How Much Profit Should Your Business Make?

[Music] hello everyone welcome to the 21 hats podcast I'm your host Lauren Feldman this week sha busy Paul DS and Jay goz go right to the bottom line Sean points out how easy it is for businesses to fool themselves into thinking they're more profitable than they really are Paul talks about how margins can vary from year to year especially if an owner decides to invest in improving the business as Paul's doing right now Jay says he's long sought a 10% profit margin but so far he's never managed to get there plus Sean explains how he solved his account's receivable problem and have you looked at the 401K accounts of your employees lately if not there's a good chance you're going to find that they're not saving a whole lot is that just the employees problem or is it also the owner's problem even at Good Times owning and running a business can be a lonely Pursuit our hope is that these weekly conversations brought to you by our principal sponsor the great game of business we let owners know they are not alone and facing challenges same thing with our daily newsletter the 21 hats Morning Report when CH magazine named the best newsletter for business owners and which you can subscribe to for free at 21h hats.com where you can also find transcripts of our podcast episodes and lots of other articles and interviews joining me this week on the podcast are regulars Sean busy CEO of Kinesis which is based in Portland Oregon and works with small businesses on marketing culture and strategy Paul DS who is CEO of Paul DS cabinet makers which is based outside of Philadelphia and makes custom conference tables and J goz whose companies in Chicago include a picture frame business artist frame service and a home furnishing store Jason home the episode is titled how much profit should your business [Music] make but before we get started I've got a little news I've scheduled the first 21 hats live event for Chicago from May 17th to May 19th this is your chance to meet the regulars on the 21 hats podcast along with other owners and CEOs in the 21 hats Community this will not be a traditional conference where people talk at you it's going to be an intimate Gathering limited to just 20 attendees we'll have several Deep dive peer group sessions where you'll get to raise your own challenges and issues you'll also get to participate in the taping of a podcast but most of all you'll get to engage and connect in a relaxed setting over good food with other owners and CEOs on similar Journeys let me know if you want more information you can do that by replying to your Morning Report or by emailing me at Lauren 21h hats.com if you're interested please let me know soon as I said we're only taking 20 attendees now on to today's episode welcome Sean Paul and Jay it's great to have you all here to start today I want to dig a little deeper into a question that Jay brought up a few weeks ago and that's how much profit a small business should expect to make Jay you said you've raised this question in multiple business group sessions and never really gotten a satisfactory answer I'm wondering why you haven't gotten uh an answer to start I mean obviously profit margins are going to vary uh across Industries but can't you get a pretty good guideline for where you should be in any given industry I say no I I think it's there's a lot of factors first of all what's the highest bottom line I got a friend who owns a business he's got like a 30% bottom line it's not the picture framing business right no it's not there's businesses that have a 3% bottom line I would think that most people would say if you had a 10% bottom line that's pretty good there are books out there that you can buy with a bunch of Industries in it of course picture framing isn't one of them that you can look up what is the average profit of a printing company or whatever and I'd say you know 10% probably good retail if you look at the big retailers in America they're usually at 5 six per. Sean Paul is this something you guys think about I do I'm in a CEO's group where we have a number of different kinds of businesses and the guy who's got the best margins is doing about the same gross revenue as I do but he takes home four times as much money and uh he's in a $4 million business taking home a million a year what kind of business uh he runs a company that does business valuations uh SBA valuations for banks and he's an extremely smart guy who really has everything button down you know it's just like he's my hero in terms of uh running a tight business but he's also running a business where you don't have to buy materials you just have to pay people well let me ask you this cuz running a tight business certainly is part of it but from my observation of being in five six groups over the years people that have really big bottom lines e and tell me how this I'm going to give you the checklist and tell me if this is true or any of these they've got some proprietary product or you know they got a patent that certainly do it or they've got some business that's been around for years and years and it's got a brand name and everybody wants to buy that or they've got one big or only a few customers and they don't do any marketing because they sell the the Buns to McDonald's or whatever so they've got that advantage or they have got some Market advantage that most people don't have does this guy have a market Advantage why isn't their competition going and doing the same thing he's doing and undercutting his prices well there is he's just he's just winning the battle um I think that what you brought up that different different businesses are just different is really the the gist of it and then the other thing would be how do you define profit because I'm an S corporation and I'm the major shareholder I tend to think of we're looking for something like 8 to 10% profit on a cruel basis but then if you fold in my uh compensation and looking at something called sellers discretionary earnings which is like all the stuff I pay money for but I don't have to through the business all those fancy clothes you wear the fancy clothes yeah the fancy clothes uh the heat for the office all those all those fripperies I was close to 15% on SD last year but I think you also bring up another very important point is that there's a lot of times profit profitable businesses are profitable because they're not actually doing something that they need to do to secure the business in other words your example of someone who does no marketing but they happen to have a huge customer it's like okay you can if you're not investing in the things you need to make sure it runs without you or it could survive without you or just anything where you might have been spending money but you just take cash instead and I think a lot of small business owners struggle with those decisions particularly when they're trying to get started they need to support their family and they just decide you know I can't afford to upgrade my software whatever it is that sets them up for the future I think the guy you spoke of got two things going for him one is that's a lot of business for a service business so I think like if you're a lawyer or account I think if you can get your sales up to that and you're doing a good job yeah you do have a really big bottom line is one and two is the fact that he's hooked up with the SBA he probably doesn't have any marketing expenses so no no no he does these SBA valuations for banks he's not directly involved with the SBA at all okay but still he's probably got 10 Banks he his relationships with no he's got more than that he's got significant marketing expenses oh he does okay he's just very very good at everything he does he runs his business using the traction Concepts and really does it right out of the book and he's just a fantastically good business Paul can you give us a a quick sense of what the traction concepts are the book is called traction I can't remember the name of the guy who wrote it but uh it's it's a it's a set of moves that anybody is's running a small business could Implement it's about setting goals and holding people accountable basically and then doing regular reviews to make sure you're hitting those targets and if you have no idea how to run a business that's a pretty good place to start there's a number of people who who've implemented it in my group and I've implemented a version of it and it's really effective it makes you look at okay how do I actually run this business how do I make sure everybody knows where we're going how do I make sure I have the right people here it just gives you some some ways to go about that and if you were looking for a set of ideas to uh guide your actions it's a pretty good place to start you may not end end up implementing every single thing like I didn't but uh certainly gave me a lot to think about Sean how much thought do you give give to what your profit margin should be yeah so um it's a really critical number for I think any business for us we've tracked it every year pretty closely for I don't know well over a de I mean we've been around for 23 years but I I really didn't understand it probably for the until the last 13 or so and that was a real um eye opener for me and I think that the big breakthrough I had was uh and we were touching on this a little bit are the artificial ways that business owners influence profit either from the income side or the expense side so you know examples are some business owners load up the business with lots of costs to make the business look not profitable because they don't want to pay taxes but then that creates some artificial views of the business which can make it difficult when you like want to get a loan or if you want to sell the business I think it also just clouds your vision of what's going on in the business other businesses clouded in other ways in terms of like what you all have been talking about which is like organizational debt so they don't invest in things over time like whatever software people development etc etc so so they may have really good profits but the business itself is suffering and that impact happens over the long term so for us you know I use a really simple idea since we're a service-based business and we don't have a lot of product coming through us you know for us we kind of treat 10% as a break even Mark if we get below that um that's red lights are going off what do you mean 10% is the break even point the way I came about this idea was somebody talked talked to me about how you know there there will always be a mistake that you make there will always be some unexpected event you know somebody files a lawsuit against you an employee makes a claim you really screw something up with a client you end up having to refund their money you know there's just so many ways that a business is is vulnerable and what the 10% allows you to do is to have those events happen the things that are out of your control um maybe an economic downturn and you can live to fight another day um you're essentially creating enough of a buffer to build resilience into the business and if you fall below that at least in in my world in my Professional Services world you you're just very tenuous and you you're often having to act reactively and emotionally which is never very good for a business okay so the question is you use the phrase break even which is I don't correct me if I'm wrong that's really not break even wouldn't it be more accurate entrepreneur to entrepreneur say that's our loser line like if I run the business and I have a 2% bottom line I'm a loser like that's stupid whereas in your case if you get to 10% okay you did okay you're doing okay could do better but you're doing okay it's the okay line it's not really a break even line it's you're doing okay line is that not true yeah yeah no you're right I mean you know technically zero is break even right but I think that the show just laid out pretty much a perfect example of what you need to have in reserve and that when you take all the money out of the business you're starving it of of any kind of durability or ability to swing with the punches yeah that's a completely different thing though that's cash flow I mean if you pulled all the money out is salary okay well then it's mostly profit it's not really salary that's really a whole different subject of how much money you pulling out of the business if you had it to pull out that's profit you did well you should have left some in there for cash flow purposes but that's really a different subject it's strangling the business I I disagree and I think that a lot of people are not in a position to make fine distinctions they're they're just trying to keep the doors open and I've met so many people who are starting up a business who are not paying themselves and so the first goal is pay yourself and then look at profit beyond that because you're you're working in the business you cost the business something business doesn't even really exist if the owner isn't now that's not a good way to put it the business has no future if the owner isn't paying themselves listen we actually are on the same page I certainly agree you need to 10 in case you need it and all that all I'm saying is to really look at a business properly you've got to pull out your salary as the market rate salary if you're pulling out a million dollars a year and you could replace yourself for 200 Grand you really had an $800,000 profit so correct yes people should distinguish between those things that's super important and I think a lot of accountants have given owners bad advice over the years to say you know pay yourself as little as possible so you take your money in distributions so you pay less taxes and so it just starts to build an artificial version of the business or the business owner just fundamentally doesn't know what it it costs to replace themselves and so those are the problems you run into when you go to sell the business when you go to get financing Etc so I I really Advocate that folks build a true Financial picture of the business no what you just said is the problem in the picture framing industry they go to sell the business and it's selling a job they're making $47,000 a year that's not a business that's a job so they can't find anyone who's willing to give them any money because why would they buy a job so that's the difference between pulling out what the market should be paying you and having anything past that and you said two things though that I'm really curious the first one would you say said well people are bearing it with expenses not to pay taxes what does that mean what do you mean they're bearing it with like what they're putting their personal stuff on there yeah okay that's different okay let's let's call it the way it is then okay then they're putting a bunch of personal expenses on there okay so the business looks bad but it's really because they are pulling out here's an interesting one we all know you can't deduct Country Club membership anymore they changed that years ago I'm talking to a a person who does Consulting and he says trust me they bury it in there they still do it that was interesting to me I didn't realize that they just don't call it Country Club membership they bury in their financials to your point Sean people are burying expenses in their business and it looks like the business isn't making money but they've got cars for everyone in the family and the country club and the whole thing yeah well that's that's why there's the concept of sellers discretionary earnings when someone's picking apart your financials looking for what the business is really doing they start flagging those items and looking okay well what's if I bought this business and I wasn't paying for my brother-in-law what would it be really doing I think the phrase they use correct me if I'm wrong they call it recasting the financial statements yeah one other thing I think that's really important are we talking the same language right are we talking percent to Topline revenue or are we talking percent to gross profits and that's a whole another thing you know I'll run into a construction company that does you know $80 million a year but like so much of that has just passed through and so so you know are you measuring your financials on the same thing as a service based business right well you you really you have to be comparing to people in your own industry doing similar things and the rest of it is just a way to feel bad when you like I'm a manufacturer I'm comparing myself to a guy who's not a manufacturer he doesn't have to buy materials and yeah his business is just different yeah but you can normalize that like if I if I run into a manufacturer has a really high cost of good sold you know often times I'll just like figure out what their number is if you back that out and then do that as percentage as a profit of that number the gross profit number because then you can start to compare different businesses to each other and actually it's pretty telling I have found well there's a new phrase that I just came up with called ROM that would be called return on me so let's look at this picture you're in a business group Paul let's use your guide it's a perfect example phenomenal does four million has a 25% bot he's making a million dollars a year yeah great operator so you could say God I feel like such a loser I that guy's got a 25% bottom line on the other hand if you're running a $25 million business and you've got a six% bottom line you're making a million and a half dollars at the end of the day you're making a million and a half dollars now it's a smaller percentage of a bigger number but you're still making a million and a half dollars so it's not just about the percentage of the bottom line it's also what's the actual money you're making yeah and how complex it is the other way to look at it is is if I took the same money and I bought McDonald's franchises what would I make okay fair enough but you know that's why I say this isn't simple you could say how much aggravation does the guy with the you know 25 it's all it's it's not just the bottom line it's how hard are you working how much grief do you have how much Financial exposure do you have how much stress do you have it's complicated along those lines when you guys are comparing percentages in a business group setting are you asking what exactly the other owners are taking out or do you just accept the percentage they give you well in my group we each each member takes a turn hosting the meeting and that's a pretty thorough look at their financials with the expectation that yeah you're going to talk about how much you take out I insist on it I say look at this is just a meeting if we're going to sit here and put numbers up there and go oh look how much money I made but you forgot to tell us that you didn't pull any income out last year like you cannot look at someone's bottom line in a small small business and not know how much money they're pulling out to assess anything about the business there's some people that are pulling out a million dollars a year and there's some people that are pulling out $40,000 a year so you have to know that if you see figures for an industry if you know somebody gives you guidelines this is this is a reasonable profit margin for retailing for manufacturing for a marketing agency whatever do you assume that those businesses are being operated on the up and up and that the owners are taking out a market salary and not running their entire personal life through the business as soon as you meet the guy after 5 Seconds you know the answer it is so true like you you look at Paul with his fancy clothes and his fancy car you think this guy is living high in the hog well I'll tell you what Jay I'm willing to answer the question of how much money I made here last year yeah are you no absolutely not okay well then there you have it it's a discussion discuss folks I'm very sorry no it's not because I haven't shared any financials to pretend like I'm making a gazillion dollars so I'm saying if you're going to go ahead and show us your financials it's if you don't tell me how much money you're pulling out I'm not sharing with financials so I'm not giving any I'm just telling you the truth as I see it you know one of the things that have befallen me over the years and I think this is pretty common where in the early stages of the business the owner tends to use kind of force of personality and will to to motivate everything right themselves the employees in the organization you know the you know new sales and one of the things I noticed is that those types of businesses the kind of four to 10 person business they're usually underpaying their employees compared to the market um because that that sort of that Charisma and the excitement of the new is motivating everybody and then what happens is the business gets more mature and starts to operationalize the problem is is the payroll structure is really off it it just doesn't match market and it starts to become like really difficult to get really good people and that I I see that catch a number of businesses where they they think their financials are really healthy but if they were to do a salary survey they'd realize that they're you know 10% 20% below market and eventually that artificial Advantage catches up to them it's the same artificial Advantage the second and third generation business owner has who owns his building the same same thing I think that is very profound I think that is I think that's absolutely accurate I would only add one more piece I think they get away with it not just because of the force of the personality but they're finding people at the lower you know you've just described me you find someone who's 22 years old that doesn't know anything and you give them a job and you if you're good at finding Diamonds in the Rough while they're still rough you're not having to pay them like diamonds and and they're not there yet and then as the business grows and they evolve yeah you end up paying them I'm I'm paying everyone very well now I'm not in that stage anymore but no you bring up an excellent point well that that's an example of not actually taking money out that would be required to fund growth because if you don't have good people you really don't have anything you're You're vulnerable to those people wising up at any given moment yeah I read something really smart years ago it said most entrepreneurs con themselves to believe they shouldn't be pulling any you know money out in the beginning of their business which certainly is a point of you you can't pull money out right away but some people go on like that for 10 years and there is a point where you should be making enough money and you know we've had this conversation with Laura she admits she's not pulling out anywhere near what she should be paying herself for what she knows and what so so she still does fine but it's it it's artificially High because she should be paying herself more and I'm not saying she needs to it's just you do need to readjust that and probably our husband too and absolutely both of them yeah so they're like a twofer exactly so just to be able to monitor your business know how you're doing you use it to make judgments you do have to make that I'm not saying you have to pull it out or not pull it out but you do have to make that adjustment to make sure that you're looking at it properly and what should you be paying you know what what would someone in your situation be paid if you don't do that it skews the whole financials especially if you're only doing a million or two I think this is such an important subject Paul's talked about this and I've used this model too for long time is revenue per headcount and and that's another good way to understand if a business is healthy it really is talking about profitability it's just a it's just a different way you know once once you get below a certain number you're in trouble and above a certain number you're magical that number varies dramatically though whether you're making you know tables framing pictures or you're an accounting firm well it needs to be done in the context of similar kind of businesses yeah I mean my sister owned a restaurant for years and I ran the numbers on hers and it just didn't make any sense compared to mine because there's a zillion people coming in and out of a restaurant and uh and there's tips some you know it's just like you got to understand how it relates to your industry not that it's a universal but you can on the on the revenue per employee you can take an accounting firm and compare it to an Architecture Firm and you can compare it to a consulting firm and and those numbers are actually pretty close right because they're employing you know Highly Educated professionals um in a market where there isn't infinite Supply just as you could probably compare a certain type of manufacturer like say you know a manual machine shop to you know Paul's cabinet business yeah all all of the small manufacturing businesses do CU I ask everybody I meet and they run in a fairly tight range and then the the Professional Service organiz what's the range um if if you're doing something like 880,000 per head you are you're almost dead and if you're doing 200,000 ahead you're you're doing pretty well so what's yours mine last year is $183,800 per head okay mine and I have a retail mix now you you're in a different business with inventory is a significant part of it so that if you just did the head count it wouldn't actually tell you anything about a huge portion of where your money is going no for sure but I'm not far off of you I'm I'm in the neighborhood but you're right the reason why it can't be 80 is simply with minimum wage what they're at and what people get paid I mean the the typical lower level employee now is making $35,000 a year so if they're only bringing in 80 yeah there's not a whole lot to pay the rest of the bills Jay do you try to manage to a specific profit margin yeah and I've struggled with it and is that possible no I've struggled with it and my I I have been I do the entrepreneur lullabi which is okay this year's tight but next year when extra Revenue comes in it's all gonna fall to the bottom line because our fixed cost I've been telling myself that that that lullabi for 40 years I'm getting I'm almost my business is has gotten bigger the problem at the moment is I'm I've scale my business is a much bigger business than it used to be but my God trying to keep up with the real estate the taxes Al loan my real estate taxes are a fortune out the business model has changed minimum wage is gone up I'm not complaining about that they've now got you're paying sick days there's my business model has changed significantly in the last five to 10 years and I have to look at my business model and say okay I need to charge more for this or that and it's a constant struggle but um I I've never had a 10% Bottom Line Paul do you try to manage to a specific margin number yeah 10 10 is a pretty good Target uh eight is not a terrible Target for for my situation what I'm talking about is the margin on acred revenues and this is beyond my own salary now the way capitalism Works Paul could say oh I would like to have a 20% bottom line and the reality is that would be difficult because then someone else will come in and be cheaper that's how capitalism works I mean if you try to go too high you're going to price yourself at a point that it's going to make it easy for someone else to come in but I think a 10% bottom line for your business yeah you're doing really well and I I would say the same thing about myself would I be happy with eight yeah sure I'd be happy with eight yeah we did 8.24% on acred revenues of good how much how much were on the revenues 4.75 million now that we've had this conversation though about Professional Service firms like your your other guy in the group I would say yeah I don't think that is high enough for someone in a professional service firm I it probably does need to be in the 20 range or something yeah there's there's another guy who's got some some kind of insurance agency and his his margins are in that range too now one of the other things is your margins change Year from year depending on whether you invest so a concept that we've seen play out over and over in our group is that you have a couple years of profitability and then you decide you know I want to get to the next level and you got to Splash out some money to do it and in those years when you're implementing that you have lower profits I'm going through that be going through that this year with all this new marketing I'm doing and then you hopefully it works and then you ride for a little while and then you make a decision about whether to repeat that or not here's a question I don't know if you have the answer to it you're friend from the group here's the question is he working really is he like doing the proposals and doing the is he sitting in his office doing podcasts like us is he out there in the field you know um doing the work no he he he he has set up a system and this is where the traction was very useful is it helped him build his team and operationalize all of the minute-by-minute work set up training paths so that he can hire new analysts as he need them and he spends his time making a first of all this is only one of several businesses that he's running the other two are software plays one is best way to describe it would be Zillow for small business that if you're running something like any of us we could go to a website punch in some parameters and get a business valuation that would be reasonable which I think is a fantastic idea and this is the guy who can make it work I'll tell you what I've noticed lately people that are my age that are starting are they going to retire or not retire you could take two people making serious money like $700,000 a year one's a lawyer and one runs a business those are very the person running the business might be doing very little and sitting around doing nothing half the day the lawyers got grief and clients calling them and working six there's a Hu that's a profession there's a huge difference between being in a profession or owning a business and that's why most people in professions at some point decide they need to you know they don't want to deal with it anymore whereas if you own your own business and you've got it running well it's really not much stress and you're not you know you can come in when you want and leave when you want very different yeah my buddy uh he he just jumped a plane and went to Barcelona with his friends for a few days last week and uh came back and it's like yeah that was awesome if you look at the failure rate of businesses part of the reason I think you need to make a 10% or more you you need to focus on profitability is that businesses can be really volatile I mean I know Jay you've you've built yours to a pretty high degree of stability but you've been at it for many many years no no believe me I've had plenty of rough years plenty plenty of them so what profit allows you to do is to is to survive to fight another day and what the what the 2008 recession showed us was how many businesses were out over their skis you know they just didn't have and the truth is like that recession while it was severe it didn't last that long right maybe a year you know six months for some I mean for me it hit me really hard in 2010 early 2010 and was dramatic but by the end of the year I was like moving again but if you don't have any profit to survive off of you're screwed well that's always true you need you need to be resource you need to have resources to survive in small business you just need to be able to get them somehow you've just brought up an important a very important point this conversation started with what do you want your bottom line to be and you're you're both absolutely right there's also the need for having a decent bottom line for all those reason so it's both D let me ask you this if you're disappointed in your profit margin and it sounds like there certainly have been times where you have been what's your first thought can you cut to a better profit margin no I'm living it I'm living it right now there's only a couple of numbers three numbers that I have any control over I have no control over the insurance M much the the the real estate takes us it's like it all the first one the first usual suspect is always gee I think we aren't charging enough that's always the first one for me and I've talked about that before the second one now is and I just figured this out yesterday talking about B business models maybe I need to cut back on my I don't spend a lot in advertising but even the little I'm spending I'm not so sure it's worth it because the world has changed so dramatically like putting magazine ads in the in the upscale designer magazines cost a lot of money and I'm just not so sure that pays for itself anymore if it ever did and then I've got something like do I need a receptionist you know do I need you know the phone calls are a fraction of what they used to be people use their smartphones now people email people I'm not taking in anywhere but I still have a full-time reception is sitting there and I'm wondering whether I can't move that around somehow so it's it's the first ones to look at for me are pricing and advertising because those are the easiest to move cutting my way to it not happening I I've got solid people that have been here fore no I don't think if I hired some consultant they would come in here and say you got to fire five people and like that ain't happening they're doing something they're all doing something you're talking about such an important idea right which is do you cut your way to success or do you build something and like what Paul's doing with going into the B2B space after having gone kind of direct to the buyer for a long time like he's creating something new and he's investing in that you just can't it's just so rare you can kind of cut your way into winning it's a bad model it's it's a model for a mature second or third generation business but if you're trying to grow something you start at zero what do you cut right there's nothing to cut there are a lot of businesses out there I just deal with them that have made some they've knee- jerked and they've cut their service back so bad like I'm done I I call them they don't call you back there are companies you can't even find a phone number on their website they decided they're going to save some money and not have anyone answering the phone there are some companies making some really bad decisions now they've gone past cutting fat now they're cutting into the bone and one day someone's gonna find out they put themselves out of business though they're not going to blame it on the service that they're giving or not giving they're going to blame it on the economy they're going to blame it on their Bank there are a lot of companies giving horrible service now that they rationalize it because oh I can't find people or which give me a break I mean and from my experience of being the customer I would say 75% of my experiences now with dealing with anyone are disappointing and it's gonna catch up to him am I wrong no I mean well sort of I mean well J I'm staying the hell away from your lawn I'll tell you I mean I I think you're putting your finger on something that's been going on for a while now which is Market consolidation and monopolization so it's like you know have you ever tried to call Google to get something done you know like you're never going to get a hold of anybody there but they don't care because they're the game they're it you don't have a choice this is not a consumer hotline let's let's move to another topic this is another thing that uh that Jay triggered uh in his conversations about uh his interest in looking at going in the direction of employee ownership and in ESOP he mentioned that one of the triggers was looking at his 401k statements and realizing how little money his employees were were putting aside I'm curious Paul Sean have either of you looked at the 401K accounts that your employees have boy well we have a simple plan which is a little bit different so I don't look at their accounts but I see how much they're taking out of their paychecks I mean first of all despite multiple offers half of my employees just won't sign up for any retirement plan and I haven't gotten around to uh making it mandatory because the minute I do that it'll cost me quite a bit of money I don't think you can make it mandatory you can make it the default position right no he means he'll put some money in it but what I'm curious you just said that's not the kind of plan you have correct me if I'm wrong you could get a report well I I already I mean I could answer the question to the penny if you give me a minute but it's just a question of people don't save that much money you know I I don't actually understand what the long-term plan is for those people um and I don't understand how any of us are going to survive honestly like the guys who sell their business for 20 million bucks got it I can see a Way Forward on that but um I have a feeling that that part of the answer is that now this is a stupid thing to say I'm not gonna say it okay never mind oh come on that's part of your magic Paul give it to us all right my feeling is we could all probably get by a lot less than we think we can and that when the moment comes and you've got x amount in your retirement count and you get real you're just going to make make it okay I don't think that's stupid but it's not the here's the problem because I'm a little older than you and I've been in business for longer I'm and I'm not at all getting out of soapbox everybody should do what they want if it doesn't bother someone that their employees are going to retire or be disabled can't work and they leave with not a penny not their fault not their Pro okay I'm not I'm not getting a soap box it bothers me though and I got lots of people that have been here for 20 years that I care deeply about that have helped me build a business and it bothers me because I never looked at the for 1K balances and many of these people have $4,000 in it and that is extremely troubling to me again if it's not my friend told me one I told him probably goes why is that your problem okay it's not he doesn't I it is my problem because I've made them my problem so I don't think that it's a case of they'll make it work no I think they're going to be screwed but but Jay like here's here's how I look at that I control what happens in my building and I control my my relationships with my employees and I pay them above market and we give bonuses and I do everything I can to make this a good place to work and what happens when they leave I can't control that I've had a couple of employees where I really tried to sit down with them and say you know I'm paying you a lot of money for a young single man why are you always broke and complaining about it and i' be happy to sit down with you and and make a budget blah blah blah and just was told basically bug out you know it's none of your business bus so like okay well you're you're partially you're say you can't control it but you certainly if you chose to and I'm not telling you you should you could just say all right we're doing well now everybody's going to get $1,000 in their 401k plan at the end of the year you could do that if you chose to and you wanted to that would be a little bit of a control thing at least they that 40 Grand when sign up and believe me I've tried to get everybody to sign up and some simply will not do it they they get that money in there when we play pay bonuses yeah some of it goes in there I'm not sure that the the actual issue of people not having resources when they retire is something that a business owner can control what you can control is what you pay people and what kind of workplace it is and how they go spend that money save it do this do that buy this car buy that car I'm not getting into that because it's it's a waste of time but you can't say you can't control it you can help Okay the decision to buy a $90,000 loaded pickup as opposed to a $117,000 used Prius amounts to way more than any th000 bucks I'm going to put in in somebody's 401k and I got no control over that and I have no no desire to even get into that conversation so yeah you can Tinker with these mechanisms you can do what you should do which is you know whatever the the the customary contribution from the company should be and having the program available but I can't fix people's finances I just can't because I don't control how they spend money or what they think about it clearly none of us can I'm just suggesting just from my personal thing I would feel better if when they went to retire they had 50 Grand in the 401K and I've done well enough that I really literally two blocks from my factory there's 10 or 20 tents underneath the bridge I don't want to leave work one day and realize my employee can't work anymore they're too old to work whatever and they're living in a 10 under the bridge now I certainly can't make them all great you know lovely retirements in Florida but at least if they had 40 Grand 30 grand 20 something and that's what that's totally my choice I can't fix their retirement I'm not telling anyone else to do it 40 Grand is peanuts too you know what it is though it's 40 Grand better than nothing that's what it is okay but again like the the real answer is is a holistic approach to to somebody's finances over their whole life for and when I give people a good job and pay them well i' feel like I've done my part the rest of it is up to them Sean how are your employees doing and what are your thoughts on this I mean I I always try to remember that I'm in a different position than business owners that you know have have roles in their business that pay you know I don't know4 $50,000 a year we're just in a different Market space I mean the the cost to employ the type of folks who work in our business is just much higher so as a consequence you know they they have you you just have a different cohort but you know something I think that does bridge the gap between this conversation is I've been just thinking a lot about uh Financial education and you know where do we learn how to think about money and most of us don't get that training I grew up in a household that the lessons I took were terrible if I had just followed those lessons you know my whole life you know living off of credit you know living beyond our means I don't like blame my family for it but it's just we just don't do Financial education in this country at all and so some of us get lucky and along the way we meet the right people or we self-educate or we're motivated you know some of us are just blessed to have good fortune from the beginning and then we Fritter it away like like some wealthy people do but I just I think there's an opportunity for business owners to help not only on a Financial front which I really admire how Jay thinks about this but I think also on a education perspective you know of of helping people understand the value of an emergency account helping people understand the value of compounding interest and you know and and I'm trying to work on that in our company because even though I have like I said Highly Educated very smart people who make good money it's all over the map you know some of them are contributing to their 401k and some are not and they totally should be and could but they aren't and so I I think about that a lot do you talk to them about it uh we do yeah I mean constantly but but I also think there's something to be said for outside expertise and you know not their boss you know I think like a financial coach to help folks you know that's a goal of mine in the company is to create uh resources for that you know so folks can can do some lightweight financial planning thinking about kids and do I contribute to a college fund the problem is the industry is very predatory you know so there's a lot of folks out there who are trying to sell Financial products and they're incentivized by the commission they make on those products and so to to help an employee to have access to an RA registered investment adviser that's that's that's a fiduciary meaning that they're they're required by law to put your interests ahead of theirs um I think a business providing that to its employees would be tremendously valuable and not very expensive so that's something I'm thinking about I want to be very clear I'm suggesting if one owns a business and they either say I have no control over what they do with their money or it's not my problem I'm not arguing with that in my situation I've done well enough that just like people get joy out of buying a boat or they get joy out of buying a condo somewhere I will get joy out of knowing when my people retire there's something there that's there's something there I certainly don't think that I can fund their retirement properly but I'm going to I'm trying to figure out what I can because I'm going to think about it hopefully I'm around for 30 years every year for the next 20 years I'm going to have one to two people retiring or disabled and can't work I don't want to keep going to their going away parties thinking my God are you screwed I even like I said even if it's only 40 Grand better than zero that's all and I'm not preaching it to anybody else that's just my personal feeling and it's worth it to me and that makes me feel good that's all we're almost out of time last topic there's you know a lot of talk about possible recession a lot of headlines about layoffs are are you having any trouble getting or more trouble than usual getting paid for what you do especially maybe from larger companies that you might deal with has that started to to be a problem for any of you not me that was not you Paul no no Lauren you do owe me 30 bucks though from a couple years ago when I said you were going to pay me back from that lunch thing other than that everyone else has paid me I'm working on it J we got paid early by a very large corporation who just wanted to get rid of the cash before the end of last year so I don't know what to make of that um I was happy about it Sean how about you are you getting paid yeah I mean I I've I've worked really hard to make the issue of payment not an issue what do you mean have you done that well you know I think getting friction out of how you collect money is a massive competitive Advantage you know so to the conversation earlier how do you generate better prod profs right I've always believed that the mechanism of collecting money is low value High you know moderate cost and so I get paid before we do the work so it's not like you know we do a bunch of work and then we go asking for the money we get paid before we do the work we do most of our clients are now on a so it just comes straight out of the account so I just learned some really good lessons in the recession around collecting money and to not count on account receivable and so how do you get rid of the accounts receivable number make it really really low or Day sales outstanding number make that very very low so that's not my issue what I see in the market isn't that people aren't paying us or so forth it's more the kind of uncertainty that gets created by the non-stop conversation about recessions that it makes it difficult for for me to get new customers so like that's been my biggest challenge I can see that the whole inflation thing it's like it's all they can talk about yep yeah was it hard for you to make the shift to uh to getting paid up front it took time you know and and it's weird you have to kind of go get new customers in order to pull something like that off because existing customers are used to pain you in a certain way and they don't want to change but when you get new customers you just set the expectation in the beginning and so that hasn't been I would I would say it's actually not been that hard I also it's part of a larger philosophy of of trying to get to it's a Blue Ocean strategy of getting to buyers that are not typical buyers because if you're competing in a known Market with customers that have an expectation of how things work then they're going to have also an expectation of how things work from a payment perspective so you know I know many businesses that are in Industry where it's like it's net 30 or it's net 60 and that's just the ex expectation in the in the industry really hard to break that but if you use a Blue Ocean strategy of Crea new customers then you have an opportunity to set the terms of how you get paid you know what if I hired you and you told me I need a fth I wouldn't think anything of it fair enough and why should you take all the risk I would have a problem you said pay it all up front but um I don't think that's an unreasonable expectation well then you back it up with a with a warranty so that's the that's the trick and I was I think I was talking to somebody about this recently of how you basically say look if you're not happy I'll refund your money and then you do this every month so so it's not like I'm asking for six months worth of work or a year commitment you're just you're doing it month-to month so there's there's a you're reducing the risk but at the same time you're not spending energy trying to collect money which is huge how many times have you refunded the money tell us zero okay little hesitation there but okay I've had relationships like go south and I've made the offer like I've said hey look if you're if you're not happy look we're happy to refund what we've done and then that's when people are like no actually you've done is valuable it's just we don't want to keep going in this Direction that's that's okay but yeah yeah zero all right my thanks to Shan busy Paul DS and Jay goz and of course to our sponsor the great game of business which helps businesses Implement open book management and employee ownership you can learn more at Great game.com thanks everyone have a great week wait wait don't leave yet if you have a question or a comment that you'd like the 21 hats owners to address send it to me by replying to your Morning Report or by email at Lauren 21h hats.com that's l r n at21 hats.com do it now before you forget and don't be afraid to tell Jay what you really think you can take it and if you got something out of this conversation help us reach more business owners tell a friend subscribe and review us wherever you get your podcasts follow us on Twitter subscribe to the morning report at 21h hats.com this episode was produced by Jess Theron founder of blank word Productions okay now you can leave thanks for listening everyone [Music]