EntreLeadership - How to Truly Take Ownership of Your Business

Episode Date: March 13, 2023

Today, we hear from: •      The owner of an auto mechanic shop who is wondering how she can expand her shop without debt •      A middle manager who wants advice on how to treat someone else’s company as his own •      A former business owner who wants to protect the business from his ex-son-in-law •      A pastor of a rural church who wants to know how debt-free principles apply to farming Links mentioned in this episode: •      The EntreLeadership Podcast: https://bit.ly/TheEntreLeadershipPodcast •      Start your free trial of EntreLeadership Elite: https://bit.ly/3tI2fN8 •      Linchpin by Seth Godin: https://bit.ly/3kMP0tl •      Thou Shall Prosper by Rabbi Daniel Lapin: https://bit.ly/3xqo5Gz •      Have a question for The EntreLeadership Podcast? Leave a voicemail at 844.944.1070 or submit your question for a chance to be on the show with Dave Ramsey: https://www.entreleadership.com/ask   Start growing in business and leadership with the EntreLeadership Newsletter. Sign up to receive tactical tools, advice and resources in your inbox every week: https://bit.ly/3IRWnsL Support our sponsors: •      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 in the trenches right alongside you. Hey, if you got a question you want to ask on the show, you can fill out the form at entrell leadership.com slash ask, or you can just call in and be a caller. That'll work to 844-9-4-1070. Stephanie starts off in Rochester, Minnesota. Hi, Stephanie, what's up? So my husband and I are on year three of owning a business. We just paid off the property last week.

Yay! Yeah, we are in desperate need of an addition on this property. It's an auto mechanic shop. He has two bays. And we've kind of reached capacity of what we can make for revenue. I guess our question is, I know you never say borrow, which we are really not wanting to. No, we. And the first thing you did was get desperate to get back in debt.

We have desperate need, Dave. So our question is we have building plans. know it's going to cost about $250,000 to do the building. Do we wait it out until we can cash flow it? Because we know we're at a max of where we can do for revenue right now. And so we are at the loss of potential losing customers because sometimes when those bays are full, you'll be at a max. And you'll be at the potential of losing customers.

And when those bays are full, you'll be at a max. And this story continues. and continues and continues. So you just recommend waiting it out until we can pay cash for the addition. Let's stop for a second, okay? You don't have a desperate need. No.

You use the wrong words. Right. Well, my husband has a desperate need. What you have is a wonderful opportunity. Yes. That's different than a desperate need. Your wonderful opportunity has been brought to you by how great a job you do for your customers.

Correct? Correct. And now you don't have a payment in the world because you just paid off the building. Right. And so what was your net taxable income last year on this business? The net taxable income, I think, well, the way we have it set up is our personal and our business are together. So our net taxable is like $2.25, $250. Okay. What's it take for little old Stephanie to live at home? It don't take $2.25. What's it take?

No. And I actually work. Like if she wanted to build a couple of bays with cash, how cheaply could she live at home? Very cheaply. So what's very? Give me a number. Probably like $4,000 a month. Okay. Let's call that $50,000 out of $2.20. Did I do that right? Yes. That's 170. We, right. We tighten up.

We can have it done in a year. You're going to build this building in like two years for cash. Right. Yes. You're in great shape. Because here's what's going to happen, okay? You're going to build it faster than that because your profits are going to go up now. And let me tell you why your profits are going to go up now.

Because now you don't have any payments. And when you have zero debt hanging around your net, You walk different, you talk different, you are going to serve your customers at even a better level than the extraordinary service you are already giving them. And you're more than likely going to go up a little on your prices because it's kind of hard to get into your place because you're backed up and not ripping anybody off. But, I mean, we're probably been keeping prices low so we could stay busy. So let's just get the prices up where they should be to market rate. So we're going to increase our prices, keep about the same customer level. We're going to have a little bit of relaxation piece because we don't have any payments on this building.

So you're going to end up making more, and you're probably going to do this other new building in about 18 months. Oh, by the way, how long does it take to build it if you started today? Probably a couple months, two, three months. Okay. So you could kind of factor that in there, too. So, I mean, if you had half the money or three quarters of the money in the bank and you started, it and you had the money coming in cash flow to finish it, that'd be fine too. But we're just going to pay for it because here's the thing.

All these bays represent as opportunity, but they represent a downside that's not an opportunity if the economy went south on you, if there was something like a quarantine or a pandemic and you weren't essential or something like that, and then you had payments on these two bays versus the fact you're sitting there debt free right now. Right. So you guys have done a great job. Look in the mirror. Three years you kicked butt.

Thanks. I mean, you're like heroes. So let's just don't, you know, can I give you one more analogy for the sake of over speaking, okay? In the military, they have a saying, they say don't let the fighting lines, the men and women on the front line doing the fighting, advance past the supplies. gasoline, bullets, and food have to get to the front lines. If the front lines advance faster than the supply chain of gasoline, bullets, and food can get to them, then the fighting men get killed because they don't have gasoline, food, and bullets. You follow me? Yep.

In business, we have to look at what are those supply lines that we don't want to outpace. one of those is cash. The second one is human resources. Don't take on more business than you've got the cash to deliver and then you've got the humans to deliver the service. And in my world, I can't do it until I've got the technology in place.

It's the third one. In your world, it might be the building bay that you're your bottleneck. But these things are bottlenecks and they're the things that supply you to be able to do. the fight, the fight to win in business. And so you've got to push forward like that and get yourself to the point that you don't go, you don't take the battle lines out past your supply. And that's

what I'm trying to keep you from doing. Is that logical? Does that make sense to you? 100%. You're amazing. Listen, rest for a second and how great you guys have done. Take a breath. take a breath and then we'll be ready to run another race as soon as we can get back so let's tighten the household budget down i'm all for that i've done that myself so that i can pour the profits back into the business and grow the business with cash not with debt stephanie thank you for calling the ontary leadership podcast well folks that's what we do here and by the way i practice what i preach so shut up i'm sitting in a building a series of buildings here on the ramsay campus that are valued today at probably about $350 million.

We paid cash for them as we went. They didn't cost me that much. They've gone up in value while I was building them, but either way I paid cash for them. And when I started the process, the first piece of ground we bought was $10 million. That's a lot of money for a redneck from Antioch, Tennessee. I didn't know where I was going to get $10 million,

but I didn't buy it until I had the $10 million. And then I didn't break ground on the building until I had a way to pay cash for the building. I either had it in the bank or had it coming at a steady enough stream that I could trust myself. And we broke ground. The stupid newspaper came out, which the newspaper in Nashville, straight up stupid. The Tennesseans an absolute rag. Have I mentioned that lately?

They came out, and the headline, Ramsey breaks ground and will build at the speed of cash. That's the only thing they took away from us building this wonderful campus is that we are paying cash for. and I told them if we run out of cash halfway up, we're going to stop. It'll look like a building in Jamaica. It'll just be sitting here like a shell because we're going to stop if we run out of cash. Because I'm not going in debt again. This is all for fun. This is a monopoly game.

I'm not going down again. You don't want to put yourself on the line like that. So pay cash as you go. Pay cash as you go. Hey, folks, running a business is hard. you spend all day putting out fires as the CEO, the chief everything officer. And by the end, you can only remember what you did. You collapsed on the couch.

Honey, what you did you today? I have no idea. But you can change all of this treadmill feel, this idea that I can't figure out if I can't get my team aligned. I can't seem to get the team members to line up like ducks in a row. I can't seem to get my ducks in a row. Well, that's normal business process. It's part of the evolution, the maturing of running a business.

and leading. You can change all this with Entree Leadership Elite. You get a plan, you get the tools that fit into your day, not add more to it, so you can make the most of your time and focus on what's important the work of growing yourself, growing your team, growing your business.

Entree leadership is free for the first 30 days. It is free for the first 30 days. Did I mention that it's free for the first 30 days? Check it out at Entreeleadership.com Elite. Entree Leadership Elite is free for the first 30 days.

Entreeleadership.com slash elite. We will give you the tools to win, baby. It's what we do. Welcome back to the Entree Leadership podcast. I'm Dave Ramsey, your host. Thank you for being with us. If you want to join us, just call in at 844-944-1070. 844-944-1070.

Cody is with us. Cody's in Indianapolis. Hi, Cody. Welcome to the show. Hi, Dave. How are you? Better than I deserve, man. What's up? So my question is, so I work for the government, state government.

I'm a middle manager. I just kind of want some advice on how to treat that business like my own, but it's not mine. And so kind of how do you treat someone else's business like your own? And I thought you'd be a good one to ask for that. Okay, I'll give it a shot. It'd be a lot easier for me to answer that in my. my head if it wasn't the government, but we'll still try to think it through here. I think it comes down to the, you know, your attitude, the way you're leaning in, the way

you're viewing it. We're going to treat each decision like I own the place. And there are several pieces of literature out there that indicate that that's going to cause you to be excellent at your position. It's going to cause you to be noticed by not only. only your current employer, but by also possible future employers that might steal you because you're so stinking, valuable, and adding value. Now, one of the pieces of literature is Seth Godin, one of the best marketing minds on the planet is a friend of mine. He says to me, his favorite

book he ever wrote was not about marketing. It was about your question. It's called linchpin. And if you know what a linchpin is, if you've ever messed around out in the country with a tractor or a piece of a construction equipment, it's the pen that, drops through and it usually has a little clip on it that flips around, holds it in place, and it's the thing that allows you to tow something. It allows something to work that otherwise wouldn't work. And so without the linchpin, everything doesn't function the way it's supposed to. So you need to become a linchpin is the essence, the thesis of his whole book. And it's worth reading because it's about managing up is what it's all about. The second person that talks about

that a lot is my good, another good friend, Rabbi Daniel Lapin, who wrote the book, Vow Shall Prosper, where he talks about reasons that people in the Jewish community have prospered over the scope of time, inordinately prospered. And one of the things is, is they view themselves as self-employed wherever they are. It's, I, if I work for someone else, I'm self-employed with one customer, the company I work for. And I need to make that customer happy. I need to provide customer service. I need to add value to that customer's life to their business, to an ROI. And so in that sense, if you're self-employed here, one way of looking at it, one way of being a linchpin, one way of adopting that very positive Jewish mindset is to say, okay, I'm going to treat

this place like I own it. I'm going to treat it like I'm self-employed. I'm going to treat it like I'm a linchpin. And if I don't do everything that I'm supposed to do with excellence, and if I don't assist people laterally up the chain of command, down the chain of command, do their jobs better. If I don't help everyone around me look better because of my excellence and because of my assistance, because I'm adding value, then I've not performed as a lynchpin, and I've not treated this place like I own it. So around here at Ramsey, one of our core values is that we want our team members to adopt

the idea that we're all self-employed. and we use all kinds of illustrations for that. If you were self-employed and you're walking through the parking lot and there was a piece of paper, trash, a potato chip bag laying next to a car, you would stop and pick it up and throw it away if you own the building and you own the company. If you were an employee mindset, you'd walk past and go, gosh, hope maintenance sees that. Right? Yeah, I understand.

Yeah. And so that's what you're looking for here. And obviously that's beyond your job description, but when you're self-employed, it's not beyond your job description because everything is your job. My job is to make sure this organization accomplishes its goals, has a vision, moves forward, and with excellence in every freaking detail. And I'm going to pound it until it does that. And so if you own it, that's what you would be doing. And it's a little harder emotionally to get your head around that if we're talking about owning the state. But I mean, you can look at just the organization that you're within, whatever the, I guess the department that you're within, the area.

And you say, all the way up to the governor and all the way down to the entry level position in this department, the game and fish department, or whatever it is I'm in, I'm going to do everything I can to help everyone involved as if I owned the places. If I ran the whole thing, now I'm not going to overstep my bounds. I can't go bossing somebody around that I'm not in charge of, but I'm going to help everybody be better. I'm going to serve, serve, serve, serve, and I'm going to bring an eye of excellence and an eye of caring, meaning I care. I guess that's the big difference is when you own the place you care. when you don't own the place emotionally, you don't care. And you go, gosh, I wish somebody would figure that out.

Instead, you go, God, I got to fix this. This is not okay. And so does that make any sense? That's the only way I know how to get at this. No, it makes perfect sense, yeah. What department are you in at your state? Transportation. Okay.

The Department of transportation. The Department of transportation. So road maintenance. Oh, excellent. Yeah. Yeah. Yeah. And so, you know, you've got to.

a lot of customers and the taxpayers that want the chuckholes fixed, right? Mm-hmm. And the bridge is safe. And the county road paved, or the state road that runs through the county paved. And you've got a lot of different things on your plate or somebody's plate around you that are things like that. And so there's a lot of opportunity to serve the customer, the taxpayer here and help the organization, the Department of Transportation, be of more. service to add value. And if you created a department doing that in state government or in any government body anywhere in America, you're going to stand out. Big time. Big time. And if it gets

attributed to you, you're going to stand out and you're either going to run up that, you know, the ladder within that department or, again, someone in private industry will look over and go, Cody's a stud. I'm stealing him. I'm completely going to poach him. from the state. That's going to be the way to go for sure. Wow. Hey, Cody, I got to tell you, man, I'm thankful that there are people with your mindset

that actually care enough to ask a question like that that are working in state government. That gives me great hope. Thank you. Thank you. That's cool. People in Indiana, you guys ought to be proud. You have a Cody.

This is the Entree Leadership podcast. Thank you for joining us, America. This is the Entree Leadership. Leadership Podcast where real business people give real business people answers to their questions about leadership, about business operations, about marketing, about finance. How are we going to do this thing called the Free Enterprise System if we don't work together, people? We got to work together.

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This is the Ontario Leadership Podcast. John is next. John is in Raleigh, North Carolina. Hey, John, welcome to the podcast. What's up? And I've turned over my company to my daughter and son-in-law, sold it to them four years ago now. And so they have banking payments and I like.

And I did it with a lawyer locally. And I went through the whole process with, if you've known beyond survival by Leon Danko. I did it with that book, and I followed that plan exactly. Of God and Guinness with Steve Mansfield. So I was all about trying to do that. It was before you had the legacy series. So I didn't have that to fall back on.

The contract I signed, long story short, my son-in-law has now left my daughter and now their family, and he's chosen to marriage. The contract only stated that, I mean, if they quit making, making payments because they couldn't make them. It would come back to us, but the payments are easily being made. And so there's no correlation in there of... You got no calls of action. Yeah, you've got nothing you can do.

Is that what you're saying? Well, we have to define the company's value. It wasn't predefined in the contract. So if I can do it again, I would have to predefined. if you're going to leave my daughter, you're just going to. No, I'm sorry. What do you mean you didn't define the value? They're paying payments and they don't know on how much?

No, the payments are being made. No, no, no. Did you not have a sale price? I had a sale price from me to them. Yeah. So what's the value got to do with anything? What do you mean you have to define the value? But now he wants to sit.

Oh, so the divorce court is asking for a valuation of the company. Interesting. Okay. How long have they owned it? Four years. And three and a half. He left about six months ago. Okay. What's the gross revenue? About $10 million. What a heartbreak. Heartbreak it is.

Everything's being destroyed by this butthole. Oh, my gosh. Okay. Well, the problem is, John, that you are not in any position of power. just the bank now. I mean, you're a grieving father, but financially, contractually with these people, you're just the bank. And the bank can do nothing as long as it's getting its payments. And the bank is not involved in the valuation, and the bank is not involved in the liquidation. The bank is not involved in any of that. So he wants his half in cash. That's his negotiation in the divorce. Okay.

Has your daughter got a good attorney, like one that's so mean that she doesn't even like them? Yes. That's the one you want, because I want somebody going after his throat here. So I guess that he has no right to demand the liquidation in the divorced proceeding any more than she has the right to just say no. So, I mean, what I would do is just say no. We're not going to give you your half. you're a half owner and you'll get half the proceeds if profits are distributed. If they're distributed, this is your daughter talking, not you, because you're just the bank.

Okay? So we're advising her right now. But if I'm negotiating with him, I would go, no, I'm not going to pay you. I'm not going to buy you out. You're just half owner. And who's the president of the company? Okay, so she can fire him. He's out of the building, right?

Now, he's been gone for six months. Yeah, so that's soft. That's off. So she's running the business, and she will make the decision about any profit distributions. If profits are distributed, he'll get his half of the profits as long as she wants to do that. At some point, she may want to offer him a buy-out, but today's not advantageous to her, so no, I'm not going to buy you out. Now, do you have any money? How much?

Okay. And what's this net profit on this thing look like? Two and a half million? Okay, so we got a $10 million company in valuation, not just in revenues. Okay, give or take. So half of it's five. So what I'm going to starve him out? Because his morally, ethically, his rights to this are zero as far as I'm concerned.

You agree in that? Really? Yeah. So I'm just going to starve him out. He gets nothing. So here's the way that looks, okay? You just got to work with the attorneys on this. I'm not one, but this is the strategy I would employ.

That, no, we're not going to buy you out. You'll get half the profit distributions if there are profit distributions. And then my strategy will be that there's not going to be any profit distributions. Your daughter is going to take a nice salary, and we're going to reinvest all the profits to grow the company. And there's not going to be profit distributions, so you're not going to get anything. Yeah. And once he sits there for a little while with nothing, then I'll offer him like a million dollars for his half. That's probably worth five right now.

Okay. But I want him a little hungry. Right now he's confused and thinks he's in power. That is correct. I want to correct his confusion first. That's all the way I know how to play this. Or somehow beat him down or beat him up. I mean, if you, this thing is worth, if it.

It's net profit taxable income of $2.5 million at a 25% cap rate, you know, cap rate of return. It's worth fourfold or about $10 million. You're following me on my valuation? Yes, sir. Okay, it's a cap rate approach to valuation, but it's pretty close. And if that's the case, if you could buy his half out for a million, I'd do it today, but I don't think Goober boy is going to settle for that right now. Well, he might.

I mean, he's just basically stayed unemployed and had another woman. It doesn't have any money. I want him to sit with no money for a while. At least if you can buy it for a million dollars, it's a deal for you. Now you own half again, and your daughter owns the other half. And then let me tell you what I would do. I would buy 1% of hers from her and your 51% owner, and I'd get this ship-righted and reset this thing and reset the terms in which it is resold to her later

and forgive the loan. because you're now the 51% owner, you're the majority shareholder. Forgive the loan, collapse the loan back into the company, because it's not worth anything anyway, she's got to pay it, and you don't want that position, you don't want her in that position. And then you guys get this thing up and either resell it or resell it back to her with completely different terms and different default clauses in the process.

So our stuff is done in trust, and it states that only people that are blood Ramses can own it as a protection against divorces. There you go. Yeah, it's a little late. Sorry about that. But that's your future gig, right? Let's pretend five years down the road. She's gotten remarried.

The guy's a great guy, all that. We're not going to do this again. We're going to sell it to her and the covenants, the warranties, the trust documents, however you put the thing together, are going to state blood only can own stock. and that just there's no uh there's it's it's against the the shareholder agreement for anybody outside the family to be an owner then the blood family and so that that keeps uh in-laws from getting confused they think they're outlaws so contract because divorce is always it doesn't matter i mean no divorce can i guarantee you divorce is not going to violate this trust i wrote

i'll guarantee you i mean i've spent a bazillion if it does i'm going to kill a lawyer but um because I spent so much money with them. I'm telling you, this stuff is iron. We've gone over it and over it and over it and over it again, because we didn't have our kids do pre-nups, and they're owners of this company now. It's that good. It's that good.

But it's a trust. The LLC stock is held in the children's trust, and the only participants in the children's trust is the stinking children, not their in-laws. and so if one of my grandkids it becomes an inheritance of that it goes to them they get married have to be a Ramsey blood

got to check the old DNA or you're not in there baby so anyway before we get there you got to go back and clean up all this mess and you've got some negotiating

to do among tears so how long has this been going on that boy child's out there sleeping around and left your daughter looks like it goes back to 2008 I mean how long has he been out of the building over there It's been six last year. So about nine months.

You all been going through hell, man. I'm so sorry. It's such a heartbreak because you go from anger to tears to anger to tears. And you got this whole business thing all twisted up in there too. And it just, it breaks your heart. And you go, God, I wish out. God, I wish out. God, I wish out.

Well, you know, I think you get a deal if you drop three quarters of a million dollars on the table and buy him out for cash. But if he wants to be greedy, we can also set it up where he gets. nothing long enough that his greed goes away. Or the number on his greed changes, whatever we want to call that. Yeah. Yeah. Yep, you're right. Kids involved and everything. That's ugly.

I'm so sorry. She's 30. They're the same age. I mean, when I read your book, I'm that guy. So it's fun. Business is fun. There's always something good to look forward to. And I'm a classic trying to outsize.

tell my stupidity all the time as you put it. So, yeah. We'll keep going. This one was a hard one, but that is the way it is. I like your, I like what you're saying. Well, good luck with it, brother. I don't mind in these situations. If you're going to pick a fight, our goal is not to pick a fight,

but if you're going to pick one, we're going to win it. And that's, you know, take him to ground. He brought this on himself, take him to ground. That's what I would do. Some of y'all out there think I need to be nicer. Well, I've tried to force him my daughter and see how that works for you. This is the Entree Leadership podcast. We take calls from real business people, real leaders with real problems, real opportunities.

And we want to help you win. We love you. We think that you cause this economy to go round and around. And we're one of you. I run this place over here every day along with a great group of leaders. And we grew it from a card table in my living room over the last 30 years. to about a $300 million company. So we're learning as we go.

I made mistakes today. Thank God they're different mistakes than I made yesterday. And so we just layer upon layer, get a little bit better all the time. And we're just really, really glad you're with us. Thank you for joining us. Matt is up next. He is in Amarillo, Texas. Hey, Matt.

Welcome to the Entree Leadership podcast. Hi, Dave. Thank you so much for taking my call. I really appreciate it. Sure. I am a pastor in a rural church in the panhandle area, the Texas, Oklahoma Panhandle area. And yeah, good area, you know, good people, great, great work ethics and everything. And I am, I'm pastoring a rural church.

And I've been working with, I've got a lot of farmers in my church. And I'm talking with them, and I've got farmers who are telling me, look, look, I love using the, I love using the Ramsey principles and the financial peace and everything for my personal life. I just don't know how to do it in the farming world. So I was curious, I'm just wanting to ask you to talk for a minute about what does it look like to use your principles in the industrial, like in the farming, the farming kind of world. Or as it can be put also like a capital intensive business like agriculture. Yeah, well, there's a lot of, you know, capital-intensive businesses. The studio that I'm sitting in has got about 27 miles of wire in it and cost me about $2.5 million.

So it's capital-intensive square footage. So just the same kind of thing. I mean, these stinking computers and cameras and stuff I buy around here. And then as soon as you get them out of the box, they're already obsolete, right? So it's the same kind of process. It's just a little different. But the farming community, Gosh, I guess it's maybe almost three generations ago, abandoned debt-free and went to farm credit,

and each year bought a progressively more expensive tractor or combine. And when we're talking about large farms, I mean, we're talking about a piece of equipment, half million dollars or more. Oh, yeah, to get started. Or more. Correct. No, I mean, not to get started, but, you know, they've got. Bluetooth and air-conditioned cabs. And many of them will drive themselves on GPS now.

So let's just be clear that this is not your grandpa's tractor, okay, that we're talking about here. Now, so there's a couple of things is you've got to start with the whole idea that this script, this narrative, that you can't be a large farmer without carrying large debt and a capital-intensive thing is a fairly new script. It was not that way a couple of generations ago. But just like every other area of our culture, the banking industry has gotten their claws into it and made it appear that there's no possible way to buy a house unless you have a mortgage. There's no possible way to run a business unless you have a line of credit. There's no possible way to be a farmer and buy large pieces of equipment. expensive pieces of equipment and upgrade them every couple of years,

you can't exist without carrying these massive amounts of debt. And yet, every time a business of any kind carries debt, it increases risk. And the more debt it carries, the more risk it increases. So if you want to lose a family farm, stay deeply in debt until a crop comes in bad. And then you're gone. It's going to take you out. You're going to be what they call a Chapter 12 bankruptcy, which is a farm bankruptcy. And now you're going to spend the next four years of your life just trying to get back on even keel.

So the problem with debt in any business scenario or personal scenario, for that matter, is it destabilizes. It's not a sin, and it's not a Ramsey thing. I've just made it famous because I'm the only one talking about it in the modern world. But it actually comes from the Bible. The borrower is slave to the lender. It comes from grandmother's common sense. Quit buying stuff you can't pay for. But in business, we've gotten very sophisticated about it.

But lots and lots and lots of large businesses pay cash as they go or they don't do it. Now, again, I'm sitting in a building that the studio is in, that a series of buildings on the Ramsey campus that are worth several hundred million dollars. I paid cash for them. How did I do that all at once because I'm some kind of billionaire? No, a little bit at a time. We built one building, then we built another building, and that was after we bought the land, then we brought the first building, then we built the second building,

and now we're finishing up the third building, and all of this has been over seven-plus years, and I put everything that I have back into, growing my business. I mean, I take a nice salary home. I take a nice income home out of my business, but I've dumped the rest of it into bricks and mortar, putting these things in place because this is capital intensive to own debt-free buildings like this. So it's not like I haven't done this. The first time I did it, Matt, was we didn't have the money to buy the building, so we leased a building and with an option to purchase for five years. And the option to purchase was at $5 million. dollars. By the time the five years ran, the building was worth $16 million, and my option was for five.

So the guy that owned it was praying, I did not exercise the option. I was praying I could exercise the option. Lord Jesus, please give me the money. This is pretty incredible. I don't want to walk away from this huge equity that has grown while I've got this option tied up. And so we're literally scratching the nickels out of the corner of the couch trying to make sure we get that puppy closed, and we closed it in the last month of that option. But if we had not had the money, we would not have closed. Because I'm not going to go in debt again. Now, that one worked out.

Still own that building, by the way. It's a great piece of rental property now. So all of that roundabout way of saying, how do you practically, tactically run this? Well, to start with, you don't buy the combine from heaven that drives itself when you're broke and in debt. you buy the least piece of equipment that'll get the job done. This is business.

Equipment is overhead. Overhead decreases profit. The more I spend on equipment, whether it's in payments or actual dollars, the less profit I make. So I buy the least expensive thing that'll do it. Let me transfer this to something else. Let's say you're running a heating and air company and you have 22 trucks calling on people fixing their heating and air. Okay. Do you buy $85,000 Raptors for your service trucks?

Well, crap, no. Of course you don't. You buy the least possible pickup that you can put a toolbox on and that will get to the job and get the job done. Now, as you make more money, can you upgrade your fleet and drive better and better trucks? Sure. But I'll guarantee you this.

If you go on a construction site, if you want to find the guy on the construction site, the sub that's making the most money, find the worst truck. That's the guy that's making the most profit. The guy who's driving an $85,000 truck on a construction site is known as an idiot. And he's in debt, and he's got his overhead up for the way he looks. So some of these guys are rationalizing and justifying buying combines that they don't need to do the job. They're buying tractors that they don't need to do the job. And so you can do the job with less, number one.

Number two, you can do it with used. and number three, it probably, if you're deep in debt, you've got a four or five hundred thousand dollar piece of equipment or a couple of those laying around depending on the size of the operation. It may take you four or five years to convert from a debt-driven thing to some used equipment that we're paying cash for and making that process move. It may take a little while to make this move. But it's not easy.

The thing that has to happen before you do that is you have to believe that I'm going to be better off five years from now. 10 years from now when I'm running this farming operation with good paid for equipment, not the fanciest equipment. We're not trying to win the Combine Expo here. We're trying to get the crop out of the field. That's all. If my neighbor is impressed with my truck or my combine, that's not important to me.

What matters is can I do the job? And this is a business. Farming is a business. It runs on a P&L. It runs on mathematics. and you're destabilizing your business when you're staying deeply in debt. Can you run a large farming operation with cash? If I can build these buildings with cash, you can run a farming operation with cash.

Did I do it immediately? No, I just told you it took seven years. Okay. So it's going to take you, and if you're in debt, it's going to take you a little while to convert and get off of that. But the first step of converting is believing that if I ran my operation with zero debt and I systematically set money out of my P&L back for equipment replacement because I've got to replace equipment every so many hours of usage.

And I'm always looking for a one, a two-year-old model, and I'm always looking for the least fancy thing that'll get the job done, the least expensive thing that'll get the job done, that I'm going to make more and more and more and more profit, and I'm going to be more and more and more stable, and I'm going to be more and more and more sustainable. And that's why God says the borrower is slave to the lender. If you believe that, then you will go to the trouble of taking four or five years and

converting your debt-driven operation to a non-debt-driven operation. Now, since I'm on the soapbox, I'll just keep going, Matt. You're a pastor. You brought me a great question. The guy that introduced this to me many, many years ago, about the time I went broke, I said, okay, what does God have to say about money? Was a guy named Larry Burkett. Larry has since passed away.

He had a ministry on Christian radio called Money Matters, and he wrote books about being debt-free from a Christian perspective. He got this exact same question 30 years ago when I was listening to him. And let me tell you, another capital-intensive business that always carries debt, in air quotes, always. Car dealers. can't run a car dealer with all that inventory shining out there in the sun unless you run a floor plan and you stay in debt. Floor plan is the inventory financing plan for a car dealer in case you didn't know. Impossible to run a car dealer debt-free because you've got so much tied up in inventory and it's flipping over all the time.

And oh, by the way, General Motors are four to help you stay in debt because they'll provide the freaking floor plan like they provided you the product too. Oh, they're making money on you coming and going when you're a dealer then. Well, Larry talked about how he had talked to a car dealer, a new car dealer, who became convicted spiritually and said, I think God doesn't want me in debt anymore. Now, you may or may not agree with that, but this is what happened to this guy. He said, I don't think God wants me in debt anymore, so I'm getting out of debt. He couldn't do it the first year, but what he did was he took a percentage of his profits

out of every car that sold and a large percentage and set it aside to buy cash inventory. And so the first year, he was able to convert one-third of his inventory to cash, no debt. The next year, he was able to convert to two-thirds of his inventory, to cash, no debt. The third year, he was able to convert all of his inventory to cash, took him three years to pull off

transfer to moving his car dealership, his new car dealership, from a debt-driven inventory floor plan to a completely cash inventory plan. And who's operating the cash... Oh, here's the end of the story, by the way. Two years later, the fifth year of this story, the United States of America goes into a deep recession. Car dealers are going up like... They're going under like flies on a...

I mean, they're dying everywhere, right? So guess what Boychild did? He's sitting on a pile of cash. You know what he did? He bought out three of his competitors for pennies on the dollar. He increased his market share 5x because he was sitting in a cash position. Not only was he sustainable in a downturn because he had converted from a debt-driven, and this is an industry that's capital-intensive, and it's impossible to operate a car dealer.

And Ramsey, you just don't know what you're talking about when you say farmers can't be without debt. And the car dealers can't be without debt. Well, they can't. It's just so weird to find one that does it. So let me tell you what happens, Farmer, when you actually do make this conversion. Five years later, the price of corn, price of soybeans is going to go through the floor.

Everybody's having a really bad year, and you'll be able to help some of your neighbors by buying them out because they're about to go bankrupt. Then you're going to increase your holdings and the size of your operation considerably because you're not in debt and you're not being driven out of business by a greedy freaking banker. Last thing you want in your life when things get bad is a greedy freaking banker. Okay.

Matt, you asked. Probably aren't glad you did. But there you go. That's the way that works. Hey, man, we appreciate you. Thanks for asking the question. We love farmers, some of our favorite people on the planet. I get to eat because they exist. Thank you guys. We appreciate you, but we want you to be debt-free

for your own good. Doesn't affect me. I'll be all right if you don't do it, but I want you to win. And so we want you to be debt-free when we want you to be neck-deep in cash. We want you winning, winning, winning, winning, winning. That's how this works, people. Thank you for joining us, America. We're glad you're here. I'm Dave Ramsey, your host. And this is the Entree Leadership Podcast.