You Need to Accept That You’re the Boss

[Music] hello everyone welcome to the 21 hats podcast I'm your host Lauren Feldman this week Sarah seagull takes Paul DS and Jay goz through her recent QuickBooks nightmare right before tax season Sarah ran her p&l and it showed a profit of $250,000 but she knew right away that that couldn't be right it then took a bookkeeping SWAT team to figure out what exactly had gone wrong I was literally on the verge of tears Sarah tells us how am I going to do this and not be late on filing my taxes and credit to this woman who was I swear to God she was like my therapist and my bookkeeper she was like don't worry Sarah we're going to figure it out which they did and which brings an important reminder not every dollar that comes in the door should be counted as Revenue plus what do you do when a new employee isn't working out when is the right time to intervene do performance Improvement plans actually work are Grace periods a good idea all Jay emphasizes a little understood reason why it can be important to fire fast and Paul explains what he likes about the AI search engine perplexity even in 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 of the great game of business will let owners know they are not alone in facing challenges same thing with our daily newsletter the 21 hats Morning Report which jakc magazine named the best 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 Paul Downs CEO of Paul Downs cabinet makers which is based outside of Philadelphia and makes custom conference tables Jay go CEO of the gos group whose companies in Chicago include a picture frame business artist frame service and a home furnishing store home and Sarah seagull who's founder and CEO of seagull Communications a public relations firm based in San Francisco the episode is titled you need to accept that you're the [Music] boss welcome Paul Jay and Sarah it's great to have you here I want to talk today about taxes uh we recently had a conversation on this podcast about what business owners should expect from their accountants we talked about how some owners think they're getting strategic advice when they're really just getting tax prep in that conversation we talked more about the Strategic side of the equation today I'd like to talk about the the tax prep side we just passed April 15 Sarah we exchanged some emails I gather You' had an especially stressful time what's been going on with you well um as you know um I restarted my company at the beginning of 2023 after having been part of a larger entity um for a couple of years so so I had to restart everything I had to reestablish my LLC I had to open new bank accounts I had to get new healthcare all that kind of good stuff and I was like you know what I've used QuickBooks in the past and when I first ran my company I'm like I can do it and I'll just get my friend to help me out here and just in terms of the data entry and I can figure it out I'm fine so instead of finding somebody like I should have that is skilled and understanding of of how agencies run you know how a pass through LLC works I did most of it myself with a little bit of a help from a friend and I really profanity here um myself over completely so I ran my p&l at the end of the uh right before tax season and it said that I had a quar million dollars in profit I did not have a quar million dollars in profit the way that all of the the details were put in um were Incorrect and apparently I had been adding all this stuff all of my my um transactions not on an acrel system meaning that as soon as I invoiced somebody QuickBooks thought that that was money coming in as opposed to the way it works for us where we invoice somebody we don't get the money for 30 45 days sometimes sometimes even later if there's any problems with your transaction so it thought that we earned more money than we did so long story short is I was introduced I to another agency owner he loved his bookkeeper I had met her casually and I basically onboarded her and her team really quickly and they said spent the last three or four days literally doing surgery on my Quickbooks and I'm sure that I'm the bill for that is going to be 10 times the amount had I not just done it the right way the first time and I'm kicking myself wait there's a lot to unpack there yeah I gotta ask because I have an account degree I never practiced but I got to get some clarity you said that you booked it as a sale but then it really wasn't so the question is are you operating on the acral basis or on the cash basis which one you're smarter than I am in terms of this stuff but yeah clearly she doesn't know the difference I didn't know that there was a button to click I know nothing about the whole button to click thing I just know that maybe you did make the money just because you haven't collected the receivable yet didn't mean that you didn't make I'm not so sure you didn't make the 250 you just don't have the cash yet because it's in receivables no okay wait a minute can we just step back here one thing and talk about there's three different ways she could have screwed this up and I I think you got all three of them I'm sure I did one is not understanding the difference between cash and acrel second one is not understanding QuickBooks and the third one is not understanding taxes and so that if you venture out in your own as a business owner into this field you're entering a landmine and it's really critical right when you start to get professional advice and then once it's up and running then yeah you could probably do QuickBooks yourself if it's a small business but it's critical that you don't try to do either of those three things yourself because you will never get it right no I totally agree with you and I I have to say that I was reading an article the other day that talked about like the two professions that a small business owner will never question the authority of or the value of is legal and bookkeeping I try to sell our services people will question us like really am I going to get value at it people do not question lawyers or bookkeepers there's a reason about that I've talked about this before and I don't blame it you just assume oh they're an accountant they know what they're doing and they probably know what they're doing with taxes but some are great at helping small business owners and some will let watch you hang yourself and never and then they'll tell you later oh well here's your problem it's it's and I understand why people get into that trip you just assume they're a professional accounting firm they're going to help me with this and sometimes they do and sometimes they don't all right so let's go over this a little bit I want to I want to walk through and make sure we understand your situation sure before I do that Paul the difference between cash and acral accounting is all right here's my understanding I am not an expert I'm not your bookkeeper I'm not your accounting so cash means that you uh book as income payments you receive for work you completed in other words you did a job you get paid for it not based on invoicing just on what comes in the door but only for stuff that you've actually completed so in my business we get a lot of deposits for work that's not completed and you might think that that's cash income it isn't it's just a loan the client makes to me until we deliver a table it's actually a liability right it's a it's a it's a loan it's a liability and at the point where we've completed the job then whatever cash they've given me converts from a liability to income and if we deliver a table and they still owe me money the amount of of income we book is based on when they pay us a cruel different the acral is looking at the value of the work you completed that's it and so you can book as ACR income anything that you completed whether you've been paid for it or not now just just like with cash the liability of the deposit becomes a income after you a crew you know like okay we completed this in our case it's when we ship it we book it as done and uh and then we have income based on the cash that's there you can be looking at in QuickBooks at either or both anytime you feel like it when you run a p&l there's a little button on the upper left side that says cash or acral the critical thing is which you're paying taxes on and this is is again this is my understanding could be wrong accountants correct us my understanding is this is a designation you're going to make when you set up and file your company originally you're going to make an election to take either cash or an acrel accounting and I believe that cash is way more common for S corporations particularly someone in Sarah's situation well maybe maybe just because she doesn't inventory that's a critical thing so somebody with inventory would never do that right no I don't I I have pretended for the last 38 years that I have no inventory at any time so I don't know anything about accounting for that because it's just way simpler for me to not have inventory yes we have materials we have work in progress but it's really difficult to Value it so we just don't and my account has never complain about it but if you were in QuickBooks uh making a note hey I sent an invoice to this person and booking it as that's almost like an acrude thing then that you book that you completed the job I'm sending the invoice that's acrude revenue and if you were running the p&l and it was saying okay that's Revenue that's your income then you probably have QuickBook set up wrong it shouldn't be that hard to to have the the new bookkeeper as long as you've entered everything all they have to do is go back and recategorize it yeah just to be clear you left out half of it which is you're totally right with the first half the second half is your expenses are also acred meaning if you get a $10,000 insurance bill for the entire year in cash you would write the 10 grand off but AC cruel you'd separate it by 12 months and do prepaid and it would be amortized so it it works with both the incoming and the outgoing expenses right didn't even think about that the other thing would be depreciation let's leave that for a different discussion because the whole thing is that don't try to do this yourself just don't no no so Sarah I want to go back to exactly what happened you said that you took your p&l it showed a profit of $250,000 you didn't actually make it you said but it sounds like maybe you did what triggered your sense that you didn't actually make it what went wrong and that you realized you had a problem well my bank account's not that full that was I knew you were going to say that except you over receivables isn't isn't it isn't it possible that that income is just sitting in receivables no it's not we were income in income out last year it was our first year back up and running like there was no major profitability it was nominal it wasn't my you know goal of 20 to 30% but I I knew that that number was wrong like just immediately um and the because we're pass through all of a sudden like the tax bill that I owed to the government was absurd so we realized that it's so important to find an accountant or a bookkeeper that understands agency because unlike what most people do we do things where we have expenses that that we incur on behalf of the client and then Bill back to the client right and unless you categorize things correctly it can show his income right so for example Jay you're like you know what Sarah I'm going to do a big partnership with the city of Chicago we need to put out a press release I say okay great Jay I'm going to write the press release that's my service I'm going to put it on the wire so Business Wire PR news wire it's a news distribution service that goes to every Newsroom in the country that cost me $1,500 to $2,000 I'm going to front that cost I'm going to put it on the wires but I'm going to bill you back for it but my books the way that it was set up saw that that money is coming in as income and not as a reimbursement and so that all had to be redone wait wait so does that mean you didn't show the expense for that that's what would have countered it you took the money in from the client but then they didn't show the payable is that the problem that was the problem and be and because there are so many like specific nuances to PR for example like paying an influencer some of these influencers you have to pay through venmo or PayPal like if you're doing a paid relationship it's really messy like you're not just sending people checks at this point so I did finally things are worked out now the number is much more on par but I have to say that like I realized I learned from my mistakes that you know what there are certain things that you should just not do as a business owner and honestly I wish there was a boot camp like everybody I've ever talked to that went to like business school was like oh no they've just teached you theories and case studies and this and that why can't they have a class or just like a one-year program where they're like this is how to manage your p&l this is how to deal with expenses this is the difference between AC cruel and cash like where does that exist I have a business degree they didn't teach any of this but you just brought up something very important though which has made this way worse it's about the fact it used to be in the old days you got invoices in the mail and there'd be a pile of papers on your desk from whatever you fronted the money for you'd have an invoice and the bookkeeper would say oh we got to put this in now to your point maybe they didn't even send out an invoice you might not have an invoice or maybe they sent an email and it didn't get to the right place so I have that problem now everybody's not sending invoices like they used to and like oh you sent me an email I didn't get it or oh you sent it to there or maybe your person quit and they you didn't forward the thing at least when you got the mail and it was on paper there was a pile of invoices sitting on the desk and that is no longer the case that's a huge problem and but now imagine this but you have 15 clients that you're doing this for it was just I I was literally on the verge of tears of like how I'm going to do this and not be late on filing my taxes and I just credit to this woman who was she I swear to God she was like my therapist and my bookkeeper she was like don't worry Sarah we're going to figure it out it's going to be all okay like Sarah how were you doing it uh the previous year when you were still part uh of a larger business oh they had somebody qualified doing it so you you were just sending your all your information I mean were you on QuickBooks H how did they get the information a lot of emails and Dropbox folders full of receipts and just that I mean it wasn't systemized as I would like it to be we are pretty good about putting all of our receipts since stuff like that into folders okay so my the new bookkeepers has access to everything and is able to see everything and go through it pretty easily to review it but yeah no somebody else did it and I I don't know how they worked their magic but it's magic it's a magic job it's not a magic job it's just a job it's just something you have to get your head around you're like okay you don't want to deal with it fine you're going to pay a billion taxes but this is just this is just part of being in business which is dealing with transactions money and you know yeah Jay I'd love to go back with you to 1976 or 1810 when we could get Messenger boys to go around town that's just not the world we live in it it it's not an option and so you simply have to do the things that you need to do to administer a business that's part of your job as an owner making sure the administration happens in some kind of orderly way there's really no way around it's called having control and until you're out of control you don't know what you're supposed to be watching so we brought up several things I'd like to highlight one is this deposit thing it is very dangerous when you're in a business that takes deposits that you don't put the money somewhere and you start spending it thinking it's your money so I I know nothing about QuickBooks but there's lots of places to get into trouble deposits in my case inventory you don't have inventory very easy to get in trouble with inventory very easy to get in trouble with you didn't get all your payables in somebody didn't send them to you you didn't have them and good bookkeeping people know to keep an eye on that stuff is the point while you're mentioning inventory I think I got to go back to Paul I've never heard the notion that you could just pretend you don't have inventory I'm I'm not sure what to make of that could you explain how that works because you must have a ton of money sitting in you know wood and other types of materials don't you no I understand that we don't have a ton of money we we run a very lean operation where basically we get a pile of wood delivered on Tuesday it's pretty much all put into a product or in the trash by a week later so in in a world of just in time uh Inventory management if you've got reliable vendors I don't need to carry inventory as a matter of fact this is something that always blows the mind of all the people who work for me which is I don't want to see piles of wood around the shop and the you know I don't want I don't want anything that we're not going to immediately put into a a product now in reality there's probably 10 days worth of inventory of various things sitting around on the shop floor and in reality you could probably if you decided to sniff around make a case that we should be doing it differently but the other reality is that it's not something which is likely as far as I understand stand to trigger an audit because I make money I pay taxes you know like we we just don't carry a ton of stuff lying around I don't have a warehouse full of stuff like Jay does well are you missing an opportunity to buy in bulk or to stock up on you know wood that's hard to get or you know avoid supply chain problems do are you paying a price for this in any way no the only time we we ever really were tempted to buy in bulk was right at the beginning of 2020 when Co was shutting down a lot of the plywood and other uh Chic good manufacturers in Canada and so w without that particular material we were out of business so I went to my uh my distributor who we normally buy from and I say guys what do I need to do you know like I don't care what it costs we make a premium product I don't really give a about a nickel per sheet or whatever I just need to make sure I have this and they said yeah you've been doing we've been doing business with you for 30 years we got you and here's what we'd like you to do we'd like you to buy a couple of skids which is more than we normally do maybe 500 sheets so we bought it and we stored it for a year but we used it all up and now we're back to our normal practice because inventory is really expensive it's just money sitting on the floor like why do that in my case that's how I make money by having inventory I bring it in from all over the world it takes months to get it so I got no choice now I should have put some parameters on it which I didn't which I've got it under control now and working it down where it needs to be can I ask you too how do you look at your uh your books like How do you review that do you do it like every day you're looking at it you do it weekly you sit down with your bookkeeper do you do it quarterly like what is your process I'm now doing it every week and I had a CFO for years that was doing it and I'm now doing it and I'm keeping an eye on you know the key performance indicators what is the inventory levels what's the payables what's the receivables how much cash is in the account it's very easy for it to get out of control how about you Paul yeah I I manage cash extremely carefully and we have a system set up where I can predict my cash position any day in the future for as long as I feel like it which is generally about 8 weeks so I'm looking at that multiple times a day but we're also like for me what's really important is are we making a profit on AC crude revenues in other words is the factory making money by what it's doing and if we're doing that all other problems are solvable clients generally pay me like we don't really have an issue getting paid and we're very clear on the difference between liability and and uh and asset and when taking deposits but we need those deposits for cash flow so if I'm taking deposits and sitting on half million dollars of cash and let's say 200,000 of that is deposit and 300,000 of that is working capital or whatever as long as the factory is making money on an acrude basis in other words words the value of the output that we're producing in a given period of time is greater than the expense to make it then eventually our cash position will be improving as long as I don't go and spend it on something crazy like inventory so you see what I'm saying is you need to understand what you need to be looking at in your business in my case it's pretty simple we need cash coming in the door through sales we need stuff going out the door through revenues and I just keep an eye on both both of those constantly Sarah in your case your issue is you got to have one foot on the gas and one foot on the break at all times cuz you're hiring people to do the jobs if you got enough jobs great but then if you have too many jobs you know the people that's a problem and like it would be very easy to lose a couple of clients and then not make a quick I mean unfortunately you can't carry people that long if you don't have the business coming in and that's what you got to like I said it's one foot on the gas one foot on The Brak and in my case I can absorb it a little bit easier because I've the bigger business and I've got you know inventory to live off but like in your case you have a couple months in a row where you lost some business and you kept the people too long it wouldn't be hard to see where you're going to get into a big cash crunch in a problem this points out a critical thing that I've learned over the years which is that business owners need to understand what normal looks like you could set up any number of kpis that would help you understand what normal looks like like but you need to know what that is you need to know what is normal for me let's say normal and healthy because you could be normal and be screwed up let's say normal healthy yeah if you understood normal and and you understood why it was unhealthy you'd be on your way to fixing it right so but it's really important that you have an understanding of how your business works like if I know that if I get X number of people initially calling us I have a pretty predictable yield path like how many of those people are going to be worth talking to how many are we're going to sell when we sell this amount how many people should I have on staff what should my monthly revenues be how are we getting there you know we monitor that with the company talk about them about revenues like here's what we need to get done this month this is why your sales pipeline is much different than mine though well that's what I'm saying you it doesn't help you to understand what my business does it helps you understand what your business does and you just need to know what normal looks like and normal May I have to hire and fire people constantly because I never know exactly how much business I need to do in one day and so you need to normalize than the hiring and firing of people that's just your your task I have luur if I can hire um independent contractors and Freelancers that are perfectly skilled at it since I did that round of layoffs last year I actually haven't hired anybody on staff since then we have grown but all the people that are in those are like um full-time Freelancers and contractors and they are fine with that role um you know we'd like to bring some on staff who we really really like a lot but as I I've said this publicly to my team I'm like I'm just gunshy31 out of that but people are slow to hand over contracts I can't tell you how many people have been like oh yeah send me a contract and then you never hear from them again because they get anxious about spending money on marketing in particular marketing is like first to come first to go it sounds to me like the only staff person you actually need is a bookkeeper because that's that's constant right you know like I have a bookkeeper I know exactly how many hour she should be doing a week she's comfortable with it but I'm never going to get rid of her because no matter what we do we're going to have transactions that need to be accounted for correctly so yeah everybody is going to develop their business model based on what business they're in what makes some money you know what resources are available to do work you happen to be in a world where there's a lot of Freelancers you can when you hire them you have a pretty good idea what they're going to cost yeah that's a pretty common business model and it's a pretty good one because it doesn't force you to to carry people when you don't have business now in my world it's completely different the people I have to hire are so specialized and it takes years to train them that I'll do anything to avoid laying them off and the way we manage that is through backlog in other words we always try to maintain enough of a backlog that if we go through kind of a slow period we we have some work to do while I figure out what to do about it but I also am so used to understanding what the backlog should look like based on whatever other indicators are coming that if trouble's starting to happen on the horizon I can see it because I've seen it before and then I can make an adjustment if I need to like you know what if someone quits it's not a big deal right now let them go we won't replace them so it's mostly about just understanding what you're doing and uh and it takes a while when you start up to to get that knowledge took me 20 some years to know the difference between acrude and and uh cash Revenue I just didn't understand what we were doing for the longest time so no knock on you here's the good news you learned your lesson you'll fix it you'll move on and it's all fine because that's what we do we fix things so you're going to fix this and it's all going to be good and uh you won't go through this again and you'll continue to learn these things until you're fine oil machine oh no and that's how I approach it like I and I with my team as well like you're going to make mistakes and it's you're going to learn from those mistakes and you're not going to do it again you know and I do the same thing for myself it doesn't mean my whole weekend wasn't ruined because I was sitting there going line by line on our um uh on my Quickbooks to see what the problem was no weekend ru's fine just don't let it go for more than not and I have a I have a saying there's no team in losing money that's the one place that the team at the end of the day when we lose money it's our money and like yeah the team can feel bad about it but it's it's more stressful for the one who lost the money I want to hit another topic and this is another one of those uh questions I saw posted on the small business subreddit and it deals with how you handle employees who aren't meeting expectations let me read some of uh what this business owner posted I run a fast-paced warehouse business where a set number of customer orders need to be made and dispatched per day I have just h a new starter and they are horrendously slow I've already set my expectations as I do with all new employees that they need to be able to make X number of orders after one week y after one month z uh as an name to always be hitting for the remainder of their employment however during their first week I have said that I have no expectations for them other than to just learn where everything is and work towards hitting the ex orders per day by their sixth shift this new staff member is the slowest I have ever seen by quite a long margin as an example the the slowest staff member we have ever had was able to make 30 orders on their second day our new starter managed to only make 13 I'm concerned that they will not be able to hit their minimum quota in a few shifts time uh so when would it be appropriate to step in and give them a hand and show them how to be more efficient as it is blatantly obvious to me and it should be to them that they won't meet the upcoming quota ultimately they are still getting to grips with everything and learning where everything is and all the processes so I don't want overwhelm them or make them feel like they aren't doing a good job but going this slow is extremely concerning the minimum quotas are extremely achievable almost all staff members we have ever had are able to hit 50% to 100% over the minimum every day any advice for dealing with a new employee okay so the answer to his question should I intervene absolutely he should interview right now and he should say listen we have a minimum standard day six you got to do 30 and I'm going to sit here and watch what you're doing and I'm going to give you some tips and if you can't make that on day six see you later I mean you could be nicer about it but that's basically it when you have experience when you've seen X number of iterations of something and the next one you see is an outlier it's real there are slow people on this Earth and it's his duty as the boss to just give him the feedback back set the expectation and be ready to get rid of them I laughed out loud when I read the part that he said well I don't want him to think they're doing a bad job they're doing a bad job I mean what do you mean that don't to make them feel bad my line would simply listen this job isn't for everyone we've had lots of people I'm not sure I could do this job there's lots of people that just aren't suited to do this you don't have to make them feel bad you just say I'm concerned this isn't the right job for you that's and that's an accurate statement and they fact in fact might be in a great employee doing something else somewhere else but they just and suited to do whatever he's doing slow is usually a problem I will tell you run into this problem again you can hire with a grace period right okay we'll test you out for a week see whether or not you can make the numbers don't do that no you wouldn't do that don't do that no because if you actually have a written grace period policy it becomes much harder to legally get rid of someone for any reason afterwards oh okay wait wait wait explain that to me yeah like if you say hey you're on 90day probation and they get to day 91 then all of a sudden they've got a defense in a firing that they didn't have before or you're just the fact of the matter is there's times where you hire someone on the second day you realize I made a mistake I mean they sit at lunch and they tell people stories that you think oh my god seriously you just told them that you you know you killed someone last week and you I mean people tell stuff at lunch yeah I hired a guy who who tried to persuade my whole Logistics crew to go down in the bloating Dock and get high with him at lunch and they came and told me about it and I didn't give him 90-day grace period said get that kid out of here no and that's yes absolutely so there are times where on the SEC first second third day you realize yeah this wasn't a good hire so we don't need we don't owe it to anyone to give anybody any Grace they can walk out of the job after the second day they're giving us a grace period that's the way it works they come in you see if it works out if it works out great if not you have to do it because otherwise you know you're giving your time to something that you shouldn't be giving your time to I also heard the word and Paul used both words I don't use expectations cuz everybody is different I us stand ards here's the standard we believe that you should be able to do so you know everybody can have different expectations I think the word expectations has replaced standards in a lot of time and I think in many cases standards is a better word I I don't disagree with that and actually when you're talking to employees if you've made up a bunch of rules for the company that are whatever you felt like doing always talk about them as if they were descended from God on Golden tablets just like hey these are the rules man okay I wrote them you don't have emphasize that part just say these are the rules you got to do it leave it there people are much easier to to take that is if the rules seem like they're completely immutable that's that's a much easier conversation do you use um I think they're called [Laughter] Pips do performance Improvement plans or whatever they are yes if it's someone who's worth salvaging now this is a brand personal opin is once you're on on one of those there's no swimming Upstream like it's done you're DOA unlikely I agree with you unlikely maybe once in a while that might work but I did a speech to a big company one time and at the end they asked me about him and I said you know what in my world I've learned that um either fix or fire either I can fix it or I have to fire them but putting them on that when they're probably not going to work out that's like torturing someone and that's like a big company thing oh total torture well you seem to think it's more likely that it can work yes because what I've had is is I have employees that have been with me for decades and so you get someone who's a good employ and they they work great for 15 years and then the marriage falls apart or you know like whatever and they go through a bad patch and that's when a performance Improvement plan will work which is you sit them down you say here's the problem I need you to fix this I don't want to fire you but I will but here's what needs to be fixed and I've had success with that with people who had demonstrated that they could do the job first now a new hire that's 3 days in and and can't do the job different situation but if you've got valuable employees and they're starting to go off the rails I think that at least informing them that they're off the rails we need to get you back on here's what we're going to do here's what you're going to do that's worked for me in multiple occasions absolutely I worked for an agency um and I remember that there was this one woman who had been promoted to a manager role and she just wasn't commanding the respect or delegating like she should um and I was told that I had to put her on one of these performance um plans and it was quite obvious that she wasn't going to be able to be able to do the job it just wasn't in her nature and it was just was like six weeks of torture for this Pro person before she was like oh oh for everybody oh it was awful now I've never worked for anybody so I don't have that perspective so I did a speech to a big company talking about the whole entrepreneurial View and some guy walks up to me afterward and he said and this is a major company you'd all know who it is and he says to me you know what at blankety blank you pretty much have to kill someone to get fired and I realized at that moment that is one of the secret weapons of small business we can take responsibility and make sure the people we have working for us are doing the job and in many large corporations they don't fire people they just move them to another department enroll their eyes that said Jay I have spoken with a lot of business owners and I think the one who wrote this uh thing for uh for the small business subred is probably one of them who struggle especially early on with having those tough conversations they're squeamish about it they're reluctant to say what needs to be said I'm curious did all of you go through that period did you have to learn absolutely and what got you over the hump what got you to the point where you realized what language to use well it wasn't the tough conversations with people right and staff and employees because I've never had a trouble with that because as a reporter I a local reporter in a small Market I was often told by my news director or my assignment desk this person just got killed go to House of the people who's just lost somebody and ask them for an interview and to me that that was the worst experience of my life the first time I did that I had to go knock hey your teenager just got killed in a car accident do you want to talk about them on camera for my news station ever since then I can have I like someone's like oh yeah they have cancer I'll be like oh what kind of cancer do you have like I have no trouble having those difficult conversations with anybody you become a warrior I mean that's reality okay I don't have that experience but I learned to be tough when I had an employee was screwing up and and I was afraid to fire him for a lot of reasons and then one of my other employees came to me and said if you don't fire that guy I'm quitting I was like okay well I know which one's more valuable so I sucked it up and had the conversation since then I've I've developed a whole written format for these so that uh it's easy to have the conversation cuz I'm basically following a template every time and that is something that is true of so many situations in small business that you're going to run into intermittently not always but you're going to do it more than once if you can just come up with a an approach that can be deployed whenever that thing comes up your life will be a million times easier I can tell you just saying to the person Bob you know I'm talking to you about the same thing now for the second time I have to tell you I'm getting concerned this just might not be the right job for you and then sometimes they leave on their own but I will tell you that optimism is the gift of the entrepreneur and also the occupational hazard and the problem is I would hire somebody and then the other managers we talk how do how are they doing I'm not sure they're going to work out what do you think 5050 yeah so we had this conversation 30 times what do you think well I'm down to 20 oh it's been a good day I'm up to 80 so we' have this conversation and I finally realized after doing this for a couple of years do you know how many times they worked out zero zero when I started playing the odds game with people what do you think not one of those people ended up working out so now I realize when you're starting to think about it yeah they're not going to work out like no well it's the question of like looking at your team and your staff and be like would I be bummed out if they left on their own and and if the answer is no then probably that's not somebody who's having any real added value to your overall company how about relieved how about they quit would you be relieved yeah another way to have those hard conversations if you're not able to have them is that you start the conversation and then you have somebody else finish it right where you're like I don't think this is going to work out I'm joined on the call with our general counsel they're going to take you through next steps where you're like you only have to deal with that first couple sentences if that makes you uncomfortable or get comfortable like get out of your comfort zone like get comfortable with it I mean that's the reality you know what except the fact you're the boss you're going to have to have uncomfortable conversation with people that's your job I mean Paul am I wrong no you're you're absolutely right but one of the things that that uh that you guys asked about whether you would be horrified as someone left there's two aspects of that answer to me one is is there anybody else who can do what they're doing which is really important so you could be horrified if someone decides to leave even if you hate them and they smell bad and they insult everybody else all day if they're doing something you don't have it anybody else to do that is on your plate as a business owner to make sure that there's always a backup ready to go for every single critical role and that way you can enter those conversations with a with an easy heart because if you do need to get rid of the person you're not screwed how really real istic is that Paul do do you have somebody who's uh backup for every critical role in your business for everybody but me it for it becomes easier is you get past about 10 employees and it's a number game because by the time you get to say I have 26 right now it's pretty feasible to have multiple people doing all the things because there's already multiple people doing all the things J do you have a backup for everybody in a critical role I can't tell you that I do for every job because the fact of the matter is I've got people doing a lot of stuff and making really solid money and to go have someone backing them up would be extremely expensive so no I can't tell you that there aren't some people that if they left tomorrow that wouldn't be extremely upsetting though here's the good news it has almost never happened to me meaning I keep people around for years might keep people with me for 203 years so if one of the key people quit or God forbid something happened yeah that could be very stress but I can't afford the luxury of having a backup in every job so I certainly agree mostly with what Paul's saying if you can I certainly do a plenty of job where there's someone else that can step in well it's a goal it may not be easily achievable but no for sure I for sure we set it up where everybody has a partner in crime and that's more less about people leaving but more if someone wants to take a day of PTO that there's somebody else that's looped into everything that you're doing so if something comes in while you're off you're not having to worry about like you can take a day off without stress Jay you had a situation that you talked about here on the podcast where you had to fire someone for misbehaving and there was someone in a critical role and you weren't concern you were concerned you didn't have somebody to step in and take over how did you handle it what happened worked out great the right we had a a woman that was in the department for years and you know what we gave her the opportunity and we backed her up it's working out very nicely so um I would say this here's kind of a good test I've learned you know I have I have a large organization from top to bottom there's a big spread I know I got a problem if the pay rate if the pay scale is more than 20% between layers like you're paying someone $100,000 a year and the only people reporting to them make 45 boy if they leave that $45,000 person it's absolutely not going to be able to step up to the 100 whereas if you got somebody at 7580 they probably can do it before we go I want to go back to one issue uh raised by the person who wrote the the question on uh on Reddit we all agreed here that uh a grace period or a probationary period is a bad idea but Jay it is you've told us here a number of times through the years that it is important to keep track of how much time has elapsed as somebody started because of unemployment issues absolutely remind us again what why that matters this is Illinois in Illinois o if you have someone work you for 25 days and you end up you know firing they weren't working out you have zero exposure if they're there 30 days you have bought the farm they could have worked at us steel for 30 years you're picking up all of the unemployment exposure and in my case I did the math if I fire someone on the 35th day and they don't go looking for a job and they take it out Full Tilt that's going to cost about $30,000 and the problem in businesses you don't get a bill from Illinois saying hey here's the $30,000 bill it goes into your unemployment rate a year later and you don't notice it so I'm suggesting to everybody you should know what the unemployment rules are in your state and make sure that in some states it's 60 days and some states it's 30 some states it's 90 you should make sure that before you hit that period if they're not working out you get rid of them before because if you just wait a few days later you're paying out 2530 $40,000 and like I said most people don't even see it because it just gets buried in their unemployment rate so their unemployment rate goes from 3.2 to 3.6 and most people are not paying attention to it J I'm sure some people aren't paying attention to it because they don't even realize that they're on the hook for it 30 years ago my unemployment rate went to the maximum 7.2 now it's pretty much at the minimum because we very seldom are paying unemployment because a we're way more care careful who we hire B we got the 28 day rule 28 days we make an assessment do we think this person's going to make it what do you search for at Google I'm curious because I don't know this here in your case you're in California you should search for eligibility for unemployment in California and see what comes up like I said I I think in Florida you've got 90 days um which would be much better you can give people a longer period but 30 days is not a long time but I will also say even with 30 working days I think you should have pretty good idea at the end of the 30 days I asked two questions about Pennsylvania using perplexity AI which is a pretty good AI search engine and they've given me an answer which I believe is true because it drives with my experience that Illinois and Pennsylvania are just different that you hire someone in Pennsylvania like it doesn't matter there's no grace period during which you can Chuck them and then there there's no liability it's just not that way're actually using an AI search engine is going to help you because it's really difficult to just Wade through you know State unemployment sites and actually tease out what you want now you could get the answer in a digestible form from an AI search engine and then send it to your lawyer and say hey is this true just to make sure that the thing didn't just make the answer up I found that this uh this platform called perplexity is actually the best one for that kind of thing because it not only gives you an answer but actually gives you the links that it looked at that so you can then go and check you know unlike chat GPT which is just like somebody who's spouting stuff at you and you have no idea it's like listening to us all right my thanks to Paul DS Jay goz and Sarah seagull and to our sponsor the great game of business which helps businesses use an open book management system to build healthier companies you can learn more at Great game.com thanks everybody wait wait don't leave yet if you have a question or 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 thubron founder of blank word Productions okay now you can leave thanks for listening everyone [Music]