How Private Equity Companies Actually Make Money

Private equity buys companies with borrowed money and makes the company pay the loan back. On top of that, they charge the same company fees for being bought.

When you commit the money, in the case of private equity, often they don't take the money, but you pay a fee on the money that you've committed. And of course, you really have to have that money to come up with at any time. It makes their return look better.

In the early days of private equity, what people would do when they were levered that highly was they sell off assets, Cut employees, ship jobs offshore, do all the kinds of things that were the standard playbook then. And you could make a lot of money just basing the leverage working in your favor and then selling off assets and so forth.

The University of Oxford studied 592 of these deals worth $1.1 trillion and found that private equity firms had charged those companies nearly $20 billion in fees.

There's probably at least $1 trillion committed to buying, in effect, buying businesses. And if you figure they're going to leverage them 2 for 1 on that, you may have $3 trillion of buying power trying to buy businesses in the US market.

What we do is we fix things, we run things, we develop things, we add enormous amount of value to whatever we own, and we increase that growth rate. And then we add a prudent amount of borrowings called leverage to that to enhance the return on equity.

That's $20 billion pulled out of the businesses themselves on top of anything that private equity firms made when they sold them. Buying distressed debt and going through a restructuring is a buyout in reverse. It's delevering the company to its appropriate capital structure. Turning on that distressed dial has been a very good source of returns for us. There's so many private equity funds in China alone. There's over 5,000 private equity funds there, or what they call private equity funds. So here's how private equity companies actually make money. Stephen Schwarzman built Blackstone into the biggest private equity firm on Earth. And in July 2007, his firm bought Hilton for $26 billion. 3 months later, the bank stopped lending to anybody.

One I thought you would mention that actually became the most profitable buyout of all time called Hilton.

We committed on the deal. I think it was July 7th, 2007, is when we committed, right before credit started constricting.

Blackstone put in $5.6 billion of its own money and borrowed $20.5 billion from 26 banks and credit funds. And that debt didn't sit with Blackstone and went on to Hilton's books. The hotels now owed the money and the hotels had to earn it back.

What happens in our type of business is you buy something, say you buy a company, you buy real estate, something, you always have a plan to fix it up. So you fix it up and then you put some borrowings against it.

Then 2008 happened, travel stopped, hotel revenue fell off, and Hilton owed 12.5 times its whole year's profit. On paper, the whole $5.6 billion was gone.

So when the recession came, our $1.7 had already grown to 1.9 and it went down to 1.4 and the whole world thought we were going to go bankrupt.

So in 2010, they went and bought Hilton's own debt back off the people holding it.

You know, we ended up buying some debt and stuff when it got low.

They picked up $1.8 billion of the loans nobody wanted at a 54% discount, turned other loans into ownership, and got about $3.5 billion of the debt off Hilton together. Falling rates saved another $700 million a year in interest. And while that was happening, the new CEO, Chris Nassetta, grew the thing. Almost 1,200 new hotels between 2007 and 2013, and 170 of them in China.

There were some tense moments at the, you know, at the beginning of the Great Recession, but we never lost faith. You know, like John and I particularly is the two that sort of put heart and soul into making this thing work.

Hilton went public in December 2013 at $20 a share. Blackstone sold its shares over the next 5 years and walked away in May 2018 with roughly $14 billion of profit on that $5.6 billion.

You took it public and it turned out to be one of the most successful, if not the most successful buyouts in history. I think Blackstone made about a $14 or $15 billion profit.

That's what I'm told. That $14 billion came from 4 different things at once. Hilton's own revenue paid off the loan. The fees came out of Hilton along the way. The cheap debt was bought back at half price in 2010, and Nassetta did a good job to grow the company. Private equity makes its money in 6 specific ways. Here's each one and where the money actually comes from. If you've been here before, drop a hashtag believe in the comments below so I can feature you here in a future video. And if you're new, welcome to Believe Nation, the only channel that helps you believe in yourself daily, one video at a time.

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They buy with other people's money and put the debt on the company. Start with what a private equity firm actually is. It buys whole companies outright. It spends the next few years cutting their costs, loading them with debt, and buying up their competitors. Then it sells them because the investors who put up the money want it back with a profit on top. The money it buys with isn't its own. It raises a fund, and that fund comes from pension funds, insurance companies, endowments. Those are the limited partners, and they put up almost all of the cash. Then the private equity firm borrows on top of that. Modern buyouts run somewhere between 50 to 80% debt. The Hilton example is 79% debt. The loan is taken out by a shell company. That's a company that exists on paper but doesn't really have a business. And then the shell is merged into the business that they just bought. It's called a debt pushdown. The debt now belongs to the company that they bought, not the private equity firm that bought it. So the The business now pays the interest on the debt out of its own cash, and every year the business pays down a bit more of the loan, and every dollar it pays off turns into increased ownership for the private equity firm. So the private equity firm can make money on a business that never grows at all, purely because the business paid off the loan for them. Almost none of the money at risk belongs to the private equity firm. It's a teacher's retirement fund puts up the capital, the bank puts up the loan, and the private equity firm puts up a tiny share of the money and takes 20% of the profit at the end. All of this is legal. Is disclosed, it's open, you can find it. But if the deal fails, the teachers' retirement fund and the banks lose real money. The private equity firm just doesn't get its 20%. The reason this works so well for them is that the loan shrinks every year while the business keeps its value. So let's take a $100 million company bought with $70 million of debt and $30 million of the private equity firm's money. 5 years later, the company has paid off $30 million of that loan out of its own profits. So only $40 million is still owed. The company is still worth at least $100 million. The private equity firm's share, though, has gone from $30 to $60 million. The private equity firm doubled its money and the company that it bought made every payment. Now, none of this is cash yet. The private equity firm's $60 million is worth $60 million on paper for as long as it still owns the company. It turns into something real when somebody else buys the business or when the shares get sold to the public the way Hilton went public in 2013. That's why every one of these deals usually has a timeline that's 5 to 7 years. They get paid whether it works or not. So the standard structure in private equity is called 2 and 20, the private equity firm charges its investors about 2% of the fund every year to manage it and keeps 20% of the profits at the end. The 2% gets paid on a billion-dollar fund, whether that fund makes money or loses money. On a billion dollars, that's $20 million every year before anybody has seen a dollar of return. Then there's the second layer, and this is the one that the Oxford study was measuring. On top of charging the investors, the private equity firm also charges the companies that it bought a transaction fee when the deal closes, averaging about 1% of the deal, then a monitoring fee quarterly for advice, which doesn't require the advice to actually be given or followed. The monitoring fee is the one that surprises a lot of people. The advisory agreement can run 10 years and renew on its own. And if the company gets sold in year 4, the private equity firm can bill the remaining years in a single lump on the way out. The SEC has now brought some enforcement actions over that practice, not because the charge itself is illegal, but because the investors were never told that it was coming. Across those 592 private equity deals, the fees came to nearly $20 billion, which is about 6% of all the money the investors had put in. The second layer got enough attention from the regulators that most agreements now knock those fees off the management fee. But even then, it isn't clean because the private equity firm only credits back the share of the fees that matches the part of the company its own fund owns. So there's one guardrail on the 20% that We should talk about. The private equity firm only takes its share of the profit above a threshold, usually 8% a year. It's called the hurdle. About 80% of private equity funds set it at exactly 8%. Below that, the investors keep everything. So the 20% is genuinely at risk and the 2% isn't. They make it regardless. Also, if you want to take real action after this video, I made a free worksheet just for you. It covers the top lessons from today, gives you space to write your biggest takeaways, and helps you build a simple action plan. It's 100% free. Just click the link in the description below to go grab it. And I'll see you there. They buy small, combine, and sell big. So this is my favorite move on the list because you can see exactly where all the money comes from. A roll-up— this is what we're talking about now— is where a private equity firm buys a bunch of businesses in the same industry, smushes them all together, and then sells the whole thing to somebody bigger. It works because of something called the multiple. So when a business is sold, the price is a number of times its yearly profit, and that number is called the multiple. So let's use a plumbing company as an example. So a plumbing company with $1 million a year in profit sells for about 4 times that profit. Now, most plumbing companies never get much bigger than that, which is exactly why this idea exists. A few dozen of them combined is a completely different business. In February 2026, Blackstone agreed to pay about $2.5 billion for Champions Group. It was a home services company assembled out of plumbing, heating, electrical businesses with roughly $140 million in profit. That's about 18 times profit. It's the same work done by the same technicians for the same customers and a buyer paid more than 4 times as much for every dollar of profit. Why would they do that? It's because big money is lazy and would rather write a bigger check to do one big deal instead of having to go through the books and negotiations on 100 little deals. So for roll-ups, they pick boring industries. They look at accounting practices, financial advisors, home services, anything that will still exist in 20 years where the owners are getting older and there's nobody lined up to take over the companies. A private equity firm would rather have accountants than whatever is hot this year because everybody already knows what an accounting practice sells for. So the question is how many companies it has to take to get to that size. So Champions reached $140 million of profit. If the business in each industry makes $1 million, that's 140 of them. If they make $250,000, it takes 560. And at that point, the private equity firm goes and usually finds a different industry. It's just too much work. And the rolled-up businesses actually have to be integrated into one company. Think about having the same systems, the same admin, the same billing, the same marketing, one brand. A buyer pays a higher multiple for one company. Businesses that only share a logo are still separate businesses. A group of 40 accounting practices still running 40 different systems gets priced as 40 small businesses, not one big one. They cut the cost base and stop owning things. So Chris Nassetta ran Hilton for Blackstone. He grew the chain fast, cut what head office costs, and moved Hilton out of owning the businesses its name was on. He moved the head office from Beverly Hills to Virginia, and 80% of the old staff didn't come. Head office costs come straight off the profit, and the profit is what gets multiplied When the company is sold, by 2013 he had about 92% of Hilton's hotels franchised or run under contract rather than the company owning it. He turned the company that owns buildings into a company that collects fees for putting its name and its booking systems on somebody else's building. The hotel industry has a name for this; it's called asset light. Marriott started it in the 1990s, and it's now the standard. With about 70% of hotels worldwide running under a franchise or management contract, a company that owns 500 buildings has 500 roofs to replace and fix. A company that licenses its name to 500 buildings, has the same revenue with almost none of the cost. So a buyer pays a higher multiple for fee income than for the money a hotel makes renting out rooms. By 2013, he had Hilton making more money and getting a higher multiple on it at the same time. The second half of this idea is the money tied up inside the business. So stock sitting on a shelf is money that the company already spent and hasn't sold. Uh, an invoice that's sent 60 days ago is money that it earned but hasn't been paid. Private equity firms go after both on day one because collecting faster and Holding less stock frees up cash without selling anything extra, and that cash can go straight to paying down the debt. Now, none of this really shows up as growth. Revenue can sit completely flat and the company is still worth more at the end because it costs less to run and owns less that needs replacing. When it goes wrong, they rewrite the debt. When a company borrows, somebody owns that loan and can sell it to anybody who wants it. So in a bad year, those owners will take less than they're owed just to have the cash today. It's worth more, and there's nothing stopping the company itself from being the buyer. So in 2009, Hilton's debt was selling for far less than it was worth on paper because the market had decided that the company was in trouble. Blackstone had the cash to act on that, so they bought $1.8 billion of their own company's debt back at a 54% discount, which means they wiped out $1.8 billion of what Hilton owed for around $830 million. Then they turned some of those loans into ownership and pushed the repayment dates back, taking roughly $3.5 billion of debt off Hilton entirely. Somebody was on the Out of that trade, so why would they do it? The people who sold that debt for 46 cents on a dollar—they took a real loss to get cash this year when cash was hard to get. Now nothing about the hotels actually changed; it was the same rooms, the same staff, the same bookings—everything was the same. But billions of dollars of value moved because Blackstone read the debt market correctly and had money available at the moment when everybody else was selling. They only buy what they can sell again. So none of those first five ideas pay anything until somebody else. Buys the company at the end, and the private equity firm decides whether that buyer will exist before it ever invests and puts a dollar in. So the first thing it checks is key man risk. That's when one person is so central to the business that it stops working if that person leaves. The founder basically holds all the relationships, prices all the jobs, makes every real decision. And the moment that they leave, the thing that they built stops running properly. A buyer is walking into exactly that problem. They're paying for a business and then removing the one person who makes it work. So a company with a founder at the center either gets a lower price or gets an earnout that keeps the founder there for 3 or more years or gets passed over. What they want instead is a business that already runs without the owner, real managers who make real decisions, paperwork showing exactly who owns what share of the company, and work done by an internal team rather than farmed out to freelancers who leave when the contract ends. A buyer pays more for all of those things. So a personal brand isn't automatically a problem. Think about Martha Stewart. She sold Martha Stewart Living for hundreds of millions of dollars with her own name on the company. What makes it sellable is there was a long handover, other faces that the audience already trusted, and a brand that legally belongs to the company rather than to the person. If they can't find a buyer, the private equity firm has 3 choices. One is hold the company past the timeline they thought and keep charging the fees. 2 was sell it to another private equity firm, which happens constantly. Or 3, hand it to the lenders, which is how the pension funds behind the fund lose their money, and it's not an ideal option. And this is why raising money from a private equity firm is a commitment rather than just a loan. Once outside money is in, One of three things has to happen to the company: the company sells its shares to go public, or gets bought, or goes under. The private equity firm has to return the money to its own investors, so the exit becomes the whole point. That's why they think about it from the very beginning. Where the money actually comes from. So those are the six ways that private equity firms actually make money: debt the company repays itself, fees charged whether the company deal works or not, small companies bought cheap and sold as one big company, cost cut and assets sold off, cheap debt bought back in the crisis. crisis, and a business built so somebody else will eventually buy it. 6 ways to profit, and only one of them is actually about running the company better. All progress begins with telling the truth, and none of this is hidden. The fee structures are written into agreements. The debt sits on public filings, and the Oxford researchers counted the fees by actually reading them. The money was there for people to see the whole time. People just never tried to understand it because it's financially, it's complicated. It's a lot of math. But now you know how private equity firms actually make their And congratulations, you're one video closer to who you're meant to be. Believe. Now let's learn all of money explained. Nobody ever taught you money, and that's why it causes so much stress in your life. Our school systems teach us nothing about money. Nothing. It's pathetic. Money's just numbers in and numbers out, isn't it? See, that's what people get thrown off, I think. I think that's the root of a lot of financial problems for amateurs and professionals. When the Finra Foundation quizzed more than 25,000 American adults on 7 basic money questions, only 27% of them could get 5 of them right. If you want to be rich— forget rich— if you just want to have basic financial security, you have to pay yourself first. There's 3 basic parts to a financial statement: income statement, balance sheet, statement of cash flow. You can teach a monkey that, but our schools don't teach that. Understanding how money works decides What you can say yes to, what you get to walk away from, and how much of your life actually belongs to you. Most of us don't speak the language of finance, and I think that's on purpose. I think people in finance do not want you to know the secrets to wealth because that makes it easier for them to keep it. In 1992, Daymond John was living with his mom in Queens. He didn't have investors, no degree in business. He had $40 to his name. His mother had taught him how to sew, so he He spent that $40 on fabric and made a few dozen tie-top hats.

I go to the store, get $40 worth of fabric. I come home, I give my mother the, the stuff to sew the hats, and she says, I'm not sewing this, you're sewing this. I said, oh crap, now I gotta work at this? I sew the hats, and then all of a sudden I have all these hats and only one head.

So he took them to a street corner and sold every single one of them in a day for $800.

That's when I went out and sold those hats outside on that Good Friday, And I sold $800 worth of hats in 1 hour.

The hats worked, so we expanded into shirts and jerseys.

Then I would start going to the Black Expos where there was like a basic flea market on the road, and I would try to sell shirts there.

His mom believed in it enough to mortgage the house they lived in for $100,000, and they turned half the house into a factory.

She said, this is all we have, uh, why don't I go out and I take a loan on the house, and, you know, you manufacture, deliver the clothes, and put the money back in.

Then he took samples to the Magic Apparel Show in Las Vegas and walked out with $300,000.

I went to the Magic Trade Show, the trade show of the fashion industry, and I wrote $300,000 worth of orders.

But here's how that business actually works. The stores don't hand you money at the show. They order, then they pay you 30, 60, 90 days after you deliver. Meanwhile, you buy the fabric upfront and you have to pay the people who are sewing it. So Daymond had $300,000 of orders and nothing coming in for months. The $100,000 from the house went into the fabric and the sewing machines. and the, and the employees. He got around $75,000 of the orders made, and 4 months later that money was gone and the store still hadn't paid him yet. So he went to a bank, they said no. He went to another bank, they said no. He went to 27 banks and every single one of them turned him down.

I went to 27 banks, I got turned down.

The orders kept coming in the whole time until he had about $1 million of them sitting there and he couldn't fulfill them. His mother took what was left of money and put an ad in the newspaper. It said, a million dollars in orders need financing. 33 people called.

And then Mom again comes to the rescue and says, I have an idea. She takes out an ad in the newspaper for, uh, says something like, million dollars in orders need financing. And 33 people call that ad.

One of them was a textile division of Samsung who wanted to test the urban market. One was, uh, Samsung's They agreed to pay to get his orders made, but they had one condition: he had to do $5 million in sales within 3 years. He did $30 million in 3 months, and by 1998, FUBU was doing over $350 million a year in worldwide sales. Orders aren't money. You can have a lot of sales and still have nothing in your bank account. Now, a lot of people think, okay, this doesn't apply to me because I may not have a business or I'm not making enough money yet for any of this to matter. You're thinking money stuff starts once there's money, but you don't need a business for any of this. If you get paid and you pay bills, you're already making these decisions every month. You're just making them without knowing the rules of money, and it costs you real money. If you're carrying a credit card balance at 20%, that's costing you today whether or not you ever learn about what compound interest is. All progress begins with telling the truth. So here Here's the truth: you're not bad with money; you were just never taught about it, and you can learn it. So here's how money actually works, start to finish. Money is a skill, not a personality. So you've probably said at some point, "I'm just not a numbers person." Only 27% of adults got five of seven basic money questions right. That's not about who's good with numbers; it's about what nobody actually teaches you. So being leads to doing. If you decide you're the person who understands money, you'll start opening the bank app instead of avoiding it. You'll start reading the statements. Instead of just the total. You've been waiting until you feel ready to look at your money. It doesn't work that way. It works the other way around. You look at it and then it stops being scary every time. So once a week for 20 minutes, you look at 3 things: what came in, what went out, and what is actually left. That's it. Don't worry yet about budgeting or giant spreadsheets with 400 rows. Just looking on purpose every week until it stops scaring you. And you know when the best time to start is? Right now. How about right now? Open the app while I keep talking. The number in there is the number whether you look at it or not. Looking doesn't cost you anything. Learn your 3 numbers before anything else. Almost every money disaster comes from mixing up revenue, profit, and cash flow. So revenue is what comes in, profit is what's left over, and mixing those 2 up is how somebody with a busy business ends up with an empty bank account. The 3rd one is cash flow, and this is about timing, and this is the one that actually kills a lot of businesses. You can run a profitable business and still go broke because the money you're owed arrives later than the bills you have to pay. Let's look at a real example. Let's look at a dance studio. On the year, the business was profitable. Looks great. But I pulled in his last 3 months, month by month. October was negative $5,300. November was positive $2,500. December was negative $900. So across the quarter, he was down $3,700 while believing he was doing fine. His fixed costs were about $20,000 a month before anything else happened. $11,000 of rent, $2,000 of insurance, instructor pay, software, cleaning. So the only question that matters is how much he has to bring in that month to cover it. $20,000 keeps the door open. So he set his target at $25,000. So there's something left at the end. Now he's not guessing anymore. He has a number to target. You have that number too, whether you're running a company or just your household. Add up what has to go out every month no matter what. That's the floor. Once you know that, you know exactly what the month has to bring in. And if that number scares you, that's exactly why you need to know what it is. You can't cut a cost that you've never written down. So put every expense on one page before you decide anything. Then take what's actually in the account and divide that by your monthly floor. So if you've got $30,000 sitting there and you need $10,000 a month, you have 3 months. That's your runway. With runway, you can say no. Without it, you say yes to anything because you need the cash. Somebody with 6 months of runway can walk away from a bad client. Somebody with 3 weeks says yes to everything, including the work that's going to make the next 3 weeks worse for you. If your runway is under 3 months, that's the number to fix before anything else in this video. Your income problem is usually a price problem. If you want more money and you're an owner, the fastest The fastest change isn't cutting your expenses, it's what you charge. And I'll show you my own numbers so this isn't just some theory. So my mastermind is $50,000 a year. My growth strategy coaching program is $15,000 for 4 months. If somebody can't do that, we have smaller versions that people can join. I said those in that order on purpose. It's called price anchoring. When the first number somebody hears is $50,000 and the $15,000 sounds reasonable and ones after that sound like a bargain. If I started with the lowest price first, nobody would ever Pay me more than that. And when you do raise your price, raise it on the next new client, not the ones you already have. You get the new number without a single awkward conversation with existing clients. And you don't get paid for the hours, you get paid for the result. Somebody selling 6 coaching sessions is selling time. Somebody selling, I'm going to add $200,000 to your revenue this year, is selling an outcome. And an outcome can be worth 10 times the price of the time. Selling to a smaller number of people at a serious price is also just easier to run. Low-ticket offers at $50 a month needs thousands of customers, a marketing machine, and a support team. That's a real business, but it's a much harder one to build first. Make a list of 50 people. So here's what I'd do if I had to rebuild my income starting Monday with no ads and no audience. I'd write down 50 names, not 5,000 followers, 50 specific people who could each spend $50,000 with me in a year or send me 3 people who will. Real names, real companies, real people who already have the money and a problem that I know how to solve. Then I wouldn't pitch a single One of them, I'd start a show and invite them on as a guest. An invite is the easiest yes in business because you're offering somebody 45 minutes to talk about their own work. You're leading with a give instead of an ask. And after the recording, when the relationship is warm and real, you offer them a second opinion on something they're working on at no cost. You look at it, you tell them the truth, you give them your actual thinking from your expert opinion. And some of those turn into clients. Some send you 3 clients each. One of my clients works with home service businesses doing $10 million or more where a normal client is worth $40,000 to $100,000 a year, and one platform-level deal is worth $1 million a year. At that size, you don't need 50 wins, you need 2. And if you don't have a business yet, this still works. Write down 50 people who could hire you, who could promote you, or who could hand you the opportunity that changes your entire year. You're not asking any of them for anything upfront. You're making yourself useful to 50 people who could hire you one conversation at a time. You're 50. will look different than mine. Cool. Write it anyway. It's the single highest value document in your business, and it costs you an afternoon of work. Start with 10 names tonight. 10 is enough to tell you whether this list is something that can be real or not, or whether you've been just guessing about who your customer actually is. Pay yourself like an owner. So a job pays you, takes a tax, and hands you what's left over, right? A company earns, pays its costs, and then you choose how the money reaches you. That choice is worth a lot of money. So in Canada where I am, money left inside a corporation is taxed at roughly 19 to 20%, while a big personal salary can hit at around 50%. So pulling out every dollar the second it comes in is one of the most expensive habits an owner can have. I pay myself a small, steady salary, so I have a clean personal record for things like the mortgage and the rest stays inside working in the business. There are legitimate costs a business can carry too. If you work from home, a share of the mortgage interest, the utilities, the internet can be a business expense, because that's generally where the work happens. It usually gets worked out by space. So if your office is 1 room out of 8, that's about 12% of your house. So about 12% of those bills is a business cost. Keep the receipts, let your accountant run the actual numbers. Your country's rules are going to be different than mine, and I am not your accountant. So take this to a good one, but go with the right question. Don't walk in asking, how do I just pay less tax? Walk in asking how to structure what you pay yourself. That's now an owner's question and mindset, and it's worth thousands or tens of thousands a year. Buy your time back. Eliminate, automate, delegate. So buying your time back is how you make more money. So do it in this order: eliminate, automate, delegate. Eliminate first because it's free. So go through your week and find what nobody actually needs. So I used to write up minutes after every mastermind meeting. It took me real time. And one day I I realized nobody was reading them, not one person. So I stopped. And what happened? Nothing happened. Nobody cared. You've got something in your week right now that nobody is reading either. So write down everything that you did last week. The parts that nobody would miss are the parts that you cut out. Automate is second. So anything repeatable that follows the same steps every time should be handled by software or AI instead of you and can be done at 11:00 PM. Delegate last and start much smaller than you think. You can hire somebody for an hour a day. That, that's it. That's how I started. It's cheap enough that it won't hurt If it goes badly, and it teaches you the real skill. The skill isn't hiring, it's handing work off and then letting somebody do it their way. So do it in that order. You'll want to jump straight to delegate, and then you're paying somebody to do work that you should have deleted or should be handed off to automation. And there's a number underneath all of this that you can actually calculate. Take what you want to earn in a year and then divide it by about 2,000 working hours. So if you want $200,000, your time is worth roughly $100 an hour. Now look at what you filled your last week. If you spent 6 hours on something you could hand off, for $25 an hour, you spent $600 of your own time to avoid paying $150. So you lost $450 and it felt like you were being strategic and careful. Then make the rest of it boring. So once you're earning money and keeping money, growing it should be the most boring part. For the first 10 years, compounding barely does anything. Then it does almost everything. So take $10,000 growing at 5% a year. After 10 years, it's worth about $16,000. Give it 30 years, it's worth $43,000. The $10,000 earned around $6,000 in its first decade and around $27,000 in the last 20 years. The extra 20 years did that, not a bigger return. That's why waiting is so costly. The last 20 years are where the money actually grows. If you wait to start, those are the years that you're giving up. Put it in an index fund that holds the whole market and just leave it there. You don't have to go and research individual stocks, not because you couldn't learn, but because those hours are hours you're not putting into your own business or career. And that's what actually changes your income. And leaving it all in cash isn't actually safe. Prices in America are roughly 22.5% higher than before 2020. So money sitting still has been losing real value this entire time. One more thing, compounding works against you too, and it works a lot faster. So credit card rates are sitting around 20%, and new card offers are often higher than that. Compounding works on debt as well, and at 20%, it grows faster than any investment you're going to own. There is no investment you're going to find that reliably beats paying off a balance at 20%. So if you have a balance on your credit card, clear before you invest a dollar. It's the best guaranteed return you'll ever get. You can learn this faster than you think. Nobody taught you any of this, and it isn't your fault. What you do now, though, is, is up to you. Daymond John didn't have a finance degree when he took those hats out to that street corner. He learned it the hard way. And the worst of it came after the mortgage money ran out with about $1 million in orders that he just couldn't fill and 27 banks saying no. No, a bird sitting on a tree isn't afraid of the branch breaking because her trust isn't in the branch; it's in her wings. So if you have the ability, then you have the responsibility, and you have the ability. Now let's learn cash flow mastery: how to think in systems instead of salaries. You will never build real freedom from a salary alone. You're not going to get rich renting out your time. You must own equity, a piece of a business, to gain your financial.

Profits are better than wages. Wages make you a living, which is fine.

Profits make you a fortune, which is super fine. Gallup found that only 31% of American workers are actually engaged at their jobs, the lowest level in over a decade. This is about more than money. It's about whether you spend your one life building a machine that pays you or renting out your best hours to build a machine for someone else. Let me tell you a story. I want to tell you about a man who figured this out as a teenager with almost no money in his pocket. His name was Fred DeLuca. Back in 1965, Fred was just 17 years old and stressed about how he was going to pay for college. He wanted to become a doctor, but the money wasn't there. He didn't have it. So at a backyard barbecue, a family friend named Pete handed him an idea and a $1,000 loan: open a sandwich shop. That summer, Fred opened one tiny sandwich shop in Bridgeport, Connecticut. It was not glamorous, and that first shop barely made any money. But Fred didn't want to just run a sandwich shop for the rest of his life. He wanted to understand the system behind it so he could repeat it. He got obsessed with the process— how to make the sandwich fast, how to run the store lean, how to teach a total stranger to do it exactly the same way he did. And once he had a system that actually worked, He did something incredible. He didn't open store number two by himself. He taught other people to run his system and let them open the stores so the whole thing could grow without Fred standing behind every single counter. That one idea, turning a shop into a repeatable system other people could run, grew Subway into more than 40,000 locations around the world. Fred DeLuca started with a thousand dollar loan and one little store. And built a machine that paid him whether or not he ever made another sandwich himself. He didn't get rich from a salary or from working more hours than everyone else. He got rich by building a system that other people could run and then owning it. Now you might be thinking, okay, that's great for Fred DeLuca, but you can't exactly go build a 40,000-store empire from your kitchen table. You've got a schedule, a boss, a job. So how does any of this help you on a random Tuesday morning? The system isn't about a fast food chain. A system is just any repeatable way of producing income that doesn't depend on you showing up every hour to trade your time for money. It can be small, it can start on the side at night with almost no money. The point isn't to build a 40,000-store empire tomorrow. The point is to stop thinking like someone who only earns when they clock in and start thinking like someone who's building something on the side that earns on its own. So you don't need permission to do this. You don't need to feel ready. Let me show you exactly how to start thinking in systems instead of salaries. Be a killer at one thing before you Chase 10. So I need to warn you about something because the internet is full of bad advice on this. You've probably heard that rich people have 7 streams of income. So you go and try to create all 7 things at once, a little store here, some crypto there, a bit of dropshipping, a side gig, and you spread yourself so thin that every single one of them stays small. That's the fastest way to burn out and end up with nothing. Here's what actually works. The path to real wealth, especially in the beginning, is not using multiple streams. It's being an absolute killer at one thing. Pick one skill, one business, one problem that you can solve better than almost anyone else and pour everything into it until it's genuinely great. Depth beats scatter every single time. When you try a bunch of things that you don't understand and you do them all badly, the market can smell it and you won't make any money. Fred DeLuca didn't run 7 different kinds of businesses. He ran one sandwich shop and he became obsessed with getting that single system perfect. The exact way to build a sandwich, how fast the line moved, how to train a brand new person to do it the same way. Every time he drilled that one thing until it was flawless, and only then did he multiply it. That's the order that works: master one thing, then systemize it, then scale it. The multiple streams comes later, and when they come, they'll mostly flow out of that one thing that you mastered first. So stop trying to do ten mediocre things at once. Build one boat that actually floats and make it the best boat on the water. Here's a simple test to find your one thing: What can you do that people already come to you for? What do your friends ask you for help with? What could you happily work? On at 11 at night and not notice the time. That intersection, the thing that you're good at and drawn to and that other people will pay you for, is where you start to— you plant your flag. Then commit to it for real, not just for one weekend. Give it a year of full focus before you ever think about starting the second thing. Almost everyone quits their one thing right before it was about to work, and they jump to a new shiny idea and start the clock over again from zero. Don't restart the clock. Stack your years on one thing and let it Turn yourself into a system, then step out of it. So right now, if you own a small business or you're self-employed, there's a good chance that you don't really own a business. You own a job that you can never quit because the whole thing lives inside, you know, right here, lives inside your head and stops the second that you stop. That's not freedom, that you've just built yourself a job. You have your own form of prison. The fix is to turn what you do into a system that exists outside of you. So you start by writing down every single thing that you do to make money step by step. Step by step, like you're writing instructions for a complete stranger. How do you find a customer? How do you talk to them? How do you actually deliver the work? How do you get paid? It's boring, but it's powerful because the moment that it's written down, it stops being just you and it starts becoming a process. And a process can be taught, can be improved, can be handed off to somebody else, can be repeated without you. This is exactly what Fred DeLuca did with Subway. He didn't just hope that each new shop would turn out okay, right? He built a simple repeatable system for making the sandwich and running the store so that someone brand new could open a location and get the same result that he got in his first one. He removed himself from the outcome by building a system that carried the standard for him through every store. You can do the same thing just at your scale, right? Once the process is on paper, you could train someone to run a part of it, then another part. Every piece that you successfully hand off buys you back a little bit more of your time and your life. The goal that you're aiming at is simple. And it's, I think, pretty huge. Build the thing so well that it can run without you, because a business that can run without you is an asset, and a business that can't is just an extra stressful job that has your name on it, right? So start with the task that you do most often, the one that eats your biggest chunk of your week. Write down exactly how you do it, every step, and then the next time it comes up, follow your own instructions and fix anything that's unclear. Do that a few times and you'll have an actual playbook. Not just some idea that lives in your head. Then find the one task you hate most or waste the best hours, and make that the first thing you train someone else to handle using your playbook. You don't have to hire a full-time employee to start; it can be a few hours a week from one person. What matters is that you prove to yourself the work can happen without your hands on everything. Once you feel it for the first time, you get hooked because you just watched your income keep moving while you stepped a little bit away, and that feeling is the whole point of. Stop being an employee of your own money. This one is more of a mindset shift, and it just starts to change how you see the, the whole game. You stop thinking like a person who gets a paycheck and you start thinking like a corporation, like an owner. A worker earns money, pays taxes on all of it, and spends whatever's left over. A smart business does it in the exact opposite order. It earns, it keeps the money working inside the system, and it reinvests to grow and is built to be efficient with what it owes. The difference repeated for years becomes a huge advantage. Here comes the difference between just running on a treadmill constantly and actually, you know, climbing the staircase towards success. You don't need to be huge to start thinking this way. When your one thing starts making real money, get proper advice about setting it up the right way so more of what you earn stays inside your system doing work instead of leaking out to somebody else. A business that's structured well can pay for the tools that it uses, the space that it needs, the help that it hires, all before the tax ever gets counted. Well, an employee pays for every one of those things with money that's already been taxed. That's not some loophole. That's the entire way that the system's been designed to help people who build and own instead of the ones who just earn and spend. So keep money working in the business to buy tools and assets and help that make you more money. Pay yourself in a smart, planned way instead of grabbing every dollar that comes the second it lands, because every dollar that you leave working in the business, in the machine, is helping build the machine and the business bigger. The rich don't treat their income like it's just this paycheck that they can go off and spend. They treat it like it's food for the machine, and they keep feeding that machine until it's strong enough to feed them for the rest of their lives. Own the thing that does the earning. So a salary pays you for showing up and doing the work. An asset pays you for existing. The whole leap from thinking in salaries to thinking in systems comes down to just one idea. Stop only selling your time. And start owning things that produce income on their own. So if we go back and think about what Fred DeLuca really owned, it wasn't one sandwich shop that needed him to be behind the counter. He owned the system and the brand behind tens of thousands of shops, and that system paid him a piece of every store in every city, whether he showed up or not. The person running one shop earned from the hours that they put in. Fred earned from the entire network all day long, everywhere at. At the same time, he owned the thing that did the earning, not a job inside of the thing. You wanna build your life the same way at whatever size that you're at right now. Own a piece of the business, not just a spot on its payroll. When you help a company grow, ask for a slice of it instead of a flat fee so you keep getting paid long after the work is actually done. Package your skills into a product that sells while you sleep instead of only trading your time for money. Put your surplus into assets that send you money back month Every dollar you move from your hands into the machine, into an engine, is a dollar that never has to be earned by hand again. Every one of those moves does the same thing for you. It separates your income from the hours. The employee is stuck in this simple, brutal equation. No hours, no money. Get sick, no money. Take a vacation, no money. The owner breaks that equation on purpose so that the earning keeps happening even when they're at their kid's game or vacation or sleeping. That's what it really means to think in systems instead of salaries. You build systems. Build or buy the engine, and the engine keeps working for you. And you don't have to own something enormous for this to completely change your life. Owning even one small income-producing thing starts to change how you see the whole world. The first time money shows up in your account from something that you built rather than an hour of you trading your time, something changes. You stop asking, how many hours can I sell? And start asking, how many engines can I build? And that question asked over and over for years becomes the whole difference between a person who retires exhausted and a person who is genuinely free. So start with one small engine, then continue to build. Use leverage so the machine outlives your energy. This advice allows the system to grow far past what you could ever do on your own. Leverage. Leverage just means you're using something other than your own raw effort and money to get the work done. So there are 3 kinds that you can start using using right now, no matter how small you are. The first is other people. So you'll never scale by being the only worker in your business. The moment you can, you hand off tasks that don't need you so your time goes to the things that actually move the needle forward. The second system is tools. A good piece of software, AI, simple automated process can do the work of several people all day without lunch break or days off. And the third is other people's attention and audiences. So partner with someone who already has the customers you want can grow you faster than years of just grinding by yourself. It's actually what saved my first company when I was dead broke and about to quit. I was making $300 a month and staring at giving up. And what saved me was I stopped trying to do everything myself and started building partnerships instead, borrowing other people's reach instead of trying to build everything by myself from scratch. One of those partnerships led straight to my first deal, a great deal for me at the time, and that one deal kept the whole dream alive. I didn't outwork my problem. I just created leverage towards solving it. Leverage is how a system keeps producing even when your personal energy might run out because your energy always runs out eventually. So you're one person with 24 hours. A machine built on leverage doesn't get tired. It doesn't sleep, uh, doesn't cap out at a number of hours in your day. And if you have the ability to build something that serves people while you rest, then I think you have the responsibility to go and build it if you can. Then you must. So don't wait for permission. Don't wait to feel ready. And you know when the best time to start is? Right now. How about right now? You were built to own, not just to clock in. You were never meant to spend your whole life renting out your hours. So start with one thing, make it great, turn it into a system, own the engine, and use leverage to let it grow beyond you. Being leads to doing. So decide today that you are a builder of systems and let the action Follow. Your purpose comes from your pain, and every frustrating hour that you have traded for a paycheck can become a fire inside you that builds something that finally pays you back. To learn the business principles that make ordinary people rich, check the video right there next to me. I think you'll love it. Continue to believe, and I'll see you there. Business is not complicated. It's just solving a problem for someone else. Most people fail because they overthink the plan instead of falling in love with the person that they are serving. If you don't shift your focus from your fears