I Think We’re in a Recession Now

[Music] hello everyone welcome to the 21 hats podcast I'm your host Lauren Feldman this week Mel Gravely tells sha busy and Jay goz that he believes we will eventually find out that the US economy has already slipped into a recession the funny thing about recessions is they can start and even end before the GDP numbers make it official which leads us into a conversation about what businesses can do to prepare for a possible recession Mel for example says his team is checking in on everyone and everything suppliers customers and employees we also discuss why a lot of pricing models no longer work why some businesses have never fully recovered from the pandemic and how Mel turned around a Facilities Management business that was losing a million dollar a year plus the owners discussed the relative merits of planning to fund your retirement by investing in a 401k versus by selling your business even in Good Times owning and running a business can be a lonely Pursuit our hope is that these weekly conversations will let owners know they are not alone in facing challenges in fact that's the whole idea behind the 21 hats Community engaging with other owners to get the kinds of insights only another owner can offer if you're interested in learning more step one is to sign up for a free trial of the Morning Report which highlights the most important news of the day for business owners so you don't have to go looking for it step two is to get on our slack Channel where you can ask questions get vendor recommendations and tap the wisdom of a very impressive crowd just search the 21 hats Morning Report to subscribe 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 Jay goz CEO of the gos group whose companies in Chicago include a picture frame business artist frame service and a home furnishing store Jason home and Mel Gravely chairman of triversity construction a construction firm based in Cincinnati the episode is titled I think we're in a recession now welcome Jay Mel and Sean it's great to have you here Mel we've all been reading a lot uh about the uncertainty coming out of Washington especially with regard to tariffs and mass deportation and the cancellation of government contracts and in many of these stories when they get to talking about the industry is most likely to be affected they often start with the construction industry uh lucky you how are your construction businesses doing yeah um that's a great question and it's great to be with you guys today thanks for having me uh join in you know um I like to say there's been no actual change there's just promise of change and so what we've decided to do is to check in more often and what I mean by that is check in on everything and everyone so you check in on all of your supply channels and you try to to start mitigating risk around those that you think are going to be impacted if you're getting aluminum from Canada you need to start thinking about what might that look like um what supplier suppliers have other countries they ship things from so you're starting to you know look at your projects look at your supplier chain but you should be checking it with your customers so if we're reading this Jay and then um Lauren and Sean then our customers are reading it too so we want check in with them give them the updates that we have as it relates to the work we're doing for them check in on our employees because I think a lot of these changes are creating a lot of emotional mental health challenges people are just uncertain and so communicating a lot about what we've got in our pipeline what's going on what the impacts are being as transparent as possible is a great time to do that but right now just trying not to over steer overcorrect to Shadows until you know the facts so that's a long way to say you know we don't know exactly what's going to happen but we want to be as close to the information as we can be so we can you know be ready to have uh risk mitigating factors Mel you said something very important that shouldn't be lost you said as transparent as possible the key word being is possible meaning sometimes being completely transparent is not the healthiest thing for an organization if you know they want to see a fearless leader they don't want to see the leader say yeah I am overextended with the bank and I'm afraid well like that's just the reality that they don't there're sometimes like this is your problem and but that's why I like the idea you said as transparent as possible or as maybe as practical because sometimes this is our problem and there's some point to where nobody wants to see the the owner you know putting his head between his hands and wow this is really bad blah blah blah that's just a harsh reality there's the reason why that phrase fearless leader is a phrase wrong no I think you're dead on I think as possible I was referring to as as much as I know right but yes it's always as practical right I mean if you're if you're thinking about selling the business you might not want to tell your employees too early about that so no I totally agree with the Practical part too I wasn't thinking about that at the time but I agree with you as practical it sounds like you haven't really been affected by some of the things going on does that include the tariffs it hasn't changed anything for you yet well it's been like days right so um so no other than sending anybody everyone into freak out mode um no we really haven't seen a a change the challenge is going to be though you know we're looking at a project in a in August and we're going out to get early bids to see if the Project's going to fit within a proforma what kind of bids are we going to get based on this uncertainty right and so anyone that's got to be the subcontractor that's got to sorts the steel or aluminum or even Lumber and to get it from Canada or some other place they're going to mitigate their risk and I think they should right so that's Lauren where it starts to kick in so now we're going to get unreliable numbers back and they're going to be unreliably high which then will probably mean the owner will say we're not going to build it until this settles down which will then mean that people will have less to do and you know I know the word recessions being tossed around I've got an opinion about where where we are right now but that's how this thing gets started it's not on facts it's on fear is where this this whole downward spiral in the economy could start does that apply to the labor situation for you as well because I I think the same thing is true in that we haven't seen those Mass deportations yet but there has been activity and there is certainly a lot of fear and there's been a lot suggested that some workers just are afraid to show up at work and once again that's an area where the construction industry is especially vulnerable have you seen anything there yeah no I I we have not now our Workforce although diverse and inclusive of people who's you know were not born in the United States that's not a large part of our labor force and so we just haven't seen much of that yet but I can tell you anecdotally it's absolutely happening that people are afraid you know we can debate the right or wrongs of it it it's the uncertainty that Business Leaders don't like and no matter what the uncertainty is and what side the political side this equation you are on no business leader likes uncertainty and I think this is creating it hey Mel I'm kind of curious you uh you talked about not having a large percentage of your Workforce you know being from other countries is that true also for your subcontractors yeah it's a mix um you know we're in the Heartland here in Ohio and so it's a mix it's clearly a growing number but you're right again check in often right so our subs are going to struggle first they always do with Manpower and with cash flow and with ordering things and with pricing so we're checking with them too they also are you often times less able to do the math that saves them so they they're less likely to include in the right pricing models to to cover their risk so so we're checking in with them too but as far as labor goes that's where it's going to show up for Sean and in that Forest but we just it's just too early for us to have seen it yet at least in oh Southwest Ohio M you've you've been generous in the past about sharing how you actually personally bought a construction business uh one you told us that your colleagues at your main business didn't actually want to buy you bought it yourself and then realized you bought a business with a defective business model you're being kind you're being very kind well yeah I think you told us that you were losing money on every transaction yeah so this seems like a tough time to be doing that have you been able to figure that out where does that stand yeah so thanks for allowing me to update the story so uh first it's a Facilities Management business which bleeds into light construction so think cleaning out gutters think cut grass think remove snow think patch paint um think you know refresh of a conference room that's the kind of work do it's the everyday work that every company with serious campus infrastructure would have done so that's the work that this business does so I like it because it doesn't tend to ride up and down with the economy because if you own facilities you're going to generally take care of facilities at least good companies too you're right it was losing $119,000 a day and had been doing it for a while we finished last year uh with a very strong finish um after redoing the model renegotiating your contract in the middle of the Year got a great customers super supportive of us um you know they realized because we were very transparent with them that this is a situation that no one should continue and so we had a good finish to last year we're off to a good start um in 2025 got other challenges around personnel and we lost some people along the way we put the business on the market for a while and then took it off that didn't help but it's off the market now operating pretty well um and and is profitable so I'm very very pleased with all of that so you were able to raise your prices I gather yeah um the customer was actually getting a level of service that they weren't paying for so I I I would say we charge them more now but I I wouldn't tell them that I raised my prices I we charged them more because they were getting more than they were paying for we just fixed that challenge so you were under billing basically yeah they I mean they just they're a very complex customer and I'm going to let them nameless but they're very complex customer they need a lot of management oversight none of that was being captured they have payment terms that are very very extended none of that cost of money was being captured we had increased salaries over the period where everybody was losing employees we had increase salaries at over that three-year period 21% but none of that was covered and so if you add those three things in together it made for a bad situation and um working together with them in a transparent way we're able to realign our prices and uh we've got what I believe is a sustainable business model could you give us some perspective $1 19,000 a day is like $5 million a year what kind of volume $50 million $20 million I'm just trying to get my arms around that and I I misspoke I I said 19,000 it wasn't quite 19,000 it was more like no it was 19,000 yeah um no it wasn't it was not 19,000 we were losing a million dollars a year okay well that's we're losing a million dollar we're losing a million doll well not when 19 that's a big difference I bet I can get my arms around I unfortunately can I understand that to five I'm thinking wow how yeah okay no and the scale of the business this business last year did a little over eight million okay no that one I can totally get my arms around because unfortunately I have almost been there so that makes sense but it's a good business um I always liked it um the execution I love businesses that say if you come here you do your job you get paid you get you you make a fair amount and you share it with your employees you get to do it again and the next day I love those businesses and uh Lauren we've worked really hard to get it to that place are you still helping to sell it no we've taken it off to Market it it was it's fairly complex but you know we had it on the market way too long had a deal it fell through and um so it's no longer in the market we're just um we're operating it day-to- day now so you basically probably raise prices 15% or something which okay that makes perfect sense um that takes you from losing money to making money and then you also explain the fact that why costs are gone up because again I live through that whole thing this whole pandemic thing is just still the last three years haven't been a good time just the labor increases you gave during the big the whole big inflationary period and stuff it's still built into the system there and I'm not sure that everybody has fully adjusted their quote unquote business model for the new reties between wages insurance and real estate taxes in my world and and interest rates all those things really have changed the business model totally agree with you and and I I don't even know if people are sophisticated enough I may takes a little bit of understanding to price that into your product absolutely um so I don't even know if they've got the sophistication to understand how would I do that um but I totally agree the four things you named are the drivers to um businesses that are strug my opinion they are the drivers of businesses that are struggling today there's a fifth that I I talked to a couple owners about the other day which is um critical suppliers falling down interesting a lot of small businesses that provide services uh services and goods to other businesses they they just couldn't handle the pandemic and flamed out or their service level really fell down or their prices went up and their services went down I'm hearing that from a lot of people um and that's everything from you know my benefits broker to my you know outsourced Financial team to my tax preparer so those those things all increase costs and decrease efficiency um and it's kind of a hidden thing which is why it probably didn't make the list at first but uh it's pretty dramatic um agree when I talk to folks about it yeah it's interesting I wonder if at the underlying of those struggles are are the other four things that drove them to trouble too you know the labor that's very smart absolutely that's kind of the point and the problem is and I've talked about this before many of us go for 10 20 30 years with some magic formula oh I take a three-time markup or a two-time markup or a one if your fixed cost to go up that's got to change my father owned a dime store in the you know 70s 80s 90s back in the old days if you were in retail you had a keystone it was called a double markup Well when things kept getting cheaper and cheaper buying overseas you'd be out of business the typical retail store now many of them were taking three four time markups on the stuff they sell because if they took the two-time they couldn't cover their fixed cost when I was a kid my mother would buy a coat for me it was made in Boston and it cost let's just say today's dollars it cost 100 they sold it for 200 now the coats made in China and it cost $33 if they charg double they couldn't cover so all of a sudden slowly but surely the markups have been going up and there was no memo that went out oh that is such a good point Jay that that what you're saying is it's the the ratios that had once served us are not are not accurate any longer and that's right you know Paul DS and I have talked about this quite a bit which is the ratio of basically headcount to revenue and that produces a number say $125,000 or $200,000 a year and I man I used to be able to count on those ratios like a Swiss watch you know I could say hey if you're making anything under say 125k per employee with a certain type of business you're in trouble if you're making 200k per employee a certain type of business you've got some secret sauce and and those ratios like they held true for a long time in my career and I was looking at them the other day and I'm like these are all wrong these are just all wrong it doesn't work anymore yeah like I said it's not like you got a memo it happens slowly you know 2% or I love the health insurance hey how much go up not bad it only went up 5 perc okay well do that for 15 years you know and that's exactly I'm looking at what we're paying for health insurance now there's no comparison to what health insurance costs today to what it costs 20 years ago and it was done couple of points at a time you know yeah yeah so one of the things you hear people talking about these days that we weren't for a long time uh is the possibility of a recession and you know obviously I'm not making any predictions I don't know anything but smart people do seem to think the odds have gone up I'm curious you guys have all been through a few recessions have you learned anything about what you can do to prepare for a possible recession anybody I am absolutely watching the hiring because I don't know business has not been great lately I don't know if this is a temporary thing that people are still getting used to all the chaos that's going on or whether this is going to go on for the whole year so I'm very very careful to hire new people now and I'm just waiting to see how every it's every month let's see how march goes you know I mean are you not replacing people who leave no in some cases this is what retailers do you can always rationalize things oh business is down in February you know why it's down 3% because last year was a leap year there were 29 days so there was an extra day shoved in there so like okay so we got to take that 3% off but then it was still off more than that for the year and like as I said to Paul when he said his business is off he said January is always a good predictor of the rest the year and I don't think that that might not be the case this year maybe it's going to get better later in the year because things are going to calm down I I just don't know and the last thing I want to do is start hiring more people to you know make it worse yeah I I think we are in a recession Lauren so so I want to say that first I think we are in already in a recession the problem with a recession is you you got to look backwards to to calculate it right but I think when we look back I think we're going to see see that we're already in a recession um but here's the bigger for us the big challenge at least in the in the the largest of my businesses our backlog is full wow to make plan this year we've got to hire at least as many people as we hired last year if not a few more and should we do it because the backlogs full but people can stop projects so again we're checking in a lot so we're checking in on every single project in the backlog that hasn't started yet we're reconfirming the sources of the funds making sure they're coming from places that make sense making sure they've got their financing locked in any of the of them that don't we're trying to figure out okay well let's let's put odds on that so it's just harder to figure it out which I think all leads itself to the self-fulfilling prophecy of a recession um because I think uncertainty is going to make people pause and when they pause there's a trickle down yeah that's what I think I agree with you 100% Mel on the on the psychology of it the other thing would add Lauren is is having been through a few recessions you know they're they're all kind of a bit different and I think we this is the the talk that I give when I go speak to associations and groups these days my my talk is really about the problem with using the past to drive future decisions and it can be tempting to say well past recessions have looked like this and so we're going to behave as you know as if the next one is going to look like that and I think the pandemic recession proved how challenging that is because you had an economic downturn as a result of the shutdowns and then you had a lot of businesses immediately laying people off in a recession you got to act quickly right and decisively and then then I don't know some percentage of those businesses a pretty large percent ended up regretting that because you had you know the kind of the stimulus dollars you had new new behaviors like working from home um kind of Revenge vacation so you had these businesses that were in travel thinking gosh travel's going to like die so they like fire all their people and then less than a year later they're trying to hire everybody back that was a really different recession than say 2008 and so I think you got to be really careful you know using the past to inform your future decisions um but I I do agree with Mel and Jay boy you got to keep your finger on the pulse here I mean it's really the signs are really challenging listen I've probably got two more recessions under my Bel than you do I've been business 46 years I don't know eight eight recessions maybe I don't know but I got to tell you what's different today and really just bizarre so the cost of living adjustment was supposedly 2 and a half% for the year and like things are tight okay I believe in giving everyone a cost of living increase the problem is everybody notices you go to pick up dinner it's all of a sudden it's not a $40 it's $60 I mean I got an ice cream cone yesterday it's six bucks for one scoop I don't know is that normal I guess it's the new normal six or eight bucks and the other thing I'm noticing that is just obvious I've got way more than ever people that got serious psychological stress anxiety whatever like it's becoming a regular thing now that never used to be like this and you know we're very supportive and we work with everyone but like it's been way harder in the last few years I mean there's a lot of people that are just continually stressed out all the time with anxiety and being the boss it's you know it's partly it's our problem to some degree well one of the things that I've learned it took me a while to figure this out and I learned this through just painful experience was I would have an employee who was undergoing stress you know just kind of ongoing stress and we would find a way to remove that stressor you know let's say it's a difficult client or too much work or whatever we would remove the stressor right and then six months later the employee would quit and what I came to the realization of through that process and also talking to psychologists and other people about you know kind of human behavior it's that the stress of the moment from the thing that happens to you lasts long Beyond it being removed we we don't realize the stress has been removed and so employees have a tendency to uh kind of hold on to that and that I think that may be some of what we're feeling right is that we went through a really large cultural stressing event a lot of businesses have never really recovered absolutely and some of that some of that uh rescue dollars kept businesses alive that would have died and a lot of them haven't figured out how to like operate in the new environment and so they're just struggling and and I think there's a lot of that going on and I have to draw a line I think there's a difference and we could do a three-hour show on this between Stress and Anxiety I'm talking about anxiety and they're obviously related but I mean I they they tell me this they Vol I mean a lot of my employees are taking medication for anxiety and that was now you could argue oh they probably were before they just didn't tell you I don't think so I think it's there's a and there's lots of reasons for this and but but it's definitely it's definitely different today than it was 10 20 30 no question about this is becoming a regular issue for us and trying to help and navigate and support and it's just uh it is what it is I want to just note for the record here that there are a lot of businesses out there that claim to be doing quite well um and I guess that's always the case even when you're definitely in a recession but you know there's some businesses on this podcast that are that are do performing quite well and you know there's still a lot of businesses that are very excited what's happening in Washington they're expecting lower taxes they're expecting regulations to go away and you know not everybody thinks we're in a recession which I'd like to go back to Mel I guess the the technical definition is of a recession is to have multiple quarters where you actually have negative growth right why do you think we and and obviously you you could actually go into a recession and come out of it before you know it so you're right about that lag time issue but why do you think we're in a recession right now well so I want to answer that question so don't let me forget to but you said so many things in your preamble to the question I got to say something about the that's a terrible thing for an interviewer to do I try to avoid that come on journalists get it together so first I don't think recession equals business is not doing well in the aggregate it does but any individual business can do well ex exactly and I think part of it is and this goes back to your original question is what can you do this is in my opinion times of uncertainty and recession or looming recession are not times to overeat these are not times to maximize all of your opportunities this is a time to moderate your opportunities not to try to take everything that you can possibly see because if to do that you've got to maximize your investments in people and plant and equipment and all of the things you've got to do in my mind part of the risk mitigation is be okay not maximizing all the opportunities in the short run yeah take your G foot off the gas a little bit absolutely a little bit and be willing to be profitable but not greedy right because pigs you know um right right Pig Chico phrase pigs get fat HS get Slaughter get Slaughter right so he going to be careful about Crossing that line but you ask why I think we're in a recession it is because of all of the anecdotal things I keep seeing I'll give you a few examples but when you look at things like the cost of eggs it's an indicator of of everybody everyday Americas struggle with their wallet right and and struggling to pay Jay said it struggling the the cost of what everything costs when you talk to the restaurant tours all of them I talk to their business is down not horriable but soft no reasons for a business to be soft in a in an economy like the one we've got in front of us when you look at looming increases and there'll be increases in Supply It All Leads to L consumption the last thing I'll say to you is as long as our economy is 70% driven by the consumer the tie to the emotional state of the American people will always be a driver a big indicator in our GDP so when I put all that together Lauren I get nervous that um we've already passed it is it reflected in your numbers of the numbers of your business at at this point no he's a lagging business we laggings should it well it t it takes a while right I mean the stuff we're looking at has been planned for a couple of years right so not that it can't not happen now but it looks like it's still in our portfolio or at least in our backlog talk to me in six months though I don't know if that stuff's going to still be there you mentioned that you um you have an extensive backlog but that projects can be cancelled is there anything you can do about that do you have language in your contract to protect you or to penalize somebody who no no now in if you're in the midst of a of a contract that's different but you know if you've got a deal with someone that you you've negotiated the contract even signed it and they decide not to build it's actually bad what am I going to do to them yeah you know you want sue them yeah Jay you've talked up here numerous times about your struggles with your inventory uh which got out of control during the uh supply chain issues early in covid and um yeah less time we talked about I think you you still had too much inventory I'm working it off but I have to tell you it's much easier to buy it than it is to sell it you know one phone call oh yeah get one trade show done and then you know you could take three years to undo that whole thing are you still buying inventory well I would say you have to buy a little here's the problem in business if you're in the frame base okay you run out of a black molding that's popular oh my God we can't run out of that again so what happens the buyer doesn't want to get yelled at from the boss so what do they do they buy five times more I mean oh we'll never run out of that again yeah cuz we got 50,000 I don't care what business you're in if you carry inventory you really need to watch the inventory it's extremely easy to get out of control and the problem I have is um you know the phrase uh nature of pors of vacuum I bought a gigantic building an 85,000 foot building I filled it up if I had a 40,000 foot building I'd have less inventory because I would have had nowhere to put it and that's part of the problem I no one ever came to me go Jay we got nowhere to no we need some more pallet rack okay get some more pallet racks so I got a big building full of inventory and uh that was the constraint I had so I but I learned from it I'm fixing it well Jay and I I think I think you're articulating something that if we go industry by industry again we have a consumer-driven economy and whether you're selling liquor or you're selling bread or you're selling furniture if the consumer slows down their spending um and 70% of our GDP then we've got some challenges to to face and we're just Expediting it with tariffs and uncertainty in my opinion here's a fact Wayfair you know they advertise a lot they're doing online furniture sales they've never made money in 2021 I believe in mark their their their stock was like at $323 uh last week it was $33 down 90% why I'm going to say two reasons shipping Furniture I'm in that business shipping Furniture is very expensive stuff gets damaged people don't like it when they get it and then they paying shipping back I don't know that shipping Furniture is a great business model online there's lots of great online business shoes are easy sweaters are easy pens there's a thousand things that are easy to ship online furniture isn't one of them so I think there's a business model problem there on top of the fact they're also suffering from the fact that half as many people are moving hence the stock to $33 you know one thing I've been thinking about is I have a meeting in 6 hours or so with somebody who's business is just on fire I mean it's just going crazy you know what industry is he in he's in automation right so he's making it so that a company can have fewer workers uh in the factory and his business is just taken off and I think one of the really important things to look for in times of change are new opportuni you know there's always the strategy of like sit still and wait for things to like settle settle out you know which it sounds like is what Paul's going to do with his business you know and hoping that your competitors go out of business I I don't really jive with that that's just not how I operate but I think about the last recession forced me to change my business model to a much better model like a much better model and that's when I discovered ideas like Blue Ocean strategy and going into new markets and so I I think for folks who are maybe pessimistic about this moment that the the Silver Lining is like where is the opportunity going to be what could you find and you know what for you I think that makes sense but I got to tell you I also can relate to Paul's point and that when things get bad there's going to be a Fallout I've been I've watched this for 46 years there were 69 frame shops in Chicago 25 years ago now there's 21 and my guess is in 3 years there's going to be 16 I there is something to be said for Lum mcus said it very nicely this week I think he said listen control what you can control look at your own dashboard look at your and I totally subscribe to that I don't think Paul's necessarily wrong that he's just hunkering down and he's I don't know if he should start making new furniture or something but I think for you that absolutely makes sense for Paul and me there might be something to that but there is something for weather the storm literally and figuratively weather the storm and you'll be in business and and one of my assets is there's no question I've told framers this for years it's a great advantage to own your own building takes one big variable out that all of a sudden your landlord decides to sell the building out from under you and that's happening all over the place are you sleeping at night Jay not great yeah not great so anyway stay calm I'm figuring it out I'm telling you one of the things is I own all my buildings except for one store it makes a huge difference um makes a huge difference I mean if you've got four different landlords you're dealing with and raising their prices yeah and and I'll tell you something else all landlords have in common they all die eventually and they're probably older than you are when you're younger which means they're eventually going to die and the kids have no interest in their their mother or Father's building they're they live in California and they're going to sell the building out from under you and then you got a problem so one of the reasons why I've been able to weather the storms storms plural all these years is owning the building is helpful for sure and I've got stable people that have worked worked for me for 20 30 years none of that's changed well Jay you chose to put money into those buildings um going back quite some time that kind of leads me to the the last topic I wanted to bring up today which is a business owner recently posted a question on the 21 hat slack Channel he wanted to know what most business owners were doing in terms of trying to prepare for retirement where they relying on the eventual sale of their business to fund the retirement or were they putting money into you know a retirement vehicle like a 401k and you know there there's the obvious tension there I had a tax accountant on the podcast not long ago who said she doesn't always recommend 401ks to business owners because an investment in the business is likely to have a greater Roi but of course then you've got all your eggs in that one basket um which is quite risky if you're thinking about your retirement years what do you guys think I think there are so many variable to that that there's no blanket answer that for some people that have a great return on investment in their business it's extremely stable why should they put it into a 4way and there's and then there's the opposite I I think there's I think that's extremely individual based upon an individual situation he you kind of put it in a box Lauren and I don't know if the box is real or not but I'll respond to the way you put it and the way you put it was 401k or some investment vehicle or rely on the business selling the business as your retirement income that's how you put it and I agree with Jay it's just too many variables but I will say this every business is not sellable absolutely so if you've got a business that is so dependent on you or whatever the reasons why it it can't be sold then in my mind the question is do you really have a business that's going to have value when you're not in it if the answer is it will then you've got more options but I would tell you that so many businesses I look at acquiring they're not worth it without the the person that's owning it now and so they just it drives the value out of their business and then there's another piece you ever wondered why you see retailers having going out of business sales and you think God why did they sell they make more money with they going out of business sales and they can selling the business the math just works better they're going to get three and a half times earnings um the inventory might be worth that so there's plenty of people that that make a ton of money on going out of business sales so it's another option but for me it's and both once I got to business to a point where it was you know stable I'll call it you know not highly valuable at the time I immediately started uh making sure we put money in a retirement asset for for myself because I never wanted to have to stay past my useful life um so it was a it was almost a risk mitigator for the business too but I didn't want all my eggs in one basket Lauren and if I could if I can diversify it I would Mel you're also in a different situation in that uh you raised what happens for an owner who's unable to sell their business you have a philosophy that you've talked about here the Evergreen philosophy you don't intend to ever sell your business so you had to make other plans for that reason too correct that's what I say I don't want to have to stay in the business because I can't afford to not be in it and or I have to liquidate it to to to afford to live so we we had to create some balance to that I will still tell you that you know I mean it's it is still a predominant amount of our wealth is tied up in that company but we'll be fine without it like we can live in retirement without it I want to throw another thing that people should think about life insurance is a really good deal the odds I mean the life insurance companies do not make money by gambling that you're going to live they make money gambling that people are going to stop paying the premiums at some point and that's where they make most of their money because all the risk is obviously is at the back end of their policies they would never sell a universal policy if they thought you were going to live to the last day over half the people that buy these policies get rid of them they stop paying they get divorced what their spouse dies their kid could die they run out of money and the insurance companies make a gazillion dollars on those canceled policies so if you go and get a life insurance policy it's probably not a bad way to hedge your bets something to think about at least Sean you didn't weigh in do you have any thoughts about uh planning for retirement Mel stole my thunder I mean I think it's it's an an it's an and S same with me I had no retirement for many years because I thought I was reinvesting in the business but the truth was I wasn't running an effective business and once I figured out how to run an effective business and it started throwing off cash then it became like oh this is a good vehicle for wealth creation but also you should have something that's kind of churning in the background I I really like I looked at my account balance on my 401k the other day and I was just like shocked and the reason I was shocked is I don't do anything with it I just like said it and forget it and you know the power of the market and compounding interest is really is significant but I just the last thing I'll I'll say on this is that um I think diversification is really important I think if I recall correctly the person who asked the question said he had a half million dollar business selling shaved ice and it takes like one employee no no he's he's a one person administrator but he does have employees multiple employees okay but but you're right about the business then I don't know the health of the business to both these guys points you know different businesses are are effective in different ways but I think to think that the big payday will happen for your business statistically that is not a very high probability it's just such a small percentage of people can sell their business so I think that's true from what I've seen also I would say one piece I already talked about you combine both things by buying the building that you're in that's an investment no that's better than a 401k PL you you can probably make 12 13 14% return on own because when you buy real estate the big risk is finding a tenant if you're your own tenant it's the greatest thing ever the return on investment on buying real estate is if you're occupying it it's both good for the business and it's good for you it's it's better than putting money into a 401k if you if you buy it right I mean but it's that that was true for decades Jay and then I I'm looking at businesses in certain parts of town here that are absolutely decimated you know so decimated for sure yeah I just think you have to be careful with that blanket advice because it while it was true it was you you could be kind of an idiot I agree say could or yes for sure I'm could be a better investment Jay do you pay yourself a market rate for that real estate space that you use yeah absolutely which is important to really understand this is where people get themselves in trouble and my kid makes a living on this he's he does small development people buy the building they run their restaurant the restaurant gets paid off one day and they stop paying themselves for the rent on the restaurant now they're 60s something they go to sell the restaurant it's worthless because the person would have to pay so much for the building they're not making enough money had they viewed it as an arms length transaction and raised their prices and paid them themselves the market rent the business would have been viable and it happens all the time that people stop pay oh I paid off the mortgage and they just they they don't they don't treat it as a separate thing you got to keep those two things separate and this what one restaurant in mind that I'm thinking about was an institution in Chicago people went there for their weddings their anniversaries and you go to dinner there and you think wow this is cheap I mean I've seen that I've seen that many times where it's like there's these artificial qu un qu advantages that the business has like say especially second generation where the kid inherits both the business and the building from the parents and they run the business without a true cost center for the for the building and then when it comes time to like either sell or you know actually make new Investments it's just not a healthy company no I went to dinner there the dinners were like $23 and they should have been $27 and if they would have done that it would have been a viable business with the building and instead this legendary institution ended up just closing it's the medical center now I don't know this this um person that posed the question but half million doll business and I think you said shaved ice and I you know back to the cost center I see a lot of very small companies that uh they don't have themselves fully burdened in the cost center so they just have no idea whether they're making money or not and so when someone wants to buy your company they're going to add all that stuff in and you may be left with with with nothing at all so if there's any other lesson here is make sure sure all the cost are covered the real cost are covered right because at the end of the day no one wants to buy a job they're not going to pay you to make $60,000 a year because why would they pay you half a million dollars for a business and you're pulling out whatever 80,000 it's buying a job and they're not going to and I think we've all seen it all right not all of this conversation may have been uplifting but it was all real as usual you guys are very generous I want to get back on when there's happiness well hey you have backlog Mel that sounds good to me so but I'm scared about it right so my thanks to Jay goz Mel Gravely and Shan busy really appreciate it one thing before you go everything we do at 21 hats is created by entrepreneurs for entrepreneurs to help us all learn together if you get something out of listening to these podcast episodes consider joining the conversation you can do that by joining the 21 hats sounding board a slack Channel where you can tap the wisdom of a very smart crowd or by becoming a founding member and joining our monthly Zoom Forum where you can be part of conversations much like the ones we have on the podcast you can sign up for both by subscribing to the morning report if you have any questions you can email me at Lauren 21h hats.com and if you get something out of this podcast or out of the morning report please tell a friend tell an enemy tell every business owner you know your word of mouth owner to owner will always be the most effective way to build this community for all of us thank you it means a lot this episode was produced by another entrepreneur Jess steron founder of blank word Productions thanks for listening everyone [Music]