Mike Minutes Mastermind 10/19/2022

Good morning, Everybody. It is 10:30 Eastern Standard Time. We're just getting started here at the Equip Expo. It's still the dealers, so it's not too loud and crazy. I'm just sitting down at the bottom of our base here on the ground.

But let's go ahead and get the questions answered for today.

All right, I think there's just a few that came in. But I do want to address one thing that Tyler had brought up in the Facebook group about firing employee people that were basically clocking in early or clocking in late and basically, you know, kind of sapping the clock.

Two things. Number one, if your team is way above base pay, it doesn't really matter because you're not paying them anymore if they are working, you know, less or more or whatever. So that's not really a big deal. But if they're hitting base pay, that's when you're actually paying them more if they're sapped in the clock. So from a financial standpoint, unless they're hitting base pay or below, then it's not affecting you financially. The thing is, it's also a matter of if they. If they're lying, do you want them on the team? Now, the thing that was unique about what Tyler said on the Facebook group is that his team culture is good. And so if your team culture is good, I would not recommend just firing two people right off the bat. I would. I would rather take a more of a underhanded approach and saying things like.

First off, I'd go after the fact that, like, their scores on P4P will be better if they don't do that. Like, their scores will be better because, like, you're dividing by clock hours, so their score will be better. But more importantly, I would just take a very broad approach at first and be like, hey, guys, I know some people are forgetting to clock out or they're clocking in early. Let's just make sure we. When we walk in the door, we clock in, we walk out, we clock out. And just keep it really simple like that. If you say it one time, if people are. If they. If there's any sort of honesty inside of them or they're a good person, they're going to reform their actions and they're going to start behaving themselves. So.

Human nature, though unchecked human nature is going to look for areas to make more money and is going to look for areas to connect to the system. So when you have the ability to clock in and out on your phone and you know, service, autopilot and Zebra, for example, don't have geofencing where you can't clock inside of a certain area. You're going to have people do this. We had one person do this and I gave them a lot of heads up before firing them and basically was like, hey, here's what we're seeing. And I did that one on one. But prior to that it was more of a team wide. Hey, just so everyone knows, when you walk in the door is when you punch in and when you walk out, you punch out. You don't punch in. When you drive in, you don't punch out. When you are leaving in your car, you punch in and out. When you hang up and you unhang the keys for the trucks. That's why we would have the, the punching station right below the keys. So it's like, hey, you hang up, you take the keys off the hanger, you punch in. When you come back at the end of the day, you hang up the keys, you punch out. So I would do more kind of a wide approach before trying to take a very heavy handed approach of firing somebody. Especially if your culture is good. If those people are bad, cultural fits, you didn't trust them, they're doing a horrible job. Obviously you're going to use that as a way to set an example and fire them. How often can we as business owners take the distributions? I'm thinking of paying myself a minimal salary and taking the rest in monthly distributions. You can take a distribution as often as you would like. There's no like legal ramifications of taking more or less distributions in terms of frequency. It's more of a matter of just like what is that distribution amount, it's going to matter for taxes, etc. So the, the rate of distribution is not a big deal. I would just ensure that you know that your cash flow is going to sustain a certain amount of cash in your bank account and then anything above that is really, you know, you can do distributions on whether it be monthly or weekly or whatever. For a long time I did bi weekly distributions.

Now I more or less do bi weekly payroll, like volume shop for the ones that are out of state that I'm passive in. I just take monthly distributions and just on a set automatic payment. So to me transferring every month would be a bad idea to purchase lawn accounts in the middle of the winter. Just wondering how that would work in regards to making sure they stick with you in spring and the transition process. Yeah, I don't think it's a bad Idea that the reason I would say it's not a bad idea is because that's when everyone's wanting to sell, right? Like you're not gonna have many people wanting to sell their lawn care business in the middle of spring rush or in summer or even in fall when they're making a bunch of money. It's gonna be during the winter that everyone gets disillusioned and wants to sell their business. So I think it's definitely the time to buy. It's the only time to buy honestly a long term business because that's when people stop caring other company or thinking that they might want to quit. So.

All right, look what I got to deal with this guy, Check this guy out. Seriously, make any privacy even sitting on the floor. All right.

Do you always own or distribute companies profits to start up your new locations? Is there a more tax efficient way to be able to deduct expense for new locations personally? So what you can do, what you can do is you could have a holding company and then that way the profits from that company you could take as separate LLCs underneath that, you know. So for example, if you have a holding company of an S corp, you have multiple LLCs underneath. And then that way if you're really profitable at the end of the year, you could start a new location, a new LLC underneath the holding group and you're still running one tax return with all of them, all your locations on one tax return. You could do that.

It's not super advantageous though because with a single member LLC or an S corp, the profits of the business are still going to be taxed at your nominal tax rate. Which means if there is a, let's say one location has $150,000 profit, it's like your first one did really well, then you start a second location and it was negative 80,000. It's not like you're having a tax, there's a tax issue because what's going to happen is they're going to take 150 bottom line profit and you're going to tax on that minus this other deduction of 70,000, right? So you're going to tax on 80. So when it comes to single member LLCs and S Corps, there's like a massive advantage to try and doing under one, one.

One entity. You can just take a loss in one and a gain in another one. When you start having one entity though, that bosses for like five years straight, it's gonna raise a red flag at the irs. And so that's why typically I will start a new llc. I will have a new bank account with owners.

Owner'S initial investment in it. I say, you know, $100,000 or $80,000 and then I just chip away at all the expenses. It's all categorized in a different QuickBooks account, have a different P L because you can have different P Ls, different bank accounts and everything, but still have holding different LLCs under one holding company and run one tax return on the corporation. So but it's really not a more tax efficient way to be honest with you. Because whether it be a single member LLC or an S corp, it's still whatever, it's a pass through entity. So any profits go to you as the owner. And then if you have deductions from other LLCs that have negative or losses, it just is a straight, you know, just takes away from that income. So that's why a lot of times multiple locations are gonna be starting towards the end of the year because you're like, okay, I have, you know, $200,000 of profit. I don't want to be taxed at 30%, I'd rather be taxed at 22% and go spend 80,000 of that. Okay, well then let's go spend $80,000 at the end of the year under a new LLC. The LLC is now gonna have a loss in that year and you can take that towards you. The income from your first location. I know this is a CPA question, I'll ask Brad about it during our tax talks. Oh, I like that, that's a good name. Tax talks. But regarding how is regardless, how is money transferred between LLCs is a good question. If I start a second location next year, do I need to take a distribution with the current business, pay taxes and then put it in the new llc? No. Or is there a better way to avoid taxes? So keep in mind when you.

So obviously yes, talk to a cpa, but you're not going to get taxed on distributions. And then you take the tax the post tax profits and go start another location. You don't have to do that. You're going to take the money as a distribution, right? Then you're going to start this other business at the end of the year, you're gonna have a deduction of this other business against the income that you took out. So the cleanest way that I do it, and again it's depending on if you're doing two different S corps, again it might be a little look a little different. Like typically what I will do is I will take a distribution from the first company, right. To take the money out. Basically either do distribution or do a loan. That's the only way to do it because you've got to move money out. It's not an expense or income. Right. So it's all on the balance sheet. So you're basically taking a liability, a loan and creating cash, an asset. Or you are taking a distribution, which is an asset and you're turning that into owner's investment, which is owner's equity, which is a liability. Remember, a liability is loans and owner's equity. Right. So.

All of the moving of money between entities is just on the balance sheet as either owner's distributions or you can do loans between companies. And if you're going to do loans between companies, you need to have usually a contract in place of like how you're paying it back, what the interest rate is, etc. So I, what I did like for example last year is I took a loan from the gym. Sorry, I gave a loan to the gym for me personally so that way I could take an interest. The interest that I was paying myself was considered an expense for the gym. And I only did that because the way the profits were last year. But yeah, you get very creative with either distributions and then owner's investment, which is all balance sheet is not expense, it's not taxable at all. Or you're going to take a loan from one and then that loan gives cash to the other business. Again, all in the balance sheet. Moving money around just needs to be done correctly so that you don't pay taxes. You don't want to do is claim it as income. When you put the initial 50 grand in the location, you don't want that showing up in the P and L. It's only in the balance sheet, otherwise you'll pay taxes on it.

My accountant recommended I have a smaller salary and use distributions to make up the difference of my actions that I pay 100%. The reason he's saying that is because your if you took a salary, you're paying W2, which means you're usually around 35% taxes depending on your state. Right? But you're paying into unemployment, you're paying to Medicare, Medicaid, all that stuff. If you take a distribution. Now that distribution, if you have deductions, all the rest of it might get taxed at say 15 to 20, 25% depending on what your bracket is. So it's usually you're going to reduce your tax liability at least 50% just by taking a distribution instead of a salary. But if you have an S Corp, you have to give yourself a salary. It was a W2. And again, when I say salary, I don't mean just a scheduled distribution. I mean a W2 employee. Right. So. But yeah, the reason your account is recommending that is because your tax, your highest tax bracket is going to be W2 income. Your lowest tax bracket income is going to be distributions. Assuming that you have deductions. You're putting this in other businesses. You're investing the money. So that's why you'd always rather have distributions.

All right, hopefully you all can hear me half decently. Starting to get loud. The whole thing starts about 15 minutes. So see you guys tomorrow. Take care.