Mike Minutes Mastermind 11/07/22

Happy Friday everybody. A couple quick updates on Monday there's going to be a P4P app update and design update. So all of your employees that are using the app, you'll see a massive change similar basically to what's been going on on the back end design of the desktop. It'll look way better, they'll have better graphs, etc. So the leaderboard will be improved. All that good stuff will be happening on.

Another thing is there's about 10 locations that have the estimate request forms that go to you directly. If they have not been going through the next few days, feel free to submit the form again on the website portal website dashboard so you can make sure that they're coming to you. For some reason when we made the change to the estimate request form, there was several of those that slipped through the cracks and for some reason started coming back to command center. And there's really no way for us to know. You know, Command center rep doesn't know when those come in. They just, they're just trained to go through those. So if for some reason that happened, feel free to submit that form again from the site. But we are kind of on our trying to double check all of them and make sure that they are still going to you if you have requested that. So that is all I got in terms of that. Other announcements I'll go over a little bit more about conference next Thursday again I sent everyone email out for the roundtable Q3 roundtable. It's going to be next Thursday and it'll be a zoom call for everybody. And I will go over quite a few updates for for the conference. We're looking forward to doing a couple dinners on the Wednesday night and the Saturday night with just the franchisees. That's gonna be a lot of fun. I was there at the conference center yesterday confirming all of that.

That's all I got. I might do is jump to education stuff real quick. So someone had text me the other day and I realized that sometimes I kind of assume some economic stuff. So education side. So someone was asking me the other day why is it a bad thing if the jobs. If we're getting a whole bunch of new jobs in the economy, why would that be considered a bad thing for the economy? So like this morning the jobs report came out again way higher than expected in terms of amount of jobs being added. So why is that quote unquote bad thing? Well technically from an economic standpoint it's not. Adding more jobs is going to make the the economy do really well. The Problem is, if the economy does too well and everyone is making too much money, it can create inflation. And inflation is just the cost of goods and services going up over time. And so what happens is you get a whole bunch of new jobs coming into the market. What happens is the unemployment rate gets really low. And what that creates is there is a massive demand for employees. So people raise their wages. Everyone's like, oh, that's great, we raise wages. Okay, great. But because you raised wages, now the cost to all these companies goes up. So what do they do? They raise prices. They raise prices. And so now everyone has to pay more for them. So what do they need? They need more wages. So what do they do? They go back to their employers, they had any more wages, the employer says, okay, great, I'll have to give them to you because I can't get employees anywhere. So what am I going to do? I'm going to raise my prices. So this is what's called the wage price spiral. All right? And this is why the economy is going to go into a rough spot, in my opinion, and already has in some cases. Because when this wage price spiral starts turning really fast, the government, the only thing they can do to stop that. Well, one of the main things they can do is raise interest rates. Because by raising interest rates, when you raise interest rates, it basically increases the cost of capital. So in order to borrow money for a house, to borrow money for a credit card, to borrow money for a car, to borrow money for anything costs more money. And so what that does is slow down people buying stuff like, hey, people are buying things too quickly, causing this, this wage price spiral to happen. And so even this morning when the jobs report comes out and it's way more than expected, and then they revised last month up by 11,000 jobs. Yes, I'm happy that everyone's getting a job. That's fantastic. But this is going to absolutely increase the likelihood that the Fed continues to raise interest rates, which, which is going to ultimately kill. Like, this is like, it's just so annoying when, when politicians come out and start yakking about stuff like the jobs, like we've created X amount of jobs. Like, yeah, and by the way, the wages that these entry level employees are making are now worth a third or 40% less than they were a few years ago because the cost of inflation. So.

In my opinion, when the real, quote, unquote, recession, like, if you talk to people like me, you talk to people online that are really into the financial game, they've been talking about recession for, you know, at least three to six months. I, I was about 11 to 12 months ago, like, hey, this is going to happen.

But a lot of people were, a lot of people that were really into finance. A recession really takes off when fear hits mainstream America. And that happens when you got Tucker Carlson or some person on CNN yakking about unemployment rates going up, no one being to sell their house.

The average price of a home going down over the course of 12 months. If you look over the past 12 months, houses in America have still gone up like 12 to 13% in most markets. The thing is, if you look at the past six months, they've gone down like 10%. So the fact of the matter is that yes, we have started doing this, but if we look back a year ago, we're still above where we were when, when we hit like February, March, April of next year. And that's no longer the case for the housing market. And what's going to happen is these massive increases in interest rates are going to slow down the, the employment rate and you're going to have a whole bunch of people being unemployed next spring. Just wait till that hits the, the news cycle that's going to, that's when massive fear and panic takes place. That's when people start selling their house. That's when, then you got all these people selling their house. It flood the market. That brings the cost average price way down because people have to start discounting the prices of their home in order to get them sold. When, when the jobs report comes in with a negative number and just, just watch how quickly this will fall. You got things like Credit Suisse happening, their banking, like, yeah, it's just gonna be, it's gonna be interesting. So when you see the headlines like great jobs report, the economy is doing fantastic.

Real estate still up 10% year over year. All of that is like lagging data, massive lagging data. It'll be very interesting. I can, I'm not going to guarantee, but I would be very suspicious of the fact that to one to two months after the elections are done, we have a negative jobs report. Like give me December or January. I bet there's a negative jobs report right after, after the, the, the elections are happening. It's like, hey, now we, now we can actually print the real numbers of people losing jobs because interest rates being hiked up to the moon. And when that catches up with the real estate market and yeah, it's gonna be a catastrophe. So anyways, that was a little bit of that this morning. All right, questions let's.

Okay. Kyle, you mentioned after the first year of locations operations you should be able to take out 1 to 10k a month in owner distribution. This is on top of owner salary. If you are involved in the, in the operation, yes.

Yeah. If you're, if you're doing any sort of work in the location whatsoever, you should be taking owner salary. The only way that I don't is if I'm completely passive. I never show up at a location ever. So that's just how I do it. Because I don't want to take an owner salary. We take owner salary. I'm paying W2 taxes versus being able to be more creative with the distributions in terms of taxes. But if you are involved in the business, you need to be taking some sort of a W2 or wages to suffice. The IRS is monthly owner pay supposed to show up on the profit and loss and owner's profit distribution supposed to be show up in the balance sheet. Why is it one way or the other if you're a single member LLC and you're just transferring money from the bank account business bank account into your personal account. It doesn't really matter because you're going to get taxed on whatever is the profit from the business. It's called a pass through entity. Which means any profit from the business is going to be taxed as your personal income. When what you're talking about Nick here is when you do, have you filed an 1120s or you're being taxed as an S corp, you're gonna have owners pay which is a W2 like you pay yourself wages and there's taxes taken out and all the rest of it. And then you have owner's distributions that are going to become a balance sheet item and they're not on the profit and loss statement. Why is it one way or the other?

Yeah. So I hope that made sense. Basically your actual salary for the work being done, your, your W2 position is paid out as a profit and loss because it's an expense. Whereas distributions to the shareholders is going to be done. Like if, if you look at a company on the stock market for example, they have earnings per share, all those earnings are collected and if they do distributions or they do dividends, they share that money with the the investors. That is not considered a, an expense to give the distributions to the employee to the investors. So you as the one investor of your business when you have S corp is you pay yourself for your job and then the money that's left over is either a retained Earnings I. E money staying in the business or B it goes to the distributions to you as the owner or could also, you know, call it quote unquote dividends to you as the shareholder of the organization. So.

If you selling your real estate and not getting a loan on the HQ by the way, I'm not 100 sure if I'm going to do that. I might take a small HQ key loan out just for the sake of having my back pocket. And that's what I'm actually leaning towards right now is most building loans are last dollar in. So basically it means you pay a whole bunch and they pay for the last, you know, 1 million or 2 million or whatever it is. So it looks like I have a 1:1.5 million.

Commercial loan that I'll probably have my back pocket just in case I want to have it just in case something goes crazy. So I probably will have some sort of debt on the loan, but I'm not sure. We'll see. Would you basically be foregoing the 1031 exchange? Instead you are going to pay cash and the rest of the money will go into a new Augusta location. Wouldn't that hurt you as far as paying quite a bit in taxes for the real estate? No. So.

This is actually my first 1031 exchange. So I'm learning a lot about the process. You have to get what's called a 1031 exchange facilitator. So I'm actually working with them last night on this stuff. And basically it's a third party that basically makes sure that everything is facilitated correctly in terms of you claiming the property within the amount of time and all the money is, you know, kept track of, et cetera. But essentially what I'm doing is I'm taking the real estate holdings and I'm going to purchase the property and build the headquarters underneath the same entity name. So I can sell the properties over here and then move it into another commercial building which is in the offices and then the, you know, franchise and the media team, etc, they'll pay quote unquote rent to the owner of the building which is going to be my real estate company. So that way I can do the 1031 exchange and I will forego a ton of taxes on any profits that are made in the sale of transactions. So that is the goal. One quick thing, I, Chuck and I are working on a whole bunch of systems. I'll be talking about this a little bit more at the Zoom call for Roundtable next week. But one thing that was really good, I Know, a lot of people are starting their second location. We're having working GMs, etc. So when it comes to a working GM, the thing that we are kind of using right now and testing out is the expectation of 30 budget hours being done by the working GM per week. It's like a regular employee minus half an hour of budget hours for every drive by or in person estimate that is on their schedule. Okay, so this is way it's very easy to calculate the performance of a working GM. You cannot have a working GM that is not doing any field work and has 10 or 15 estimates a week. You will never make money as in the working GM model. Never.

And so what we're really because like the profitability of a location with a working GM hinges completely on the productivity of that work of that gm. So if they're not in the field working like you go from making the business 10, $12,000 a month to being a negative cost overhead for the company, which is the delta of a profitable versus unprofitable location. So.

That'S kind of how we're benchmarking the GMs and that's what we're working with right now. And that is we expect to do 30 budget hours worth work every week. If you have estimates for every drive by or in person estimate, not over the phone, you don't need any time to do those things. It's done over the phone by command center. But any sort of drive by or.

In person estimates would take half a budget hour off that. So if you had 20 estimates for the week that are drive bys or in person, that would be 10 budget hours off of 30. So half an hour for each one. That's so we still expect you get 20 budget hours worth of work done completed in the week. All right, that's going to be like three days. So essentially again you can run the math on that 20 estimates, I'm going to work three days out in the field. The other two I should be doing at least 10 assets. Very conservative, very possible. And if our GMs don't hit that, that's when they'll stop being repercussions. Because the complete profitability of a working GM model depends on is that working GM efficient with their time and in the field as much as possible. So 30 budget hours is very doable. If you're not doing any estimates, that's a normal employee, you should be out working in the field. And then as you get more estimates that'll take down. So that way if someone has let's just call it 60 estimates. Well there you go. That's all they'll be doing for the whole week. If you had 60 estimates in the week, divide that by 0.5 hour each, that's 30 hours. That's 30 budget hours minus 30 0. So that would assume that if you're not going to do any work on the field, you should be doing 60 estimates a week. And that's drive by and in person that does not include otp. So.

Is the working GM model for more the person who has disposal income to start multiple locations or for someone who is wanting to push high profits as quick as possible from startup? So yeah, like I'm going to talk a bunch of this at next week's roundtable because I know there's a lot of people starting their second location and there's more actually than I anticipated starting their next location this coming spring. So I'm going to do quite a bit of discussion on it and just know that we are refining this over the next six to 12 months. But we have a pretty good model in terms of like the compensation for the working GM being different than just straight profit sharing. Really incentivizing growth the first year and then switching to profit. So that way they get to up to 4 or 5 600,000 in annual revenue very quickly and incentivizing growth only in the first year and then switching it to profitability in a second. So I'm going to share all of that next week and that's just be more and more and more refined over the next six to 12 months. But in terms of who it's for, I would say it's for two people. One, the person that is better at starting than growing an organization and you'd rather just hire a working GM so you can go start the next location and then ramp up prices. Right. So when you're like if you're you're third year, for example, you did 200,000, you need 400,000 and this year did like 550. That's a perfect location to be okay, great, we're going to dial up prices massively. I'm going to hire a working GM and we're only going to do 600,000 in revenue next year. But I'm going to have a working gym take that over and I'm going to start my second location. That's like perfect spot to be in because you'll be really profitable by raising your prices to, to kind of quell the demand and quell the math. Like you're not going to be 750 next year. Right. You're going to raise your prices so you actually still stay around 550, 600. Anything above 6, 7 if you hit 800,000 and beyond. Like, it's very hard for a working GM to just be the only person that is handling everything.

When hire, when hiring our first helper and they are not on P4P, are we paying drive time when paying hourly? Yes, absolutely. Yep. There's clocking at the end of the day, beginning of the day, clocking at the end of the day, etc. Again, if you're first helper, just make sure that your hourly rate to that employee is what your base pay is going to be in the future on P4P because then you'll have no problem switching to P4P down the road. When you have one employee is the is the one time when you don't really need to use P4P because you have eyes on them all day long. And P4P is only really useful for unmanaged labor. There's no point to have P4P if you're working with the person all day long. So cool. I think that's all we got, guys. Have a fantastic weekend. And you know, it's October. I see a little bit of coasting happening on a few people's locations. I just encourage you, just really keep focused. We still like have 25% of the year in front of us. And if you didn't notice, most of your profits came in Q2, Q3 and Q4. So the more you can keep pushing right now, the more you can keep your, your backlog filled and really accelerate into spring into the leaf cleanup season. I highly recommend that every dollar you can stack aside in the during these most profitable months for next spring will absolutely pay massive dividends. It'll also lead to potentially, I know already there's gonna be multiple people buying other local competitors out, especially come January, February when everyone does not want to get started up again. And this year they lost a bunch of money because they didn't raise their prices and they couldn't raise their prices or they couldn't find employees or whatever it might be. There's gonna be a lot going next spring as we go into a downturn. I'm looking forward to that. There's going to be a lot of people that will not be able to make it and it's going to be those companies that have 5 to 10 employees I think hurt the most because they're affected the most. By the wage price spiral. They can't find employees. They don't have a large enough brand to be able to attract employees. They did not raise prices enough to have enough margin. They don't have an office team. They don't have someone like, commands or answering the phone. So they don't have enough brand power to raise prices. Their customers were price sensitive. They're going to all get lost. And now those customers get upgraded to being more price elastic because they're tired of losing out on their contractor. They're tired of someone who's not showing up when someone calls you and says, my guy did not show up. They are the least price sensitive in that moment simply because you now get to sell on value instead of price. All right, so I'm very much looking forward to this change. I've seen this already in a couple of locations, especially where we're seeing a big downturn in real estate. And, uh, you're seeing already a lot of competition going, getting flushed out of the system, and you're gonna. We're getting a lot of people calling like, my. My landscaper didn't show up. My landscaper didn't show up. I just need someone out here as soon as possible. That person's the least price sensitive. They're Happy to pay 5, $10 more per pet than the last person just because you answered the phone. That's the type of thing that we're looking forward to. So. All right, guys, have a fantastic weekend. And as always, thanks for submitting the questions. I'll try to stay on top of those. I think we're doing a pretty good job on those. And they've been great, great questions, by the way, the last few weeks and everything. So I appreciate it, taking.