EntreLeadership - How Small Decisions Can Have Massive Consequences

Episode Date: March 18, 2024

Today we’ll hear about: A business partner who doesn’t think his sister-in-law deserves to be a part of the family business  The truth about nonprofits and common misconceptions about their finances How Nintendo avoided massive layoffs and why other tech companies should follow their example How to manage financial agreements well so getting paid clients doesn’t turn into a headache  Next Steps 🗳️ Submit your question for a chance to be on the show with Dave Ramsey: https://bit.ly/3HUgAgi 👣 Find out what Stage of Business You’re In:  https://ter.li/axd39b ✉️ Sign up to receive tactical tools, advice and resources in your inbox every week: https://ter.li/y8qdo7   🏢 Attend EntreLeadership Summit: https://ter.li/fcazl2   🎤 Attend EntreLeadership Master Series: https://ter.li/wcjhpu ☎️ Learn more about EntreLeadership Coaching: https://ter.li/ycznhl 💵 Learn more about Ramsey SmartDollar: https://ter.li/4imot0   🗳️ Help us make the show better! Please fill out the quick survey form. https://bit.ly/3O8fRvh   Offers from Today's Sponsors NetSuite: https://ter.li/x1t20q BELAY:  https://ter.li/yohiu6 Payority:  https://ter.li/fh2oau Trainual:  https://ter.li/a8zexl Listen to more from Ramsey Network 🎙️ The Ramsey Show   🍸 Smart Money Happy Hour 💡 The Rachel Cruze Show 💰 George Kamel 💸 The Ramsey Show Highlights 🧠 The Dr. John Delony Show 💼 The Ken Coleman Show Ramsey Solutions Privacy Policy https://www.ramseysolutions.com/compa… Learn more about your ad choices. Visit megaphone.fm/adchoices

From the headquarters of Ramsey Solutions, this is the on-trade 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. I'm your host. I've been doing this for over 30 years, this being running and leading and growing, a small business. We started on a card table in my living room, and now 30 years later, there's about 1100 of us and a $300 million company. So we want to show you how we did that and help you. I love small business. 54% of the gross domestic product,

all the goods and services in America today are done by small business. Small business literally, mathematically, is the backbone of the American economy. You are, if you're a small business person. Thank you. Thank you for what you do. You're the largest employer group. You're the biggest part of the economy. And yet Washington peas on you all the time.

and says they love small business. No, they don't. They're liars. Well, they're politicians. So there you go. So we're here to help. We actually do this stuff every day. So I'll jump in there with you.

If I don't know the answer off the top of my head, we'll figure it out while we talk together or I'll just tell you, I don't know. The phone number here is 844-944-4-1070. You can be a caller on the show by dialing that or you can go to entreleadership.com slash ask. Leave a little bit about your question. and the production team, which is some of the best in the world,

will be in touch with you, and they'll help you get on the show, because that's what we do. And starting today's show off, Zach is with us in Nebraska. Hey, Zach, what's up in your world? Hey, Dave, I'm doing really well. Thank you very much. Sure. What's up?

How can I help? Yes, sir, my call today is... So my wife and I are, we are 25% owners in two small-town grocery stores, and my parents would be the remaining 75% owners, in this. Last year, we had around $6 million in sales, just a hair over $6 million, and we have 14 full-time employees with around 25 to 30 part-time employees. So last year, so what we're doing is my parents are actually looking to retire within the next year. And they've actually kind of been fluctuating when that's even going to be happening. They've never really had a set

date, but now they're kind of set on in a year. I'm passionate about becoming that next leader of these grocery stores in Nebraska. And there's two things that. that I'm kind of not so interested about that my parents are wanting to do. So the 25% owners that we currently bought, the ownership, is we just structure that through a personal loan to my parents at a 2% interest rate. And that is paid through, I draw through the bank every month. And so there's no going to the bank for that. But they are very insist on me buying another 25%, but they absolutely want that to happen

through the bank for another 25%. And then the other thing that was just kind of changed kind of drastically and without knowing as well is they are wanting to introduce my sibling and his wife into the partnership as well. So she is currently an employee of mine. So I've had her for four years. And to be honest with you, Dave, I just, the where we've got one of our locations, too, that I primarily at, it's a very well-oiled machine and we're running really well.

and we were raising up those future leaders within the business and within the community. And I just don't see it there in the four years that I've had. So I'm just kind of needing help maybe navigating these waters with those two questions that I gave you on. Okay. So I think what you're telling me is I'd like to own these grocery stores, but I don't want to go in debt to do it and I don't want to be partners with my sister. Correct. Okay.

I think you need to take your dad to coffee and tell him that. Part of the question in regards to the sister is I have said that, and it's almost like it just falls on deaf ears. Yeah, well, just try it again and say, Dad, I don't think I got through to you. Let me try it one more time. I am not going to be partners with my sister, and I am not getting a bank loan.

So if you want me to take these stores, we have to figure out another way to do it. I'm not going to do it. It gives me a headache thinking about it. I'm not going to do it. None of these things make sense to me. I'm a good operator. I know how to run these stores.

I love my sister, but she is not qualified to be an equal partner in this. And by the way, how was she going to get her money? Is she going to the bank, too? Nope, nope, it'd be a structured kind of like a sweetheart deal just like how I got type of deal. Yeah, for 50% of it. Yeah. But he wants you to go the bank for your other 25 and you've been there doing all this.

Yep, for the last five years. Does that seem right? It doesn't seem right to me. No, you know, and it's kind of a, no, you're exactly right. And it's kind of putting a wedge between our relationship on a personal level, too. Yeah, and it would. Yeah. Dad, I love you, but I can't do this. And if you want to just sell the stores, I'll take my 25%, and I'll pay off your loan out of that, and I'll just go do something else with my life. Because I just, I can't do this. I'm not willing to do it. Yeah. And are you familiar? We are an S corporation, and our accountant kind of told us in regards to that. So there is, with our payment or installment that we make every month in regards to,

to the 25% ownership we did before. There's a thing called profit sharing that we need to make sure that we are, is that, so if like we make a payment for $1,000, they need to take a draw out for $1,000 also. So really they're getting paid $2,000 instead of the $1,000. However, you know, you need to calculate accurately with your accountant's help what the balance on the loan is. And then when they sell the stores, you take out, you know, you have to pay back the balance of the loan and minus subpoena.

contracted from your 25% of position. Sure. And if they want to give your sister half the money, they guess they can do that. It's their money. Sure. But if you want these stores to continue to operate and me to lead them, we're going to do this in a different way.

I'm not going to do this. And I'm not going to sign up for this. I do not want to be 50-50 partners with somebody who doesn't know what they're doing, and I do not want to be in debt to the bank. Neither one of these things do anything except make my stomach turn. And Dad, I love you, and I've appreciated the opportunity, and it's been a good run, but if you have different plans, it's your store. He owns 75%. He can do with it what he wants.

If you don't want me to take it, if you want me to take it, my terms are that I'm going to take the whole thing, and we're going to figure out a way to do that without a bank loan. And I will get you paid very, very quickly, but I'm not going to, you know. So here's the thing. What's your net profit when all the smoke clears on these? stores? Yep. So the last couple of years, we did right over about $500,000. Out of the six, out of the six million. Okay. Yep. So you're operating on about an 8% margin. Yep. Okay. And so, and so he feels like the stores are worth what? Yep. So 25% owners, right now we would say about, what are the stores worth? Oh, sorry, sorry, sure, sure. The whole business.

Now, is the real estate included? They're a small town. So, yes, real estate is yes, included. We would say each store, but probably the stores are going to be around like $2 million. There is a hefty amount of cash that we do have on these as well. And so that would be back. Stop, stop, stop, stop, stop, stop. No, that doesn't have anything to do with it.

To start with, one more time, do you guys own the real estate or do you rent the real estate? No, we own. Okay. So there's real estate that has a value. that's a separate issue. The business has a value, and the business makes $500,000 a year. So the business is worth somewhere around $2 million. Correct.

Okay. And then the real estate has a value in addition to that. Okay. Okay. Now, what do you think the real estate is worth? So, you know, we are a small town. Yeah, you're talking about it. It's real hard to even say because if there wasn't a grocery store here,

would it be anything. You know, they are... You're in the middle of nowhere. Okay. Yeah, exactly. So what do you think it's worth? If you were to have an appraiser come and appraiser, what would they say it's worth? I mean, someone for the square footage, it's going to be probably over half a million dollars.

Okay. Probably in both of them. All right. So let's say that $500,000 buys the real estate and $2,000 buys the business. Okay? What do you make as a salary today? Yep. So we just pay...

So we actually just pay ourselves a minute. So my wife and I make about $50,000 a year, so $25,000 a piece. All right. So, Dad, I will continue to live on $50,000 and give you 100% of the profits above that until we get to $2 million and then I'll own the business. Okay. So basically, Dad, in about four years, you'll have all your money. Okay.

And then I will buy the real estate the next year for cash out of the proceeds. and I will not take more than $50,000 out of the business until you're paid 100% out. And so I'll buy the business for $2 million, the real estate for a half million. You will have all of your money at $500,000 in five years for both pieces. And that's plenty of money for you. You're getting $500,000 a year. You're retired. And you can invest all of that and retire nicely on $2.5 million that you receive over that period of time.

and I'm happy to continue to employ my sister. That is a deal I will do, but I will not go to the bank and borrow the money, and I will not be partners with my sister. Sure. And if you want to sell based on that or you want to do something else based on that, you can do whatever.

It's your stores, and I'm only a 25% owner, so I can't tell you what to do. But I am not going to do this, Dad. I love you. I love my sister. It's not a question of the, that, but my love is not dependent upon these stores, and these stores are not dependent upon my love.

So we can still be father and son and brother and sister without these grocery stores. They are not us. They're just stores. And I'll go do something else. But before I'll sign up for a deal that makes my stomach churn, right? Is that what we're saying? Yeah, exactly. And I really appreciate it.

That's kind of just so maybe I haven't been bold enough in saying it that way. but um well i don't know any other way to say it because we can dance around it but he's not hearing you yeah and i don't want to play in a sandbox that's designed this way is what you're telling me i'm not telling you to do that i'm just helping you formulate it yeah been on your plan for about a year and we paid off a lot of debt so that's just the more that i've listened to you the more that i yeah so zach how old are you yeah 34 okay and does your wife have a separate career? Nope. She stays homes with the kids. Okay. So let's just be real clear, okay? Your dad is making $500,000 a year. You're making $50,000 a year, and you're doing all the work

right now, or a large portion of the work. So, I mean, he's got borderline slave labor here. My son works here, and he doesn't make as much as I make, but he don't make 50 grand a year. Okay. So, you know, and if you want to, you know, you should be technically, if you have 25% of the ownership, you ought to be getting 25% of 500,000. Sure. On top of your salary. Yeah, we do. I shouldn't have been.

I should have been more clear. We do get to do some of that. Yeah, we do. Oh, you get $125,000 a year coming to you now? We just pay, yeah. Well, we just pay our, yes, at the end of the year, we would have. So you throw all of that profit at the loan? Correct.

Okay. All right. So you're already kind of doing what I was outlining. But you're 25%, what was it valued at? When we bought that three years ago, it's $350,000. Okay. And you've thrown $125,000 a year at it for how long? Well, no, we didn't the first couple of years.

No, we did not. Okay. Because I was doing all personal debt off that point out. So how much have you thrown at it? So we paid over $200,000 on it, so we have $150 left. Okay. But you've been averaging $125,000 a year for how many years? Well, three, but yeah, you know, and it's just, I haven't, you know, three years. So you didn't put it all on there. I got you. Okay.

Correct. All right. So can you live on 50? Easily. Okay. And throw everything else at it until he's paid out, like I said. I believe so, yeah. That formula would work. Well, raise it to 75. I don't care. It just doesn't need to be 175. He needs to get his money fast. The faster he gets his money, the more likely he is to go along with this.

But I don't see that he's got a lot of options because who else is going to buy this for $2 million? Yeah, exactly. Nobody. You know, it's going to take a while to sell it in any ways. Yeah. Because the only value it has to you to own it is the operation of it. Sure. The cash flow that you make out of it.

because as an asset, you've got two grocery stores in tiny little towns, very difficult to market them, agreed? It is? Yes, it is. Yeah. It's hard to market them to somebody else. So I don't want to be mean or anything, but your dad doesn't have a lot of choices here. You're it.

Sure. Sure. So you've got to, in that point, you've got a pretty good negotiating position. Now, I'm not suggesting you strong arm your dad. That's not my point. But I am saying your dad needs to. rethink how he's just throwing things around. I'm just going to do this and you're going to do that and no, dad, I'm really not. I love you, but I'm not going to prove how much I love you by doing something

stupid. Yeah, so that's where we'll go. Zach, you're a good man. Your dad's a good man. He just hadn't thought this through. He's fumbling around trying to figure out his exit plan and like most small business owners has a crummy exit plan, which was none. And then he just woke up and went, I'm going to quit in a year. How am I going to do that? Oh, we got to give the kids something. We've got to give the daughter something. Oh, what about old Zach? Well, we'll make Zach go to the bank, get some money because he can do it, and then we'll have a little money, and this is great. And he just figured all this out one morning in the shower because he hasn't really thought it out way in advance. And so that's how most people do it, folks, and this is the problem with small business succession planning.

You need to have your exit clearly defined and start working on it 10 to 15 years before you do it. And it keeps you, you can ease into it that way, and nobody gets their feelings hurt. And by the way, well, you're not being fair to the sister. There's no obligation for the sister to be in the business. Now, if you want to be fair to the sister, leave half of your money when you die to your sister and half to the son. That would be fair. But you're not obligated to leave half the bit to give them, to give her half the business of a sweetheart deal after the other guy's been there running the thing. So there we go.

That's how it works right here on the Entree Leadership podcast, boys and girls. We'll be back in a moment. If I ask you what your profits and losses were this week, would you know? Yeah. Gotcha. Yeah. Hard truth is if you don't stay on top of your numbers, your business is going to fail. You can't out-earn disorganization.

You can't out-earn the need to handle the cash and the final. wisely. But you can use simple practices and wise decision-making to have a successful growing business. And you don't have to beat Dave Ramsey the money expert to do it. In the Ontario Leader's Guide to Business Finances, you'll learn the profit principles and key practices we used to grow Ramsey solutions over the last 30 years. It's a free guide, which is a good thing for a finance guide, right? It'll simplify the foundational components of managing your revenue. expenses, and you can build your business on some solid ground.

Go to entreleadership.com slash finances and download the free guide. It's the entreeleadership.com slash finances. Get the entree leaders guide to business finances for free. Did I mention it's free? Avi's with us in Canada. Hey, Avi, welcome to the Entree Leadership podcast. Hello, Dave. How are you?

Better than I deserve. What's up in your way? world. Great, great. It's a big honor to be on the show. I'm a big fan of, it helped me a lot in terms of the personal finances and leadership, so big thank you for all your amazing work. Thank you. Okay, so this is a little bit of a different call. I am in the nonprofit world, and I'm the executive director of a private school, one that I actually attended as a kid. Oh, that's cool. And there's about 150 employees, mostly educational staff, budgets, around $12 million. There's a

about a 10-person business office team which I work with. And I've heard a lot of the leadership talk and I would say it's pretty much all completely relevant to nonprofit. But I wanted to know if there's something in particular of all of the leadership wisdom that you teach that you would say is either vital or slightly different if it would be spoken to the nonprofit world. Okay. Well, technically, mathematically, there are no non-profits that don't make a profit. If you don't take in more than your expenses, you guys close. Right.

And so the nonprofit is a tax status. It's not an operational statement. Fair enough? Yep. Okay. So the only difference is the tax issue. Now, because it is nonprofit, you will have, I don't know what they are in Canada, but in the U.S., you've got different regulations, different people looking over your shoulder to make sure that, and you have to do the proper filings and so forth. A lot of it's public, if you're in the States anyway.

You've got a 990. It's called here. I have no idea what you're doing Canada, but all the books are public. And so that's out there. The second thing I would add then is, and so I would run it like a business. The benefit you've got is that it's a business that has a big old wonderful heart, a heart of charity, a heart of service, right? And so it's easy to attract people with a missionary type zeal to the business,

an evangelistic zeal to the business. And so that's wonderful because you get people that actually care deeply about the private school, just like you. You came back to where you, to run the thing, where you went to school because you care about it, and it was a blessing to you, and you want to be that same blessing, the headmaster later on,

or whatever your title is. And so, you know, so I just want to keep, I want everybody on the business staff to keep in mind that nonprofit doesn't mean no profit. It's a tax filing. We have to bring in operationally, more than goes out, or somebody doesn't work here because we can't make payroll.

And I would just keep talking about that over and over and over again so that we adjust our fees appropriately. We're collecting from the parents, the tuition appropriately. Non-profit doesn't mean incompetent. It doesn't mean substandard, and don't let it. Now, sometimes people use it for that label. You know. that and I know that. The second thing, and a part of that picture, I guess, the only other thing that comes to my mind is I'm going to do comp studies, and as much as I possibly can, I'm going to keep the budget running to where people are being paid at our nonprofit what they would make at a for-profit.

Now, teachers, I know are different in some settings. That's a different thing. Sometimes a private Christian school, so to speak, might not pay as well as a way. public school, but you'd also don't have to put up with some of the garbage either as a teacher. So that's the trade-off in some cases. But as much as possible, if you want to keep a key, let's say you've got a bookkeeper on staff, I don't expect that bookkeeper to work for less because they work for a non-profit. I want to pay her what bookkeepers make. If I got a technology person on staff, I want to pay them what a technology person makes because they're not going to stay.

you're not going to be able to retain talent if you don't pay them somewhat close to market. Now, they'll give you, the individual employees will give you somewhat of a thing because they believe in the mission. They'll give you some lax on that. But I would arrange my budget in such a way that people are paid market as often as I can, and I would talk to people that non-profit doesn't mean substandard, it doesn't mean incompetent, and nonprofit doesn't mean we take in less than we go out with,

because we can't do that. And it's not sustainable. So that's the main things that are different. Unless you've got some kind of, like your nonprofit board has put some kind of restrictions on the way you lead or hiring or something. I'm sorry? No, no, definitely not. Yeah, but just to repeat it. So I got it.

So you're running it like a business. However, you have the advantage that there's a deriving. purpose and as a mission that's easier to, you know, to jump on board with. Easier to articulate, yeah. Well, one small question, if I have time. Sure. Like I hear a lot of talk about, you know, profit sharing. So when it's charity.

You can't do profit sharing. Yeah, it's like a little bit harder. Yeah, yeah. And so what I would do is just develop some kind of a program that is a bonus. How you can do bonuses, but they're not based on income. come. Like a church, a church can't pay out the, you know, well, they can, but it'd be weird to start paying out the pastor based on the tithing that comes in, you know, you get a percentage of the tithe or something. No, that'd be an unusual pastoral comp plan. And so, yeah, you don't, we're not

going to put, there's nobody here on straight commission selling stuff. You know, I don't guess. I guess there could be somebody that's a development person or something, but by and large, you could say, okay, we're financially, we've managed our operations lean, we've kept our expenses down, and so we've got some cash, and so we're going to be a blessing to all of our teachers and give them all a nice Christmas gift of $1,000 or whatever, whatever you got, you know, if you had that much. But you could do that, but I wouldn't call it profit sharing.

I'd just call it a Christmas gift, or I'd call it a bonus or whatever. There's no reason for you to get neck deep in cash in this situation. as long as you're operationally solid. Yeah, loud and clear. Yeah, so you can share with your team, but we just don't call it profit sharing because they're not technically a profit calculation, like you said. That's an interesting question.

So, but the number of times on the Ramsey show on our financial side, folks that I take a call, and I'm a bookkeeper, and I make less because I work for a nonprofit. I'm like, why? Why you work there? go be a bookkeeper somewhere else. Well, I believe in it. So you're going to give up a fourth of your income?

You're going to donate a fourth of your income every year to them because they pay you 75 cents on the dollar? Most people don't, that's not a sustainable thing for most people. This is the Entree Leadership podcast. Well, corporate America's doing it again, laying off people in order to increase profits and drive stock price up. And those people actually had lives and salaries. They're treating people like units of production like crap again.

So video game executives should be shamed off the streets, booed loudly. This article says at every opportunity. It comes after 1,900 members of the Activision Blizzard, Xbox and Zinnimac staff were laid off yesterday. Months after Microsoft's $57 billion acquisition was approved. Riot games laid off 500 members of staff, canceled development on all League of Legends spin-off titles, and Xbox Phil Spencer has paid an annual salary of $10 million, while

former Activision CEO Bobby Kotick earned an average of $77,000 an hour, but they lay these people off so they can make more. So this is how corporate America pees on their people. Just get pissed on. when you work for people like this, they just dump you in the street. And it's not, corporate America is not every corporation. It's a mindset. It's a bad spirit that treats customers like units of revenue

and employees like units of production. If you've flown on a commercial airline, too many times you're treated like cattle. Trying to get on the dad-gum plane, man. And, you know, you're just, how much, How many people can we shovel in here? How far can we inconvenience to them and piss them off and they still stay customers?

I swear to God, I think Delta, when you look it up in the Greek, means we're really not going. I mean, it's just awful. Airline service is an oxymoron. That's an example of what I'm talking about. And so this is a corporate America mentality. Not all big companies, though, are bad. Big does not mean bad.

That's not what I'm talking about. You can be corporate America and mistreat your people if you're small, but you're much more likely if you're a small business to treat your customers with sincerity and care because they're precious and treat your team members like family because they're precious. And the interesting thing, because this is gaming, the Nintendo CEO,

his famous, he passed away, the original Nintendo CEO was Saturu Iwada, probably brutalized that name, I'm sorry, but I was close. He was the president of, Nintendo from 2002 until his death in 2015, and he oversaw both Nintendo DS and the Wii. However, he was also the CEO during the turbulent Wii era, which was considered a flop by many. Following the failure, he took a 50% pay cut, and the other executives reduced their salary

by 20%. Speaking about the decision, he said, if we reduce the number of employees for better, short-term financial results, employee morale will decrease. I sincerely doubt employees who fear that they may be laid off will be able to develop software titles that could impress people around the world. At Nintendo, employees make valuable contributions in their respective fields, so I believe that laying off a group of employees will not help strengthen Nintendo's business in the long run. There you have it right there. The long run. So what's the long run? The long run is your people are your most precious asset. They cause everything to happen inside the building. Now individuals can't misbehave because of that. That's not the

point. But overall, the human resource is the most expensive thing in business. And overall, the humans are humans. And treating them with dignity and protecting them in down times is the right thing to do. That's called leadership, laying off a batch of people just to increase profits artificially temporarily. And it is temporary because if you get rid of all your talent, you know what happens four years later. You're producing boxes of crap because all your talent left the building, but boy, you help stock price for two quarters. This is called short-sighted. It's not long-term, term, long run, like the original CEO at Nintendo, IWADA. And so it's, you know, having a mentality that you hold your talent.

Listen, if you hired them because they were good, keep them because they're good. Fight for them. And he took a 50% pay cut. So that's what real leadership looks like. And by the way, that's what most small business people do. The number of small business people that have 10 team members, and sometimes the owner takes no money that month because he had to make payroll, that's a normal transaction in small business. We see it every day. I don't want you to do that. I want you to perform financially, so everybody's making money. I want the owner to make more money than the employees. But if given a choice, rather than lay them off and then have to go try to find good people, because if every time you hit hard times you lay people off, guess what? Nobody wants to work for you because you're not a real leader. If every time you want to increase your profits, you lay people off to artificially increase your profits by lowering your payroll numbers, nobody wants to work for you

because you're not a real leader. And that's what I want I was saying. Employees make valuable contributions in their respective fields, he said. So I believe laying off a group of employees will not help to strengthen Nintendo's business in the long run. It will hurt morale. Well, yeah, of course it'll hurt morale. Other people are looking around going, they treat people like crap here. and so you know what I'm going to do as little as possible because I'm going to be the next batch that they increase their profits with while they send me home and my kid hasn't got electricity and food because you want to jack your profits up on the back of my payroll

if they weren't making you more than they cost you you shouldn't have had them in the first place if businesses are not profitable and they're forced to lay someone off, that's different. If you're losing money, you can't make payroll. You ain't got a choice. But if you're crushing it and a way to crush it a little bit more this month is to have less payroll, and then five months later, you've got to turn around and do a rehire because you send all these people home, which is what these companies do, that's not leadership. That's pissing on people. And you deserve all the hell that comes into your life if you're doing

that stuff. You deserve every bit of it. It's that simple. So like, for instance, during the Fauci pandemic, so we had entire business units here at Ramsey. We do about 300 million a year. I mean, I had one business unit that does 27 million a year, completely lost 100% of its revenue, instantly, called live events. We don't do any live events during COVID, right?

You're not allowed to do anything. Everybody's got to stay at home and suck their thumb. So that's what we did. and so that live event team, you know how many of them I laid off during that time? Zero. We told our team, here's what's going to happen. We have cash reserves, we have no debt.

When the business goes into the red, meaning it's not profitable anymore because of these evaporation of revenue, the first thing that we will do is we will start using that pile of cash. When that pile of cash gets dangerously low, the next thing we will do is leadership will take no pay. The Ramsey family, the senior leaders, the operating board,

the top leaders will take no pay. We're all okay. We can operate with no pay for a while. So we're going to take no pay so that no one loses their job. If that mathematically does not get us back into the black and we're still burning cash, we're going to be forced to put some of you guys on a furlough. but we're not going to send you home unless you want to go, unless you want to quit, but we're going to not be able to pay you mathematically because we've used up our cash and none of us are

getting paid if it gets that bad. Now, and we told our team that's what's going to happen, and we will update you once a week, once a month through this crisis as to where we stand, so you will know where you stand at all times. And so end of the second week of the shutdown, we told our team, we have not burned any of the cash. we're still profitable. The end of the fourth week, we're still profitable. We've not burned any of the cash. So we've got to burn through the cash,

and we've got to burn through all the executives' team pay before you're going to get touched. Reminder, that's how it's going to work. You're okay. You're okay. You're okay. If we start burning it, we'll tell you. If the thing goes into the red,

we're going to tell you if the lines cross, never went, never wants to the lines cross. We stay profitable the whole time. We lost a lot of profit. We made a lot less money than we thought we were going to make for about 120 days. there. But then things started coming back, and as you know, they came back with a vengeance, because people came out of their houses like Baptist looking for a casserole and started buying

stuff left and right. And so the business just took off again, right? And so that's where we landed. And it took, we ended up making by the end of the year more money in 20 than we thought we were going to make before the whole stupid thing started. But it's because we were scratching and clawing and trying to protect our team and not put them on the street at the first sign of trouble or for God's sakes for our own personal greed to make more. That's leadership. And you know what I got for that? From most of our team, I got incredible loyalty because we gave them incredible loyalty. Now, some of them are just, you know, you got 1100 people. You're going to have a percentage of them are twirps. And so some of them were twirps and hit the road anyway and, you know,

did whatever they're going to do. That's fine. But even that, even some of those that left said, you took care of us, thank you, and they left for other reasons. That's fine too, okay? But leadership does not beat up and take advantage of the people doing the work in order to increase profits. That's not leadership. That's corporate greed, and that's BS, and you should stop it, and you should be ashamed of yourself if you're doing it, and none of you are doing it because most of, well, none of you, most of you are small business people that are listening to this, and it's not your gig to go that way. So, end of rant. But that's real leadership, boys and girls.

You love your people. You care for them. Our HR manual is treat other people like you want to be treated. Jesus's golden rule. Do one to others as you'd have them do unto you. Lay you off at the first sign of trouble? No. Lay you off so I can make more profit.

No, I wouldn't want somebody to do me that way. I'm not going to do you that way. treat other people like you won't be treated it's a real hard idea it's called business ethics this is the entree leadership podcast this is the entree leadership podcast it's the podcast by small business leaders for small business leaders leaders of any kind are welcome if you're a real leader if you love people well we're on your team we love our customers we love our team uh even the crazy ones we love you some of you we don't want to put up with but we love you anyway So we're glad you're here.

Thanks for joining us. Nate's with us in Cleveland, Ohio. Hey, Nate, welcome to the show. How can I help? Hey, Dave. Thanks for taking my call. Commercial Industrial Electrical Contractor here in Ohio. Got 13 employees last year we did.

Just shy of 3.5 million. Good for you. Way to go, man. Thanks. How long you've been doing this? Oh, I've been doing it for 24 years. I've been in business, oh, about 13. You've been hustling and grinding in a while,

man. Good for you. Well done. Yeah. My question deals with the comp receivables, of course, because it's construction. Why wouldn't it? The vast majority of our work, the larger work and industrial stuff, comes from large general contractors and large construction management companies, which are basically, it's a fancy word for middleman. I don't know how much dealing you had with them in your construction history, but it can be tough, deal with pay apps, things like that. And a lot of times, they'll put a out 60, 90, a lot of times our last drawls, 120 days. From the time the work's done? Oh, yeah.

Yeah, and these are reputable companies. And everybody just says, you know, Grenham Barrett, it's something you have to deal with when you're dealing with these higher market, higher dollar jobs, but it seems like there should be a better way. And I figured I'd call you and see what you thought. Well, I do not know. the reality of your market or that the only experience I've had is we built

we built about about 600,000 square foot of commercial here so it's several hundred million dollars in terms of the construction cost so we were dealing with the architectural engineering firm that was verifying the work and we were dealing with a commercial contractor that was you know orchestrating the work, and they were hiring the guys like you to do the wiring, right? Yeah. So I know that every month we met in the construction trailer with my CFO and me with the contractor and with the architectural firm, and we go through, like you said, pay app.

And once a month, we would sit down and they would say, okay, 57.3% of the concrete work is done, so we're going to draw on the job 57.3% of the budget for the concrete. Here's the dollar amount. And it's a verified amount was done, or verified that the work was done by the engineering staff that was independent. And so I paid the general contractor right then for the concrete. Now, I do not know for sure that he immediately paid the concrete guy. Right.

But he had the money to. and if I was doing a construction loan, he would have had the money to. Now, I was using cash, of course, because we don't borrow money. But if it was a construction loan, you take a draw on the construction loan at the payout, and the work is verified. And so, you know, if you're at rough end stage, for instance, with the electrical, well, we know exactly what that is, what the value of that is. We've got wire pulled.

The boxes are set, the main set, but the trimout's not done, right? I mean, that's a basic thing. am I missing something? And so at that point, they can put a valuation on that and say, okay, the electrician has turned in an invoice for this amount, and that is accurate based on the work level that's been done, and we'll cut them a check. And I would suppose they paid the electrician right then.

I don't know why they would drag that out. Usually it's in our contract that they'll have 10 days thereafter to pay us. Now, do we really have, do we check on? on that? No, we don't check on that. We go at their word that they received it less than 10 days ago, and we got our check. No, I'm sure that's not always the case. Okay, but I mean, so how do we get to 120 from 10? A lot of the times the 120 days is on the holdback, the retainage for a job. Yeah. So your last draw, you know, you're billing your last 30 days. And what percentage of a job? And so what's your typical job size? What's a ticket? Our sweet spot is between,

four and seven hundred thousand. Okay. So you do a half million dollar job. What's the retainage? Retainage is 10%. Okay. So you got 50 grand hanging out there. So that's not killing you.

They're not holding the 500 on you. They're holding 50 on you at the end. Right. And that's really to ensure punch out. Exactly. Ensure completion. Because you've got to come back and do the five things that somebody crosswired something or whatever it is.

I don't know what the example would be. But I mean, I'm trying to think. But I mean, I know we, on these buildings, you have a punch list as long as your dadgum arm as you're coming in. So I'm glad I got some retainage on those boys. I want to keep their attention until I get them done. Right. And then the other issue is the waiver of lien. Our company gets it notarized, the GC.

Yeah, that's pretty standard too. Yeah. It's just all these things that take, you know, such an exorbitant amount of time, I think, is what pushes it out. I guess is what I was getting to. That's what pushes it out that length of time. It just seems so. You're trying to run a debt-free business. It just seems so unreasonable, I guess.

It's hard to swallow. But on the typical draw out of the $500,000, other than the 50 at the end, why would you get kicked more than 30 days? It's usually you bill at the end of the month, obviously. Okay. So we'll have 26, 27 days worth of labor and material in there. And then it goes to the G.C. or the construction manager.

And that might take whatever length of time, a week, two weeks. and then they'll meet with a guy like you. So then you're out almost two months, and then you write them a check. And then they might go another two weeks. So you see where I'm getting with it? Yeah, but they're not from the day that you bill them. They're not riding you 60 or 90 days.

They're riding you 30 days. 45 is a gift. Yeah. If we get paid within 45, we're doing really well. And that's from the top of billing. Okay. All right. But basically, you're out labor and materials and profit is on the way.

Yeah. Okay. Correct. Yeah. And if they have an issue with the customer paying, there's been times where we've gone six, seven months and actually had to pull off the jobs, pull bonds, things like that. Yeah, but that's a no-pay situation. That's not a standard operating problem like you're questioning about.

Okay. Right. All right. So the only thing, I mean, what you're describing is not that far out of bounds, then now that I've gotten down into it from my experience anyway. And I'm not an expert on the construction field. I've just been around it my whole life. And I have run these two pretty good-sized jobs here that are $500 million worth

when we're done or something like that. So I learned a lot in that process and how this thing goes down. And I never heard a single peep from a single sub that they went unpaid unless they just screwed the job up and we had to go replace them. We fired some subs for in-com. They fired them on my behalf, and they made bitch that they didn't get paid, but they didn't do the work either. So have had it, you know. But anyway, so, but overall, you're saying, I did the work properly, I bill properly, and you're just dragging your feet. So I think what I would do is this is a relational thing. So what we've learned in other spaces, not in the construction world, but we've learned in some of our areas is if we have a collections problem, there's two parts. things going on. One is we're doing business with somebody we shouldn't.

They're bad business. And bad business is more trouble than it's worth. So let's take an example in your situation, a bad business. A bad business would be if you've got a GC that you know they did the pay app, you know the customer paid them, and they're still dragging out your standard invoice, not retainage, but your standard invoice for another 120 days, that's just not somebody you want to mess with. they're just playing games with you.

They're not worth the trouble because you're just their bank. And I don't want to be somebody's bank. I want to be their electrician, you know? And so I would sit down with that kind of person and say, we're not going to do business with you if you don't tighten this up. You're going to have to pay me on time. And some of them are going to say, well, that's how we do it. Okay, then we're not doing business with you.

We're not one of your subs anymore. And we'll, because it's not worth the trouble to chase somebody and chase somebody and chase somebody, when my job is not being your bank, my job is to wire your building, right? So I don't want to get in the banking business. And so we have found in our world that a percentage of customers are more trouble than they're worth.

So we cut them loose, okay? And we make most of our money on good customers anyway, and so there's a percentage of them, I ain't worth it. So forget it. The second thing is, we need to, to do a better job of setting up or resetting the relationship. And so an example would be at Ramsey. We've got all these advertisers that buy ads on our podcasts and on our radio shows.

Okay. And so when we sell them, we tell them we're going to bill you on the first. You're going to pay on the 15th. If you don't, on the 16th, you're not going to hear your ads anymore. We're not going in the hole to you. Where you're advertising outlet, we are not your bank. So you have promised to pay us. You are going to pay us within 15 days.

That's our terms. And that doesn't mean 30, and it doesn't mean 45. It doesn't mean 16. It means 15. and when we've had a clear conversation with them as to our terms, as we're making the sale, it's not an improper thing, this is how our payment works, then we don't have much trouble.

Occasionally we get somebody in financial trouble and they can't pay, or occasionally we get somebody goof something up and they don't pay, but by and large, we just call them up and go, remember that conversation, 16 days. We cut you off, so we're cutting you off. Or we're going to give you a little more, because we understand there's a circumstance that's weird here, okay, or whatever. But we've got the expectations of the deal set on the front end.

So it might be with some of these guys, you go, look, I'm a small business guy. You guys are doing $300 million projects over here. I'm doing $3.5 million a year total. I cannot cash flow and carry you guys. If you want to work with me, we're going to do great work at a fair bid, maybe even the best bid, and you got to pay us quick because we don't have the margin to be able to be your bank.

We're not that big. You're the big boy. I'm the little guy. You got to take care of me. And if you can't do that, we're not going to be able to work together. And that's how I would frame it because all of that's the truth, isn't it, Nate?

Yeah, unfortunately it is. Yeah. Yeah. And you're going to find that very few of them will not, they'll all understand that, and most of them will tighten up on it, and they'll take care of you. And if you go, if you get one that runs late again, you just call me, go, hey, remember that thing

where I'm the little guy and you're the big guy and you were going to pay me on time because I can't carry your butt? Yeah, I need my check, man. Come on. You know? And that's not being mean. It's just having that conversation again.

And sometimes with some customers, and I don't know that you can do that in your world, Nate. You'd have to decide, it wouldn't be on one of the big commercial jobs you're talking about probably, but it might be on something else. Where you've got a customer that's questionable, I would just take a deposit up front that covers your labor and your materials are almost set foot on the job.

That way you're not going to lose money anyway. And so I know, for instance, there's lots of businesses that, you know, I know a guy that is this high-end fru-frew, he builds these high-end decks. They're like the coolest deck in the world, right, in these expensive rich people's houses, right? And he's, for God's sakes, he's building a deck, you know, but it's real, uh, yeah, yeah, right? And so he, but, you know, he takes a 50% deposit up front on the deck. What's wood and labor? So that covers 100, I mean, he's got at least 50% profit in this thing because he marks the

crap out of it. And so, you know, I mean, wouldn't it be? But he's like, and if you don't want me to build your deck, It's okay. It's okay. But if I'm going to build your deck, it's 50% up front. And you know how many times he doesn't get paid? He gets paid every time, you know, because he got his money.

You know, he's not, he's not going to, they're not going to not give him the other 50% if they gave him the front 50%. So anyway, if you can do that on a questionable, let's say you were doing a smaller job and the, it's a tenant buildout or something like that. And the tenant that's paying for the, they're doing TI, tenant improvement money. And the tenant's questionable. You don't know if they're going to look, I got to have some money up front to be able to do this job. And I've had people ask us for that.

I just say no, if it's not normal, but at least they, you know, they ask. So my point is I change my terms on some things because it's just not worth it. One last example, and then I'll quit babbling about this. Because I don't think you're that far off. Your three conversations and one bad piece of business off of getting your thing dialed back came by 30 days across the board, I think, based on what you told me. But the last thing was the dot com, I'm old enough. I've been on the radio so long that when Al Gore invented the internet and we got it

all started, then we had these dot coms popping up everywhere, dot com this, dot com that, and they were all going broke, left and right. And so it got to be that every time somebody came to us and they said they wanted to advertise and they were a dot com, that was code for we're never going to get our money. You follow me? And so we had a policy for a while. If dot com is in your company name, you have to prepay 100%.

Because we weren't getting paid. We get screwed on every one of them. My favorite was I got screwed by a company for $40,000 called Integrity.com. How's that for fun? So. Yeah, but that's it. So, I mean, enough railing on it.

But I think you're just, you've got some fatigue because you've been abused on the edges of this. And I think if you'll square up your shoulders and lean into that fatigue and push back and say, I got to reset with some of you. And you know who the bad guy is out of this. If there's one bad guy, you've got to cut him loose. I think you're going to get the quality of your life way up. Am I wrong?

No, you put my mind at ease a little bit, I think. Get back out in the game and keep playing. Yeah, keep scratching. Keep plowing. You're the man. You're stud, man. You're killing it. I'm so proud of you.

very, very, very well done. I love it. What a great guy. It's three and a half million. Man, that's great. Good job. Killing it. Hey, 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 Entree Leadership Podcast.