Mike Minutes Mastermind 08/30/2022

Everyone, hope you're doing super well. Give me a second here. I messed up my timing and so I apologize if you were on the other channel or other stream and then it kicked you off. But let's go ahead and get started.

Cool people are on here. Good. Make sure everything is good. Okay? Okay, so couple announcements right off the bat. Connecting Chat has been created for all the growth model. Make sure you download the app. You do not have to use that if you do not want to. That's not a problem, but it's absolutely there for you. I'd recommend at least just downloading the app, having it there. So if you ever needed something break glass last minute from Command center, you could do that. Most of you already have Connect Team Center, a Connect Team chat set up with Command Center. But again for all gross model locations you are allowed to download the app. If you do, there'll already be an invite there for you to be able to enter into the chat with Command Center. Remember that there is the billing change. So next week or later this week you will not get billed for all of your franchise fee and Command center fees. It's only be Command center fees for the month of August will be billed next month or next week and then in two weeks in the middle of September is when you will be charged the franchise fee. So breaking up a little bit, just help with cash flow for everybody. I think that will be a good change. Next week you're also going to get an email. It's going to be a document that you will fill out that is going to basically walk through what your plans are for winter in terms of snow plowing, winter services, etc. So if you're doing snow plowing, you'll be able to put in exactly what you're doing. So that way we can put it in your wiki and update anything in terms of winter services as well as what your protocol is around snow services and you know, things like do you add somebody on during a snow route and if so, what your pricing is and all the rest of it. So just wait for that for next week. You'll get that emailed to you and that will be for snow scheduling as well as for winter services. And we'll do that just to make sure you get everything updated inside the wiki. Everything is up to snuff for your location. That's all I had for that. Let's go ahead and jump into questions and I do have some education stuff at the end. So if you want to stick around for that, make sure you Do.

I have not read all of these questions? I read the first one or two here. Sorry I was late. And then Liz came in and distracted me. Talk to me 15 minutes about winter services and snow plowing. Okay, let me share this real quick. Give me a second.

Cool. I only looked at the first couple here, so see, we dig into.

Does your time there give you more confidence? This is what I think they're in relation to Jim's mowing. Does your time there give me more confidence that we are on the right track? Hearing about their operation gave me more even, even more confidence. Augusta is going to be the standard in our. In. In our industry. Yeah, like, like I kind of said on Saturday.

Every single aspect. I try to look at the pros, the cons. Where are we ahead? Where are we behind on? Obviously places where we're behind on. That's the immediate places where I'm trying to really learn and change things. And the big thing that I learned from and they do really, really well, I thought, is the training side and just a lot of things I could take away that worked really well. And then other parts where it's like software, I'm like, okay, there's definitely issues with service, autopilot and super, but like, we are leagues ahead of that of where they're at in terms of where software is going and the ability to do integrations and things like that. So I felt good about that sort of thing. In terms of overall.

Like, I, you know, being there isn't going to change my confidence either direction, honestly. But it definitely gets. Helps me.

What's the word? Kind of gauge where we're at on different top parts of the. The overall plan.

Pre Augusta, I was not the most diligent business owner when it came to taxes last year. I didn't even file because I almost had no records of any kind and save $0 to even pay them if I did owe. With Biden hiring 87,000 new IRS agents, I've been doing. I've been dealing with a lot of anxiety that I will be audited for either the last two years. Any advice on all of this? Is it likely? I don't know. You know, it's really funny. Look at how much did. A side note, but look at how much was spent on hiring the new or was given to the IRS in the most recent.

Stimulus package. The amount of money they spent on it. I want to say. Do you know what this number is? Is it 80 billion? I think it's 80 billion. Do you know what this is? Sounds right Yeah, I think it's 80 billion. Brad's next. So they spent, I believe it's $80 billion given to the IRS in this last. So if you break down $80 billion and divide that by the 87,000 new IRS agent, that's an interesting number. But more interesting is what could we build in terms of software and hire companies like Google and Apple and all these great American companies and have them create software that will do way better job than these IRS agents would ever do. Is absolutely possible. I was listening to Chamath Ch. I don't know how to say his last name. Chalata Patio, whatever. Big Silicon Valley guy. They have a good podcast called All In Podcast.

And they were talking about this great listen, great lesson about the technology. How far behind the IRS is on technology.

And just how much more efficient it could be using technology.

So now $80 billion total, $45 billion is for enforcement and hiring. Thank you, sir. Yeah, can you imagine that much money being spent like, oh, let's, instead of just like trying to plug the holes, fix it. But no, let's spend the equivalent of massive tech companies in terms of $80 billion trying to just like hire 87, 000 people. It's insane. There's. There's companies that are worth less than $80 billion that have more than 87, 000 employees, the entire company. So in terms of my thought though, on this, specifically my personal opinion in terms of your taxes, I would talk to an accountant and make sure they know what they're doing in terms of taxes and just be honest with them when it comes to taxes. So I've been audited once for sales tax.

Twice for income tax.

And then we have a few insurance audits. So fortunately, one of my first income tax audits was quite a while ago. And so from then on I was like, hey, look, we're going to do things by the book and no matter what, so I just recommend doing it from day one. It's just like you sleep better at night and you don't have to worry about anything. And I remember that first audit was brutal because I knew that like the first couple years of business, I didn't do everything correctly. And we had a lot of material costs that, that we weren't putting on the books because of the Square app. And I forgot that it would not merge with what reports I was running from QuickBooks and all this other stuff. All that to say, just talk to an accountant, just be honest with them. Be like, hey, like, here's what's happened. What do you think my monthly payment would be if I gotten some sort of payment plan? I would recommend doing that. You know, if you want to risk it and just not, you know, that's obviously your decision and just realize that you got to prove that you did not know about that if you ever got into an audit. So the reason I got off pretty good when my audit is that I was able to prove that I did not know what I was doing wrong. I was not willfully trying to deceive them and things. So it was like a mistake on our end and they were much more forgiving. When you get an auditor, most auditors are, if you actually work with them. Well, they're actually pretty reasonable human beings. If you just give them all the information, you're really cooperative and you just treat them like a human. Honestly, being an IRS agent would be the worst job in the world. There were some really good memes someone sent me about the hiring of these, these agents and kind of like, how do you get them to show up to work? It was funny anyways, but any advice, it is likely, especially as you get more money, keep in mind that especially with Biden is talking a lot about that this is not going to impact people that are like under a certain threshold of income. And really like think about it, why would they, why would they spend any resources or an auditor going after someone that made like 50,000, $60,000 when if they did a hundred of those people, it wouldn't be the equivalent of like one ultra wealthy millionaire that needs a, like a full time auditor on their books. So just keep that in mind. Like if you did 50, $60,000 in adjusted gross income, they're probably not coming after you, to be perfectly honest. Is that safe to say, Brad?

We have a slight nod of approval.

So I think I, I'm a big believer just doing it by the books because I sleep better. After that first audit, I was scared into submission. And I remember just being like, okay, we're going to hire like a bookkeeper for all the businesses. We're going to split them all up. We're going to keep everything above board. And it hurt me for about a year because like all of a sudden my taxes went up, but I just slept better at night and life is a little bit better when you can sleep. So Kyle.

When you talk about market penetration, pricing to get into a new area or grow quickly, how exactly do you determine what your pricing should be for that?

Sorry, give me one second, guys. I'm gonna mute myself.

In terms of penetration pricing, what's going to determine how low you go is your close ratio. So if someone was trying to do, hey, I'm gonna keep my prices low, I gotta fill up my work, fill up my schedule, and I'm just trying to get jobs on the schedule, fill up my schedule, or two trucks or whatever you're trying to do, you're trying to grow to capacity.

If they were like 95, I'd say, okay, you need to bring pricing up a bit now. If it's 50, 55, I'd be like, hey, like that. You could probably go lower if you're just focusing on penetration pricing. Right. Obviously, profitability is not what we're talking about at this point, but in terms of lowering your price to the point of being able to get more customers and fill the schedule and, and grow to capacity, I think close ratio is the thing that you're looking at. Right. 70 is where you're going to be kind of targeting as the optimum growth point. Anything above that, I start thinking like, you're leaving too much money on the table. And then if you start going at 40, 30, obviously it's way too low. And you're starting to think about, are your prices low enough or b, are there other things that are contributing to your low close rate? Are you not following up the day after, you're not giving them a call? Are you doing something in the, in the actual. Like you only do estimates once a week? Well, now people are waiting six, seven days to get their estimate from you. So things like that can obviously be addressed in a coaching call. But in terms of pricing by itself, close ratio is the prism by which you know how deep you are penetrating in terms of pricing and how much of a discount you're actually giving.

How should the level. Okay, this is. Okay, this is the one I was going to talk about here after. Let me come back to this one, Jeff.

Here we go. Kyle, with talks of impending economic struggles in the US Is there some sort of investment that protects against inflation, entertains its purchasing power, but is also fairly liquid? Yes. That's just perfect. That would be the perfect investment. It protects you against inflation. It's liquid. It retains its purchasing power. Oh, yeah, man, I'd hate for the banks to lock down due to economic hardships, and my money is either locked in or just vanishes due to inflation and monetary collapse. Okay, so this is kind of my point on all this stuff is. Here, let me finish the question. I know you have multiple businesses in real estate that will protect you in the case of a downturn. But I don't have any of any of that safety net besides my current business. Okay, so let's be very clear. If the monetary system collapses, we have big problems on our hand. And having diversification is just going to mean that you're going to lose in multiple areas. Because if the monetary system collapses, real estate is going to collapse.

Not just stocks. I honestly believe. Sorry, give me a second guys.

I honestly believe that having a small business is the best thing because you have control of pricing in order to be able to raise your prices. And you also have the ability to be able to actually make decision in the business. Like okay, we are an account on contraction. Let's cut staff, let's you know, cut our most wasteful, furthest away clients so we can save on fuel. Let's you know, you know, improve the business. So I think your most safe asset to be in when you have one asset is a small business because you have control over it. If you're actually afraid of these things, which is like monetary collapse, the government, you know, your money getting locked up in the banks. If your money gets locked up in the banks, we have so many problems. Like everything would collapse. The stock market would go to absolute, like hell in a hand, hand basket. If the FDIC falls apart and now $250,000 is not secured inside of bank like the whole monetary system would fall apart. Look at what happened with like Voyager Digital, which is a cryptocurrency exchange. When they, when they kind of their security went away and they no longer backed their money. Thank you sir, I appreciate that. When they no longer backed it immediately it felt like 99% that's what would happen. Like the US dollar.

If all, if all of a sudden the FDIC said oh yeah, we're just locking everyone's bank accounts. Like there'd be economic collapse, there'd be political collapse, there'd be riots in the streets. Like we would not be concerned about money at that point. I'm just, just being honest with you. So I think a lot of times when people have these doomsday like scenario things about, you know, their business and how they should, it's like, look, if any of these things happen, we will not be concerned about money. Like if we have nuclear attacks, we're not going to be worried about money. So I'd say like if you're trying to build a business, just focus on that, do what's right for the business. And if, you know, these things happen, we are not going to care. Like you're not going to be worried about the, you know, the labor crisis if all of a sudden you're dealing with nuclear reactivity and nuclear waste. Like it is not going to be an issue. So until then, I focus on growing my business. All right, let's go back. This third question though, has in relation to what I'm going to talk about for the education side because thanks for reminding me the in putting this in here too, Jeff.

All right, how should. Oh, wait, I didn't send. There we go.

How should the level billing model be paid out to employees on a P4P system?

Take July, for example. If you were paying out based on the $200, then they would get $66 that month for that property. But if you paid out based on the 143, then they would get 4719. That seems to create a budgeting our problem. Cool. It's a. I know for everyone that seems like a short question, but Jeff and I talked a whole bunch on the weekend and I actually wanted to show something he drew up and I asked him if I could share this.

Share. Here we go. Let me share. This is a Excel document and is it in relation to the numbers he is talking about? So let me pull this up. Excuse me.

So this is from Jeff Pindell over in Venice, Florida. And he put this together. It's really cool talking about level billing and discussion he and I had. That's really good. I thought is I always talk about level billing from a negative perspective from an acquisition standpoint. However, there are markets like for example in Florida where he's at where level building is very common and acquisition would actually potentially be better because everyone's just used to level building. It's like super normal because they do mow year round. Okay.

And I've typically said, like level billing makes sense in those markets a lot of times because you're able to keep them all year round. You're at least mowing a couple times a year, a couple times a month throughout the winter.

The other side of the equation I never really talk about as much is the cash flow side. All right, so if we look at this Excel spreadsheet, he put this together, is the number of visits for each month, the actual cost to him as the business owner. The amount is invoice on level billing and really kind of like the amount outstanding and how much the customer actually owes him in terms of work that has been done but not paid by the end of the growing season. Like $256 is the peak at which they actually owe.

Owe the business just simply because you've been doing work of this amount, the actual cost, when you've only been invoicing this amount. And here's the thing, most customers start service here, so it's not like someone's like, oh yeah, I'm gonna get them someone to start here in the middle of winter. It doesn't happen. They start here when there's the growth, maybe into July, like the here. So you're going to be immediately in the hole a few months before you even make any profit on this, on this, on this person. And think about this. The difference between 143 and 200, for example, $60, that is, you know, 20, 30% difference. Well, that is your entire profit. So you literally are working for free for a few months if someone joins. And so let's hope they stay for the entire year. And what's interesting is, let's take that off the table. Let's say, okay, you have a contract, you have a contract or you have some sort of a penalty. And in zooper, it's going to be easier because you can require a card to be on file before they even accept it. An estimate down the road, as well as having a signature. It's going to be easier to do level building inside super and have a, have something signed, have a credit card that they can't take off, things like that. That being said, let's assume everything's peachy credit, you have a contract signed, they don't try to pull anything weird on you and cancel in the at the end of the growing season and you don't have that issue. Let's assume that. Here's the thing, even in the perfect scenario, you are still floating this dollar amount in terms of cash flow because again, all of these months you are not making any profit. You're like, oh no, I'm making profit. I can still. No, like, if you take 1, 160 and 200 and look at the difference between 140, which is what you're billing, that is about 20 to 30%, which is literally your profit for those months. And that's why on level billing, a lot of times all of your profit is made in these four or five off winter months when your actual cost is only 80 bucks and you're getting almost twice as much. So.

What I'm concerned about that is the fluctuation of profitability. Excuse me. I'm sorry everyone.

I talked all of Saturday, flew all of Sunday, and then yesterday, I don't know what happened? It's just jet lag. Anyways.

What'S really important here is if you're going to do level billing, it needs to be also calculated amount, the amount of cash that you're gonna need to have on hand in order to get to the dip of spring rush. Because here's the thing, not only is spring rush when you're buying trucks and hiring and scaling up and spending money on equipment, but now you have the added thing of oh, during that time is when you're least profitable because you're charging 20 to 30% less than what you should be and you better have a good cash cushion. And I thought he had sent, he might text it to me and he had had the calculations of if he had 300 customers and it was something along the lines of like 50 or $60,000 you would need just to float through those months. And so I think that's a great point to be, to be talked about. I don't talk a lot about the cash flow ramifications of level billing versus.

The acquisition side, which I talk about all the time. Because in most of our markets the acquisition side is easier per cut. But again, this is just another layer of level billing. There is the. The side of acquisition which we talk a lot about in most of our markets is easier. But for those that are in markets like California, Texas or Florida, where you potentially are can mow year round. And it's very common to have level billing. Keep this in mind if you, if at all, just to say you probably want to have a line of credit so that during the spring months when you are working crazy amounts of time and getting less than what you should be in terms of revenue that you're able to float through that time, a line of credit will be your best friend in this sort of scenario. So really interesting observation that Jeff was making. I appreciate him sharing this and I asked if he could, if I could share it with everyone else. Just a nice simple way of outlining that. Now in relation to the question.

This one's was about P4P and that is like, okay, on level billing, now how does P for P work? It has to be done by the budget hours. Okay, so if you're going to take here, let's just do this.

Pull my tablet out. And.

So if we have.

Boom. Okay. Oh, Michael, don't do that. Come on now. Okay, so if we have a contract and let's say it's $200 a month just to keep it simple. So $200 a month and that is Level billing. And let's assume that this is all labor. There's not, we're not including like material cost in here, things like that. You would need to figure out what is the labor cost per month, right? Multiply 12, there's your amount per year, probably. And then work backwards, right? So for example, let's assume there's 200amonth of labor. Multiply that by 12. That's going to equal $2,400 worth of labor per year. Now let's assume that we have a 60 per hour man, a man hour rate. Just to keep it simple, right? So now if we divide that. No, it's not 260. Let's do, let's do 50. Let's keep it really simple. If we divide that by 50 per hour as our labor rate, that would mean that we're going to have 48 budgeted hours worth of labor over the course of the entire year. Now the question is, okay, let's assume there is 30, 40 cuts. Okay, there's 40 cuts and every single one is 0.5 budgeted hours. 0.5. There's 20 budget hours that are accounted for. 20 budget hours are accounted for just with the mowing. Now we have 28 more budget hours to account for to get to 48. So that's probably the bush trimming, weeding, other services. All you need to do is make sure that every single service has budgeted hours. And if you go in, if you're in service autopilot and you go to contracts, this is where you set up a contract because it'll have a zero dollar amount, but the budget hours will be filled in. All right, this is important on P4P as you must have budget hours to every single service. Which means like it states in the question Jeff put in here, and that is you will end up paying more during the months when you're doing more work. But employees are not going to take level villain. There's just not a shot in the universe you will lose employees if you try to say, okay, out of the 200 that we're getting paid this month, we're gonna give you all a third. And that doesn't change throughout the whole year. They'll be, they'll love you during the winter, but they will leave you in spring and summer because that's, they won't even be able to get above base pay ever. Like it's guaranteed because it's 20 to 30% less. Like immediately wipe out all of their chance of making performance dollars. So you got to make sure. Budget hours are allocated to each specific job. And that's how I would work. It is, what are you charging for your level billing? How many budget hours for the year? What is in that breakdown for every single service? If you're doing multiple services like mowing, weeding, bush trimming, fall cleanups, whatever it is, make sure every single service inside the contract has an allocated budgeted hours. Very important for P4P. Otherwise P4P is unobtainable. If you just start, it will not work. If you take level billing and just give guys a percentage of it every month, it would never, ever, ever work. You will lose employees during the winter, during the summer and spring when you need them the most. And everyone will love hanging out during the winter when you don't really need them because they'll be making way more money. So again, this is another thing to think about when it comes to level billing. Either the acquisition side, there is the cash flow perspective and then there's the P4P side, which is, it's fine, it's totally fine. You can do it. Just make sure you use budget hours. I saw one person do this before, like a couple years back when I was just, I was talking about P4P and they kind of made something else on their own in Excel. And they're like, yeah, we have this problem. All of our guys left in the spring because like they couldn't hit P4P. And sure enough, they were on level billing and they were giving all their guys a percentage of the level bill. So what they did is they said, okay, if we have a hundred and two hundred a month and you guys are gonna get fifty dollars a week. And so that basically means on that property. So if the spring it takes, you go every single week, there's your $50. If you come in the winter and there's nothing to do, you still get your $50. So they just, just crushed it during the winter. They, they implemented. The problem was they implemented P4P in September, October, their guys started making a bunch of money throughout the winter. Then spring rush came around, they all went below base pay and they all left. So just gotta make sure your budget hours are allocated to every single job, not to a contract. So. Awesome. That's all I got for you guys today.

I will see you tomorrow. And thanks for all the good questions. Really good. Take care.