The Ramsey Show - App - Our Company Never Seems To Turn a Profit (Hour 3)

Episode Date: August 16, 2021

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🎵 Live from the headquarters of Ramsey Solutions, broadcasting from the Dollar Car Rental Studios, it's the 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. George Campbell, Ramsey personality, is my co-host today. He is the host of The Fine Print, a newly minted podcast out on the Ramsey Network. He's also the host of the Entree Leadership Podcast, with new episodes dropping every Monday.

The Fine Print is a 10-episode podcast. The third one dropped today. If you want to listen to it, digging into, like we were told as we were kids, read the fine print. Yes. This is just the new school version, and we're really digging into all of the money myths, all of the scummy companies, the bad products, the financial ignorance that's keeping America broke.

So I'm on a mission to get America unbroke, if that's a thing. If we can do that, I will have succeeded. So we've got these narrative storytelling episodes coming out every other week. They're short form. on a mission to get America unbroke, if that's a thing. If we can do that, I will have succeeded. So we've got these narrative storytelling episodes coming out every other week. They're short form. They're no more than 30 minutes. Today's episode is 19 minutes, and we're going to help bulletproof your money for the next pandemic. So if that's you and you had an oh crap moment. That's this episode that dropped today. Just dropped this morning. It's fresh.

Bulletproof your finances. Bulletproof what? How to bulletproof your money the next pandemic we might be in the next pandemic i don't know i can't tell when one ends and the next one starts it's all mixing together now well yeah it's confusing yeah but hey an emergency fund it can change everything so we're going to walk you through that we've got dr art laffer the economist we've got real life stories and really tactical advice yeah hands- hands-on stuff. So be sure and check it out, The Fine Print. Anywhere great podcasts are listened to, you can tune in and find it there. Max is with us.

Max is in Los Angeles. Hi, Max. How are you? Dave, how are you? Thank you so much for taking my call. My pleasure. How can we help? Real quick, I was wondering how do I go about finding the valuation

of a service-based sole proprietorship business? I recently made an offer to take it over for free, not as an old friend of mine. I knew I was looking for a career change. I said, you can have my entire business. Mainly, it's service-based, doing home repairs, doing repairs for property management companies, kind of handyman slash construction service. And I just don't know how to even begin to evaluate it. Okay. Well, here's the thing. The business has a value beyond what you would pay someone if you were an absentee owner not working in it

to operate it and this sounds a little bit like this guy owns his job more than he owns a business right so what is his income uh well i'm gonna find out the details a little later but um i know if i were to guess, it's anywhere between about $140 to $250, anywhere in that realm, probably. Gross revenue or net profit? Net profit. Well, that's pretty substantial. Does he have employees? Only when he needs helpers, but typically it's just him.

Okay. All right. So here's the way you value a business properly in that scenario or anything else, where the owner is operating in the business and not paying himself a separate salary. You act like you're not going to work in the business. Okay? So if you were going to just buy this business, you'd have to staff it, right? Uh-huh. were going to just buy this business you'd have to staff it right and if you staff this to do

basically what he does then what does that cost let's just use a pretend okay let's pretend he's netting a hundred thousand bucks and you can staff it for 60 you can hire a handyman to work for you to do the business. Okay? And then you're an investor is all at that point. Okay? Okay. So your rate of return is net of paying your staff. If you made a net profit before of 100, you pay someone 60 to do the work.

Your net profit would be 40. You follow my example? Yes, sir. That's the way we look at this and the way you'll have to analyze it and come down to it, especially where you're buying kind of a one-man band situation because you have to be very careful there. But even if he had 10 employees, if he was netting $250 but not paying himself anything, you've got to figure out what it takes to hire a manager to run a 10-employee operation that does home improvement, and that's $250. Well, you're probably going to pay that guy $100, so you probably got $150 net profit that you would use.

Now, then you say, as an investor, what kind of rate of return do I want to make on my money? Well, when you're buying a small business, the rate of return should be anywhere from 20 to 25 percent because it's a high-risk investment. Low-risk investments like mutual funds pay 10, 11, 12, real estate a little bit more, but this is a high-risk investment to buy a small business. And so if I want a 20 percent rate of return, that means I want 5x, the business is worth 5x of the net profit after staffing. If you want a 25%, it's worth 4x after staffing. So in my example of a $40,000 net profit, five of that would be a $200,000 valuation, four would be a $160,000 valuation. So that would be $160,000 valuation. So that would be the range that that company netting $40,000 would be worth, somewhere in there.

You value it based on a rate of return. It's called a cap rate on the net profit, 4 or 5x of that net profit after all staffing. And, George, when we're working with entree leaders, they oftentimes say things like, well, you know, I have goodwill. I have a great brand, a great reputation in the marketplace, right? Yep. You've heard them say that. I've heard that.

And the problem is your great reputation or your goodwill in the marketplace is worth zero unless you use it to create money. If you have a great reputation and you make no profit, what your reputation is, is you're not very good at running a business. That's actually your reputation. He's a really nice guy and he sucks at business. That's your reputation because you don't make a profit. The value of your brand, the notoriety of the family and the community, the whatever, is only valuable to the extent it turns money in. Now, it has an intrinsic value. It has a philosophical value, a spiritual value, a feel-good value, all of those things. But none of that has to do with the financial calculation.

No. And I'm worried about Max getting into a bad business deal. Because it sounds like this is going to cost him a lot of money if he buys this thing based on the numbers he said the guy was going to give it to him i mean if he's just handing it over i'd question why i got i just heard he don't want to do it anymore and he can't find anybody to buy it and so he says hey this is yours if you want it yeah the problem is this guy's working his tail off it sounds like yeah he might be working 80 hours a week and those numbers might not be real yeah i'd want some hard numbers on paper and go hey prove this look at the old two last two years of tax returns what'd you pay taxes on well i

didn't report it out well then we can't count anything yeah because now we can't trust you because you don't need because you lie on your taxes i just don't want this to be a lot of work for max if he takes this thing over and goes oh my gosh i didn't know what i was getting into if you're looking what we encourage people to do in Entree Leadership is don't buy a job. Okay? If you're going to end up making your income out of the thing and that's all there is, and there's

no real net profit, don't pay to buy a job. Just go get a job. Get you one. Right? But if you can, if this guy's going to hand it to you, if it's really making money and he's just tired of it, then that's something you can certainly look at, Max. Very cool.

Good discussion. Thanks for calling in, brother. This is The Ramsey Show. You know, I heard a sad and touching story recently. Zander Insurance has set up a scholarship for children whose parents died without life insurance. Last year, they gave away over $165,000 to help kids avoid debt and go to college to pursue their dreams. It's touching, but also sad since it's a situation that occurs all over the country and can be avoided in so many cases. This is the reason why I talk about Zander and term life insurance every day.

It's not expensive or complicated, and it's gotten even easier with many companies no longer requiring medical exams. Zander shops and compares all the top term life plans and stays with you the whole time to make sure your family is taken care of. That's why I've used and recommended them for over 20 years. Go to Zander.com or call 800-356-4282. So I don't have to keep talking about these sad stories. welcome to the ramsey show george camel ramsey personality is my co-host today our question of the day comes from blinds.com. They have a 100% satisfaction guarantee. It means even if you mismeasure or you pick the wrong color, they'll remake your window blinds for free. Free samples, free shipping. Great company.

They run new promos all the time. You want window blinds? These are the guys. Use the promo code Ramsey to get the best deal. Today's question comes from David in Pennsylvania. I would like to purchase a small house. My neighbor, who's a realtor, says I have to have a credit score to get a mortgage. I'm 18 years old, and I'm not too sure what to do. I was inspired by you not to get a credit card,

so I use debit cards or pay with cash. Do I need to establish a credit score to buy a home? The age-old question. Well, this one's easy because I did it without a credit score. Oh, there we go. Personal testimony. Real-life proof. You are a homeowner, and you did not pay cash. You got a mortgage. We got a mortgage.

And you did it without a credit score. And we did it with no score. Wait a minute. Are you real? We're not real. You're not real. You're a robot. We're figments of your imagination.

This is the funniest part, Dave. We get this a lot, and we talk about manual underwriting. We talk about no-score loans. Of course, our friends at Churchill Mortgage do these all day long. But for some reason, people go, it's so much work. Oh, my gosh, you can't imagine how much work it is to get a no-score loan. What did you have to do? I literally had to look up maybe three utility payments.

I had to pick up maybe a few extra w2s and hit an upload button and i went okay wow that was a lot of work they didn't they didn't even verify your employment i mean sure they they do the basics but there was nothing crazy where i went oh you had to sign a paper saying they could email us or check with us i said sure yeah i usually do a voe a verification of employment yes and a vod the verification of the deposit at your bank make sure you have the money yes and w-2 and a couple of utility bills i don't know how you got through all that sounds stressful oh my it took 17 years for us to get the mortgage dave it was really it was not that big of a deal i almost wanted it to be a bigger deal because people made it out to be this big deal and so uh david to answer your question you do not need to establish a credit score unless you

want to play the game of the system. And you're already doing great. You're paying with cash, you're using a debit card. So here's my advice is to go with someone like a church home mortgage who does a no score loan, manual underwriting, they call it a few different things. And here's what I would tell you, Get a healthy down payment. You're 18 years old. You're super young, and he's looking into getting a mortgage. And the biggest thing is to get that healthy down payment where they go, oh, this guy's got money.

He's got a job. He pays his bills on time. We're going to give him a mortgage. That's how they did it in the olden days. Yeah, back in the day before FICO took over the world. All right, so here's the first thing. It's okay if you don't buy a house when you're 18. As a matter of fact, it's probably better than okay.

If you just take your time, you're all right. The second thing is a real estate agent that does not know about manual underwriting that you can buy a home without a credit score is not a credible real estate agent this is not someone that you would use they do not know what the crap they're doing so don't use your neighbor the real estate agent yeah incompetent and if they if they are saying ah we can't do that it's probably because they just don't want to go through the hassle no it's because they don't know how. Yeah. Which means they're ignorant and you don't need to buy a house from them.

That's what it means. And so it's a pretty simple formula in that regard. Scary. Wow. Hey, Paycheck to Purpose, Ken Coleman's new book on pre-sale is breaking records. The amount of these books we have sold on pre-sale, blowing my mind. Okay, the title of the book is From Paycheck to Purpose, The Clear Path to Doing Work You Love.

It's available pre-sale now, and that includes $100 worth of goodies. It's not just another how-to guide for finding a dream job. If you pre-order today, you will receive the Get Promoted bonus pack for free. It includes an audio lesson on promotions, how to get promoted, the disc assessment, a free live stream access to Ken's From Paycheck to Purpose live event, a 30-day free trial to Ramsey Plus, and over $100 worth of free stuff to help you get promoted. Oh, man, this is a bargain.

All for a $20 book. Why are we doing all this? I know. Because the book comes out in November, and is a bargain. All for a $20 book. Why are we doing all this? I know. I was going to say. Because the book comes out in November, and we want to pre-sell a whole bunch of them and make sure these comes out of the gate on the bestseller list. And so we sell the crud out of them up front, and we bribe you to buy them early with all these hundreds and hundreds of dollars worth of stuff extra.

So go to the online store, RamseySolutions.com, pre-order the book, Paycheck to Purpose, for only $20. And get these hundreds of dollars worth of get promoted bonus items. Also, the month of August means cash giveaway. We're giving a $500 cash giveaway every week. And a grand prize of $3,000 cash at the end of August. For the chances to win for that, no purchase necessary. Got to be 18 to win. Text CASH to 33789.

CASH to 33789. CASH to 33789. Scott is with us. Scott is in Nashville. Hi, Scott. Welcome to the Ramsey Show. Hey there, Dave. How are you doing today? Better than I deserve.

What's up? Yeah, so I recently moved down to Nashville, right? And I'm starting to look at purchasing my first house. And being that I've never been a salaried employee before, and this is all kind of brand new to me, I'm trying to figure out how to prioritize my money in order to most efficiently

go about purchasing my house. And so right now... How old are you? I'm 23. Good. What do you, what do you make? Uh, so I made 43,000 a year.

Um, and then after deductions and taxes and everything come out, it's more like 25,000 take home. Okay, cool. Now, uh, I want to ask you this guy, do you have any debt right now? Uh, I got about 7,000 left. Um, that's all on a car note. I just paid off you this, Scott. Do you have any debt right now? I've got about $7,000 left. That's all on a car note. I just paid off my student loan today. Good for you.

Awesome. Way to go, man. Congratulations. Well, here's the deal. I appreciate that. I love that you're moving here and you want to buy a house, but I want you to get rid of this debt first. Do you have an emergency fund? Do you have any savings right now?

I've got about $5,000 for the way. You have $5,000 saved? Yes. Okay, so here's what we're going to do. If you're following our plan and not Scott's plan, here's what I want you to do. You're going to take $4,000 of that and pay the car down today, which is going to take you down to $1,000, right? And then we're going to get aggressive on that remaining $3,000. And with your income, you should be able to crush that within a few months.

And then I want you to save up a fully funded emergency fund of three to six months of expenses. And so once you know what expenses you're going to have living here, fill that up, and then we can talk about saving up for this house. And that's where Baby Step 3B comes in, where we save up aggressively for that down payment for about two years. And in that two years, you might be in good luck because the market may slow down here in Nashville. Things are crazy right now, Dave. Yeah. So, Scott, this whole thing is new to you and this idea of getting on a plan and working through.

George just outlined for you what we call the baby steps. And it's the baby steps to the shortest distance between where you are today and becoming wealthy. And if you do things in a very precise, proven order, you'll bring less pain to yourself and more probability to going into wealth. And so that's what he just outlined for you. But also involved in that is just learning how to handle money overall. And that's a brand new subject. I mean, you're a young guy just getting started, first time out, first job in a new city. So here's what I want you to do.

Our class is Financial Peace University on how to handle money. Included in that is EveryDollar, the world's best budgeting app. The whole thing is on sale right now for $99 for a one-year subscription to Ramsey Plus, which puts you in this, okay? What I'm going to do is I want to give it to you free, okay? Wow, thank you. However, if I do that, there's two conditions. Number one, you have to promise me you'll actually freaking do this stuff. Yeah, of course.

You have to actually look at it and do it. If I give it to you and it's just wasted, that's a bad thing. And the second thing is when you're rich someday someday and you will be if you follow these steps i want you to find a 23 year old guy who's just getting started and i want you to buy it for him someday okay okay but that's that's later it's only if everything i teach you works okay and um you know you don't have to pay it forward if there's nothing to pay from yeah so I was in Scott's place I was 23 moved here

started working here and I'm rooting for him I see myself oh and by the way you're how old 32 now and your house will be paid off when in a few months

ding just like that you got this buddy just like that hold on Kelly will pick up Scott she'll get you signed up for a one year

on Ramsey Plus and put you into Financial Peace University. Make it happen, brother. Our favorite thing to do on the Ramsey Show is debt-free screams. Our next favorite thing to do is do Debt Free Screams in the lobby of Ramsey Solutions on the Debt Free Stage. But our mostest of mostest.

Is that a word? It is now. I just made it up, and I own the place. Our mostest of mostest favorite Debt Free Scream is our own team members on the Debt Free Stage

in the lobby. The only negative is it lowers productivity in the company because everybody wants to come out and watch their friend that they work with do their debt-free scream. So there's a bunch of people out here not working right now watching this debt-free scream, which is absolutely awesome because they're cheering their own along. So Tyler is with us. Tyler Green is a paid media specialist with ramsey just got here been here about 90 days and of course ashley is with us as well spouse so way to go guys how

much debt did you pay off paid off 46 119 dollars and 92 cents dave love it and how long did that take you took us seven months seven months all right and our rule is we do not ask the team members their household income because that's not fair in front of all their team members yeah well and inappropriate and all those kinds of things so and i'm very inappropriate if you didn't know so but yeah so but we're not going to be today so way to go guys thank you what kind of debt was your 46 000 so it was a little mix of consumer credit, car debt, and we had purchased a vehicle that we needed to pay off. Thankfully, we actually cash flowed college, so we didn't do that route. But we did buy a lot of things we shouldn't have bought at that time.

Okay. So you're a new team member for the last three months. Right. But you started this seven months ago. Correct. Tell us the story. How did all this unfold? You want to go ahead and start so going back to kind of when we our story starts when

we first got married and we were gifted fpu by a family friend and we didn't hear know anything about you my parents did um but we were gifted fpu and we were like oh yeah that's cool that's fun but we didn't do anything with it we didn't go through the class we didn't listen of course not um we were hoping for like a couch or, you know, a TV. Yeah, like something usable. Yeah, you know. Yeah, a toaster oven. I mean, come on.

My parents ended up convincing us to pay off some debt. So we did get out of debt early on in our marriage. How long have you been married? Six and a half years. Okay, all right. And then we decided to start going through the course, going through the program, but we did it separately. So part of our dysfunction was he would listen to the audio tapes in the car and I would

do something at home, but we were never together when we did it together. We weren't together. So we were in and out of debt for quite a while and never really- Because you were never one of his own, one of his hot, one of his cold. Yeah, exactly. Oh, wow. We weren't on the same page. Got it.

We understood the concept. We understood it. We were on not wanting debt, but not well enough. Right. Because we weren't on that same page. So we were in and out of debt for a while. And then fast forward to... Shortly after you get pregnant.

So we bought the car. And then we had Titus. I left, who's our oldest, I left teaching. I was a teacher. Left teaching, stay at home with the kids and start my own business. We started to realize

we needed a few things in our life. One of the things we needed was a car for her. And we didn't actually have the plan in place. We weren't following our money. We weren't paying attention to the dollars that were was a car for her. And we didn't actually have the plan in place. We weren't following our money. We weren't paying attention to the dollars that were going in and coming out. And we just thought we needed a few things.

So when she got pregnant with our second child, Micah, we decided to go out and buy a car because we thought that was the smart thing to do. And we realized pretty quickly that we were definitely spending more money than we were bringing in. And I remember coming home one day after looking through the numbers, which was part of the problem was we didn't communicate much at all. And I actually looked at her and I said, if we don't do something drastic in the next two weeks, we're not going to have any money to put food on the table. Or pay rent. And I was, at that time he came home, I was eight months pregnant.

Oh, yeah, that's nice. Yeah, I know. Well played. Worst timing in the world. Yeah. Panic a pregnant woman. What's wrong, man? I was in.

So at that point, I was kind of in denial because I'm eight months. I had this whole idea planned up. And I was in denial about, no, we're going to be fine. We can make this work. We don't need to change things because we were still not so much on the same page. And I said, okay, well, then what? It's like, I think we need to sell your car and go down to one car. And I was devastated.

Now, mind you, we had just bought this car about three months earlier. Oh, of course. So we were doing all the things wrong. And the biggest issue that we had was that we hadn't communicated up to this point about the money thing. We were making one big decision after the next and just getting ourselves further into the problem until we had to make a drastic change because we put ourselves in a drastic situation. And when we decided that we needed to go ahead and do that, we decided to get really intense. And our story is really one of intensity because we had been Davish for so long in our lives. We thought if you can manage the payments, if you can manage the small things, then you're doing okay.

You're getting ahead. You're making do. And that's not the way to live. You're constantly looking over your shoulder for a debt collector. And I remember we were shopping around to try and pay off some of this consumer debt. And I remember one of the credit card lenders who was potentially going to help us kind of try and consolidate or find a way to do that, told me, if you don't take my offer, then you're going to not be able to pay off this debt for like five, six, seven years.

You're going to be in this for quite a long time. And I told him, I think we can find a better way. And that's when we started to dig into the plan and really find out that there is a way to do this the right way. And it was on your shelf all along. We dusted it off and decided, you know what, we should have done this from the beginning. Traded it for a toaster oven. Look at you.

I know. So we sold off that car, and we decided to make a few other changes in our life. We actually downsized and got out of our house, moved in with her sister at that time to really convince. Shortly after Micah was born, we moved in with my sister and cut all of our expenses by so much and anything extra that we had so that extra that we were using for just surviving we put all of that towards the debt anything extra that came you went hardcore scorched earth and did it in seven months yeah 46 000 dollars like nothing

move in with the sister, everything sold. You're not doing nothing. Nothing, nothing, nothing, nothing, nothing. Yeah. So if we were invited somewhere to a birthday party, we hadn't budgeted in a gift. We either went without a gift or we didn't go. And the thing was, Dave, is we- Go without a gift and eat free. Yeah.

Oh, yeah. Absolutely. Anytime there was a free food, we were there. But when we started to look at the numbers i didn't see a way forward um to being debt free for at least three four five years with the income and the shovel that we had yeah we were underwater um the entire time and what's amazing is when we decided to get in tents there was supernatural provision that just showed up and you know we all just went through this corona season and there was extra income that was given around by the government which was unexpected but we had a plan in place and we knew where we were going to put it

and we started to attack this thing and as we did as we got more intense we found that there was more income coming into our hands more resources coming into our hands and we had a choice to make do we go and spend it on the car or do we go spend it on nice clothes like some of my friends used to do or do we go and out and eat for a change because this is unexpected income? Or do we put this towards our debt and really stick to our guns on this? And that's what we did. And that really allowed us to make a lot of money. So how does you working here come into this story? So shortly into this process, we started to really look around and say, we need to find something else to be doing. I'm not really liking where I'm working. I wanted something to do with my life that was meaningful, that was on mission, that was passionate.

And we had a recruiter that reached out to us from this place right around the time that we were about to become debt-free. And it was really, really interesting because I thought you had to be debt-free to work here. So I thought I was going to disqualify myself if I hadn't had any debt. So we, through the interview process, were hustling hard to get to the finish line. Because I thought if we were going to come to the last few interviews, it was going to be like, so are you debt-free or not? And I didn't want to get to that point. That's fun. We found money in the couch.

I mean, I swear I found stuff in the couch. Sister-in-law's couch. Yeah. We found it wherever we could. But right before the half day and getting here, we actually made our last payment. Oh, man. where I found sister-in-law's couch yeah we found it we found it wherever we could um but we we uh right before the half day and getting here we actually made our last payment oh man yeah and I remember looking at her in the kitchen and actually telling her hey we're debt-free like we're completely debt-free oh man we don't have to worry about this no more and I'm so proud of

y'all so welcome aboard thank you there's people like you guys we want on the team that's intense and just to put the word out you don't have to be debt-free to work here. Wow, that's intense. Very cool. And you brought a bunch to cheer you on. We did. That's amazing. We did.

Well done. Tyler and Ashley, Titus and Micah, $46,000 paid off with great intensity in seven months. Count it down. Let's hear a debt-free scream. All right, ready, guys? Three, two, one. We're debt-free! We're debt-free!

That's how it's done. Yeah! Family tree change, just like that. Good-looking family. Beautiful. Honored to have them on our team. Rock stars, man. Very cool.

This is the Ramsey Shop. Our scripture of the day, Philippians 2, 3 through 4, Do nothing out of selfish ambition or vain conceit, rather in humility. Value others above yourselves, not looking to your own interests, but each of you to the interests of others. Les Brown said, in the end, it is the person you become, not the things you achieve, that is the most important. Agreed, my friend. Les Brown, if you haven't heard him, is an icon in the self-improvement space

from a couple decades back and a wonderful speaker. You can look him up on YouTube and learn a lot about him. George Camel is my co-host today, Ramsey Personality, as we answer your questions about your life and your money. Open phones at 888-825-5225. Reed is in Pittsburgh. Hey, Reed, what's up?

Hey, Dave, how are you doing? Better than I deserve. How can I help? So I recently, about a year and a half ago, started working with a friend of mine back home. And we're trying to figure out why we can't. We just break even every year. We can't seem to make a profit no matter how much our shelves go up in the business. It's just kind of boggling my mind a little bit. What's your top line revenues, your gross revenues? So right now, this year we're on track to do 300 in total sales, 300K.

When I started, it was like 120 that he did on average every year. And even though the sales went up, we're breaking even. I don't get it. Okay. So are you selling an item? Yeah, item and services. It's an arch it. Okay. So are you selling an item? Yeah, item and services. It's an Archery Pro Shop. It's a what?

Archery Pro Shop. We sell bows and arrows. Okay. All right. And so what is your margin? So we make about 40% on the average of the store. You should have $120,000 gross profit then. Well, we don't pay that much in payroll.

The only thing I can think of. No, no, no, stop, stop, stop, stop, stop. $300,000. Yeah. You said, right? Yes. And you said a 40% gross margin. So that means your gross profit before expenses should be $120,000.

After you pay for inventory, your cost of goods sold. Does that sound right? Yeah, that does sound right. Okay, and then what are your expenses other than cost of goods sold? It's basically payroll. The building's been paid off. It's been a family business for 20-some years. What's the payroll?

I mean, right now, the owner took a couple years without pay, and I'm the only one being paid until we get it built up. It's like 35 with all the taxes. There has to be some expenses coming out of the 120 if you're breaking even. So the only thing, and he did a bunch of remodels and stuff, but last year we were, so last year we ended at zero. This year, after buying all the inventory and we're looking at all the numbers again, we're back at breaking even.

You got to go back. I heard that song before, different verse. Go back to the numbers, $120,000. How much are you paid in salary? After taxes and everything, it's like $35,000. Yeah, but the business has to pay the taxes out of it and they're paying you gross what is your salary oh 25 no not if you're not after taxes it's 35 it's not 25 uh then my math might be wrong on the taxes. So my salary is $25,000. And you take taxes out of that. So you're bringing home less than $20,000 a year.

Yes, sir. I thought you said a while ago it was $35,000. No, not the salary. So the business has to pay taxes on whatever it pays me as well. Exactly. So I was rounding up for that. Okay, so the cost to the business of you is $30,000. I pay taxes on whatever it pays me as well. Exactly. So I was rounding up for that. Okay, so the cost to the business of you is $30,000, $35,000.

Okay. Yeah. So that puts us at what? We said $140,000, so that puts us at $105,000. Where are you guys spending that $105,000? He did a bunch of remodels last year. But that was even at the end of the year. So spent a hundred and five thousand dollars on remodels no that was like i said it was paid off last year the only thing i could think of we've done something i now know why you're broke

because you have no freaking idea what's going on inside this business okay i've asked you six ways from sunday where this money's going and you this business. Okay. I've asked you six ways from Sunday where this money's going, and you can't seem to answer it. You're going in circles chasing your tail. Okay? So you guys need to sit down and explain to yourselves where your $140,000 gross profit is going. Some of it is going to read.

Some of it is going to the remodel. But you have to put actual freaking numbers on that. And that 140 should be after all inventory restock is paid unless you're ordering excess inventory more than you sold. Because the other 160,000, the 60% cost of goods sold, giving you a 40% gross margin, should give you inventory restock unless you're overstocking. So it sounds to me like you're overstocking and overremodeling and owners taking no money out of the business. It's what it sounds like. But you guys need to know where your money is going. You're just spending it until it's gone and then wondering what happened.

And so doing a budget is looking out the windshield. Yeah, we just did a budgeting for business episode on Entrez Leadership, Dave, and we talked about how your profit and loss statement is not a budget. That's just telling you what happened. But I think you need to start there, Reed. Look at the profit and loss statement. Start doing a budget with your friends. You guys need to be looking at these numbers every week and start really digging into this thing because there's a lot more questions here than answers.

Yeah, you've got to treat this like it's a crisis because it is you're not making any money and he's not making any money and you got three hundred thousand dollars coming in the front door it's all going back out the back door you're not making hardly any money and he's not making any because he's spending it all on excess inventory and remodeling it sounds like but you don't know the numbers. And so the first step to making money is to do it on purpose. Profit does not just occur. You cannot sell enough to out-earn your stupidity.

You have to. I've tried it. I've tried it for years because I'm a good salesman. I know how to make money. But you have to have a game plan and go, okay, this is what we're going to spend, and we're not going to do any more remodeling until we take a profit out. You know, we got enough. I mean, the store we have made 300K. We don't need to upgrade that until we have extra money.

And when the owner makes zero, there is no extra money. So owner takes money out, all the team members, including you, take money out, and after you're running a solid business plan called a budget. And you're going to budget. This is what we're going to make, and this is where it's going to go. And it's not going anywhere other than where we tell it to, but you're getting to the end of the year and wondering what happened instead of telling your money what to do up front.

That's your problem. That's how you're not profitable. Tom's in Portland, Maine. Hey, Tom, how are you? Hey, Dave, I'm doing well. How are you? Better than I deserve. How can we help? My wife and I are currently on baby steps four, five, and six. We have three children and are quickly outgrowing our smaller home. We're looking for an upgrade for the quote-unquote dream home, but as you know, the real estate market is very hot at the moment. We have a rental property that brings in roughly 20K year in profit and have about 300K

in equity on that rental. So my question to you is, should we sell the rental, take the capital and use it to purchase that dream home where it should get us into a 15-year at 25% of our take-home pay or keep the rental and the cash flow and enter into a 30-year mortgage and attack the mortgage with the extra cash flow over time. If I woke up in your shoes as much as I love rental real estate, I would still sell it. And I might give you a third option. I might sell the rental while the market's hot and then wait a little bit. And let's sit on that cash.

And let's let this market chill out a little bit. And then let that $300 work a little harder for you when you get ready to buy. Of course, that also means when you sell your current home, it's not going to sell as high. But so what? What you're doing is you're maxing out the price on the rental. You're not maxing out the price on your purchase, and you're not maxing out the price on your personal. Now, real estate may go on up a little bit while you wait,

but it'll calm down, and the selection and the inventory on your upgrade is there. And I would suggest you change your language. I would not use the word dream home, and I would not use the words forever home because no home is there. And I would suggest you change your language. I would not use the word dream home, and I would not use the words forever home, because no home is either. You're never there forever. It always changes. And it's not a dream home, because your dreams change about the time you move in. Yep.

That's how it works. So just get you a nicer home. It's an upgrade home. That's the only language you need. And you've earned that, and that's okay. That's how I would do it. Good job, George. Thank you. It's an upgrade home. That's the only language you need. And you've earned that, and that's okay. That's how I would do it. Good job, George. Thank you.

It's been fun. George Campbell, Ramsey Personality, my co-host today. Ben and Kelly in the booth. I'm 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. This is James Childs, producer of The Ramsey Show.

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