EntreLeadership - I Can’t Figure Out How Much to Spend on Payroll

Episode Date: April 28, 2025

Today we’ll hear about:  A business owner wondering how much of her revenue she should allocate to payroll  The key differences between a controller and a CFO  Why Dave Ramsey hates job descriptions and what he thinks is a better option  How to give money to charity with business profits    Next Steps:  📞 Have a question for the show? Call 844-944-1070 or send us a message: https://ter.li/ask-us  📚 Learn about the EntreLeadership System: https://ter.li/system-p  💻 Get EntreLeadership Elite for your business: https://ter.li/elite-p  ✉️ Sign up to receive tactical tools, advice and resources in your inbox every week: https://ter.li/enl  🏢 Attend EntreLeadership Summit: https://ter.li/summit   🎤 Attend EntreLeadership Master Series: https://ter.li/masterseries   📖 Order Dave’s new book, Build a Business You Love: https://ter.li/b4kru2  📃Build your KRA for free: https://ter.li/ks4jnp    Connect With Our Sponsors:  💼 Go to Belay Solutions or text ENTRE to 55123 for their free resource!  💻 Visit NetSuite today to learn more.  🧾 Visit Payority for a free consultation!  📈 Grab ⁠Sales Gravy's⁠ free resource to help you hire and lead better. 📝 Use code ENTRE15 to get 15% off your first year of Trainual.    Listen to More From Ramsey Network:  🪑 Front Row Seat with Ken Coleman  🎙️ The Ramsey Show  💸 The Ramsey Show Highlights  🧠 The Dr. John Delony Show  🍸 Smart Money Happy Hour  💡 The Rachel Cruze Show  💰 George Kamel    Ramsey Solutions 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. If you want to submit a question, go to Entraryleadership.com slash ask, or you can leave a voicemail, and either way, we'll get you set up to be a caller here. Voicemail numbers 844-944-1070. That's 844-944-1070. Kaylee is in Portland, Oregon. Hi, Kaylee. How are you?

Hi, I'm good. Thank you so much for taking my call. Sure. What's up? So I own a small, low-volume dog grooming salon. I have three full-time employees and one part-time, and last year we did $422,000 in sales. My question is, is there a certain percentage, just a general rule that I should be aiming for,

for my payroll to be at, given that I'm fully service-based with no retail, any other income sources. No, that would change from industry to industry. What you should be looking for is a return on investment. Obviously, in other words, you've got to make more per groomer that you hire than that groomer costs you. So if you put someone out to do grooming, did you say it's mobile? No, it's a salon.

It's in the salon. So if you put someone in a bay, so to speak, and you set that bay up with equipment, and you put them in there and you pay them, the cost of that equipment plus the cost of that payroll, then what's the grooming income versus my cost, right? As if it is a little individual standalone business. Got it. Okay. And then you want to look at that, and obviously you've got to make a return on that

because you can't lose 25 cents of watermelon and get a bigger truck, right? We've got to, you know, we've got to make money each time we add that. and the good news with that particular position, and sometimes in business, there's two types of positions we hire for. One's that directly ROI and others that indirectly ROI. Direct ROI is like that. Like you hire a salesman. They're on commission and salary and, you know, they sell X number of dollars and they cost you

a Y number of dollars and the difference is called profit, right? Or a dog groomer. They're going to bring in, you know, I don't know. said you had four people, so maybe the one where they're bringing in $50, $75,000 a year, and they're costing you $25,000 or $30,000 a year or whatever it is, right? And so I'm making a spread on each of the hires. That's an easy hiring decision once you've got those numbers figured out. And as long as you've got enough dogs coming in, you know, enough volume coming in to keep everybody busy, you can add those for days, right? You can keep adding and adding and adding,

as long as that happens, as long as you've got space, but the main thing is if you've got enough business to keep them all busy. If you do, then you're going to make money on every one of them. The other type of hire is the harder hire in terms of financial analysis or mathematical analysis, and that's the indirect hire, meaning like my personal assistant doesn't create revenue, but she does work that I don't have to do. That allows me to go create revenue.

You follow me? And so that becomes a profitability of the overall company then with your indirect payroll people. And that's like accounting or marketing or, well, marketing thing usually costs justify themselves. But anyway, you're looking for something that when the type of position doesn't lend itself to cost justify itself, standalone like an indirect, like I'm talking about, then you've got a more difficult thing to analyze and you've got to look at the overall profitability of the company, and can we use up some of our profit to get this work done to protect us or cause the other people in the business to make more money?

An easy example of that for you might be if you paid someone to be the booker and they book all these appointments for the dogs to come in. They don't actually make the money. The groomer actually makes you the money. But the booker, without the booker, the groomer is not as busy and not as efficient, so they do end up indirectly paying for themselves. You follow me? Right, yeah.

But yeah, you just keep all of that as a total in your profit and loss and go, okay, obviously, I've got to make more than anyone here. I own the place. I'm the one taking all the risk. And on top of that, I've got to get this work done, and I've got to take a chance and scale this. So you scale it as fast as you have business to keep the clippers clipping and the bookers booking.

and then you put on top of that. But there's not an actual ratio. It's because some businesses are going to be more labor-intensive, payroll-intensive than others. And so you might have a very small payroll. Another thing you could do to measure it is we look around here, we look at our revenue per team member. So I've got 1,100 team members,

approximately 300 million in revenues. I'm looking at that ratio per team member, what is our revenue? And our revenue per team member, because we've got a lot of analog traditional businesses as well as digital businesses is not that great. Our revenue per team member is not wonderful compared to other, like a pure digital business, their revenue might be 10 times what ours is per team member. And that does end up affecting profit too as well. But it's a decision on how you're going to build the business. And in your case, you won't have a choice. You've got to build a, got to have the groomers to grow it.

So good question. Good question. Sounds exciting. Sounds like you've got a good deal. going there. Hey, thank you for calling in. This is the Entree Leadership Podcast. Hey, business owners, our new book, Build a Business You Love, is now available for purchase. We're going to teach you how to master the five distinct stages that all businesses go through, no matter the industry you're in. It's the same proven system we use to build Ramsey solutions from a card table in my living room to a $300 million company. In each chapter, I go stage by stage and break down the unique challenges you're going to face, the tax, practical steps to overcome them and what you do to want to level up and move on to the next stage.

When you finish reading, you're going to have a proven plan that takes the guesswork out of growing your business. In a sense, it's baby steps for small business. Build a business you love is the essential guide for a business owner. Go to Entreeleadership.com slash grow and you can get yours ordered or you can always click in the show notes. Get it going as well. Dusty's in Topeka, Kansas. Hey, Dusty, what's up? Hey, thanks for taking your time to Dave.

Dave, I'm looking to define the role of controller or CFO in my business and properly vet the applicant. I've got an excavating company. We focus on infrastructure, primarily a subcontractor on road construction projects. I do about 2 million pop line. I make eight employees, and my mother's been kicking around retiring his bookkeeping. and that's what's spurred this call. Gotcha. Okay, you probably need a controller at this stage.

My first CFO came in at probably 10 million and probably 50 team members, give or take. It's not necessarily an exact measure of when you need one. But the differentiation between the two in my mind, in a small business setting, is the controller basically is the person who controls, obviously, the word, meaning they're going to control the team and the cash flow and the checks according to what you tell them to do. So you say, do this and they do it. Okay, so obviously your mom's doing the books.

That means she's paying the bills. She's collecting the receivables. And she's managing the strain between payables and receivables, right? That's correct. Yeah. And so the controller is going to do that plus some. It will be a notch above a bookkeeper.

They simply pay payables, collect receivables. That's all a bookkeeper does. And the controller should be able to generate your P&L. They should be able to produce that for you internally. And they should, more than anything, you put in sense, and since you put a set of rules in place, you and the controller discuss them, that this is how I want payables done, when I want them done, and this is how I want receivables handled,

and this is how other financial decisions I'm going to make, and I'll tell you what we did, and then you're going to go do them. CFO sits beside you, and they're a part of the leadership team, and they're going to give you advice, and they're going to raise their hand to speak up and say, hey, Dusty, you know, you're not being very sophisticated on this. You need to get a little, you know, our company's behind. We need to get our crap together on this. My CFO not long ago said our accounting system is outdated.

We need to upgrade our accounting system. I didn't come to him and say that. He came to me and said that. And here's the suggestion of the top. Here's the two I vetted, and here's the one I think we ought to go with. And we went with that one, okay? And that's when we put NetSuite in here that we advertise for. But there have been a good partner with the accounting system that we brought in.

But that was a CFO leadership. executive team member not only brought me a problem that I didn't frankly know was there or wasn't worried about, but he also brought me the solution. The controller might bring you a problem, but you're going to provide the solution. But otherwise, they're just going to execute what you say. Their job is to get work done. The CFO's job is to get above the work and be thinking about where we're going, how we're billing, how we're setting up these contracts. Because in your world, you can get a cash flow bind if your general contractor doesn't pay his bills on time. That's correct.

And so CFO is going to get above that and go, hey, Dusty, when we start meeting with these guys before we take the job, we don't need to take another job from this guy. He doesn't pay his bills unless we reset with him and, you know, we reset the terms to where we get paid early, which might be called on time for some people. And so, you know what I'm saying? And you got to read, and you do all that now. If you've got a general contractor misbehaving or a government job and the stuff's delayed, you're the one over there kicking the accounting folks on the government side going,

hey, I need my check. I'm a small business guy. You're starving me to death. You're the one doing that now, right? Yep. Yeah. And so your CFO would step more into those roles, and then you would work on the rest of the business.

and he or she would, you'd sit down with them, you know, weekly, bi-weekly, whatever, and go over what's going on for an hour. But right now you're doing a whole lot of CFO functions yourself, and you probably still should be at 2 million. Right. Now, I know I have a ton of bad habits, and I probably don't, it's probably a tip of the iceberg for what I know about versus don't know about. Should I consider a fractional CFO to get through some of that before?

No, I think you get a strong controller. and a high-paid controller, and they're going to start taking the first, if there's 10 layers of things CFOs take, they could take layer one, maybe even layer one and a half. Meanwhile, do everything your mom was doing better than she was doing it. Okay. And I think that's going to be fine at 2 million. But they need to start producing and putting on your desk

once a month a full books close of the P&L of what we made last month and what we made your to date. and what we made the last rolling 12 and that kind of stuff. If you're not getting that on your desk now, a controller needs to be producing that. A bookkeeper ought to be producing that. But usually with what you're describing, you're probably not getting that,

but maybe quarterly or something. Very difficult. You've got to know your numbers, and your number's got to land on your desk once a month. Books closed on time, if not early. So our books around here close and have for, gosh, almost 20 years are closed by the 15th of the month following. we know exactly what happened March 15th of everything that occurred in February as an example

we know exactly what happened April 15th of everything that occurred in March in detail they're closed everything's closed out we know what what came what cash came in the door what receivables are still outstanding we know exactly where we stand on all that and all of us know it because you know all look at it on a you know a handful of pieces of paper handful of computer screens and we'll get right there. But if I'm in your shoes, Dusty, I think a strong controller that has, maybe they have aspirations of becoming a young CFO later. You could grow them into it. That would be possible. But I had a bookkeeper that became a controller, and she's been with me almost 30 years now. And I've hired her new bosses as we went along because she was comfortable at the

controller level and didn't want the CFO level. And so we brought in very sophisticated CFOs to be her new bosses instead of me over the years, her new leaders instead of me over the years. And she's fabulous, by the way. So good question, sir. Very good question. Appreciate the clarification and it sounds like you got a good business running there. Proud of you. This is the Andre Leadership podcast. If you've listened to this podcast for very long, you know I hate things that feel like corporate America and I've tried to keep them out of my business as an entrepreneur. Sometimes that's kept me from doing good things that I should have done. There were a little bit more sophisticated, better processes or strategic thinking or whatever.

But I just never wanted to be caught up in this, you know, where some policy or bookkeeping or legal was telling people, accounting told us we couldn't do it. Legal told us we couldn't do it. Oh, shoot me. and so I've resisted things like annual reviews with employees. Well, you need an annual review, but if that's the only time you sit down and talk about what's going on with that team member, then you're a crummy leader,

and that's what happens in corporate America a lot. You get told once a year, you suck or you're awesome. Maybe you ought to tell people that they're doing something right or wrong every week, every day. You know, maybe you ought to pull them aside right after a project and say, good job. Maybe you pull them aside after a project and go, we could have done that better, and here's where we missed it, you know, and so on. So one of the things that falls into that bucket that I have resisted was this thing called having a job description. Because everyone that works at Ramsey, we have a core value that says we're all self-employed. Meaning if something needs to be done,

do it. If you see a customer wandering around looks lost, I don't care what your job is. Help them. That's your job because you're wondering. of the owners emotionally of this place. So job descriptions set people up to say, well, that's not my job, that's so-and-so job. And they walk right past a dissatisfied customer and don't take care of them and miss the chance to surprise and delight.

And so I don't like job descriptions in a corporate mentality set. So I found a thing early on, a friend of mine in the career space said, use a KRA. And I said, what's a KRA? He said a key results area. And so 25 years ago, we started using KRAs at Ramsey

because I like the idea of everyone being aligned on what winning is. So if I hire someone to do the accounting, like we're talking about a while ago, and I want the books closed by the 15th of the month, and the books are closed and all the stuff bound, all the everything's budgeted, and everything's balanced. I've got all the reports out by the 15th of the month, then you win.

If they're not done by the 15th of the month, you're not doing your job, because that's like your job. That's your key result area. In the old days, we used to have a receptionist. Her title was Director of First Impressions. The lady at the front desk at Ramsey today

does not answer a phone anymore, but we used to have someone at the front desk that answered the phone and would also greet you back in the day. old style, right? And the director of first impressions. What's your job? Three things.

Greet guests and make them welcome. Answer the phone within two rings. So if I called our office and it rang three times, I'm like, what's going on? Aren't you answering the phone? Well, I was greeting the guests. Yeah, but you've got to answer the phone in two rings. Because a business that doesn't answer the phone in two rings, somebody's not home. Do you think you're calling Comcast or something?

You know, you're going to put on hold, talk to somebody in India. Right? I mean, no, two rings. We said two rings. Hello. That's not it, you know, so doesn't cut it. And so that was her KRA, a key result area. If you're doing the key result area, you're winning. If you're not doing the key result area, even if you're doing something else, you're not winning because you were hired and we both initialed the bottom of the page that are aligned that this is role clarity. This is what we're doing. Everyone on the team knows what they should work on and what's expected of them and how their work fits into the big picture. That's role clarity. And role clarity is vital for an organization's success. It helps folks focus. It helps the team avoid confusion. It helps avoid conflicts because everybody knows what everybody else is supposed to be doing

and they know what they're supposed to be doing. And, you know, just think football team. You know, the guy who's the defensive end, his job is not running back. That's not his job. The running back's job is to be the running back. and the defensive end knows that, the running back knows that, the quarterback knows that, the center knows that, everyone knows that, and everyone knows what everyone's job is,

and if they happen to drop the ball, no pun intended, then everyone knows they can pick it up and run with it, but that's because a ball got dropped, not because everyone was doing their job. It creates momentum and everything moves faster when there's lots of role clarity. Teams that work in sync, you know, they look like a flock of geese. They look like a herd of buffalo coming down the plains. It's all in sync. There's this motion as if there was a current to it. And everything's moving forward and speeding and speeding and speeding up and speeding up and speeding up.

And it clears blockers when you've got role clarity. It's easier to get answers and approvals. Everything moves faster. It moves at speed of trust. There's better teamwork because there's a lot of we instead of me. We got to get this done. We got to get the ball in the end zone. I'm going to block for you.

If you come in here, I'm also going to grab your arm and throw you into the end zone if I have to. You know, what is it we got to do? We're going to work together to get there. So a key result area is what every team member is responsible for in their normal everyday workload. And that is vital to running a business, particularly a small business.

You can also have job descriptions. This includes requirement, detailed role responsibility, skills needleed to do the jobs. This is the type of stuff that's used in a job posting. It doesn't require ownership. You check a box of the work you do. KRA is what you do as a part of the team. That's different than a corporate job description.

I mean, we have a few of our leaders that use job descriptions in addition to KRAs, but everyone has a KRA. It's mandatory. If you don't have a KRA in your personnel file signed by you and your leader, you both have a problem. because that's mandatory here. It's what we do. So what we do to create a KRA is pretty simple.

We put the name and the title down. We put a summary sentence of what the roll does. We put two to four bullet pointed KRAs. This is what winning looks like. If you're going to take someone bowling, don't turn out the lights. There's a lot of noise, but you can't tell if you're winning. But if you can count the pins still standing because the lights are on and the goal is knock those pins down there down,

then you can tell if you're winning. or not. We don't want just noise and chaos. We're trying to actually win the freaking game. And then three to five bullet points below each key result statement that shows what it will look like, what it will take to make that area successful. And then they can come in and go, look, this is in my way. This is a blocker for me to do my KRA, Mr. Leader, Mrs. Leader, I need some help with this problem I've got over here. Okay. That's a valid thing to bring into your, you know, your weekly rhythm, your weekly accountability meetings. thing to do. So if you want to download a free KRA template, click the link in the show notes.

We've got one built on Entree Leadership Elite, and we'll drop this in for you for free. Any of you can get it. Your free KRA template on how to build out these KRAs, I'm telling you, until you guys all get this written down, you're not aligned. You think you're aligned, but you're not aligned. It's like when you first time you do a budget and your personal stuff, you have no idea what you're spend on groceries and it'll blow your freaking mind. It's more than you thought. And when you sit down, you go, oh my goodness. When you sit down with some of these people, they're going to tell you they thought they were doing something and you thought they were doing something else. And that's why you were frustrated and they were frustrated. Get aligned on what winning looks like. So download this free KRA

template. Click the link in the show notes and that'll help you get done and help you get this role clarity stuff moving. It's vital for a winning culture. It's vital for communication and trust, and it will move the needle for you. It's free, by the way. Did I mention it's free? F-R-E-E, go download it. This is the Entree Leadership Podcast. Hey, guys, if you want to help us out, you can do so.

You are our only marketing hope. There's no marketing budget for this show. You're it. Now, seriously, you've got to help us. And a bunch of you have. We appreciate you because you're spreading the word on the show. We know that because the numbers are growing like a hockey stick up into the right. Thank you, thank you, thank you.

Here's how you can help us. Subscribe to the show, click the follow button, do the full subscription, leave a nice review, share the show. If you're listening or watching on a four minutes that's got a share button or just cut out the link and send it to a buddy and go, hey, watch this show. It's listening to this show. It's helping me with my small business. If it's not helping you, don't do it.

But if you're listening and you regularly listen, help me. Help us spread the word on this. We appreciate you. So click follow, subscribe. leave a five-star review, share the show, push the buttons, make the stuff happen. We appreciate you. Arash is with us in Nashville. Hey, Arash, what's up?

Dave, how's it going? Better than I deserve. How can I help? Hey, but I had a very unique question that I've always kind of struggled with, and everyone I consider a mentor is kind of, they give me good answers on it, but I kind of dabble back and forth with how I should proceed. I don't know. Let's start off.

I'm in the car business. I have a few locations that we sell cars out of in the national area and the surrounding cities. Our yearly revenue last year was $15 million. We have about 40 employees across all the locations. And my main question was, how do I prioritize giving to our nonprofits and our charities versus how do I allocate those funds to future growth? Okay. I do virtually zero giving.

at the office. I take the profits home, and for years I just did our giving from home out of my personal funds. Because by then it's changed names. It's not my business money anymore. So if I need to leave money in the business to grow, then the more of that I do, the less I take home, agreed? Yeah, the idea of need to leave in the business is my question mark. the idea of what, say again? He said, I need to leave the money in the business. Yeah, if you need to, if you're going to, the money you're going to grow the business

with, it has to stay in the business, obviously. But everything, all my giving is done from home. Nowadays, it's done, it comes home, and then I put it into a family foundation that we formed about 12 or 14 years ago, and the foundation does all the Ramsey family giving. But Ramsey Solutions writes almost zero charity check. very close. I consider them the same thing. It's my business.

I'm the sole owner there. So whatever I, whatever the business profits is my profits. Yeah, and then you take those home and give from those. So the only question is, how much do you want to take home versus how much do you want to grow with? And that may change from season to season.

You may have an opportunity to buy out a, you know, a dealership in the area. And so you want to leave a bunch in the business and may lower your giving that year. Or lower your take home. that you can give from that year. And because you're going to use it to grow by acquisition in that case. But another year, you may just be making bank,

and we don't have a lot of cash needs other than our normal retained earnings. And so we're going to send it home. And when it gets home, I'm going to donate to ministries and donate some other things. In our case, the only thing we do give is stuff in like kind. Now, we give away a lot of books. we give away a lot of financial peace university. We give away a certain amount of high school curriculum. But that's stuff from within the business,

and that simply lowers the profits in that area when we're doing that. But that's different than the cash donation to a homeless shelter or a food bank or whatever, whatever you're going to donate to. But that kind of stuff all comes from home or in our case the Family Foundation. Now, in your case, you might say, all right, we're going to give away a car every so often. We find a car that we might not want to put on our lot, but it's a solid, cheaper, used car

that we might run through the auction. Instead, I'm going to find a single mom through the local church and give it to her. You might do some of that. In your case, that'd be like me giving away books or me giving away Financial Peace University or something like that here. Yeah.

But you don't have to do a lot of that, but I mean, you're going to run upon some deals occasionally, obviously, that it'd be easy for you to make good, efficient use of your giving that way. But in general, I take it home and I give it from home, and what gets home is dependent upon how much cash need we have in the business. So some years, our cash need, we don't have a lot of growth things. We've got our normal. We put a, let me stop, we put a set percentage of our profits every single month

into retained earnings just to keep retained earnings growing. That's not growth money. Then in addition to that, if we say, all right, we're going to go buy something or we're going to expand, so we need to budget for that, we'll build a pile of cash up in addition to our normal retained earnings to grow the business in a separate pocket. Whatever's left after either one or both of those comes out, goes in my personal pocket.

That money is where we do our traditional giving from. and it will change from year to year based on the cash needs of the business and just based on how we feel led to give to these ministries. Does that make any sense? It does. I might be thinking, like, I've gone into business to make money, but not for myself, right? Like you always say to eat rice and beans, I'm happy with rice and beans. I don't care if I eat something fancy or just something simple.

And I think we're completely blessed in this country. I agree. But the reason we went into business is because I can do it. do a lot with what I've been given here. Yeah. And I want to, in turn, give that away to somebody who can't. And usually it's over-s-bees. But you can only give away profits.

Right. And so take your profits home. And if you want to live on rice and beans and give a big chunk of it away, you can still live out that same philosophy. Yeah. It's exact same math on the... And it does not break your philosophy at all. It just means that a higher percentage of what you take home goes to generosity,

maybe than some other folks, because you're going to keep your lifestyle low, so you can have a higher generosity. I got you. Yeah, so, I mean, that's a cool idea. I mean, I love the way you're looking at this is that I've got the ability to make money to give it. And that's awesome and to help others.

That's a good thing. Yeah. Yeah, and so I encourage wealthy people all the time, and that includes good small business owners like you doing 15 million top line to do three things with money and you decide the ratio of the three things. you should always invest money, you should always give money, and you should always enjoy money. And it could be a small percentage of enjoyment. It doesn't take much for you, a larger percentage

to generosity and a smaller for investing. That's fine. But you ought to be always keeping all three of those muscles being built. Otherwise, they'll atrophy. And I love that your driving force is your generosity. And that's your reason for getting up in the morning. Well done. I like it, I like it, I like it. That's a good thing. Nothing wrong with that at all. Good job, Arash. Thanks for calling in, man. I love what you're doing. Good stuff, guys. Good stuff. Hey, remember better a weary warrior than a quivering critic. This world needs more high-quality leaders. So take courage and lead. I'm Dave Ramsey, your host. Thanks for listening to the Entree Leadership Podcast.