EntreLeadership - That Was a Total Leadership Fail

Episode Date: November 4, 2024

Today we’ll hear about:  A business owner looking for a way to buy out his lazy brother  A wife concerned that their business’s success could ruin their marriage  Dave Ramsey’s advice on building a healthy team culture  A young business owner looking to grow his family business with debt    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   Free Strategic Planning Course and Template: https://ter.li/gjwuzn   Offers From Today's Sponsors  NetSuite: https://netsuite.com/Ramsey  BELAY: https://www.belaysolutions.com/entreleadership  Payority: https://www.payority.com/entreleadership  Trainual: https://trainual.com/entre  Found: https://found.com/entre    Listen to More From Ramsey Network  🎙️ The Ramsey Show    💸 The Ramsey Show Highlights  🧠 The Dr. John Delony Show  🍸 Smart Money Happy Hour  💡 The Rachel Cruze Show  💰 George Kamel  💼 The Ken Coleman Show    Learn More About Your Ad Choices   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 have a question you want to ask on the show, you can fill out the form at entrell leadership.com slash ask, or you can give us a call, and we'll get back with you and put you on the air. The phone number is 844-9-44-1070. That's 844-9-44-1070. Sean is in Wichita, Kansas. Hey, Sean, how are you? I'm good, Dave.

Thanks for having me. Sure, man. What's up? I'm the business manager, one of the owners of a family business. We do industrial construction. Currently, we have about 75 employees. The business is made up of my parents, and then me and obviously in two of my brothers.

We've been in business about 25 years. This year we're doing about 11 million, which is down from last year, which was about 16. And I tell you that, just because of an issue that we're having with my youngest brother. It's been going on for quite a while.

Just kind of a lack of effort, lack of determination. You know, several times we set him down. Who's we? You know, told him that he's got to do better. it does for a little while. Who is we? Usually it's my dad and just my older brother and myself set him down.

Okay, he's got it. So if you had another team member that was doing the exact same thing, and you would sit down with them, right? And you would say, you know, efforts got to come up, competency has to come up or whatever, right? Correct. And how can we help you do that? I mean, what, so his, I mean, you're kind of like describing somebody that's lazy, right?

Absolutely. Okay. So, give me an example of an effort, a time that effort is not coming forth. I would say, you know, over the last probably eight years, he's been the project manager of a large maintenance contract we've had. And we just lost that contract in November. And we know just from feedback that we received, because of, you know, not getting with the clients, not managing the jobs, you know, ensuring that we're doing everything to keep the customer happy and, you know, not try and

gouge them on the work that we're doing, just managing it better. So we know that that was one of the reasons. So there's no one, okay, if you have another contract like that with someone else inside the building, another project manager? Yes. I mean, you don't watch them to see that that customer's, being kept happy over a period of years? Absolutely, we do.

So you were watching your little brother destroy this customer? Well, we have, and like I said, we've said him down several times. No, no, no, no, no. Stop a minute. This is on you. Okay.

Okay. If I'm the leader and I have a team member that is supposed to be managing a project and we suspect that the project's not being managed well, we get really involved to make sure that the customer stays happy, and we either take the team member off of it or we get them up to snuff.

But you guys just stood back and watched him crash the car. Well, to an extent, yes. Was he correct it, course corrected during the time he was screwing up this account? Yes, several times. And then he continued to cause the account to be lost with his lack of effort. Well, it would get better,

for a while. He lost an account that was millions of dollars. Yeah. It did not get better. It definitely didn't get better when we lost it, that's for sure. Yes. Okay. So here's the thing.

One of the things I've had to learn inside Ramsey that's been very difficult for me, and by extension for my leaders, we learned the lesson 20-some-odd years ago. but for about 10 years, and we were your size when we were learning the lesson, the size of your organization, was that we thought by not addressing things early and often, that by doing conflict early and often with team members that were not getting the work done for whatever reason, that somehow we were being kind or we were delegating or we were something and we were way too hands-on. off. And so nowadays we're the other direction. We're the opposite of conflict averse. We embrace conflict like it's a dead gum gift because we don't want anyone around here to have any illusion

that lack of service to a customer is okay, have any illusion that lack of effort is okay or lack of competency is okay. And so we talk to you early and often if you work here and you're not getting the job done. It feels like that y'all have been a little bit hands off like I used to be. I would agree, and I think because he was an owner, he was given too much leeway. You know, we wouldn't allow that with somebody else. Are you sure your other non-owner team members are being held accountable closely enough? I would say yes, yes. Okay. All right. Then you're not guilty of what I was when I was. was your size. Okay. I'll take your word for it. All right. So, I think then you guys have to decide

if you're going to let him be in the organization because it's a cancer. It's a cancer. That's kind of where we're at. When we lost that contract, you know, we had to move him out of that facility and, you know, we didn't have a lot for him to really take over because of the other managers that we have. And your dad has given the three sons. ownership position. Correct. So what percentage of the business do you each of you three sons own? My youngest brother has 20.

I have a 22, and then my older brother has 27. And that was determined by age? To an extent, yes. Part of the reason I'm kind of in the middle is because I haven't been with the company since it began. But this is 77%, so your dad has 33. Well, that's split between my mom and him, but yeah, it's like 19 and 14. Well, they're married, so, yeah, okay.

Yeah, right, right. So at some point, the two remaining brothers will buy out dad, and how are we going to get junior to go on to his next career? Well, and that's kind of where about two weeks ago I had had enough, and I set him down, brought my older brother in, and basically told him he has two options, either we buy him, you out because we know you're not happy and it has affected us or you know we have strict clear goals and requirements that have to be met for you to continue with us and those would be

laid out for you by the end and we would evaluate it by the end of the year so my concern is that he's not going to meet those and so how do we how do we what is your partnership agreement say about buying somebody out that is incompetent? Well, it's very explicit. I mean, we have a buy-sell agreement. Okay. So what does it cost to buy him out? Well, we have valuations done, but the last valuation was quite a bit less, but it does say that we can basically offer whatever we want. That's weird. So we can offer him a dollar. We could. Doesn't mean he has. We could. Doesn't has to take it. Yeah, but what if it, what, I mean, you can't force him out. Is that what you're saying? Well, no, we can. We can go to him and structure it. We're going to, we're going to pay you this

much per share, and we're going to structure it over five years. We can do that however we want. Now, he can say no, and he could get a lawyer at that point. Well, but the part of the partnership agreement dictates that you can do that. Correct, it does. You can get a lawyer about anything. That That's not the issue. But the... The only thing he could do with the lawyer is our last valuation says, you know, each share was worth this much. Well, I was from three years ago.

So, you know, you can justify that. Three years ago, you know, we were making $18 million more than we are now. So it's definitely not worth as much. So you're paying him a premium to get rid of him if he used the formula in the partnership agreement? Correct. Okay. So what's the 20% worth? You know, we kind of talked about that.

I think realistically, it's worth about 40,000 per share. And he owns 20 shares? Correct. Okay. There's one share percentage, okay. And you guys have the cash? We do. We do.

Okay. And you have the ability to do that over five years, according to the partnership agreement? Yes. Yeah, we could dictate or we can structure. that how we want. And to me, but that's why I want to do is, you know,

a larger upfront first year and then spread the rest out over the remaining four years. I would rather just pay him one lump, someone be done and have him sign separation agreement that he's okay with that.

Okay. I want this over. Thanksgiving dinner is going to be awkward enough. Well, that's the concern. I was a big concern, too. Yeah. It's going to be awkward enough.

But so I think now the whole family sits down with him and says, if he wants, it says, okay, look, here's what we can do as a buyout. We're really, really, really, we love you as our brother. We can't stand you as an employee. Okay. You know, and here's the amount that you can take and leave now. If you want to try to work, get out of jail program between now and the end of the year, here's. what it's going to take, and honestly, I don't think you can do it. And at the end of that time, then you're going to go ahead and sign a document now that says

you're going to take this much money. You can take it now and leave, or you can try this, and at the end of the year, we'll give you this much money. If you can't do it. Maybe you can turn it around. Maybe you can grow a brain between now and then. But I don't think you can. I think you're done. I don't think you want to be here. The customers are mad at you. The employees are mad at you. You know, this is not good. And so, you know, have an emotional firing, we call it at Ramsey. And if you want to work a 90-day plan, at the end of that 90-days, here's what you're going to get,

or you can sign now, and we'll give you that right now. And either way, you're going to sign at the end of this. And you're going to sign a document today that says, I'm going to work a 90-day plan. And if leadership does not think I'm competent at the end of that 90-days, then I am agreeing to accept this amount and accept their judgment. Or you can just bulk out now with as much money, whatever you want to do, a clean break. So Henry Cloud teaches a thing, and we've used it at Ramsey for many, many years. We call it hats.

And when we're at work, I am not dad. I'm Dave. And I wear a hat that says CEO on it. My daughter, Rachel Cruz, works here. she is one of the Ramsey personalities. The hat she wears says personality on it. Okay. She's not, she is an owner of the company,

but the owners of the company do not have positions based on ownership. They have positions based on what they do here. My oldest daughter does not work here. She runs our family foundation. She has an office in the building, but she's not an employee of this place. And she's an owner. but she's not an employee of Ramsey.

So she has an owner's position, but not a position of an employee position. I'm an employee and an owner. I'm the CEO. That's my job title. Okay. And I'm an owner. Rachel's the Ramsey personality, and she's an owner. Follow the difference?

Okay. So your brother's ownership is a separate issue from his employment. and yet you need to clean up both at the same time as he leaves. And it's also a separate issue from him being your brother. I have family members that I love dearly. They vote wrong, but I still love them. Okay? I don't agree with them about everything, but I love them.

I would not employ them, but I love them. There's a difference. So you can still love your brother, you can still have good relations with your brother, if you guys handle this right and if he's mature enough to walk through this process, that'll be his choice. You don't get to choose that for him. But you need to separate your brotherhood and your dad's fatherhood from his employment and from his ownership.

They are three different things. We're cleaning up two of them by removing him, the ownership position and the employment position. As a matter of fact, in your case, he's losing his ownership position. because he's losing his employment. Does that make sense? Yes, it does, and I'm sure I know what you're going to say, because one of the other things we discussed, not with him, is him not being an employee retaining his ownership, but...

That's possible. You know. But then he gets 20% of the profits that are distributed to the owners. Right. Now, you should get paid for the job that you do at the company, Sean. your dad gets paid for the job he does at the company, and then there are profits after those salaries. Right.

Rachel gets paid as a Ramsey personality, like John Deloney does or Ken Coleman does, okay? And then there are profits at our company, and she shares as an owner in the profits. But those are two separate checks. Right. One is an ownership check that you're not required to be here to get, and one is a personality check that you have to be a personality to get that check.

Does that make sense? Well, and that's, yes, and that's something the way we discussed going around that is, you know, rather than doing payouts from the profits out of retained earnings, we would give a bonus to the actual employees that are still working here that are owners. Then you're not offering profit disbursements. Well, you can monkey the books where there is no profit. Right. You guys can take bonuses, but that's unethical.

If there's real profit, it should be shared on the percentage basis. After everyone's been paid for doing their real job, not overpaid. Okay. Okay. So I'm not trying to cheat your brother. You all gave somebody gave him 20% at some point. And that's going to cost you. Okay.

You know, so either you're going to give him 20% of the profits after everyone's been paid for doing their job, or you're going to buy him out on your formula. Either one of those is ethical. Honestly, I think he needs to be bought out and go on his way. That's what it sounds like. I think that's a lot cleaner. Being tethered back, you all are going to resent paying him one-fifth of the profits on a business you grow with him gone and him having lost a major account. That's going to get weird for y'all.

So I really, really wouldn't go there. Hey, man, thanks for the call. Thanks for letting me walk through that with you. It's a very hard thing and a very difficult thing. But sometimes if you'll just keep the family position separate from the employment position, separate from the ownership position, it helps you with good critical thinking skills on how to process this whole thing. This is the Entree Leadership podcast. Have you created a strategic plan for 2025 yet if you haven't?

You're late. Because winning is an important. intentional act, Zig Zigiler said, if you aim at nothing, you'll hit it every time. When you create a plan for the year in advance, on paper, on purpose, you give your team some tactical steps that they need to help you scale the business and do the plan in 2025. Everybody's allowed to get on the same place, playbook. And to show you exactly how this is done, we're giving away Entree Leadership Elites, strategic planning course and template for free. It takes under 30 minutes to watch the course,

and the template will guide you through every step of creating your strategic plan. To get a LEET's strategic planning course and template for free, go to Entreeleadership.com slash plan, or if you're listening on Spotify or podcast, click the link in the description. Whitney is in Canada. Hi, Whitney. Welcome to the Ramsey Show. Hi, Dave. It's a pleasure speaking with you today.

Thank you so much for everything you do. Sure. What's up? So my husband and I own a auto glass repair and replacement business in our local community. And we are deep in the treadmill stage of our business. And it is really growing and evolving. And we have been talking about just with everything being so busy, how do we best balance the making decisions in the business and then, you know,

leaving the business at home and then coming home and being intentional about our marriage? and being intentional about parenting and fostering great friendships. It's just, you know, there's only so many hours in the day, and we don't want to look up in 10 years and look at each other and say, who are you, but our business is thriving. And so with someone being so far ahead of the game, then us, I'd love to hear what your advice would be. How many team members?

My husband is one of the technicians. We have two technicians. we just hired the second one, and then myself and my husband run the business admin-wise. Okay. And by admin and operations, you mean incoming calls from customers, scheduling, all that kind of stuff? Yeah, the books, the everything to make, yes, to make the business run, yeah. Okay. And so you're busy all day long with that, and he's busy putting glass in all day long.

Yes. and then answering the phone if I'm not around because our community loves to speak with the owner when possible. So, yeah, we both manage the phones and are kind of the customer service reps when we need to be. What is one of the, if you want some hours back, you have to delegate it and hire somebody. And so you've hired some more technicians to install glass.

Yep. Is one of the next steps to hire another technician and get your husband off the street? Potentially, yes, yeah. Okay. Or is it to hire a bookkeeper so that you have more margin? Who is it that's dragging work home? You? What kind of work are you dragging home?

I'm doing the reconciling the books. Any odds and ends if we were so busy in the shop during the day, if we can't get back to, vendors or sometimes respond to emails during the day, then it's done later on in the day, if need be. So you need a high-quality person that can help with a few process things, including helping you with the books. Right. And that would give you, like, an entire segment of your life back.

Correct. Okay. What's your top line revenue a year? Topline. Last year was just under six, and we are on track to be at 700 at the end of this year. And you have currently two employees? Two employees and then two owners, yes. You and your husband are the owners? Correct.

Okay. One owner. All right. Yeah. Our family owns the business. Okay. Correct, yeah. All right. Well, I mean, the thing, you ask how we got off the treadmill, The answer to the leveling up out of treadmill is time management and delegating something in the business to get it off of you so you don't have to take it home. And, you know, when the owner is, it's necessary for the owner to be there for the place to operate, that means the production, the marketing, everything is on the back of the owner.

and if the owner takes a vacation, everything's going to fall apart. Correct. And that's the definition of a treadmill operator. So how do you get rid of that? You have people in place that do the work, and you're now working on your business, not just in your business, as Michael Berger says in the e-muth. And that's the leveling up from treadmill.

That's how you get up off the treadmill, because all the revenue and all the production is not based on one person or two people, in your case. and so we've got to move some things up on that and it's some time management and it's that but the stuff that you're taking home you're not able to operate your business and not do those things they have to be done right so just saying well my kids are more important and I'm just simply not going to do this that that's not going to work you'll lose the business correct so you've got to to bring in someone to get it off of you so that you're not taking work home.

And that has the side benefit of saying I'm going to level up out of treadmill, because the overall goal here is to be able to put the glass in the cars and do the customer service and do the billing if you're on vacation. Yes. And so you've got your first foot in the door to do that with the new technician you hired to do glass. And I think an in-office admin slash bookkeeper that can do the book, and can answer some of these admin emails, and that frees you up to be the face to the customer,

and you can take the calls still. And then the next stage will be to get your husband off the street and let him be in sales only and have technicians doing the work. Okay. That'll be your next hire, I think, after that. But so what we're investing here is in our overall sanity and the ability to grow the business,

but we're not really investing in someone that's going to make us more money right now. And that's, I think, where I have this stumbling block. But you have to look at it that this is not sustainable. You can't get where you want to go 10 years from now, keep doing this. Right. You've got to change something.

And so I brought in a bookkeeper. So I learned to delegate. I'm going to give you a copy of my little delegation quick read, okay? but I learned to delegate based on a couple of things. Number one, I hired people, and this is wrong, but I did it anyway, I hired people to do stuff I didn't want to do. We've all been there. Yeah, and that's okay, because they're actually going to be better at it.

I like knowing the numbers, but doing bookkeeping, I'd rather shoot myself. I mean, it's just, oh, God, it's so painful. So one of the first people I hired is the one we're talking about you hiring. Okay, I hired a person to come in and help with admin and help with the bookkeeping. And to get the day-to-day nitsy writing the dadgum checks off of me. I want to approve the check list and then you write out the checks. Somebody else can print them off, right? Somebody else can put them in the envelope.

Somebody else can do the online bill pay or whatever it is we're going to do. And I'll approve it ahead of time. But the actual function of accounting, oh, God. No. And you could get that off of you. You could have your evenings with your kids back. Right. And then you're freed up to work with customers, which brings you in more customers.

Because you're not getting new customers when you're doing bookkeeping. Correct. You're not growing the business when you're doing that. And so it's a little bit like I don't cut my own grass because I'm not making any money while I'm cutting grass. But I can make money while that guy's cutting my grass. Right. Same kind of a deal here.

a delegation of a piece of my life in this, and that's how it's done. I love your business. I hear, and I really hear a lot of energy, and you're not whining. You're just trying to figure out how this thing doesn't kill me, because you're getting a little bit tired. You're getting a little bit frayed at the edges, which always happens when you're running a treadmill. So make two moves in the next 12 months that get you to work, both of you working on your business, not just in your business. And they're both delegation moves. Hire another technician, hire a bookkeeper, admin person, and then the two of you become the customer facing, loving on the customer, making sure people, everybody else is doing their job, the glasses getting put in,

the bills are getting paid, you're looking over people's shoulders while they're doing the work, but you're not doing the work. That's getting up off the treadmill. So hang on, we'll have a team pick up. We'll give you a copy of that book, Delegation, that quick read, you'll like it, and I'm proud of you. You're doing good work. Very cool stuff there. This is the Entree Leadership podcast. Question of the day comes from John in Tennessee. How do we create and maintain team culture when our team does not work in one location? I've never done that. I've only observed it done by others. So most of the things I answer on this show are something I've actually done. So that's my disclaimer to this answer. But I think, number one, you have to work harder at creating culture

when you're not all in one location. Location being all in one building naturally creates a culture. Some of it's bad sometimes, but it naturally creates a culture. Because people are there, they're going to interact with each other, and we get this rhythm,

this flow of behavior inside the organization, and that is the culture. How we treat each other, how we look at the customer, what our core values are, how we handle conflict, all of these different things happen all inside a building. You can't keep it from happening.

And that's the beauty of working from work and being in one location. So you've got to spend some extra effort and some extra money when you've got branch offices or whatever we want to call it out there, other locations. I will tell you I have a good friend and they do a huge gathering. Now they're making really good money and the business is very successful. So caveat that. but they gather everyone and their spouses and take them all to a huge theme park once a year

for two days. And so what happens is the person at certain, certain location talks to another location, person in another location, but they've never met them, but they end up riding a roller coaster together. And now they've talked and now they've met, and now connection has been born, friendship has been born, trust has been developed.

We have found that people, if we can do anything around Ramsey, where people play together and eat together. We spend a lot of money on food. Food creates conversation and breaking bread together, creates connection and trust. And so we'll take certain teams and break them out on retreats. We'll take leadership teams and break them out on retreats,

sometimes with spouses, sometimes without. Our operating board for many years did an expensive, off-site retreat. Main purpose of that retreat was not planning, was not strategic thinking. That's some of the stuff we did while we were on it, but the main purpose was for us and our spouses to play together. And we would go snow skiing,

or we would go to the Caribbean and go diving and fishing or whatever, and to the beach, play beach games, whatever we were doing. And we've done all kinds of stuff together over the years, and it has really created great connectivity with the leadership team. So breaking bread together, movie night. In the old days, several times we would go, you can go, again, I don't know how spread out they are. But if they're spread out all over the United States, some of this might be done digitally. But anytime we can do a quarterly or an annual gathering physically, then that's going to be a huge help.

The more often we can be in physical proximity to each other, the easier it is to be. culture. And if that's not possible, then we're down to zooming and we're down to connectivity and we're down to, you know, just constant high levels of communication. But you've really got to get inside folks' lives and love them well if you're going to create a quality culture. And the more spread out you are, the more difficult it is. It's really hard to be harder and harder to be unified, the more spread out you are. Again, one of the reasons that the productivity goes down so far when a high percentage of the team has worked from home. This is the Entree Leadership Podcast.

This is the Entree Leadership Podcast. Sam is with us in New Jersey. Hi, Sam. How are you? Hi, Dave. How are you? Better than I deserve. What's up?

So I run an air conditioning heating company out here in New Jersey with my family. We did about 2.8 million last year. This year we'll hit about 6 million. We're at 4.5 so far for the year. Way to go. Thank you. Thank you. We've grown the business substantially over the last couple years.

I actually just graduated college in May, so I've taken more of a hands-on approach this year, and we're really trying to grow very, very fast. Finance and supply chain. Well, good for you. Excellent. Yeah, from Rutgers. So, you know, we're about 30 employees now.

We're about half that last year. And we're looking, you know, my goal is to really grow this company and hopefully, you know, plan for an exit in about four years, five years. And our goal is, you know, to obviously grow as fast as we can without, you know, without taking on any massive debts. And we've done pretty well so far, at least in my opinion. We do utilize that. So that's really the point of question here in my call today is to see if you would think that we're in a risky position with the way that we leveraged our debt.

So the only debt we've used in our growth is really for trucks, and we use vendor debt. But our vendor debt pretty much goes against our accounts receivables. And the truck payments, you know, we wouldn't be able to grow as fast if we had to buy all our trucks for cash. we would just, you know, we would limit our growth very, very rapid, you know, very, very drastically. And so, for instance, if we want to hit about $15 million next year, which is our goal, we would have to buy about 20 more trucks, which is double the fleet we have now. You said you're $4 million this year? We're going to do $6 million this year.

$6 million this year. And you're going to almost triple it next year. Yeah, we grew about two and a half times. We'll grow about two and a half times this year. Six million is more on the conservative side. When you say vendor debt, do you mean? 30-day payables? Yes, yep.

Okay, so that's not, that's not, you're not carrying debt with debt payments, you're just vendors bill you and you pay them. Correct, correct. Yeah, that's, I mean, we do utilize it. That's just standard business practice. Okay. That's like paying your electric bill. Yeah.

It's just a, you know, I bought something, they sent me a bill, we paid the bill. We've got, you know, I just wrote a check for hundreds of thousands of, of dollars to Google for deadgum adwords okay yeah but um and i didn't prepay for those they just you know we used it they sent us a bill we paid the bill so that that's just that's just ongoing payables now if you're carrying something over 30 days or you're setting it up on a payment plan now that's debt so some some of our debt with our so our main vendor is ferguson we buy all our equipment there it's you know the largest supplier um and so we have about a half a million dollar credit line with them. Some jobs, we do a lot of larger projects. Some projects, if we're not getting paid for 90 days,

120 days on there, then they extend those same terms to us. I got you. Yeah, so I don't know if that quantifies as debt. Yeah. And so how many, to go into the other question then, how many, how much truck debt are we talking about on the vehicles? I would say about 400,000, 450,000. And the net profit on the 6 million is what? it's about 20% about a million to okay well I mean

you learned this in college and you're just out of college so you should still remember it that you know debt does equal risk did you do like a

a standard business case class probably senior year where you had to analyze the stock price on something and you look at one company that carries a lot of debt, another company that doesn't, and you devalue their stock because of risk? I did.

Okay. That's a pretty standard thing in senior year in finance class, okay, has been for 30 years, or 40 years, I guess it was ago, I did it, but that's, you know, that's kind of common sense in a way. But actually, when we're taught the way you're taught academically and the way I was taught academically, that when we're placing a value on a publicly traded company's stock, we reduce the value of the company if they're carrying too much debt because more debt equals more risk, and that stock is going to be more volatile

because that company's taking more risk than a company that has no debt and has virtually no risk of that type anyway. They have other risks, but not that type of risk. So more leverage equals more risk. More leverage me equals more upside. And Sam, as we all heard in our very first finance class, leverage is a two-edged sword. It cuts both ways. It'll cut you down.

It'll take you out at the knees. And it can build you up. And when you're looking at the way you're looking at, you know, we have a tendency. When we're small business people, we're optimists and you've done really well to grow the business. So why wouldn't it go on to 15 million if I just. went into debt and bought some trucks. We never think about, oh, well, you know, we could have COVID, or we could have some outside variable come along and challenge this idea.

And then once your profits drop, oh, you know, if your profits dropped away, you know, this debt would cause you to get in the red faster than if you didn't take out the debt. So that's the, that's the consideration to answer your question. And the same thing's true. when you take out a large job, and I grew up in the construction business, and so I've watched Heat and Air guys go broke my whole life as subcontractors, when the contractor goes broke. The contractor gets too leveraged out there, gets too stretched,

and they look up and decide not to pay the vendor on time, and then Ferguson comes knocking on your door. Yeah. And that's your... That's your... That's your risk. other concerns. Yeah, that's one of my other concerns is because, like, our accounts receivables is about a million dollars now. Yep. And it's one of the scary, and a lot of that money,

a lot of that money is guaranteed because it's coming from the state. It's through state sponsored programs that we work with. It's also guaranteed to possibly be delayed by some idiot bureaucrat. Yes, that definitely does get delayed. So we, we, you know, thankfully we've been, you know, me and my dad worked side by side for most years until we decide to grow at a couple years ago. And so we did have, you know, we had a good amount of reserves, but we thought we're good enough reserves about, you know, we have about half a million, six hundred thousand in accounts. But when our run rate is, you know, we did about a million dollars in July, it feels like we don't have enough cash at all.

Yeah. So the problem is this, okay, that you've increased your probability of complete atomic failure meltdown with, as you increase the Ferguson line. of credit and as you increase your vehicle debt. Every time you add a dollar to that, you've increased your risk of meltdown. Because if a perfect storm hits and a bureaucrat kicks you and three vendors out there don't pay timely on the Ferguson stuff and some of your other consumer stuff slows down,

you get about three of these elements at one time coming at you, you've messed up your margins with these debt payments. And that's the risk. That's the mathematical result of risk. And to the point, you want to choke that down to make this thing hockey stick, the way you're talking about. That's completely up to you. I have chosen to grow slower and have very little stress. I would rather have a pile of cash, no debt, and my risk level is way down.

And I want to be the tortoise rather than the hair. but I'm not trying to take something up 3X in one year or two years either. Now, I might take something, one of our divisions or departments or product lines up 3X, but we're running about 300 million. I'm not trying to get to a billion in one year. And if the only way I could get to a billion in one year was to borrow money, I wouldn't do it. I would just go, I would take a few more years. I got some time.

It's okay. You have time. You're just getting started, man. You have time. And, you know, if you're planning an exit, you know, a real clean balance sheet makes an exit easier. A cloudy balance sheet with a bunch of lines of credit and vehicle debt, it makes the whole process a little harder on the exit because they're going to see that as risk, too, the buyer. And they're going to say, I've got to come in and clean that up to get my margins up and to lower my risk.

And that's what a buyer is probably going to look at, especially if they're well-funded. buyer and they're not living on the edge but um you guys do whatever you want to do you you ask me i don't borrow money and so i would have cash reserves to cover my ferguson line so that i was not bleeding past 30 days and i would buy a few less trucks and i would grow from six to 12 million instead of six to 15 and then the next year i would have even more cash flow because i don't have payments huh and then I could grow again and I just pay for it because I got money and I sleep really good thanks for calling Sam sounds like a cool thing you're doing I'm proud of you folks remember better a wary 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 You know,