Cash System That Scales | 330

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Transcript

SPEAKER_01 0:00

Welcome back to the Business of Beers Podcast, your daily dose of strategies, tools, and tips to help you build an eight-figure business. Today's episode is a clip from one of my YouTube lives. If you'd like to hear the whole thing, there's a link below in the description. Cheers.

unknown 0:16

Cool.

SPEAKER_00 0:17

Cash. Cash system. So now this is number two. So first we need to get the right mindset. Then the next we have to think about money, right? And there's a couple things here. First, is you really have to have an understanding of your big numbers. In most businesses, it's going to be these four. Um variable, fixed. All right. So you're going to have four big cost categories of your business. And so you should know right now, like if I said, hey, last month, like what was your business's payroll percentage? What was your cost of goods percentage? You know, what's your variable cost, and what's what's your monthly like fixed cost? I can tell you right now, for our stores, we want payroll at about uh about 27%. We want cost of goods with about 23%. Our variable cost is about 12% because we pay after we pay MITUS 10% for royalties and stuff, and then we have about 2% or so in credit card fees. So like every single, every single sale, whether we're doing, you know, we do 50 million, 100 million, 5 million, 10 million, whatever, we have 12% we got to pay, right? It doesn't matter. Uh, and then fixed costs. Like I know my average store cost me uh $25,000 a month, something like that, to run. We're like outside of like fixed payroll costs. And so like I could just I could look at a report every single week and tell you last week if payroll was 30%, cost of goods was like 27, you know, variables always gonna be the same. I could pretty much tell you, like, did we make money or not? Because I'm like, all right, you know, in and with all this, our our goal is is 15% uh net. And I could tell you that if we lost three points here up in our payroll, if we lost four points here in our uh cost of good, that's seven points. And you know, so we're I'm probably gonna be about eight percent that week. Just because I I know my numbers so well that like week to week, I don't even need to wait for the the the like, I don't even wait for the account, like our team to finish the books, any of that stuff. Because the business literally comes down to these four numbers. And in fact, it's actually much simpler than that because what it really comes down to in my business is is our sales and our pay pay percentage. Now, this is gonna vary depending on um you know what what your business is, but but my point here is like from a system approach, you need to boil your business down to the simplest terms possible. To to the to to like the number like like like and I'll show you in mine here that everything else, like it doesn't matter what everything else is because you know if if you can nail these two numbers, everything else looks fine. All right. So for example, cost of goods. Like our cost of goods is really 23%. It's it's 24%, maybe it goes to 25, some are 22%, whatever. But like it's actually extremely steady. We don't have weeks. It would be pretty rare for me to have a 27 or a 30 or higher than that. It would also be really rare for me to have like less than 20%. Like it's pretty steady between 23 to 25. So, like, in my mind, I don't really think about it because I know it's gonna be a steady number. I also know my variable cost, right, which is which is like my cost I pay to MITIS, is also an extremely fixed number. It's it's literally 12%, 12.5%, or whatever. It depends on like, you know, do we swipe more American Express cards that week or not? But it but it's not gonna vary significantly. So in my mind, I'm like, all right, I don't have to think about this, I don't have to think about that. Then I've got my fixed costs and I've got my payroll. Okay. So this is how I think about it. Fixed costs don't change, right? For me, it's $25,000 a month. It is what it is, roughly per store. And so the goal is that you you drive revenue high enough to to dilute your fixed costs, right? So that your numbers can fall in line. So for example, I could just tell you, if we did $25,000 in like re revenue per per store, and if payroll was at, let's say, 27%, uh, I would I am probably gonna be uh around I'm gonna make uh I'll say 14% that week as like our net, okay? Um like which includes like depreciation, that includes like interest and specs and stuff like that. Right. I can I know for a fact that if we do like $22,000, that and payroll is let's say it's 30%, our net that week is probably gonna be like maybe five percent, or you're barely gonna make money, right? Just because when the sales drop, that means the fixed costs eat up a larger percentage of your profit. And then also because your your your sales are down, the salaries that you have to pay to your managers is gonna eat up a higher percentage as well, right? And so so these are the only two levers that I really care about are what are we doing in terms of our for me, it's our average sales per store. And like what is our pay percentage? Similarly, like if we do $30,000 and payroll is at like 25%. I don't know why I put a percentage up here. Um, all right, so this is sales and this is pay. Um, if we do 30,000 at 25%, you know, we are probably gonna be like, we could be like 16 to 17%, right? Because I know that we're again, we're driving volume, diluting costs, and pay, fixing your pay. The only way that I've got to this point is because I've spent a lot of time in my PLs, in the numbers, just going over and like like and I've I've created some other content around this. Uh I have like a like a like a basic course. If you guys want to like kind of see my whole process, you could you could buy it. I could drop it in a link below. It's it's relatively inexpensive. But basically going through the entire process to figure all this stuff out so that later you can know your numbers. I talk to owners all the time and and I'll ask them, well, what's your pay percentage? You know, what's your net? And they they they they just don't know. They're like, oh, I don't like I don't like I don't I don't know what it is, right? And you're net it's gonna be really hard to to and I and I and a lot of this I come back to is being intentional. Like you want to be intentional with as much part of your business as you can do, whether that is how you spend your time, how you spend your money, and what changes you need to make. And so if you it's hard to be intentional though, and like take action if you don't know what your numbers are, right? So that is the first the first part of it is knowing that. From there, um I'm gonna look to do now. It depends on on what it is, but you know, what's called a break-even analysis. So for we have, you know, we're opening new stores, right? We opened, we opened one in February, I opened one like in J whatever, July. We've got uh, you know, we're trying to get three or four, maybe five more new stores this year. And so a a big part of me, the scariest part of opening a new store is you start from zero, right? You start from zero, and it's this question of how long until you make money. That is the scariest part for me at least, to say, how long am I gonna lose money until I make money? And now this store is like, you know, uh at least supports itself, right? It can, it can make, it can, it can, it can cash flow itself. And then from there, there's there's like a limited upside, right? Like I don't care as much about like, oh, I gotta make like a like, you know, I got this store has to make $200,000 in the first year. All I care about is is is breaking even. Like it's like I just don't want to lose money, right? It's like Warren Buffett's first rule, just don't lose money. And so uh one of the exercises that you really want to understand, and it's and this is part of like understanding your own PL, is that, which is exactly how much do you have to do in revenue to break even.

unknown 8:14

Right.

SPEAKER_00 8:15

And so for most of my stores, I just kind of know that at this point it's about $75,000 a month that I have to do in revenue, assuming payroll is good, cost of goods is or our rent's not crazy, uh, in order for the business to make money. And so once we know what that goal is, it it helps like uh increase confidence that we can go out there and achieve it. And if, but if not, if I didn't know what my cost to break even was, or if I thought that, hey, for me to break even, like I need to do, I don't know, $150,000 in revenue. And my average store right now uh does I don't know, $100 and let's say $30,000, like that would be a pretty stupid idea, at least, you know, in in my world, because like my store's only doing like my average store is $130, yeah, my best to do $300, but if I brought a new store on and the break-even is is like 120, 130, and like that that's just a much higher risk, right? And you're gonna have to have a way more confidence versus hey, all I need the store is to do 75, I can handle that, no big deal. Uh, we can go from there. Second part of this cash system is creating uh what I call the like the war chest, where the where the goal is you want to set up three bank accounts. All right, we want to set up one that is for operating, we want to set up one that is for tax. Actually, hold on. We need four actually. Hold on, I forgot the operating one. Um I'm gonna call profit and the last one is growth. All right. So in our business, we have we have I mean we have way more than four bank accounts, but we have in theory they have labels, and we we have four of them. And so how it works is for every dollar that comes in, it it goes into the the operating account. So all the money, all the like deposits, everything comes into the operating account. That is where we make payroll, we pay, we pay all the bills out of. Like we we kind of have a number that we want that uh bank account to be at. And you know, we we kind of keep it at that level, and then as soon as it goes over that, we're we're we're pulling money uh away. And when we pull the money away, we we want to separate into three different accounts. Number one is taxes. So once you start making some money, you got to pay quarterly taxes. Uh we also, you know, we have to pay taxes for like you know, triple net buildings that we occupy, you know, that that you know, it might be $150,000 that we owe in property taxes that are due over the course of like you know two months in the springtime, also when your income taxes are due. And so we treat this as like an escrow account. So every single week we are moving a certain amount of money for us. I don't, I don't know what it is offhand. I think it's about, I think it's like $25,000 a week, but I but I'm but I'm but I'm I'm sure it could be whatever, right? But each week we've kind of figured out here's all the money that we're gonna need to owe in in income taxes, quarterly taxes, in property taxes, just all the money that's like not our money really. And so what we do is we every single week, we we just like move that money over and it and it sits there, you know, and it earns a pathetic interest rate, right? Um see because what that does is then when income taxes come due, when these big bills come due, you're not scrambling because you've prepared for it, you're ready to go, you've overestimated, you've done all that stuff. And so, even, you know, this last couple weeks, I mean, I owed, I don't know, $250,000. My brother owed about the same. So, like, you know, we owed about $500,000 to the IRS, and so we had that in the account. And so we just took the money, paid it, and like there, there's no stress because we were prepared, all right. Versus the way that I used to do it was all the money would just sit in the operating account, right? And and it would get bigger, but then like in our minds were like, all right, well, we got to save money for here, we got to save money for this, we we've got all these other things going on, and then it kind of like puts a lot of stress because and you then don't want to take distributions because you're fearful that like I'm gonna need that money, right? And oh, I don't know how much money I'm gonna need. And there's like back to like being intentional because you don't have these systems in place and now you're all reactive versus proactive. And so the tax account, like, as painful as it is to write those checks, it it's less painful when I've already written off the money that it's not mine. All right. And we actually oversaved on that, and so then we we each took uh like a distribution that uh kind of felt like a bonus at that point because like we've already written it off, and then we're like, oh yeah, great. It's like it's our money now. So um that so you want to set up a tax account. Then I have we have these two accounts, one of them we call profit, one of them we call growth. Now, for a while it was only one account, which is which is why I we added it. Uh, so I'm gonna talk about the growth account next first. So back to my like the question I got of where do we have the money? You know, we want to put as much money back into our business as we can because it is it is the best possible investment that we can make. I mean, I've had stores where, I mean, even this last store, we put $200,000 to acquire and open the store in February. And, you know, that store is probably gonna make $150,000 this year in the first year. So, like, what other investment could you make where you invest $200,000 and you get $150 back in the first 12 months? Right. Uh not many. And that's like that's like a my lower return. Most of the deals we're getting at least 100% of our money back. Uh, and that one we didn't, you know, if we used debt, it would have been fine, but but you know, we paid cash. But either way, we want to put the money back into the business. And so same thing. We are we are putting money into this growth account. And so we set a threshold. So I'm just gonna make up some numbers, but let's say um we want this operating account to be $100,000, right? So we say, hey, $100,000 is like our threshold. That's the number we're comfortable with. And what we're gonna do is every week, whenever that number gets above it, so let's say we do we we got $120K uh at Monday or Tuesday or whatever, whatever day we pick in the week, then what we do is we take the $20,000, and in this case, we would feed that into the growth account. The next week, we do the same thing. Maybe that week we've got 110, we take 10K, and we'd sweep that into the growth account. So each week we'd go and we'd be sweeping the sweeping the amount of money over our our threshold. Now that threshold is set at a comfortable level. We did it as a multiple payroll, I think. I want to say we did uh like five weeks of payroll or something like that. Um there was some sort of metric that we used that we felt pretty comfortable with from a balance like standpoint. All right. So so the growth account becomes the same thing for you, but but escrow for you to grow into the business. So that when you go out and you start chasing acquisitions, you start looking at new opportunities. Um or for us, like we have an opera, we are currently buying one of our buildings that we that we occupy, that the landlord wants to sell it. It's 1.6 million, so we're gonna need, you know, $300-ish thousand dollars for the down payment with our bank. And so guess what? Like we already have $300,000 in that growth account that we plan to put back into the business. And so we can just write that check from the growth account. And like again, it's not like we're pulling from savings, it's not like we're pulling from like this tax account or scrambling because we've we've proactively been saving all this money along the way to go ahead and do it. Now, at a certain point, you may say, hey, I I wanna I want to continue to grow, I want to like grow beyond, or I I'm I'm okay. I want to slow down the growth a little bit, and I want to take some money and um maybe maybe push it outside of uh outside of the business. And so that's what we do we use the profit account for. All right. So that those are kind of the difference. So in that case, the profit account is money that we could take as as distributions. All right. So we're taking it out of the business. So maybe you could say, hey, what I'm gonna do is I have $20,000 of additional uh capital that that we don't need. Maybe you say, hey, I'm gonna take 10K and I'll take that as into my profit account, and I'm gonna take 10K and I'm gonna put that into my my future growth account. Uh totally up to you in terms of what that uh looks like, but uh that hold on a second. I got a disc, I got a disc uh almost full on my laptop here. Hold on, or my computer. Should be good. Cool. Um, this is our this is our cash management system. This is how we run it. Uh, I mean, we've run this way for years. It is literally one of the probably the most critical things that we've done that has helped us have money for deals. And it comes back to this idea of betting on yourself and that that your business is the best possible investment that you can make once you have it, once it feels like an operating system. Because in the beginning, when you first start off, the business is a job, right? Like you go out and you work all the hours, and like your success is related to your direct input. And if you're not working, then the business is potentially gonna suffer, right? And like it feels risky to then put any money back into the business because it's it's not really a business, right? It's it's a it's a job that you have. And the point or the goal of of owning a business, right, is is to remove that self and take this and turn it into uh what it call like a business, which is now, and that's kind of the thing that I'm gonna talk about, you know, here, which basically means now we have these systems. And in a system is really just a repeatable process that you know you've documented that your team can run with without you, right? And it it can just like it can just go, people like know what to do and it and it works. And you need these systems in order to grow. It can't be reliant on you. Otherwise, you know, it's back to back to being a job. And then so this is where it it becomes less, you know, I'm gonna say less risky for you to go ahead and say, hey, I'm gonna take you know that $100,000 and I'm gonna put it back into my business. I'm gonna grow it because now that can help me go from one location to two to four to six to eight, and I can actually build a team and I can remove myself out of the day-to-day, and I've got people that know what to do, and are frankly potentially like better than than me at it. And then the final stage, which is you know, like where I'm at today, and and I uh you know, where I think you know most people aspire to be, is that it becomes an investment, and that your business itself becomes an investment vehicle, right? Where instead of putting money into a stock market and earning, I don't know, 10% or whatever it is, we can say, hey, I'm gonna go and put you know a million dollars into buying X number of more stores, even if they even if we have to start all these from zero, because I'm I'm extremely confident that you know that one million dollars, let's say I could get four stores out of that, could produce me, I don't know, 500k a year. Like, let's just ballpark this, right? And so so again, if you think of it as an investment vehicle, like why wouldn't like if you said, hey, you could put a million dollars into something that could earn you $500,000 a year, like, and and it just it continues to make money every single year, and eventually you could take that thing and you could sell it for, you know, I don't know, two or three million dollars or more, whatever down the line. Like, that is a no-brainer. That is the best and best best best best investment you could ever make. And the the challenge is that you it it takes this progression to get there, right? It doesn't happen overnight, but it takes it takes you willing to do the work, to start the job, to to be the hero and brute force it all, take all the risk, to then build the systems, to create a business, which now the thing like you have people in in leverage to then be in the investment vehicle, right? And then like that's how you know these these companies and and people build these massive things, is because there's no better investment than than yourself. All right.