Mike Minutes Mastermind 10/20/2022

Morning destination. You're gonna do a little bit earlier of a mastermind this morning. The day I have to do some speaking and things. So just trying to get these done for today. One thing I want to go over really quickly, I was thinking about last night and that is return on equity for all of us this, this weekend, hopefully Saturday, Sunday we're gonna be launching the first episode of Business Bootcamp. And on there you're three out of the four owners that we kind of followed for the month are landscapers. And one of them you're gonna see focus a lot on projects, etc. He was actually in Goat Gang and won the excavator in one of their giveaways.

But you'll see that.

He had at in our first call he has under two thousand dollars in his bank account. Three three hundred thousand dollars of debt, two F four hundred fifties that he owes one hundred twenty thousand plus on each he has over. He's a seventy five thousand dollar chipper, he has a ditch witch, et cetera, et cetera. And less than 20. He's what he says 20 to 30% of his revenue comes from project based work and that includes tree chipping, excavation, hardscaping, etc. And we're talking about a business that probably will be 800,000 this year.

A little bit less probably. And so we're talking about having $300,000 of debt for the portion of the business that does probably around $200,000 a year in revenue. And the asset utilization is pathetic because if you use a tree chipper once a week, I'm just, I'm sorry, you do not need a $78,000 tree chipper. @ least that's how much he owes on it. Who knows how much it's worth. So these are just warnings and things that I see a lot. I see this all the time, even at places like Quip Expo that we're at this week. Day two Here.

You just don't need the equipment as you're walking by it. You just don't. It's not what makes a successful business.

Contrast that to another person in the. In the business boot camp. You'll see here. And the reason I'm using these examples is because sometimes we can get numb because of Augusta. We all use the same systems and the same model and so it can become somewhat boring.

But when you see the alternative, you see why we talk about it the way we do. And so then you'll see another owner who is not doing anything fancy.

Doesn'T have a whole lot of debt. Just the focus is on simple services, but will do over $100,000 in profit this year on a business that's less than half the size.

And so when you talk to them, Roe, our return on equity, it's extremely important. Something I'm talking a lot about with Chuck the past couple weeks. As we think about someone starting as an executive franchisee that has six to 10 locations from day one, the number one thing they're looking at is return on equity. And as you become more of a sophisticated investor and you start diversifying, getting the 6 and 7 stage of wealth, you start thinking about things like return on equity a whole lot more than how much revenue can I do, what type of equipment do I have? Because you're simply trying to put your money to work for you. And the only thing that matters at that point is the numbers. And so when we start looking at how do we deploy 60 to $80,000 in a new location and have that within three years be producing six figures of profit. And again, I say after three years.

Of investing back in the business, growing the company, how can we get to where that is happening? Is an extremely efficient use of money and extremely efficient use of equity if it's deployed correctly against the correct things. And that's going to be marketing, getting more customers, generating recurring revenue and producing a profit that is healthy, that after three years you can turn on the profit spigot by raising prices, reducing close ratio and really creating an interesting business.

And so it is tell tall signs of what I see consistently in this industry and that it is people buying equipment because of the big flashes.

Not necessarily the nice equipment. It is the promise and the allure of big projects. And I'm not saying that you cannot make money in those. I'm not saying that. What I am saying is I consistently see the people losing their shirt and giving up in this industry are the ones that have massive amounts of debt on pieces of equipment they do not use and they have such a low return on equity. Like for example, if you have $300,000 of debt and $2,000 in the bank and you've been doing this for like six or seven years, your return on equity is negative after that many years. I expect after, you know, I would expect the first couple years of your business, your return equity to be negative because you're growing the business. The equity, remember, owner's equity is considered a liability on the balance sheet, right? So you have assets and liabilities. Assets are like things like cash. It's going to be receivables et cetera. But on your liability side, remember the equity is. Owner's equity is considered a liability. And so the reason you say, how does that make sense? Well, remember, the assets have equal liabilities on a balance sheet. So when you put in, let's say, $80,000 of cash to get a location started, that cash is an asset. However, in order for assets to equal liabilities, you have to have owner's equity be a number. So if you put $80,000 in, you have $80,000 of assets. That $80,000 in is considered a liability in the form of owner's equity. Owner's equity is a liability to a business. Right. It either needs to be paid back or needs to be given dividends over time. Right. And so I remember when I learned that that owner's equity is a liability, it is not an asset. I cannot brag about how much you've invested in your business. It is simply a matter of what distributions and the return on that equity yield for you over the course of time.

So I hope that helps somebody because it really helped me. I remember just, just that mental, that mentality of the money I put in this business is a liability on the balance sheet. It is not an asset. The only asset that is in my business is cash. And furthermore, the only thing that I care about, the only reason I would give a liability to my business in the form of owner's equity is because the expectation and the.

Confidence that I'm going to get returns on that liability. So.

All right, we just have a couple questions here. We'll pound through these real quick.

Some late. All right. Kyle, are you going to be switching all your locations online to Capital One? We are currently using a physical location bank by. Ideally, I like to move online. Yeah, we're moving everyone to Capital One. Price Winter, my new locations. You already have and then new locations we're starting. We'll be using Capital One. We'll probably use an Ally bank or Relay bank which are online for checking accounts. And then just using.

Zooper. Require credit cards to be on file prior to someone accepting an estimate.

So we don't have to. We don't need a physical location to go cash checks.

After registering your Augusta Lawn Care of X LLC with the state, would you also recommend filing a trade name of Augusta Lawn Care of X? My current brand is set up like this where we can use the LLC tag in our branding or not. Just curious your thoughts if this is a necessary step. I don't think it's a necessary step for most States to add a trade name is only like 50 or 60 bucks per year when you're filing. I don't think it's a necessary step because you already have local localized protection of a business name when you have it. You already have localized protection of a trade name when you have a business name that is the same thing. So sometimes I'll add a DBA if I want to protect it, but very rarely. I wouldn't worry about Augusta Lawn Care in your market. If you have Augusta Lawn Care of X llc, it'll be protected by our national.

Copyright and stuff like that. Our trademark. Sorry, would it be in the cars to have an how in house? You guys have CPA dedicated doing our taxes, answering questions, etc. I know Brad is taking on some of the stuff, tax stuff, but he mentioned he can only do the basics. I know I have a CPA that does my bookkeeping at the end of the year tax filing, but it would be way easier if I could just have one point of contact at Augusta if I have questions or need my taxes sent. Yeah, like this is definitely going to be Brad for you to be able to do this. And then if you ever wanted like multiple.

Consultations, it'd just be like a probably that 120 that he's charging currently, which is very low for a cpa. To us, that's what you'd probably be getting charged. If you're going to go to a regular cpa, you're probably going to charge twice as much. And the challenging part as you get probably beyond three and four locations, if you have a lot of real estate, you know a lot of other businesses, the challenge becomes you need multiple disciplines of tax, you need an auditor, you need somebody that can do like forensic type tax stuff and really help you to make sure that if you got audited that all the different businesses are like locked up and very, very clean. I do not believe that anyone would need anyone besides Brad until you had multiple locations, two to three businesses, several investments in real estate, etc. But he'll be honest about that if he feels like it's beyond his scope. And when it goes beyond his scope is typically when even if you went to regular cpa, they're going to recommend you get a CPA firm with multiple disciplines of tax.

Because there's just so many different types. It's like saying a doctor, there's so many different disciplines and specialties. Same thing goes for tax. So as you grow and become much larger and you have a much larger portfolio, you need to make sure that you have different types of disciplines of tax CPAs in your firm. But you're going to pay an arm and a leg for it. But it only becomes worth it as you become larger. What is your take on sending complimentary estimates to our recurring clients after the one click? I sent a one estimate for fall a couple of weeks ago and had some good response. I just sent a complimentary estimate to all those who did not respond to that one and had only had to accept it in the first 30 minutes. I just sent out a complimentary estimate all who did not respond. Interesting. Compare the return both. Should we do this for service as well? Yeah, like complimentary estimates. Like when you're giving an estimate when there's no.

No one asking for it takes a lot of time. Now if you're talking about 30 or 40 customers that you have, that's a good, that's okay. But when you can't do this when you have hundreds and hundreds and hundreds. So it completely depends on the size of your business. If you're in your first year, you have 40 to 50 customers. I would be giving them complimentary estimates. Basically everything they could possibly think of as the year goes on. I'd give them the complimentary estimate for mulch because I'm already on their property. I'd give them a complimentary estimate for leaf cleanup and recurring leaf cleanup. I'm already on their property gutter cleanup, winter service like you go through the whole gamut. I'd be giving them complimentary estimates. If you're at a hundred 150 million customers like most of us are, I don't think it's the best use of your time to be trying to sell the unsellable and those people who have already not clicked on a one click estimate email. Unless you have nothing better to do, I'd rather you do complimentary estimates than flushing money down the toilet on Facebook ads during the winter when demand is so low and you're going to be paying 150$250 per customer acquisition cost. So.

When can you start taking distributions and how. Let me just see who this is because that has context. I need. Give me a second.

Let's refresh my page.

This is AB yeah, so in terms of distributions, I personally try to get start my distributions after year one for my locations and I'll just start off like a thousand bucks a month as an automated transfer. When you can start taking distribution, that is when you become profitable. The question is do you want to keep growing? Because if you want to keep growing, you need to keep investing the money back into the liability portion of the business, which is owner's equity, and keep investing the money back into the business and growing it. The question is when you switch it to profitability mode. When I talk about that switch that you make is usually when you raise prices and you're starting to take distributions and you start making a profit. That's when you can, you can do that after three months if you scale up, scale up really quickly, 50, 60 thousand dollars a month in revenue and then you turn the profit, spick it on, you reduce close ratio by increasing prices, increasing profit margins and you can start taking distributions right away. There is no right answer to this. It's a matter of how long can you hold your breath. If you can hold your breath, two or three years, you'll build, you can build a million dollar business and then now your distributions look much larger in terms of when you switch to that type of mindset. So, all right, amazing people, have a fantastic day. Happy Thursday, look forward to tomorrow. And we're just heading out to day two here of the Expo. I'm listening to Ryan Payne, one of our franchisees out in Texas. To those who have not met him, he's the one who did the Christmas lights mastermind for everybody. And he'll be speaking this morning at 10 o'. Clock. Looking forward to that going to 8 o' clock kind of social media thing. But then at 2 o' clock I panel with Brian's Lawn Maintenance and.

Jay, listen, whatever his name is, Paul Jameson doing a panel there this afternoon. So that'll be fun. Looking forward to it. Appreciate all your guys support. These are good events for me to get to just to kind of step away, get some ideas and get a pulse on what's going on. So I appreciate you guys letting us step away. Take care, have a great.