How Much Cash Should I Have in the Bank?

We got five questions here on a Friday, Coach Connor. I've been listening to a ton of Dave Ramsey entrepreneurship podcast. He talks a ton about planned growth and using retained earnings, a percentage of profits to go towards anticipated growth, or putting in your budget to replace things, mowers, trimmers, trucks, etc. For us, how do we go about planning to replace these items? What would you say is a good planned percentage? Amount of retained earnings should go towards growth? Specifically, I need to replace two trucks over the next 12 months and want to do it on a cash basis. So I wondered if something like 20% of profits should go towards replacement. I think that generally that general purchase like that should be in the budget. Just trying to refine this idea and get organized. So really, really dirty way of doing this, in my opinion, is you can take the amortization schedule, divide that out and figure out exactly what you should be saving every year. So for example, if your assets all combined right now are $150,000 and let's just say your trucks, you depreciate at 5, 5 over the course of five years, you should probably be setting aside $30,000 a year in, in replacement costs. Right? So it's like a very, very quick and dirty way of doing it. You could obviously extrapolate the fact that you're going to probably use the truck for 10 years and not five years. You could do that. But to be conservative, you just use your amortization schedule and it's like, well, some things you just need one time. Yeah, but things get broken, things, you know, get stolen, et cetera. So I like to use five years. I'm going to assume I have to replace everything every five years. So you can just take all your assets sometimes and just literally divide it by five and be like, okay, I need. As you grow the business, you might have 3, $400,000 worth of assets. And again, this is sellable, not like what you bought it for, like what they could be sold for and what you would have to replace them with and then just be like, okay, great, that's my assets. Divide that by five. I should be probably setting that aside each year if I'm going to try to stay cash, like all cash. Right. So obviously Dave Ramsey is very, very much into the cash side of things. And so that's why he would be talking about this.

But yeah, that's what I'd be trying to do. Set aside that five year amortization. So 20% of your assets every year, if you're really trying to stay cash only, I would also say that the question is, well, what are you doing with that cash for four years while it's waiting, it might be better to actually grow the business market, etc. So you can get to capacity, raise prices. And now all of a sudden you're making two, $3,000 extra a month. All of a sudden that pretty quickly can make up for any sort of loss of trucks, equipment, et cetera. So obviously he's being very, very cautionary and conservative. There's definitely an approach here that is much more aggressive, that has warrant. Because if I'm just going to save up money for four years, five years waiting for a truck, so I have to buy it, if I would have spent that money in the business, would it have improved the business by 60, 80, 90, $100,000 in annual revenue? Would that have increased my. If I have profit margin 15 to 20% multiplied by say 10, 15 grand of profit times that by those four years now, I made $60,000. 20. Should I really have waited to save that money? Like, that's where the balance to that equation is. I'm not saying one's right or wrong. I'm just saying that's the, the scale of, like, risk versus conservative spending. I find it difficult to do computer work, deep work, maker time in an open office setting, even manager time. I find things take longer than they should when I stay in the same area. I'm far less productive when there are people around, objects on my desk, or even if there are objects in the room near me. I am most productive for the longest durations when in silence, with dim lighting, no windows, and with nothing around besides my computer. How do you, how do you work at the command center office without getting interrupted or distracted? Are there key. Are there benefits to you being easily accessible to the team? Does this become a crutch for team members being able to quickly get answers? Do you think the team. Okay, we have a lot of questions here. I'll keep reading. Do you think the team seeing you work near them has any effect? Of course, if you weren't nearby, your work would need to be better. Your work would need better simply to show the results and avoid doubts of the leader slacking overall pros and cons of working a separate office or remotely. Okay, first off, I will say I agree I'm probably similar in terms of, like, the general notion here. However, I came into this thought and I said, look, there are people that have learned this. Like, if you think of this as like, preference versus skill, like, I think a lot of Times people think about work the way that they work as like, this is my preference instead of thinking, oh, this is a skill I have not learned. And when I approached it that way, it kind of changed my mindset on this. So, yes, I try to stay focused and yes, the, you know, an open office, there is downsides to that.

There are also, you know, pauses from a cultural perspective for you to be around. People do not walk up to me and talk to me like, you guys have never seen someone interrupt me on a call. So there's certain parameters. Like, you know, everyone knows my schedule right here. My slack is literally mikeandys.com calendar. They can see it.

Instead of putting like position, I just put my calendar link. No one can book time on my calendar in terms of the team. So the question is, why are you here then? So when there is a need or emergency, I do like to be close to the team so that I can react with speed. Also, I do believe that if I'm going to talk about as much as I do around working hard and putting in the effort and hours and time, I do want to show that to the team. Now I still work a four hour, usually in the evening and no one's around obviously. So, you know, is it a crutch maybe? But team members don't come up to me for questions. Like, there's levels like in terms of not, you know, who they go to. Like, no one has my phone number. So like there's. As you grow the business, you create levels of management to prevent this from happening. But then you. It is easier to have a cultural standard in an office where everyone sees the owner doing exactly what they're doing. You know, the way you dress that you start to see people dress the same way you, you know, if I'm putting in hours, I can expect other people to put in hours. And yeah, I don't know. I used to think this way and then I should. I just realized that, like, if other people can figure this out, it is a skill. Like instead of thinking, this is my preference, which maybe I do have preferences to work in this sort of environment. In terms of quieter, I do like headphones. I have multiple noise canceling devices. I have white noise, the accessory mode on your iPhone. You can quickly add white noise to block everything out. I do have shields so I can't see anything around me. But if I'm going to expect people to work here at the office and I think there's a huge amount of upside for them to be able to work here, I Have try to learn the skill of being able to stay focused in this environment. And so I do believe this is a skill. I do believe we all have preferences, but we can learn skills. And so yes, I've had to learn the skill of like how do I stay focused? I do not get distracted with other stuff around and just lock in. And yes, it takes a while. Like it's not, this doesn't come naturally. Some people are much more, they like to talk and stuff. That's not me. I got off on it an hour and a half call and then right before that was an hour long call on Zoom where I was talking the whole time. Like, um, I don't enjoy that. I want to disc fragment like, you know, chill for a second. But like you can't, you gotta hop onto the next call. So it's just a matter of like it's a skill and that is something that can be worked just like a muscle can be worked. And so I would personally say like, if this is something that's difficult and you're, you're struggling to balance having an open work environment so your team is supported more, but then also you getting more work done, it's a matter of okay, how, how can I make sure these both things can happen simultaneously? Well, first off, they don't have like you just set up the expectation, like if I'm here, you don't bother me. Like, and it's not a bother in terms of like you are bringing up less than problems. It's a matter of like, I need to work on these topics, I need to work on these things and make it clear to them what those objectives are for you. And so their objectives in the business might be more clear. Like, oh, you gotta pick up the phone, oh, you gotta do an email, et cetera. If you're not telling them what you're doing, yes, they will assume whatever. And so making it very good for myself. It's like, look, if I'm not doing calls in operator mode, I am working on this workshop thing or I'm working the book or I'm working on what we're trying to roll out at conferen. And so like being very clear what those objectives are and then them realizing that every time they take moments away from you, it is taking away from the objective. And then ideally having middle management to be able to take out 99% of the hey, I have a question type situations and then them having a filter in terms of if that's happening enough, you have to let people go all right. Mr. Anonymous. I may be slower adding locations than I originally expected. Will I be notified if someone is talking to Lee about a location that's next to mine so I can have priority. When do you plan on adding to your personal. Okay, the first question definitely you want to keep it on Lee's radar so he actually knows that you're planning on growing. If he's no idea, then, like.

He'S gonna like, unless they're joining right up against you, you're not gonna hear about it. Like, if it's like an hour away, he's not gonna let you know because there's so many locations that are spread out. If there's one in between, we're not gonna let five people know and then wait for everyone to get back to us. But if it's a joining, you'll know. But I would say if you have your eyes and something, you probably want to let him know. If you're like, hey, I kind of want to know beforehand. But no one has first right of refusal. But we definitely try, if they're right up against you, to just let you know in case you. You're thinking about it. But we can't guarantee anything. So, like, if you're thinking about it, please let Lee know. He tries to keep track of the mapping and et cetera. So just keep it on his radar. When do you plan on adding your personal Augusta locations? Oh, these are all different ones. Okay. When you plan on adding your personal locations. So originally I was going to do this using my previous regional manager and we were actually planning to do it in 2025 and probably do like a big chunk, another big chunk of them.

So that has obviously not happened and I've been able to sell those locations. However, my time is not focused on that right now. I think down the road that'll happen when the business is much more cash flow positive and I want to basically reinvest the money and get like a 15 to 20% return. That's probably what I would be doing, but it's a few years away probably. When looking for the ideal place to start, August locations, what are you looking for? Large metro areas with lots of grass and plus above average wages. Yeah, I'm looking for that. I'm also looking for a low concentration online, like low amount of good competition online as well as growing population. Those are the few of the biggest things. And ideally there's a really good diversification of employment. How many locations do you think it will take for us to be known around the country? So when people Move. They are likely already known to us. I think it'll start happening more around 300 locations based upon like just looking at the demographics of things like what coverage of the United States do we have inside of our territories is what I track. So I think around 300 will start making impact. 500, it'll probably become more of like a household name. And then once we hit 1000, I think we'll actually hit our goal of what we're trying to do with the industry. How many occasions do you think Gus will have in 10 years? 700. That's kind of what I'm shooting for. How many locations will it take for Augusta Plateau and the growth sort slow down a lot. It'll be choppy growth because usually what happens is the value. Like I think next year is going to be quite a few locations joining because of several things that we're rolling out and like a couple other things. In terms of just number of locations growing in terms of like then it'll probably plateau for a bit. We've kind of been plateau this past year mostly due to the fact that the solo model, a lot of people just ran out of cash and so it stinks. I don't like that. We do everything in our power to prevent that from happening. But you know, and we want to have people that, you know, give people opportunity. However, if you're under capitalized so far to the extent you can't grow the business past $20,000 over the course of a couple years because you just don't have the capital, it puts us in a bad spot in terms of just location number. So that's kind of what we've been churning out. Obviously the solo model is closing down and I want to. All those solo models are in. We're investing as much as we possibly can to make sure they get through and they get enough sales and leads, et cetera. But they're just so much higher risk of churning out how many locations. So that's why we kind of plateaued. The last little bit is like we've had churn at the solo operator level. People that just don't get past that 20,000. A lot of times they don't have the money to market or get break into a market. They also are learning the skill of employees many times at that $20,000 marker. So that's another skill they have to learn. So it's just one of those things like you can usually get past the deficit of capital, but if you don't have capital and you don't have Any skills in terms of employment and management. We have a really, really bad spot and that's what we've seen. It's just very difficult. And you know, the other 50% of them that have gone on and won and are doing great, awesome, that's why we did the program. But like, it's just too much time and resources from the franchise being poured into.

Those, those operators. And so yeah, in terms of plateauing growth, it'll be choppy, it'll slow down. I think mostly around after the 700,700 location marker. Mostly just because so many territories will be taken up. But also what's positive about that is when we hit around 700 is when the value of territories will go up dramatically because people will have to start buying into, into buying an existing location in order to be able to join. And once that happens, as I've seen with Anytime Fitness, like the valuations just go up and it makes it very attractive for also new locations. So it kind of balances itself.

David Wills from Manhattan Tax, Kansas. I currently only need 20 to 30 mowing accounts to max my asset capacity. If you had the choice to fill the remaining capacity with 20 to 30 million counts versus one school district account with three different easier to mow properties making up that account paying the same man hour rate, what would you choose? The rub is I actually may actually be able to do both using a mower that isn't normally part of the fleet that I'm considering selling if I don't bid this and get awarded this job. If I can fill the labor requirement. Yeah, like, you know, in the perfect world, I'd rather have the 20, 30 million customers. Less customer concentration. Again, depending on how many mowing customers you currently have. If you have 200 plus recurring customers already, I'd probably just go for the school district. That's awesome because like there's only 10% of your customers. So even if they did leave, it's like you're like at 50% of capacity. But if you only have 50 customers, I would be careful with this one because you can immediately get an employee staff up with this extra equipment and mower and all of a sudden they leave and 50% of your revenue is gone. So I'd be careful with that.

But I'm also worried by the fact that you're thinking about adding different types of mowers just to satisfy this account. It sounds like you already have it though, and you're just like willing to like let go of the equipment if you don't get the Contract. That's what it sounds like based on my quick reading here.

So, you know, get both right. Go for it. You could push up above capacity for a little bit knowing that you could raise prices. So that's probably what I'd actually do. Depending how many million customers you currently have, I'm going to assume you have like 200 million customers. If you had 200 million customers, I would take the jobs. I would raise your prices and hope that you lose at least 10 to 15 of them and then take on both the contract and the 20 to 30 counts. That's probably what I would do. That way, even if you lost the school district, you would have raised prices and probably bridge the gap of profitability. Even if we lost that customer and we're 10% under capacity. Next question from David is once our current location, 53,000 residents is built up to $500,000 in annual revenue, would it make sense to branch out to satellite locations 40 to 60 minutes away with 60 thou? With 6,000 or less residents that are surrounding towns that you can bill more per hour because of the lack of competition for mowing services and turf care or stay in contrate on my current location? If the satellite locations were viable option, it would make sense to rent space for mowers to be stored out at turf care. Traveling will be much easier and more practical. So I would say inside 50,000 residents, you can build easily $500,000 business. You can absolutely optimize it because you have enough lead flow to get it to 800,000, be very profitable. I would then do one, not all. I would not extend my service area. I would go one area that's 40 to 60. That's a long ways away. All right, you're not going to make any money on these jobs. I would wait to be in profit mode before I do this. But this is the most conservative route. You do this two or three years, you get the business up and then you make it into profit mode. Then I'd go to one area that's outside my. Outside my territory and say, okay, I will take jobs in this area and I'm going to do some marketing and I'm making enough profit on this, my first location, to actually put some in marketing and not make any money because I know I'm driving 46 minutes away. I'd get 20, 30, 40 mowing customers in that market and then I'd start a location there. The reason I would start the location there is anyone driving back and forth 40, 60 minutes, you're just never going to make money. Now if you're like, well, I'm going to get a satellite location over there, you can be very easily start to become multiple col vultures if you're trying to split one GM between the two or if even if you're hopping between the two. So I would try to get a General Manager for one and then move to the second one. And if you do that after making one in profit mode and really scaling it to that 7,800,000 level, you'll have the confidence to go to the second one, have a general manager in place, be able to afford to pay them well and you'll have confidence that you're going to a market where you already have a full, you know, one person route for the week. You know, 30, 40 million customers. That would be like the kind of ideal case scenario. Boom. I hope you all have a fantastic weekend and I will see you on Monday. Take care.