EntreLeadership - Hidden Blockers That Will Keep Your Business from Growing

Episode Date: January 8, 2024

Today we’ll hear about: •       What to do when your leadership team can’t get on the same page •       A business owner who hasn’t taken a salary in five years because they have so much debt •       The pros and cons of having your business as an LLC vs. an S-Corp •       Three steps to determine the true value of your business 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. I'm Dave Ramsey, your host with over 30 years of experience in the trenches. I'm down in there myself every day, just a shoveling like you, baby. We're here to help you, and we're going to lead right alongside you and help you get to the next level. We love small business people, and we want you to. succeed. We want you to prosper. We want you to become so successful that it sickens your friends. Leave us a number and a phone message if you want to at entreleadership.com slash ask. Put in what you want to talk about. We'll call you and get you all set up or leave a voicemail at 844-944-1070,

and we will put you on here and we'll talk. Nick is in Chicago. Hi, Nick. Welcome to the podcast. Hey, Dave, it's an honor to talk to you today. You too, man. What's up? Yeah. So I work for a digital marketing company in Chicago. We have about 50 employees. Our revenue last year was $12 million.

And it was a startup for 10 years, 10-year-old company, and just recently have started the process of putting some systems and processes in places. You know, it's startups, things. People wear lots of hats. You do things quickly. and the processes follow sometimes later down the road. And I am in the process of, in my role, it's my job to be putting those systems and processes in place.

And there is things that my CEO would like to see us do that other members of leadership are resistant against, in particular my direct report, the COO. So my question is, how can I implement changes that my CEO desires when other leadership is resistant? That's your CEO's job. His job is to run block for you. Okay.

Okay, let me give you an example. All right, we went through here about, Ramsey, I guess, about four years ago. And we realized a lot of our branding across the different brands, the different things we do, from high school curriculum to Entree leadership, to the Ramsey Show, to Financial Peace University, all these different brands we have. were not visually connected. The creative was all over the freaking map. You follow me?

Yeah, yeah. And what we were losing as a result of that was people doing Entry leadership had no idea that the same company was doing Financial Peace University because there was no visual connectivity. There was no process there because the creative was all over the map. Other things were all over the map too, but the creative was one of the things. And so we decided in the C-suite, among myself and the leadership team, the senior leadership team, that we were going to, within a reasonable period of time, put a series of governance boundaries in place and get these different areas to get their creative, their logos, their visual branding to conform to where the consumer on the other end of it could recognize that they were tied to each other. that was really not an option.

Yeah. Leadership decided we're going to do that. Your CEO has decided some of these processes are going to come into play. It's not an option. We're doing this. There's a good reason to do it. Now, then what we did was each of the areas had their own creative teams, and we sat down and told them why. You know, we gave good reasons.

We persuaded them as to the intelligence, the wisdom of the idea, because it was going to be pain because we're going to throw some of their stuff in the time. trash and have to start again, right? And they're going to have to do some work that they wouldn't otherwise have to do to recreate some of the visual pieces, some of the marketing pieces or whatever, some of the stuff you're seeing on the website, all that kind of stuff had to be reworked to fit the new governance process. And we were not, we, nothing was on fire. We didn't have to do it in 24 minutes, but we also weren't going to just go along and not do it. And so basically what that means is in your situation, the way that sounded was, A, leadership sat down with the players and

explained to them why it was important and that why it was wise, that's your CEO's job, and that Nick is going to come in and help you guys do this, and we are going to do it. So there's two things coming from that. One is we're explaining to you why. It's a wise business move. We're all going to be on the same page. We're going to be aligned on this issue. And it's mandatory.

We're freaking doing it. Yeah. Yep. And so then I don't, then the, you know, the person that's the creative person that runs into one of the creative leadership team that member that runs into a creative whose feelings got hurt because we're throwing his stuff in the trash and we have to do it over because it has to be in aligned accord to this stuff. He can just point back at me and go. yeah, we're doing this because Dave thinks it's wise and actually all the rest of us think it's wise and it's necessary for us to go to the next level with this company. And sorry for your feelings being hurt, but we're doing it. You know? Yeah. And so, but that's me running Blocker in two ways. One is

I'm selling the team on the vision of the changes because change is always painful. Yep. And I got to sell the team on the changes. And then I got to put my foot down and go, oh, and by the way, boys and girls, we're doing it. Yeah. So, and so don't, don't blame Nick. I mean, Nick's not a hired gun. He's just in here to help you get the work done that I'm telling you you're by God going to do, you know? I didn't say that that way, but pretty much that message was delivered. Yeah, absolutely. It's not unreasonable. I'm not just thumping people. That's not the point. There's a reason, a logical, wise process, business reason that we're going to change this process. You know, we're putting all this stuff on paper.

We're just going to digitize it and quit putting crap on paper. Paper storage is nuts. You know, we used to have these things called filing cabinets back in the day, you know? I mean, we don't do that anymore. Why? Because somebody like me in leadership said, we're not doing it anymore. Well, I like paper. Well, I'm sorry.

We're not going to have much of it around, so you're going to be miserable because we're getting rid of it. and I'm running Blocker for the guy who's trying to do the process. Now, what's happened here is the C-O-O, your boss, has not got buy-in from his CEO yet. Yep. He doesn't believe it's necessary to do the thing you're talking about yet. Yeah, and he's responsible for he has been with the company since it started and created a lot of the broken systems.

Exactly, the broken systems. So his perspective is, well, the CEO isn't in the day-to-day trenches, seeing what it really takes to do the work that we do. It's not going to change until the CEO sits with him and makes the sale. He's got to sell his old friend on, hey, dude, you're protecting sacred cows. We hear them mooing in the hallway. We're going to put a bullet in these things and have them for lunch. Seriously. There are sacred cows everywhere running up down the hallway.

that's what this is. This is exactly what happens at this trailblazer stage that you all are at. You're definitely in the trailblazer stage. You've got a great company, it sounds like. But we've been through, it's a growing pain is what it is. To move from the old, well, we've always done it that way. Why? We don't know, but we've always done it that way.

To move out of the sacred cow into a new process is painful. And it's really painful for the older ones. we are. Like for me, just giving me a new phone pisses me off for about three weeks, because I can't work the stupid thing. I don't like change, you know, but I know the new phone will do things that the old phone wouldn't do, because I'd still be carrying around a brick from Motorola if it was up to me, you know, because I resist this stuff. But then when I finally do it, I'm glad I did as a leader, as a human, but man, killing the sacred cows is hard. And so This guy's got, he's got a little bit of pride tied up in the, in the stupid ways we used to do things when we were small and primitive.

Yep, absolutely. And it feels like this is the, what, the bottleneck that's keeping us from taking that next step and growth that we need. You know, depending on how the politics go down in your place, you either can sit with the CEO or you can sit with the CEO and the C.O. for a cup of coffee and go, all right, I need marching orders from you two. Because, you know, CEO, I hear you saying this and C.O. I respect your heritage here. And you were here back in the day when there wasn't nothing but duct tape and bailing wire. And you're the guy.

And I hear you seeing something different. So I can't do both because they're incongruent. So you guys sit here right now and let's put our heads together and let's get aligned on. what your marching orders are, I will do whatever you two tell me to do. But put it out there instead of these guys triangulating off of you. Yeah, no, I like that. I think that seems like a really good next step. If the C.O has enough backbone and enough humility that he could sit and have that conversation

that I just said with the CEO and you, that's the most healthy way to approach this. if he's unhealthy and toxic, the only way you're left with is to just sit down with the CEO and have the same thing and say, I want to do this, I'm having trouble, and I'm not here to tattle, I'm just asking for direction from you on how I can best lead through this. Yeah. And basically, you are tattling. Yeah. But that's okay. I mean, you're doing it up.

You're speaking up, not out. You're not out in the coffee break room going, these two bozos can't get their act together and I can't do my job. job. Now, that's gossip and I'd fire your butt for that. Understandable. Yeah. So, yeah, you're in a good place, Nick, and you're obviously a mature leader, emotionally mature. I don't know how old you are, but I mean, you're obviously, you know, the way you're asking this question is a very healthy process of how to navigate this stuff. And so in our place, I would hope that they would sit down with me and the COO and go, hey, guys, I don't know what to do.

here because I'm kind of getting this message and this message, and either I'm confused or we're not aligned. So what is it? You guys just get to get, let's talk it through right now so y'all can give me marching orders because I'm willing to do whatever you want me to do. I thought I heard you saying this, and then I heard you say this, so I'm confused. Help me with this. Let's get aligned. And that's what I would hope we could do. And then me and the COO may have an argument in front of you here at that point. We may argue about it because we argue about everything here. It's part of how we process stuff. We're hillbillies. We fight for. first. Ask question. Second. So that's okay. It's just a way, it's a decision-making paradigm for us.

And it works good. Hey, sounds like you guys got a great company, Nick. And what you're experiencing are very normal growing pains. When you're at the Trailblazer stage, shooting the sacred cows in the hallway is a big deal. And it's hard to do because some of us take great pride in the old ways. You don't want to abandon the old ways. But yeah, you really need to in a lot of cases. So we don't worship processes here. People who worship processes are bureaucrats. We work on principles. Principles don't need to change. Processes have to change all the time because there's a new technology over 26 seconds and you've got to change with it. There's no way around it. Sounds like you guys got a great thing going. Well done. Well done. Well done. Love it. This is the on

Entree Leadership Podcast. I'm Dave Ramsey, your host. This is the Entree Leadership Podcast. David is in Fort Worth, Texas. Hi, David. How can we help? Hi. Thank you for taking my call.

I am working, I'm third generation family business. We've got about 35 employees or so, oil and gas related. We did 30-ish million last year. But what I'm struggling with is about five years ago or so when I started, we got into a lot of debt, about $12-ish million worth. I'm struggling really bad with burnout. It's been five years of fighting, and this is all I know. And it's really beating me up. So if you have any words of wisdom or advice or anything like that.

Hmm. I'm sorry. That's harsh. You all got a great top line. Is your bottom line not good? Extrations is, are limitations with everything that's going back to pay back the debts that we're in. It's, we're having to operate like a $30 million a year company with toothpicks every week. It's every, every day. So you're just clearing the debt. How much debt are you clearing in a year? About 1.5. So this 30 million doesn't have a lot of margin then? Not.

I mean, you only got 30 employees. It's not going to payroll. What's it going to? And that's what, unfortunately, I'm not involved enough. In my opinion, in the numbers and stuff, I do mostly operations. It's just what I see. So if you're not involved in the numbers, how are you carrying the stress for the numbers? just because I'm the only person that my dad talks to about it.

So I get to hear about it. He's worked for free for five years now. It's just hard to watch. Okay. Fatigue and burnout are manifest themselves exactly the same way in our bodies. Burnout manifests itself. differently in our emotions than fatigue. Fatigue is I've worked my butt off and I've been cutting grass all day long and I stand in the front yard and the front yard looks awesome.

And the bushes are trimmed and my wife is happy and the neighbors in the HOA are thrilled. Right? I'm tired. But I accomplish something that's visible. I got traction. and I'm tired. Okay. Like when we do an entree leadership event that's three days long, I typically am in the saddle 16 hours a day. I'm, you know, doing a breakfast with people. We've got lunch meetings.

I'm on stage. We've got a platinum event that night, you know, and I'm pretty much in the saddle 16 hours a day for three days. At the end of those events and they're world-class events, and I'm really happy with the quality we put out. at the end of those events, I'm exhausted. And it feels awesome. That's different than I'm exhausted and I have no hope because there's no traction.

Everything I touched turned to manure. That equates to burnout. But it's the exact same feeling. The only difference is the emotional side of it. Does that make sense? Yes, sir. So your burnout has to do with the fact that you don't feel. like you're getting traction or your dad is getting traction.

This doesn't feel like it has a positive future. It starts to not have hope on it. Am I wrong? I would say that's accurate. Yes, sir. So that's when we sit down with dad and say, okay, dad, this is driving me crazy because I'm watching you suffer

and I can't tell why we're suffering. Because if I'm going to suffer, I want to get something for it. If I'm going to go to the gym and work out, which I hate, I at least want to feel better and lose weight. I don't want to get on the scales and be up five pounds, right? If I'm going to suffer, I want to see some traction. So, Dad, we can't keep doing the same thing over and over again and expect a different result.

That's the definition of insanity. I want to help you. I'm going to come alongside you, and you and I need to keep. look at these numbers, and we need to figure out how we can make more progress faster. Because you do not have too many employees. You have a great revenue, gross revenue per employee is outstanding. I wish I had what you've got. I don't have anywhere near what you've got.

Revenue per employee. So your payroll is not eating up your profit. I can tell that from that ratio. So I don't know where your profit's going and you don't either. Yeah. Okay, so I want to know if I'm you. This is the answer to how you get some energy back. Because you can recover from fatigue pretty quickly and get back after it two days later

if you're getting traction and there's hope and sunshine, if the light at the end of the tunnel is not an oncoming train. You know, like, let me give you an example. Let's say you and your dad dug into the numbers and you said, okay, we sell this piece of equipment, we stop doing this service, we hone in and I see $5 million there. That gets us out of debt in two and a half years. I'm willing to fight like a crazy man to be out of this and fight two and a half years,

but I'm not willing to run this thing in perpetuation like a rat in a wheel and get no traction. But all of a sudden your burnout would turn to. I'm tired, but it's worth it because we're going to kick this thing's butt. It's fourth quarter, and I'm going to make one more run down the fourth quarter. I'm going to make one more run down the dead gum field, and even though I'm exhausted. Does that make any sense? Yes, sir. I agree.

And that's a lot of my frustration is not knowing, I think. Yeah. That's fair. Yeah. Not knowing will kill you. Yeah. Because here's the thing about not knowing is what, we're all drama queens. And when you don't know, your drama queen in your head makes it worse than it really is.

If you'll just tell people the bad news, it's not near as bad as they thought it was in their head. By the time they dream up what they think it is, it's like 10 times worse than it really is. And so it's like, oh, God, I didn't know. By the time you get to this unknown, it just blows up. So, yeah, you need to know what's going on, or you're going to burn up,

and your dad's not going to have you as his right hand anymore. Because you're not going to, the guy that called me a few minutes ago is not going to be on this job six months from now if something doesn't change. you're going to hit a wall you're not going to be able to do it David your emotions are shot your gas tank's empty I heard it in your throat

am I wrong no sir but I think I think some hope some hope by looking at the numbers and some flexibility and changing some of the process to get some extra traction some hope from you and your dad lock in arms or put some grease in the gears

and I gotta tell you man I'll be talking to a completely different guy a week from now that'll put gas in your tank because you you're not afraid you're not you're not lacking in work ethic you're not lacking in courage or the willingness to fight the dragon you just can't see the son of a gun am i wrong no that that's yeah that's pretty much it it just if if if i could do it for two years you know if i knew that that's what we got to like you're saying oh my god If in two years you were completely debt-free and you put $5 million a year in your pocket after that, you dead gum right, you could do that.

Unless you're brain damaged. Of course you can do that. That's hope. That's mathematical hope. That's called success. You can do that. I can fight for that dragon. But two years and I'm still sitting right where I'm sitting, no, thank you.

Who the crap wants that? Yeah, and a lot of it's just, the ride in a roller coaster up and down. One day is great, and then we'll have three not-so-good ones, and it's just by the end of the week you want to just lay in bed. Yeah. You're capped out, you know. But again, if you have two bad days,

but you've got a plan that's going to make me free in two years, I can fight through the two bad days. Right. But I don't have two bad days, followed by two bad days, followed by, I think I got five more ears or two bad days, and then I don't think we're going to be anywhere different than we are today. Oh, good God, no. Who wants to get out of bed?

Nobody. That's the definition of how to be depressed. Crazy. Yeah, you're going nuts. Your brain starts spinning out on you. Yeah. I don't blame you, man. And I think truthfully, here's the thing.

One of the things we see with leadership in America today, especially in small business, but it's really everywhere in leadership. We see it with pastors a lot, too. The biggest thing leaders struggle with is isolation and loneliness. They don't have anybody talked to about this. And your dad is that, too. He doesn't have anybody talk to about this. He's afraid to talk to you about this because he does not want to burden you.

He wants to man up and carry this. Your dad's old school. Your dad's old school. Is he 70? No, he's 55. Okay. But he's old school. he's not afraid to put on work gloves and turn a wrench.

Oh, absolutely not. No, he's still to this day. Yeah. Yeah. And so he's tough guy. But they're also, he's also by himself, dude. And you and him working together as a team would light him up. And especially if you guys start getting some traction because you make some radical changes. I think I hear down inside of this. I can't tell on you because you don't know. but I see such a big high revenue number and such a pitiful debt paydown that there's something, two or three switches in here that could be flipped. And I think I hear a fairly quick turnaround if you two will make some radical decisions

that might be emotionally painful to make. But I think there's no excuse for y'all not to be able to pay more on this debt. There's something weird going on in these numbers that I can't, that I don't understand with what you're telling me. And you don't either because you don't know. But get alongside your dad. Isolation is not good. It does not lead to high-quality leadership.

Leaders need other people in their lives. That's one of the reasons in our Entree leadership elite. We put together groups of leaders constantly in small groups. And we, you know, we get on calls with you and you hold each other accountable. You become lifelong friends. That's why we do that because it's such a starved area of leadership. Isolation is one of the biggest problems we face in the, the business world, but certainly in the small business world.

Hey, man, you're a good guy. You've got a good heart. That's why you care. And the fact that you care is what's leading to you having your tank so empty. But dude, you've got to get this tank filled back up. And it's filled back up with hope. That's what fills it up. And the hope has to come from a logical view of a light at the end of the tunnel that's not an

oncoming train. Hey, guys, it's a new year, which means you small business owners and leaders are gearing up. to take on new challenges, and I don't care what stage of business you're in. If you're doing it alone, you're doing it wrong. We were just talking about that. You need people in your corner because owning and running a business might be the hardest thing you ever do, and I just said with that last caller that isolation is the biggest problem. You got to watch this. Elite is our digital membership that will equip you with a plan to accelerate you through the stages of business. You do not have to tackle every hard business decision on your own anymore. We'll use your elite

membership to teach you how to hire the right people, delegate the right things, plus a ton of other leadership skills. Your elite membership also opens doors to connect with like-minded, here it is, business owners through an exclusive Facebook group and regular e-coaching sessions hosted by our entree leadership coaches. Man, when you are in the trees, you cannot see the forest. It's that simple, boys and girls. You've got to get plugged into something like this, if not this. You can stop doing business alone. And Entree Leadership Elite is your way to do just that. Or go to Entryleadership.com slash Elite.

Check it out. Well, folks, if you want to help us out, we would appreciate it. You need to subscribe to this or follow this or share this podcast, this YouTube. Wherever you're consuming it, let people know it is here by sending them a share, sending them the link, whatever you do to do that kind of thing. It helps us a bunch. And leave us a nice five-star review telling us how wonderful we are. Honestly, I don't read them, but it does help the algorithm.

And I would really appreciate the help leading the algorithm out. It's that simple. Evan is with us. Evan is in Greensboro, North Carolina. Hi, Evan. Welcome to the Entry Leadership podcast. Hey, how's it going? Better than I deserve.

What's up? Awesome. So my wife and I own a coffee shop, which right now. now it's a partnered LLC and last year we had about 150 and gross this year we're looking at about 200 um i also own a dj business on the side that's gross about 25 000 and then she um cuts hair on the side as a cosmetologist and she last year brought in 50 this year's program bringing a little bit because we just had a kid and she's pulling back a little bit um we also have a bunch of side hustles that bring in a couple thousand each year um all that to say we're talking with

our accountant, and he's saying we should move all of it to just one giant S-Corp. And I had like a million questions as soon as he said it. He feels very confident because of the tax benefits. I feel like it's not going to be that big of a benefit. And I want to get your idea on as we're growing these businesses that are like side hustles turning into bigger revenue for us, what exactly we should do as far as structuring it. On the federal level, there's zero difference between an LLC and an escort. Mm-hmm.

North Carolina tax might, income tax might be different. In Tennessee, in Tennessee, we ended up with a benefit of being only LLC's. The holding body of Ramsey was an escorp, and I moved it to an LLC because of Tennessee law. Mm-hmm. In terms of there was a nuance in the law on what we were being charged on F&E. but income tax with the feds with the IRS isn't any different they're both standalone entities you can write both you can write your payroll tax off on either side either way it's all the same it comes out the same i don't know what tax benefit he's talking about uh gotcha so he was more

talking about the income tax like you were saying i'm more concerned with do we put all of our businesses and all of our revenue under one business entity um like my my DJ business would also be under the same S-Corp as or the same LLC or whatever as our coffee shop. Yeah. Well, I mean, you can, from a branding perspective, you can still keep them separate if you had one holding company that was the technical owner. Okay. And so the reason I do different LLCs on some things is from a risk. management perspective. So if I have an LLC, like for instance in real estate, when I get more than

$5 million of real estate in one LLC, I open another one. Because if some duper falls off the front porch, breaks his face after he was drunk, but I, but my LLC owns the house, he decides to sue me and the judge is an idiot and decides to award him a lot of money, the most he can get is that LLC's assets, not my other stuff. So keeping the size of the target on your butt small enough is risk management. And that's why I don't want more than one thing in an LLC. So if you had one of these entities that was a high likelihood of a lawsuit, I might split it off. But coffee shops and DJing shouldn't be, and hair cutting shouldn't be lawsuits.

No, definitely not. I guess I'm thinking more like, I mean, if I'm going to get insurance for my DJ business, they want to know all my business information and they want to know what type of business is it. But if I give them that S-Corp or whatever it's going to be, how do I, I mean, it just doesn't seem simple enough to label it. Yeah, I mean, it just be almost as like a DBA, doing business as. Okay. So this is Evans LLC.

That's the holding company. And in the case of the DJ doing business as Evans' DJ business name. Gotcha. Right. And so it can be different things like that. So for instance, the company that owns Ramsey is called the Lampo Group, DBA doing business as Ramsey Solutions. Gotcha.

Ramsey Solutions is not actually the legal entity. So that's what I thought, kind of what we were thinking of from the beginning when we first formed our LLC was we'll just have DBAs under it. And then this guy's talking about now switch it all to an S-Corp and just throw it all under that. So I guess it doesn't matter. Well, this guy's not a brand. This guy knows nothing about branding or marketing. So you need the DBAs. You need the DBA names out there because that's what you're known for in these different areas.

but that doesn't cost anything, and it doesn't change the tax mix at all. You can have DBAs under an LLC or under an escort. Okay. So he's not in a position of knowledge to advise you on those things. You know more about that stuff than he does. But the only thing he's in a position to advise you on is taxes. And I want you to get a second opinion on that because I have not found what he's talking about to be true. Right.

from a federal standpoint, an escort versus an LLC, there's not a spit difference. And, you know, check that with somebody else. I'm not a tax expert, but I do own a whole bunch of these dadgum things. And my stupid tax return looks like a phone book. But anyway, but it's, but that's, you know, that's the thing. So I don't, we quit doing sub-sas, we only do LLCs. But again, some of that had to do. with Tennessee and our particular locate where we're domiciled.

And the nuanced tax law, we don't have an income tax in Tennessee, but we do have an F&E tax and a personal property tax and some other things. And so we have to be wise about putting a huge asset base in an S-Corp. It gets us in all kinds of crap with the state here, extra taxes that we don't have to have. But an LLC is not treated that way. So I'm just out of the S-Corp business. I'm in the LLC business. but that's not having anything to do with the IRS.

So I think this guy might be over analyzing this. Number one, you need to do two things to check out his story. One is he needs to give you exact math and exactly where the S-Corp is going to save you money over an LLC and show you an exact example in your case. In your case, Evan, if you do it this way, you're going to get this number. If you do it this way, you're going to get this number. and you need to understand that math from him. And you may find if there is a little bit of difference,

it's probably not worth screwing with. It's definitely not worth all the trouble we're talking about here. And then the second thing I would tell you to do, if I'm in your shoes, I'm going to do it, is I'm going to go get another opinion. And I'm going to get someone else to explain it to me. So check one of our tax pros at ramsysolutions.com that are Ramsey trusted.

Sit down with one of them. Most of them do small business bookkeeping. and ask him in your area, why is my guy telling me to do an S instead of a LLC? Why is he telling me to roll it up under there? You can roll it all up under the LLC and I think, I think, and have within spitting distance of the same exact numbers. There may be one little number in there, but it's not going to matter much, especially in a business your size.

So you're asking the right kinds of questions. By the way, this is just, you know, it's a soapbox issue for all of you out When you have professionals in your life, their job, whether they're estate planners, CPAs working with you doing stuff like Evans got here, real estate people, insurance people, whatever, they are not allowed, if you're an entree leader, to say, do it because I said so. You're not my mama. Okay? Do it because I said so doesn't play.

I'm like a grown man and stuff. So you have to tell me why and show me the detail why. You have to teach me why you're telling me this is good for me. And then I will make the decision. Because I said so is an arrogant twerp. You get fired if you're advising me. I don't put up with advisors that do because I said so. You need to have the heart of a teacher and say, Dave,

this is why we're making this move. We've got to move this into a trust in your estate plan because it's going to save you $20 million. Well, it's not going to save you $20 million. You're going to be dead. It's going to save Sharon $20 million. And so we're going to make that move. And I'm like, okay, show me how that works.

Okay, well, by God, what are we waiting on? Let's get that thing done by nightfall, you know? But I want to understand. That's your job. Not my estate planner told me, I had a guy the other day I was with. He said, my financial guy said I couldn't buy a car. And I'm like, what? is your mother?

How does your financial guy decide if you're going to buy a car? That's ridiculous. You know, you can't manage your own emotions. You can't make a judgment call as a grown man as to whether you have the money to buy a car. Your financial guy has to tell you? Oh, my God. What you're saying is you don't have enough personal self-discipline to make a decision

on your own about the wisdom of purchasing something the size of a car. That's ridiculous. Evan, that's not you. Okay, you're asking the right questions, but my point is your CPA didn't do a very good job of teaching because you and I don't know what he's talking about because you don't know what he's talking about. And I'm not positive either. He may know something I don't know. I doubt it, but he might. So what you're looking for always, folks, when you're employing an outside expert to advise you on technology, on finance, on legal matters, your lawyer.

My lawyer said, well, I don't give a crap what your lawyer said. What, do you take a class on arrogance? No, I don't care what you. Is that in law school? I mean, you work for me. I'm paying your bill. So you're going to tell me why we're doing this or we're not doing it. I can make a decision differently in a heartbeat.

Like to get a different lawyer. I can done that before. So, yeah, their job is to have the heart of a teacher and to advise us. That's the process. This is the Entree Leadership Podcast. Joe is with us in Canada. Hi, Joe. Welcome to the Entree Leadership podcast.

Thanks, Dave. And thanks for taking my call. Let me tell you a little bit of our business. So we have a 7-day Automotive Service Center. So we do service on imports and domestic and tires as well. Cool. So last year we did 1.4 million in revenue, with gross profits of 960,000 on there.

What was your net profit? The net profit was 165,000. That's after I paid myself 100,000. Okay. If you weren't there, what would we have to pay a manager to run a 7-bay? You're looking at probably 80 to 100,000. Okay. So the 165 is probably pretty realistic if I bought it,

and I live in Tennessee, so I've got to have somebody run it. Right. And so you'd be looking at net profiting 165. Mind you, this year, Dave, we're projected to do $1.6.5 million. Oh, okay. With gross profits of over a million dollars. Yeah, okay. So 200 grand anyway is your net?

Yeah, right. So we're not doing the EB-DOT. We're talking just net profit. That's all I'm like that. Yeah. So what I'm, we're looking at, my wife and I, semi-retiring in about a year's time. So usually for these transactions that take place, they take six months to a year. So we're trying to get ready.

And we want to make sure the market evaluation, what we have is going to be fair out there. And so we're looking and talking to the, our financial advisor, the accountant, a lawyer, and those that have been in our industry. And the other thing I should point out, Dave, is that this is a franchise operation. Okay, so it's not Joe's garage. So the franchise owner has to approve the transaction? Yeah, and they've never turned that down. So they have the right to match, but not undercut me.

Okay. So what do you think the valuation is? So mine, and so it's a two-part on here, I'm looking at 1.2 million here. Now, that's... You think it's worth 1.2 million? Yes. So six times net?

Yes, because we've had in the franchise, like some of these get close to eight times before. Wow. Okay. So there's been a few transactions on that. From your perspective, that's phenomenal. Yeah. Okay. And to be fair, Dave, I don't know what their net profits were.

So eight times, you know, a smaller number is not going to be as big as what we're looking at. So, and with the franchise agreement, it's agreed upon that you have to carry at least $75,000 worth of inventory. And for us, that's easy when we're talking just mortar oil and even just 100 sets of tires. That can reach up to that $75,000. So we have to have that. And then my equipment, you know, we have seven hoists on there. We got an alignment rack that usually goes for about $40,000 up here in Canada. That's not in addition to your price, dude.

You know that. Well, see, that's what I want to figure. Because if you're, is that something that you have to? There's two ways, there's three ways to put value on a small business. There's book value, which is what you're messing with now. Book value is if you turn the key and close it, collect all the, receivables, collect all the receivables, pay all the payables, sell off the racks, sell off the inventory. What's the inventory, the racks, the equipment, the tools, worth, what's all that

worth? And that's your book value. That's the smallest possible number that a business is worth. It's worth at least that. That's the floor. Okay. Then some businesses like yours, where there's more of a standard in the industry, they'll go some multiple of grueling. gross, okay? Okay. Like, or multiple of cash flow or a multiple of EBITA or something like that. Right. But that is, you know, that's not used that often in small business unless you got something

like you've got where you've got a track record with other franchisees running a very, very similar operation. And we've done this 28 times in the past 30 years and we generally get, you know, one and a half times gross or whatever. That's another way. That's a less popular method. The most accurate method of putting a proper price is to say, I want a percentage rate of return on my money if I'm the buyer. I want an ROI.

And that's called a cap rate method, a capitalization method. And I cap businesses, small businesses generally. I'm willing to accept your numbers, but generally I cap them, cap rate them at 20 to 25%. If I'm going to buy a small business, it's a high-risk endeavor. So I want a 25% annual rate of return on my money, which would be four times your net profit, be 800K. Okay? If I want five times net profit, that's a 20% rate of return on my money. That puts you at a million dollars.

You want a million two, and so that's about an 18% rate of return. That's still acceptable because you've got a very template. templated situation with the other franchisees. And so I will accept that in your case. If you were Joe's stand-alone garage, I probably wouldn't do that. Absolutely, I agree. So I think your million two is reasonable.

But you don't get to do a million two plus the equipment. Okay, fair enough. The equipment is what produces the million two. Okay, I respect that, yeah. Okay. So then the other part on here is, I have one of my employees that's really interesting, and I'm carrying them under my wing and teaching them all kinds of stuff. But the biggest thing here, Dave, is he doesn't have $1.2 million.

Okay? So, and talking to my wife and the lawyer and an accountant, they were saying it would be prudent at least to put it out on the marketplace and see what you can get. And one of the things that came across as well is a few of the transactions that have been happening lately, and the lawyers bring this to my attention, is that there's a lot of immigrants that want to come over to Canada, and they're willing to, you know, pay more for an established business so that they get their families over. Because they get a little quicker to get into the country if they're purchasing a business. So that's where, you know, you're saying it's not unrealistic that you may even possibly get 1.8. So, but we should put that out on the marketplace before offering it to, you know, my employee.

And then, and go from there. So what are your thoughts on that? That's a value decision you need to make. I do not know I don't have any personal experience that tells me that what your lawyer is saying is valid or invalid that may be the case I don't know enough about Canadian immigration

I don't know enough about your marketplace to have a gut feel for if he's blowing smoke or not that feels opportunistic but I'm not above being opportunistic you've worked your butt off for a lot of years you've earned it you've earned a getting as much as you can get for your business. You've not done anything morally or ethically wrong unless somehow you're screwing over your

community by doing this. And I don't think you are with what you've described. But I mean, you know, but I mean, I don't know why your employee couldn't pay the same amount if you worked out something with them. So you just got to decide if you want to try that first. And if you don't, if you want to do something with the employee, you could say, look, I can put this on the market for a million eight and try this, or you and I can agree on a million four. Okay.

All right. Now, here's a way if you feel, but you've got to be very comfortable with the employee's ability to operate the business. It could be that what's your employee make now? What's 65,000? Okay. So if he did not pay himself the hundred that you're paying yourself, there would be $300,000 profit, am I correct?

That would be correct. If he agreed to say, I'm going to give you 90% or 100% of profits after I pay myself $65,000, which I currently make, until we get to a million $4 or whatever, or $300,000 would be three years you'd have your million, too, right? That's four years, four years. Four years you'd have a million to. Yeah, three years would be 900, $1,900, $1,000, $1,000, $5 years would be $1,000,000,000,000, $1,000,000,000,000, $1,000,000,000, $1,000,000,000. If profits go up, you'll get your money faster.

If profits go down, you'll get your money slower. So, on the seller's perspective, how does that make sense or benefit? Wouldn't I be better off getting a million? You'd be better off taking money and run. Yeah. So we've got to look at that and see if that's an option, right? Because that would always have to be like a plan B kind of thing. Yeah.

Yeah. It is a way to sell it without him having debt that he can't handle, though. Because if his profits go down, he doesn't go out of business on you. You just get less until he gets profits up. That's why I said early in this process, you've got to be very comfortable with him being able to grow it past where you've grown it. Yeah, and what I was thinking and what we've talked about too, right, was my wife and I are looking at semi-retiring, so I can't, it's not in my DNA to stop working.

So with this, he'd be planning to keep me on, and I would just charge him an hourly rate and mostly stay around through our peak seasons. And when it's slower, that's where my wife and I would take off, leave the country, and then come back during the busy time when they really need me, right? So that'll keep it going and it keeps the people that are coming in still comfortable seeing similar faces. I don't think that's going to happen with the immigrant opportunist deal. No, well, yeah, you're probably right on. I don't think you're going to want to be there.

I don't think you're going to want to be there. No, if they're paying everything up front. And you're gone. Really? Yeah. They'll probably keep me on for about six months for a transition period, if anything, and then if anything, gone. Yeah.

But if it's the employee, it'd probably be in their best interest to keep me on for a longer period. And do that. So, yeah. The advantage of that is you get to make sure the operation's going well. And it continue to mentor him on growing it. Right. Which ensures you get your money if you've, if you're.

carrying back. But you would be clear in four years or so. That's what I'm saying. Right. That's not bad. Well, I know, but I'm probably better off just running it myself, right? And just keeping him as an employee and then kind of give him like some options and saying, okay, we're to keep X amount of dollars aside for you. And I'll still keep running until he saved enough. and then he's putting sweat equity in there, knowing that he's putting money aside on there. But you're still working every day? No. If you're doing all that.

Yeah, I'll build a team where I can only be there during the busy time and then take off. And that's where I can give him the extra bonus. These are all ideas that you can work through and any version of those. What I would not do is ask him to go down and borrow a million two from the bank. Yeah, I mean I think you'll go out of business Yeah That's that's tough

It's tough I will if he called me I would recommend him not buy it If that's how he was going to do it Yeah Like I mean The other thing is our business is 98% COD

So that cash flow is great There's no accounts for seavables It's very minimal Yeah until there's a pandemic Well we went through that I know Yeah we went through that and we survived because I know you survived but you're not making payments on a million two either

no no great but you know what we kept the lights open we you know we did what we have my point my point is the unknown variable in the marketplace will take him out if he has a fixed payment that's what I'm trying to avoid and that that's the thing COD doesn't solve that COD just means you've got instant cash you're when you turn it around you turn around fast but when it goes down it goes down fast. That's all COD means. It doesn't solve the fact that guys deeply in debt. So, you know, that doesn't, I'm not going to recommend he do that. And I wouldn't recommend you do it to somebody you love either. So, but you got some options. You can take the cash on the barrelhead if your lawyer's got somebody out there, you know, wanted to overpay for stuff for other reasons.

Nothing wrong with that. If you want to do that, that's fine. And we certainly had a bunch of people from California moved to Tennessee and do that. They overpaid for a bunch of real estate, and a bunch of us stood around and watched them do it. And, you know, because they were hell-bent on getting out of California. And we saw that a lot in the past 36 months, still seeing some of it. But overpaying is not necessarily unique to that situation. Somebody wanting to enter a marketplace is willing to do things that other people aren't. So that's something you can look at, but also you could look at the other direction.

So you've got some ideas to work through, and at least we got some clarity on a couple of the points and moved along through the process. Way to go, Joe. You're running a great business. Very, very proud of you. Good, good work. Well done. Folks, remember better a weary warrior than a quivering critic. This world needs more high-quality leaders. Take courage and lead. I'm Dave Ramsey, your host. Thanks for listening to the Entry Leadership Podcast.