EntreLeadership - We Laid Off Nearly Our Entire Team

Episode Date: April 29, 2024

Today we’ll hear about: A business owner who had to lay off most of her employees How to keep customers happy when you mess up on a job How to handle nepotism in the office with the owner A business owner who wants to know what to do with profit Next Steps 💵 Learn more about Ramsey SmartDollar: https://ter.li/4imot0 🗳️ Submit your question for a chance to be on the show with Dave Ramsey: https://ter.li/askus 👣 Find out what Stage of Business You’re In: https://ter.li/axd39b ✉️ Sign up to receive tactical tools, advice and resources in your inbox every week: https://ter.li/y8qdo7   🏢 Attend EntreLeadership Summit: https://ter.li/fcazl2   🎤 Attend EntreLeadership Master Series: https://ter.li/wcjhpu ☎️ Learn more about EntreLeadership Coaching: https://ter.li/ycznhl   🏅 Help us make the show better! Please fill out the quick survey form. https://bit.ly/3O8fRvh   Offers from Today's Sponsors NetSuite: https://ter.li/x1t20q BELAY:  https://ter.li/yohiu6 Payority:  https://ter.li/fh2oau Trainual:  https://ter.li/a8zexl Listen to more from Ramsey Network 🎙️ The Ramsey Show   🍸 Smart Money Happy Hour 💡 The Rachel Cruze Show 💰 George Kamel 💸 The Ramsey Show Highlights 🧠 The Dr. John Delony Show 💼 The Ken Coleman Show Ramsey Solutions Privacy Policy https://www.ramseysolutions.com/compa… 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 in any stage of business. I'm Dave Ramsey, your host, with over 35 years in the trenches. Experience. I've got a PhD and DUMB. I've done everything stupid you can think of and survived it. You know what the result of that is? Wisdom. So we're here to help you.

If you want a think tank, you'll have to go somewhere else. We're here to help. You give me a call at 844-944-1070, and we'll get back with you, and Taylor and the team will make you a caller here on the show, or you can go to entreleadership.com slash ask and leave a nice voicemail. Again, we'll get back with you and make you a caller. As we talk about small business and leadership,

we're here to serve you. Taylor is a different. Taylor is on the line in Nashville. Hi, Taylor. Welcome to the Entree Leadership podcast. How can I help? Hello, Dave. How are you?

Better than I deserve. What's up? Well, so I have a kind of a situation. I'll just, you know, start out with kind of what we do. My husband started a welding business at 19. We've kind of been through many seasons over the last five years, but right now it kind of feels like we are starting over. We do fab and install of structural miscellaneous and architectural metals.

We're a welding shop. We currently have myself, my husband, and three employees. Last year, we did $1.4 million in revenue with 14 employees, and this year we're projected to hit around $800,000 with a goal of a million in revenue with those three employees. employees, myself, and my husband. With, I'm sorry, I'm confused. You have 1.4 million with 14 employees?

Yes, sir. And you have four now? Yes, sir. What in the world? Yes. Where did I go? We had, we got into a bind, and we actually just, about a month and a half ago, had to lay almost our entire company off.

It was the hardest day that we have ever had. It was the most heartbreaking day. But that's kind of where we are. We're kind of, you know. So you're not making a profit on $1.4 million with 14 people? Well, we had a lot of things that kind of transpired over the last year. We took a bad job. And so the problem that we're having right now is that that one bad job that we had to

float, put us in a lot of vendor debt. And so the vendor debt is what we're trying to catch up one. We were in a lease for a building. And the landlord actually took out money that they told us that they were taking out the funds and didn't actually take out the funds. And so that negative, with overdrew our account, $17,000. So at that time, we had to lay off. I'm sorry. They didn't take out the funds, you said. If they didn't take out the funds out of your account, how did you end up an overdraft? Because they were supposed to take the money out on the first day of every month, and we did not catch that.

Our books are kind of a mess right now. We've got to get our cash flow down. But they didn't take it out. If they didn't take it out, how are you $17,000 short? You should have $17,000 in your account that you owe them because they haven't taken it out. they didn't take it out on time. And so on a random Tuesday, we got into our bank account, and it was overdrew $17,000.

And we came out. Oh, you thought it was already out. It wasn't. Yes. So you were managing by the account rather than by accounting. And you just, you thought you had money in there. Yeah. Oh, okay.

Mm-hmm. So, okay. So you got to suck at bookkeeping. Okay. Exactly. Yeah. I got it. Okay.

So, but that's what we're wanting to sit. That's my reason for my phone call today. Okay. How long have you been doing that? You say he started when he's 19, his own business? Yes. Yes, this is year five. Started.

And did you, the year before this mess, did you make a profit? I don't believe so. We don't have any idea. Did you not file taxes? We did. Did you pay taxes on a profit? We got a little bit money back. You've been paying money in through the year?

Like $600 back. But you paid money in through the year? How did you get money back? You're self-employed unless you're filing money, unless you're taking money and filing it in 941s and you put in too much for yourself. You don't get a tax refund when you're self-employed. So last year, the difference was I was not, I was working at another job. And so that was a difference.

That was the withholding that you got back. But that is nothing with the profit of business. I'm asking did the business pay taxes on profit? Okay. So you're not making money. You're not making a profit. No, sir. That must be terrifying.

It is terrifying. But we... What did you quit your job? I did. Because at the time, we were doing better. The last year is when it fell apart. So we took a job. No, no.

The last year is when it was exposed. It was never together. It couldn't fall apart. You've never made a profit. If you have, it's been very, very small. I'm not sure he's even making wages. Okay. Wow.

All right. Let's stop a second then. Let's back up and start fresh because basically we need to drive a bulldozer through your lack of systems and cleanse this thing and start, as if you were starting a business from nothing. Yes, please. Okay. So you need to go and get in touch with one of our endorsed local providers for taxes

and find out if they have a bookkeeping service as well, because you need a bookkeeping service. And then you probably ought to plug into Elite with Entree leadership. As a matter of fact, let me just give you a membership for a few months into Elite. and get you with a coach. Someone needs to help you sit down. You don't even have a business model. I mean, what do you all sell? You sell welding.

Yes, so we're a fabrication and we fabricate and install different things. We get contract and so we go around and do just whatever our contracted jobs are. We do travel some, but we do. miscellaneous. Give me an example of a job. Handrails, dock stairs. Okay, so you're going to put in, you're going to put in custom-made welded handrails for someone, for a builder on a job, a commercial job or a residential job, right? Yeah. How do you price that? My husband bids that. Why? How does he do he do that? He doesn't even know what the heck he's doing. How does he know what price to put on it? I do have a correction. We did make a profit for the first three years, and we poured that directly

back into the company. How do you know? I guess I don't. This is, and see, I'm newer coming into this and just trying to figure out. Okay, so the basics of businesses, we provide a good and or a service, in your case both for a price that is greater than the cost to produce it. Yes. And the cost to produce it is the raw materials and the labor in your all's case and whatever equipment and whatever rent you have for the shop and so forth. But you don't have a situation where you can afford a $17,000 a month rent. Yes, and we have gotten out of that.

Okay, so where are you operating from now? Your basement? No, we are going into another space. It's going to be $3,000 a month. Much better. Okay. Yes. So we're trying to stop the bleeding. And you said you've got three people left. What do those three people do? Those are our fabricators and our installers. Okay. So they actually do something. And so we've got the labor of those three people plus a profit, plus the cost of rent. plus materials, plus other miscellaneous overhead.

And so basically, whatever all of that costs, you double it in your all's case, and that starts to be your price. It sounds like you're not pricing your stuff high enough, because in your world, what you're supposed to do from an accounting perspective is called job costing. Okay. Job costing means you run each individual job as if it is a stand-alone business. Okay.

And so that rail system for, I'm building a house. Somebody's going to be doing the exact same thing that you do, putting in railing in our house, okay? We've ordered it. It's on the way. I don't even know who it's coming from you. I don't know. But so you look at that job and say that railing cost us X to produce in materials,

Y in labor. X plus Y is our cost on that job. and then we allocate some of our overhead, which is rent, insurance, taxes, phone bill, et cetera, to each job. And then we mark up that number. And so we say we're going to take each job, we're going to add the actual cost of materials in labor, plus I'll just make up a number, 15% for overhead, plus 40% for profit. And now we have an actual price on the job. Then when the job is completed, you compare your actual billing or your actual bills associated with the job, the actual labor hours.

You thought it was going to take 20 hours, it took 18. You thought it was going to take 20 hours, it took 30 hours. You compare your hours on the job, the labor, and your actual material billing associated with that job to what you thought it was going to be, called your estimate. And then that makes your estimating get better and better and better and better and more profitable and more profitable. Because in other words, if you thought it was going to take 20 hours and it took 30, next time you'll do a better job bidding that, right? Yes. So for the first four years, we actually did that and everything, as far as estimated and everything goes, worked out wonderfully.

What happened was we took a job that highly exceeded. It was supposed to last for nine weeks and with problems on the job and everything. It actually lasted closer to six or seven months. And so through that job not working out, which has never happened to us before, and it was the biggest job we've ever done. Through that job not working out, we got into vendor debt. And so right now, my actual question, or what we are trying to figure out is we're just under $200,000 in vendor debt.

And we are trying to figure out if it is worth going forward. We have the motivation to go forward and to get this done and to figure it out. But we're trying to figure out how to catch up on the debt, save for the future, and plan for our contracted jobs that we have. Yeah. Well, I don't know because I don't know how much profit you may. make and you don't either. If your profit, if your profit is $20,000 a year, no, you don't need to go forward. Okay. If your profit's $300,000 a year, of course you would go forward. Okay. But you don't

know. I'm pretty sure we don't have $300,000 or we wouldn't even be having this discussion. Yes. You'd have been slopping along, continuing to poorly do this in the middle of a great profit, and it would have covered up your mistakes. Your mistakes have been revealed by things being tight. And so that's what happens to me all the time. Every time, you know, I hate that saying of Warren Buffett's that you can tell who was skinny dipping when the tide goes out, right? And so that's what happened. The tide went out and it revealed your all's weaknesses here. And so, and one of the, I guess the lesson learned is you don't take jobs that size unless you're prepaid.

Yes. And unless you have a walk- unless you have a walk-away provision where after six weeks you walk away. Yeah. And no longer, we do not any longer want to have more than five employees. We're not doing those large jobs.

You could have 100 employees. I don't care long as you don't take a job that you can't manage. You couldn't manage this job. And you couldn't absorb the blow from it. It was too big. It wasn't the number of employees that was the problem.

It was the job and the way the deal was structured and your terms of getting paid. That was your problem. Oh, honey, this is so terrifying for you. I wish I had a magic wand. But what you've got to do is you've got to dig into this and find out what's really happening with the business. It's almost like you need to do an accounting autopsy to figure out what happened to the patient to determine if it's worth going forward or not. I can't tell if you're making any money in this conversation. Okay.

I suspect you're not. Okay. Because I think you guys have not been tracking your estimates back far enough because what you told me was true, you have this sense, you were very confident a minute ago when you said, we've been doing these estimates, we've been doing job estimates, job costing, and if that was the case, you would be able to tell me instantly what your percentage of profit was, and you can't.

So I don't think that's right information. We did. So we were trying to track those things. We were using QuickBooks online. And actually, we went to file taxes this year, and all of our books aren't entirely messed up. So if you have a suggestion for an accounting kind of software like that, I would be open to taking that. Right now, we had to go back to spreadsheets and that sort of thing. So I'm trying to catch up on all of those things so that we can actually file this year. I think you need a bookkeeper. Go to Ramsey's Solutions dot com and click on ELP and look at our tax pros and talk to one of them that does bookkeeping.

You've got to have somebody and that if it's a good bookkeeper, they can help you put in place some basic accounting systems. And once you get that in place and get weeded through, aside from the debacle of the big job failure and this horrible cash pinch, which calls you have to layer by off, then you can start to say, okay, we have the ability if we do $800,000 to make $80,000 bucks if we make a 10% profit after overhead and cost a good sold on the jobs and we can do that with a three-person team well then you've got a reason to think okay we can live on nothing we could work our through way through with these vendors but if you know if you look back on this and you're

really making 20,000 bucks a year then you guys he can make more than that just as a welder they make a hundred grand as a welder and for somebody else that can do the business part of it. And the good news is he's very employable. It's not what he wants to do. He wants to own his own thing. But so far, you guys suck at it. So you've got to increase your business skills, not your welding skills. And so that you don't live in terror like this. My stomach's hurting just for you right now. I can feel the potential. And I remember that there's this uncertainty. It's like I'm standing on ice and it's cracking and I don't know what I'm going to fall through. It's a really terrifying situations. So I'm sorry for you. But I think the only way out of it is accounting.

The only way out of it is to start to do the basic stuff. And you can do it with spreadsheets if you want. I mean, QuickBooks is all right. It's not great job costing software, though. There's good job costing software in the construction world out there that you can get. It's not that expensive. I don't have a name for you off top of my head. But again, a good bookkeeper can lead you a long way on this. Wow. Seldon my my completely stumped, but I am. This is the Ontario Leadership Podcast. If you regularly listen to this podcast, you probably heard me or any of our callers

mentioned the stages of business. There are five of them. The easiest way for you to figure out where your business is and then understand how to level up and move through the stages is to take our Entree leadership stages of business assessment. It's a free tool. Did I mention it's free? It helps you easily and accurately identify.

where your business is today. You no longer have to wonder what stage of business you're in because you'll know exactly where you stand and more importantly what you need to work on to level up. So click the link in the show notes or go to ontrae leadership.com to find out which stage of business you're in with the free entree leadership stages of business assessment tool, completely free.

Simon is in Rhode Island. Hi, Simon. Welcome to the Entree Leadership podcast. Hi, Dave. Thanks for having me today. Sure, what's up? I'm the owner of a HVAC company. We have 10 employees.

Last year we did 2.5 million. You know, this year we're looking at maybe 3.25. We're at the trailblazer stage. Good. So as our team grows, we're struggling with creating processes that also incorporate accountability, especially for the technicians in the field. This is to, this is basically to address. situations where unintentional damage has happened in customers' homes and kind of making them part of

the process of how do we make the client hold and what do we do to resolve this. So give me an example. They tear up something in somebody's house? Yeah, like, you know, an example of it was we work a lot in the Newport market, which, you know, these houses can be hundreds of years old. We're bringing an 800-pound boiler down the stairs and the step breaks. They look at us as we did damage to the house. We kind of say to them, it broke. You know, and what I'm trying to be careful with is,

one, not to have the technician in a battle with a homeowner, but two, when we get the call after, and it's the office staff that has to deal with it, sometimes it's not fair to the office staff to have to kind of clean up the mess at times. And this isn't a major thing. a small thread that I've noticed. Your tax are paid hourly or by the job or what? Hourly, yes. So actual cost, not hassle or drama, but actual cost of these events out of your 3.25,

I suspect would be less than a quarter of a percent, probably, right? Oh, yes, absolutely. Yeah, it's not much. It's hardly anything. Right. And so, um, You got 14, no, you got 10 people in the field. And so they're doing an average of $325,000 a year each in production. Does that sound right? Yeah, there's eight people in the field and two in the office. Okay, well, so it's not. It's more like $400,000 production for the eight in the field.

Yeah. Okay. And so if you're a tech and I'm giving you responsible responsibility for making $400,000, thousand dollars where the customer's happy, I think you could give them a make the customer happy budget per job. Okay. Built into the estimate that says, you know, on average, and if you don't have to use the money on this job, you may have to use all of it on the next job.

You know, see what I'm saying? So it's like, I'm going to give you, you do 400,000. $4,000 a year, Bob, the technician. And so I'm going to give you $4,000 a year budget to make the customer happy. And if you need to spend $800 on a broken step, then you got $3,200 for the rest of the year. So when the customer has a problem, we're in these high-end, expensive old houses, these customers have a different expectation because they're high-end people. They have an expectation of unbelievable service and caring. So I'm going to deputize Bob to make the customer happy and give him the budget to do it

and give him the freedom because he's the one on site. That takes it completely and say, gosh, ma'am, we just broke your step. We're going to take care of it. Don't worry about it. It shouldn't have broke. It's an old step. I'm so sorry, but we're going to get the boiler in. and I got a guy coming over here to fix the step.

It's on us. Don't, we got you. There's a hole in the wall, drywall guys on the way. Painters following him up tomorrow. I've already made the call, ma'am. In addition to taking care of your heat and air, I'm going to make sure that any of that this ding where the thing fell off the dolly and creased the drywall, that might happen, right?

And, you know, I'm just making stuff up here on the fly, but I'm just thinking about construction. And so, you know, so the painter's on the way. And, you know, you might even have a couple of subs that you guys have on call for all of your 10 guys can call. This is, we call Pete, the guy that does painting. Henry does the drywall. If we need a little bit of carpentry work done, we call, or maybe it's a little handyman that does all of it. It's on retainer with you guys almost.

And he's just standing by to make a customer happy. And this is like a, this is like a Ritz-Carlton type level of service. It is, and that's exactly what we're trying to serve. And I guess the bigger problem is when we don't know when the customer calls in later. Well, then I'm going to say, Bob, you weren't doing your job because your job is to make the customer happy. The way you make the customer happy is you put in the stinking heat and air and you fix any problems that were there while you were there. You don't leave the job with a freaking hole in the wall. Now, that's accountability for a lack of performance.

because I just changed his KRA, his key results area. His key result area is not simple technician. It's make the customer happy by being a technician and cleaning up your dad-blame mess, whatever you left behind. Right. And so, Bob, we don't want to. I get four calls in on one tech from mad customers who didn't take care of stuff after I deputized him and gave him the freaking money and gave him the guy to call to fix it.

and he didn't even bother to do any of it. Now, we got a different problem, assuming I've told him that that's what I want him to do. Makes sense. Yeah, I think you can lay that out as a system, and it'll work good. I love your spirit on this. It's a beautiful thing. I like thinking through it with you.

That's a, you guys are studs. You're killing it. How long have you had this open? You got time for a quick brag? Yeah, sure. So actually, as I talk to you, I'm currently in Florida with my wife and my daughters, and it's the first time of my life.

I'm able to take two straight weeks out of work. And my team's handling it, and it's incredible. Yeah. Well, the stuff you're talking about is the stuff that moves you from Trailblazer to Peak Performer. So you're the exact question. It's the type of symptomatic thing in a business at Trailblazer. And at Trailblazer, you should be taking a vacation. Way to go.

Very proud of you, man. Good work. That means you put the people in place to win. I'm so proud of it. Well done, Simon. very, very, very cool. Fabulous, fabulous, fabulous. Love it.

This is the Entree Leadership Podcast. This is the Entree Leadership Podcast. I'm Dave Ramsey, your host. If you want to help us out, we would appreciate it. Consider following the show, subscribing to the show, click the share button, share the link, let people know that you're enjoying and learning from what we're doing here. It has helped us a bunch.

Our ratings are way up because of you. You are our only marketing buddy. So help us spread the word, boys and girls. Oh, five-star reviews, those are helpful too. Our question of the day is from Addison and Philadelphia. How do you address weak performance with a team member that is the owner's adult kid without jeopardizing your own future as a leader in the company? And how do you make sure the rest of the team doesn't feel like the owner's kid is receiving preferential treatment?

you probably can't do it without jeopardizing your leadership because if the owner is a crummy leader to the point they are allowing nepotism, allowing their adult kid to be in their half-but-doing stuff, then you try to do something about that, it's probably going to end up on you. So, you know, if the owner is not, not a type of person that takes care of this, the owner's probably not the type of person that's

going to appreciate you trying to take care of it. So you're probably leaving. But let's try some ideas before you go, all right? Because I don't think this is going to work, but it might work. I think you have to sit down with the owner because the problem is not the kid. And the problem is not the morale in the company. Those are the symptoms. The problem is weak leadership at the top. So when you run a family business, the dumbest thing you can do is put family members in places that don't do their job, that can't do their job or won't do their job. And so Cousin Eddie works in shipping and smokes pot all day and is a danger to everyone with a forklift, for Cliff is a you know this is stupid right but nobody does anything about it because he's a cousin

and you know he's that cousin so we let him get away with it you know and the leadership that won't deal with that crap is weak anytime you have incompetence that is sanctioned incompetence inside of an organization whether it's a family member or not when leadership sanctions incompetence, allows incompetence to continue without any accountability for being repaired, then you damage the morale of the rest of the team. It destroys unity. It destroys loyalty. And so you have to address it. Now, your only shot is you are what we call leading up, meaning you're going to go into the owner's office and try to lead the owner to do something about this because you can't really go just go do it i mean you're probably not in a position to

uh go in and just go hey uh cousin eddie you can't smoke pot there okay that doesn't work or hey kid you know you got to get your work done uh you because you're they're probably not reporting to you and and so if they are then that's a different issue but well maybe not even so i think you go sit down with the owner and go hey i'm one of your leaders you've asked me to be in this role I'm honored by that and so I am obligated to bring you issues that I am that are above my pay grade

and I need your help with this. We have an employee here who is not competent. They're not getting their work done in an area and the rest of the employees are looking at, the rest of the team is looking at this employee who's underperforming

and by sanctioning the underperforming employee, we're demoralizing the rest of the team. And that employee happens to be your kid, which makes this a real weird conversation for me. I don't want to have it with you, but I feel like I'm obligated to talk to you about it. I'm willing to help with it, but I don't want to be the bad guy. How can we work together to solve this? If the owner says, yes, you're right. I've observed that and I don't really know what to do about it.

Then I can tell you what to do about it. Okay? I don't know the size of your company, but at least you, if it's a small company, it's you and the owner. If it's a larger company, larger meaning 50 people or more, it might be two other senior leaders. And you say, bring Junior in and appoint me and two others to be Junior's mentor. And Junior goes to breakfast with us every Friday morning,

and we will mentor his little butt. And we will get him going and teach him a thing called work ethic, and you give us the power to hold him accountable for performance and to love him well as your son. And we will love him well, and we will be kind to him, but we will be straight with him, and we will try to elevate him from incompetence to competence, in whatever it is, wherever it is he's dropping the ball

and put a group of people around him to disciple him or mentor him or whatever phrase you want to use in that regard because that's what's going on. No one is addressing this and the sad thing is Junior may not even know he's incompetent. He's just fat, dumb and stupid and has been his whole life. I mean, he's just been walking through like everything's okay.

Quote from Animal House, right? And so, no way to go through life, son, right? and so yeah you got to he just wandering along got no idea and so you know somebody calls him on it he may be shocked and look for the

he may look at it as a growth opportunity this thing could turn out great but if the owner says well that's just the way it is he's my son look for a job it's gonna be a mess and you don't be you don't be captain of the ship as he goes sideways and on the rocks

and the rest of the crew is out there swimming and the sharks and you saw it coming and you didn't do nothing about it and you stayed. No, you tried. So it's all in how the owner reacts to you, gently and kindly asking how you can serve and how you can help and what we can do together to get junior up without this getting on me. So when my son Daniel, who's the president of Ramsey now, came to work here,

the first thing job he had was he was selling radio ads, which sucks as a job. It's horrible. And he reported to the sales manager who reported to the VP of broadcast, who reported to the division executive VP who reported to me. So I didn't have any direct contact with Daniel. There was a lot of people teaching him sales, helping him with sales, working with him. And he had good work ethic and he cared. He wasn't, but he was brand new and he wasn't good at first.

And then later he got good at it. And later on, as he moved. moved into leadership several years later, and we thought, okay, there's a possibility, and we said it out loud, that someday he might move into senior leadership here, someday he might even run this place. And what we did then was we took three of our top leaders in the whole organization of our operating board and formed a Daniel committee, and those three men mentored him. And I have breakfast with him every Tuesday morning, and I still do.

do to continue the mentoring as well. But those three guys were his sounding board. They still, to this day, even though he's now the president and he's now their boss, they still go to breakfast every Friday morning. And he loves those men. They love him. They've spoken into his life. He was not incompetent at any stage in the process,

but that's part of the reason is we put an accountability system around a sensitive team member called a family member so that we were able to grow and push and pull in that way. And let me just tell you, 100% of the time, the rest of the team is going to resent the owner's children working in the business unless they work twice as hard as everybody else. I told our kids growing up from the time they're 10 years old, if you're going to do something around Ramsey, you've got to work twice as hard as everybody else to be respected because they immediately assume that you're a doofus and you came in here and got a doofus job because your dad's the boss your dad owns the place and so you get to be respected you've got to bring it and

they have they have they've all three done that so very proud of them but but you don't have a choice the kid the poor kid he starts at a deficit with the team he has to work twice as hard he's got to be really good at his skills he's got to hone his skills all the time. He's got to be reading. He's got to be growing. He's got to be getting better. He's got to be a growth machine. Or he's not going to be respected. It's that simple. And he's sure not going to be respected if you leave him in this role. It's going to crash and burn. But you can't fix it. You've got to ask the owner to fix it. You can help the owner fix it. But unless the owner is willing to do something about it, it's not going to get anything but worse.

and I, the problem is he allowed it in the first place, which tells me I don't know if he's going to do anything about it. That's what's scaring me. So you've got to look at that. We'll figure out what's going on from there. That's how that stuff works. This is the Entre Leadership podcast. Thanks for hanging out with us, America.

Submit your questions at Entreeleadership.com slash ask. Or call and leave us a voicemail at 844-944-1070. We'll get with you and make you a caller here on of this show. This is real business people talking to real business people about leadership questions every day. We're glad you're here. Thanks for hanging out with us. Dawson is in Canada. Hi Dawson. Welcome to the Entree podcast. Hi Dave. Thanks so much for having me on today. Sure. I run a landscaping company. We have about five team members and we do a little over or under $400,000 a year in revenue. We don't have any debt as a company and so our profits are pretty

you strong every year, and I was wondering if you could give me some advice or general thoughts on how to balance how to use those company profits every year between reinvesting back into the business for future growth and some of the personal goals that me and my wife have along the baby steps, such as paying off our mortgage and things like that. Yeah, wonderful. Well, what we do is, and we have from the start, is we take a percentage, of profits every month and add it to retained earnings inside of Ramsey. Business savings, okay?

And business savings is used for stability. So if there's some kind of a downturn, we can, you know, handle that with cash because we don't borrow money. It is also used to reinvest and grow the business. So if we need to buy a piece of equipment or in your case replenish some equipment or maybe extra equipment, I don't know. But you regularly are replacing equipment. That probably, your equipment replacement on a schedule probably ought to be in your P&L

before we even discuss this actually, before you get to profit. You ought to have a systematic equipment replacement in your world. Are you running, you're running mowers and stuff, right? Correct. Yeah, our most wear and tear on our equipment would be on our mowers. And that's really the biggest item for us, yeah. Yeah, and so I would put those on a straight schedule where, every month I set aside, okay, the mower is, it costs X number of dollars and it lasts a certain

number of time divided into that. That tells me how much per month I need to be saving to replace that mower, right? And be systematically doing that out of the P&L before I, before I hit profit. Okay. And because that's just, that's just, that's an operational expense for you. That's not a, that's not really growth. That's just continuing to exist. Because if, you don't replace those mowers, you're out of business. Right, right. So that needs to be in the P&L. Now, then moving on.

Pass that, when we get down to net profit per month out of the $400,000, I'm going to guess and say it's probably $300,000, wasn't it? Net profit. No, no, no, no, you got three people working for you. It might be $200, my $200. We do about a little over $200 a year in net profit. And out of that, over $200, I take a $60,000 salary. Yeah, but that doesn't matter.

Out of the $200, you take a $60,000. sorry, but you still got 140 left, and you took some of that home, didn't you? The 140, yeah, yeah, I have in the past, me and my wife took out a large, you know, a large withdrawal slash dividend, and then we put that rate to the mortgage, and we're on track to pay off the mortgage in, like, three years from now. So past that, I'm just kind of looking at, okay, how much do I want to grow this thing? Yeah, if before. I don't want to grow it to the point where it's, you know, sacrificing my marriage or something

So I'm just trying to figure out what the long-term strategy would be. Okay. So if before we get to 200, the mower replacement is taking care of, now we've got 200 that belongs to Dawson. The business can operate, and I got 200 belonging to Dawson. Let's use that as an example, okay? Okay. Then if we said, all right, I need to be saving for future growth and for unforeseen circumstances, emergencies. Okay.

and I need to be saving the business for that. The rest of it I can take home. And so I don't know what that number is. Yeah. But if you said, okay, I'll just let's see. If it was $50,000 a year, that would be one-fourth of my profit. 25% of my profit, I'm just making this up, Dawson, okay? But 25% of my profit I'm going to leave in the business.

So I'm going to leave $50,000 in the business a year. Or if you wanted to make it an even amount per month, $60,000, $5,000. a month on average is going into savings a year for adding to equipment or other types of growth in the business or emergencies that come up. And the rest of it, you might as well take it home and do your goals. Okay. Yeah, that's very encouraging. I just, there's something about it that seems wild to me. I mean, after I pay off the mortgage, I kind of been in a weird place or I'm like, what am I going to do with that? I mean, how are you going to grow the business so the business doesn't take over your life,

like you mentioned earlier? But you could triple the business if you had leadership in place, right? Right. That's a great point. I mean, you're sitting really at kind of treadmill slash, you're not driving a mower, but you're sitting really a pathfinder level, but you can level up the trailblazer by putting some more people in place that are leadership style to where put some guys in place that are, you know, as sharp as you are that could run a company this size.

and then grow the company 3X and let each one of them be running a third of the company that is about like we're running now. And you could do all of that. Then you're leading them, they're leading their three different areas. Or you could branch off and go from mowing over into irrigation if you haven't already or mowing you're in Canada into snow blowing. I don't know. I'm making up stuff here on the fly.

But I don't, you can, so you could grow the scope and the size of the business as it is or you could do, you know, horizontal integration, meaning you could go into different associated businesses that you add to this business by growth. You can do a lot of different things. And if you chose to, then you could say, I'm going to leave more money. Right now, we're going to stay on 25% schedule,

but if we look up and we go, hey, I'd like to do this $100,000 thing over there, I don't have enough in the account to do that. So we're not going to take as much home for six months, and we're going to dump it in over there. I did that when I built the building I'm sitting in. I've been taking very little home for about six years, five years, because I've been building buildings all over the place over here.

Very little in proportion to what I make, but not very little. But, I mean, I've been dumping the money. I've been building. I got this huge campus with 600,000 square feet now, all paid for and did all that with cash. But all that was was I reallocated the profits instead of taking them home. I built buildings with them. In your case, you might be doing something else. I mean, so, and now I don't have any, I don't have any buildings under construction for the first time in a while.

I feel like the kids got out of college or something and I got my money back. So now I got money coming in. I'm like, okay, cool. I can take all this home again and start doing some personal investing in addition to business. So, and that's, you know, my point is it can ebb and flow. You don't have to chisel the 25% in concrete. I just made that up just now. So there's nothing magic about that number.

So that's exactly where you are. Hey man, you're doing a good job. Way to go. Keep it up. Keep it up. And you're thinking clearly. When we were your size is about when we started setting aside a percentage of profit. And we looked at it just like we looked at yours.

We said, okay, we need to be X percent. And we just looked at yours and we made it up and we said, hey, 25 percent. You may look at it harder. You and your wife and go, we're going to leave 35 percent. I don't care. But put a formula to it so you don't have to think about it again. and it's on autopilot, and the money's automatically dumping into your checking account and automatically dumping in that savings account over at the business.

And so our profit is all, we already know where it's going. We have to sit and wring our hands and think about it every month. It's systematized. It's processed. And again, that's one of the steps of moving to Pathfinder from Pathfinder to Trailblazer from where you are, starting to put processes and systems in place. So excellent, excellent job. Well done, sir.

Very proud of you. Remember, better or 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.