MBA1833 Must Read: Simple Numbers by Greg Crabtree

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It's time for Dell Tech Day's annual sales event celebrating our customers with fantastic deals and benefits. Perks include Dell rewards, free shipping, premium Support and more. PCs like the Dell 14 with Intel Core Ultra processors will help you do more faster and with a premium suite of monitors and accessories, you can upgrade your whole setup with amazing savings. Visit Dell.com deals. Hey all, welcome to the Hundred Dollar MBA Show. Because your business means the world to you. That's why we deliver daily 10 minute business lessons for the real world. I'm your host, your coach, your teacher Omar Zenholm. I'm also the co founder of Webinar Ninja, an independent software company I started with my partner back in 2014 and today's episode is a must read episode on our must Read Episod. I share with you a book that I've read that has influenced me as an entrepreneur. I share with you its takeaways, its insights and why you should read it too. Today's must read is Simple Numbers by Greg Crabtree. The subtitle for Simple Numbers is Straight Talk Big Profits. And that's exactly what this book shows you. How to do, how to be profitable. Simply. If you're the kind of person that just glosses over when somebody talks about about accounting, finance, P and L sheets, budgeting, all that kind of stuff kind of bores you, maybe even makes you feel a little bit inadequate and you know, a little intimidated. If you just like the focus of the product and your customers and you don't really like to look into the numbers too often, then this is the book you have to read. This is probably gonna be the most common book I gift to my entrepreneurial friends. In this book, Greg Crabtree, the author, explains in simple English how to make sure your business's numbers, your finances, the money is on the right track, you're doing the right thing, what to track, how to track it, and you don't need any fancy software. In fact, everything he explains in the book can be done with a simple spreadsheet. There's so many golden nuggets, mindset shifts and practical advice that it's not an overstatement that you could say this book might change your business. It's already changed the way I do a few things in our business today. Can't wait to get into this book, share with you my favorite takeaways, the gems I found in there, and why you should read it too. Let's get into it. Let's get down to business. USAA knows dynamic duos can save the day like superheroes and sidekicks or auto and home insurance. With usaa, you can bundle your auto and home and save up to 10%. Tap the banner to learn more and get a'@usaa.com bundle restrictions apply. Simple Numbers by Greg Crabtree no matter where you are in your business, whether you're new, you've been in business for six months, six years, 10 years, whatever. Buy this book right now. Trust me, you will not regret it. You will find something of value in this book, if not lots of value. I don't say this about every book I read. When I bring a book on as a must read, it's because I believe it's worth your time, number one, and number two, worth the effort for you to implement what's in the book. So I want to start with one of the biggest takeaways in the book. It's the first chapter, and this chapter alone is worth reading the book altogether. And it talks about setting your salary, setting a market rate for paying yourself as the founder, as the CEO. Many founders will not pay themselves a market rate. They'll actually pay themselves far less or not pay themselves at all so that the business can grow faster and they can reinvest and continue to grow. He recommends against this in a big way, and if you do do it, he says, you should definitely turn that into a convertible note, meaning that you should get paid back for the time you spent not getting a salary at some point in your business. Why? Because the numbers have to make sense. Let me explain. Say one day your business is booming, it's growing, but you don't really pay yourself a decent salary. Maybe you take a dividend Instead of a salary. The problem here is that your numbers are skewed. If you wanted to sell this business one day, they're going to look at your numbers bill and say, well, I'm not going to have you as a CEO. You're selling the business. I got to hire a CEO. Your costs are skewed because I can't hire somebody and pay them this salary. The salary is a joke, right? Whether it's a no salary or a low salary because you're taking a dividend or a low salary because you're just sacrificing, that's not a sustainable solution to your business. You need to pay yourself a market wage because one day you have to replace yourself. Whether you sell the business, whether you hire a CEO to run the business, whether you're getting outside investment or partnership and they're going to look at your books, they're going to say, hey, your profitability is not real because you're not factoring in real cost of real salaries. Wow, what a wake up call, right? For all of you out there who are not paying yourselves properly, there are many entrepreneurs I know that have been running their business for 3, 4, 5, 10 years and paying themselves a very meager wage. They're probably one of the lowest paying people in their company and they see this as a badge instead of a mistake. Your numbers are not real if you're not paying yourselves a real salary. It's very important for your finances to make sense not only just to you, but to people externally because you're going to eventually need help from somewhere, a loan from the bank, an investment. You might want to sell the company, sell shares to the company, bring in a co founder, bring in somebody who's going to get equity. Where are they going to get equity? Based on what? What's the valuation of the company? Well, the valuation of company is based on the numbers. If the numbers are not right, they're not really market value. You're in trouble. So huge, huge takeaway just from the top of the actual book, right? The beginning of the book. Next he talks about the 10% profitability mark. This is one of the best takeaways in the book as well. I'm getting very excited just talking about this book because it's a game changer. It's really an insightful book on finances. I am not into finances that much, but when I read this book, I was like, man, this really simplifies things. This really shows me what to prioritize and focus on. Let's go back to that 10% profitability. Profitability. A lot of people struggle with the idea of how profitable should I be? Should I be making 20, 30, 50% profitability and paying a lot in taxes because I have a surplus at the end of the year, or should I take that money and reinvest in my business, or should I take a dividend? So he has a really good rule of thumb and that's 10% profitability. 5% profitability is too low, you're too close to breaking even and possibly not being able to pay your bills. And 10% is what he calls a new break even. It's enough profitability for you to pay some taxes, but also some buffer between rock dead bottom and breaking even. Now, what does this 10% mark do? What do you do with this? Now what's great about it is it's kind of like a barometer. You gotta be minimum 10%. Now, what happens if you're 15% profitable or 20% profitable? Well, that's what he talks about in the following chapter about a salary cap. Another huge, huge takeaway. How much money should be spending on salaries. This is one of your biggest expenses in your business, if not the biggest expense. And a lot of you want to hire more people, but they're not sure if they're ready to hire now or if they can afford it, all that kind of stuff. So this is where the profitability mark helps you. So your goal is to be at 10%. So if you go to 15, that means you are ready to hire. And he gives the example. If you have a million dollars in revenue, 5,000 is about $50,000, which is roughly the medium wage of a given job at a company. Obviously, if you need to make a expensive hire, like an engineer or a manager, then you're going to need to wait until you're maybe 20% profitable, so you can spend $100,000. Obviously these numbers are different depending on how much revenue you're making. But the point here is that you will know when to hire when your profitability margin or your percentage goes up a certain amount. So what happens is that it gets to say, for example, 20%, you spend $100,000 on a salary. A new hire, now you're back to 10. When do you make your next hire? Well, you can't make it now because you can't go below 10. Love this. And it's this idea of the salary cap and this chapter on salary cap is great. If you're a sports fan, you know that in the NFL, the National Football League, in the Us, they have a salary cap, meaning that every team can only spend a certain amount of money on player salaries. This allows it to be competitive and fair across the league. So he's telling you as the business owner, you have a salary cap, you have X amount of money you can only spend on salaries. And basically it's, you take all your revenue and you say, what's 10% of that revenue? Put it aside. That's my profit, right? Then you subtract all your fixed or recurring expenses that are not salaries, like rent, software, hosting, subscriptions, tools that you buy to run your business. Let's say, for example, that is 400,000. That means you have a salary cap of half a million dollars, 500,000, because that's how much money is left. You cannot spend more than that on your team. And it's advisable, like in sports, to spend up to that, right? You don't want to spend half of that and just pocket the rest. Then you won't be competitive. Right? So what great football teams do is they spend up to the salary cap, and they see this as the challenge. Your challenge as a business owner is just like a owner of a football team. You have X amount of money to get X amount of talent, to get X amount of results. You want to win in your marketplace. So really, what's important is for you to make sure you get the most value, the most output, the most creativity and ingenuity from the team you have with your salary cap. And he has a whole chapter on how to extract as much value from the people you already have. A lot of people think, well, hey, I need to make more money, so I need to hire somebody to help me make more money. No, he says, take a look at your salaries right now. Is there anybody that is not going to their full potential? Can you get them to be at their full potential? Train them, help them, give them a new challenge, give them a new project? No. Maybe it's time to cut them. I know that sounds like very cut and dry, but that's what they do in sports as well. Hey, I can't afford this player. I'm going to get two players or I'm going to get one player that's less expensive. But I can train. I can, and maybe cultivate them for the future. This happens all the time in sports. But when we look at our business, we don't look at it. There are teams that win the super bowl, and when it's time for them to renew the contract of the player that's been with them for four years and help them get to the Super Bowl. They, they say, sorry, you demand more money now. The market demands more money. You can get more money at another team, but we just can't pay it because our salary cap, we got to work within our salary cap. I can't go over my salary cap. So I'm going to have to do that cycle again where I go and hire somebody who is less expensive that I can train that can actually help me get to my goals. So the salary cap concept in this book is fantastic. Next, it's not just profitability that you want to have just 10%. Another great takeaway is a lot of people wonder, hey, how do I make sure that if there's ups and downs in my business, another Covid situation hits us. What do we do? Well, he advises that you should have two months of Runway in the bank at all times. Meaning you should have two months of whatever you burn every single month, your expenses. So for example, let's say you spend between all your expenses, your fixed and, you know, reoccurring expenses, as well as salaries, you spend $50,000 every month on your expenses. Let's say that means you need to have $100,000 in the bank at all times to cover you for two months, just in case you have zero income coming in. Now, obviously those situations are few and far because people have, accounts are closing. You know, businesses will dip, they'll go through some troughs, but they'll bounce back. But the two months will kind of give you that feeling of okay, everything's gonna be fine. And it protects your business.

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One of the best things about this book Simple Numbers is there's no formulas, there's no equations you have to work out. There's no spreadsheets that you have to download that he shows you that you have to follow along. He literally explains everything in simple tables. I have this book on Kindle. I'm reading it on my Kindle. If I can see a table on Kindle, that means it's a simple table. You could literally reproduce everything on a Google sheet or an Excel sheet or whatever in seconds. What's most important to me is that because it's so simple, it's so easy to follow, to get your finances ordered, to get your forecasting in order to make sure that your business is running healthy and smoothly. It's easy for you to communicate what you know now from the book to others because it's in simple language, because it's simple concepts. There's so much more in this book that you can get out of. When it comes to the finances of your business, I can't cover them all. I encourage you to pick up this book immediately and read it for me. It was a quick read. I read it over two weekends. There's no jargon, there's no complicated language, there's no accounting language. It's all simple. Thanks so much for listening to the Hunter RBA show. I highly recommend you pick up Simple Numbers by Greg Crabtree. This is one of those books that I recommend you actually read. Whether it's on a Kindle or in a paperback or a hardback or hardcover. It's not the best on audio. You need to see it visually and it will help you implement what you learned and what you saw in the book in your own business if you actually read the text. Don't forget, if you want to get every episode automatically right on your device, hit subscribe. It's absolutely free to subscribe to the podcast, so go ahead and do that right now so you never miss a beat. Before I go, I want to leave you with this. Sometimes we don't pick up books on topics we don't love. I'm not a big numbers guy, finance guy. I don't hate it, but I don't particularly love it. But this book was recommended to me so many times from other entrepreneurs. You gotta read simple numbers. You gotta read simple numbers. I was like, okay, alrighty. So I bought it and read it and did not regret it. Sometimes it's healthy for you to actually go after to attack the things that you kind of shy away from to shore up your weaknesses a little bit and at least as the lead of your business, have a plan forward, have a good understanding of what to do the right way looks like. Even if you hire a bookkeeper and an accountant and a cfo, even you, the leader, you, the owner of the business needs to know the numbers. It's the backbone of your business. Thanks so much for listening and I'll check you in tomorrow's episode. I'll see you then. Take care.

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