Mike Minutes Mastermind 07/07/23

Hey, everyone. Opening. Super. Well, let's go and get started. I have some education stuff I want to go over real quick. I think it's super valuable. Let me just drop this link into the Facebook group.

Yeah, right.

A few things I wanted to go over.

First and foremost, Max, I guess this would be announcements. The AI calls yesterday, for example, we took 54 calls after hours. 73% of those completed the call and gave all their information to basically become a lead. Pretty awesome.

That was better and better, the 73% as we just improved the technology, but I was pretty happy with that and we'll just keep improving it. So it's going to keep getting better and better. And.

I'll keep submitting a few of those each every few days so you can listen to them if you haven't seen them already. On the Facebook group. I made a Google Drive folder and I'll just throw a call or two in there every couple days as we make improvements. And there's several things we're doing on the front end and the back end. The back end being what command center is seeing to be able to get better information. So. And then about 40, 47% right now of people do respond to the text message and submit their email. So.

Getting email over audio is naive, impossible. You have like a 10% chance of getting it correct. And so asking for someone's email over the phone, not great. Doing it via text message, we're getting about 47% of people to submit that. When I say 73% of lead completion is because we can get enough information to give them a call back. And even if they don't have their email when we're on the phone, we can get that email from them, confirm the quote that we can do over the phone or do via satellite. So we can still get the quote done. Call them, solidify their email address when getting the quote for over the phone mowing, for example. So, yeah, really good stuff. I truly believe in.

We're probably two years away from where when people call in, they can actually get the quote from Max. Because you have to create AI enough to be able to get the square footage, run it through your price matrices and then give it back to them. Take their credit card information, tell them the first date of service. I think we're about two years away from that, but we're just going to keep chipping away at it. So I have calls with them every single day right now and then I have one night with their UK team at 12 and it's been good. So Just keep, keep making progress there. All right. Edumacation. I wanted to go over something. It has been something we've been working on a bunch and I would like to share it with all of you. Especially after yesterday I talked to one of our owners that was having a problem with this. Not a problem, just a situation. And wanted to had some questions that I think this solves. So.

When it comes to frontline team members, I believe that profit sharing on a quarterly basis is the best route. Anything longer term than that, they kind of lose interest in. If you make like annually, for example, anything and anything more short term like weekly or monthly profit sharing is challenging because we're so seasonal. So you would start being sharing profits during your winter because someone paid an invoice from a month and a half ago and now you're paying out during a month, you're actually losing money. You'd be paying out profit sharing because when that money is collected, it hits the bank. So what is typically the best is to make it a little more even out. You do quarterly for frontline team members, I think that's a good move.

And if they were during a quarter and we were profitable during that creditor, they get profit sharing regardless of what the quarter before or the quarter before the last one was. It's based upon each quarter. Now for general managers, regional managers, etc, and in my opinion, partners, partnerships, distributable cash is the best way to distribute profits between partners and managers. Because this is the thing.

I know it's like to be an owner and feel really, really stupid when you are giving away profit sharing and you have not taken any money out of the business.

I also know what it's like to have a bunch of money in the business. But because last quarter they weren't profitable on paper, they don't get any profit sharing. They might have worked their brains out. So I'm a big fan of doing distributions to your managers and to and and if you have partners in the business based upon distributable cash. And what needs to be established is what is this? What is the benchmark and the threshold for distributable cash. This is how I have my partnership set up with Copilot. We are burning money right now, but when we start making money, it's already in writing. Exactly how much cash needs to be in the bank and everything above that is considered distributable cash. Now that number should not be static, right? You cannot say, oh, anything over $50,000 a bank. We're just going to Split, you can't do that because the business is going to continue to grow and the working capital requirements are going to grow with it. So I would Recommend Doing a 3 or 6 month average of the, of the revenue from the business over the past three or six months. Do a get a monthly average. So let's say for example, that you're doing a three month average and you added 80,000, 90,000 and $100,000 respectively for three months in revenue. The average of that would be $90,000 of monthly revenue.

You would then take anything above $90,000 in the bank and that would be considered distributable cash. All right, so this ensures that there's sufficient working capital based upon how fast the business is growing in the bank, but sets a very clear benchmark of what distributable cash is. Now it also should be said that if the, if the part parties involved in splitting distributable cash, whether it be general managers, whether that be partners, et cetera, if they both agree to keep the money in the business, that's fine. Like it doesn't have to be distributed. And if there comes to an end of a quarter, because you do it on a quarterly basis, if it comes to the end of the quarter, like hey, we both know that next month we want to go buy a bunch of trucks or we want to expand and grow or spend money on marketing or hire a bunch more people, let's just keep the money in the bank, that's fine. But both partners, whether that be general managers and owner or that the owner and owner, like a partnership, needs to agree that the money stays in even though it's above that distributable cash threshold. All right, so we are moving this direction already with all my new locations in North Carolina. And by doing that I'm able to increase the amount of money I give my general managers. Because now I'm not just looking at quarterly profits on a P and L. Now everyone's goals are aligned. And in the past, if you had profit sharing for your general managers based upon simply what is in on the P and L, it's not necessarily in your best interest. The owner, you as the owner want distributable cash. You want money coming out to you in distributions, profit and loss statement. Profit doesn't do you any good. You don't get any money back. So what I'm doing for my general managers that are when they're starting new locations is I'm able to give them substantially higher profit sharing in the form of distributable cash. Now they want me to take money out of the business. All right, this is the issue that I've always seen with just the straight profit sharing model that's based upon a P L is because what they'll do is they'll say, okay, the core Q1 or Q4, I'll buy all my trucks and I'll have a really deep, deep loss in that quarter. But then I'll just make sure that in future quarters I'll be then be profitable and I'll get profit sharing. Whereas if you actually take the average of that now there's. The business hasn't actually made any money, let alone have any distributable cash flow. Because as the company has grown, the working capital requirements of the business have also grown. And so what we're doing for new locations is we are determining exactly how much money starting capital is going to be. Maybe I'm only going to spend 50 or 60,000, but I say, hey, $100,000 is for this location. That is the working, that is the starting capital benchmark. Then from here on out, distributable cash flow is going to be the thing we look at. And the first two quarters, for example, it's like, hey, you can spend as much money, grow as much as you want, marketing all the rest. But then after that, we're going to start, we're going to start tracking the distributable cash, right? And if we both agree that, hey, we're growing so quickly, we should keep the money, the distributable cash, inside the business, great. But if we take a split and for some reason we need, the business needs more working capital because like we ran out of cash, now there's a negative distributable cash balance. If I as the owner and putting money back into the business. So if we take money too soon from the business and then the business is growing and needs more capital and then you own to put money back in, well, now there's a negative distributable cash. So in the next quarter, when you're looking at how much distributable cash there is, before anyone gets their split, the owner that put more owner investment back into the business is going to get their money out. Right? Now the reason this is important is because, number one, I'm able to give now more profit sharing to my general managers and make it much more lucrative if they are doing distributable cash flow. Secondly, it's going to push off profit sharing Typically for the first entire year of operating the business. So what we did to counterbalance that is give them revenue targets and goals. So zero to 20,000amonth in revenue, zero bonus per month. 20,000 to $40,000 per month in revenue, just straight revenue. They get $600. Anything over 40 to 60, I think it's $1,200 that they get as a bonus. So incentivize the growth right from day one. And if they want to get there in a month or two, they can. They just really focus on growing. They'll maybe hit those bonuses. But then the real thing is like get to your whatever size you want and then flip to profit mode because now you're going to be able to get 35% of the profits. Now, this is for new locations, established locations, far below that. So we have a new compensation plan. I think it's very, very good that we've rolled out with our general managers and we will put that up on the dashboard. And I think this is the best way to pay a general manager. And that's based upon the distributable cash, not profit and loss statement. The distributable cash, you can pay them significantly more simply do the fact that you as the owner know that now we're both pulling in the same direction, that is not what's on that profit and loss statement is how much, how much money can be taken out of the business. And so I would recommend this too. If you have partnerships, whether it be minority partnerships or equal partnerships, like 50, 50, or if someone owns 25% and someone owns 75%, you should simply say, here's what distributable cash means. This is the threshold. Anything above that, we're splitting based upon our equity. So you're getting 25%, I'm getting 75%, or we're splitting it 50, 50, or whatever you're doing for a partnership. So I'm seeing this now with a lot of new locations. When people start their second or third, fourth location is they're getting partners, that's fine. You need to establish what is the starting working capital, what is distributable cash considered, and when do we start splitting that money? Is it after Q2? Like, is it after two quarters? Okay. From here on out, anything based upon distributable cash flow of this threshold, based upon the the last three months of monthly revenue, that's going to be considered distributable. And we're going to split it based upon our equity split. That makes a Lot of sense. Okay. In terms of the general manager part of things, we have it at 35% and that goes down if a new general manager comes on and the revenue is already really high. Because it does not make any sense for a new general manager start a location that's been in business for three years and is already super profitable to step in and get 35% of profit. That doesn't make sense. So that number goes down all the way down to 5%. If the revenues of that location are like, you know, 50, 100, 200,000, there's no reason why a new general manager stepping in is going to get 35% of profit sharing. That's just not happening. And so we will put that up. It's also built around the fact that there's space in there for a regional manager to also get profit sharing. I am happy personally as a someone who is not involved in daily operations for the, for my general manager locations to be able to give, I'm happy to give 50% of my profits away. Distributable profits, not profits on a P and L distributable profits. Which means if there's $100,000 in profit, I don't mind 50% of that going to my, my management and 50% going to me. Assuming I am completely out of operations. If you're not out of operations and, and you have general managers underneath you, you would be taking the regional percentage, you'd be taking that to yourself and then they'd be getting again, brand new location, 35%, all the way down to 5% based upon the revenue that that location is when they come and they start the position, what that means is churn. If someone churns out, like if they do be a general manager for two years and they're like, hey, I got to move or there's a family emergency or whatever happens and the location has grown to a certain size now you're not going to give 35% in your new GM. They might get 15 or 20%, whatever that threshold is of distributable profits. But from day one they're going to be getting it. They don't have to wait for that first year of growth and not really being profitable. They're going to basically be getting it from day one because the location is already profitable. Right? So like right now, like I was just looking at the P Ls from June for all my locations, all of my locations that have been in business for like three plus years, very, very profitable.

Off the top of my head, one location was 40, 40, 45% profitable, one was.

22% profitable, and one was.

About 24 profitable.

And so those are the ones that have been around for a while. Those are the ones that if I put a new GM in that role, they're going to have a lot of profit sharing from day one. So that percentage comes down based upon how much the growth that location has already seen. So we'll be putting that all up in the general manager documents that we have shared on the dashboard. But I would highly recommend, whether you're doing profit sharing with the GM or you are splitting profits with a. A partner that you figure out what is distributable cash and then do your splits based upon that. Instead of being like, oh, I think there's a lot of money in the bank, let's go ahead and split it. Like, makes no sense whatsoever. And then you're always going to be in an argument of how much money should we have in the bank account, all this other stuff. So I think it's the most accurate, fair way to do it. I've tested this, and the one location that we kind of did this for the past six months, it's just. It's the one that was at 40% profit, where you're basically like, hey, whatever percentage, you get a big chunk, bigger chunk, whatever I take out, it is a very cool thing. This is the first time it's ever happened my whole life where a general manager texts me and was like, hey, there's a lot of money in the bank account. Can you please take money? Because they know there's benefit to them. When I take money out, it aligns everyone's goals and objectives, all right? There is nothing sweeter than be able to get return after a lot of years, like one, two years of putting money into a location to where it's like, hey, can you please take 10,000 out? Can you please take more out? Hey, I think you're gonna have to take another distribution this month. Like, that's a good thing to have, all right? And that's all honestly your return. And instead of it being a debate, instead of it being, well, I want more cash in the bank or I want to buy more trucks, it's like, look, we're all on the same page. We all want this business to produce profit distributable in our pockets, and I'm happier to give a higher percentage of that away if we're all on the same page. So.

What location is at 45%? I'm not going to say that I have a lot of gms. We all got to be like on the same page that we. It's not about matter of who's doing what.

So.

I just be careful. Just remember, like I have. These are my team members. They're all watching this. They all get on team calls, etc. So I'm not gonna. I'm not gonna be as open about individual locations saying people's names and stuff because it's, it's just. It'd be like if you took your. All your employees in the same. Same room or like, he's doing good, he's doing bad, he's doing good. Like, it could get. It could get a little muddy. So please be sensitive to that. I would, I would like to share, but like it. It's not. It's not really good. All right, let's go ahead and present. Let's go ahead and jump into some questions, questions, questions, questions.

All right, let's jump in.

Joe Dilmore from Cherry Hill, New Jersey. Did I change this over to questions? I did. Cool. I know you have a lot going on, so we will let you slide, but you've been awful quiet about it. What are you going to be shaped? I didn't get to a hundred thousand subscribers, so no shaving of the head required. Let's go.

Connor from Evansville. I'm sure I will have all the same issues and that's okay. However, would you ever tell an existing franchisee they cannot open another location? Yes, I just did yesterday. I know it challenges us as a person and I'll never understand until I open a second one. But what are your thoughts on this? Will you ever step in and say no? Yes. Literally yesterday, someone want to open an executive model. I said no. Take your. The locations that you currently have and fortify them. Get more money in the bank to the point where you are doing the executive model because of taxes and not because you simply want more locations. I have actually said no to someone and then they did. Went ahead and did it and I think they'll come around. They'll be okay. But their first location is crushing it. Like, very, very good. The second one's been struggling and it's caused a lot of trouble.

But it was myself, Lee and Liz all said, do not start this location. Do not start second one. We will not necessarily prevent someone from doing it. Like say you cannot and like step in the way. Like, there's a legal ramifications of our honest doing that to an existing franchisee. If they want a territory. We have Made it where you can buy a location if you want to. As an existing franchisee, there's only certain things we can and cannot prevent from happening. But we all were very much agree that this person should not buy. And we told them that. Uh, and I'm not saying that it's going to be fail. I think it'll do great. It just. There's probably more hurdles they've had this year because of that decision. Um, but I would say half of the people that want to start a second location, we tell them just wait one more year. Like, be more profitable, get more cash in the bank. And when you start that second location, the likelihood of being more successful is so much greater. If your first one's firing all cylinders. You already have a general manager in place. You've worked with that general manager at that location for six plus months. You already have distributable cash flow. You already have that, that in place for them to be very much incentivized. They've already started doing hiring and firing, and then you've basically been stepping away. If you start doing that with one location, then two locations, then that's why, like, you know, typically like one location you might be at for five or 10 years, then like second location, and it also goes like third, fourth, eight, 10, 12, 40. That's how it will work because you simply have to nail down the systems of being a better regional manager managing four, five, six locations. Then once you hit that, then, then it's like, okay, now I just copy and paste my regional managers. So don't be in a rush. This is not a rush game. I think most people would be better served waiting one more year in almost every situation to getting a second location. Your second location, honestly, in my opinion, the first, like the first one, your. Your first second location, duh. Your second location should likely be a tax decision. And that's because your first location was so profitable, you need something to write off in December. So you get your territory locked in and you go buy equipment. And then it's like, okay, well, I basically just saved 35% of this, but I would have otherwise been on taxes. I can roll in the second location. And then you've only done that because that first location was so profitable. It's ready to take on the burden of you stepping out completely and starting a second one. But I think most people will go from two. Two is hard. Like, your second one's gonna be very difficult all the time. People should stay at 2, I think most of the time because they Learn that whole dynamic of having two GMs and the whole nine yards, that's very, very, very hard. But I think most people go from two to six very quickly because what they'll do is they'll go from two that are now very, very profitable. Spend a few years in that, like let it become both. All those gaming 20, 30% profit, like get in that rhythm. Then what they'll probably do is they'll go get four locations, hire a regional manager and then they'll be able to scale it to 6 almost immediately. So I think that is what I predict will happen. But I think most people should slow down with 1 and 2 and then just realize that like if you're looking at the long term game of this, two to six gets faster and six plus is, is probably the easiest.

So.

Kyle Tarvin, more Oklahoma. When looking at P and L, are you more concerned about monthly cash flow or overall year profitability? I guess basically the same thing at the end of year. Just curious what you look at more. I look at really I'm looking at, you know, if location's been in business for three plus years. I'm looking at overall profitability because that's really all I care about is like distributions. When it comes to a growing location, I'm probably looking more at the monthly cash flow because all I care about is growth. The reason is because like how I generally look at all my locations is the first three years I don't really care about making a whole lot of profits as a net right. Because year one I'm going to lose money because of all of the initial capital. Year two I'm probably going to become profitable, but I'm not going to, I'm definitely not going to recoup all the money I probably put in the beginning. Again, I'm assuming I have a general manager in place and so like their salary would typically be going to you if you're the owner. I'm assuming I have a general manager and regional manager in place. So it's really in my opinion a third year that I am as the owner thinking in terms of now profitability and distributions back to me, there might be distributions in year two. There should be distributions in year two. However, it's not even going to get recoup my, my initial capital outlay if I have a regional manager, a general manager, et cetera. So it's really a play of year three. And so if they don't grow enough, there's not enough meat on the bone in year three to make it Interesting. So that's why like I only really care about their growth. So the first year, year two, they start turning into profit mode. I'm still not going to get recoup all my initial capital. Typically it's year three and I've seen this now three times. Year three is when they all start to kick butt because year one I'm putting money in year two they're achieving profitability. But I don't actually end up making all my money back from my initial capital outlay. It's year three when typically I get above zero and that's tough, that's, that's not easy. However, it's still in year three now when it's, it's producing say 50, $60,000 of distributable cash to myself with a general manager and management in place. That's not a bad outlay compared to my initial investment of 50 to 100k. Right. So if you have a long enough term horizon.

That'S really what it comes down to.

Chelsea from Arnold. Mike, do you know how fringe benefits work? We have allowed our GM to drive one of the company trucks home each day this year. Since he doesn't have another vehicle our account mentioned is considered a fringe benefit since he uses it for personal time to and from work. But they haven't been able to help us figure out how to do the recordkeeping for that. We also want to be able to let the employee know how it will affect him on his taxes, etc. What is your recommendation and how does it all work? Does this employee need to carry insurance personally on the truck for the personal time he drives it? Thanks. So you need to talk to an insurance broker about this in your individual state. Every state's a little different on these, these rules.

So in from the insurance perspective, I'm not going to talk about it because it's so different from every single state. You got to talk to an insurance broker and you got to see what am I liable for? Do I need to have this employee carry insurance that would then make me not liable while they're driving this personally? How is that determined? Is it determined based like if is getting to work considered business or is driving home from work considered business? Or you know, you ought to iron these things out, right? Most of the time you are going to be liable. If it has your light riding all over it and it's licensed underneath your name, you're going to be liable like 90% of the time.

The thing I would say in terms of keeping track of the fringe benefits I would personally, if you're going to look at it as a fringe benefit, just pay for the fuel, pay for the insurance, pay for the truck, everything for the business and don't worry about making it taxable income for the employee. I would not worry about doing that. Just the time you take to track it all is probably going to be more than what it takes. It's going to save you by doing that. And the employee is not going to be happy either. So you basically kind of take away the fringe benefit if you're like, oh yeah, by the way, you're going to get taxed all that stuff now too. So. Or it's going to be, it's going to be showing up as taxable income. So obviously talk to your accountant. But I would just keep this simple. And that is if you're going to have the fringe benefit, you pay for everything, accept the liability if that's what you want to do, and roll with it. I would probably not start counting miles and taking percentages and putting more on their W2 based upon fringe benefits and them getting taxed on, etc. I just take all the expenses of the business and keep it simple.

And then you just have to come up, you know, whether or not that's a model you want to follow and that is your employees being allowed to drive the vehicle for personal vehicle for personal reasons. And there's a lot of pros and cons to both of those.

Let's be profitable. Cool. What does this mean? Let me see who's writing this.

Okay, got it. Cool. All right, everyone, have a fantastic Friday. Have a great weekend. We'll see you Monday. But I do think this is a good episode. If you are thinking about second locations, if you have general managers in place, definitely you will want to look at the document once we put them up of what our compensation agreements are for new locations. And then we also have the tally in there that I'm hoping to transition all my existing like established locations over to next year to focus more on distributable income instead of profit on the P and L. Because I can give them way more. I can give them way more if we're both aligned on the same thing. And so it becomes very, very lucrative for them if they stick around and then I give them more of that short term benefit of just based upon growth. So hope you all have a fantastic weekend and we'll see you Monday. Take care.