EntreLeadership - Easily Spot These Costly Business Decisions

Episode Date: December 4, 2023

Today we’ll hear about: •       How to show honor when transferring a family business from one generation to the next •       A business owner that makes $150,000 in only three months •       The best way to protect yourself and your assets from lawsuits •       Why your “slush fund” could be hiding major financial issues in your business Links mentioned in this episode: •       The EntreLeadership Podcast •       Stages of Business Assessment •       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 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 at any stage of business and leadership. I'm Dave Ramsey, your host with over 30 years of experience in the trenches, scratching, clawing, hustling, grinding, making real world decisions. And we'll take your calls about real world situations. This is not business or leadership theory. this is actual people who do stuff. Small business people are people who do stuff, and we're here for you. The phone number here is 844-944-1070. If you want to be a caller, call that number. We'll get you set up to be on this podcast.

Or you can leave us a message about your question at entreeleadership.com slash ask. Entreeleadership.com slash ask. Nate is in Charlotte, North Carolina. Hi, Nate. How are you? I'm doing good, Dave. How are you doing today? Better than I deserve. What's up?

Hey, so I work for a landscape installation company, and they made last year about $10 million in revenue top line, and I got hired on to be the purchaser. It is family-owned, so I'm looking towards my future. So I'm looking for a little bit of help. My father and I disagree. with how something should be run. And I, in respect to him, I didn't create a million dollar a month company. So I, but I do have opinions on how he can make it better. Okay. And how old are you?

Me? 34. How old is he? He was born in 64, so he'll be 60 in March. Okay. And, and you just now started. What was your former career? I was active duty Navy in the nuclear community.

Okay. Thank you for your service. Thank you for your support. You come from, in your former career, from some great training because it is a culture of honor. Agreed? Yes, sir. And so I want to apply culture of honor to this subject. founders are the first generation of a family business the founder i'm one of them are hardheads

we're we're we're we're nasty sorts we don't like people telling us what to do we started the business because we didn't like bosses we scratched and clawed and grew something out of nothing and we weren't taking a poll while we were doing it That is the beautiful part about founders. The negative part about founders is we're control freaks and we're thick-headed and we're stubborn and we're the last to change. We end up with sacred cows in our lives if we're not careful. It's hard for founders to make the adjustment to allow family input, number one, later even

family ownership and family leadership and family taking over for them. The, the, as we've studied family businesses and I've experienced it myself and I'm in the midst of experiencing it myself, it is my opinion that the hardest succession plan emotionally, psychologically is gen 1 to gen 2. Because there's so much piss and vinegar in the mix. You following me? Yes, sir. So that's your dad. wrong? He is stubborn, hard-headed, very big, big ideas guy, not a very big details guy. Yeah. I'll look at an invoice. And when in doubt, he tries to out-earn his stupidity.

Oh, yeah. Me too. Hey, we're abundance people, we founders. We don't believe in shortages. We believe in abundance. We believe if there's not enough money, it's just because we didn't go get it yet. You know, that's how we think about it. And so these are all. wonderful traits that your dad has. If you recognize those, you can honor them. My son and my daughters work in this business, and they have honored me in that regard. But I'm also self-aware enough to know that I'm also could be what's holding back progress around here, or my standing on some of these ridiculous things is holding up progress. I taught our team this morning, Entry Leadership University, which is our leadership development thing, and I was talking

about the stages of business. And in that, I was talking about how we entrepreneurs that start things, we move so fast and we change things so quickly in the early days, and then we get stuck. And it's hard for us to move on to the next technology after a while, the next whatever. I don't even like changing my freaking phone out because I have to go learn something, right? And that kind of stuff. So I get where your dad is, but I think what your question is, how do I help him move from there? But first way is you honor him. The second way is you understand him. That's why I was talking about this.

You honored him in your opening when you said, I'm not the guy who made a million dollar a month company. He is, a $12 million, $10 million top line company. And so you honored him when you did that. You admitted that he's done something you have never done. And so I need to step into that. But I also can see some systems and things. So I think you just start by. honoring him to his face and in front of the other people and then say, and I'm kind of new

around here, but I'd really think if we change this one thing, you know, we could probably change our expense ratio. And you don't have to go for the big dog. Try to find some little wins where you get credibility with him and with the team. You've not been there long. Not at all. Yeah. And so go find a few little things you can change and some little wins to where you earn

the respect that you have good ideas and your ability to implement the good ideas is earned over time. And so then you can earn the right to say, you know, well, we really need to do this big thing. But if my son, who is now our president, has been here 12 years, if he and his first year here when he was selling ads for the radio show and he was a lowly ad sales guy, getting a crap beat out of him, right, which is what you do in the ad sales business, it's horrible. but if he had come in and suggested that we make major strategic moves, I would have been kind, but when he left the room, I would have been laughing, you know, you know, right?

So you got to avoid, but then he went and became our top salesman, and that helped him, right? And then he left that and went into an area that was in struggling and helped with the leadership team on that, turn it around. And then he led an area that we led into doing better. And then he led another area in digital into another area. By the time he finished all that, lots of people around here wanted his opinion, and then I had to take it. You see how I backed into that?

I do. I do. Yeah, I'm going to have to go in his honor and Little Wins first. But that's easy. Like you said, baby steps. You were taught to honor the general when he comes into the room. You stand at attention.

And yet that general could have been a jerk or he could have been a great. great man or a great woman, right? Well, yeah, respect the rank. Exactly. Respect what's been done before you got here. One of the things we do is we'll hand out an English pound occasionally. The English pound is a coin. And around the edges is a quote from Sir Isaac Newton.

It says, we are standing on the shoulders of giants. So the business that you will build in the next generation, Nate, was built on the platform that your dad laid the foundation for. You'll be standing on the shoulders of a giant. And that's why we honor. That's why we pay homage. And not to say he's the Messiah. He's not.

He's probably doing some really stupid but things that you're actually recognizing. But you'll have to tolerate the big ones for a while. And I think, though, if you get some quick wins, you'd be surprised within 24, 36 months, how much influence you could have around there. If you do it with a servants mentality, a level of service, a level of excellence while paying honor and even let other people have the credit for some of your ideas, all that kind of stuff, just get some of the changes made, some of the low-hanging fruit that you see. And processes, systems, those are things that your dad probably needs that he doesn't have.

And you're probably really good at those things. Entrepreneurs typically build processes and systems about the fourth stage, third stage of business, of the 12th Trailblazer stage is where we start to see processes and systems. until then we just go. Until then we just get it. And we offset the lack of systems that are poor processes by just simply hustle. And you could do it a lot easier if you put a good system in place. But entrepreneurs tend to not do that.

So you're probably sitting right there. That $10 million business tells me you're probably in the business is probably in the Pathfinder or Trailblazer area. I don't think you're a peak performer yet. So I think that's where you sit. That's how I would look at this and, you know, study the entree leadership elite, grab the entree. I'll tell you what, I'm going to give you two entree leadership books, one for you and one for him, and just say, hey, dad, I'm reading this book. Give it a look because you can, you'll relate to this guy.

He's like you. I mean, he's an incredible business mind like you, dad, and hand it to him and just see, you know, that way. Again, paying honor. That's what I'm doing. And honor is due. If you grow a $10 million dollar top line landscape business, honor is due. That guy's a stud. Nate's dad is a stud.

And Nate is, too, for asking the question on how to do this, right? Very, very well done. Good stuff, you guys. Very cool. This is the Entree Leadership podcast. Well, you just heard me talking about the stages of business just a minute ago. The Entree Leadership team just released our new and improved stage of business assessment. It'll help you easily and accurately identify exactly where your business is today.

why is that important? Because then you'll know what to work on to level up to the next stage. You'll know what the weak points of people at that stage are, what the strengths of people at that stage are, what the organizational needs are, and you can move through these stages. There's no rush, but why get stuck? You know, click the link in the show notes

or go to Entryleadership.com to find out which stage of business you are in. Andrew's in Bismarck, North Dakota. Hi, Andrew, how are you? Hey Dave, it's an honor. I've been waiting to talk to you my whole life. Oh my gosh. Well, I'm honored. How can we help? You're a mentor from afar. I five years ago, I started a small ice cream shop and it's grown. It's a seasonal ice cream shop. We're only on business for three and a half, four months of the year. This last year we did 150,000 top line. Wow. We have a staff of about 12 awesome high school students who love being mentored and growing. And I'm in a place where I just want some wisdom on how to steward this business and to keep it short as how much money I really should keep in the business as it being seasonal. And then how much I'm struggling with how much to actually pay myself in the process. So yeah.

Is that your only income? As of right now, yes, this is the first year. Me and my wife do missions work, actually. So we do have partial support raising that we do, and then we go overseas and help locals get started with a small business. Cool. Good for you. Okay. Yeah, thank you. So you run it for three and a half months. You shut it down? I do. Yep. It's like North Dakota's winds and cold weather kicks in really quick. So to be open in a retail space, we actually operate to do trailers and do events and catering

and have one that stays open all summer. But then as soon as the cold weather gets in, it's not worth it to be open. Oh, yeah. I mean, nobody wants ice cream when it's five below. I got you. Okay. Well, outside anyway, maybe inside. Now, you have a brick and mortar location as well as mobile?

No, we rent a kitchen to make everything, but we really just have a mobile shop. and then we have normal business hours. People can Google it and find it, all that stuff. So as far as the convenience, it's the same, but not inside. Okay. So you don't have a physical space that you need to flip and have another use for in the winter, like coffee shop or something. That's not what you need to do.

Instead, you do need to shut this down, but you need to have something else to do, I guess, right? Are you just going on, you're raising support going on the mission field the other nine months? Yeah, actually, my goal is to have it. make enough money to support me and my family as we go and do missions work long term. And, you know, I'd say like this year, we've, we've just saved and saved in the business. So how much did you clear? On 150K, what did you clear?

Yeah. So we're, net profit is over 50,000 this year. And what's it take for you to do missions nine months? Yeah. So basically me and my wife are in a pretty, like, small budget. we take, we can live off about 3,000 a month. And so, so you can make it on 50K, huh?

Yeah, I think so. And it's a little bit of a stretch. I know I've picked up a couple jobs here. Well, 3K a month is not 50K for nine months. Yeah. Yeah. It's only 27K.

This is in addition to my, my normal wage that of work is managing it in the summer. So I take a, I take a wage and then in addition to that. But I want to grow it. But you said I want the ice cream shop to create enough profit that I can do missions work in the other nine months with the profit. And you said you needed $27,000, $3,000 a month for nine months, but you have $50,000. Yeah.

Goal accomplished? It's there. Yeah, it's there for sure. And I guess where I struggle is like, you know, we're in baby step six according to the baby steps. You know, we really want to pay off our home. and make it more our cost of living so we can give back more. And so I guess, like, as the owner of the business, I have to take, I could, I have the opportunity to take out, like, take a distribution or even, even this year, like, we, we,

when I started the business, I gave it, I started it with everything I had with just $20,000. And I'm even just nervous of taking it out of the business to pay myself back and wondering if that's even acceptable. Okay, let me catch up because there's something I'm not getting here, or something you're not giving me one. So you go all summer, you have a net cash profit of $50,000 in the bank. At the end of the summer, you turn the key, shut the thing down for the winter. Is that correct?

That's correct. Okay, but you need to do missions, $3,000. $1,000 a month for the following nine months. Nine times three is $27,000. But I have $50,000. I don't see the problem. I see the, I guess maybe the question I'm really asking is I don't want, like, if my ice cream machine goes down, like I need to keep money in the bank. Like, how much should I keep in the business account in order for us to be secure?

Like almost business budgeting. Okay. Like a business emergency fund. And then is it called retained earnings, and I would take a percentage of your profits and add the retained earnings until you get to the equivalent of a normal business of six months of operating, which most people can't ever get there because their profits increase. But the, and their gross increases and their cost increase and all that. But anyway, so, hey, in your case, it sounds like $20,000 would be a lot to leave there. That ought to cover anything that would come up. Well, except if the ice cream machine went down to get a new one, it would be like 50 grand.

How did you get the first one, 20 grand? No, it was before COVID, and I found it in an old restaurant supply store, and I feel like it was God's hand. It was a miracle. It was some company wanted a business after using it for a year, and, you know, and it's, I feel like it was a diamond and a macea. stack. Yeah. I would go with you and say it's God's provision. Yeah.

I'm not sure I'm going to go so far as a miracle. A miracle is more of a singular event. Used restaurant equipment is not exactly a singular event. Okay. So I would suspect if God wants you to stay in this business, he can provide again if you hold a reasonable amount back. I mean, if you have a fairly new, slightly used, great deal, on a great ice cream machine that's worth $50,000.

My guess is it's not going to go kaput in the first three years. So you're probably over-preparing to replace that now. It probably has a longer life than a three-year life unless I'm missing something. So commercial equipment should last longer than three years of that type, especially when it's only getting three and a half months of use a year. So, you know, that's what I'm doing. So I think you're, you might be over-analyzing all of this. So I would probably set like 20 grand in the business, set my 27 over, and then next year,

if I make another 50 or 60, I can decide if I want to add a little bit to that 20 and retain and make sure I cover my missions work. And then the next year I might throw some more at the house and get the house paid off and set a little more aside. But eventually you're going to have plenty of retained earnings and you're not going to add any of that. If you keep your lifestyle down to 27 for nine months on the mission field, then everything above 27 that you make, you can throw at the house after the second or third, year in this program, I think you're going to be in great shape.

Sounds like you got a little money-making machine there, dude. No pun intended. And you work your tail off at it. And if you can make enough to support your family throughout the year in three and a half months in any business, I call that a win. That's pretty impressive. You know, so, you know, I think God has given you provision here to enable you to do the work that he's asking you to do.

And he's funding it with ice cream, which is human. in North Dakota, if you think about it. But there we go. Not that people in North Dakota don't deserve ice cream. It's just cold there. So, you know, ice cream on the beach in Florida just has a lot longer season, like 24-7, 12 months a year, right? So anyway, that, yeah, way to go.

What a cool, what a cool model that's been put in front of you. But, yeah, be wise and don't overdo the retained earnings and don't un-earned earnings and don't underdo what you take home and make sure that you're taking care of your family while you're on the mission field. We don't need to be having holes in our socks when we got $25,000 over here ready for an ice cream machine. So we've got to break all that out that way. But you've got a great heart, Andrew. You've got a great heart. And it is very cool for those of us that are people of faith to watch God's hand show up in our business and in the processes that we're using in the business and we go, oh, well, that's so unusual. That must be God. Pretty cool. This is the

Entree Leadership Podcast. Thank you for joining us, America. This is the Entree Leadership podcast. I'm your host, Dave Ramsey. Mick is with us in Salt Lake City. Hey, Mick, how are you? Hey, Dave, I'm doing great. How are you? Better than I deserve, man. What's up? Awesome, my man. Hey, so my brother and I own a structural steel company. We have five employees. Our line of work can be very dangerous because we use cranes and heavy machinery to lift large steel beams and put together tall buildings. We try to be as safe as possible, but my question is, how can we protect ourselves as owners and protect the business in the event that one of our employees causes an accident that severely damages property or injures people? Yeah, that's pretty scary stuff. Well, in the world that we live in today, the litigious society where people sue for no reason

or they make up a reason just to try to get money out of somebody, you've got to do risk management. You've got to protect yourself. So your question is a very good question. And, you know, we're in a pure white collar setting here. And yet people find excuses to try to milk, you know, I built a big building. And it was like an advertisement, sue me and try to get some of my money. You know, so it's like weird. Never got sued forever, and then all of a sudden I got sued.

So I get where you're coming from. Now, what we have done is two things, and it's the only thing I know how to do, and you can get some more nuanced recommendations within both of these categories. But basically, it's ownership structure and insurance. Okay. And so you've got business operating insurance. You've got liability insurance. Obviously, you've got workers comp.

and those kinds of things, which in your world is freaking expensive. I mean, we're flying a desk around here, not a crane. Yeah. And hours is expensive. You start flying a crane with steel beams on the end of it. Workers' comp goes, oh, you're the one I was looking for. Yeah, they got you, man. Exactly.

Yeah, so, but anyway, because it's based on category of work. And rightly so, because the accidents at a desk are less often than in a crane. So, anyway, so workers' comp, basic liability insurance. But if you can put in place, talk to your insurance company. You need an independent insurance broker that will shop among different types of insurance, make different business insurance suggestions. Okay. And then what you've got to do is you have to say, all insurance is not worth it.

Some of it's just too expensive, and I'll take the risk. other pieces of insurance for, you know, $5,000 or $10,000, I can get something that covers $2 million of that. Yeah, I'm doing that one, right? Yeah. And so that's thing one is you're going to, sadly, learn more about the different types of insurance than you ever wanted to know in order to intelligently purchase it. Sure. Okay. That's thing one.

Thing two, then, is don't ever own anything again. Everything is in some kind of different entity. Yeah. My personal residence is not in my name. My cars are in an LLC that my wife owns. My wife owns the LLC that we live in as an example. The last house we had was in a trust that my wife had. And so the weird thing is,

is that Dave Ramsey actually owns almost nothing. Yeah, yeah, yeah. Which is fabulous. So I tried to lower the size of the target on my butt. And so, you know, the business and the cranes certainly need to be in an independent standalone LLC. Okay. And then you have to very, the rule with LLCs and incorporating both are you can't just

open the LLC and that's it and say, you know, mix. Crane's LLC. You can't do that. You have to then run the entire business in the name of that. So never is an invoice in your name. It's always in the name of the LLC. Never is a contract in your name. It's always in the name of the LLC. You have to do everything in the name of the LLC or the LLC loses its what we call corporate veil. Okay. It loses its protection. How does the new LLC like buy the equipment from us. It doesn't have to. You can just transfer it.

Just transfer it. Okay. Just move it. Like when I decided I didn't want my cars because if I bump somebody, they're like, oh God, Dave Ramsey hit me $10 million, right? If I have a car wreck. Other people are like, hey, man, what's your insurance company? I'm like, the other guy, if they found, Dave Ramsey,

oh, they fall out in the road and phone with the mouth, you know. So in the name of that, right, I just, I put the cars in an LLC. But I didn't buy the LLC that I put them in, didn't have any money. I just open an LLC, transfer the titles in there. That's simple. But then I have to do all of the licensing in the name of the LLC. When the cop pulls me over, I have to hand him registration that says the name of the LLC. And he's like, what is this? And I'm like, well, that's funny, isn't it? Because it's a funny name. And so, but the, because I was, I was smarter like the day I formed it. But the, anyway, so you can, you know,

my farm is in a separate LLC, my business, every piece of property that we have that's in excess of $5 million is in a separate LLC. So if a building that I own that's a $5 million building, someone falls and breaks their face, they can't sue Ramsey's solutions because it has nothing to do with it. That LLC owns that building. You follow me? But all the business transactions have to be done in the name of that. There has to be a tax ID.

There has to be a, in order to create the corporate veil, your attorney can advise you, but you cannot, a lot of people form LLCs and then go do business as a person. And if you go do business as a person, you're back liable again. Mm-hmm. You follow me? Yep. I'm not an attorney, but this is what I've learned from the attorneys and from everything. So I haven't personally signed a check as Dave Ramsey, or a letter or a contract as Dave Ramsey in Ramsey Solutions arena in over 25 years.

Oh, wow. I'm always CEO of Ramsey Solutions. I'm just an officer here. I'm just an employee here. And from a legal perspective, that's actually what I am. And the LLC happens to be controlled by me, but that's a different issue. But if you want to sue Ramsey Solutions, you can't sue such and such LLC that holds one of our pieces of real estate because it's not in the deal. You follow me?

And we've even separated off some of the assets inside the company into different LLCs. Okay. And that just helps you to be less person. You're not personally liable at all. If an LLC owns your crane and it falls over and hurts somebody, you are not liable. The LLC is they can take everything it owns, which is the rest of the equipment. They can shut your business down, but they can't take your house. They can't come take your personal checking.

They can, you know, well, they can try, but that's called piercing the corporate veil if they come past the LLC wall and try to get your personal stuff. and the only way, the best way they can do that is to prove that you weren't actually doing business the way I said a while ago all in the name of the LLC. So you don't ever sign anything except as your title on behalf of the LLC. You never sign it personally, ever. Okay. But again, I'm not an attorney. I'm just teaching you from a business perspective. You do need to get an attorney to tell you everything I just told you.

Sure. And they'll show you the nuances of that. So what's your top line on this company? What do you make a year? Last year we did $1.6 million. Way to go, man. How long you've been open? So we've been open about six years, but we used to just build gates and stuff.

So we doubled last year. We're hoping to double again in the next year or two. And so we're taking off, but we just want to, you know, we're just a couple welders trying to be businessmen here. And, you know, we're just wanted to make sure that we do it correctly. Well, don't take this advice and let it become your only reason for existence. That's not what I'm doing. But what I did is I just put enough different entities, enough different individual things that it would not end my life on the planet

if one of them caved in because of a lawsuit. Sure. And then I put insurance on it. And if I put the right kind of insurance on it, if there's a lawsuit, the first round of lawyers, the insurance company pays for because they're trying to keep from writing a million-dollar check. Yeah. And then if it goes by hiring a million or two million or whatever your coverage is, right, then is when you're trying to protect your business and your cranes and your personal home

and don't lose everything due to one guy coming on the job hung over and runs a crane through something, right? Exactly. Yep, that's what we want to protect ourselves from. That's the whole thing. is just, you know, the land of Dufus that we all live in, that sometimes people decide they're going to do that. So, wow. Hey, you're a good guy, man. I love what you're doing. But the point is risk management is by separating entities, operating exclusively, carefully within that entity.

Don't do any business except in the name of that entity for that entity. Don't cross-purpose anything and then put good insurances in place. And that's all I know to do to limit risk. And, of course, operational systems to keep people safe as safe as possible while we actually get the work done. That's the other thing you do, just to, you know, to do that. But in situations like that, you're going to have a thing where, okay, we could operate the crane, in mixed case, a certain way. And we put a process in place that costs us a few thousand dollars more of maintenance or whatever on the crane. and that process helps to buffer the liability as well.

That's what I'm talking about. And so it sometimes is called doing the right thing, and usually you can do the right thing and accomplish a liability buffer at exactly the same time. That's how all that works together. So, yeah, just look for stuff like that that you can do to limit your liability because you're being as smart as you can possibly be and as good to your team and as good to your team,

and as good to your customers from a safety perspective as you can reasonably be. And once you do that, then, you know, then you still got to deal with idiots who try to milk stuff out of you with lawsuits. But you put the entities in place to lower the size of the target. This is the Entree Leadership Podcast. This is the Entree Leadership Podcast. Blake is with us. Blake is in Canada. I'm Dave Ramsey. Hi, Blake. How are you?

Good. Thanks, Steve. sure how can we help so been in business for close to two years uh plumbing heating electrical um cooling company there myself and a business partner we did 1.3 um we just had her year end good for you um yeah i thank you so we're just wondering at what point i'm following all the rules reinvesting into the business, making money grinding every day. At what point can I start to reap the benefits of this? I have five employees, myself and one other business owner, and then our wives are on payroll as well for tax purposes. Okay. I'm not familiar with Canadian tax law. That doesn't do anything in the U.S., but okay. Yeah. But either way, do you have a net profit after everyone gets

their salary? Yeah, right now we have about 250 was our profit. Okay, and you're reinvesting all of that back into the business every year? Buying vehicles, cash, we just leased a building. Yeah, and just keeping a cash flow because I do take it as a responsibility that I'm responsible for five other employees to eat as well. So I'm just, I'm nervous to pull some of that money back out and put it in my own pocket. So do you have a cash flow fluctuation to that level, a quarter of a million on

1.2 gross? You don't have that kind of fluctuation. Well, at some points, we've got a lot of builders that like to drag us out as far as receivables go. Yeah, you need to work on your business relationships then. Yeah. That's bull crap. You're a little business. Big builder doesn't need to drag you. Like 60 days to collect a $70,000. check after I've paid my guys and bought material and paid wholesalers. Like, I'm not doing work for you anymore unless you change this. Fair enough. Yeah, you got to, because I'm a little guy.

I'm not your bank. I'm your plumber. That's a deal. And he's using you as your bank because he's not managing his crap well. And his lack of management ain't my problem. But it's getting ready to be my problem if I don't get paid. So, yeah, you need to fix that aside. But meanwhile, you've got the job before 60 days.

that you are getting paid on that's covering this. So you're not actually dipping into this $250 to cover cash flow fluctuations, are you? You've got jobs layered, surely. Yeah, 100%. We got lots of jobs layered. So how many times did you dip into retain earnings to cover cash flow fluctuation? Hard to say there, to be honest. I just...

Why? Is it sitting in the checking account? Yeah, it's all sitting in the checking account. Oh, Jesus. Okay. Yeah, that's rule one. Change it. Okay, get the money out of the checking account.

And rule two is you guys need to start doing, you need to get with your bookkeeper. You have an on-staff bookkeeper? No, so I'll stop it out. Okay. And you sit down with the person doing the bookkeeping, and you guys are going to start doing job costing number one. If you're not doing job costing, get the software and start job costing because you've got to figure out if you're estimating is accurate. Each job should be a profit center. And your allocation of overhead and your actual.

hard materials costs and hard labor costs per job determines if that job was profitable. You know what I'm talking about, right? 100%, yeah. Okay. You need software that'll build that out. Then the culmination of all of those job costs give you your annual profits, and you can look and see if you're estimated the job properly by looking back over it. That's thing one.

Thing two is then you need to be budgeting going forward. Budgeting is looking out the windshield. P&L is looking out the rearview mirror. So you look at the profit and loss as to what actually happened. you compare it to what you thought was going to happen, which was your projection, your budget. This doesn't take, like, you don't have to become a master math nerd to do this. Your guy that's doing your books ought to be able to help you set up all three of these things, job costing, budgeting, and B&L.

All right. Now, once you've got all of that, then we can tell if we're profitable this month by the cash that's in the account because we're running this on a cash basis. and so if you set the 250 aside, leave 10,000 in the account or something, that's fine, but set 250 aside to where it triggers an alarm in your system and in your other owner's systems if you have to reach over and pull that over. Okay, we're 50 grand short. We've got to borrow from the retained earnings from ourselves.

We're going to steal some of our retained earnings to cover the fluctuation. It triggers an alarm to go, why are we short? Are we not profitable or are we not getting paid? on receivables, what's going on? Why are we short? But when it's sitting there and you don't have to look to move the money, nothing, it's not triggering an alarm if there's a systems problem in your cash. Is that making any sense? Yeah, pull them up to pull my, if you set the 250 in a side account and it doesn't automatically cover the shortage, when there's a shortage and alarm goes off in your brain. You see what I'm saying?

Yes, that makes sense. That's what I'm trying to create. You don't have that now because it automatically covers it because it's just sitting there in a slush. Mm-hmm. All right. So we're going to move it to the side, number one. Number two, we're going to do a budget. Number three, we're going to do a P&L. Number four, we're going to job cost everything.

Get some basic software. You probably get it on your phone. It's not that hard. Job costing stuff's everywhere in your world. There's lots of really good software out there on that stuff right now. We're seeing it a lot with entree leaders everywhere. A whole bunch of plumbers, HVAC guys in our customer base. So, anyway, now once we've done.

all that, then we're back to your thing. Now, once we've figured out that for five or six months, we really don't need to tap this 250, then we realize we've got too much setting over there, and we can disperse some of it. And we can disperse some of it to come home. We can disperse some of it to reduce the debt in the business. Now, you said there's debt in the business. How much? Oh, no, we got no debt in the business. Oh, it's all home. I have seven company vans. We've paid for in cash. I love you. I have, we have no debt, our wholesalers.

Oh. And we've done the whole thing on cash. Way to go. Oh, you're so rich. Yeah. You're making more money than you think you're making. When you get all this stuff to put together, these documents that I'm talking about, it's going to show you the profitability.

You're doing really, really well. Okay. So then the only question is how much to keep as retained earnings in there to cover cash flow fluctuations and really? running it without tapping into it accidentally will tell you how much you need to be your own line of credit. That's what we're talking about here. Right. And if you don't need it much, then you don't keep it.

Most businesses, Blake, of your size, if you have six months of expenses, which is all your payroll, your fuel expenses, not necessarily your materials expenses, but the operational expenses, six months of expenses set aside, which you probably have that right now, you probably have enough. you can probably just start dispersing profits home after that. Six months will cover cash flow fluctuations. It'll cover growth. You've only got five guys. 250's plenty.

You're not going to take care of them if there's a downturn that's temporary. You can't take care of them if there's a downturn that's permanent. You don't have enough. Nobody does. Right. Look out for yourself in that situation. I mean, if five years I don't need somebody doing the thing you do, then five years I'm not going to take care of you.

I mean, nothing goes forever. But I'm going to take care of the minor downturns because you and I aren't corporate America. Every time there's a little bump in the road, we don't piss on our employees. We take care of them because we're family. And that's the way we think, not corporate America. So you're right. I appreciate your heart and your honor. I want to hold this money because these families, these five families, I'm responsible for them.

I'm their leader. I serve them. And that's your attitude. And that's why you're winning right there. Man, you got this on the run. You're doing good. Thank you. Yeah, I just want to take care of my wife there because I've been putting a lot of long, hard days trying to make this grow. Yeah, so I think you probably got enough.

I think the profits going forward you can take out. Unless you determine that you're really tapping into that $250 pretty often, I don't think you are. No. The reason I don't think you are is there's $250 there. Yep. If you were tapping into it all the time, it'd be freaking gone. Yeah. Okay.

That's the thing. I think you're good. You're just being conservative because you've committed to living on cash and running it on cash like we have. That requires we keep cash. That requires that. And so you're being very wise in your analysis of that. But I think what you're saying is, do I have permission to start taking some home? I would not give you permission. I'll give you encouragement and permission to start taking some home. Yeah, you need to go by your wife a trip. She's been putting up with you working all the time. And you can go too on the trip. Yeah, both of you. That's how that. that works. So good stuff, man. I love guys like Blake. Man, that's what makes a world go around right there. Small business people like that. Hey, remember better a wary warrior than a quivering critic. Leaders serve. Leaders are active, not passive. They act on principle, not appearances.

This world needs more high-quality leaders. So choose to lead. I'm Dave Ramsey, your host. Thanks for listening to the Entree Leadership Podcast.