‘Things Are Going to Suck’

[Music] welcome to the 21 hats podcast I'm your host Lauren Feldman this week Laura Xander tells sha busy and Jay goz about her approach to buying businesses Laura says she simply recognizes that for a period of time life will be miserable for her and for her team that's what happened almost a year ago when she bought two businesses that were a challenge to integrate and now just as things calm down a bit she expects it to happen again as she eyes another acquisition it's also what she expects to happen as she and her husband Doug proceed with their ongoing migration to Shopify our sales are going to go down says Laura SEO is going to be rough my biggest concern honestly is Doug's mental health this whole process has been so stressful for him Sean Jay and Laura also discuss how they feel about the possibility that the 20% qualified business income deduction could go away next year when it's set to expire you might be surprised by their answers 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 entrepreneur 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 company in Chicago include a picture frame business artist frame service and a home furnishing store Jason home and Laura Xander who is CEO of Jimmy beans wool a digital yarn store based in R Nevada and manolin TSH a yarn manufacturer and distributor based in Fort Worth Texas the episode is titled things are going to suck welcome Sean Jay and Laura it's great to have you here Laura you've spoken a good bit here about the businesses that you've bought and how challenging it can be to integrate them into your existing business um in fact after hearing you talk about the the most recent purchase I kind of got the impression you might never buy another business but I've heard a rumor that you might be looking at another acquisition oh my God that's her heroin Lauren she loves it yeah right so we have finally gotten traction from the two that we bought about nine months ago um 10 months ago and things have been clicking they're in place it's working um our sales down in Texas are going to be up right now we're tracking at 24% over last year which is fantastic and yes there's a business that we had had our eye on for the last couple years we felt like it would be a really good compliment to what we have going right now and they reached out a couple months ago and they're like hey you know and I've been kind of talking to them for a couple years um so it's been slow moving so we will probably pick it up um and if we do it won't be for another couple months so we're trying to take it really slow you're waiting at least a year before buying another yep exactly and it's so funny because one of the members of my leadership team she's the one who's just like Jack on it why do we keep doing this and you know blah blah blah blah blah and this is a bad idea and you're doing it every year and I'm like we're not doing it every year and this one she really wants she's like well yeah but we really should get this one and I'm like see this is how it happens you know I mean okay but to be clear the reason you've done all these is they were tremendous opportunities that were too good to pass up right 100% And then in our world there are some commodity products but most of these brands are Legacy Brands you know they were built by literally mom and pop and there's a lot of emotional attachment um from the yarn shops and from the consumers and people don't want to see these Brands go away you know and we we will never obviously be able to replace that emotional um we're never going to be the founders and so we recognize that but we'll do the best job that we can and they've created some really special unique products that have great history they've got great you know SEO they've got great name recognition and it would be really fun for us as kind of the Next Generation to take it and run with it and keep them alive you say fun but the other thing some of them at least have in common is that they were correct me if I'm wrong but I think some of them were in distress when you bought them and it meant a lot of stress for you integrating them and turning them around is that right um true great Point what I have discovered personally though is that the indress or declining like the ones that we've been looking at have been declining and primarily because the founders just they're aging they don't have the energy they don't have the time and the attention you know you throw Co in there and those I think are the most fun they're the most challenging they're the most rewarding I mean if we can take something that's on the decline and breathe new life into it and give it the energy that the founders weren't able to give it um it's very rewarding how much of it is that and how much of it though is a snapshot of the industry that the industry is slow is this has the industry slowed down well there are two parts of the industry there's the industry that's the big box you know the yarn that you would buy at Michaels and Walmart and Hobby Lobby and then there's the independent yarn shop so similar to yours Jay um similar to your industry the independent yarn shop has slowed a little bit yes um but the big box is growing so the industry as a whole has not slowed down but the customers are moving from higher end products to lower-end products and I think you know that's part of you know the economic cycle that we've seen well I got to tell you though because this is very similar to picture framing I'm not sure that that's true what could be happening is the Baby Boomers are getting old and leaving the marketplace and maybe what's happened maybe it's not that the better customers are going down Market to go to a chain store maybe their chain store is just picking up some new customers great point and that's what I think is happening because I don't think the better customer I just went to a Michaels yesterday and I just forgot like oh my God God I just don't believe a lot of people going into the custom frame shop where there's a professional behind the desk that can help them pick from beautiful moldings is gonna go it's like going from a a fine steakouse to McDonald's I just don't I think it's a matter of they're picking up some new customers and the existing stores have lost a little bit customers just because of their aging out I agree you're absolutely right um those high-end customers aren't leaving but there's a middle section you know the Hampton in customer who would come in yeah and who would buy stuff that are leaning a little more and we see it in our sales the less expensive products um are seeing an increase in sales and the higher end products are seeing a decrease and my point is I think that's as much to do with Baby Bo was getting older then yeah I think that's a large part of it because it's affecting everything yeah I mean that makes a lot of sense you know I was talking to a friend the other day and he and his girlfriend both have inordinate student debt like I couldn't believe the size of debt they had that they were servicing and you know they're in their gosh they're in their 40s now and you know it really changes their decision making and and I think in Prior Generations they would be at a place in their life right now where they would be going into the higher end places and starting to kind of go up market and I think the combination of you know less discretionary income what's the debt from yeah are they doctors student loan Deb I was going to say I think the student loan thing is it's real it's real right the Baby Boomers is one thing and student debt is another and I think it's absolutely had an effect on the market yeah and and then and then the other factor is and I think you've capitalized on this well Laura by being you know strong online it's just buying behavior and impa impatience so yes my other friend who's 10 years younger than me I I we were in the woodworking store the other day together and you know he was looking for this power cord for his sander and the sales guy who gosh I mean these are all the sales guys are all retired woodw workers in their like 60s and 70s you know cute old guys we don't need a little moan there oh they're in their oh those oh it's the same as the yarn industry um so my point being that so the sales guy says well you know our rep is going to be in next week and I'll ask him about getting one of those cords and and before he could almost finish the sentence my friend is ordering the the cord on Amazon and you know he's like irritated by this idea that you know he should have to wait any length of time to get the thing and so I think that those two forces are really really powerful I'm going into far fewer brick and mortar stores these days my Behavior's really changed because I don't want to deal with traffic I don't want to deal with lines me too want to deal with them not having the thing when I get there well I don't want to deal with people Laura tell us about the uh I'm sure there's only so much you can tell us about the business that you're considering buying but can you is it in Decline is it like the others um sure yeah I mean it's in decline in that the founders have just not been able to put the energy into it um as opposed to being in decline because the market demand is a lot less so you know you get what you put in So yeah so there's potential um to grow it some I mean my Approach is even if it doesn't grow are we happy with it where it is like does it fit in even if it shrinks I mean I'm assuming that it will shrink when we take it if we if and when we take it over that it'll shrink by 25% and simply because there will be some customers that only purchased it because the founders were the founders and you know you lose some of that loyalty uh and that's what we've experienced in the past it has taken us years and years to start to grow the mateline TSH business back up so if we went to their website it doesn't look great it looks okay okay I mean that makes sense yep yeah it could use a facelift um yeah it could use some work and we just think it would be it would compliment as we have moved away from just being this singular brand mateline Tosh into the matash group which distributes five different brands to our holesale customers um we think that this is a really nice complement to all of those other ones it's a it's a higher end product that we don't already have it's just a nice niche uh and the same way that you know the Jameson that comes from the Shetland Islands that we distribute now um is a very small brand it's only a couple $1,000 in sales it's not a huge thing compared to all the other stuff but it's just it's a nice way to get into the shops and the shops that do carry it are very loyal um and it's very unique and there's nothing else out there on the market like it Laura I'm curious you told us a moment ago that to some extent you're seeing sales move uh Downstream to less expensive products but I think your vision as just articulated in terms of the the brands you've been buying has been to move your offerings upscale are you at all concerned about the conflict there um no because it's just volume versus price um that said we're countering um so one of the brands that we just launched is a lower end you know or a lower priced brand and then we are launching in the next month or two you know 100% acrylic yarn which is the lowest of the low in terms of value pricing so we're doing both um we're hitting it on both ends Laura was that a big decision to go acrylic because you could have done that 20 years ago to compete with Joann's or Michaels we could have and I probably should have I mean not probably I mean we should have done a lot of the stuff that we're doing now 10 years ago but we didn't I now have a team that can support it and can do it and has the experience and I didn't have that until you know one and two years ago I mean as we've talked about I've hired over the last 24 months we have picked up between 10 and 15 people from other companies um so these are people that are coming in with varied experience they have Mill experience they have yarn development experience they have design experience you know all these things so that we're not so they can hit the ground running we' hired six and hopefully I have an interview tomorrow maybe seven people from our biggest competitor um have come on board this summer so now we have these people that know what they're doing um and can help us do this stuff which before I mean I'm just starting from scratch is that what got you over the stress of digesting the previous Acquisitions these hires that you're talking about um in to some degree yeah yes for sure I mean part of the stress of the previous Acquisitions are that's it's just part of the deal I mean it's like us you know we're migrating to Shopify in the next couple weeks hopefully and I we just keep saying this is going to suck it's going to be messy things are going to break there is no way around it we don't know but we don't know what's going to break we don't know what otherwise it wouldn't break you know we don't know what's going to be messy otherwise we would fix it before it got messy but the reality of the situation is you know we're we're going to crash we things are going to suck you know it's GNA be miserable you are going to cry that is an inspiring leadership speech if I've ever heard one thank you well I think that it's really important and it was the same thing with us taking on these Brands to recognize that it's normal and we will get through it and there is a it is going to suck for probably a month all right so here's my question you hired six people they all worked out they're all what you expected yes um we have one that we're still on the fence on um but the other ones have been fantastic like so fantastic I can't even describe it makes sense I just don't think it's ever going to be 100 per. I think you're making the right call with your it's gonna suck move I I mean it just is I I think I think that's right because so many companies when they do like a new technology or or you know do something new they oversell it they hype it up and then the reality almost never lines up with the with the promise that they've made and so I think being realistic is a really great it's playing sports I mean it's playing football or basketball like you get into the fourth quarter you're exhausted you're exhausted you're spent you're tired maybe you're demoralized and that's where grit comes in that's where Rocky comes in there are so many mug things you've just on mugs like it's gonna suck for them I mean I you just spit out about five mugs that I'm GNA have made now I mean I just I think it's really important it is for me anyway to set the expectations and to just be like look it's going to be hard because if you're feeling like it's hard it's not you it is the situation and all we can do is together watch each other and when you see somebody falling you help pick them up because you're going to be falling in a few you know in a few steps and we'll get through it together it's not going to suck forever no I don't disagree Laura tell us where you are in that process I mean just to to remind listeners who who may recall you've had a software platform that you guys built yourselves you've had it for 20 years and you've been looking for a way to get out of that for a long long time you finally made the move to go to Shopify yep you've been talking about this I think you you've been taking active steps for months on this correct uh for a year yeah we started uh last October or last November is when we started talking to Shopify we started interviewing agencies to do the work we found an agency that we went with or that we decided to go with and they started work in January or February and it's so funny I mean of course they're like yeah it's going to take three to four months and we're like no there's no way like absolutely no way it's not going to take 3 to four months it's not going to take six um so it's been nine months you know um they're rung by three yeah and we hope we're we are shooting right now for November 1ish right before the holidays knowing that it'll be in December yeah you know if not in January I mean it's awful like but what are you gonna do Jason Holmes on Shopify I believe we're very happy with it oh it's a great platform plus your husband designed the thing I mean that was the other thing right like your husb was chained to this old system right exactly yes this is his retirement the only person who could handle it yes yep does it concern you that the consultant was that far I mean why do they have to be so far off that's so normal I mean when Doug and I were doing software I mean Doug has always been very very good at estimating timelines to the point where he always seems very pessimistic but damn it he's usually right and he's just like I mean we all are like super optimistic I get it but if you if it's normal these people do this for a living how many times do you have to do this before you think yeah I know it seemed like three but since we just did 20 jobs they all turned it to be two or three times longer let's stop telling people it's going to be I don't understand how a Consulting fir so off part of the sales process Jay it's part of the it's part of the sales process in the sales process if you tell somebody the truth you lose the deal yeah okay well that's an explanation I mean it is the reality you tell people what they want to hear I'm not saying I do this but this is happens in the industry they're told what they want to hear it it's terrible it's everywhere it's in construction it's in software development great Point yep exactly it goes back to the patience and wanting instant gratification you know and I don't want to wait for somebody to order the part in yeah it's a great point and a very sad and disturbing point at the same time yeah Laura what's your biggest concern about what could suck when it all hits um honest hly I don't have any I mean I really don't cuz I don't have any control over it I mean well our sales are going to go down um SEO is going to be rough my biggest concern honestly is Doug's mental health you know is he's so this whole process has been so stressful for him um you know he's he's a developer and he likes things to be perfect and he watches what's happening and he gets frustrated that the developers don't seem to get it you know in certain ways and so when things break he's he's going to have a hard time um and me I'm like H it's going to break but we'll fix it you know and sales might they'll drop but they'll go back up do the extra months mean that you're paying a lot more for this than you expected sure yeah because we're paying for Shopify every month you know it's two grand a month that we're paying um on that side of it on the developer side I mean it was a fixed bid so they're the ones who are out you know now that's that's interesting that it was a fixed bid so it's not like they're milking you for in two grand a month in the big picture is nothing so exactly yeah I mean I can't worry about it I'd like to but I can't Sean you've had an interesting technology experience lately want to share what's going on with your bank how mad can I be online what's go for it yeah my my bank uh changed platforms so and they they called it an upgrade um which they all you know these companies always do and it's just been a disaster we pay a lot of things through AC as a lot of companies do these days and so with the old system I put in place a lot of you know risk mitigation tools so that not anyone could just a into our company and take money so I built out all these you know pre-approved uh companies they didn't migrate any of that over so now all the companies that were pre-approved and being paid like clockwork were getting rejected and then the system would alert me you know hey this is a company that's being rejected unless you authorize it it sent the alert out at 400 am in the morning and then uh I had until like 10:00 to approve it and and I just happened to be in a meeting all morning so I didn't see the email so it got rejected Ed and that led to a whole Cascade of things and it's just it's just been a mess is this a little Bank Med it's a small it's a small community bank which is what a lot of people encourage business owners to use yeah I know I mean I Left Bank of America at the beginning of the pandemic it was a great decision you know the bank is very responsive and very helpful but I I just watched their communication about this and it's just been terrible so when Laura was saying hey I set the expect it's not going to go well I was like they set the expectation this is going to be amazing and it's been nothing but nothing but heartache I would argue I wouldn't tell someone to go to a small bank I would tell them to go to a medium bank because I I certainly wouldn't go to the big bank but I don't know that I'd be going to a one location small Bank either for they're not that small no they're not it's not that small Jay and I don't think this is I don't know I'm skeptical that this doesn't happen at other Banks as well that are in that kind of midsize range because you know they're using purchased technology as opposed to their own um so anytime they change it it's going to be a real nightmare ah see that's what doug always says he's like you know everybody thinks using purchased technology solves everything but it doesn't that's yeah it it's really the transition that's the problem and and and the way companies handle those transitions with their customers is is usually they underestimate how difficult they're making the lives of their customers um because they're only seeing it through the lens of you know oh this is going to be so much better you know this new technology is going to solve this problem for us and that problem for us but they're not thinking their customers even though the technology is imperfect they've got a system to work with it and it's it's sort of like just operating in the background and I've seen this with you know it you know when you change it providers it's just really a killer for small business and their productivity you know what's interesting is how much time as the owner of a business we spend on stuff that is not growing the business yeah so like that's where I get frustrated Doug gets frustrated you know maybe you're getting frustrated too is like I could be spending time getting new clients I could be spending time like blah blah blah but instead I'm reading a 216 page tax document yep yeah I'm in I'm in it I'm like approving A's and then questioning this one and dealing with into it dear God that's a awful experience too you know anybody who's on QuickBooks to the theme of this show right it's like I'm wearing a lot of hats right now and a lot of them to your point Laura are not adding value to the business that it's just firefighting which gets to the prime question of perhaps you need another person working for you who will deal with this stuff because maybe you should be spending your time finding new business and maybe some of the stuff you're doing should be done by somebody else uh in theory you are 100% right Jay uh financially it just doesn't it just doesn't pan out right now so I guess yeah too that's the constant uh Razor Edge all on well and part of part of it is of my own making and that my part of my transition plan is to promote people into roles that I've had so I've actually downshifted into more administrative roles and elevated others into more executive and strategic roles and so so the money is just not there when you've got kind of this duplication of effort right now so it's a pain it's a pain of transition more than anything yeah that totally makes sense I'm in the same page Sean I mean I've been um our office manager has had to suddenly retire for medical reasons a couple months ago and so I'm literally Zing people and aing everybody and I'm writing checks and sending $100 here and $50 there and yeah just you know I just started to train somebody else but I mean it is what it is yeah and your business is considerably larger than mine I mean you're in the double digits right in terms of millions yeah yeah so I mean even you right you're writing $50 AC just is what it is you know and I'm like my job is to fill in the gaps yeah you know a lot of times so I want to hit one more topic before I let you guys go I don't want to get into the politics of this but there is an issue that's kind of a big deal uh and it's going to be an even big bigger deal as we head into 2025 which is uh what's officially known as the qualified business income deduction I think it's section 199a it allows pass through entities to deduct 20% uh off the top that was part of the 2017 Trump tax cuts it's going to expire next year and it's part of a package they big questions it would cost a lot of money to reup all those uh tax breaks what's going to happen is anybody's guess at this point but I'm curious to get your uh Impressions on how important is that tax break to small businesses anybody I would put that very low on my list of issues I'm dealing with I wish that I was making so much money that I'd be crying about all the money I'm losing on the tax thing so I don't know I personally it's not even on my list yeah same it's not on my radar at all Sean same yeah yeah it it's been around for a while now have the numbers just not been significant for for any of you is that it gets down to the fact if you're making a lot of if you're making money to where it's costing you money you're still making a lot of money so you're making a little less money great Point experienced owners you know generally recognize where do they spend their time and energy and if they're really fixated on tax tax tax tax they're probably not looking at the right stuff in their business in terms of generating value to the business so yeah you can spend a lot of emotional energy worried about this or thinking about this but at the end of the day if I go get a new customer it has way more impact on my business than if this goes away or stays which is interesting because if you read the business press and nobody reads it more than I do this is portrayed as a huge issue um with with pluses and minuses I think you're going to see it play out as a huge issue and it's really fascinating to me that none of the three of you seems all that concerned well I mean here here's one of the issues here Lauren right that type of a of a benefit is predicated on you making money a lot of money yeah a lot of money and so in terms of tax policy the things I'm way more concerned about our nonsense things that are happening in my state which are tax taxes on gross revenues horrible so like right right now there's a a voter sponsored initiative to tax gross receipts for businesses above I think it's $25 million and it's like a huge hit like 3% and and then that's going to be supposedly distributed as a universal basic income so I mean it Let Me Tell You Folks this is like got the business Comm commun freaking out here I can see that that is beyond horrible is that a concern to businesses that have revenue of less than 25 million oh Absol I don't I don't have 25 million and it would be a terrible thing for this state because why would it be bad for you why would it be bad for me because first of all prices are going to go up on everything right businesses are not going to just like take this and pay it they're going to raise their prices and then worse you're going to see businesses leave the state which they've already already been doing because of terrible tax policy on the in this in the state of Oregon I got to tell you something the big thing in Chicago is oh I'm GNA move to Florida and don't have to pay any personal income tax and like at the end of the day it's just not that big of a percentage that I think someone's going to pick themsel up in their entire business and move to Florida on the other hand 3% on your gross absolutely move out of the state how could you stay in business with that that's like that could be half your profit that's crazy but better yet or it could be all your profit it could be more than your it could be putting you into the hole well and and see what makes makes me even more concerned is that we already passed this nonsense thing called a corporate activities tax I don't know four or five years ago which was also a tax on gross receipts and it went all the way down to businesses at the like $2 million level and so like you've already got one and now they want to put another one on and and what has happened I've seen it happen in in these especially in municipalities like our local County which layers on even more businesses are literally moving out like I'm this isn't just hyperbolic they are literally moving away and so that's why I'm concerned about it Lauren you know it doesn't impact me directly but in terms of the business Vitality it's it's a it's a killer I got to tell you we hear about oh minimum wages going up I'm going to close my oh I don't most of the time I don't buy that this thing though yeah I'd be moving I mean I don't know how you can stay in business if you're paying 3% on Gross that's crazy yeah it's Bonkers Sean do you know how many other states or municipalities have such attacks we are being used as a guinea pig by outof state actors so it's just the same with the uh legalization of small amounts of Narcotics I don't know if you all paid attention to that I think that got reversed recently didn't it we finally reversed it but we were legalizing fentol and it was done by outof state actors who wanted to basically prove that you know oh this would be beneficial you know by not putting a bunch of quote unquote low-level drug users in jail it was an utter disaster an utter disaster and they finally reversed it but this is the same situation you know you have out ofate actors they fund signature collectors and then they put these ballots on the initiative that are like oh you know everybody gets $1,700 a year in Universal basic income and it's like oh my gosh it's it's just terrible it's just terrible what are the politicians doing does this have support among elected officials no it has no support among elected officials it has no support among the business Community but you know to the to Joe on the street who reads a ballot initiative that says hey I'm going to get $1,700 next year if I vote for this it's it's attractive because they're not they're not thinking through it right has there been any polling do you have any idea whether it's likely to pass or not that's a great question I I don't know I I don't know there's a lot of effort to to put it down I mean you know the business Community is super aligned against it there's a ton of money going into you know fighting it off but uh we have a very vulnerable um process in our state that I used to think was good you know because a lot of good has come out of voter uh initiatives so let me go back to that 20% pass through one more time one more thing here's my question one of the criticisms of it has been uh as as you guys have suggested that the benefit goes to a small percentage of companies a very small percentage of very successful businesses get the majority of the payoff from this tax deduction there's going to be this huge fight over it what should small businesses be fighting for instead what would be a better way to support small businesses than with this tax break oh I have an answer I argue that a brain surgeon who makes a million dollars a year compared to the business owner that makes a million dollars a year the fact of the matter is the business owner is probably leaving six s $800,000 in the business plus he or she needs to pay taxes on it and that given that they're creating jobs and supporting the economy explain that Jay not everybody understands brain surgeon gets paid a million dollar he ends up with whatever $650,000 in his checking account at the end of the year whereas a business owner that makes a million dollars is not actually seeing that all that money a lot of it's being left in the business and a lot of it's being left in the business to pay the taxes so all right the point of the story is it would be things like um investment tax credits something that gives the business owner a little break they're creating jobs they're creating business literally I pay millions of dollars a year of taxes real estate taxes sales taxes employment taxes millions and millions of dollars so the brain surgeon here or she's just paying you know the income tax so it makes sense for a business owner to get a little support from the government of creating jobs and growing their business so I do think it would be helpful to have some kind of investment tax credit to help small businesses I love that especially the inventory it's the inventory that us so as an example we have invested $500,000 at least in inventory in adding inventory this year so that's cash out the door not deduc not deductible so we still have to pay on that 500 Grand what do we need to pay like 200 in taxes so that 500 because you get no credit for buying inventory it's not a cost of good sold it's just inventory I gotta tell you I've done speeches at MBA classes like like Northwest like smart schools right I go through growing business and I go oh so what do you think the problem is why can't I pay the bill no one they've never figured it out they never consider the fact oh wait you've got to pay income tax on all that profit and you don't have the cash it's to to Laura's point it's an inventory and receivables you don't have the cash yeah so it's a strain for for businesses for years I mean I've dealt with it for for years and years and years so yes it would be helpful and productive for government to give us some kind of credit so that we can continue to reinvest in the business hire more people pay more payroll taxes blah blah blah blah blah just to clarify when you say inventory isn't a cost of goods sold it becomes the cost of good sold when you actually do sell it right right but until then it's just cash tied up it's an asset it's an asset the point is the brain surgeon's money sitting in a stock market account or in his mattress the business owners is sitting in inventory it's different yeah and the uh you know the Professional Services business which I am we have a slightly different problem in that the growth that we put into payroll it it kills us on the cash flow side of things um because most Professional Services businesses are on a net 30 60 90 uh time payback and so what happens is is in order to grow you have to hire people okay so the clock is ticking because you're now paying salaries right so then you start the training people and training they're not even productive right so the people are your inventory yeah the people that's great Laura that is such a great Insight you know like the project you're doing um I mean tell me about the project you're doing with the Shopify agency have you paid them for all of the project yeah most of it but more importantly we've paid you know the four people that are on Doug's team to be working on this full-time right because we're paying that you know we're paying the agency but it's almost more work on our side that's really interesting so I was asking because a lot of agencies they don't collect fast enough right or let's say there's an end of project payout right where it's a big payday because the project goes long their ability to get to that money can be really hampered so for services businesses people are the inventory that is so great no no you're correct in that I don't need to hire anyone generally until I'm busy enough to need them whereas you need to hire the people to get busy so you have to invest in people and you're right so you have that and we have inventory either way the typical small business that's growing by definition is tight on cash right and you're having to keep it in the business for those situations you got to keep the cash in the business but you have to pay taxes on it so it's like this crazy thing where on paper you look like you're rich but actually you're just like holding the money for those situations paycheck to paycheck Laura does it does it even out in the end is the is the issue a short-term cash flow I die no it doesn't not if you keep growing to clarify is it a short-term cash flow problem and that you have the money tied up in inventory and you still have to pay the taxes but you don't have the cash but eventually that inventory becomes cost of goods sold and it's all fine or no no why not because as the business grows you're inventory grows yep so yes if you are shrinking then it works out okay because you start to liquidate inventory but you probably liquidate the inventory for less than you know less than what you wanted to less way less like 10 cents in the dollar less yes yeah no it never the only time and even if you sell the business I mean people aren't going to pay you dollar for dollar what your inventory is worth no it never gets better you build the inventory with the expectation that the inventory is going to drive more sales sales are going to drive more eida and then when you have a bigger e you can sell the business for more money but the problem in the picture framing business is I talk to people they go oh well I'm gonna try to sell my store for 150,000 that's how much inventory I have and I go no one cares what your inventory is all they care about is your bottom line you're paying yourself $52,000 a year no one's going to go buy a job for 150 Grand that's why you frequently not more more than likely the typical frame shop just closes one day it doesn't sell and it's unfold I mean if if policy makers really were serious about helping small businesses this is what they would attack I mean like this this issue you know of paying taxes on pass through revenues you know no benefit at all to keeping money in the business even though you have to do that I mean there are just no advantages there are no tax advantages for small businesses with a few exceptions you know maybe the R&D tax credit and so forth but even that's sketchy at best I think the problem is these people that are coming up with this stuff have never actually talked to a small business owner and they're getting information from some trade Association and the people that work at the trade Association don't really understand it either because it does beg the question this is fairly simple why doesn't the government who claims to want to help small business do that other than the greatest thing ever is the SBA loan for sure 10% down by real estate that's a great government thing beyond that I can't think anything off the top of my head that oh that was or tax investment credits have been helpful over the years but the government could do better there's no question um my thanks to Shan busy Jay goz and Laura Xander thanks for sharing everybody 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 so 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 ln21 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 thubron founder of blank word Productions thanks for listening everyone [Music]