EntreLeadership - Sitting on $750,000 Cash but I Still Need a Loan

Episode Date: September 9, 2024

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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 or leadership. I am Dave Ramsey, your host with over 30 years of experience in the trenches. Digging and digging and digging. This is not a show on theory. This is a show by a guy who actually did this stuff today. If you've got a question you want to ask on the show, fill out the form on Entree Leadership. or call and leave us a voicemail at 844-944-1070. That's 844-9-4-1070.

Zach is with us in Charlotte, North Carolina. Hi, Zach. How are you? Hey, Dave, I'm doing good. How are you? Better than I deserve. What's up? Before I get into my question, I just wanted to give a brag about the program that you

guys offer and your team there. I went to the summit this year, and I've been in the elite group. Marissa was our group leader and just phenomenal leader and just programmed it to you guys offer service. Well, thank you. Glad it. So you're making some progress in your business then? Yes, sir. Good.

Well, that's what we're here for. We're getting into it. I've worked at this company. It's a commercial cabinet in Newark Company in Charlotte for about 10 years, included in that of I have owned it from the original founder two and a half years. We've gone from 1.7 million founders last year to my first year doing 4 million. Whoa. And you have team members.

They're about 15, so business has been good. You're stepping and fetching. Why to go, man? Yeah, I feel like we've been trying to catch up in the leadership side as to where the revenue has taken us. So that's where we've jumped in with a lot of your. program and podcast. So that's been a huge benefit. Good for you. Cool. How can we help today? Well, from there, we were presented earlier than we expected the ability to purchase the building

that our company is in. And originally, I was going to be asking for some help on how to negotiate doing owner financing, but we've already made steps down that direction and we're going to be buying it with owner financing and just needing some guidance on how to handle paying for that, putting some money down, and how to handle the debt with SBA loan, along with some personal debt and stuff, and just how to re-approach all this now that this is coming into a full circle. Okay. So how much are you paying for the building? $650,000 with 30% down. And what was your profit last year?

after taking home about 800,000 So why don't you just pay for the building? I currently don't have that much on hand I was not expecting to be presented with buying the building Two and a half years into owning the company Who owns the building, the former owner of the company? No, it's a separate landlord Why do you need to buy a building?

Technically we don't, but with our SBA loan We have first ride of refusal And in the industrial park where we're at, there's... You have an SBA loan that was in place prior to this deal? Correct. So you used an SBA loan to buy out the former owner? Correct. So how much debt have you got to the stupid SBA?

That is $500,000. And you did what with your $800,000 profit again? That we ended up paying about $250,000 in a line of credit. and other than that it was cash flow because we brought about 20,000 in cash to the company. The previous founder took all the cash with them. So we had to cash flow everything for ourselves for the first little bit. So right now, I'm sitting on about $750,000 in cash. And you have what outstanding on your SBA loan today?

$500,000. Okay. And the building is $600. Correct. 6.50. And why do you need $750,000 cash in a $4 million business? Well, right now I've been anticipating us buying because I told them I couldn't do nothing until about this time frame. I've been saving up.

And then our cash flow on a month basis is about $400,000. So that's what I've gotten checking. I've got $2.50 in savings, at least a 30% down. So you're using your $750 as $400 of it you're using for basically, your own line of credit to run a month's of expenses while you're waiting on your payable your receivables to come in okay so you don't have 750,000 okay yeah it's even far less to put towards it and then 700 in receivables over the next 90 days okay so all right um uh all right let me there's a whole lot going on. There's three or four different things. Number one, I teach people and I don't borrow money,

period. The building I'm sitting in is debt-free, the building that we were in before this, we paid cash for, or we didn't buy it. We cash flow, all of our expenses, including purchases of anything like a business. And so the SBA loan, the owner financing, and you're on the wrong side of your cash flow. You should be a month ahead, not a month behind, to where this month's income is covering next month's bills, not I have to cover last month's bills with my own cash. You follow the difference?

I do. Yeah, we pay. You've gotten behind, you've got your payables. You need your payables following your receivables, not in front of them. And so you've got to make that transition. and you've got to get the SBA paid off, and then if you close on this building, you've got to get it paid off

as soon as you possibly can. Those are going to be your three major priorities, and I'm going to put 80% of my profits towards doing those three things to get this business right-sized. You've gotten... The biggest thing that's scaring me here is your cash is chasing your payables

instead of your receivables is chasing your payables. You're $400,000 in the hole there. You're acting as your own. own line of credit with cash. You follow me? See, at Ramsey, this month's income covers the bills that are laying here. I don't use my emergency fund. I don't use my retained earnings to cover bills. I've got income coming in this month to cover this month's bills. I got income coming in next month to cover next month's bills. I'm not having to access retained earnings because I'm in front

of my receivables are in front of my payables, not behind them. So that leaves you 400,000 upside down. You following me here? I do a little bit. I mean... Well, are you 400,000? Are you having to pay this month's bills with the 400,000 out of your savings or not? No, no. That's what you told me. And 400 is in checking. So we're... No, I'm saying you told me you had to use that retained earnings to cover cash flow. Checking is... it's 400, that's just what we use to operate out. Why do you need 400? I mean, is that, that's, that's what's come in this month to pay this month?

Well, that's what came in last month to pay a month in advance. So right now. All right. So you are on the right side of it then. You're just calling your checking operating budget, your operating account, part of your retained earnings, and it's not. Yeah. So you have an operating account that needs to hold 10% of your gross revs.

that might be a little high, but that's not ridiculous. Given the growth curve that you're on, you should jump from 1.7 to 4 million in one year. So I'll go with you on that. Okay, so 400 of the 700 is operating. It's not retained earnings. Now, then that leaves us 350 over here to the side, right? Correct.

Okay, and that's designated to what? Nothing right now. It's just been a savings, anticipating growth of the business if we were to buy because we knew it was coming because the current landlord isn't declining health. So that's kind of why he's trying to sell. Okay. All right.

So you could put $3.50 down on $600 and then pay it off next year? More than pay it off in a year? Yeah. Even if you put 10-year terms on it, you could pay it off in a year. Correct. I would do that. And then I would turn around and I would attack the SBA loan with the same vengeance. I would take 80% or 70% somewhere in that range of your net profits each

month. You close your books once a month? Yes. Good. Good, good, good man. Okay. This is what we do at Ramsey, okay? It's what we teach all of our entree leaders. Take 70 or 80% of your net profits as you close your books and throw them at one of these two debts. The other 20 or 30% is to grow your retained earnings, not your operating slush fund. You're operating slush needs to stay in the 3-400,000 range. But over to the side, we also need retained earnings just to grow the business in general. You may need to reach over about $100,000 piece of equipment in the future, and you need the money to do that in the future.

So I don't want to completely say zero money for future growth or zero money for retained earnings. I'd say 20 to 30 percent. The rest of it needs to go on this debt. But if you're making $800,000 and you're reducing debt by, you know, $600,000, then that pays off this building in most of your SBA in one year. And I can have you debt-free in two, two and a half-three years doing this. And then you've got 100% of your net profits to grow and or take home, which is where I've been from day one because I don't have debt.

But what we tell businesses that have debt, and you've now got a soon-to-be building debt in addition to your SBA debt, is to take the large percentage of your net profits when you close the books and throw it at that debt. and the rest of it used to do retained earnings, and then you need to keep a healthy operating budget. And I want you to mentally and emotionally separate your operating checking just to keep the flow of cash.

You know, what you need to pay bills with, what you've got coming in as receivables, you need to hold enough to pay next week, next month's bills in the account. And that's all. Everything else is profit, and we need to pull that profit, and go 70, 30 of it, or 80, 20 of it sits over here in a separate account for future things that are not operating called retained earnings, emergencies included. And then we need to, let's attack these two debts.

And basically we've got a million one in debt or making $800 a year. And if we start taking 80% of that, we can be clear in two years. Does that make it sense? Sure does. Yeah. You'll have some taxes out of that, so that won't be exactly right. but that's close, and you're doing a good job. You had a pretty good structure on this.

I think we were using different words to describe it, but also you might be a little bit primitive in your accounting usage on this. You may want to beef up a little on that with a good controller or a good CFO. You're at that stage. You've moved from a treadmill pathfinder, maybe even into trailblazer stage at this point.

So you need to look at that and start thinking about, like you said, you're adding leadership layers now. That definitely puts you in the Pathfinder, edging towards Trailblazer and getting everybody on the same stage here. So you're moving through the five stages properly, very well done. And, yeah, this is studly, man. To go from a million seven to four in one year, boom. Nice job, Zach.

Now, let's beef up our sophistication on handling the flow of cash and then let's quit using debt. No more debt after this. I wouldn't have done either one of these debts. I would have told you to work around it, but we're there today. I'm not going to shame you for that, but we're there. So let's knock them out as fast as we possibly can. Folks, I leased the building for five years, the first building we were in that we bought. The others were just leased.

I moved into a building with a lease with an option. I had a five-year lease with an option to purchase. That building was a $5 million building, was the option to buy it at five. while we were there in the five years, it went to $13 million in value. The owner was praying. I did not exercise the option because I had an $8 million swing in net worth the day I closed on it. And we closed literally within just a few days of the option expiring because I'm getting the nickels out of the corner of the couch trying to find the $5 million. I didn't have it.

I was scratching every piece of cash and I don't borrow money. So I said, God, if you want us to have this building, then you're going to have to send the money. And he did barely. which was proof it was probably him with a wink. But there we go. So that's what we did. And we still own that building. And today it's probably worth $15, $20 million, something like that.

And we don't even use it anymore. It's a rental property now. So that's what you want to do and pay cash for buildings. Don't confuse running your business with being in the real estate business. There are two different things. Do both with cash, though. Good job, Zach. Good job, man.

Thank you for the question. It took me a minute to get caught up with you there, but thank you for your patience with me. This is the Entree Leadership podcast. If you're struggling to know what the next right step is for your team, then you're in good company. Most business owners deal with seasons of uncertainty. Those days that scare the crap out of you? Yeah. But that doesn't mean that you have to keep blindly stumbling from one obstacle to the next.

I know how to get you from where you are right now to where you want to be in 10 years. It's called the Entree Leadership System. and it's the roadmap that takes the guesswork out of business growth. Because, see, I've already been down that highway. I know where the exits are. I know where the bridge out signs are. I can show you. It's what we do.

And we've been running this thing for 30 years. So we've worked through the five stages of business. We've worked with the six drivers of business all the time, the whole Entree leadership system. If you want to learn more about how to solve the right business problems at the right time and the right way, go to entreeleadership.com slash system. Entreeleadership.com slash system.

Sean is in Lake Charles, Louisiana. Hi, Sean. Welcome to the Entree Leadership podcast. Hey, Dave, thanks for having me. Sure. Hey, my question, first of all, I'm a partner. My two brothers and I own a small family business. We're environmental consultants in the southwest Louisiana area.

We do potable water and sanitary sewer treatment. We have 15 employees. We do about $3 million in revenue. Good for you. And a big passion we have, a big desire we have, is to eliminate all of our debt as a company as well as personal. And one of the things that we can't seem to cut out are the company credit cards. So I was wondering how you as a major business

have seemed to operate without company credit cards and still allow employees to make purchases where needed. We use company debit cards. Does the same thing your credit card does? Sure. So I've reached out to several local banks. We currently bank with the National Bank. And our National Bank basically tells us that we cannot issue debit cards to employees

unless they're signers on the account. And obviously, I don't want to have all 15 of my employees. Well, that's not true. I mean, they don't, they, they, they will not, but they can. Cannot is not correct. Because I guarantee you, my dead gum employees are not signed. I got 78 or 82 or something like that debit cards this week running around this place. And I'll guarantee you they're not signers on the account.

Now, I have to sign the, as the signer on the account, I have to sign to approve the card to be issued. but it's a regional bank. It's not a national bank. I don't screw with stupid Bank of America. They're awful. I mean, I deal with a local regional bank. It's of good size. It's not a tiny bank, but it's not one of these massive fifth-thirds or something.

I can't stand those people. Right. You know, because they kept giving me answers like you're talking about because even though we're running a $300 million business, we were still a small fish in their ridiculous ocean, and I don't want to be treated that way. So I'm a big enough fish that I can get them to do whatever the flip I want.

But I'm not, I don't own the bank either. So you can find somebody that'll do it if you want to do it, but if you don't want to do it, then you can just have credit cards. It's the same risk either way. The employee can run up fraudulent crap. The employee can do unauthorized charges on either and you're responsible for them.

Right. The only thing you could do is sue the employee, but the bank, you can't get out. You can't claim my employee bought something that wasn't authorized and that's fraud. It's not fraud. It's employee misbehaving. That's different than fraud. You gave them the card. You gave them the right to sign it.

Whether it's a debit card or a credit card, you're responsible for what they put on it. And I know my business debt is my personal debt. And so my social is tied to that card. And I'm trying to working through your baby steps. and I'm trying to eventually get to where I have a zero credit score. And so with my name being on that card, I'm trying to eliminate all the credit cards as much as possible. Good, yeah.

I just think you hadn't found a new bank yet. That's probably the answer. You know, we need to go and find a bank. You're just going to go shopping and go, guys, this is a deal what we want to do. I know it's unusual. We may be the only one at our bank that does it. Right. And they're a pretty good-sized bank.

But that doesn't bother me. kind of almost a badge of honor, you know. It's like... Right. So, but yeah. So they don't have a, like a pen, they can go withdraw cash at ATM or it's, they don't have that control or ability. No.

I'm looking at one of my VPs sitting here right now. He's got a card in his wallet, right? Jason, I'm looking at him through the glasses. I'm doing this. And he can't do nothing except use the money that's in my account on that debit card. If he misuses it, he's got a problem then. But me and him are going to have a discussion. But, you know, but no, he would never do that.

That's why he has a card. So, you know, careful who we give them to, but guess what? That's true with your credit card if you carry a credit card, too. You're still responsible. Right, right. We were just... You know, I'll tell you, let me tell you something weird as a side, just for the rest of everybody else that are out there listening.

Because we use debit cards, we are positive that our team members that have a debit card understand, first, that they are using actual money coming out of our... checking account when they use that card. And because of that, they're more careful because it's not only going to show up in their name, in their P&L, in their area in the accounting system, but they're conscious that it's cash. It's not charge. And so it's almost like they're walking around with a fistful of $100 bills in an envelope and they go, oh, God, I got a report for this money. And this is like real money we're spending, even though it's on the business. And it's a fistful of $100 bills and it's, it's not my money, they still have this different layer of responsibility that you don't have

when it's a stupid credit card. So I think you're going to find you spend less when you convert. I think some of the, air quotes, corporate charges might be there. And I'll guarantee you this, our CFO and our controller and the other people looking over the debit card charges when they come in, they look down and see a 23 martini lunch, which doesn't happen. But if they were to look down and see that, like this is a ridiculous charge, it's another layer of accountability to leadership on how they're running their area because the money is being, you know, the money's been handled poorly. It shows up there.

And so, and for some reason, we're all a little bit more sensitive about it because it's like real freaking money. It's real cash coming out of my real checking account. So, yeah, I think, especially in a 15-person operation, you may even feel it more dramatically. It may only be a percentage, but I mean, a percentage of the dollars, but I think you'll notice and go, hmm, there's a cultural shift in the way we look at our expense accounts around here, the way we look at company lunches around here, the way we look at taking a client out and what is charged and, you know, oh, look at that. Hmm, yeah, I think you're going to find that.

So I would pursue a different bank, which sounds like you know. needed to anyway. I hate those banks. Those monster banks, they just got no soul, none whatsoever. This is the Entree Leadership Podcast. Welcome back to the Entree Leadership Podcast. Our video question of the day submitted from our Entree Leadership Summit that was done earlier in the year.

One of our attendees asked this question. My name is Daniel Pure Domenico. We are in the recruiting and staffing industry, specifically focusing in engineering and manufacturing sectors. We are located in Cleveland, Ohio. We have a team of 30 people. Our top line revenue is about $7.5 million. We just actually celebrated on April 1st, 51 years. Just his take on where he thinks the economy is going from a manufacturing sector this year,

with the election, I'd love to hear his take on, you know, what he thinks the economy is going to do. Wow. Economists and weather forecasters are the only people that can be wrong most of the time and keep their jobs. So me predicting what the economy is going to do is probably ludicrous. The platform that the Democrats are running on, if I understand it correctly, is to increase taxes. and continue to press a progressive agenda socially. And that's what they believe. Both of those things affect, and we can see exactly what they've done with illegal immigration.

All of those things affect the economy and affect the manufacturing sector for sure. I don't have any idea if how much is bull crap and how much he can pull it off, but Trump claims that he's going to support bringing manufacturing back to the states. That was part of his speech that went on for five and a half hours the other night. Good God. But, yeah.

And so, but I mean, he said that. Now, I don't know if he can, I don't know if he can affect that or not. There are some things that you can do with the tax law, which he did do in the last administration. it wasn't just said, it was actually done, that invites money that's trapped overseas back into the states for reinvestment into manufacturing without being taxed.

Right now, if they have money, American companies have money overseas, they can't bring back here without paying taxes on it. But if they brought it back to and plug it into manufacturing, it would encourage manufacturing growth. He did do that before, and he claims he would do it again. That was an actual fact. I mean, it's not a political,

not a drama, not a bunch of hyperbole, not a whatever. He actually did do that. The main baseline on all of this is I try not to base much of my decision-making on what's happening in the White House because I cannot control those goobers. Both sides of the aisle are completely out of control. I have in my business career of 35 years, I have had presidents that were elected that I thought were going to screw up the economy, and I prospered during them. But it had nothing to do with them. I did it in spite of them with our sheer force of will into the marketplace and just our business acumen. I've had presidents that I thought were on my side, and I prospered under them.

but none of them ever sent me any money. So I more agreed with some of their political or social stands, but none of them sent me any money. So I think it's a bit overstated, not a bit, it's way overstated in the average Americans' mind, including those of us that are small business people often, the effect that Washington actually has on us, one way or the other. I seem to have muddled through under both parties.

And I think in both cases I did it mostly in spite of them, not because of them. And so I'm not going to collapse and go out of business because either one of these people get elected. I'm going to go on and do my thing. And it may turn out that I have a more prosperous economy under one than another. I'm a low-tax entrepreneurial capitalist pig, which means I completely avoid anything that looks like socialism, high-tax, high-regulation, Marxist, leftist, bullcrap. So that pretty much tells you where I'm going to vote,

but I'm not voting there because I think they're the second coming of Jesus. They're not. And so I'm going to do this in spite of all of them, not because of any of them. And so I think that's your best stance overall, all of you out there. And so, I mean, if you hate Trump and you think the world's coming to an end and he's like an antichrist or whatever,

like some of you people have completely lost your minds on this and you have what Trump derangement syndrome or whatever that is, I'm not a Trump worshipper, okay? But I'm also, I don't hate Kamala to the point that I've lost my mind. So, I mean, you guys get, completely warped on this, not you, Daniel, but just in general out there people do in the public. And my advice to you is just pray for your leaders. That's for people of the book.

That's what the book tells us to do. And so I can pray for them and disagree with them. I can pray God changes their mind because they're making bad mistakes. I can pray that. But I'm going to pray for them for sure. I'm not going to wish bad health or bad horrible things on any of them. I'm not, you know, I don't need to do that. And I'm going to go about my business or running my business.

And if I can get folks to do that in their personal household, what happens in your house is way more important than what happens in the White House as a future indicator of your success. So, Daniel, I don't know is the bottom line of your answer. What's going to happen to the economy based on the election? I have no idea. There was some rambling thoughts there, but it does, end up with it probably isn't going to matter much except to the extent that you decide it matters

and you create a self-fulfilling prophecy based on you thought that Obama was going to save the world and he didn't hope and change I didn't get either so um you know that didn't see either one so um sounds to me like a slogan and you know you guys do whatever you want to do but that's that's the thing and I can do that I can do this on either side of the I'm an equal opportunity offender. So just get me going here. There we go. But anyway, that's a good question.

It's an interesting discussion. But it helps me remember how many times in my past I've overreacted giving these people way more credence than they deserved based on their actual actions. This is the Entry Leadership Podcast. Thanks for being with us, guys. This is the Entree Leadership Podcast. We are so. Happy you're with us.

I love doing this show, getting to talk to small business people. Small business people are the backbone of the U.S. economy. As you know, I've said it before on this show. 54% of the gross domestic product in the United States of America, one of the most prosperous economies in the history of the world, 54% of the goods and services produced are produced by businesses that have 500 or fewer team members. Small businesses, by definition. if you're one of those people, I love you.

You are the backbone of the economy. You are proof the free enterprise system works. You're good for freedom. You're good for America. You're good for liberty. You're good for the world. Thank you for being there. You're heroes.

And I'm on your team. And you work so dadgum hard, you deserve to become wealthy doing it. You deserve to serve your customers and do it in a way that you choose to do it without being told how to do it by someone else. because you'll make much better decisions than some goober in another city with a regulation.

I'm just so happy for you. Congratulations on who you are. I'm honored to be part of you and honor to serve you with this podcast. Robert is in Indiana. Hey, Robert, welcome to the Entree podcast. What's up? Thanks, Dave, for your time.

So I'm a superintendent and carpenter for a commercial general contracting company. We do about $3 million a year. We've got six carpenters. one office staff, and the owner's getting close to retirement. So we're talking about me and another guy, another one of the carpenters taken over. I was hoping that we'd work it out where I would buy the company myself outright, you know, similar to your strategy that you've laid out for owner financing for that. But the other carpenter would like to have some minority stock in it. And the owner has

recently suggested, what if the two of us each buy a third of the company, he keeps the controlling third, and then when he's fully ready to retire, we'd buy out the rest of that. And the other guy, the other carpenters agreed that, you know, when we take over, I would have the controlling stock of the company. But just, you know, with this different plan, I was just looking at, you know, if you had any feedback, things I should be thinking about, questions I should be asking. It's interesting. What is the price? Have we set a price? we haven't set a price yet uh the his accountant set it at you know 600 to 700 valuation and we're usually take the past five years you know we've been taken home 150 to 200 net profits that

seems right the owner has said you know he would set the purchase price lower than that lower than the 600 but we haven't set what the price is okay and uh so a third's 200 give or take And how much have you got? Have you got the 200 for your third? And what we've talked about is still, you know, if we're each buying a third of the company, still setting it up so that we would be paying out from our portion of the profit of the company at the end of the year.

Like we teach folks to do. Okay. Yeah, exactly. Okay. Good. And so there's no upfront cash at all. It's just going to come from the profits. And so it's a two-stage deal.

Stage one is each of you buy out a third. Stage two is you buy out the other third. Yeah, yep. And part of what I'm thinking through it, it seems all right to me as long as, you know, we've got it in writing what our roles and responsibilities are, that, you know, we've got chief, not the two of us trying to split it, that we've got a buy-sell agreement,

that we've got a timeline set out to buy out the owners, remaining third. But I just feel like there's so much in here. So what happens during the interim if the owner and the other partner side against you, they have a majority on some major decision. You're screwed. And I mean going in any direction, if any two guys got together. And I don't know if that's something that's easy enough to just put in to the contract

to say, you know, because the owner would still have control. of the company until he decides to finally retire. How would he have control if he only has one third? Well, so my, I don't know exactly how we would, you know, work it out. You know, I know I've heard you say that, you know, you've got the only voting stock in your company. You could do voting stock, non-voting stock in the LLC. Yeah. And the other, you know, I think the easier way, which is probably what my boss is thinking is that, you know, he would have 34% until,

You know, we buy out. That still doesn't give him control if the two of you ganged up on him. That's true. Yeah. Yeah. So not percentage wise. All right. So, okay.

I don't think it's the end of the world. I'm not sure I understand why this other guy even needs to be in the deal. Yeah. So the idea from the start was that the two of us would take over the management together. And I'm better at the office side. He's better at the field side. So the partnership works out well. And I was suggesting that I would buy the company and just keep him on his right-hand man.

Yeah, and pay him out of profits. Yeah, yeah. And one thing he mentioned that he feels more comfortable if he has some ownership so that I can't just kick him to the curb. You can, though. You can. Because you're going to end up a two-thirds owner at any point. He's a minority shareholder in a small business. His shares are absolutely worthless if you decide to make them that way.

you can run the company in the ground against every wish he ever had and his shares end up worth zero and he can't do anything about it if you're 66%. There's no contract in the world that would keep that from happening. So I think you're trying to make this partnership do something for him that it can't do. So my first premise is I don't do partnerships. The partnership is the only ship that won't sail. You've heard me say that because you've heard all these other things, so I know you've heard me say that.

So my first thing would be to figure out a way that he gets paid off the profits and has a right-hand executive vice president position where he's speaking into everything. You trust him. You're going to treat him with dignity. You're going to treat him as an operating partner, even though he's not an owner. And he's going to get everything he wants.

except stock, and the stock is what's messy. Yeah. And it doesn't do him any good when he's not a majority shareholder. A minority shareholder in a small business is what's known as screwed. They can't do anything. They can't force their will on anything. So his ownership position, the only thing it affords him is the increase in value of the company and the cash flow from the profits.

That's the only thing it affords him. and you can give him those things without him having stock. So I'm going to try to structure this differently. That's my first goal if I'm in your all shoes. I have operating board members that are paid off the same line I'm paid off of. They make zero income if the company is not profitable, and they make Buku if the company's profitable. And they've made Buku.

So they're doing really well. They don't own a single share. and when they quit and leave and go somewhere else or are fired, if that happened, they don't get anything. And I don't have to do a buyout and we don't have any messiness. It's just they quit their job and their job was an incredible paying job or they got fired from their job and their job was an incredible paying job because they were paid off the partnership line, the bottom line of the P&L, the ownership line of the P&L, the ownership line of the P&L.

That's where I would really like this guy to be. It allows him to be free. If you don't do that, the complexity of this partnership agreement is going to be costly. And I've covered it on here before, but I'll cover it again to make sure, because in context of this, you have to cover what we always talk about are the D's divorce. She divorces him, and the judge awards her, his. ownership position. Now you're partners with his ex. That can happen. Okay. That sounds like fun. How about default? He just won't come to work. Disinterest. I don't want to work there anymore,

but I still want to own it. I had one of those one time. Yeah, you got to be kidding me. No, you work here. That's part of the deal. You do your part of the job. Oh, how's that part of the deal? Well, that's what we, no, we didn't agree. Oh, yes, we did. No, it's in the dadgum written. So default, divorce. What happens if he, God, help you, gets disabled. He's in a wheelchair, is a car wreck.

How are you going to continue to give him the profits to take care of him? Bless his heart, you got to do it. Otherwise, you're the bad guy. You're going to give him the money? You're going to give her the money? You know, what if he dies? Well, that's your buy-sell agreement. You've got term insurance to buy each other out automatically upon that.

You've already thought of that one. or somebody thought of it for you. You brought it up. So death, disability, drug use. He's doing cocaine. How are you going to fire this guy? You got to buy him out. If he was doing cocaine and he was an employee,

you'd fire him in 13 seconds. And you'd be sad because he's your main guy, but you can't keep your main guy doing cocaine. Yeah. You know? And this is what happens. So you got, you know, all kinds of addictions out there. oh he's great except for his porn addiction you know and his marriage is a wreck and he he can't think

straight you know oh my gosh you know no that doesn't work so this is the kind of crap you're going to get into and i know it's never going to happen to you and i know he's a great guy and that's what they all say so i i'm sorry i've just been doing this too long i'm a little bit jaded i robert here you could tell your two guys this we do this for 10,000 businesses right now plus across America. We see other than law firms and medical, which is a different kind of partnership, doctors and lawyers, okay? Those are different types of partnerships than we're talking about. But two guys doing what you're talking about, two ladies opening up a dress shop, two guys opening up a heating and air company or buying into a heating and air, two brothers going,

my cousin and me are going to buy heating and air company together. The number of those that are still operating together 10 years later is approaching zero. They almost never survive a decade for one reason or another. There's just too much rate of change in our world. And what you guys are putting together is something that's very hard to undo. So I'm going to encourage all three of you to think about a different way of structuring this. If you go forward, though, really get down in the weeds and really think about every part possible worst case scenario and address it in the document clearly. How are you going to cover

if you got to fire him for drug use? How are you going to buy him out? What's the valuation? What's the process? What's the timeline? If he's disabled and in a chair, what are you going to do? If he dies, well, you've got to buy a cell. That one's fairly simple and clean, sadly. But, you know, what are you going to do? What are you going to do? Can you going to set the thing up where it's in a trust so it can actually say, oh, no one but him can own the stock to keep a divorce judge, a probate judge out of the pocket of the thing. Because if his wife gets pissed and the judge's side's on her side and the divorce, ooh, baby.

Yeah, that's going to do that. That's a sound like fun. So, yeah, that's a mess. It's just a barrel of fish hooks, and I don't want to stick my hand in it personally. I don't do them. Somebody comes up with me and goes, hey, we want to do a partnership. I'm like, no, well, sorry. It's good, good luck with that.

I hope it works for you. We don't do them. We don't enter into them. Life's too short. And you can tell I've had problems with this in the past. Thus, I'm so angry and bitter about it. But, yeah, I just don't want that for you, Robert. I want you guys to have a clean deal.

If you're going to go forward with the method you're doing, please spend the $10,000 or $20,000 on the attorneys and get this thing drawn up. It's going to be half as thick as an old phone book of some kind. Some of your people don't know what a phone book is. and so, man, I'm old. But the, yeah, so that, a thick document is what you're going to end up with here covering all the possible ends and outs and processes.

I hope it works for you because it sounds like you're both good guys. Sounds like the owner's not a bad guy. Don't hear any bad guys in the mix, which gives me hope that y'all can figure out a way to do this. I, you know, just going to encourage you to try to research and look at other directions, other methodologies that don't involve. This deal only works if everything works. I just don't like those plans. That's simple.

Hey, folks, 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.