EntreLeadership - Why You Can’t Afford Weak Leadership

Episode Date: September 4, 2023

Today we’ll hear about: •       If it’s beneficial to buy partial ownership of a company •       What to do when your employees are drowning in student loans •       A 21-year-old that made $3 million selling smoothies and wants to take his team from good to great •       How to prevent customers from walking all over you Links mentioned in this episode: •       The EntreLeadership Podcast •       Stages of Business Assessment •       Student Loan Debt in America Livestream Have a question for The EntreLeadership Podcast? Leave a voicemail at 844.944.1070 or submit your question for a chance to be on the show with Dave Ramsey: https://www.entreleadership.com/ask Start growing in business and leadership with the EntreLeadership Newsletter. Sign up to receive tactical tools, advice and resources in your inbox every week: https://bit.ly/3IRWnsL   Support our sponsors: •       NetSuite •       BELAY •       Payority •       Trainual Learn more about EntreLeadership Events: •       EntreLeadership Summit •       EntreLeadership Master Series Learn more about EntreLeadership Coaching: •       Elite •       Advisory Groups •       Executive Coaching •       Workshops Listen to all the Ramsey Network podcasts anytime, anywhere in our Ramsey Network app: https://apple.co/3eN8jNq Learn more about your ad choices: https://www.megaphone.fm/adchoices Ramsey Solutions Privacy Policy: https://www.ramseysolutions.com/company/policies/privacy-policy Learn more about your ad choices. Visit megaphone.fm/adchoices

From the headquarters of Ramsey Solutions, this is the Entree Leadership Podcast, where I take calls from leaders and business people 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' experience in the trenches. That means I actually freaking do this stuff. It's not theory. We make payroll around here on Friday like you do. It's actually not Friday. It's first and 15th. But either way, I mean, you know, The deal is we're in here doing it like you are. This is not a think tank on leadership. It's not theoretical stuff.

It's actually people that do the stuff. So thanks for hanging out with us. We appreciate you being here. Open phones, call in, and we will make you part of the program. Leave us a voicemail at 844-944-1070. 844-944-1070. We appreciate you hanging out with us. Zach is going to start this episode in Cambridge, Nebraska.

Hi, and Zach, how are you? Hey, Dave, I'm good. Thank you for having me on today. My pleasure. How can I help? Yeah, hey, so I am the owner of two kind of small-town grocery stores. I have a 25% ownership in the store. The other 75% ownership is actually my parents.

And last year, our revenue, my wife and I, I guess it should say, our revenue last year was we took home about $140,000. And so my question for you is, my parents are looking to kind of retire, and we were trying to look at trying to buy another 50 or another 25% of the ownership, and that will put us at 50% owners. And we are kind of valuing on that about $500,000 is what it would be to purchase that other 25%. And I know you have experience in that,

and having family members come up and take over the rain. So I'm just kind of curious to give some input on your behalf on some of the ways that we can do that without having to go to the bank to take out money at an 8.5% interest rate right now. Which would be suicidal. Agreed. Why only 25%? Why not buy the whole thing? It's a good question.

You know, I guess I don't know why. You know, my parents are trying to look at this. still have a little bit of a revenue stream to come in. This is two small grocery stores as well. So we are definitely in, like, the treadmill operator stage on both of the stores. Logistically, it would be tough for me to try to run both of them right now anyway. If they're going to retire, somebody's got to run them. Very true.

I mean, he's not, oh, Pop's not working anymore. So who's going to run the other store? You know, there is people in place there that can definitely run the store. Okay. I think of coaching them up enough in the next couple years or whatever the case may be to run the store. Yeah, before you buy it, that's got to happen. You've got to have somebody to run it because he's going to retire, whether it's 25% or 75%. So if we were to run the P&L on the stores, the profit and loss statement on the stores,

with a manager running the other store and you running the store that you're in, what is the net profit after those expenses, not paying dad anything because dad's gone? What would be the net profit? So last year, the net profit, if you would just go for both stores, the net profit probably for last year, both stores was around $400,000. Okay. All right. And so this is worth, yeah, 500 is probably pretty close for a fourth.

of it. Okay. No, it's not either. Wait a minute. No, it's not worth $2 million. No, no, no. I wouldn't pay $5x. Not with that. Probably worth $4x. So you might have it a little bit overpriced. But anyway, let's pretend we settled instead of on $2 million, we settled on a million, $1.5 being the actual value. You already own 25%. Correct. So, well, let's call it 1.6 for easy math, all right? So you own 400 of that. You owe them 1.2, and it makes 400. You could pay them out in three years if you gave them all the profits.

Okay. So the deals that we have structured and shown people to do for years, do you have brothers and sisters that, are there other heirs? Exactly. There are other family members that have maybe one sister-in-law has expressed some interest into the business. She does currently work for me at our store. Her husband has not necessarily shown an interest. And then, yes, I do have two other siblings, but they are not interested at all in the grocery business. Okay. So if you bought the whole thing and mom and dad got paid fairly, is anybody going to be torqued off? I hope not, I guess. Well, yeah. You'd hope not. Not, but that wasn't what I asked.

Are they really going to get sideways? Because you're getting ready to announce this if we do the deal. Okay. So let's pretend that we value the 75% remaining at 1.2 for the fun of it. Okay, you can do whatever you want to do. But here's how we've skinned the cat. Here's how we've done it before. Instead of getting tied into a fixed monthly or annual payment on a fixed amount of debt,

then COVID happens or something happens, and you get a competitor in across the street or some kind of an unseen variable hits you guys between the eyes, and your profits go way down, and suddenly you can't even make the payments that you owe your parents. That gets really problematic. Instead, what the formula we've done is, is we said something like,

we're going to, I'm going to continue to make 140. I'm going to pay the other manager, and that should generate $400,000 net profit after those two things are done. That's what you told me, right? Yep. And so, Dad, we're going to give you 80% of the net profit until we get to a million to. The other 20% is held back for retained earnings. Okay. And so if you did that, that's going to take you three and a half years.

Okay. if you give him 80% of the profit. Every month you close the books, you hold 20% for retained earnings, you pay yourself the same salary you've always made, and you buy him out of the 75%. He takes that money and invests it and lives off the investments. And Dave, you said you do that every month type of deal, so every month he would close the books, 80% would be paid and 20% can keep.

That's what I would do. I'm making that number up. It could be 90, it can be 75, but you need to give a, big hairy chunk so this doesn't go on for years. It's done very quick. I like it in a three or a four year period of time. You're clear. Okay.

Because it is very, I mean, because as long as he's worried about the profits, he's going to be in your business. It'd be very hard for him to stand back and say nothing. He's going to have blood trickling down the side of his mouth because he's biting his tongue. He's going to be questioning everything you've done. you've been working together a long time he trusts you but he now his livelihood is dependent on your business acumen to create this and so i want to shorten the time that that stresses on your

else relationship by giving them the most i can give them reasonably okay 90% 80% something like that to where the we sure that the more we give them obviously the less time this deal is going to go and then he's going to have to take that money and turn around and invest it in good mutual funds with a good smart vester pro and, you know, get set up here to take care of himself because he's not going to live out of the stores his whole life. Now, in our case at Ramsey, we didn't do any of that. All we did was just give it to the kids. The kids already own 99% of this business.

I own 1% and I own the only voting stock. Okay. So I'm still in control. I can still do whatever I want to do. I can still pay myself the whole thing, which I do, all that stuff. But at some point when I'm done, either dead or whatever, I've been managing this for God. They get the opportunity to manage it for God. I don't need money out of it to live.

My wife doesn't need money out of it to live. I will wander off into the sunset in some form or fashion, and they will become the owners. And they paid nothing for it. But I paid nothing for it either. God gave it to me. So there you go. But that's different in this case, your dad's going to need some money. This is his asset.

He probably doesn't have a bunch of other money. And so you're probably going to pay him something. And your brothers and sisters are going to want their share. Or your parents are probably, I don't care what your brother and sisters want. It's not their money. But your parents are probably going to want to leave some money to the other kids and not just give you the grocery store, right? Correct.

Yeah, that's correct. That's fair. I mean, that's reasonable. But then once this, deal is done, I want y'all to tell everybody what the deal is, all the brothers and sisters, the in-laws, everything. This is what the deal is. Okay.

And then if you choose to treat one of your team members, which happens to be your sister-in-law, uh, give them somehow the opportunity to buy into these stores over the years, that's up to you. Okay. But it's not a requirement of the deal for me. I wouldn't do, I, I, uh, you know, it's, you know, She's not blood and it's not hers. I mean, you can do whatever you want to do. Y'all can make this up as you go. But I would not go and borrow $1.2 million on an SBA loan.

And then the first time things turned down, you're cleaning the Campbell's soup off the shelves trying to stay open. It just scares the crap out of me. No way I'm doing that deal. This is the Entree Leadership podcast. Hey, gang, if you've been listening to this podcast, For a while, you probably heard me or other callers mentioned the stages of business, from treadmill operator all the way through to Legacy Builder.

There's five stages. And how do you find out what stage you're in? Well, the Ontario Leadership team just released our new and improved stage of business assessment. It'll help you easily and accurately and free. Identify exactly where your business is today. And then you'll know what to work on to level up and move to the next stage and get the best possible results. continue to progress in your business acumen.

Yeah. Click the link in the show notes or go to Entreeleadership.com and find out which stage of business you're in. The assessment is completely free. You got to check it out. Hey, we want you to join us to be part of this program. Dial the number at 844-944-1070. Leave a voicemail. Our team will get back with you and set you up to be a caller.

That's exactly what happened to Matt. he's in Tahoe City, California. Hey, Matt, how are you? I'm doing well. Thanks for taking my call, Dave. My pleasure, sir. How can I help today? My question for today is I'm curious if I should set up a separate company or an LLC

to lease equipment and vehicles back to my various businesses that I own. It doesn't serve any purpose except risk management. There's no tax advantage to it. why would you do this? My thought is, is some of the businesses that I own, I own a primary underground utility contracting business, which is my main bread and butter. In addition to that, I also have several properties that I,

mainly they're just rental properties, that I need to do some overall, what's called general improvements to. And so my thought is, is I can rent equipment for that particular LLC and spend a lot of money on that, which I will not recoup. Or I could purchase it and then use those same pieces of equipment, basically lease them for those particular projects, and then use them on the other businesses without, you know,

just as a way to kind of keep things straight. And then also as you lease those piece of equipment, that allows to pay those pieces of equipment off. It also creates funds then for purchasing other equipment down the road. There's no magic money being. created here, man. You realize that. It's your money. You're just swapping pockets with it. Okay. It didn't create money by doing this. I mean, okay, you're going to go buy, give me an example of one of the pieces of equipment. What is it?

Like an excavator, like a mini excavator. Okay. What's that cost? $50,000. Okay. You go spend $50,000, write a check, and you buy an excavator, okay? And then you're, if you want to give the $50,000, back to yourself from one of your other entities, you're just moving money around. It's still the same $50,000 excavator, and you still own it. So if you just bought it and then depreciate it, write it off like you do it with a normal piece of equipment in a normal business, and then you use it for whatever you need to use it for in business.

But it's not, or it may be, depending on what it is, you may be able to expense it in 179. I don't know. You have to talk to your tax account about that. but it's not, you know, paying yourself payment from a payment to lease back equipment that you already bought from yourself is just swapping pockets. You're just moving from the front pocket to the back pocket to the front pocket. You're just moving it around. It didn't create any money.

Okay. If you reached it to somebody else, it would create money. But I'm not going to recommend you go into the equipment leasing business. I think you've got enough businesses running. Okay. Same thing with vehicles then as well. Exactly, same thing, yeah. Okay, gotcha.

Yeah, it's because they don't create, it doesn't create money. I mean, now, if you're going to buy a piece of equipment and you're worried that someone would get hurt on it and sue you and you might lose something, then that's fine. Put that in an LLC from a risk management perspective and then make sure you've got good insurance. on it as well. In that regard, I don't own anything anymore. I'm rather poor personally. I don't have a single thing I own. I don't own cars. I don't own anything. Everything is in an LLC or a sub-s corp or a trust of some kind. Something else owns everything. And so then, like for instance, the pieces of real estate that you mentioned, okay, we'll put about $10 million dollars worth of real estate in a single LLC. And after that, that's too big a target. After that, I don't want 20 million in there unless it's got some

other kind of structure to it, because if somebody falls and breaks their face, getting drunk off the back porch, and then decides it's my fault and sues the owner of that property for liability because they had a back porch, then welcome to America, right? And then they can only get if they won the things that that LLC owns, because that property is not owned by Dave Ramsey, it's owned by such and such LLC. You follow me? Yeah, and so I think that was the second part of it is just separating out some of the liability.

Yeah, that's risk management. And that, that I wouldn't mind if you want to do that. Like all my cars are in an LLC. All of my vehicles are in a separate LLC. So if there's a car wreck, the LLC's got a problem. It's got insurance. We've got normal insurance. But if some goober happened to get some kind of wrongful death thing or something,

it's going to get a bunch of cars. That's it. Because that's not the LLC, the owner of that car is not me. You follow me? So that's risk management. But it doesn't create any cash by doing that, by you paying yourself rent for something. It'd be like you buying a building and paying yourself rent. You know, you already own the building, but you can pay yourself rent.

I pay myself rent here because it's a separate entity that owns the building. But it doesn't create income for the entity that's involved. It's all, I mean, for the overarching thing called Dave Ramsey, there's only, I own all of it, ultimately, and I'd be swapping pockets. And that's all you're going to be doing with that. So, yeah, it's, there's no magic pill to this stuff, man. Go make a bunch of money. Go do business well. Go help people.

Those kinds of things are where your money comes from, not from gyrations with purchased equipment. And you may not need to be buying this piece of equipment, by the way, because I think you said something about you were going to borrow on it. I didn't smack you for that, but I could later. This is the Entree Leadership Podcast. Thanks for being with us here on the Entree Leadership Podcast. I'm your host, Dave Ramsey. Real world advice for people that are in the real world. You want to call and talk business? We'd love to have you do that. Andrew sends us in a question. He says, I run a graphic design company in Print Shop that does graphic design for clothing, some web design.

We print a lot of the clothing ourselves on local orders. I've got 32 employees, six of which graduated college within the last couple of years. And some of my conversations with them, they've told me how stressed they are about having to pay their student loans soon. They ask for overtime, and when I can't give it to them, they've told me that they're going to have to pick up extra work that will affect their hours working at my shop. I've heard, wait a minute, if they can't work overtime, they shouldn't be affecting their hours at your shop. They're either working at your shop or they're not. So they want extra pay. I've heard about tuition reimbursement and employer student loan payment plans as an option to use as an added benefit for my employees,

but I don't know how to structure that in my benefits package for them. Do you have pointers on how I could get this started so that I can help my employees and keep the good team that I have? Well, thanks. That's pretty cool. You've got a good heart for your team, you're a good man. you managing the business well. Very cool. Now, what happened is they recently passed this new law.

Let me find the name of it here. I had to look it up. The Consolidated Appropriations Act, whatever the crap that means. But it is a new law anyway that says that now an employer can pay up to $5,250 a year of student loan debt for an employee as a benefit. Now, benefits that you give employees are always tax deductible, and benefits that you give employees are not part of payroll tax. So you don't owe payroll tax on it. The employee doesn't, you know, you don't have,

and you get a tax deduction on anything you do for your employees that's expensive like that. Okay, so they make a big deal in the articles if you look it up. Oh, it's no payroll tax. Well, of course there's no payroll tax. No payroll tax when you buy health insurance for them. There's no payroll tax when you buy disobeyed. insurance for the team.

Any other stuff like that. And of course, it's deductible. Of course it's deductible. It's a frequent business expense. All those other things. When I buy health insurance for the team, it's tax deductible because it's an expense of doing business.

It's part of the cost of having a team. So, of course, it's a deductible. It's not subject to payroll tax up to $5,250. Now, downside. It feels weird, especially in a super small company like this, to offer to pay people's student loans, how's that fair to the people that don't have student loans? Like these guys got themselves in a pinch,

so you're going to create a benefit for six people out of 32. The rest of them get nothing? I think you may be having some unintended consequences with culture inside this team. I wouldn't do that. okay now what you can do that solves that but you're going to increase your overhead if you want to do all this okay and i don't know why you don't just offer them overtime instead it'd be a lot easier but um i mean if you're going to give somebody five thousand bucks why not pay them five thousand bucks to

work over i mean give them overtime and let them go do it it's the same thing right it's all tax deductible now that would be subject to payroll tax but both are tax deductible so that's one answer you could do that and just skip this whole fad thing of paying, helping people pay student loans. If you're going to do it, I would do it with what's called a flex plan, a 125 cafeteria plan. Now, that is where you give all employees a certain amount of money to buy benefits with. And they can buy time off with it and add their PTO. They can buy health insurance with it. They can put extra money in their 401k as a match. you can do a lot of, and they get to choose how they use this number of dollars.

They can use it for student loan payment. Okay. And you could put a match with it and say, if you pay on your student loans, then I'll pay. And you're not obligated to do the full $5,250 a year either. So, but it's not going to matter much if you do like a thousand bucks a piece. You'd have been better off, and it had been a lot simpler in your life that just simply add some overtime. So you're going to be out of pocket to help them anyway.

I think it's easier just to let them work and let them, you know, yeah, I'll give you the opportunity to do this. You want to work to earn some extra money or you're just going to give them some money for not working as an extra benefit. And either one's okay. I'm not mad about you being nice to your employees you should be. You ought to be kind to them and help your team and that kind of stuff. But if you do that, you're probably need to get with a benefits manager or some kind

and put a flex plan in place so that everyone gets access to this money, even the people that don't have student loans, the people that don't have student loans can use it for other things in their benefits package. And that's how I would structure it. But see, you've just raised your overhead for 32 people, not for six people when you do that. If you simply offered some overtime to these six people who got trouble,

then you didn't raise your overhead so much, and you'd accomplish the goal of helping them with their student loan debt. So that's the thing. Student loans come and do in October is stressing the crud out of people. So you can join me, Rachel Crudge, and Jade Warshall. We're going to be doing a student loan live stream on September the 12th. It's completely free. And we want you to watch this event.

Go to ramsysolutions.com slash student loans and register for the free live stream. And we're going to be talking about what to do, how to get, deal with the fact as individuals that you've got these student loans coming due, and they're going to start back, and it's coming in October. It's been coming for a long time. It shouldn't be a surprise. Christmas is always in December, but it's coming, and we're going to help you with it. So student loan live stream, September 12th, if you want to watch that for free, we'd recommend it. It's going to be good. Me and Rachel, Jade, are going to do that. Ramsey Solutions.com slash student loans. Tyler is in Oklahoma City. Hey, Tyler, welcome to the Entry Leadership

podcast. What's up? Oh, not a lot. Thanks for taking my call, Dave. I've been listening since 2020, big fan, but I am a 21-year-old owner of a business that is going to do a little over $3 million in revenue this year. Way to go, dude. Well, thank you. And I am wondering, We have a young corporate team. We're very inexperienced in the industry, but we've made it this far, obviously. And I'm wanting to know how to take that inexperience in being so young and turn that into a great team that can break through that average ceiling. Wow.

Well, you already broke through the average ceiling. I mean, you're 21 years old and a $3 million business. That's way above average. So congrats, Stud. Proud of you. What kind of business is this? It's a smoothie bowl and smoothie shop. I was fortunate enough to travel growing up, and I tried some smoothie bowls from places like Hawaii and Florida and California,

and just kind of took that and brought the culture of the islands back to Oklahoma, where there's obviously not an ocean anywhere in sight. How many stores have you got to do $3 million worth of smoothie bowl? We just opened up our sixth one in March. Good. We started in the 28th. Yeah. We started in the back of a boutique, kind of like how you started on a card table,

and I was a senior in high school. And my dad, I told my dad I didn't want to go to college, and we talked through some options, and we bought a name, and a freezer, and a fridge, and a blender, and just kind of made it work.

What a country, America. Oh, my gosh. 21 years old and $3 million worth of smoothie bowl. I'm so impressed. Wow. Very cool. Very cool. And a great question you've got.

Okay, so you're running six stores. You've got managers. What's the size of your corporate staff? So we recently just downsized to me as the CEO, and then we have a VPO and a controller, and then my dad is our CFO. So he owns an accounting firm in the same town I live in. So he kind of oversees our finances, but just four people total.

You have six store managers? We do have, well, one of them is a franchise store, so they're responsible for that. So we have five corporate stores and four store managers. One of them doubles up on two stores. So you're already franchising this? Yes, sir. We have one franchise. And honestly, we're in the process of getting more.

and I was going to ask you a little bit more on that too later. Okay. My goodness gracious. All right. Well, I think you're on the right track. Obviously, you're pretty incredible, and I'm so proud of you. Way, very well done. The thing is this, you can never read enough or learn enough when you're in a growth curve like this.

And so everything that Jim Collins writes, everything that Simon Cinnick writes, everything that Malcolm Gladwell writes, and everything John Maxwell writes, everything Henry Cloud writes, you find people like that that are writing some of the best business leadership, Craig Groschell, start listening to his leadership podcast, everything like that that you can get a hold of and start learning anything about leadership, any of the nuanced areas of leadership and of growth, and just make the team leadership junkies. and you become a leadership junkie. When I was your age, well, no, I was at your stage of business.

I was older than you in this business by the time I got there. But, like, John Maxwell back then had a tape of the month. They used to have these things, Tyler, called cassette tapes. And he would put out this cassette tape, maximum impact, and I would get it on leadership. And that got me reading every book John's ever written. John's become a friend. Oh, Pat Lynn's.

Don't miss him. Everything. Pat Wright, Shottery. And so I've read every book that every one of those guys I just mentioned have written. And in the process,

all of them have also become friends, in my case, because we all are in the same leadership space speaking and teaching leaders. Some of the best leadership teachers in the world I just named. And I'm on that list. Because there are actual people

that are doing some of the best work. And so just read, read, read, read, learn, learn, learn, learn, learn, learn, learn, learn. and then the thing that you're going to experience is the discomfort of people that won't do that and you and the rest of the team and the business outgrow them and you love them. They're lovable, but they ain't keeping up. And the train leaves without them one day because they wouldn't even get up, They wouldn't even reach up and grab a hold of the things we're leaving the station, you know.

And so they end up moving on, and so just be kind and loving and they're friends, but they can't work there anymore because they won't keep up. Because you're going to have to grow. John Maxwell talks about this. He says, you're the lid on your business. You may have heard me teach that. And I'm the lid on my business. And the more I learn, the more I grow, the better, you know, if I don't, then the organization can't grow.

And so you've got to do that, but so has your key VPO and your, you know, you're different people. So you're going to have to become an expert on franchising, which I'm not. I have stayed away from that. It's a strenuous business. But I don't doubt you can do it, so have at it, brother. I mean, you guys are pretty incredible. But it's, it's, it's one. experience with franchising is it's not as wonderful as it looks from the outside.

Because the tension you're going to run into as you grow a franchise network, shifting gears here, is the franchisee needs the information and the process and the systems and the branding of the franchisee to get started. then once the franchisee is successful, they tend to think they made it successful, and you tend to think all the stuff you gave them made it successful. And when they fail, the ones that fail, the franchisees that fail, they tend to think that you didn't help them enough is why they failed, and you tend to think they failed because they screwed up. And the truth is somewhere in the middle on all of this.

but there becomes this tension that they forget why we got married. They forget why they loved you at the start once they start being successful and they start to strut around and act like they did it by themselves and they didn't do it by themselves and then they don't want to pay the royalties or they want to, you know, they want to open up something in competition with you in violation of about 63 things in the agreement and you end up in lawsuits. And so there's all kinds of issues like that you're going to run into. So you've got to manage that relationship and warn the franchisee that, listen, it will not be successful without you and it will not be successful without me.

You will not lose. You will not fail if I have anything to do with it, but you can certainly cause it to fail by not working, by not treating the customer right, by not treating your team right. You can do what you can run a business poorly, and I can't keep you from screwing it up. and so you get to have these discussions with franchisees as you move forward, and it's a whole other group of relationships to manage in a whole other strenuous way, in addition to the other stuff you get to do running the business. So that's why some organizations have chosen to just stay with company stores instead of going the franchise route.

You may or may not decide to do that. I'm not saying it's a bad idea. I'm just saying it's not all skittles and rainbows. there's stuff there that's real that you've got to get through. So I sure hope it works for you because you're an absolutely incredible young man. I'm so proud of you. Very, very, very well done. That is good stuff.

I love it. This is the Entree Leadership Podcast. Thank you for joining us, America. This is the Entree Leadership Podcast. I'm your host Dave Ramsey. Hunter is in Columbus, Ohio. Hi, Hunter. Welcome to the show.

How can I help? Hey, Dave. Thanks for having me on this show. I'm a small business owner, like you said, in Columbus, Ohio. I own an operated audiovisual production company, projected to do $180,000 this year, and I have three part-time employees. I've got tons of customers that are constantly late. When should I put my foot down and start charging customers late fees?

I'm always worried about my reputation. You already have a reputation of being weak, right? Yeah. Because they're getting away with it. So they already know it. Yeah. So we have to change that reputation. So what I discovered on collections problems is I don't have a collections problem.

I have a sales problem. You need to sell this differently on the front end. So if you're going to be an advertiser on the Ramsey show or on the Entry Leadership podcast, let me tell you when you pay early. Or I take you off. that's my reputation. Right. Okay. We don't put up with that crap.

And so if you got a problem and you call us, we're not without mercy. That's not the issue. But this thing of you're just sloppy or you think that we're somebody that doesn't do. No, we tell you on the front end when you sign up to be an advertiser, you're going to pay on time. We do not have grace and mercy on this. we are, that's not who we are. We have an arrangement when we said it's the money, so you need to pay five days early just in case the check gets bumped around in the mail or something or, you know.

Right. And so I have, I discovered that advertising is particularly advertising agencies, which by and large suck, they'll pay whenever they freaking want to. Well, then they don't get to be on our show. Their clients can't be on our show because we don't do that. We're going to pay you in 90 days. No, you're not. You're going to pay me now on time five days early. And that's how, we set the sale up that way. Listen, because you do such a good job. You say, hey, listen,

and the way I would couch it, if I'm you, the next time you're booking a client, say, hey, listen, I discovered something that I'm not, our services aren't for everybody because some people don't want to deal with us. And we really want to do this deal with you, and we're so glad you called us. Thank you. And we're going to do an amazing job, but we're a tiny little business. It's me and some part-timers. And if you don't pay me early or exactly on time, it crushes our business. And so I can't do this if you don't understand that we have to be paid early or on time. And then if they're five days late, you call and go, hey, you remember that conversation that I said, we're small businesses and you're crushing us.

Now you're crushing us. You remember that part? So, dude, I need to swing by the office this afternoon pick up a check. Can you have it ready for me? And so what you're doing is creating a different relationship, a different habit pattern with the customers. Just booking them and then being shocked that they pay late because they pay everybody late is that's on you. That's not on them. Because they're just acting like they normally act.

So you have to retrain the customer at the purchase, at the point of purchase, on how the sale is going to occur. In some cases, you may want to change terms with some of these people and say, you know, in order for me to put you on the calendar, I've got to have a half up front. Right. And that's what it normally is. They sign a contract with us. And most of the late payers are going to be corporate organizations and nonprofits. And the problem that I run into is that they don't like late fees because it, you know, messes up their bookkeeping. Now, I don't need late fees.

I need the money. I don't want late fees. I want to be paid on time. And so, again, you have to retrain the person. You're still dealing with a point of contact inside that nonprofit or inside that corporate America. And you have to explain to that person that's in there. This is how this deal is going to work. So I'm going to call you on day two if I don't have my money.

I don't want a late fee. I want my money. And if you can't do that, we don't need to do the deal, man, because it's going to be, it's going to aggravate the crap out of you and me, and we don't need aggravation. We just want to do a good job for you. And you need to fire a couple of these because they're never going to get their crap straight. And I have taken people off of the show over the 30 years I've done the radio show.

we've taken them off because they just can't seem to get their act together. And I am not going to spend my life stressing about someone else who can't stay organized and pay their dad-gum bills on time on a financial show. Hello. Oh, my gosh. How irony is that? How much irony is that? So, yeah.

But I discovered I was trying to be nice because I'm a sales guy. And I was trying to make the sale. And I was making it in such a, in such a weak, way that I wasn't letting them value the relationship and then they thought they could just do whatever the crap they want to do. And so you're setting the tone of the relationship wrong when you do that. And you're ultimately not being nice because then you're aggravated with them and rightfully so. But yeah, some of these people, it is their, it is their modus operandi to be disorganized and pay late because they just forget and they're not in, you know, but as soon as they

get an invoice from you, they're going to remember this conversation, or they'll remember the other conversation where you called them a day later and go, okay, where is this? I need, can I just do an auto draft of some kind? I mean, you know, can you, you want to Venmo me? How you want to do it? Because I need to go ahead and collect now because you're killing me. You guys are a big deal over there, and I'm a tiny little guy, and you're crushing me by not paying me. And, you know, there's a there's a very few people that you have to endure their disorganization and i we have chosen not to work with large organizations big companies that just refuse to pay on time they think that they can just get away with it because they're so and so and we just like life's too short man

you're fired as a customer i'm not putting up with this crap and i can't seem to retrain you to make you behave and so we're done life's too short because if if it's It hurts your feelings. It makes you mad. And your size, man, it's, it's critical. It's critical. 180,000 gross top line. I mean, you get, you don't get two checks. You got a problem. You can't pay your own light bill and feed your kids at home. It's a big deal. So you really have to set this up front. A collections problem is not a collections problem that is solved by late fees. It's solved by selling the original account properly, setting the relationship up properly, not being smart aleck but being very clear up front i'm honored to be working with you guys but i need you to clearly understand we are not big enough to be your bank we can't hold your paper for 30 days you got

to cut me a freaking check and you got to and because i can't handle it i i you'll kill me over here man and my my babies need to eat and and so when i send the bill you got to like right then we got to you got to turn it. And we're not, we're not going to look up 60 days and I don't need late fees. I need money. So that, that, you just set the tone on it. It changes everything when you do that. So very, very well done.

Hey, Hunter, you're in a really neat place in business. I had to learn that one as at your size. And you can tell by the smart alec tone of my voice, I learned it thoroughly. So there you go. Hey, remember, better a wary warrior than a quivering critic. Leaders serve. Leaders are active, not passive. Leaders act on principle.

not appearances. This world needs more high-quality leaders. So choose to lead. I'm Dave Ramsey, your host. Thanks for listening to the Entree Leadership Podcast.