Your P&L Lies — Why You Feel Broke at $700K

Hey everyone, it's Mike Andes. I'm the founder of Augusta Lawn Care, where we do over $50 million a year just mowing grass. Today we're talking about everything you need to know about finances. You have a painting company, a handyman service, any sort of cleaning company, lawn care, landscaping. This is relevant to you. This is a marathon video of all the questions I've addressed around the finances of your business. Whether it be when to buy trucks, when to finance, when to use debt. These are the questions you need to be able to scale up and your home service business and everything you need to know about finances. Now in the chapters below, you can skip forward. If a question doesn't seem super relevant to you, just scoot forward and get to the next question. So let's roll the tape. So as we grow, right, I want to make sure the company's healthy, but I want to make sure that I'm able to pay myself because at the end of the day I'm a full time in this. Right. I have to pay the bills. So how would, how do you manage those finances? I guess in order to make sure that you're able to pay your bills, but at the same time you're able to grow and get employees in the future and like maybe get a truck or stuff like that. Right. So maybe at the beginning stages. Yeah. So in terms of taking a salary out, you know, are you an S corp right now? Jesus. Or are you a llc?

I have an llc.

Yeah, got it. Yeah. So like usually once you Pass like about $40,000 in annual profits, you're going to want to. You can stay as an llc, but you can be taxed as an S corp. What that means is you'll have to start taking a paycheck from the company. And so there is yet to be a case where the IRS comes after people for giving themselves too low of a salary. There is no case law that has that backs up the fact that you need to be paying yourself a gobs amount on salary. The reason you want a low salary because you don't have to be paying as much taxes. I'd rather take that as distributions from the, from the company. Now you're still going to pay federal income tax on that, but not all the other stuff that goes along with it. Now the only reason to switch from an LLC to being taxed as an S corp is because you get around self employment tax, so 15%. And the reason you usually wait until you're about $40,000 in profits is because it does cost like three times as much to file an S corp as an S corp compared to your simple LLC or just like a 1040 on your, on your tax return or schedule C on, on, on your tax return. So all of that to say I'll get a good accountant. So like you can actually get a free one. Home service CPA is my firm and, and Brad's right here, he's my CPA. So you can book a 15 minute call with him and see if it be. If you might, he might just tell you, hey, maybe next year or the year after. But like in general a good could save you five to ten times what they cost. Because like my first one when I actually got a CPA instead of running it myself, they're like, oh yeah, you've been missing this one deduction and we can get you $5,000. I was like, oh, what in the world. I was like crying over the thousand dollars I had to pay them so I would get a good cpa. They'll walk you through this as the business grows. Like right now as an llc, you know, any profits in the business, a pastor entity, which means any profits in the business are going to be taxed as personal income regardless of whether you keep it in the business or you take it out. It doesn't matter. So I would just like, you know, in general, as, you know, like if you want the business to grow, you will starve yourself of the personal, you know, withdraws and you will invest back in the business. But when it comes to how do I take that money out? Once you become a Nescorp, you'll have to get yourself an actual W2 and pay yourself a salary.

I'm getting ready to hire additional person in the spring and he's saying I should go ahead and buy my truck.

And my equipment to go along with it and it will save me around.

6 to $7,000 on that tax bill.

Am I jumping ahead or should I.

Just eat that $15,000 in taxes and not try and buy the truck preemptively?

Yeah, great question. So in the short term I think he's right. And I was like buying the truck is probably going to give you basically a 20% coupon to whatever you buy. Now what's cool is you could technically either get debt or lease this and take this deduction anyways. This is like the whole argument around leasing or getting debt is the fact can do a Section 179 on a $30,000 truck, put $5,000 down and save more in taxes in the next few weeks. Than, than what you're actually putting down on the truck. Now the other part to think about here is if you're going to next year, so if you're paying 15,000 in taxes, I'm going to go on a limb and say your net adjusted gross income something like 90, 70 to 90,000. And so the question is, if next year you're going to do 200,000, well that's going to put you in a different tax bracket, like a very different tax bracket. You're going to go from like 12% to 24%. And so if next year you're expecting that kind of profit, the $30,000 section 179 from this year will actually save you significantly more next year. And so this is the thing you want to be careful with section 179 once it write off this year, great, yeah, you take the deduction. But if right now you're at a 12% bracket, you're saving 12%. If you next year going to be in a 24% bracket now that deduction's worth twice as much to you. And if you're like, well, it's going to be probably about the same. I'd probably just buy it whenever I need it and I would probably just do a five year depreciation schedule and not do a section 179. I spoke with our insurance broker in regards to having completely separate workers comp and policy for each location or having one main location hold the comp worker's comp policy and then doing journal entries for other locations. He basically said it was our preference. How do you do this? Do you have separate policies or combine them into one? What would you advise?

I'd probably just do one just for the sake of simplicity. And then the journal entries are really easy just inside QuickBooks to do at the end of the month or even if you pay like for the whole year, you can just like or quarter or however you're doing your workers comp. It depends on each state. But like I would just do, do the journal entries. That way you're just having to file one quarterly like for each one. It just makes it simpler. That's probably what I would do. Just know that like if you have one crazy, you know, claim it could affect you a little bit more across the system. But I would not concern myself. You want to like reduce your defensive measures as much as possible and like you have to pay workers comp. But it's a defensive measure. It's not going to make your business bigger and better and more Profitable by having workers comp. You have to have it. It's a defensive measure. And so I'm trying to eliminate how much time I'm spending on that. And if that means getting one policy instead of five and six as you get more locations, that would be my recommendation.

I was wondering, what's your thoughts on, like, renting versus, like, just going out and buying land and, like, just having a shop built.

Yeah. So keep in mind, if you're gonna actually start buying land, building land, or buying any sort of property, you are now entering a different business, and it's the business of real estate.

Right.

And so I believe that the vast majority of people, if you spend, it's not so much make everyone make sense of their rent versus mortgage. Almost all of us can make sense of that.

Yeah.

And they'd be like, I'll have more flexibility. I can do what I want with the space, etc. Cool. It's the killer is the down payment. Because if you were to put 25% down on a $500,000 property, my question is, if you spent 125 grand on your business, what would it do to the business? Like, would it double the business? If you spent half of that on marketing and got a few more trucks, would you literally double the business? Because if so, I think that that business that double the size would be able to afford a bigger shop space at renting. So it's the down payment that I hate. And it also depends on your market. Some places. One of our owners in Texas got a location for $90,000 on an office space, had, like, eight trucks there. Super cool. That that would cost me literally 800 grand in my market if I could find it. Right. So it also depends on that a lot. But I would most of the time when people are talking, like, what are you considering right now, Tanner, in terms of size and, like, what the buying price?

Like, there's acreages. I'm in Iowa, so there's a bunch of acreages around us. You know, you can find something like 30 acres for, like, $200,000 or. But it has no shop on it, you know, so then you're spending another 200,000 in the shop space.

So, I mean, it's like, that's. I'm just stuck right now because we have, like, our equipment is spaced out from three different facilities. Like, I'm using some of my friend's space, some of our storage units, some of my place. And it's, like, getting to a problem where, like, I don't feel like we're an actual company and like a team where I can like actually have our whole staff come in and then like actually have board meetings and whatnot. Like so I'm just struggling with that. And like I'm very frugal with money so like I try to save as much as I can and I. It's like biting me in the butt right now.

So the challenging part with this is usually, this is what I would say. I would say usually try to get the $200,000 land, go super bare minimum in terms of like operating of conex boxes and shipping containers and just like gravel the lot and do that. The problem with that is usually a bank won't give you a loan. They want to have a building on it. And so what you might be able to figure out is some sort of a loan where it's a construction loan and they give you like a two or three year term on getting it built. Then what you could do is you could go get the land, do the, the gravel part, get all your stuff moved over, and then actually build up the cash reserve to afford like the, the draws on the, on the building. But like what size of business are you doing now, Tanner? Like what revenue?

We did 400000 last year.

Okay. Yeah. So if you were to get this loan, you're basically have to put 100 grand down. And so, you know, it just, it simply comes down to like if you spend 100 grand on the business, would you grow up to 800 grand and then afford the rent by. By you know, doing that?

Well, our like our goal for next year is to do like roughly almost 800.

The problem I'm having right now is that we're getting like big massive bids that we're supposed to do. Like they were supposed to bid on like a two and a half million dollar job for this year. And I, I have no idea how I'm going to manage all that. Like going from where we're at to doing almost $3 million in just one year, like with having cash on hand, that's what's scary.

Versus like just me renting. Because I don't, I really don't know the future yet because we're still putting bids out but like there's some large bids that we're supposed to be doing and it's.

Yeah, like if first off I wouldn't make any buying decision until there's actually something signed. And like I know that millions coming in but. But I would also say I would be questioning whether or not we should Even be taking those jobs on. Like any job, it's five times revenue, might not be the job for us. And if you get it and then you lose it the next year, all of a sudden like you've got this massive soft space and everything's invested in hard assets. The reason I don't generally like any sort of construction build is because it increases. Your fixed assets are your fixed expenses. Anytime you're talking about fixed expenses, like I get stared out like crazy when it comes to seasonal businesses. And so if you're going to go from 400,000, 800,000 next year, like.

Let me ask this question. Can you get land and not have to build like you already have loans that you think you get for just the land?

I, I haven't really done much talking. We did like me and my accountant went into a bank meeting and they were like wanting us to actually buy a commercial building versus us like yeah, going and buying a land.

Yeah, it's safer for them.

Exactly. And so, but, but that's usually gonna.

Be a five year balloon. That's usually a five or ten year balloon.

Yeah.

And so we're talking about like your monthly payment probably being what, six grand a month? Seven grand?

Yeah, roughly.

Yeah. So that, that's what I'm like, okay, could we go rent somewhere for four grand a month with lower fixed expenses and still grow the business to a million plus? When we get to a million plus, all of a sudden we need a bigger shop facing the one we would have built.

True.

The problem I have with like the shop space around here is like it's either completely way out of our way where we're like driving almost 20, 30 minutes just to get to our designated spots.

And that's like worrisome for me, like for fuel expenses and, and you know, just guys messing around on the clock and I don't know, there's just all sorts of worries there and then like finding the space as well. Like there's really limited space around if.

You'Re having to go say 15, 20 minutes outside of town. Right. You're paying the tax every single day for having that shop. So you being a little further out. So the, the difference of like, okay, I'm saving five grand a month by renting instead of building, you're chipping away at the everyday. As the business grows bigger, that tax gets bigger and it makes more sense to go buy the land and build the shop. That's why I believe if you build the business bigger and now you're having that 10, 15 employees that are wasting 15 minutes a day. Now it starts to become a real conversation. At your size, currently three or four custom employees a day times 15, 20, 30 minutes doesn't move the needle. Right. So I always like generally default to grow the business. You can turn into profit mode for like one year. So now it's really profitable. And then go drop that cash. Because in the long term it's usually a good idea to get land, it's usually a good idea to get the shop space. But there's a reason why like they want you to buy and not build and like the bank will really, really willing to collateralize that. So that would be my recommendation. Grow the business bigger.

Okay.

It makes more and more sense. The more employees you have to be able to take that extra fixed expense for the time savings. I would also say if you switch to pay for performance, their drive time doesn't get paid for. True, true.

And that's why I switched it. Like we just switched from Yardbook actually to your software. I'm still trying to get everything onboarded, but that's kind of the reason I switched over is so we can utilize the P4P.

Yeah. Because if you have P4P, they're not getting paid for drive time all of a sudden. That's, that's a non equation when it comes to the shop too. And it might mean that you get shop space for half the price because a little 15, 20 minutes further drive. But because you have P4P implemented, you're not as worried.

Right.

But that, that's a hard lift. Like the P4P thing. If you can't get that done this year. Let's go. That's a huge Dom.

I'm gonna try. I'm definitely gonna try.

Good stuff man. Thanks.

But hey, I appreciate it.

What would you say your startup costs are for equipment for if you're shooting for $800,000 business? If you're starting up from zero, I would not recommend buying the equipment required for an $800,000 business. I would do it to be able to get capacity high enough to be able to.

Because again we talk about the 4L framework. If you're asking how much liquidity do I need in order to be able to have an $800,000 business? I would say, well, you need a certain number of leads, then you need a certain number of laborers and then you need a manager to get to that level. Yeah, but the question is for the $800,000 businesses in here, what would you say your value of your equipment is?

So if you were just to buy that outright.

Right now, it just depends. It depends on your service mix. Depends on. For example, in my market we use push mowers only. We have no zero turns in one of my markets and the five that I used to have last year we had 48 inch mowers on every truck. So that's gonna be a huge variant. And again, that type of equipment is going to be determined by my property size.

So with the models that you put up, I'm looking at a 500. We're right around that mark. One of our issues is location. We run out of a storage.

Sorry, real quick question just so I understand this, are both of you currently owners in the business?

Yes.

Okay. So there's not a GM and owner relationship, but this is two owners.

So quickly we basically split the cost. He works, I have a job. I've actually talked to you before.

Okay.

But I got a side job. So I make full money. So I do all the back end, he do the front.

Got it. Your admin, he's operations. Go.

Absolutely.

Thank you.

So we work out of a storage. We don't have a location. A lot of the turnarounds. You have a lot of guys out here get killer deals. What I'm wondering is, if we were to get a gm, could we plan on expanding? So there's a question that we have. HE SHARPENS blades at the house or you know, all our, like just stuff we need. Because at the storage you don't have any power.

Yeah.

So like how do you guys, or how do you recommend you, you know, negotiate or find a spot where we can have the trucks, the trailers, the guys can meet. Work on things to be able to be profitable and not like kill yourself, you know, basically with, you know, overpriced land and things like that.

Okay, let me first off, make sure I'm understanding this question correctly. Are you trying to go to 1.5? Are you trying to make more profit?

No, I would like to make more profit.

But if we were to.

That's it. That's it.

Cool.

Okay.

You don't need to change where you're located. You're already making 500,000. The next step is go into profit mode. Don't buy trucks, don't buy more equipment, don't hire more people. Just raise prices as more leads come in.

But if we were to say your model, exact model you put up on your presentation.

Yep.

We maximize this location for profit. We move. Let's say we want to multiply, copy and paste.

Okay. This is another location.

Yeah. So like if I need to sharpen blades and do all that stuff that he would do at home. Like I would still need to find a location.

Right?

Yeah.

Places are out there. There are shop spaces that have electricity. There are shop spaces that have water. You'll pay more for them. The vast majority of us should not think about buying land. It's a different business. You're gonna usually have to put 20 to 30% down especially if it's commercially rated. You're not getting a 30 year fixed mortgage on this and you're putting so much cash into that that the return on that money is extremely negligible compared if you spent $100,000 or $50,000 on your business. You double the size of business. Two more trucks. So personally I would do a better job of finding them. Finding it. I would be searching on Facebook. I'd be putting out leads. It's not like you're in a rush to find this plot. So when you're not in a rush to do anything you'll make a better decision. So I would be on the hunt. I'd be talking to property owners. I'd be talking to empty blank pieces of land sitting on corners. Like I can go on the county assessor's office. Find out who the owner is. Call them and be like hey, your land. It's commercially rated. Fantastic. I will pay you X amount per month to park my stuff on there and put a storage container sitting there.

We were pretty profitable last year at about 330. $300,000 mark. 330. 30 of. It's uncollected. About $70,000 in profit. We spent. So we went into the winter with 50 to 60k in the bank. We spent.

Trying to figure out how much we spent. Probably 10,000 in cash and 30,000 in debt to replace mowers. We haven't sold off the old mowers yet. So going into the season. What I'm trying to figure out is what your recommendation. I know like a year. A month of cash on hand in the bank of revenue is good. So we're usually pretty good with 30 to 40k in the bank. I'm worried about my fixed debt expenses. What's your number for? Because I don't like to spend the cash in the bank. I prefer to have 0% 2% loans on the mowers and whatnot. Says a monthly payment. What's the top figure you're comfortable with for that monthly fixed expense?

0.00 ideally. So. So what's the risk?

Risk wise yeah, yeah.

You're basically adding risk when you increase fixed expenses. The reason you're adding risk is because we have seasonal businesses. And so if you have high fixed expenses during your off season, your, your break even point goes higher. So, so this is the problem with having debt. Everyone will have, you know, $50,000 or $70,000 as profit on the P L. And then they're like, well, where's the money? There's no money in the bank. And the reason is because you don't see debt expense. Blake, can you meet yourself? It's. Yeah, you're good. Cool. The problem is you only see interest expense on a pnl. You don't see the actual debt pay down. And so especially if you have zero percent interest. This is why everyone's like, oh my goodness, it says I have X amount of P and L, but I don't see any money in the bank. It's simply because you have all these fixed expenses, that is debt payments. There's no interest expense. It's all coming out of your balance sheet. So yeah, cash is coming out of the bank, but you look like you're supposed to be profitable. And so I'm very hesitant to add fixed expenses in any shape or form, whether that be people on salary, whether that be fixed expenses like a shop space, whether that be subscriptions, whether that be.

To your point, like debt. Because as soon as I add that fixed expense, I need to produce a revenue at my profit margin. For example, let's just say you're 15% profitable. If I'm going to add $1,000 of debt payment, that means I need to create $7,000 in revenue approximately every month to just cover that, that $1,000 of fixed expense, I. E. The debt payment. And so now I just increased my break even point during my off season by $7,000. And so this is why so many of us go bankrupt during the off season. Because we go negative, we make less than our break even point is because we have high fixed expenses. So I'm like hardcore against fixed expenses is a matter of what your risk tolerance mount. My risk tolerance goes up if you fix your off season. So if you, if you have an off season revenue source that you don't go negative, you're not going tapping into cash into your cash reserves. I'm much more risk prone because I know that you're not going to go negative cash flow.

Go ahead to that point. We, I wouldn't say I'm a master at it, but like we've maintained the ability to hit close to 25, 30k a month in the off season. Like I've got a lot of year round customers and a lot of winter services. We usually sell a couple of big projects. We switch from mowing maintenance. So we've maintained better than break even for the past couple of.

Yeah. So then just this function of like taking on this debt, I'm adding risk. By adding this risk, how much faster am I getting in my goals? Right. So by getting this piece of equipment, you are likely going to shave off, you know, six months of. Otherwise you would just be like, okay, let's just raise prices. We're at capacity. I needed this equipment, I need this truck. Was going to raise prices and stack this cash and then buy it with cash. So you're adding risk for the, for the cost of speed. And so only, only you can determine do you want more risk and do it faster or you want a little slower with less risk. And that's when like it comes in. Like, do you have a family? Do you have personal assets that are at risk? Are you going to collateralize your house? You know, how does your spouse feel about you taking on this risk? That's when it comes like a very multilayered question.

Heart and Son's landscape in Washington. And we're, we're trying to. Right now we're in the process of buying our dad out. And so a little bit about us, it's, we're a little bit small for a three man admin team. So it's been kind of hard to afford it. Like we have only two employees right now in the winter and we're making, I think we made 520,000 last year. I know we just need to get more crews out and going. But we're trying to figure out budgeting for affording the admin costs and I'm not sure like.

And the payout amount.

Yeah. And like trying to bring all the pays into something that's realistic that we can afford going forward. I know that's kind of vague, but do you have any insight that we can have going forward?

Yeah. So out of the three of you, can all three of you work in the field? If needs be. Just us too.

Okay.

And we want our dad to be like completely retired and like we're going to take over. So I mean we have the ability to work skilled for that, but we also know that it's more important to work on the business and not in it.

And so is he working and contributing in terms of working on the business or is he basically silent? Partner is passive. Yes, got it. Okay, cool. So realistically you have two overhead positions. You also have a partner you're trying to buy out that's outside the business. Right. So the question becomes like at 522 full time admin people, the answer is no, you can't, you can't realistically make money if you were both paying yourself a salary. Like the actual net profit of the business. If you both took a salary would be too low. And so I would be looking at both of you as what I call working general managers. If you want to split this, this role is what it would look like if you wanted to separate the roles and be like hey, you're going to do sales and admin, I'm going to do operations. That's a different topic. But I think the working gm, like are you guys very similar in your nature and like your roles in the business or like you have very delayed roles right now? Finances and operations. Got it. So Nathan, you're basically doing sales, admin, phone calls, emails and. Sorry. And your brother is doing all of the out with the crew essentially. Yeah, yeah.

He isn't doing labor, he's actually doing emails and like CRM work. I'm doing like all like payroll, marketing, doing the estimates, things like that.

Yeah. So you're top heavy. I think Nathan, you could be able to take all, all admin functions and sales functions and then allow your brother. Sorry, I don't have your name, I apologize. What was it? Kyle. Kyle, let's go. Kyle is going to be a working gm. He's gonna be out in the field with the crew. We're gonna expect 30 budget hours of production from Kyle every single week. We're gonna minus out one hour for every in person visit to a job he has to do or if he has to interview anybody and training. So. So for example, I'm gonna start 30 budget hours I expect Kyle to do. It's like the internal, you know, scorecard that you guys have. He's going to be able to do all that. Now Nathan's gonna be super busy because he has to do all the sales, all the admin stuff, et cetera. At $500,000 you can do that. And if, and if you don't, if you're like, that's way too much. We gotta systematize, we gotta look at like efficiency and how you're running your day time blocking things like that automations. But then I would be saying, okay, Kyle's BE operations. Nathan's gonna be sales and admin out in the field operationally, we expect 30 budget hours complete every week. We're gonna subtract one hour for every in person site. I had to go meet a customer or an hour away from every interview and an hour away for any sort of training. So now all of a sudden you have a few site visits, you got to do some training, got hire and interview a few people. Okay, we now expect you 18 hours the last week. Okay, let's look at the dispatch board. Did you complete 18 budget hours? There's your metric for operations that will be much more balanced in terms of the business because right now you have two people in the field and two people out and like this won't work.

Right. So also another note is that this is just the winter and like it's really slow. We usually get up to, I think we had like max six employees last year. But then, then it does take two full time employees for admin. So I'm like, I know, I want to get back to that point. And obviously we're trying to bring in more leads and everything.

Totally. Yes. Like what services do you get? Anything. Is it lawn care, landscaping?

Yeah, Full, Full maintenance.

All maintenance?

Yeah.

Residential. Commercial.

Residential. Mostly residential, yeah. We have like one or two commercial.

Yeah. Like I'll be, I'll be really honest with you. You don't need two admin people for 500,000. You don't even during the peak season.

Okay. If we're trying to like shoot for say we want to grow to like 750 at the end of this year. Is that something that's more for two admins?

I would say during the spring rush I'd get a part timer and then you'd be full time. So I would be full time for you 12 months of the year, obviously. But then for four to six months of the year you get a part timer to come in and do the entry level, answering the phone, checking email, the basics. And so I would look at all your, what you guys are currently doing. I say, hey, what is $20 an hour task? Where $40 an hour test. Anything $20 per hour test. We're going to, we're going to hire a part timer to do those tasks during the spring rush. Because outside of that, even at 800,000 in revenue, that means that you're probably doing during your off season 20 to 30,000amonth in revenue. You do not need two people. So just get part time help. That's only going to cost you, let's call it 25 grand for that four to six month window. Instead of having two full time, the most experienced people doing admin and then that frees. Frees Kyle up to be better in operations which will help streamline things. Right now getting out in the field, hands on with the crew and actually producing revenue. So I left the field summer of 2023 and doing that allowed us to start working on the business to build the automations. So we have a bunch of stuff set up to expand and grow. So. So you're suggesting that I go.

Work on producing more revenue before we hire to fill in. So like would you suggest that before we hire like two, three, four people to produce that revenue that would cover the admin cost? Well, my assumption here is that we don't have loads of cash sitting around for you to burn through while we're inefficient with two admin people. If we have, if we have 100 grands in the bank, this is a very different conversation. Am I wrong in saying that we don't have that money?

Correct.

You're not wrong. Right. So that's why I'm pushing more to profitability. I'm trying to think about how do we make more money. Like if I had the indication you had 100 grand sitting around like great, your sales, your admin and then we're going to go find an operations person, we're going to go to a million. Right. But if you're strapped on cash to make more profit, you get, you turn overhead into revenue producing labor. And that's by getting Kyle back in the field is streamlining things. Like setting up automations is a half a day task. You set up the automations one time and then they work and then it's a matter of okay, well what's causing all this admin work? Is it the fact that one or two services that we do always causes callbacks is always causing customer complaints? Do we cut those out so that we can literally free up what would otherwise be an overhead cost that now generate $100,000 in annual revenue?

Okay, gotcha. Okay.

All right. The conversation looks very different if, if you were like hey, we have plenty of cash, we're expanding and we're growing. I'm trying to think of how do we make more profit so that we can. You can buy out your dad, right? Yeah.

Okay. Thank you. Yeah, that's, that's helpful. Thank you.

I know that's not fun to hear like especially because you work so hard to work on the business and like get out of the field, but I genuinely believe you want to make more profit you get back in the field at 500,000, maybe next year, do you. 600, 650. But you make a really good profit because you don't have to go hire three more people. You just like the three or four people you hire so you can get that all money goes into your pocket. Now it's 150 grand, right?

Yeah. Okay, sounds good.

Cool.

So I'm going from one location where we're doing $3 million, but we. We do a residential fencing.

Okay.

And I'm opening up two new locations, so I'm going to Connecticut and Massachusetts. So. And I really couldn't grasp the concept of, like, the accounting. Like, how should I set up the accounting? Am I overthinking it or what would be the best bet? Because I do want the ability in the future to sell off like an individual location.

Got it. Yeah. So you're probably overthinking it. Almost everyone does. I did when I first started. Multiple locations. Generally, what's going to be the. The way I recommend is an S Corp on the top or your holding company underneath that. You're gonna have three different LLCs. So that way down the road, if you wanted to sell one of them off, you could sell one of the LLCs. So, you know, from a financing perspective, you're still just going to file one tax return with the S Corp, but you could break those LLCs off because they have different ein numbers down the road if you want to sell them off. Okay.

And not. Not dba. So open up complete businesses. So the feedback I'm getting from people is, well, that llc, you won't be able to get your own credit for each llc. Or will I be able to?

So two things. First off, the reason I stated to do the several LLCs instead of a DBA is twofold. One, you said it could be out of state. Second is because you stated that you wanted to potentially sell them off. It's going to be easier to sell them off if they're separate entities than if they're just DBAs under one entity. The second thing is, in terms of. What was that last question you said? I was going to address that last part.

Yeah. Like getting their own credit card that way.

Yeah.

You can generate your own credit.

Yeah. Are you worried about building their credit credit, like the business credit score, or you worry about getting actual credit cards and opening accounts? Yeah.

So opening credit cards because we're able to like, get back 5% cash back on things like that and do things like that.

Yeah. No. If you have a different llc with different EIN numbers, you'll be able to open up credit cards underneath each one, have different bank accounts under each one. I would recommend keeping them all under like one bank so you can easily transfer money between the two. Do journal entries of say your general liability which might be over the the S Corp or admin costs that are split between the entities. But you can absolutely open up credit different credit cards underneath each of the LLCs. And that's why also having the different LLCs allows you to have a different EIN number and be able to open up separate, you know, checking accounts, credit cards, etc. For each location.

And you would say brand new Google my business account. And how about should I do brand new a Facebook page or just based that off of the one that we have network?

How far away are these locations? Like from a driving perspective?

Yes.

50 miles.

Okay, that's not too bad. I'd probably keep it under one. Do like a different like branch locations. So like home service web design, we do this quite often and that is like have different branches underneath in different locations. For a website you could do that and then just be cognizant of the fact that probably doing different Google listings reaches 50 miles. I wanted to be showing up in those markets separately, but I'd probably do different Google listings each for one quote location on my main website, but it'd be tied to one. So the domain authority within that triangulation of those three locations would be improved.

Hey, this is Cody Graber with Trinity Tree llc.

Hey Cody, how you doing? Good.

So the question I have for Mike is when would renting a vehicle, not leasing when would renting a vehicle be better than purchasing a new vehicle? If it's short term, yeah.

How short term are we talking? Like a couple days or a week or two or a couple months? What are you looking at?

Six months to a year?

Yeah. Like if for example, I had a contract that I knew was only going to last six to 12 months, I might consider renting a vehicle. I would bake it into the pricing of that contract knowing that at the end of that six to 12 months, I don't need the vehicle and I don't want it sitting on the books. I that the fixed expense for insurance I have to store it for, after that, etc. Or have excess capacity in the business after that contract is completed. So the only time I would usually do it short term is if I know for a fact that I am not going to need that piece of equipment in the future. Otherwise what I would recommend is Grow to capacity, get enough money in the bank account so that you can expand once you get that piece of equipment, using marketing to be able to fill it up and use it consistently, you could also look at it as like instead of renting a vehicle for 12 months, which is going to cost you an arm and a leg if you do that. If you're going to spend 12 months on renting a piece a truck, I would also set aside just some money. Hey, I know I'm going to need X amount in marketing to basically fill this truck up after this contract to ensure that I actually fully utilize this piece of equipment. But like right now, are you looking at a contract that's going to be like a 6 to 12 month stint? Cody?

So it's not a contract that's month per month. Right now all my work vehicles are down and rather than spending 12,000 to fix old vehicles, just looking at something short term to get the work done because I have bigger financial purchases that I want to finance to help production go up within the true service.

Yeah, like if you're, if you're looking at a condo that's month to month renting might actually make sense because what you don't want to do is go buy or lease or get into debt for a truck and then literally two months into the contract they just drop you. And so renting in this case actually might make sense. Especially assuming that this contract is lucrative enough to actually make sense of spending the extra. Probably, I would imagine 2, 3000, no, probably 1500, $2000 a month for renting the vehicle. Also keep in mind there is liability associated with the fact that you're renting a vehicle and if it gets damaged, you know, there is liability and there's insurance issues that could potentially rise to this. And if you damage it, like your insurance alone on a rental vehicle especially, they know you're using it for commercial, could get extremely expensive. Like you might be able to go get a truck or a, you know, some sort of vehicle for rental. But if you tell them that you're using it for commercial and you're using it for tree service immediately it's going to go up in terms of the liability insurance because they know what's going on, they know you're going to be around trees and heavy equipment, etc. And so I'd be careful about this because a lot of times if you don't disclose it and then you go, you rent the vehicle and then you go, it gets damaged. You know, a tree chipper rolls into a Tree falls on top of etc. You might actually be in a worse position then. So from a liability perspective, like, I feel obligated to tell you to keep that in check.

I'm not sure if I'm at this point just from based off your other answer, but. So my dad has helped me with taxes, like last year and then the year prior. This is really only my third year in business, and I did about 40,000, 45,000 in revenue last year. So my dad was like, I'm getting to the point where I might need to hire some, like, accountant or something like that. Because I'm getting to the point where he doesn't. You can't really keep track of it anymore. So I was just wondering what your recommendation would be on, like, what to do with that, like, in account, like, how do I go about hiring someone? Or, like, do you even recommend that or should I just figure out myself? Like, I really don't even know.

Yeah, so, like, I'm not going to recommend using Home Service CPA, that's my firm. Don't recommend it at 40,000 a year in revenue because you're going to spend a thousand bucks getting your tax return done. And you did 40,000. Like, literally 2, 3% of your revenue is going out getting your tax return done. Don't do that. Just do TurboTax. You're smart enough, you're small enough to be able to get this really, really simply as a schedule C on your personal tax return. Right. Are you doing your tax return or are you doing your tax. Are you running the revenue through your dad's tax return?

It's me.

Okay, so if you're doing your own, then, yeah, just do it through TurboTax. You're small enough business, it's not going to be a lot. And you don't have a complicated business structure that's going to need a CPA. So I just do TurboTax and like, literally, Brad, he's the CPA at Home Service CPA that, you know, I work with. You know, he. He worked at TurboTax and he would probably tell you the same thing. At 40,000 in annual revenue, just go do it yourself. Do your, you know, set several hours aside, learn, you know, if you don't understand something, look it up on YouTube and I just guarantee you that, like, it's not worth spending a thousand or $2,000 for a CPA to do your taxes at that size of business. Does it make sense?

Okay, yeah, it makes sense. So then at what point do you think it's worth hiring someone.

I think when you start running, you want to start having payroll. Like, so once you have multiple employees, once you're buying equipment pretty frequently, they're going to be able to give you a lot of advice in terms of when you should. How you should depreciate that, when you start having a lot of profit. So when you start making more than like 30, 40,000 a year in profit, then it starts to make more sense to get a CPA involved because they're going to really help you figure out which tax brackets you can get into. They're going to be able to guide you in terms of when to buy equipment, how you should be depreciating it, whether you should buy it in December or January, all that fun stuff. And usually I see it start making sense. Once you pass the 6 figure in annual revenue and you have multiple employees.

What point do you think it's worthwhile getting into a shop? Like, is there a revenue point? Is there a size point of equipment? Employees? Especially, like, for guys like we run out of a house with two car garage, big yard, it's hard to justify sometimes moving into a shop other than the professional appearance, I guess, per se.

Yeah. Like, how many employees do you have.

Right now through the busy season? So from like May to end of October, we typically run with about four employees. Through the winter time, we just run with two. They're both on to salary. We keep everything down to concrete for all of our residential customers. So they're happy with that.

And are you during, like, are you running.

When it comes to the shop space, what's your revenue like annually going to be projected for this year versus what you think that rent space is. Rented space is going to cost you for the shop.

Like, we can run, we get about 250 per truck and trailer. So two guys run in each truck and trailer. And like we're just running off of a corner lot kind of right now in a residential neighborhood. Neighbors are fine with it and everything like that, but I think moving into a shop, it wouldn't really build our revenue at all. I think, I think it would typically just be for the presentation of the company. I don't know if that, if it seems a little bit posh to say that, but I guess that's kind of where I'm at with it. But the only reason why I've never bought one or released one is I just didn't see it building the revenue in any sense. Just the overall curb appeal, I guess, of the company. But I was wondering if There was a point in which you think that it's worthwhile regardless of revenue or anything like that.

Usually once you start getting four employees, for example, it's actually going to come as a form of necessity because what's going to happen is your HOA or like the city limits and like requirements are going to say, hey, you can't run a business out of this area, it's residential. So a lot of times you'll be kind of forced your hand to eventually move into a commercial space or shop space, et cetera. The second reason, in terms of like, is it going to improve revenue? You're 100% right, it won't. And it'll actually hurt the business from a cash flow perspective because now you have this cost that you right now don't have to pay for. And so really though, what the biggest benefit of a shop space is is when it comes to a team member, like an employee, it's just weird. Showing up your boss's house, especially like a residential neighborhood, you're parking down the street, like, it's just weird. No, they're coming out, their kids are coming out in their pajamas, they're finishing up breakfast and then coming out to their garage. It's just not a great environment for most team members, don't want to be there. And I just don't see a lot of team members staying a long time and building their, their career with a business that's operating from the personal house. Now if you had five acres and you had a shop space next to your house, you had some, some separation, etc, totally awesome. Let's go. So at 250,000 in annual revenue, if you know, per truck. So I'm getting a guess, like, you know, 5, 600,000 a year, you know, you can start to afford to get the shop space. And then it's a matter of if I have better employees, will I be able to charge my customers an extra $5 per hour? Right. So if I'm charging 70 per hour, would my, would my customers be willing to pay an extra 70, pay 75 per hour for great employees? If the answer to that is yes, then go get the shop space. Because having the shop space will allow you to get the better employees. You'll retain them longer, you'll be able to train them better, et cetera. And so it just simply a matter of yes, it'll add to your cost 100%. That money is going to come out of what you would otherwise spend on, like marketing, for example. However, having that shop space is going to be a great tool to retain talent. It's going to be somewhat decent like you talked about for a brand or for the image sake. But really no one drives by a lot of these spaces that were kind of on the city limits or outside of the space. It's rare that you're like next to a highway. If in that case then you can look at some more of a marketing expense. But really it's not going to improve the image of the business even as much as internally to your team. It'll improve the image of the business and having nicer trucks and having better equipment and having nicer shop space. Absolutely. The team cares about that, not so much the customer. So as the business grows, you have to start just looking as overhead expense part of doing business. And you're, if you're going to go past four employees, you're probably going to need a shop space. So if you have like five, six, seven employees now, you're going to start probably getting reported and you're going to be forced to go get the shop space anyways.

This year I'm projected to hit like a hundred thousand in revenue or just shy of it. And I'm solo. Like it's just me and I live at home and everything. So I was just wondering when should I start taking this salary? And like how do I even do that? Like I honestly have no clue like where to begin with that.

Yeah, like in reality you only take a salary in terms of an actual W2 where you pay yourself through payroll. Once you are, you're going to be taxing yourself like an S corp. If you're an LLC right now, get a good, good account at the end of every single year. Be like, hey, like before the, before January 1st. Be like, hey, do I need to file a Form 1120s and be taxed like an S corp? And they'll base that answer on is the cost of running another tax return going to be less than the savings of being taxed as an S corp. In other words, getting around the 15 self employment tax if you're in the United States. And so that's going to be the calculus they're running. And then you just have to make the determination of make more money. Focus on that right now and just, just take distributions as needed because it sounds like you're in growth mode. Just focus on that and then get a good accountant that you talk to before January 1st to be able to file a form 1120s. Take your first W2 in that calendar year and you'll pay some taxes that way. Yes, you're going to pay more W2 taxes. However, you'll get around the 15% self employment tax.