leadership. I'm Dave Ramsey, your host. I've been doing this for over 30 years in the trenches, actually doing leadership, actually running a business. So that's where the advice comes from. This is not theory for me. That's why the book Entree Leadership was a number one bestseller, because it's a part of. playbook of how we actually started on a card table in my living room and grew this to a $300 million business today. Open phones, if you want to call in and be part of the program, you call 844944-1070, or leave us a note at entrellorship.com slash ask, and we'll get back with you and set you up to be a caller on this show.

Christina starts this hour off. She is in Nashville. Welcome to the Entree Leadership podcast, Christina. Thank you. Sure. What's up? So I am, I have a business. My business is your happy house cleaner.

It's a residential cleaning company that I started eight years ago because I needed to work around my kiddo's school hours. So it started off just me. But after a couple years, I found some other moms who wanted part-time hours. So I had it built up to several teams and an office manager by 2021. Last year, our gross revenue was $128,000. I was actually up at your studio last week. I did my debt-free scream with my kiddos.

Wow. And yes, and I had three years ago, I started that journey after my divorce. And after I got to the beginning of this year, I finally scaled way back. I stopped investing in hiring a growth. I took over roles of office manager and cleaner, and I paid off the last 20,000 of my debt. So last year I brought home 21% of the growth. revenue and this year I'm bringing home 46% which has really helped speed up the process. So my question now is kind of just how to move forward. I built it up by investing in coaching groups and

workshops and hiring more and this year I totally stopped all that to just pile everything into debt. So I kind of have a two-part question. One, how long do I stay so strict with my money? I'm working on my personal emergency fund right now. So do I just need to finish that before hiring more or also save some extra for business and how do you know how much to. And then also, you know, doing work and doing home life alone is really hard. And I miss some of the accountability I had when I had mentorship before. So is it okay to invest in some more accountability and growth now or just hustle, keep my head down and keep going?

Well, I think you cut back and artificially cut expenses really deep and put yourself back in the labor role two or three places. to create cash flow, but that's not sustainable. That's a temporary move, agreed? Right. That's what I did in January of this year, and it's been a lot of work, but... Yeah, and you don't want to do that for five years. You don't want to do that for five years.

That's what I mean it's not sustainable. You can do it for a year, you can do it for 18 months, but you don't want to do that for five years. That's not a goal I want to do for 20 years, 10 years, five years, that kind of thing. That's what I mean by sustainable. So, yeah, you want to create a model that will run in perpetuation that just runs out there into the future as far as you want it to. And so what I would start doing is, as a part of your profit and loss statement, I would set aside out of your profits, a percentage of profits for training and development of you, coaching and mentorship, that kind of thing. Doesn't have to be

much, just a little bit. Set aside a percentage of your profits for growth, and that's adding, you know, starting to get the training going to get the people back on again a little bit at a time, and then the rest of your profits come home. And I don't know what that percentage is, but I mean, let's just pretend to say you said, okay, I'm going to set aside 10% for 5% of my profits for investing in me. I'm going to set aside 15% for investing back into the business and getting people back on board, getting payroll going again, getting this thing built back up where it runs on its own steam instead of my steam, get back out of the treadmill operator stage back up into Pathfinder, which is where you were.

And then if that's the case, that's 5 and 15 is 20. That means I'm taking home 80. Okay, if you use those numbers, I'm not sure those are the right numbers, but that's an example. And so what I would do then is each month when you do your profit and loss, you say, okay, I got X number $1,000 a profit, then I'm going to apply this formula and say, are 5% goes to me for my mentoring and training. 15% goes to growing the business and mentoring and training, the new people coming on, building the business backup with the coaching stuff you were doing, all that, and then

the rest of it's going home to finish up my emergency fund. It could be more than that staying in the business, by the way. It could be 10% to you, 20% of these other things, and then 70% comes home. I don't care what the percentages are. I just think you need to develop a formula so that you're. you're on autopilot to do all of that at once. That would be my game plan if I were in your situation. Folks, you can also apply that formula to say I've got some debt, okay?

I'm going to live on a living wage out of the business, and that's all. Then I'm going to put a percentage to retain earnings and the rest of it to debt until I knock the debt out. This is the Entree Leadership podcast. Hey, listen up, small business owner. I don't care which stage of business you're in. doing it alone, you're doing it wrong. We're just talking to her about getting someone in your life where you have mentorship, where you have coaching around you. And that's why I want you to sign up

for Entree Leadership Elite. Elite is our digital membership that will equip you with a plan to accelerate you through the stages of business. You don't have to wing it by yourself anymore. Your elite membership will teach you out to hire the right people, delegate the right things to them, a lot of other leadership skills. Your elite membership also opens doors to connect with like minded business owners through an exclusive Facebook group and regular e-coaching sessions hosted by our Entree Leadership coaches. Bottom line is you can stop doing business alone. And Entree Leadership is your way to do that.

Check out Elite. Go to Entreeleadership.com slash elite today. Peter is with us. Peter is in Salt Lake City. Hi, Peter. How are you? Good, sir. How are you?

Better than I deserve. What's up in your world? Oh, we're doing great. I just wanted to first say what an honor it is to speak with you. I've been listening to you since I was about 12 years old. So this is a true, true order to be on the phone and to share a little success story with you. Awesome. Tell me, I like, hey, we like putting brag stories on because it tells people,

small business people in America are awesome and they're winning. Tell me your brag story. Yes, sir. So I'm 24 years old. I started a low-voltage electrical company about a year ago, year and a half ago, and we have done phenomenal. I mean, I haven't really shared with very many people how well we've done, but we've grown. We've got one full-time employee outside of myself. I'm a part-time employee.

And what I'm excited about is that so far, year-to-date, we have done just over $220,000 in top-line revenue. I love it. So by low voltage, you mean you're running wiring for things in residential or commercial settings for speakers, for Wi-Fi, that kind of thing, right? That's exactly it. Yeah, A-V, fire alarm, burglar alarm, anything that your normal electrician probably wouldn't touch. Yeah, you're pulling wire. That's kind of what we're working for. $250,000 worth of wire.

Yes, sir. that's what we've done so far. And it's been an amazing journey. You know, there's been a lot of scary moments. And then, you know, the first month when I actually wrote in about it, you know, we've done $20,000 in top line revenue since then. I mean, we've done significantly more than that. And I mean, I'm just incredibly blessed.

And it feels good to share that with somebody that can appreciate that success that doesn't feel like, you know, because a lot of people my age or people don't. It's hard to find people to brag to. That's why we want to have a place here where you can brag on this show because it's good for other people to hear you brag and it's good for you to brag. You need to put some people around you that want to celebrate with you when you're winning. I'm so proud of you, man. Well done.

Thank you so much. Feels pretty good, doesn't it? Oh, it does. Oh, it feels good. And we've got some good projects coming up to finish out the year. and hopefully, you know, we cross that $250,000 by the end of the year and finish out with that, you know, that strong first year of business. Amen. So actually, are you doing mainly residential or commercial?

Mainly commercial. So that's been about 95% of what we do. So we do a lot of subcontract work for some of your normal electrical companies. And then we've got into some property management companies as well here and there. And we've started to kind of grow out our own basic. customers outside of doing subcontracting work. Okay, so on a commercial building, if they're redoing a bay or they're redoing a retrofit for a tenant that left and the new tenant's coming in, then you get to roll in there with the

electrician while they're resetting plugs and walls and drop the low voltage where it needs to go. That's right. Yeah, we'll go in. We'll drop the data drops. We'll get your Wi-Fi set up. We'll do your key fob access. We can do your fire alarm, your burglar alarm, your cameras. kind of do that whole aspect there. And what we found is that customers really love the fact that we're small because there's a lot of big companies out there. I don't need a name. There's a lot of big security companies out there.

Kind of what pushed me to start to do this was that I realized that those big companies couldn't reach their customers in a personal way. And so that's kind of what pushed me to start my own thing. And it's been able to help me to cater a little bit more to the customer and give them a little bit more of that personalized care. Yeah, it changes everything. Find somewhere else. Yeah.

Fabulous. Well done, Peter, proud of you, man. That is awesome. Congratulations. We need to get some kind of a celebratory noise or something we make around here, like a party starting or something when you have somebody like a stud like Peter call in who's 24 years old and pulled $250,000 worth of wire this year. pretty cool, man. I love it. This is the Entree Leadership Podcast.

Hey, guys, if you're liking the Entree Leadership Podcasts to this format, where we're taking calls from business leaders with actual questions about actual situations. We're not having theoretical discussions of leadership. No, we're actually doing this crap. If you want to help us, subscribe, follow, podcast, YouTube, whatever it is you're doing, click subscribe, click follow. Leave a review. it's five stars, say something nice. All that helps the algorithm and causes people to discover us. And the best thing you can do of all is share,

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Help us spread the word. Share, share, share. Sharing is good. They taught us that in kindergarten. All right, Mark is with us in Houston, Texas. Hey, Mark, what's up? Oh, nothing much. How are you doing?

Better than I deserve. How can I help? Yeah. So my question for you is, how does, how do you handle having to let people go at Ramsey Solutions? Because at my current workplace, I'm a restaurant manager, and I find a lot of my bosses, they kind of surprise me on when they're not letting people go. That seems pretty clear cut to me, like someone called out. five times in a row and some reason we're not letting them go. So I was kind of curious on what y'all

think through before you all make a decision like that. Okay, I'm confused about, so you've got people there that are repeat offenders on a behavior and no one ever does anything about it. They just say, stop doing that. Yeah, or like just this last week they talked to them and like, you know, they're telling me like, oh yeah, we're going to let them go. And then they're like, well, we're going to suspend them for a week instead. You know, and so it's kind of... Why? That's what I don't get is I was wondering if...

Well, I don't know why they did it on that or... Why didn't they fire them? I think they're just, from what I sound... See, it sounds like they're worried about, oh, they're going to get unemployment and then it's going to raise their, like, cost them some money on the payroll on that. Okay, but what costs you more money is having employees that are stupid. Yeah. So is that something you'd worry about?

Because that was my thought process, the cost of the employee messing up and messing up the culture like that can possibly be. Yeah, messing up the brand. I mean, if you're in a restaurant business and the employee's not cooking the food, not delivering the food, the table, whatever it is, then the customers are pretty much going to believe because you've got a doofus in there that you refuse to fire, right? I'm confused. I don't understand. What is your position with this place, Mark? Yeah, so I'm one of the, like the day-to-day operation managers, so I don't have direct control over, like, the administrative stuff like that. You don't have control over hiring or firing?

No. So your job as a manager is to do what during the day? It's the overseeing, like, hey, you're going here, if there's an issue solving that. And I'm trying to move up and all that, so that's what I was trying to kind of, like, for me, that seems like they're doing that wrong. And I was trying to see up some way there's a lot more experience on, hey, am I? be naive about this or is it as clear cut as it seems? Probably both. You probably don't have all the information, which would be naive of why, but I would

investigate that and ask for more information and say, all right, this is you talking to your boss. Look, I see that you are saying you're going to let this person go and then you don't. And if I'm going to be in leadership someday, I need to know how you're deciding that so that I can decide it properly. Does that make sense? So teach me why you're doing that. And if they kind of roll their eyes and go, well, I'm just a wuss. Well, that's not like a management technique. That's just a wasst technique. Okay. So in that case, you're learning that that leader that you're reporting to is not doing a very good job. And then you've got to figure out, okay, when I am a leader someday, what would I do? Now, the way we try to treat people here is like we'd want to be treated.

Okay. And so if I'm screwing up, I'd want somebody tell me I'm screwing up, right? Yeah. And then if I've been screwing up as a pattern over time and not just a singular screw up, but I keep doing the same stupid thing after being told, don't do it that way, I do it that way, I do it that way, I do it that way, don't do it that way, don't do it that way. at some point you go, okay, this one's not teachable, not coachable, right? And then I, but I've, I've talked to them about it, so they're not surprised. And then we go, okay, look, the next time you don't do it that way,

you are choosing to not work here anymore because you're autumn, just expect me to come in and let you go, okay? Expect me to end it. So I'll give me an example, okay? Years ago in our call center, we had, we hired a young guy who was very, very good at his job. In matter of fact, he broke all the records in the call center. He was excellent at sales. He could, he, and handled the phone very, very productive new team member. We were really excited about him. But he had this problem.

He couldn't seem to get to work on time. Like he would just wander in whenever the flip he wanted to. Now, in those days, we all started at 8.30. Now we started all kinds of different times, but we work eight hours here. So I've got people that come in at seven and leave at four. I've got people come in at 830. They leave at 5.30. So I've got all kinds of different times in the building, depending on what your job description is and what you've got to do.

But in those days, the whole building came in at 830. Whole building left at 530. All right. And so I sat down with him. I'm like, dude, you're doing really good except for this not showing up on time thing. And he goes, yeah, my leader talked to me about that. And he goes, I'm just breaking all the records. And I went, that doesn't mean you don't show up on time.

Because see, if I allow you to not show up on time, then I'm sanctioning your incompetence, and it sends a message to the rest of the team that they don't have to show up on time as long as they are a superstar. And we don't have different classes of people here. I come to work on time, and I own the freaking place. So you come to work on time. You get to keep working here. So do you understand that you have to come to work at 8.30 here, or you're not going to be here anymore?

He said, yeah. And I said, I don't think you do. but here's your warning. I want you to sign this. He signed the warning, not from a legal perspective, just to make sure I'd communicate with him. I said, I'm not sure when you signed that,

you understood what that is. He goes, what do you mean? I said, that is the bring a box piece of paper. And he said, what do you mean? I said, well, that piece of paper you just signed and said, if you're late again, bring a box to pack your desk, because you're done.

That's the bring a box paper. And he goes, oh, okay. And, you know, sure enough, it kind of worked. The guy came to work on time for like three weeks. And then the fourth week I looked up at 930 and he's coming through the parking lot late. But he was carrying his box. So we had that part figured out. So that was his last day.

But my point is I gave him all kinds of warnings. I gave him an explanation why. I showed him what was going on. There's a pattern. It wasn't one time he was late because his kid was sick. And I just chopped his head off. That wasn't the thing. But it was just like, okay, this is why we can't have the whole stinking place running on a different rhythm.

That doesn't work. this is what we're doing, and you don't get an exception because you're the superstar sales guy. And so that would be, Mark, what you would do with a server or someone in the restaurant business. You say, okay, you're being nasty to the customers, okay? You can't be nasty. You have to smile. You have to say, please and thank you. You have to be kind.

You have to get the hot food out there quick. You have to get their bill to them quick, turn the table. This is a restaurant business. This is what we do here. And if you can't do that, then we're not going to be able to work here. And this being nasty thing, I've told you, and next time I tell you, bring a box. Next time you're nasty to somebody, just go in the back, find you a box, and get your stuff and clean your stuff out of your locker and let's go.

And so you're being very clear, very precise that there are absolutely going to be an end to this pattern of behavior. I can't keep doing it anymore. because the problem is you demoralize your whole team leaders when you sanction the incompetence or the misbehavior of another team member. If you just allow that to go on, they think you're an idiot as a leader. They think you're weak as a leader. Or they think you're too dumb to even see what's going on. And maybe you didn't see what was going on.

But when you discover it, you've got to act on it then. You don't have any options. and there's no class of people that get a pass on this because you demoralize everyone that's watching. And by the way, they are energized when you hold people accountable to the values, to the behaviors, to the productivity that you stated. This is who we are. This is what we do. I'm held accountable. Why aren't you?

Of course you are. The customer holds me accountable. I own the place. And so I'm going to hold you accountable for delivery. the product with excellence in a timely manner and in a way that causes everyone to smile. And, you know, and people aren't destroyed in the process. You don't get to step all over people in the process. That's how this deal works.

I'm not sure you're in a place to do anything about it, Mark. I think you're kind of griping about your leader right now. And you need to go to your leader and find out if your leader just a doofus and is lazy or wuss. Or is there something you can learn that your leader is saying there's a reason I'm not letting them go. And you go, okay, because when I'm in your seat someday, I'm going to want to know why you did it this way so that I can do it that way, too, whatever it is. This is the Entree Leadership Podcast. Thank you for joining us, America. This is the Entree Leadership Podcast. I'm your host, Dave Ramsey. Charles is in Orlando. Hey, Charles, how can I help today?

How are you doing, Mr. Ramsey? Better than I deserve. What's up in your world? Okay, so I own an e-commerce business with four employees, and we did about $1 million in revenue last year, and expecting to do about $2.3 million this year. Nice jump! Thank you. So as you see, our business is, you know, growing rapidly and expanding, and it stresses the need to have cash on hand in our business to keep up with our current demands and our plans for expansion. How could we keep expanding our business while being able to sort of live off the profits as well? It's a bit hard for us to sort of manage that. I wanted to hear your thoughts on that. Yeah.

One of the ways I learned to do that because I'm so driven and so entrepreneurial that I've got more ideas than I have money my whole life. Does that matter? You know what I'm saying? I've never had as much money as I did ideas ever in my life. Can you relate to that? Oh, yeah, I can relate. And so what that told me was that I would never get to the point ever, and I still haven't, and I've been doing this 30 years, that I had enough money to do everything.

And if you're waiting to get there before you take money home, you're never going to get there, so you're never going to take money home. So we've got to change that. That was the logic I walked through. in my head. So I said, all right, I'm never going to have enough money to do all the ideas. So I'm already having to force rank, forced rank the ideas from best idea to worst idea, most probable to make money idea to least probable to make money idea.

An idea that's going to make the money, the most money, the fastest idea is at the top, right? You following me? Yes. And then some of the ideas, we just, we ran out of money before we got down the list very far. all the way. So all that happens there is, if I'm going to take some money home, I just don't get as far down the list. But you're never going to get all the way down the list anyway. So you might as well

decide, hey, the reason I'm running this business is not surely so it grows. I'm running this business so I can have a great life. So while I'm growing this business aggressively, then I want to have a great life. And so we've had double-digit growth almost every year for 30 years. Some years, we had 25 or 30 percent growth. You're having 100 percent growth in one year, but on a smaller amount of money. If I had 100 percent growth, it'd be 300 million growth on top line. That'd be pretty stinking incredible. But I mean, double digit is still, you know, 60 million bucks, right? And in growth. So, you know, if I have double digit at this level, it's sweet. But even then, could I have, you know, 15 percent of it's sort of,

12% maybe, but I'm still going to take some home and not grow quite as fast. Right. A lot of our cash is not even going towards future ideas. It's keeping up with current demands, you know, just the increase in sales that we have, we have to just keep our shelf stock, so to speak. So, you know what I mean? That's what sort of makes this equation a little bit harder. While we also have a whole pipeline of ideas that have a high probability of success.

Hmm. The only thing that comes to mind immediately, and I'm not sure it's correct in your situation, but I'll say it out loud anyway, is if I'm running out of inventory, because I've got such a hit, the rate of sale, the burn rate is so fast that it's eating up all of my profits to keep inventory back on the shelves. Maybe I need to raise my prices and slow the velocity down, but make more money per unit. I don't know the item you're selling or what it is, so I don't know how accurate that idea is. But sometimes if you've got something where they, because here, what would happen if you had more inventory demand than you could, then you could find cash? What would you do? Well, you would run out. You'd be in back order. Correct. Yeah.

And so what would you do then? I mean, that's like the extreme other end of this. it's possible that you could run completely out of cash and out of inventory because the inventory velocity rate, the turnover rate is so high on the inventory velocity. And so the only way to slow that down is raise the prices. And that solves two things. It slows the velocity down, slows sales down per unit, but it raises price per unit and allows you to fold more money back in.

So that's a really good problem to have. I wish I had that problem on a couple of things around here. I don't. I got a couple of them that are, but most of them are, most of them are the opposite end of the problem. But yeah, that's a really, that means you got a hit of some kind. And congratulations on that. So, and I'm not going to borrow money into even a hit. So, you know, you got something that's hot as a firecracker here.

This is awesome. Congratulations, Charles. Well, and that explains how you go from one to two million in one year. That makes you double your dead and government. revenues. Okay. So, um, hmm. Yeah, because you're, you're not holding that inventory. It's burning straight through is where you're describing it. Yeah, that's the only thing I can think of. Somehow I've got to slow the velocity down and get this to a sustainable thing because if it kept, if it kept on doing that power curve, uh, exponential curve on your math, you're going to blow out. You're going to

have nothing. Uh, because, and you're going to end up with six weeks of back orders. because you simply can't produce it fast enough. And so, yeah, that's a horrible problem to have, but there you go. Yeah, that's the only thing I can think of off the top of my head, Charles. I'm not sure that's a great scenario, but that's the first thing that pops into my head. Maybe you'll get an idea off of that bad idea, hopefully. Hopefully that'll be that kind of help. You know, sometimes I tell you what to do, and that's just what you don't do.

So there you go. Good stuff. Hey man, that's fun. Congratulations on your success. I'm so happy for you. Hey, folks, remember better a weary warrior than a quivering critic. This world needs more high-quality leaders. So take courage and lead. This is the Entree Leadership podcast.