The Ramsey Show - App - A Small Business Is a High-Risk Purchase (Hour 3)

Episode Date: December 28, 2018

The show about you

🎵 Live from the headquarters of Ramsey Solutions, it's the Dave Ramsey Show, where debt is dumb, cash is king, and the paid-off home mortgage has taken the place of the BMW as the status symbol of choice. I'm Dave Ramsey, your host. You jump in, we'll talk about your life and your money. It is a free call at 888-825-5225. That's 888-825-5225. Chris is with us in Baltimore. Hi, Chris.

Welcome to the Dave Ramsey Show. Hey, Dave. How are you today? Better than I deserve. What's up in your world? Awesome. Yeah, so I wanted some advice uh let's see i'll give you a little background me and my wife are on baby step two uh i'm 38 years old i have a job that

i like but i want to start a couple businesses on the side and i already have one of them set up as an llc um and i just kind of wanted your advice on those. Okay. In what way? Okay. Well, what do you think I should concentrate on? The first business I'd like to do is it's the LLC, and I'm going to be, like, building picture frames in my garage and then filling photos in those with glass and the whole nine yards. And then I also want to do a clothing line as well. Okay.

But this is going to be like a DBA under another name, under the umbrella of that LLC. And again, I'm wondering, am I stretching myself too thin? Should I just concentrate on one thing? I mean, like I said, I have, you know, I have a family. I have a six-month-old and two other kids who are a little older. So I'm really excited about, you know, being an entrepreneur and all these things, but I don't want to like stretch myself too thin with everything. And I was just wondering, you know, what your thoughts were. This would probably be something where I'm working, you know, nights, not, you know, nine to 1130 or whatever, cranking

this stuff out in terms of designing and building things and everything. And just kind of wanted your advice on that, Dave. Okay, cool. Well, the structure, whether it's a DBA, an LLC, or a DBA inside of an LLC, doesn't really matter until it makes a bunch of money. Okay. And so at this stage of the game, I wouldn't concentrate on any of that at all. All I want to concentrate on is what am I working on that's taking me where I want to go.

So you're 38. When you're my age, I'm 57, going to be 58 next year. Cool. What do you want to be doing? Picture frames, clothing line? Well, you know what? I'd like to have my own. I'd like to be working from home, you know, in some aspect

or have my own business kind of thing. What do I want to be doing? I'd like both of those. If I had to pick one, I would probably go with the clothing line. Let's stop a second. It's not from your home. There's 40 team members. It's a $5 million a year business.

You've got a nice little office building that you're in, and you're doing one of these things. Clothing line. It's got to be the clothing line then. It's going to be faith-based. You know what I mean? I'm really excited about it and I think it could really go places. Okay. So when you scale it like that and you cast it off into the future, you know, I raised up its size and I put it out there a few years into the future. What that does is it clarifies what you're doing

and why you're doing it. And it tells you, okay, what we need to do is we need to take steps that take us to that place. So set your dream out there, 15 years, and paint it up on a piece of paper what it's going to look like in your mind. And I don't know whether my explanation was correct or not. You can decide that. But, you know, if it's a $5 million, a nice little office building, $5 million a year in revenue, and there's 10, 15 employees, whatever it is, and you're doing X or you're doing clothing or you're doing frames, whichever it is, then you go, okay, it might be a different version.

You know, that's my version of it. You paint the picture, and then you go, okay, what are my steps to get there? Well, if it's clothing that you're selling out of that little business now, 20 years from now, it's a big business, then you don't need to do picture frames because it doesn't take you to that goal. Right. Okay. Unless you can make a whole bunch of money real quick doing picture frames and then stop it so that you'd have the money to get out of debt,

you'd have the money to fuel the other business, and that would be the only reason that you would do that. Like I was listening to a podcast the other day with the guy that started Starbucks. Oh, Howard Schultz or something? Yeah. If you ever listen to How I built this podcast on npr so i was listening to that uh on one of my runs and he started starbucks because he was a professional chef and he wanted to have a fine dining restaurant so he started a coffee shop to get him the money to to get him the money to start a restaurant and he never started the

restaurant of course so we all know the rest of the story. But, you know, unless you're doing that, then we would probably drop the picture frames and let's just start doing, you know, what takes me to my goal? And right now, picture frames doesn't take you to your goal. Clothing line takes you to your goal. But if you need to do picture frames on the short term to make a little bit of money just for fuel, for gas and the engine,

that's okay. But don't get distracted with that because the big goal is the clothing line you just told me that so good question man thank you for calling us i appreciate you joining us folks if you want to talk about career choices and things like that right there i'll talk to you anytime you want to talk but there's a show every day on the Ramsey Network on XM Radio called the Ken Coleman Show. And Ken Coleman is one of our Ramsey personalities. And answering questions just like that about your career, about your choices, your job, what you want to do, discovering your calling, in other words, is what ken specializes in and it is a great show i'm very proud to have ken on our team and proud for that show to be in our remsey network on sirius xm so check out the ken coleman show if you want to on that and i think you'll i

think you'll i think you'll be glad you did open phones at 888-825-5225. Cindy's on Facebook. If I pay off my credit card's highest interest to lowest interest, do I only pay one at a time? You don't do that. You pay off your credit card's smallest balance to largest balance. That's not mathematically correct, Dave. Honey, if we were doing math, we wouldn't have credit card debt. So think about this. You've got to think this through, folks.

You really do. So you list your debts, smallest to largest. You pay minimum payments on everything but the little one. That's the other part of your answer here. Cindy, you pay minimum payments on everything but your smallest debt. All the extra money you can squeeze out of your life, squeeze out of your budget, or earn on your extra job goes on that smallest debt. All the extra money you can squeeze out of your life, squeeze out of your budget, or earn on your extra job goes on that smallest debt. Once it's gone, you go to the next one.

Once it's gone, you go to the next one. And every time you do, the snowball rolls over and picks up more snow. Well, some of you guys tune into this show every day, and some of you might be listening for the first time, but the chances are you've heard somebody talk about Financial Peace University. It's our class that over 5 million people have gone through to take control of their money, not only to get out of debt, but to invest and become a millionaire, to increase their generosity, to change their view of money,

to God's and Grandma's ways of handling money. And right now, when you go through Financial Peace University, you also get the online experience, which is access to all the videos and audios for a year. You get the kit. You can go through the class physically at your local church. About 10,000 of them operating right now. And you can take the class online for an entire year. Also giving you a full year subscription to EveryDollar Plus, which is the maximum premium part of EveryDollar that connects to your bank and causes all of the transactions to automatically download. You put EveryDollar Plus with the online system and going to the class, you're going to change your life.

It's called Financial Peace University at DaveRamsay.com. One question I get asked all the time is, do I need life insurance? Listen, the whole point of life insurance is to replace your income for someone who counts on you. So if you have a spouse or you have kids, yes, you need term life insurance. It's the only way to protect them until you're out of debt and have built up your wealth. You're only digging a deeper hole if you waste money on cash value plans since it robs you of the ability to make real progress. And that's why I send you to Zander Insurance, and I have for 20 years. That's where I get all my insurance, and they only offer the plans I recommend.

It is not expensive. It's not complicated. And Zander will be there as your guide every step of the way. Visit Zander.com or call 800-356-4282. You need to get this taken care of. I can give you the advice, and I can tell you where to go, but it's really up to you to take that important step to get your family protected. That's Zander.com or 800-356-4282. In the lobby of Ramsey Solutions, Andy and Jessica dropped by.

Hey, guys, how are you? Good. How are you? Welcome. Where do you guys live? Toledo, Ohio. Oh, fun. Well, welcome to Nashville.

How can I help you today? We were wondering if a 529 is the best way to save monetary gifts for our kids. What if they don't go to college or what if they get a full ride and you wouldn't be signing that money over to a university? If they do get scholarships, you're allowed to take out the amount of the scholarship out of the 529 with no taxes. So you're not trapped if they got a free ride due to athletics, academics, or any kind of scholarship for that matter. They just got a citizenship-type scholarship. But either way, if you got a $1,000 scholarship or you got a $50,000 scholarship, you can just take it out of the 529 and there's no taxes on it.

You just have to present the documentation with your tax return. you're not trapped that way which is good news it's good news and of course also they can move the money to a sibling as well if they want to or if you want them to if you want to so you can move it around and so if you got more than one kid you know and one of them gets a ride one of them doesn't and you're a little short you can move it over because it's your money after all you put it in there so just make sure the kids are getting through school is the whole thing but yeah that that's the reason we want you to do the 529 plus it saves you taxes on you know if you start when they're young it saves you taxes on as much as a hundred thousand dollars which is you get about a hundred thousand dollars tax-free

so it's about a thirty thousand dollar000 move over the typical, you know, if you start early, saving for college. And so it makes it worth it. Does that help? Yes, it does. Hey, thanks for coming by to see us. We appreciate you joining us. Thank you.

All right, Thomas is with us. Thomas is in Chicago. How are you, Thomas? I'm doing good, Mr. Ramsey. Thanks for taking my call. Love your show. Actually, I love your philosophy. Thank you. good, Mr. Ramsey. Thanks for taking my call. Love your show. Actually, I love your philosophy. Thank you.

Yes, sir. I was calling because I have a land contract, and I have some land that was paid off next to it. The neighbors were selling it. They called me. We agreed. Short or long, they just sold it for a reduced amount. Now I'm locked into this bank.

I tried to pay them the money that the bank was going to do it. They didn't want to do it. So now I'm locked into this bank. I could scrape up the money to pay it off, but I'm a little out of sorts, and I bank was going to do it. They didn't want to do it. So now I'm locked into this bank. I could scrape up the money to pay it off, but I'm a little out of sorts and I'm a little angry about it. I tied off the bank a little bit more than what they paid them. They absolutely wouldn't do it. So they're like going to double their money off of me.

And I could scrape it together to pay it off, but I'm just a little. I'm sorry. You had a land contract where you owed an individual how much money? I owed them, actually it was $22,000. Okay, and they sold that piece of paper to the bank for $11,000? No, they sold that piece of paper, I've had it for four years. They sold it, I owe $13,000 on it right now. Oh, okay.

They sold it to the bank for $7,000. Okay. They called me to tell me, I offered them the $7,000 right away. I was wanting some $7,000 cash money, straight off cashier's check, whatever they needed, but they wouldn't do it. So then the bank, now I'm locked into this bank. Now it's actually a mortgage, the whole rip. And I could scrape it together. It's not a big payment. It's under $200 a month. But the point is, I'm just a little out of sorts about it right now and it would take all of my savings up well it didn't it didn't change anything except you

just missed a discount correct but they don't they're not trying to charge you more no sir so the only thing you're mad about is they just didn't give you a shot at the discount that they gave the bank that's absolutely correct well i get that I get that you're mad about it. But the good news is it doesn't really, they didn't rip you off. They just, it would have been courteous to give you a shot at it. Matter of fact, you might have paid them $8,000 for it. Right, I would have. If they'd have been smart, they would have called you first.

So they messed themselves over in that sense. But there may be more going on here than that. They may have had other deals with the bank, and this got twisted into it, too. Yes, sir. They may have a portfolio over there, and they were trying to clean up some stuff or something. But anyway, if you've got the money to just pay off your land, now the only question is, regardless of the emotions, is it time to pay off the land? Right. How do I measure that if it's time?

Well, if it's $11,000, it should be in your debt snowball. Are you in baby step two? I don't know about the baby steps. Oh, okay. But I know I reduce debt. I pay cash. Okay, that's fine. All right, let me walk you through that then. What we teach folks to do is to clear up all their debt except their home as fast as they possibly can

so that you've got all this freed up income to do other stuff with. Yes, sir. And so because your most powerful wealth building tool is your income. So we teach people to pay off everything but their home in what we call baby step two and we just the baby steps where you just do stuff in order baby step one save a thousand dollars you've done that you got a thousand dollars i can tell by talking to you then baby step two is to pay off everything but your home and the order is smallest debt to largest debt minimum payments on everything but the little one and attack the little one. So how much debt do you have, not counting your house,

other than the land? Zero. And do you have $11,000 in the bank? Well, yes, cash. In cash, okay. Then I would write a check today and pay off the land. Yes, sir. And you're debt-free.

Yes, sir. It's too debt-free. Yes, sir. And it's too bad you didn't get the discount. I'm with you. I would have wanted that, too. I'm kind of ticked with you. But either way, I'm debt-free today. Then that takes you to the next baby step, which is baby step three, and that's where you take whatever money you have in the bank

and you add to it until you get it up to a fully funded rainy day fund, a fully funded emergency fund, and that amount is three to six months of expenses. Yes, sir. So if you're sitting there with three to six months of expenses in a rainy day fund and no payments but a house payment, now you're in a position to start building some wealth. And that's why we walk you through this step by step by step by step to do this. I'll send you a copy of the book that explains how to do all of that.

It's called The Total Money Makeover. And we've sold about 6 million of them. So a couple people are doing this. So hold on, and we'll send you out a copy. And it'll show you exactly what to do, when to do it, and why to do it. I think you'll get a charge out of it because you're a guy who's on top of stuff. Angel is with us in Fort lauderdale hi angel how are you hey dave i'm hanging in there how are you doing better than i deserve what's up

all right so um i'm calling because um i'm 20 years old and i developed a bunch of debt um that i really can't pay i'm like drowning in it um and uh you know i try to live check the check sometimes i miss payments now because i i just don't make enough or i manage my money terribly so i just need i just i just found you on youtube and then i've been watching for like a week now and i kind of need some advice cool on how to go about this well good for you it's a big deal to start straightening your money out, man. At 20 years old, you're smart to do that. You've got a lot of potential in front of you, a lot of things you can do.

So your income is what? I bring home like $20,640. Okay. Are you single? Yeah, I just have a girlfriend. Okay. You live at home? Yes, with my parents.

Okay, cool. So a lot of that money is free and clear if you hadn't gotten yourself in debt, right? Exactly, yeah. And what kind of debt have you got? So I got a truck payment. I'm a mechanic, so I got tool payments, credit cards, and then I owe some people some money. Okay. How much do you owe on your truck?

I owe $17,400. Okay. How much do you owe on your truck? I owe $1,704. Okay. And what do you owe on your tools? $3,000. $3,000. And how much on the credit cards? A little bit over $1,200. Okay.

And then you owe some people some money. How much is that? That's like $1,500. Okay. Cool. All right. Well, the first thing I'm going to do is put you on a written game plan where your money, when it comes in, already is spent on paper before you get it.

You already have told it what it's going to do. The problem is now you have too much month left at the end of the money because you're not telling your money what to do. Does that sound right? Yeah, that sounds about right. Then once you're doing that, you're going to feel like you've got a raise because you don't really have any expenses except these debts. And a little bit here or there. But once you've got a game plan, okay, we're going to slow down on the partying and we're going to focus on cleaning up this mess.

I mean, in just a matter of months, you could pay off everything but the truck, couldn't you? Yeah. Yeah. If you really focused on it with the money you make and didn't do much else made that the priority you could knock that out that'd feel pretty good be debt-free except the truck and truthfully dude your truck's too expensive if a guy making 20 grand shouldn't be driving a 17 000 truck you got too much truck so i'm moving down in truck but that's probably step two for you and take you a little while to get down to that,

but that's a lot of truck for making $20,000. Hey, thanks for calling in. Honored to have you watching us on YouTube. This is the Dave Ramsey Show. There's nothing smart about smartphones if your wireless plan is blowing your budget each month. Pure Talk USA offers smarter wireless with unlimited plans starting as low as $20 per month. You never pay data overage fees and we never turn off your data. No contracts, no hidden fees. And if you're thinking our low cost means less coverage, think again. We'll be right back. the U.S. to ensure you receive reliable coverage virtually anytime, anywhere. Plus, you can keep

your same phone and number and add multiple lines to save more. We're so confident you'll love Pure Talk USA that we invite you to try our service risk-free. Just visit puretalkusa.com, enter promo code SAVEDAVE, no spaces, and receive 50% off your first month. That's puretalkusa.com, promo code SAVEDAVE. In the lobby of Ramsey Solutions, Scott and Amy are with us. Hey, guys, how are you? Hey, Dave, how are you? Hi, Dave.

Better than I deserve. Where are you guys from? Des Moines, Iowa. Very cool. And welcome to Nashville. Here to do a debt-free scream. Yes. How much have you paid off?

$99,478. Very cool, very cool. I'm going to call that $100,000. All right? Yeah. And really, really close. And so how long did this take? 42 months. All right. And so how long did this take? 42 months.

All right. And your range of income during that time? We started around 70 and around 95. Good for you. What do you all do for a living? I work in finance. And I'm a high school PE teacher. Very good.

Cool. So what kind of debt was the $100,000? The vast majority of that was my student loans. We had a small amount of credit cards and then a little bit of medical. Okay. How long have you two been married? Five years. Five years.

Okay. So shortly after marriage, you looked up and there's a pile of debt Scott brought in here. Yep. And you said, oh my goodness. And tell me the story. What happened? Actually, when we got engaged, my dad gave me a call and said that he was going to help teach a money class at his church. And that's gotten I needed or should or had to come.

And I said, that doesn't sound very interesting. I don't think so. Talk to you later. And then when I got off the phone, I looked at Scott and probably made some sort of joke like my dad wants us to take a money class. And Scott was like, okay, that sounds cool. Well, he's a finance guy. Really? I guess.

Of course he thinks finance is cool. I go, okay. And so we went. It was Financial Peace University. We went. We listened. We agreed with everything. We thought it was a great idea.

But we didn't really get started until about three months, four months after our wedding. And we sat down. So this is almost a year later after we first took the class. Yeah. And sat down and I guess wrote down our debt snowball first. And added it all up and noticed how much it was. And decided we had to do something about it. There you go.

Yep. Well, the class was there. And then, you know, you go through the whole wedding process, get married, get settled and all that. And then you go, okay, this is grown-up land. We've got to do this stuff. Yeah. Yep, exactly. Yeah, for real.

And since then, we've actually taken the class two more times just to go and, like, have that support system with the class. And my brother-in-law and sister taught a class. Oh, wow. And so we would drive 45 minutes every Sunday night to go. Really? Yep. Sit in that class just to be there and be supportive. Yeah. But that gives you the support yourself while you're going through the whole process.

Yeah. And every time we took the class, we were at a different point. Like at first, we obviously had all the debt. And the second time, we were about halfway done paying off our debt. And then the third time we took the class, it was like the next month we were going to be done. So we were listening to the steps three, four, five, like listening to that even closer this last time. Very cool. I love it.

Very cool. So the whole Financial peace university is a family affair with you guys yes it is definitely very fun well congratulations well now that you've been through it this many times and you actually did it you paid off a hundred thousand dollars that's just bizarre if you think about it yes what do you tell people the key to getting out of debt is um i think it's the main thing is just being on a budget, having a goal. You know, if you don't have anything written down, like you always say, you're going to hit it every time. So having that monthly budget meeting with her, being able to, you know, put slashes through

all those debts every time we got one done, you know, at first it was a real burden to look at them. But once we got towards the end and saw that light come in, it wasn't a train. It was just so exciting to be able to throw all that extra money at it and uh you know just having a partner there um you know i don't know what i'd have done without her so well so three and a half years yeah it's a long time yeah what made you be able to stick with it for three and a half years because people had to think you were crazy yeah um I mean, people, we had the support system, which was nice. A couple, I guess a good story to look at is we have a dog that decided to tear a hole in our couch, like a big hole. And for three years, I wanted a new couch. And I mean, there'd be times

where we'd look, oh, it's Black Friday shopping. Let's go look at couches now. And then every time we thought about it, we looked back at our budget book and saw the goal that we had written down for the month and knew, all right, if we buy that couch, we won't meet our goal this month. And that just wasn't okay with either of us. And a lot of the times we would call like my sister or brother-in-law or my parents and say, hey, yeah, we thought about doing this. What do you guys think?

And they're like, well, you guys said you're going to stick to this goal. And so, yeah. It was always worth it. Yeah, it was always. Yeah. We got our new furniture once we were debt free. I guess. You can now sit three on the couch.

Yep. That's it. A dog gets near the couch. It's not going to be good for him. Nope. Not messing with the couch. Something like that. Love it. Very fun. Well, well congratulations you guys thank you thank you having a support system around you it's a big deal and you said the keys for you all were what to getting out of debt

for me it was the budget mainly yeah yep i would definitely say the budget and um having our goals written down that was really big for me like We'd hang it up on the fridge, this month we're going to pay this amount of debt off, and then we'd watch the account every day to make sure we're going to meet that goal at the end of it. You're real visual then. Yeah, visual and having it. And I was always, I'd steal the pen

if he tried to cross off the number on our budget book. I'd be like, no, no, that's my job, so I could cross off the next number. I brought the debt, she gets to, that's my job, so I could cross off the next number, you know? I brought the debt. She gets to cross it off. Yeah. Fair trade. Yeah.

We'd say budget and support system are the two main things. Okay. Well, congratulations, you guys. Very well done. Thank you. Thank you. Sure, your parents and your brother-in-law, everybody's proud of you. Yes.

Yes, I love it. Thank you. And you can do this the first three and a half, four years of your marriage. You can do anything. Yes. We're very excited. Very well done. We've got a copy of Chris Hogan's book, Retire Inspired, for you. And you can do this the first three and a half, four years of your marriage. You can do anything. Yes. We're very excited. Very excited for the next step. We've got a copy of Chris Hogan's book, Retire Inspired, for you.

That's the next chapter in your story to be millionaires. And you're well on your way. And outrageously generous along the way, of course. Yes, absolutely. Very well done, you guys. Scott and Amy, Des Moines, Iowa. $100,000 paid off in 42 months, making $70,000 to $95,000. Count it down.

Let's hear a debt-free scream. All right, three, two, one. We're debt-free! I love it! Very well done, you guys. Very well done. Man, that's fabulous. That's as good as it gets right there.

Man, beautiful, beautiful stuff. Open phones at 888-825-5225. Tiffany is in Augusta, Georgia. Hi, Tiffany. How are you? Good. Awesome. How are you doing, sir?

Better than I deserve. What's up? Okay. So about eight months ago, I bought your book. I read it. I got my money saved up. I started my debt snowball. I've been doing all this stuff. My problem is my husband isn't. My question to you is how do I get him more involved to do in the budget? Okay. Well, have you yipped about it so much you turned my name into a cuss word yet?

Yes. Actually, I have. He thinks that it's not that important. We pay what we have. You know, I sit here and write these budgets, and he's like, that's great. So what is the most important thing to him in his life? One thing, if I mentioned it that he gets really excited about definitely our kids i would say okay all right and in what way uh he just he he's all about them if it's something that we can do for them he wants to do it you know they're four and six right now so they

you know they're all about toys you know that kind of thing for them the thing is this if we were to sit down and get control of our money the reason honey i owe you an apology because i brought this up so much that i've been yet i've been yapping at you that's the first place you start because you do owe him an apology okay and then once you do that, then you say, the reason I've been so excited about this is I really can see the math that if we get control of our income that we can change our whole family tree. Okay.

Yes, sir. We can not only change our lives, we can change the lives of our children permanently. And we can do that while living a good life. We've just got to be more intentional. And I've got to tell you, honey, when you're doing stuff with the kids, that's like a 9 out of 10 for you. If you were to sit down with me, you're talking to your husband, you say, if you were to sit down with me and work on this,

it's like a 9 out of 10 for me. It would be like my favorite Christmas gift in the world is if you would actually give a rip about this and look at it with me for a few minutes because it means that much to me. If my wife says something that means that much to her, I'm going to stop and do it, even if I don't want to do it

because that's what being married's about. And if I say that to her, she's going to stop and do it, by the way, because it means that much to me. Hopefully you can communicate on that high level. This is The Dave Ramsey Show. Our scripture of the day, Proverbs 28, 1, The wicked flee when no one pursues, but the righteous are bold as a lion. Robert Louis Stevenson said,

Keep your fears to yourself, but share your courage with others. Ooh, that's good. I like that. It is contagious, this thing called courage. This thing called fear. Both are contagious. It's pretty amazing. Kim is with us. Kim's in Madison, Wisconsin. Hi, Kim. Hi, Dave. It's an honor to speak with you. You too. I just turned 50. My husband is 56. We've owned a business, an auto body repair business for 30 years and are looking to retire when he turns 60,

so in about four years. Okay. The question is, we have no idea how to figure out what our business is worth. Okay. There's three methods for valuing a business. The minimum that the business is worth is if you turned the key and closed it and sold off the equipment and collected the receivables, any money that was due to you and paid all the bills. What would be the net pile of cash in the middle of the table when you did all of that? That's called book value. Okay. And we know we can get that for it by closing it right right that's that's really attributing no value to the business it's just the equipment sale off right and and the collecting

the receivables so that's the minimum another method that's not as popular with small businesses it's usually used with medium-sized and large businesses and it might be true in the auto body repair world i don't know um some some industries some spaces have a a gross multiplier they just take your top line and multiply it by x by three by six by 8, whatever. And they say that's what the business is worth because they know they can generate a bottom line as a standard part of a business. That's usually not done in small businesses. But it can be and it might be you poke around in the auto body world and just see if there's a gross revenue multiplier.

It's not as accurate, but it can be used, and it might be that if there's somebody out there buying up a bunch of auto bodies, they just come in and they go, hey, you know, we'll give you four times gross or whatever. The most accurate way and the most used way is a rate of return calculated. It's called a cap rate, on your net profit. Your net profit. And so what I would do if I were buying the business is I would look at your net profit, and I would probably multiply that by either four or five,

which means if I multiply it by five, I'm looking for a 20% rate of return on my money, which sounds like a lot, but a small business is a high-risk purchase. If I multiply it by 4, I'm looking for a 25% rate of return on my money, and that's called a cap rate or capitalization rate methodology. But 4 or 5 times the net is probably your best estimate. If that does not equal more than the equipment is worth, then book value is going to be your best way, and that's just closing it and selling off the stuff.

Now, when I say net, that means after I've paid a manager, and your husband's paying himself out of this thing. And so what does it take if I'm an absentee owner? I live in Nashville. You live in Madison. And I've got to hire a manager to run it. What is the market price on a manager? Because your husband's gone.

And then what do we net? Now, it might not be nearly as much as your husband makes because he's the owner and the manager. You see? But I've got to pay the manager out of that. So do you know what you guys have been netting? Well, I guess I don't know that answer. What are you paying taxes on? Yeah, what's your annual income out of it?

About $150. That's what you pay taxes on? Yeah, that's what I pay taxes on at the end of the year. Out of this business? Correct. Good. Way to go. Well, we both work in this business.

Oh, you both do. What do you do? I'm the secretary. I do the book work. Okay. So we've got to buy a secretary when you're gone, right? And he's the manager. So what's a secretary and a manager cost me?

I'll just play pretend for a second to show you how I'm doing this. I'm going to take $150,000, and I'm going to buy a $25,000 secretary and a $50,000 manager. That's $75,000. That leaves me $75,000 real net profit after I've got a new secretary and a new manager in there. Okay. Times four or five. All right. So it's a, you know, I'm just doing this rough and dirty here, okay? Sure.

But this is the concept. And so if we said four times $75,000 or five times $75,000, four times would be $300,000, five times would be $375,000. So, you know, $300,000 to $400,000 is probably fairly close. It's not worth a million, but it's worth a lot more than $100,000. Okay. All right. And our annual, I mean, our top line is about $800 a year. Yeah.

But that's probably not realistic in a small business. Well, I mean, it would just be, in that case, we might find people in the business are paying, you know, .5 of the top line, which would be $400,000. You know, like I was talking about a gross sales multiplier a while ago. It might be that it's less than a full one. It's not one times gross.

It's going to be like a half a point, if that's the case, because you've got all these other operating expenses. What's all your equipment and stuff worth? No clue. A lot. Do you own the real estate? Yes, we do. Okay.

That's a separate part of the transaction. Okay. You're now also a landlord. I'm not buying the real estate. I'm just buying the business for $300,000 to $400,000 plus the real estate, or I'm going to rent from you and you're going to continue to own the real estate if I'm buying it. But I'm just putting a value on the cash that the business is creating.

Okay. All right. That gives me a good start. And are there companies that I can go to to say, hey, we're getting ready to say, you know, we're on the... Yeah, you know, we're on them. Yeah, there should be some good business brokers around that will help you with this. Okay. All right.

Well, good. And put a value on it. And I'll tell you, by the way, most places that you get a small business sale is a supplier or a customer or a competitor. Okay. Those are your three categories. If you have a supplier that's wanting to expand, you know, they're one of the paint people, or they're one of the parts people, or they're one of the equipment vendors, something like that, and they're actually wanting to own a shop, and, you know, that's a place.

Sometimes a customer that's been in there that's, you know, just kind of they spent a little too long, they were a little too interested in getting their car fixed, you know, that kind of thing. And they may be the player or a competitor buying you out. And that's kind of the obvious one. Yeah. But those are the three places to find your buyer most of the time in a good small business sale.

And that's what a business broker will do. They'll quiz you, and then they'll go work that list if you hadn't worked it already before you got there okay and and what's a good uh rule of thumb for i mean and i know this can vary it can be 10 minutes and it can be 10 years or more to sell business but what's a rule of thumb two years ahead a year ahead i would start putting the books and the system and the appraisal of the business, I'd start working on it two years ahead because you don't have to actually do anything. But then when you actually were to list it with a business broker, you know, I don't know. You'd have to talk to them, but I would guess you ought to be able to move it in a year.

Okay. That's just a guess. But, you know, you might move it with one cup of coffee with a competitor. Right. Just slip over there and go, you know, the danger of that, of course, is that they use it against you. Correct. You can have them sign an NDO, a non-disclosure agreement, an NDA,

and just a little one-page thing that says they're not allowed to talk about it, but I'd like to talk to you. If you're interested in talking to me about this business, I'd like to talk to you about it, but you have to sign this before you can. And that says that they can't tell anybody about the conversation, and they don't turn around and use it on you. Oh, you don't want to go over there and get your car fixed. That guy's getting ready to close up.

You don't want them doing that if they're unscrupulous. But that's a normal process in this whole thing is asking for an NDA to be signed, and then you can start to expose what you make, and they probably already kind of know because it's probably pretty similar to their P&L, unless you're doing something really special and different. So, hey, good discussion. Thanks for joining us. That puts this hour of the Dave Ramsey Show on the books.

Thanks to James Childs, Blake Thompson, Kelly Daniel in the booth. They make this happen. I am Dave Ramsey, your host. We'll be back with you before you know it. In the meantime, remember, there's ultimately only one way to financial peace, and that's to walk daily with the Prince of Peace, Christ Jesus. Hey, guys, it's Kelly Daniel, associate producer and phone screener for The Dave Ramsey Show. Hey, this hour of the show is over, but you can find our podcast on iTunes or Google Play.

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