New Augusta Headquarters, How to Buy a Truck, Small Businesses Crushed

Welcome back to the Mike Andes Podcast, where we discuss ins and outs of owning a small business. If you're new here, the Mike Andes Podcast is all about taking your business to the next level. We have a whole bunch of great content and updates to go over today, but first things first, we are actually in a new office. Mike is going to go over why we made the move and what it means for the future of Augusta headquarters. Next up, every lawn care operator needs trucks. But when you're looking to buy a new truck, there's more than one way to get it. But which way is the best? Mike talks about leasing versus paying cash versus taking a loan. One of these is going to be the best option for you. And finally, interest is skyrocketing, putting small business owners plans on hold. But what can we actually do about it? As always, you can find all this and more over at the Mike Andy's YouTube channel. Let's get into it. Mike's going to take us on a tour of the new Augusta headquarters.

All right, so it's late at night, but tomorrow our new office is gonna be starting. Everyone's gonna be showing up tomorrow morning.

For the first day here at the new office.

I'm gonna show you guys around real quick and hopefully kind of show my decision making process on this. So a few weeks ago, we were told that our lease was not gonna get renewed. And what stinks is we were going into spring rush and we are hiring a whole bunch of people for the command center. That's where I'm at right now. You're gonna see some balloons, we got snacks for the team. You're gonna be showing up tomorrow morning. Give them some donuts, pump them up full of sugar. Let's go. I told everyone to bring their sweet tooth. So it's definitely a little bit bare. This used to be a retail store, like a Bass Hanes underwear store used to be back in the day. But what's crazy, let me walk you through how this happened. So literally a few weeks ago, I emailed our landlord. I was like, hey, our lease is coming up. And I fully expected them to be okay with us continuing our lease. We had three offices inside the building. They were all smaller offices, but they kind of got the job done. And they're like, yeah, by the way, we're not going to renew the lease because. Because you're using the building so much that it is causing issues with other tenants. And obviously we were filling out the parking. We were parking in another parking spot and people were walking to the office. So we just outgrown the area, honestly, and outgrown the space. But that put me in a really bad spot because I had to now come up with a new office within a matter of a couple weeks because we had conference last week. And then we start training at least 20 people starting here in a couple weeks now. And so by the end of January we have, we. I knew we had to be moved in here and yet it is the last week of December and I have conference the first week of January. So I literally in two days made the decision on where we were going to go. Immediately contacted every single potential place on LoopNet that was leasing. I contacted a couple agents just trying to find out a place that would be willing to rent to us for only one year because really this is just like a temporary holding spot before our headquarters is done. And it's very hard to find a commercial lease with a building that's, you know, 6,7000 square feet for one year. It's very hard to find that. So fortunately we were able to find this space. It's E retail but because there's quite a bit of vacancy in this plaza, we did a great deal deal in terms of rent. And yeah, it's not ideal, it's not perfect. There are a couple of different other options but ultimately the team decided on this one because the price was so much less as well as it's right next door to a bunch of other retail restaurants. Etc. Oh, I should go turn the lights on. So this is kind of what we got. We kind of try to standardize the area and we had these stand up desks, you just push these buttons and it comes up. It's very cool. So we try to keep it very, very minimalistic, very, very simple. Black, white, gray. Just try to keep as clean as possible. These are really cool. They're like 170 to 200 bucks on Amazon. But they have a secondary screen. They like to put them horizontal. So they have their messages on this one, all their messages coming in from the franchisees, all different locations. And then on this one they have their dispatch boards and are inside the CRM. So yeah, there's, I think in this office right now there's 4, 40, 40 desks and there's going to. We're going to be hiring 20 people. So we'll probably end up doing. You can see there's a lot of space here. We can eventually add probably 15 to 20 more desks here and then along that walkway entrance. But the worst part about this entire office is the Back space. And that is. Let me flip this around. This would typically have been kind of like the break room. This used to be this. You can see the storage. Or they used to have the old storage store and they had all inventory back here. This is where we have everyone's cubbies for the team bringing water. Here's the problem, first and foremost, no sink here. We used to have a nice sink and a great break room in our other area. Our other office, not great here.

There is also no windows and no light here.

So I felt very bad. And that's actually why I did a. I put it up for vote. I had two different offices that within those two days I was able to finally find, okay, two different spots. One that was in a different area as well as a different price point, as well as it was way nicer. It's way nicer than this, but cost twice as much. And it wasn't next to a bunch of amenities or the bus route. So the biggest downside of this one is the fact that this is the only toilet in this unit. Now the.

These are cool. You'll see these kind of all over the place. People can tear them off.

Here's the thing. The plaza does have some public bathrooms. There's like, they're like probably a two minute walk, maybe a minute walk. And the gym is in the same plaza. The gym that I own, Anytime Fitness.

Is in this plaza as well as.

Another unit that we have that is for the facilities that we use for training our franchisees. Now all of this we're trying to bring into one under one house under our headquarters. And that's why we're looking for this kind of very temporary one year deal. You can see up here, front here, this is where we made into the break room. So we kind of have two break rooms, one in the back where they'll have the toasters and the microwaves and the fridges and stuff like that.

Up front here is great because you.

Could easily have 10 people in here. Behind what used to be the registers for this retail store. We got the bean bags over here. Kind of a place for them to veg, take some breaks. Got the music playing, couches, bar stools up top there, other stools here we got. Actually, my mom built this out here.

Picnic table. Let's go. But you can see here, this is kind of like the shopping center. These units, two to our. Our right are vacant and two to our left are vacant. Other than that though, there's like subways right over there. We got woods, coffee or if you're in the Pacific Northwest. Gotta love with coffee, we got Bob's burger. So it'd be great for just like dinners, lunches, meetings, things like that. There's a pizza place over there. The gym though is literally right there. And so it's going to be pretty convenient actually for me. But I think the, the thing I learned from this one is just make decisions quickly. We were definitely caught off guard by not having the ability to renew at the other place. I thought for sure because we had like half the building in terms of leasing it, that they just let us continue for one more year and just renew and it would be fine. But they said no like randomly. So we had to make a very quick decision. I know we're going to make some mistakes because when you move fast like I talked about conference, you're going to make some mistakes, right? So this is probably going to be our biggest mistake and that is going to be not our uniforms, Internet. So we have access points throughout. But unfortunately because we've had to do this all, we moved in everything like one week ago. As I'm recording in, this was conference right now as I talked, it's a week later. And so we have an access point up there which is missing because we don't have enough. And then we have access point over here. It'll have like 300 people that could get on this access point which is great. However Comcast we paid for a 1.25 gigabytes of data. And when every single thing is turned off here and you connect, you do Internet speed check. It makes maximally max does 250 to 300 megs. So the problem with that is when you have a whole bunch of people connecting that gets divided out, right? So if you have 40 people connected to that now all of a sudden you're running with like seven eight gigs or seven to eight megabytes of Internet. Not good because we do a VoIP voice over the IP like Internet phones basically. And so you can't have slow Internet. So that will probably be a problem. It absolutely will be. But ultimately we need to get moved in prior to when we start training a bunch of people. So up front here got a whole bunch of desks. This is the old style of desks, you can see green and then these non movable. They don't go up and down. Not standing desk. So what we had, the reason I put these up here is because lots of sunlight, this whole thing, just great amounts of natural light and so kind of trade off that they get is, hey, you get natural light but you're not going to have the same fancy desks. So that's kind of the trade off. So yeah, I just want to show you, excuse me. Show you around. My voice is still recovering from conference. This is where the media team is going to be at. Got Andrew, Zach, Stephen and that's where I hang out a little bit. Brad and Lisa over there from home service epa. These two rooms are perfect for this one's going to be a little tiny one for recording. So the audio, when we do the podcast, the voiceover we are able to get clean. And then this inside of here, these.

Used to be dressing rooms.

These used to be dressing rooms but now this is going to be where we have all of the media team gear, camera gear, etc. Yeah, this used to be the dressing room. Let's go.

Let'S go, fit expert. Let's do it. So yeah, lots of open space now probably will get filled in, but I think it'll last us for at least one year before we move the headquarters. And we moved a lot of our team back from being virtual into being in person. So we really had to get here. And in two weeks this place is gonna be a humming, you know, buzzing activity. This is gonna be the corner where the training. So you can see the larger 52 inch screen in the corner on wheels. So that way the team that's in this corner will be able to all train on that and it'll be able to add desks out here. We'll be able to add desk down the middle and then do an L shaped here if needs be. So we'll just see how it goes. But probably in two more weeks I'll make another video update. You guys. Once we actually moved in, but this is what we did in one week, it was not bad. Shout out to the team that did all the shrink wrapping and just moved all these dividers over here in the back. You see there's tons of light. Oh, I forgot to turn the lights on. That's all I originally, I look back here, tons of light. Because it was a retail store. Turn all these lights on. Yeah, tons of light. It's gonna be great. And what you're not seeing right now is all the light coming in from the exterior and just allowing a ton of natural light in.

So looking forward to it.

It's not the best spot. It's not ideal. I feel sort of bad because of having the two different break room areas. Not enough bathrooms in my opinion, but great parking and we'll be able to grow in here, no problem for the next year and it's gonna be a lot of fun. So community command center 2.0 can't wait for 3.0 and to be able to get our own spot headquarters, we can put down our routes, but that is that. Hope everyone enjoys that. Take care.

Thank you so much for making landscape summit 2023 an amazing experience for all of us. We had such a good time. We can't wait another year for the next one, so you don't have to either. Coming this October 16th, we're holding a whole new Landscape Summit. We've outgrown our hometown and we need a much bigger, better location to host the largest business conference the green industry has ever seen. So for the first time, we're holding Landscape Summit in Louisville, Kentucky. Start your week off with great talks from industry experts and keynotes from my Candies that will completely change the way you do business. And once you're done with that, head over to a Quip Expo just down the street at the Kentucky Expo Center. This isn't like any event we've held before, but we need your help to make it happen. So get your tickets now@mycandies.com.

That'S mycandys.com summit next up, if you're buying a new truck, should you lease it, take a loan, or should you pay with cash? Find out now.

Hey everyone, it's Mike Andes and today we're going to be talking about whether you should lease your trucks, whether you should buy them with cash, or whether you should finance them and use debt and loans to buy your trucks. Because I truly believe a one size fits all approach does not work. Size matters when it comes to the type of advice you're taking and the size of your business matters in terms of what type of financing you're going to use for your trucks. So let's break down the good, the bad, the ugly, and the ideal case scenario of what type of person I feel should be leasing, buying their trucks with cash, or using debt. Now let me preface all of this by saying that when someone does leasing or debt for simply tax savings, you need to be very careful taking their advice. Here's why. Most of the time when people talk about buying fancy trucks for their business, they somehow talk about in their 5th or 6th or 10th year of business, about how they had this premonition or this thought, they should go ahead and get really fancy nice vehicles and brand new all the time. And they they had this change of heart because of their tax situation because it worked well for them does not mean that the person getting started, the person doing 100 or $200,000 in annual revenue, should also go somehow get the cheat code. And that is go get a lease or go get a bunch of debt. Case in point was at Landscape Summit just a few weeks ago. We had Tommy Mello, who has a business that does well over $100 million in annual revenue for, for garage doors. And he was speaking on stage and he noted the fact that he thought people should get brand new vehicles for their employees and for all of their trucks when they're out working throughout the day. And although I agree with what he said for his use case, what a lot of people missed that were listening was the fact that he did that when he was doing over $5 million in annual revenue and he had an extremely profitable business that he needed to save money in taxes on a section 179. So although I'm going to mention tax incentives when it comes to leasing and debt, which there are, certainly they are there. The reason they are there is because the government knows that by increasing the amount of consumption and you buying more stuff, it's going to help the economy. Buying more stuff does not help your business. And so let me be very clear that if you are a massive company, leasing, getting financing definitely will help you when it comes to tax incentives. You'll be able to write things off, take advanced depreciation in the form of the section 179, be able to get all of a lot of tax savings. But for the person that is making hardly any profit, going out and getting these pieces of equipment for tax purposes does not make a lot of sense. If someone is making 500, $600,000 in annual profit and adjusted gross income, like $500,000 on their tax return, like that's their taxable income. By them going out and getting a section 179, they might be saving 40 or 50% on taxes because of their state and the federal tax rate. Whereas if you are making 30, 40, 50, 60, $70,000 in annual profit and what you actually show on your tax return to the government, the IRS, you going out and getting $100,000 truck so you can get a section 179 is going to help you very little. You might literally, after standard deductions and other things that you can take for like your house mortgage and things like that, you might literally be looking at a 5 or $6,000 tax bill. And yet you're going to go somehow say that you're going to buy $100,000 truck, $80,000 truck to warrant saving 5,000 or $6,000 in taxes. It's absolutely crazy. So if you hear someone saying that they're doing Section 179 and they're financing and getting a whole bunch of debt, if they've been in business for five, 10 years, if they're super profitable, if they have other businesses that are bringing a lot of very profitable revenue to them, keep in mind that they are saving a lot more on taxes than you. For the same piece of equipment that they purchase on a section 179. Talk to your CPA. I suggest using homeservicecpa.com now let's go through leasing, buying with cash and then using debt. Number one, leasing a truck. Now, there's different forms of lease. I'm very aware and I know some people are going to disagree with me because of there's different types of leases. But just using the standard type of lease, you're going to usually have some sort of down payment and then you're going to pay it over the course of 24 or 36 months. And then you have the option to buy it out or trade it back in for a new leased vehicle. So the pros are you're gonna always have new trucks every two or three years. Brand new trucks. It looks very professional. It's always looking good. And two, three years is a great time to always get new trucks. Your guys are gonna love you. Your brand is gonna look on point. You're gonna have no maintenance or repairs. Cause when you lease a vehicle, they're gonna take care of the oil changes, they're gonna take care of the tires and the brakes. Everything typically is completely included. So no downtime virtually because you have a lease. A lot of times they'll even do like a lease replacement program, which is like if something goes, if something breaks down down, they'll give you another truck. It's pretty awesome because you don't have to worry about maintenance repairs at all. Massive tax incentives, because even though you lease the vehicle and you technically don't quote, unquote, own it, you can still take massive deductions on your taxes. Talk to a cpa, but you can definitely use advanced depreciation still on these vehicles. And what's the best thing about a lease is very low down payment. You might be looking at 15, 20, maybe 25% down payment on a vehicle. So if you're buying a $30,000 vehicle, you might be walking away with seven, $8,000 down payment. In order to get that $30,000 truck. Great. Now let's talk about some of the cons of leasing. Number one is that when you have a lease, because you aren't theoretically the owner of the vehicle free and clear, your insurance premiums are going to be very high. They're going to require certain limits that are extremely expensive when it comes to insurance. Very low deductible, having full comprehensive and collision. And I know some people are like, you should get all insurances, that's fine. But if you're going to take it from $100 per month, if you did liability only, and slightly higher premiums or slightly higher deductibles on your comprehensive, and now you switch it to where you have to have a 500 or $250 deductible, you have to have max coverage on everything. You might go from $100 a month to $300 a month just on your insurance for that vehicle. Very important, because everyone always takes into account the lease payments, but they don't take into account the fact that your insurance might double or triple because of those advanced premiums and deductible changes. Also, some cons with the lease. If you're not planning to buy out the lease and you actually are willing to get the new truck every couple years.

It'S frowned on if you're painting the truck or modifying the truck in any way. So if you're stripping off the bed, if you're painting the vehicle, lost a marker if you're painting a vehicle, all of those sort of things, not great for a lease, especially if you're trying to cycle them through. Now, if you decide not to cycle them through, but rather buy it out at the end of the lease and actually own the vehicle, there's a very good chance, especially if you're in the home service industry, where there's dings and dents and lots of wear and tear on the vehicle, there's a very good chance that the amount that you have to buy it out for is actually higher than the blue book when it comes to buying out the truck, because you might pay 15, 20% of the upfront, and you might pay another 10 or 15% off over the next couple years in terms of the principal. However, you're gonna be buying this thing out and you might still owe like 70, 80% on it, and it's worth 50 or 40% of what you purchased it for originally possible. I know that in crazy times like 2020 and 2021, things went up in value, but that's not standard. That has never happened. And I don't predict that happening in the future. Who this is ideal for leasing trucks is going to be for people who are trying to maximize tax incentives for established businesses that have extremely high margins, has lots of profit, because again, your highest $100,000 as a deduction on your taxes might save this person 40 or $50,000 in taxes. Someone that only has 50, 60, $100,000 in adjusted gross income that they're actually reporting to the IRS and them getting a very nice truck, they literally might be saying 5 or 6% on taxes. So very important. That's why a lot of the more established, bigger companies, they'll do the leasing programs with equipment or truck manufacturers is for that reason also very ideal for a company that is established and wants that premium brand. They want new trucks and they want their brand to be affiliated with always new, always clean, never breaking down and and always looking extremely premium. Great for being able to have a premium brand and therefore have a premium price. Now let's talk about buying things with cash. So the pros of buying things with cash is that you have the ability to have lower premiums on insurance because you are not required to have as comprehensive of insurance. Instead of a $500 deductible, you might have a $2,000 deductible, and that's okay and you don't mind. And you might not have comprehensive or collision type of insurance premiums on the truck. And that again might save you $100 or $200 a month just in the insurance premiums being lower. Again, it's an option. You don't have to. You could always take the higher insurance. And me personally, I like to have lots of insurance, but high deductibles because honestly, I'm only going to use an insurance in worst case scenario. I don't want to use insurance on little things because it's gonna make my insurance premiums go up and people aren't gonna want to insure me. It's crazy. Like, the more you use insurance, the more it costs. So I'm only gonna use it if like something blows up or a massive issue. We used to truck have a truck fire in it, and I didn't even make an insurance claim because it didn't want to affect my entire business that over the course of the next few years, I probably would pay the truck three or four times over just by the premium bump that might come up by having a claim on the insurance. So I personally like high deductibles. But lots of insurance just to make sure I'm covering the case that there is a 50, $60,000 mistake that is made. Cash pros, these are the good things. The fact is, a lot of times you can get a lower price on the private market using cash. Not a lot of private buyers are going to want to do financing. They don't want to go through a bank, they don't want to do a loan with you, they don't want you to take over payments. And they just want cash, baby. And so sometimes you can get better prices on the private market. You take the same exact vehicle that is used and you throw it on a used car lot, you're paying an extra 20 or 30% sometimes. So you can get a better deal using cash if you have it. And that is a pro is getting a better deal. And therefore there's less depreciation when you drive it off the lot because you've already paid a lower dollar amount in terms of the actual price of the vehicle. Some of the cons though of paying with cash is that there is a large cash requirement. You're going to suck out all of your cash and if you only have $50,000, $60,000 to get your business started, if you're buying a nice truck for 30,000 or $40,000, you just wiped out half or more of your cash reserves. And now what do you do? You have a nice truck and no business, no marketing, you don't have any customers, you don't have any other equipment, you don't have any employees. And there's still a lot of other expenses. So sucking a massive amount of your capital, especially when you're first getting started, that is definitely a downside of having to pay things with cash. It also inhibits your growth because by sucking all the cash of the business, it doesn't allow you to go spend that money on marketing or hiring or buying other things in the business that are going to generate more income. Like a piece of equipment that you might be able to charge customers more for, that's going to inhibit growth is just the fact that you're sucking the cash out of the bank and into a fixed asset, which is your truck. Alright, Cash. Who is this ideal for? It's gonna be for someone who's a little more conservative with the rate or trajectory of growth that they want to have for the business. Again, who this is ideal for comes down to what do you want from the business? If this person wants to have the security and the mental security and be able to go sleep at night, knowing that they don't have a bunch of debt over their head, they don't have a lease that is coming due, or if they ding the truck and then they can't convert the lease back in, they just want a little more peace of mind and they're okay with a slightly lower growth rate. They don't need to go from 200,000 this year to a million next year and then 4 million the next year after that. If you're going to do that, you're probably going to need some sort of leasing or financing because you need the cash in the business to be able to fund all the other expenses, not buying trucks. So definitely a more conservative rate of growth if you're paying with cash. A lower debt to income ratio. Again, someone just a little more conservative doesn't like to have a lot of debt. And that debt to income income ratio is something you want to monitor and you're just running a riskier business if you're having a higher debt to income ratio. Also great. This is ideal for someone that doesn't have any credit history. They don't have any credit score and they can't go get a lease, they can't go to get debt. And if they did, they're going to pay absorbent financing fees or interest. And so therefore someone with no credit history, great, that's ideal if you're paying cash. Also, someone who's going to pay cash is someone who doesn't want to have a lot of risk and they're an opportunist, which means when times are good, they'll pay for things with cash. So that way when there's a recession or times get bad, they don't have any debt, they don't have any obligations, and they have a lot more freedom. And they're not bound down by a bunch of fixed expenses because during a recession or potentially even if your business starts to struggle or you don't get as much work, having high fixed expenses with lease pay payments, high premiums and deductibles, high loan payments that you're making on debt, those things are fixed expenses that don't go away despite you making less money in revenue. So having less fixed expenses, definitely someone that is ideal for paying with cash because they're going to be able to spring on opportunities when everyone else is laden down with debt and fixed expenses. Now let's talk about the person that spends a bunch of money and buying trucks using debt and loans. And I'm trying my very best to be objective between all these Three, because I don't really have a shoe in the game here. I'm just trying to give my feedback of who potentially might want to use these different financing options. You do what's right for you because all of us are in different stages of our business in terms of size as well as the objectives and goals that we have for the company. So debt, going into debt, getting a loan on the vehicle, whether that be from the dealer or, or whether that be from a bank. Now here are the pros. There's actually a possibility that you can get no money down and you can actually roll all the financing costs into the cost of the vehicle and walk off the lot without spending hardly any money. That's a great pro. Literally no money down. Get a great truck, an asset you're able to go use for your business and make revenue. That's awesome. Another pro is that you use leverage. Leverage is the ability to be able to take a dollar from, but then get $3 worth of buying power. That's leverage. So by having a little bit of cash or a little bit of a down payment, you might be able to get 4, 5, 6 dollars worth of asset, a truck, just by spending the $1. So leverage is a great opportunity, allowing you to have much more growth. You can grow a business on debt much faster. Big businesses, lots of very big, large companies have a lot of debt and they do that in order to be able to grow very quickly. It's, it's a great tool to be able to grow faster than if you were just to use cash. Now some of the cons is that honestly if you buy a truck, especially if it's new, and you get debt on it and you roll the financing charges into the vehicle's payment, immediately, you're probably 20 to 30% underwater on that asset, which means it's worth less like by 20 or 30% compared to what you owe on it. I never want to owe more on an asset than what I have in equity. I just don't. And so even with my real estate, a lot of my properties, I have equity of 40, 50, 60% because I hate the idea of ever it being reclaimed. If I can't make a payment or something goes bad, I'm just a little bit more risk adverse. But if you a con of having debt, especially if it's new, is immediately you are underwater on that vehicle. Which means if something ever goes bad, the bank would rather come pull the truck out of your hands because you owe more on it than it is actually worth. Another thing with that is, you're either going to have interest or you're going to have financing dollars. What that means is you're either going to spend interest of 5, 6, 7, 8% depending on what your credit is, depending on what the current interest rates are, you're either going to pay interest payments or you're going to have to pay financing charges. Because guess what, even if you get 0% down and you don't walk, you don't put any money down in that vehicle, I, I guarantee you 5 to 10% is being tacked on that purchase price and you're not getting any discounts. You're not going to be able to come in and start haggling on price. If you're asking for no money down and financing, you're going to be paying top dollar plus another five, $10,000 in financing charges. You're like, oh, zero percent down.

No, it's not.

You're getting financing charges wrapped up into the price of the vehicle and you're simply willing to accept a higher price. It's literally like going to someone selling their house and be like, hey, look, I don't have a lot of money, but I'll give you $30,000 more. You're asking for 100,000. I'll give you $130,000, but I don't have any money. So just give me your loan, Give me the loan you currently have and we'll make it work. It's great in theory, until the market go down or there's a tough time or there's a recession. And so definitely a con is that you have interest or the fact that you're actually having a financing charge. You're paying so much more than the asking price simply to be able to walk away with a low down payment or no money down. There's also much greater risk during a recession because when the value of that vehicle goes down 20% in addition to it already depreciating a lot, and you have a lot of fixed expenses. And guess what, there's something that banks don't like to do during a recession that is not like skip payments. They're gonna come collect their assets. They might even liquidate or call your loan in the case where you owe more on that asset than what it is worth. So during a recession, the value of these trucks go down. We've all been used to 2020 and 2021. When truck values go up. That doesn't happen typically in a recession, they go down 30, 40, 50%. And so if you go into a Recession and you, you have debt up to the hilt and you're drowning in it. Bad news. If you have a whole bunch of debt, who this is ideal for who should finance their vehicles with loans? Fast growing companies that need cash. Because if you're growing really fast, you need cash for opex, that's operating expenditures, or for advertising, expansion, growth, acquisitions, hiring. There's a lot of money that is required to grow a business. And I've always said growth sucks cash. So the last place I want to put my cash if I'm growing really quickly is in hunks of metal and tires. So I should finance those using debt so I can grow much faster and then take my cash and deploy it against advertising. Getting more customers, getting a bigger shop, getting an office person, hiring more employees. So that's the route if you want to go very, very quickly and move very fast and grow your company extremely quickly. That's not for everyone. I've seen plenty of plenty of people implode and explode during a recession. And the companies that typically fail during a recession and when times get tough are the ones that have a whole bunch of debt or they've leased a bunch of vehicles. This is the much more conservative route, but it's also the slowest route to get there. You're not gonna grow 100%, 200%, 300% year over year and a million and five million and 20 million. You're not gonna do that with cash simply because you will not have the cash to be able to buy all of your assets or without using debt. So I hope that was objective enough. If you want more information, check out mikeandy.com and you're like, who in the world are you? Well, I'm the CEO of Augusta Lawn Care. We have 120 plus locations around North America. We do lawn care and landscaping. So I've seen all three of these play out both for people getting started as well as for companies that are in multiple millions in revenue and multiple locations. And I personally own eight of those locations, so I personally use cash. Even now.

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Rising interest rates put small business owners plans on hold. Some firms are cutting back on borrowing or delaying expansion, while others brace for indirect impact like weaker customer demand. All right, we've all been hearing about rising interest rates. I'm going to talk about why that affects the small business owner on so many different levels and more importantly, that this is part of the plan from the Fed. This is not surprising. This is exactly what they expected to happen and it's going according to their plan. And that might seem dark or sinister, but it's exactly what what they're planned for. All right, let's go ahead and jump into this article here in the Wall Street Journal adding rising interest rates to the challenges that small businesses are already grappling with, including inflation, labor shortages and strained supply chains. Some small businesses are cutting back on borrowing, paying down debt, or delaying expansion plans as interest rates rise. So all three of those things is what allows inflation to come down, is spend less, borrow less and ensure that whatever you are buying is going to be needed soon. Because if you're going to expand and grow and it's in 12 months from now, well, if interest rates are low, you can get free, you know, basically free money, very low interest rate. Well, then you should buy it now. But if it's going to be 12 months from now, but you don't really have the cash because you just spent that on paying down your debt. And the reason you need to pay down your debt is because now your interest rate just went tripled over the past 12 months. This is what causes inflation to come down because people stop spending money. So let's talk more though about what's exactly happening here. Small businesses are cutting back on borrowing, paying down debt or delaying expansion plans as interest rates rise. Others worry that rising rates will boost prices charged by suppliers and crimp supply. Customer demand. V8 speed and resto shop, which specializes in restoring and upgrading muscle cars, began asking customers to prepay for parts orders totaling $10,000 or more two years ago as delivery times lengthened this fall with interest rates rising, began requiring prepayments on orders exceeding $2,000 to reduce financing costs incurred when it pays vendors upfront but doesn't collect money from customers until the part is finished. This is a big deal. This is why it's so important to collect money prior to actually install installation of work. The more money you can get on the upfront, the better because it reduces the need for you to dip into a line of credit or have more liquid cash stored up in working capital to be able to fund the parts and the products and the cost of goods sold that is required to get the jobs done. Because for the vast majority of small business owners, 50 to 80% of the revenue we collect goes out the door in cost of goods sold. That's labor, that's materials, that's cost of the actual product and the materials that go into it. That is a huge chunk of money. And if we're having to fund that prior to getting getting the money from the customer, it can lead to a big issue when a lot of your funding comes from a line of credit and now the cost of that is going double or triple, this business owner says. We're trying not to need the lines of credit or the credit card, says Kelly Ostay, owner of the 28 person muscle car restoration shop based in Red Bud, Illinois. In November, the Federal Reserve raised its benchmark federal funds rate by 0.75 percentage point, the fourth such increase this year, and said further rate increases were likely for small businesses. Those rate increases translate to higher costs on everything from credit cards to lines of credit to variable rate small business loans. New financing has also gotten more costly. Dave Gill, chief executive Cold Freight Services, a provider of dry ice and refrigerated courier services in Georgia, has been seeing the interest rate on his company business credit card jump from 21%, jumped to 21% from 17% since April. We use credit cards for everything, including fuel, hotels, supplies and other expenses, said Mr. Gill, who has about 40 employees. We are kind of hostage to the rate. So first and foremost lesson to be learned here, don't use credit cards and don't have a balance on if at all possible. They are literally like an emergency case scenario so you don't go bankrupt if you in the case of needing money and needing funds. But the objective should be that regardless of interest rates, you you have the ability to be able to have great cash flow. You get paid the cost of goods sold prior to the job being installed if at all possible. And ideally if you're going to float the difference, make sure that it's less than 30 days so you can pay off the credit card and have the money in the bank before you actually have to pay off the credit card. So just a little bit of a note there.

46% of small business owners said higher interest rates are affecting their business, according to a November survey of roughly 600 small businesses for the Wall Street Journal. Business Coaching. This is who they got it from. Another 25% of those surveyed said rising rates hasn't affected, hadn't yet had an effect, but anticipated that they would. For some small businesses, the impact is indirect. Rising interest rates have already hurt sales at Brooklyn Solar Works, designer and builder of rooftop solar systems. About one third of residential customers finance their solar systems, which typically cost 30 to $70,000. This is why for the past several years I have hounded people to get into recurring work. Because the project based work, the work that is 10, 15, 20, $100,000, those big projects are typically financed by consumers. And so when the cost of interest, cost of borrowing and interest rates go up, now that $50,000 project no longer cost them $55,000 with interest payments. Now it's going to cost them $75,000 with interest payments. Oh, and by the way, they just got laid off from their tech job. So project based work is great and fantastic and you make a lot of money doing one off jobs. But in every home service industry, I recommend try to create some sort of maintenance program, some sort of package that has some sort of recurring revenue. Not only is it better for the valuation of the business, it helps you get through these economic uncertainty times because most people, for example, lawn care, most people will not allow their lawn to get a foot and a half tall with grass like that could literally happen in a couple weeks. So whether they need recurring service, whereas do they really need the paver patio every single year? Do they really need a new landscape installation every single month? No. And so people will delay those things by two, three or four years when you get an economic recession. And if we're going into one right now, because interest rates are so high, people can't finance these things and they can't take cheap HELOC loans like what were happening in 2020, 2021, 2022. Cheap HELOC loans are no longer going to be the case because now that HELOC loan is harder to apply for. People are upside down on the equity of their home as you head into a recession. And the interest rate on that home equity line of credit makes it unfeasible to actually use it for a project based job around their house, which is the vast majority of big 20, 50, $100,000 projects. A lot of them are being financed and a lot of them are using the equity inside their house. Financing options that let buyers buy down the interest rate to 1% or 2% have largely disappeared. So back in the day you could literally have where you'd buy down the interest rate. So if you have high interest rate, it's like, okay, for $5,000 extra on this 10,000, $15,000 vehicle, we will go ahead and go from a 6% interest rate down to a 1% interest rate. Well now that's not even possible because people don't know just how high these interest rates are going to go. Uncertainty over the future direction of interest rates makes it difficult to determine whether a solar installation will save money after factoring in financing costs and what will happen during the months it takes to get a project done. Interest rate part of it, it's pretty rough waters out there right now, Mr. Ludwood said. This is the thing I actually think the bigger issue is going to be that no one's thinking about is when the equity on people's homes see a year over year decrease, which is going to happen this spring and summer for the first time for years, we're going to see a drop in the average home value of the majority of Americans. Right now it's still like 3, 4, 5% positive year over year because we're comparing to last year. But guess what? January, February, March 2021, then we have like a war in Ukraine and all the rest of it and inflation spikes. Housing prices start to come down because interest rates start to go up. Just wait until year over year data from housing is down. You're going to see massive amount of fear and less people willing to tap into home equity lines of credit when their house is going down in value. At Reverence, a fine dining restaurant in the Harlem neighborhood of New York, higher interest rates have pushed monthly debt service costs $2,000 higher, bringing them to $5,000, which means they were paying $3,000 on their interest payments and now they're paying $5,000. That is a set like a 70% increase in their debt service in just a matter of a few months. For a business like mine, that $2,000 is my paycheck, said Jeff Russell Jackson, who owns a three year old restaurant with his wife, Laura. Higher rates are also compounding the challenges of rising costs such as Covid tests. Customer traffic has been slowed to rebound. We are struggling, said Mr. Jackson, who has two employees down from as many as eight and is looking for additional financing. We are fighting tooth and nail. This is what leads to unemployment going up. This is what leads to business closures. This really is going to hurt small businesses that have not prepared themselves. And this is why I said people that have gone into debt over the past few years have grown their business and expanded and everything has been hunky dory and everyone's been laughing. But when, when interest rates go up and the cost of debt goes up and people can no longer buy these big projects and have cheap debt on their home because they have so much equity, when that goes away and your interest payments go from $3,000 a month to $5,000 a month, you stop being able to be profitable. And if this recession takes 12 or 24 months, which most time, I don't think it's going to take that long. But if it does and unemployment really, really hits hard, like going from eight employees to two employees, that's six people that lost their job. And there's going to be an opportunity for the people that have built their businesses in a way that is cash flow positive despite high interest rates, despite debt because they don't have as much of it. They don't have debt on depreciating assets where they upside down on the asset value compared to what they owe on it. The people that built their business that way can take advantage during a recession because guess what, those six employees that left this establishment are going to go get hired by the person that's actually expanding and absorbing all those that customer demand into a business that they now can go expand into and invest into the recession, christopher Klein said. He also said he has reduced hours by 25% for most employees at Eric and Christopher, a maker of silk screen pillows and totes after large retailers with too much inventory cut back on new purchases. Normally I rely on these accounts to help fund research and developments. And Mr. Klein, who has 25 employees, the owner, is delaying investments that could open up new markets. Borrowing to finance these expenditures has become too costly, he said. Now that the rate on the company's line of credit has increased to 6.5% from 3.75% in March, some entrepreneurs are taking steps to reduce borrowing costs. Design Supply Doors, a Kansas City City company that does subcon commercial subcontractor pays cash when it purchased four small SUVs for its sales team this summer, when interest rates are at 3 to 4%, it's not that painful, said Rebecca Stowe, a chief executive of the 38 person company, which supplies and installs frames, doors and hardware in hospitals, hotels and office buildings. When it's 6 or 7% on vehicle loans, it doesn't make Sense to sit on the cash. All right, so this is, this makes a lot of sense. Pay for things in cash when interest rates are really high and then when interest rates are really low, what do people do? They go into debt. The problem is if you get too much debt, that's variable interest and it has an interest rate that goes up and down. Well, interest rates go up, you, you are caught with your pants down. And furthermore, even if you have fixed debt, because this is what a lot of people are like, well, I bought this piece of equipment, you know, it was $80,000 but a zero percent interest. Great. As interest rates go up, people are willing to spend less on these pieces of equipment. So now that $80,000 piece of equipment is going to be worth 50,000. You're still going to owe 80 on it. You're upside down on this piece of equipment. That's what leads to repossessions, foreclosures and the like thereof. Because people literally start wake up when they realize that they owe more than what the value of that piece of equipment or that asset is.

All right, let's just see here because what I want to prove now is the fact that this was all very much a plan. Let's check this out. This goes back to just a couple weeks ago, this Fed chow, Fed chair pals. This is Jerome Powell. He, he had a comment he was making here and I do not care about that. Okay, January 10th. When taken out of context, the words Jerome Powell spoke on January 10th feel ominous. Restoring price stability when inflation is high can require measures that are not popular in the short term as we raise interest rates to slow the economy. This is the goal. Slow the economy. This is not out of the blue. This is not taking anyone by surprise. This is their plan. They must do this. This is what they should have done a year and a half ago. The absence of direct political control over our decisions allows us to take these necessary measures without considering short term political factors. I actually don't believe this personally simply due to the fact that the, the pivot on what was happening with interest rates happened literally right after the Fed chair was real renominated by the current administration after the past election. So I just feel like this was a bit of a joke. Honestly, that comment there, like yes, they're supposed to be apolitical, but there's just a lot of things being said. However, let's go back To August of 2022, Fed Chairman, remember, this is back a little, a little while ago, a few months back. This is another comment from Jerome Powell. Fred. Chairman Jerome Powell on Friday pledged that the central bank will use our tools forcefully to attack inflation that is still running near its highest level in more than 40 years. In its annual Jackson Hole, Wyoming policy speech, Powell added that added higher interest rates likely will persist for some time. The historical record cautions strongly against prematurely loosening policy. So in other words, they're going to raise interest rates higher and they're going to keep them there longer than all of us expect, and it's going to create pain in the market. All right. Federal Reserve Chairman Jerome Powell delivered a stern commitment Friday to halting inflation, warning that he expects the central bank to continue raising interest rates in a way that will cause some pain, quote, to the U.S. economy. So this is, this is what's happening. Interest rates are increasing in order to slow down inflation. The reason inflation comes down when interest rates go up is because people spend less money, businesses spend less money, consumers spend less money. And then we start to find out who actually built their business in a way that was going to be resistant to a recession and could actually expand and grow in a recession because they were not tied to that interest rate that is going way up. And the cost of debt is going way up. Oh, and by the way, you know, it was the most money, the US Government owing trillions and trillions and trillions of dollars with a massive deficit. And guess what, their interest payments are going up too. And this is why I'm very scared for the US economy as a whole and our country as a whole is the fact that we have adopted so much debt over the past 10, 20, 30 years that now we can't have interest rates go very high because the cost of our debt service, the interest payments that we are paying on our debt are becoming trillions of dollars every single year. You can't balance a budget when literally 30% of it is going out the door just for interest payments. So along with many businesses and personal people's personal finances, our government is also over leveraged and susceptible to these rising interest rates that, yes, we'll crush inflation, but to do it, we are literally going to go through hell. And small business owners, personal people's personal finances and our government are going to have a reckoning with debt and the high flying. We can buy anything we want, we can do stimulus checks, we can buy new equipment, we can buy houses, we can do whatever we want. That all goes away when interest rates go up and the cost of debt service is increased.

This has been the Mike Andes podcast. Now you have some ideas on how to take your business to the next level. And if you like what you heard, we have tons of lectures, interviews, and more over at the MikeAndYs YouTube channel. That'll be right up your alley. That's all we have for you today. We'll see you next time.

Sam.