EntreLeadership - How to Lead People and Manage Your Business’s Money

Episode Date: February 20, 2023

Today, we hear from: A business owner wondering how to correct a team member without micromanaging A general manager asking how to catch up when he falls behind with vendors A business owner wondering if she should change her business from an LLC to an S corporation to pay less in taxes A business owner who is determining the right pay and benefits for her team A physical therapist who is wondering if she should buy the business from her boss Links mentioned in this episode: The EntreLeadership Podcast: https://bit.ly/TheEntreLeadershipPodcast Start your free trial of EntreLeadership Elite: https://bit.ly/3tI2fN8 Learn more about the EntreLeadership system: https://bit.ly/3J2BCJ0 Have a question for The EntreLeadership Podcast? Leave a voicemail at 844.944.1070 or submit your question here for a chance to be on the show with Dave Ramsey: https://www.entreleadership.com/ask Support our sponsors: Hite Digital: https://bit.ly/HiteDigital NetSuite: https://bit.ly/NetSuiteEntre BELAY: https://bit.ly/351P9AE Payority: https://bit.ly/3IaA5SK Staples: https://staplesbusinessadvantage.com/ramsey Learn more about EntreLeadership Events: EntreLeadership Summit: https://bit.ly/EntreLeadershipSummit EntreLeadership Master Series: https://bit.ly/EntreLeadershipMasterSeries   Learn more about EntreLeadership Coaching: Elite: https://bit.ly/3tI2fN8 Advisory Groups: https://bit.ly/EntreLeadershipAdvisoryGroups Executive Coaching: https://bit.ly/EntreLeadershipExecutiveCoaching Workshops: https://bit.ly/EntreLeadershipWorkshops Listen to all the Ramsey Network podcasts anytime, anywhere in our app. Download the Ramsey Network app: https://apple.co/3eN8jNq Learn more about your ad choices: https://www.megaphone.fm/adchoices Ramsey Solutions Privacy Policy: https://www.ramseysolutions.com/company/policies/privacy-policy Learn more about your ad choices. Visit megaphone.fm/adchoices

From the headquarters of Ramsey Solutions, this is the Entree Leadership Podcast, where I take calls from leaders like you about what it takes to win at any stage of business and leadership. I'm Dave Ramsey, your host with over 30 years of experience leading businesses, my business, and the trenches, growing this from a card table in my living room. So if you are an entrepreneur running a business, you're just like me. If you're looking for theory, you're in the wrong place. If you're looking for practical hands-on stuff, we're here to help you. We want to talk to you about your business. We believe in small business. We are a small business at Ramsey Solutions.

Not as small as we used to be, but we're small still. So if you got a question, give me a call. 844-9-4-1070. That's 844-9-4-1070. Or you can even fill out a little form and we'll call you and set up the call. That's pretty cool. You can do that at Entree Leadership. com slash ask, entreeleadership.com slash ask. We're starting this segment off with Lance and Ventura,

California. Hey, Lance, welcome to the show. How can we help? Hey, Dave. Thanks. I'm excited. You're hosting Entree leadership. Well, thank you for the trajectory of my personal finances, career, family business, etc. Well, I'm honored. There's at least two people excited about it now, me and you. Good, good, good. So I run a plumbing company, new construction plumbing company with my parents. And I'm the foreman out in the field, keeping all the plates spending every day. And we've got six employees. Most of them are millennials.

They're all people that I've hired. I work closely with. And I'm kind of transitioning from, you know, training people directly to training people to train people as we grow. And so there's some growing pains coming along with it. Amen. And I know that my natural leadership style is to micromania. And I think I'm doing a pretty good job of throttling back to micromanaging and getting my guys to take ownership of things. But every once in a while, you just let something slide.

You want to say something and you don't. And then the next time somebody does something, you want to say something. No, I'm going to give them their space. I'm going to give them their space. And then you wake up and it's been a month and the guy's driving you crazy and you're tempted to get rid of them. So I'm really looking for help on walking the line between micromanaging and fail on to leave my young guys. God, that is such a good question. You're such a stud. I love it because I've done exactly what you're talking about a thousand times. Okay, so let me tell you how bad I am, the opposite end of this, okay? Then I'll come back to your question.

I'm so bad about correcting everything in the moment that we didn't need annual reviews. They were pointless. There was no point because we'd already reviewed it, like at the moment that it happened. We didn't need to talk about it again. It was already handled. So here's the thing. We talked. We talked about it. We talked about it. We talked about it. talk about this in delegation a lot around entree leadership that when someone doesn't know how to do the thing the way you want it done, it is not micromanaging to correct them and teach them and mentor them. It's called training. To let them continue to do it the wrong way is stupid. You're not gaining any ground by allowing someone to do something the wrong way twice, even. You don't have to be mean about it.

You don't have to be nasty about it. You don't have to be all up in their grill about it. Like, whatever. What's wrong? You're stupid. I already told you I'll do this. You don't do that, right? But you got to go, no.

Remember, we talked about this. This is the way. Yeah, but at my other job, no, this is not your other job. At this place, at Ramsey, this is the Ramsey way. We do this. Because, you know, there's a lot of different ways to do things. Some things with plumbing, there's one way. You've got to do it that way.

It doesn't work, right? but in terms of dealing with a customer, in terms of keeping supplies on the truck and whatever. I mean, you can do all kinds of different things there. But, you know, if they're doing something a way you don't want them to do it and it's driving you crazy because you've let it slide, that's not their fault. They don't even know they're dumb. Right, right. You haven't even told them yet. Okay?

So if they keep doing it over and over after you told them, then it's on them. And now you've got a different issue that's a team member issue that's not. responding to training. Okay? Now, if they're doing it over and over and over the right way and you keep interrupting, well, you're the mother-in-law telling the daughter-in-law how to make it the way her son liked it. You know, don't make the beans that way. No, that's interfering then.

That's micromanaging, right? Yeah. But you're not, you know, so this is the biggest thing. Everybody wants to delegate and everybody, that's why I thought I was a bad delegator. And then I figured out I'm an excellent delegator. I am really not a control freak because I don't want to do all the work. I feel that. And that's why, you know, I want to be hands off.

And it's just no. And I think what I'm hearing from you is the permission to open my mouth a little more and that it's not micromanaging. No, it's instantaneous. Okay. So I've got people who work for me 22 years. And if they're off on something, I go, hey, no, that's off. and they can argue with me if they want.

If they've been here 22 years, they might argue with me because that's how we do stuff. Sure. But, you know, it's like, no, that's all. That doesn't work. And we don't wait for them to do it wrong three times before we get pissed off enough to say something about it. Okay.

That's not, see, you're not a micromanager, because your job is to protect what your family has built. Sure. And don't let Jim Bob screw it up by doing it wrong. Right. Right. So you've got to go, no, Jim Bob, that's not the way we do it, buddy. Right. It's better explaining not, hey, I'm grumpy because you did it this way. No, you'll be grumpy. It's not grumpy. It's, you're a teacher. You're a teacher.

Yeah. You're not a micromanager. You're a teacher. You're a trainer. You're showing them how. And I don't do it with a grumpy attitude on the radio like this. And when I'm going to do on podcast, I'm always sarcastic because it's my spiritual gift. But when I'm correcting you in person, I'm not nearly that sarcastic. unless I'm joking with you while I'm correcting you, and then I might be sarcastic, right? I think some of my uncertainty comes from, you know, I'm not on the job with these guys eight hours a day. I'm hopping from job to job to job, and they're working under somebody else.

And so I always hesitate thinking, okay, well, maybe the guy they're working with already kind of coached him on this. I don't want to, I don't want to buy that guy. That's okay. You can ask that guy. Yeah. And say, hey, listen, I noticed this. So, like, I built a couple of houses,

and I used a general contractor to build a house. My rule, because I grew up in the building business, mom and daddy were in the building business, I was in real estate business. My rule is I never correct a sub on a home I'm building. That's the G.C.'s job. I'm the owner of the house, and he did it wrong, and it's got to be changed. But I don't need to tell him that. The G.C. needs to tell him that.

And so I'm going to pull the G.C. aside and go, hey, you put that in the wrong place. The wall's in the wrong place. You can move the wall. Yeah. You know what I mean, come on. Look at the blueprint. Right. So when there's respect to chain of command, and I've got kind of a sloppy chain of command right now because of the business.

Yeah, part of it is, part of it is you need, you may need to talk about delegation with your guy your training to lead. Right, which I don't have a big, well. Oh, you got one, like you said, you got a guy on the job that's leading another guy, right? And he might have already told him. You told me that, right? Yeah, yeah, I never know. Yeah, so my point is you need to grab your leader on that job aside. and go, hey, did you tell him this?

No, okay. So I need you to go and tell him this. And now you're training the leader. You're not correcting the mistake that was made on the job. You're correcting the leader that allowed the mistake to go on on the job. Okay, okay. Because now you're creating a delegatable situation because when you leave that job, both these guys got to know what Wright looks like.

And Wright looks like two things. A, doing the item correctly and B, correcting the guy that did the item wrong correctly. and neither one of these you did after you finished training both of them. Okay. Is that logical? It is. It is. Yeah.

Like I said, it's just really highlighting the flaws. It's not mean to let it go on. It's not mean to correct it. It is mean to let it go on. Right. Because then you spend the next couple days. Well,

you're getting mad and they don't even know why you're mad. They don't know why I'm mad. Yeah, because it built up inside of you. And they don't even, where did that come from? What's wrong? with Lance, you know.

And so that's what happened to me. And I find, because I'm from the South and passive aggressive, here's an art form, right? And so I thought it was being, I thought I was being nice by not telling people stuff. And what I finally figured out is to be unclear is to be unkind. Yeah. And that's exactly where you are. You've taught me that these millennials, they'll let you know if they're great or not. And it's so true.

Because these guys, they're good guys. They want to show up. They want to work on. I know that if it doesn't work out, it's my failure for teaching them. If you got good millennials on the site, they will take the training because they, they zest for excellence. Yeah. If you got bad ones, there's no fix for it. Fire their butt.

Yeah, done. Yeah. But the guys I've got, yeah. Yeah. Because they got the good ones, got a zest for excellence. All you got to do is aim the gun and pull the trigger, man. And the point is you're not doing either one of those things when you let the thing being aimed at the wrong thing. it's on you. So you're right. And I'm frustrated with you because I did the exact same crap

when I was at your stage. At this stage, you know, you're at this pathfinder stage here. And, you know, you're one step removed almost from a treadmill operator, one step removed from just doing it by yourself. Now you're trying to hand off the business and you're handing off your reputation when you're doing that and you're handing off your quality when you're doing that and you're handing off your frustrations when you're doing that and that's a whole new skill set that's different than plumbing and this is what you got to do so you're you're really you're really at a really sweet spot right now in a pivotal spot where you can level up doing this so very very well done very proud of you my man excellent excellent work kevin is with us

kevin's in springfield missouri hey kevin what's up hey davy uh Hey, just a quick question. I'm a new general manager of a small business up here. And personal finance-wise, my wife and I were on baby steps four through six. Business-wise, when I got brought in, we're behind with vendors. And so how do you apply the baby steps to a business? Well, you don't. The baby steps aren't for a business.

That's a personal finance process. If you're behind with anyone, whether it's personal or otherwise, your first goal is get caught up and then put in place a system that keeps you from being behind again. Why are you behind with vendors? I think it was just a, you know, I don't know. I got brought in. We were behind, and so I was trying to pay like the oldest bill with the lowest debt first. And so I got caught up doing that.

And then I think it was because we had kind of a payroll issue. And so we've had to let a couple people go. and so that I was like, I just need to call Dave and see what he says. Okay, so are you in charge of the payables? Yeah, so yeah, so now when the bills come in, I'm in charge of paying our vendors, yes. Okay, are you in charge of holding enough cash back to make sure that the vendors get paid when the bill does come in? Because you know the bill is going to come in. Yes, and I was trying to figure out how to prepare for that.

Well, I mean, in most places you're putting out like a PO, right? A purchase order? Yes, yeah. Okay, so you know what's coming? Yes. If you put a PO out in February, you know in March that bill's coming, correct? Yeah, yep. So all you do is keep up with your POs, and you can predict your cash flow needs for the following month, am I right?

Yes, that's right, yeah. Okay, and then make sure your cash doesn't get drained down below what your upcoming POs are under any circumstances. Okay. Because you've already owe that money. I mean, that money's already spent. it go anywhere else. It's almost like when you do the PO, you need to bank the money right then in anticipation of 30 days later paying the bill. Okay. That's called accrual accounting. Yes, that makes sense. And if you did that, you can get back ahead of it. And because usually what

happens is when you're behind on something, it's not the, it's not the being behind that's the problem. That's the symptom. And in your case, the problem is you don't have a cash flow plan to anticipate and get ahead of the curve on this. You've got to have a system, a process. Okay. And so accrual accounting will help you do it. How many – what size is this business? We have – we're a garage door business.

We have three full-time technicians. We have a part-time technician, an owner, and an office person, and I'm the GM. So you're doing about a million a year? Yeah, last year we did 900,000. Yeah, good guess. Okay, almost like I've done this before. Okay. And so good.

That's a great business. by the way. I love your business. And so, yeah, just sit down with the owner. Who's keeping the books? You? We have, no, we have an accountant. Offsite? Yes. Outsourced? Yep. Okay. They may be useless. Okay. And so you need to sit down with them and make them useful. Okay. Because sometimes they're not, they're not help. They haven't helped you build a process in this business to keep your bills paid. Instead, they're just reporting all the crap that's already happened in the tangled mess. And so you need to talk to them. If we're going to run this on a cash basis, which you probably need to run this business on a cash basis, meaning don't spend money you don't have, then you still need some kind of an accounting system

or spreadsheet system that the accountant should be able to help you build to just set the money back. When you do a PO, put the money in the account. Okay. Every time you do a PO, put the money in the account and have a system that causes that to happen. and then that's in essence a primitive version of accrual accounting, and that will get you there. Accrual accounting is you put the expense on the books as if it's happened when you do the expense, not when you pay it.

Cash basis as you do, you put it on the books when you actually pay it, and you're trying to run this on a cash basis, so you've got no cash to pay the bill and you get behind. You follow me? That's correct, yeah. So maybe your off-site guy, your outsourced accounting guy, you and the owner need to sit down with them and go, hey, we need some help here.

You're going to have to help us get one more level of sophistication than what we've got because it's causing us to get in a cash flow bind. So we need to book the expense in cash somewhere, hold the cash back as if we've already paid the bill when we put the bill in place. That or just start paying cash on the barrelhead. Just go to COD. Just when you order something, just pay it. You can do that too.

That's real simple. But that's what you do when you're like a one-man shop. You just write it, unless you're using a credit card or something stupid like that. So there you go. Hey, man, you're a rock star. You got the right questions at this stage of the business. And if you get those systems in place, that's going to help you all level up and be able to scale and move to the next level and be able to go to the other stages of business. Very cool stuff.

If you didn't know what you've stumbled into, this is the Entree Leadership podcast. My name's Dave Ramsey. I'm the host. I have run Ramsey Solutions for now 30 plus years, started it from a card table in my living room. If you're looking for a business podcast on how to actually do crap because I do crap every day, this is the right place. If you're looking for a business podcast on business and leadership theory, we'll probably sprinkle some of that in because we actually use it because we're intelligent. But this is not theory. If you want theory, you go to a college professor who's never made payroll.

They can help you with that. That's what 10 years for. And this place here, we kill stuff and drag it home, cut it up and eat it. This is who we are. So call us. The phone number is 844-9-4. 4-1070. That's 844-944-1070. That's how this stuff works. This is called the Entree Leadership Podcast. Jump in. We'll make you part of the plan, baby. Welcome to the Entree Leadership Podcast.

I'm your host, Dave Ramsey, having entirely too much fun and getting paid for it. This is a blast. Hey, if you didn't know, we have identified what we now call the Entree Leadership System. it's what I stumbled through over 30 years, but we've now identified it, and we can help you walk through it, strut through it, climb through it, even faster because we now know what it is. There are five stages to business and six drivers,

and you need to know what this entree leadership system is. We'll teach it to you as you listen to this show over the coming weeks and months. You will also teach it to you in Entree Leadership Elite, which did I mention before the break, is free to try for 30 days. But here's the thing. The five stages of business are you start out as a treadman, operator. Now, the treadmill operator is just what it sounds. It's probably you, maybe one or two

others, and you're just stuck on the freaking treadmill. Just run, run, run, run, run. You generate almost all the business. Business results are generated by you, and they're not generated without you, and so you can't take a vacation. You actually own your job. You don't even own a business. It's not doing anything without you. Then once you level up on that, you can move to the Pathfinder. This is where you lack clear direction. Now, a lot of you are at Pathfinder. You got the business up and running. There's other people doing work. You're delegating, but you lack really clear direction. And if you want to get your team all on the same page, this dialed in unified direction, then you can level up and go to Trailblazer. And the primary problem there is you lack the leaders in a plan to scale the business.

and then you move from Trailblazer once you solve that to path or to peak performer. I keep putting these in the wrong place. And people that help me with this are all dying back there, but it's okay. So the primary problem there is your business has become too comfortable. Things are going pretty well. You get a little fluffy. You get a little soft. And you screw up.

Boy, I did this one. God, remember this. And the fix this, you and your team have to become a relentless culture of excellence going. And then the last stage is Legacy Builder. And that's building the succession plan. Your primary problem areas you don't have a succession plan. How's this going to outlast you? That's what you're looking for.

So this is the process. So you go from treadmill operator to Pathfinder to trailblazer to peak performer to legacy builder. And it has taken me 30 years to go through these, okay? It might take you 30 months if you're really stinking smart. But most people, it takes you a little while. You spend a little time in each of these stages. And we teach you about the personal,

aspect of business, one of the drivers where you're really the problem. The business needs purpose. The business, that's a driver of the business. The business has to have the right people. That's a driver of the business. The right plan, a driver of the business, the product. That's a driver of the business, which creates profit, which goes back in. Then you go back around those drivers time and time and time again. You cycle through these drivers. You get better each time, more sophisticated each time, drive them deeper each time. We're going to unpack this in detail over the coming weeks months. You're going to start hearing about this. Those of you that have listen to me about personal finance, you know, the baby steps. Well, this system, in essence,

becomes the baby steps for business. And business is more complicated than personal finance. And so the system's a little bit more complicated. But you're going to get as used to hearing about peak performers and trailblazers and legacy builders as you are about baby step seven. And you're going to, for those of you that are dialed into the other stuff, you're going to know what that is. If you're not dialed into the other stuff, then you're still going to get used hearing it. So, and this is because this is how business works, particularly small business. If you're running a, you know, a billion dollar corporation, I can help you with some leadership stuff, but I've never run a billion dollar company. Our company's 300 million. So we don't,

I can't tell you how to do that. I've never done it. Now I can help you with some leadership stuff because some of the leadership principles or leadership principles, they work all the time, whether you've got two people or two million. But, God, help you if you got two million. But, so, but the, yeah, that's the thing. So we're going to walk you through that, and we're going to help you. In a meantime, what's your biggest thing you're struggling with? Call me. I want to help you with this.

I love business problems. I love business people, and I want to hear from you. So get in the lineup. The number is 844-944-1070. 8-4-9-44-10-70. Leave a message. We'll get back to you. We'll get you set up to be a caller.

Laura is with us in Evansville, Indiana. Hey, Laura. Welcome to the Entree Leadership podcast. Hi, Dave. Thank you for taking my call. Well, I'm honored. Thank you. I own and operate a residential cleaning service here in Indiana.

And with using your teachings from Entry leadership, our sales and my profits have more than doubled the last three years. I'm so proud of you. Yeah, thank you. Ken Coleman sent me your book two years ago as a gift when I talked to him and I've been using it. So now we're being more in taxes than I ever met. but we're always prepared. You're an evil rich person now. You should be punished.

Yeah, so we're paying those taxes, and I asked my accountant this past year how we could reduce our tax burden. Her recommendation was to file to become an S-corp. And I would love your advice on that. She did say it would reduce 2022 tax burden by $15,000, which sounds great, but I don't know anything really about that other than what I can find quickly on the internet. And I just wanted your advice because I really respect all your teachings and I've been trying to follow them. And we're just very thankful for you.

Is this an Indiana thing? Is that one of the savings is? Because there shouldn't. How much payroll have you got? Well, let's see. Quite a bit. I have 2016 members right now. And I don't know exactly how to answer your question.

What is it that you're able to write off in a sub-S that you can't write off in an LLC that's worth $15,000. I don't know what that is. Well, she was saying that if I drew my salary as a employee from the S-Corp, that it reduces my tax liability personally by $15,000 for the year 2022 is the example that she was giving me. Well, you pay the exact same in FICA. You pay the exact same in your self-employed tax. It doesn't change that at all because it's all passed through. those are all 941 issues I there is a thing possibly that you can deduct

a portion of your FICO half of your taxes in the S corp and you can't in the LLC possibly but I can't imagine that being worth 15 grand so here's the thing I would do I don't know what she's talking about I it so I could be wrong okay

I would be very very careful of it so anytime I get an expert, an estate planner, a tax person in this case, a whatever, someone outside these walls, even inside these walls, like a programmer. I got a whole bunch of digital people in the building, and I can't spell digital. And so, and they come in my office to speak other languages, and I have to have them translate. And so that's kind of what's going on here. So you're the owner of the business. Her job is not just to give you advice. Her job is to explain why. So I want to see the math.

Show me why. If the math makes sense, you may want to do it, maybe. But you also need to figure out what the other unintended consequences are. Because here's the basics on an LLC and a sub-S. 100% pass-through. Okay? You run the P&L on a sub-S, you run the P&L on an LLC. Whatever the profits are, 100% passes through to your personal return.

Both of them are set up exactly the same way federally. Now, there is one nuanced difference that I'm referring to, and it sounds like that's what she's talking about, but I can't get my head around how that equals 15 grand. And even if it does, what else am I losing in Indiana by being an LLC? We started this as a sub-S and moved it to an LLC because of Tennessee law, not because of federal law, because we had a tax in Tennessee that the LLC didn't have to pay that the sub-s did. And so it went the other way. So I'm currently an LLC with a sub-s under it, actually, because you can't ever get out of it once you're in it.

So anyway, I want to know, A, what the unintended consequences are. B, I want to know what, or A, what the math is, where I'm getting is $15,000, not just randomly take your advice because you're an accountant. Right. Okay. Because accountants are like everybody else. There's dumb ones. Do what? Right.

I said we still have the LLC as well. Like the company is still an LLC, but like you said, like she's suggesting, you know, the S-Corp tax-wise, of course. Well, it's all tax. I mean, there's two, there's only two. That's why the, you know, when people say on the radio, you hear these stupid ads on the radio, get a Nevada corporation and you will save on tech, bull crap. Okay.

You know, you're not going to save anything on that. The taxes are 100% pass-through, period. does not change. Now, the one thing that might be, that is different, and you need to get her to explain the math how you get to $15,000, that may be what she's talking about, is the right off of the self-employment tax or a portion of the, half the self-employment tax. Instead of self-employment tax, it becomes FICA, and the company's paying half, and you're paying half, okay, when it's a sub-ass. And that other half being written off, I can't imagine that being $15,000 in tax savings. That's a lot. But it might be, I don't know what you're paying. You

yourself. You might be. So check on that. But so the principle we want to go with here is an expert brought me something that might be true. I'm not going to accept it on face value. They need to explain why. I'm the 10-year-old little boy that won't shut up. But why? But why? But why? And you just want to smack them after a while. But why? But why? Why is the sky blue? Why? Why is this guy? Why? Why did God? I don't know why God did that. He's God. Okay. Why? Just keep asking why. And until you understand, and until you understand, we're not taking their advice. And if you have someone that wants you to take their advice that's an expert, because they're an expert, not because they can explain it, fire them.

I don't do stuff because attorneys tell me to do it. Attorneys work for me. I don't do stuff because accountants tell me to do it. They work for me. Their job is to have the heart of a teacher explain to me what's going on. Where's this 15,000 coming from? When it makes sense to me, we'll talk about doing it. doing it. But I'm not blindly doing it. My accountant said to do this and then I'm in jail. No,

I'm not doing that. Okay? And this is what happens to people, right? That's not going to happen here, Laura. But I mean, you see what I'm, this is how people get in this, you know, these athletes, I lost all my money because some man was managing my money. I had a man. No, you're the man. You're supposed to be managing your money. So this is your, you're managing this business. So the principle is, expert brings me something. I don't understand their job is to explain it or get a different expert. Principle number one. Then principle number two that you want to look for in these things is sometimes someone in

a special discipline, like accounting, she's looking only at the taxes and there's other unintended consequences. For instance, it might open you up to more liability to be in a sub-ass. I don't think it does. But, I mean, that's an example. I'm looking for unintended consequences and an explanation. Then I move forward. I never move forward blindly because the experts said, including Dave Ramsey.

my job here is to explain for you to you why you should do this, not just what you should do. Do it because I said so. They fire that person. And I don't think their accountant's telling you that. I think they just hadn't gotten far enough in the teaching. And she may be right. She may be right. But if there is no big people, there is no big tax write-offs for having a corporation

or for having an LLC. There's no huge ones. Okay. No mammoth thing that were rich people. all get corporations and that's how the corporations do it. And that's just a bunch of crap that people that don't know what they're doing say sitting around smoking weed or something. Okay. The corporations, the corporations, you know, that's just crap. So people don't fall into that, but Laura, she may actually be onto something on that one nuanced thing on the self-employment tax,

that kind of stuff. That's how this stuff works. So, hey, guys, be sure to check on this Entry Leadership Elite. Do not miss this, Entryleadership.com. slash ask is what you go to if you want to leave a message here. If you want to check on entreleadership.com slash elite, you can get the 30-day free. Sign up. Then I mentioned it's free. You should try things that are free. They might change your life.

And then we'll charge you for it. But we're worth every stinking penny. So check it out for free. Entreleadership.com slash elite. Welcome to the Entreleadership podcast. This is your show if you're a business owner. If you wanted somebody to talk to who's actually done it and doing it, and you really are scared of death because there's nobody to talk to.

It gets really lonely sometimes when you're leading. This is your place. I'm on your team. And I'm going to love you so much. I'm going to tell you the truth. And you're going to love it. We're going to laugh together. We're going to cry together.

We're glad you're with us. If you want to be on the show, call me at 844. 944, 1070. Are you a legacy builder? Are you a peak performer? Are you a trailblazer, a pathfinder? Are you just getting started and you're a treadmill operator? Regardless of your stage of business, we're here for you.

Renee is with us in Biloxi, Mississippi. Hi, Renee. Welcome to the Entry Leadership podcast. Hi, David. Dave, how are you? That's okay. How are you? That's what Sharon calls me when she's mad at me.

It turns into a seven-syllable word. Dave. Fed. What's up? I'm good. Yes, Dave. I've been, you know, following you for a while, and I'm a business owner of natural hair care products. And it's a, you know, created.

Yeah. I don't think I can help you at all. So, you know, our products are handmade and hand-mix. And I, my 16-year-old son works for me, right? And so when we have production day, meaning he makes all the products, he follows the recipe, put the labels on, et cetera. And so what I do is I pay him like $40 to $50 for that day. And he takes maybe six, sometimes maybe six or seven hours to do it.

You know, he takes his time. So, and I know, and that's just pennies, really. But that's how much I pay him for that day. And then each order that is placed in that field, I give him like 5% of that order. So for instance, like a $65 order would be only $3.25 for that one order. And so I'm just trying to figure out, you know, my business is starting to scale. And I'm trying to figure out what is the correct pay scale for him.

And because I'm really trying to set him up to take over the business one day. And then I want to encourage him, you know, with more. money and, you know, I would love to hire a couple more employees one day with, you know, with benefits and things like that. So I'm really just trying to, you know, find out how to scale my business, how to pay correctly and that whole process. Okay. Well, there's two answers. There's one for the 16-year-old and one for the adults. The 16-year-old eats your food. Yes. So what you pay him is whatever you want. Okay. Okay. There's not a thing there. It's not a, there's not a fairness thing. There's not a law. They're slave labor, their children.

No, I'm just kidding. Right. But I mean, we had Ramsey kids packing stuff, packing books into envelopes and shipping them out. We're getting financial peace books out the door. They were putting labels on and, you know, and I gave them some money just because I wanted them to have the emotional tie between money and work. But I had the right as their father to go, hey, as a family, we're doing this right now. We got nothing and we're all doing this together. Families do that in business and there's nothing wrong with that. I mean, I think if you ask Bubba Kathy, I don't think Truit paid him a dime to work to Chick-Fleigh when he was 15, okay? I think he sent him over, got the gum out from out of the table, if I remember the story, right? And, you know, that's what

you got to do because your daddy owned a restaurant. So anyway, aside from that, yeah, I do want to pay him something, but it's not because it's his right or I'm breaking a law or I'm unethical or immoral. I want him to have work tied to money, and I love your commission idea with him. And so it sounds like you're paying him about $10 an hour plus commission on the fill, right? That's fine. That's fine for him. And then as he gets to be doing more and more work, and he's more of an adult, and he's 18, and he's out of school or whatever, and he's coming into the business, we can talk about, you know, what the market value of is the thing. Now, what can you hire an adult outside to do stuff part-time? These days, I think it's going to be $15 to $20, don't you?

Yeah, that's about the, that's about what is at the going rate. Yeah, the going rate, I think it is. I mean, targets paying, targets paying 20, you know, or 25 in some areas. And so you're competing with them for part-time help to fill bottles, right? Right, right. That's what we're into. If I hire someone for like six hours, right? So that I would just need to have.

But now, the other thing I might do is this, if you wanted to, it would be fun with an adult, is go, you know, the first two or three batches, I'm just going to pay you 15 an hour and we'll look at it. And then once you see what it is, I'm just going to pay you X number dollars for a batch, whether you do it an hour or five hours. Okay. And then they could do it in shorter time because they can see they can do that and they go, hey, man, I can make, you know, $30 an hour because I can do this really fast. but a batch is worth X number of dollars to you, not an X number of hours. Because your return on it as the batch, right? Yes, correct. So if you could pay them by the batch, regardless of how fast they did it, that's going to be best for you.

And they might make more per hour net. Hmm. Okay. As an adult. So I would look at structuring that. But if I'm coming in as a part-time four-hour employee, I might not buy off on that until I've done it a couple of times and I go, okay, I can really do this in this period of time. I can make some money doing this.

This lady's going to, she's going to be generous because I can do this in three hours. She's going to pay me the equivalent of five hours. Correct. Yeah. Yeah. So when I was 12 years old, I'm cutting, when I was 12 years old, a thousand years ago when the dinosaurs roamed the earth and I was cutting grass, I had 27 yards to cut. I had $3 yards I was cutting.

That's how long ago it was. But what I figured out was minimum wage in those days was a buck 65 if you were a flopper whopper. A wopper flopper. You would flop-woppers, right? You're working for Burger King, right? And so my buddies are making a buck 65 an hour, and I'm making $3 for a yard. So you know what this math nerd did?

I figured out I've got to cut that yard in under two hours, or I'm not even making wopper-flopper money. Right. And so I'm in there. I've got to knock this out. If I can knock this thing out in an hour, and I could, by the way. But I'm in there working my little sweating my little tail off, knocking it out in an hour, so I can make three bucks, which is double.

Whopper-flopper money, right? And so I double what my buddies are making, their little minimum wage thing, because I'm taking it by the job. And the people that I'm cutting the grass for, as long as it's a quality cut, and they don't have to come, you know, gripe at the 12-year-old

because he screwed up their yard, which might have happened. But as long as it's a quality cut, they don't care the $3 is the $3. You don't care because a batch is worth X number of dollars to you. Correct. Yeah.

So with the, cut the $3 a yard. So if you did a yard an hour, you can get three yards in three hours. Yeah. Is that how you did? So that's like $9 then. And they don't care because all they want is a yard cut. You don't care because all you wants the batch done.

Right, right. That really, I can do that. Now, how do I pay them? So I'm just used to doing cash, right? So do I, how do I, do I formally do like a check or like a business check? You need to do a check. Yeah, you need to do a check. And you need to decide real quickly, depending, as soon as you get a couple of these things going,

I mean, one or two is fine. And for a few months, it's fine. Just give them a check. But you're going to have to start taking out payroll taxes pretty quick, because these are not 1099. They're not independent subcontractors. And so you're going to have to start doing 941s and get into all that. And honestly, it's a pain in the butt. But you don't have a choice.

You've got to start doing it. Once you've got steady employees, you're required to do withholding on them. And that's called 941. and you're required to file the papers. And it's really not that super complicated. You can actually get a service to do it for you if you want. So, Renee, get them. I like it.

Get after it. You're teaching your kid out of run a business. You're running a business. You're the great American dream, kiddo. We love you. This is absolutely awesome. Thank you for calling. Folks, this is the Entree Leadership podcast.

If you want to be part of it, call me at 844-9-4-1070. I'm your host, Dave Ramsey. God, this is fun. I knew it was going to be fun, but it's real. fun. I'm so glad y'all are with me. Thanks for joining us. It's the Entree Leadership Podcast. I love business. I love dealing with business problems, business issues. While we were at the break, I got an email about crap happening in my own building. So this is how we do it here, okay? And I'm the guy that does this stuff, and I've got a team of about 1,100 here. We've been doing this a long time.

We've done a lot of stupid stuff that you don't want to do, and I can tell you what stupid looks like, because I've looked at it in the mirror. So call me. If you want to talk, the phone number is 844-944-1070, or if you want to fill out a little form and be a caller, you can do that at entreleadership.com slash ask. We want to hear from you. What are you really struggling with? What are your leadership nightmare questions? What have I got to do to level up? I want to take this to the next level and I've hit the ceiling. And what's going to break the ceiling? Let me tell you what is. New information. Do the same thing over and over again. You can expect a different result. Never. Never. You can't. You can't. do the same thing over and over and expect a different result. That's called the definition of

insanity. So change something if you want a different result. Running a business is hard. You spend all day putting out fires like the chief everything officer. At the end, you can't even remember what you did, but you can change all this with entree leadership elite. You get a plan and tools that fit into your day, not add more to it so you can make the most of your time, focus on the important things, level up, grow yourself, grow your team, grow your business. Elite is free for the first 30 days. So you can see if we're worth our money or not. We're not worth our money.

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Free trial, entreeleadership.com slash elite. Adrian and Asheville, North Carolina. Hi, Adrienne, welcome to the Entree Leadership Podcast. Hi, Dave. Thanks for having me on. I'm honored. How can I help? Well, I've been a physical therapist for the last 15 years. For the last four years, I've been at a private practice that serves a pediatric population in a very rural county. There's no other providers in this area. So this has really become like my passion and my purpose. I love it. My boss, I love it too.

I get to play all day. My boss is retiring in two years. She's been doing this for 40 years and she wants to sell the business to me. So how do I financially prepare for this transition and how do I determine what a fair price is? Okay. Do you know what the net profits of the business are? they're not good. I mean, we have been working so hard, and there's some months that, like, my boss can't, like, really even cash her own paycheck because she, we treat a lot of people for free.

Okay. Let's not talk about the soul of business or what we all love, but the financial calculation, because that's how you determine the value of business. I'm an investor. I buy real estate. Okay, if I buy income producing real estate that does not produce an income, my rate of return is precisely stupid zero. Yeah. Right. Right. If you buy a building, you can't get a renter in it. It just sits there and looks at you and charges you insurance and taxes.

Then if I bought it for the purpose of making money, then, because it's not a nonprofit, it's not a hobby. Right. You know, if I paid a dollar for it, I paid too much because I bought an alligator. eats money, doesn't create money. So, regardless of how long this sweet person has had this business, regardless of how great the name is in the community, it only has value to the extent that those two things create money. And so if you're not making a profit, that it's not worth much. Okay. I know she put in, like, we don't own the real estate. It's a rental. We're in a rental right now. And so, so there's not like real estate to buy.

I would want to eventually purchase, you know, some real estate and own it. That's a different question in down the road. So here's the thing. Businesses have value as a multiple. There's three ways people value businesses, particularly small businesses, okay? Okay. It's a multiple of gross rent, or not gross rent multiplier. That's a real estate transaction.

A gross revenue multiplier. That is very rarely used in small business because you have to have a gross rent, very generically operating thing to where the gross revenue works. The other thing you can do is you can value it based on the rate of return I want on the net profit, which is why I was asking you that a minute ago. And I'll come back to that in a second. The third way you can value a business is what's called book value. If I close it and sell off the stuff.

Okay. So book value would be we have people that owe us $30,000. We have inventory we could sell off that's worth $15,000. We've got a bunch of used office furniture that would bring $2,000. Those things added together if we close the business and sell everything off, collect the payables, collect the receivables, is the book value of the business. You can't mix these three valuation methods. It's one or the other.

Okay. So what she paid to do the tenant improvements is what you were getting ready to tell me about inside this strip center or wherever you all are is irrelevant because the only book value those tenant improvements have is what they'll sell for today. And it's a bunch of used office cubes and some used medical equipment is worth what, 20 grand or something, right? Yeah, yeah, if that. Yeah, exactly.

I mean, out-of-date x-ray machine or whatever it is, right? Right? So veterinarian wouldn't even buy it. You know, so there you go. So that's what you're facing. So my guess is because when I talk to small business with people that are wanting to sell, they go, well, A, I put this much into it. Well, that doesn't matter. You're not making anything. Okay.

Or I've got a great name in the community. I have everybody knows who I am. I have a wonderful brand. No, you don't because you're not monetizing it. If you had a wonderful brand, you'd be making money off the brand. A wonderful brand. it's not a nonprofit. It's not a famous contest.

We're not trying to be Kim Kardashian. We're running a business. So we're monetizing off of the brand or the brand doesn't have value. And so if a lot of people know who you are and they're not giving you money, it doesn't matter. And it's not being mercenary or greedy, but this is how we do the valuation process. So I think that you're going to overpay for this and that's probably okay a little bit. So the way I would value it if I were in your shoes is I would figure out what the net profits were after you are paid and after she is paid a basic office manager fee, not an owner's fee, okay, but an office manager's fee, to where if I came to North Carolina and I wanted to buy this and go back to Nashville and you all operate it, what would my net profit be? I would have to pay, you know, both you and her to run the thing today, right?

Right. Okay. And so what's the net profit after those positions are filled, and that net profit times four or five? Okay. Is your actual valuation? Four means you're getting a 20% rate of return on my money when I go back to Nashville. Five means I'm getting, four means I'm getting a 25% rate of return. Five means I'm getting a 20% rate of return. So that's called a capitalization methodology, and you're capping it based on that. Small business is highest risk possible category for an investor. And so a venture capitalist is going to want more than a 25% rate of return. So if you made 50 grand, the thing's worth 200.

Okay. If you made 50 grand, it might be worth 250. But she really has in her head that it's worth a lot more than it is. And there you go. Okay. So don't pay a whole lot more than that. So if you run your multiples out four or five, times, and if you want to give a little bit more than that, because I think there's

upside, because I think you're probably going to run it better. I hope so. I mean, really, I think you see the upside. You know where there's some low-hanging fruit. You can turn this thing around. So I don't want to pay her for that. She didn't create it, but I'll give her a little bit for it. Now, then how do we come up with $150,200 grand?

Because I'm guessing you don't have that. $150. We have, no, we have about half. Half a million? No, no, no, no. You got 75? Yes, yes, thousand. All right, so you got 75,000, let's pretend the price is 175 after we do our multiple that we just did, okay?

Okay. Are you with me so far on that tracking that cap rate process? Okay, so if my profit was 50,000, then we multiplied by four or five. And so that would be 200,000. Yes. Net profit times four or five. After she's paid and you're paid. Okay.

She doesn't get to work for free and create more net profit in this calculation. Right. So, but I don't want to pay her an owner's, I don't want to pay her. And if you can fill her position for $75,000 a year and she's taken $175 out, the 100 doesn't count. It's only the 75. You follow me? Yes. Then when we get to the bottom line, times four or five is.

your value and you've got 75,000 of that saved, give her the 75 up front and tell her she gets every dime of profit above what you currently are being paid right now until we get to the other number. Okay. But you're not going to put payments on it. No. Because she can, because you don't know if you're going to make a profit. And so here's the formula, okay?

Let's say it's making $50,000 a year for an example and you settle on $200,000. you give her 75, you owe her 125, and it's making 50 a year. You're going to give her 100% of the profits after you get paid your basic same salary. Your income's not going to go up. It's not going to go down until she's repaid. Okay, yeah. And if it makes zero, she's going to get zero that year. Okay.

If it makes 125,000, she's going to get all her money in one year. Uh-huh. Follow me? Yes, yeah. Okay, so then that way you're not, you don't get put in a cash flow bind by the former owner and it puts you out of business right after you bought it and gave her 75 grand. Right, right. She doesn't get burned, you don't get burned.

And it's not, so it is debt, but it's not debt like with a stupid bank with a SBA loan, which will come and take everything the first time you blink. Right, okay. No, I don't want to use debt at all. No, not traditional debt, especially. Especially when you're telling me we're not even sure we're making a profit. Yeah. Because you get some of those down months and you've got those stinking payments,

you're going to get belly up for you, you know it. You don't need that stress because you're trying to learn how to do stuff you hadn't done anyway, which is run the business, not in addition to being a great physical therapist for pediatric. Yeah. There's a couple of things I never wanted to do as a PT. I never wanted to work an outpatient or with kids or own my own business. And God has a sense of humor. Because I'm going to do all three.

Well, and you're already doing them. You're already doing them. You're already doing a whole bunch of this, and that's why you're in this position. And the great news is you've been given a joy to do great things for people. And when you do that, your business has got real soul because you're serving and you're giving and you're helping. And you're going to get certificates of appreciation with president's faces on them called profit. And that's a good thing. This is how capitalism is supposed to work.

I want you to go make $2 million a year and help so many children that it just makes everybody cry from all the stories. That's just so awesome. You're amazing. You're what makes America great. Thank you, Adrian. God bless you. You call me anytime. I want to hear how this turns out, by the way.

Give me a call back and give us an update later on how the negotiation goes and how unrealistic your owner is on her actual evaluation and how you get through that whole process because this is always a fun, fun thing. Guys, if you're running a small business, you are the backbone of the American economy. Thank you for who you are. Hey, leave us a five-star review. Mama said if you can't say nothing nice, don't say nothing. Go ahead and subscribe to the Entree Leadership Podcast and go ahead and tell everybody you know, share this thing. Click on your little Spotify thingy there, on your little Apple thingy there,

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