The Game with Alex Hormozi - When To Take The Chips Off The Table | Ep 184

Episode Date: March 3, 2020

"The objective of a business is to make a profit (…) That is what separates it from a nonprofit.” Today, Alex (@AlexHormozi) discusses the importance of taking profits out of your business and investing in yourself rather than constantly reinvesting in the business. He emphasizes the cyclical nature of the business and the need to be disciplined in taking money out every month to increase net worth and prepare for potential downturns.Welcome to The Game w/Alex Hormozi, hosted by entrepreneur, founder, investor, author, public speaker, and content creator Alex Hormozi. On this podcast you’ll hear how to get more customers, make more profit per customer, how to keep them longer, and the many failures and lessons Alex has learned on his path from $100M to $1B in net worth.Timestamps:(0:57) - Difference between reinvesting in business versus reinvesting in self(3:00) - Take more money out to need to make more money(6:18) - Losing on profit and valuation of business by keeping money(9:26) - Rip out as much cash as possible every month(12:33) - Prioritize maximizing monthly profits, keep in mind the cyclical nature of the business.Follow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

The objective of a business is to make a profit. That is the point. That is what separates it from a nonprofit, right? And so it is my belief that you should take as much money as you can out more than you probably feel comfortable with. Welcome to the Jim Secrets podcast where you talk about how to get more customers, how to make more per customer and how to keep them longer. And the many failures and lessons that we have learned along the way. I hope you enjoy and subscribe. What's going, everyone.

Happy Tuesday. Hope you guys are rocking and roll. I wanted to talk about something that's a little different than the actual business, but very important, which is just about the money of the business. So I'm just calling this one to take chips off the table. So as business owners, you know, we're always trying to grow. We're always trying to reinvest in our businesses. And a mistake that I see happen many, many, many times and something that I made earlier on in my business career was reinvesting in the business. And so there's a difference in my mind between reinvesting in the business. versus reinvesting in yourself. I think you should always reinvest in yourself, but reinvesting in your business,

your business may come and go, but you will always stay, right? I mean, as long as you stay alive, right? As long as you keep playing the game. And so the whole idea here is a lot of people were like, well, I didn't take anything out because I wanted to reinvest it and grow. The thing is, if you really think about it,

there's, you're reinvesting and growing because you're trying to make money, but the thing is they're kind of like counter to one or another, which means that at some point, you have to decide, I'm going to take this, money and keep it for me right and it's hard because you're like man some of that money that I'm taking out is money that I could be using to grow but the thing

is is what is the end game right and so if the end game let's say like let's let's play out a couple different alternative because when I'm having my one days the VIP days that when guys are coming out a lot of times we get into this which is like what's the goal right and so if you have a gym right a single location and you want to like you enjoy running the gym you enjoy that business the objective should be to make is money from that business in real time which means month over month you take as much money as you can out of the business and the business serving you right that's

the goal now if your goal is then you know what I'd rather have multiple locations for me in my opinion the only reason to have multiple locations is because you're trying to have prove a concept so that you can then go into licensing or franchising there are very very very very very very very very few people who make a subsist a substantial amount of money through owning multiple Brick and Mortar Service businesses, it's typically made on the licensing and franchising side. Because with each new location, you take on more overhead, you take on more, it costs capital to open them.

And so like that nest egg that you had then gets blown into this new thing. And if you have a hiccup, all of a sudden, the nest egg and all you built at one disappears in two, right? And so the objective of a business is to make a profit. That is the point. That is what separates it from a nonprofit, right? And so it is my belief that you should take as much money as you can out more than you probably feel comfortable with. And that'll put you into a place of needing to make more money to pay you, which is good, because then it means you'll actually think like a business owner like you're trying to make money rather than just trying to build something, right?

And what's weird is that a lot of times when you think from the frame shift of, shoot, I really need to make money, you tend to make money, right? And that means that your business actually gets better. It's kind of backwards, but it's true. I mean, I'm sure most of you guys at some point have had to make payroll in three days or had to make rent in a week or had to You know get hit with a tax bill or who knows right and you've had to make five grand ten grand 15 grand in a week and then you do right and here you are still breathing And the thing is is you still always have that skill set you just don't utilize it to feed yourself You only use use it to feed other people Which you can I can dig more into later but you can think about that for yourself

So back to when to take tips off the table the only outcome besides you know opening in a location for the for the for the desire to franchisor license that model would be an exit meaning you're selling the location but the thing is is if you're selling the location you're gonna want to show as much profit as possible if you're consistently putting money back into the business now this comes into accounting stuff but when you're buying more equipment things like that a lot of that stuff's not going to be considered reinvestment that's going to be considered you know equipment costs or upkeep

which will take from the multiple that you would get from that business. And so if your desire is to exit your business at some point, then you want to take as much profit out of that business as you can. Now, mind you, big full disclaimer, I do not know your business. I do not know your situation. Everyone is unique. Having self-awareness is key to making big decisions in your life.

But just from an overarching standpoint, this is something that I see all the time, and so I figured I would at least speak to it. So back to the chips. If you're like you should try to run as lean as possible, you have to be incredibly disciplined to not just spend the access on fun stuff or things that you think might make money. Like you have to make an argument for like, how is this thing going to make me this amount

of profit? So if it's like, I'm going to go buy $4,000 worth of equipment. I'm going to use the example. Now, if you know what your profit margins are, which the average gym runs 12.5% margins average I'm not saying necessarily you guys but the average in I have a CPA friend who runs just gyms and it's 12 and a half percent which means to make four thousand dollars in profit back right back then you're gonna have to make eight times that in in revenue to make the four thousand back so you have to

make an equivalent argument it's not can I just make four thousand dollars more it's can I make thirty two thousand dollars more because I'm taking this off of bottom line I'm taking this off of profit and more If you wanted to sell your facility, you'll probably get three-ish, three to four, depending on the buyer, but three times your earnings, your profit at the end of the year, right? So if the profit at the end of the year is $5,000 less, right, that is actually losing you $15,000 on your actual sale number, right? Which again, so you're losing on the actual real profit in real time, but you're also losing on the actual valuation of your business. business. And so it's really difficult to make that money back, especially if I'm being real for the majority of people who are small business owners, the things that they choose

to spend money under is stupid. Now, that being said, I think that when you take the money out of your business, you should not just spend it on yourself on shit, right? Spend it on learning more skills so that you can make more money, right? That's typically, like, leveling up your skill set is going to do more for you than probably anything that you can invest in the actual business itself, right, in terms of buying stuff. Your skills will make you money, right? Way more. Hey guys, real quick. If you're new to the podcast, I have a book on Amazon called 100 million offers that over 8,000 five-star reviews and it has almost a perfect score. You can get it for 99 cents on Kindle. The reason I bring it up is that I put over a thousand hours into writing that book.

And it's my biggest gift to our community. So it's my very shameless way of trying to get you to like me more. And ultimately make more dollars to that later on in your business career, I can potential partner with you. So that's my give. Go check it out, Amazon, and back to the show. And so that's what you should invest in. Beyond that, it is my belief, and I made a podcast about this, that, you know, really unless you're making $100,000 a month in profit or more, like I'm just being real with you, I think you should consistently spend money on acquiring skills because that's the problem. If you're not making the money you want, it's because you're lacking a skill set, right? And if you're, if you're, if you're, if you're, if you're

If you feel like you're not liking a skill set, then you're lacking a character trait or you have a belief about the world that is false. Right. It's just false. And so you have to figure out what that belief is. And sometimes that investment comes with going into communities, connecting, paying to have access to people who can break that belief for you. Right? I'm not saying me, do whatever you want. But I'm just saying like just having that approach.

And so back to chips off the table. I'm going to go make sure my ADD stays in check. when you are running the business every month take as much as you can out have a number that you drain the bank account to every single month and do that religiously all right you drain it and you rip the cash out and you stack it and you do that every single month all right you don't give yourself an excuse to not to to to not take out money one month or it's ah kind of close if there's only $800 above the above the line you take the 800 out like you have to be disciplined about that you drain the account and the thing you is it'll keep you on it one of the habits that that that that I did for a very long time that was extremely useful before before cash flow became kind of crazy basically until until we until we were doing more than 100,000 a day I looked at the total bank accounts of all assets my personal my savings my everything that was cash that was liquid across all accounts every morning and I totaled it up.

And so every morning I knew exactly how much money I had across everything. And the thing is if you look at that, in the beginning you're not going to do it, it's going to be uncomfortable. And if you do this religiously, you'll have a mind for where your money is going. You'll see a big pop and you'll be like, hey, where did that go from? And then you'll start to start, there's a rhythm that starts happening. You'll start seeing it. This pattern on Tuesday's payroll hits.

On Wednesday we get our credit cards. On Thursday, we get our ACH deposits. You'll start seeing these hits and you'll start, feeling the rhythm and then you'll start seeing if something seems high or something seems low, right? And just by being mindful of that, you will make more money. I promise you because you'll see how hard it was for you to make the money that you made and see it actually come into your account. You won't be as quick to spend it, right? So rip the cash out as much as you can every month because both that's going to increase your net worth, right?

Because at the end of the day, if you keep going and I saw someone this happened to somebody, and this is why I'm making this for you. I saw someone who, quote, reinvested in their business during the good times, right? They were just making tons and tons and tons of money, right? And then bad times hit it, right? Something happened, trainer leaves, takes half the clients, whatever, right? And they had nothing, right?

And they ended up having to close their facility after three years of what was good times, but they didn't have a dollar to show for it. Now, if during the good times, They'd been consistently stacking cash, consistently stacking cash. One, you have a parachute that if you need to switch opportunities, you have it there. Two, from an emotional standpoint, you feel like you have something to show for what you've done. I can tell you, after having sold the gyms and then having a partner at one point, basically, essentially drain the funds out of the account and then send it to somebody offshore.

The person had been indicted for fraud twice, and I just didn't know. I saw six, all my locations, all the money that I had made, vanish. And I can tell you it's soul crushing and I don't want that to happen to you. And so don't, don't do that. Just take money out every month so that you have something to show for it. Now, no matter what, what you have to show for at the end of the day, at the end of this entire game is who you are, right? Is the character you've built is the beliefs that you have and the skills that you've acquired,

which create your reality, right? That is truly going to always be the end goal. But in the real material world that we live in, there are some things that money can do that can help make, like, money can't buy you happiness, but poverty can't buy you anything. And I heard that the other day, so that's not my quote. But the other side of is that money can't buy you happiness, but it can sure help you avoid pain. Right? I'll tell you that much. Like, it can help you avoid pain in your life.

And so if you can smooth transitions out for you, for your family, for whatever, your kid has a learning ability and it costs $2,000 a month to get some special tutor for them to learn how to read. Like, that shit happens, right? And for you to be able to be prepared for that will allow you to be prepared, right, for when those types of things come. So, take your chips off every month. It's not helping you grow your business for most of you, for the vast, vast majority of you, the things that you're investing in are not actually things that are going to help to grow your business. So make it a priority to profit as much as you can every month and stop buying stupid shit.

All right. If you want to exit, it's still going to increase the value of your business by being disciplined in that process because then you're going to show lower overhead, higher profit, and it's going to be more attractive to a potential investor in the future. All right. So just don't make a little bit. this mistake because I'm just telling you when the times are good is when you need to take money out. That is when you need to do it. That's when you rip your cash out. Like you think it's

going to keep going, but the game of the business is cyclical, right? After every good time, there's a bad time, right? Every up cycle is followed by a down cycle and every down cycle is followed by an up cycle. But don't be like everyone else and think it's always going to be this way, right? It's not. Like there's probably going to be something that's happening on the horizon, right? Like the yield curve is flipped. Like, we're on borrowed time right now. So right now, things are still good, right? Economy's still frothy. Take some chips off the table, all right? Because you don't know what's going to happen. So anyways, I hope that was useful. I hope right now if you could think to yourself, man, there's some extra money in my bank out right now.

What should we do with it? Take it out, right? Run a paid and full play every once in a while, right? Just take some, scrape some cash off. Make sure you run internal plays to your just in clients at least four times a year. because that's just pure excess profit. And you shouldn't reinvest in the business. You just take it right out and you put it in the bank of you. All right, because the number one thing that is guaranteed to make you more money is more money. So if you take the money out, it's guaranteed to actually increase your net worth.

Whereas if you invest it, it is not guaranteed to do that. And likely, if you look at it from a profit standpoint, if you're doing 12% margins or even 20% margins, you have to make five times that investment just to make it back. Just to make it back. All right. So just be super mindful of that. Hope you guys have an amazing Tuesday. Hope this is valuable for you. I'll come back at you with you guys with that,

the second part of the sale, but this one was on my mind. So this is what I was feeling. Like and comment if you do, dig it. And if you don't, then I'm sorry. But hopefully you did. All right. Lots of love, keep being awesome.

And I'll get you on the flip side. Bye.