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Latest podcast episodes about joseph well

Giant Robots Smashing Into Other Giant Robots
422: Verge HealthTech Fund with Joseph Mocanu

Giant Robots Smashing Into Other Giant Robots

Play Episode Listen Later May 12, 2022 36:52


Joseph Mocanu is Co-founder and Managing Director of Verge HealthTech Fund, which invests globally in seed-stage healthcare technology startups relevant to emerging Asia that focus on disease prevention and management, digital therapies, and health system efficiency. Chad talks with Joseph about the healthcare landscape in different places of the world, funding criteria for companies, and how the pandemic has changed prospects for the fund and the market in general. Verge HealthTech Fund (https://www.vergehc.com/) Follow Verge HealthTech Fund on LinkedIn (https://www.linkedin.com/company/verge-healthtech-fund-i/). Follow Joseph on Twitter (https://twitter.com/jmocanu) or LinkedIn (https://www.linkedin.com/in/jmocanu/). Follow thoughtbot on Twitter (https://twitter.com/thoughtbot) or LinkedIn (https://www.linkedin.com/company/150727/). Become a Sponsor (https://thoughtbot.com/sponsorship) of Giant Robots! Transcript: CHAD: This is the Giant Robots Smashing Into Other Giant Robots Podcast, where we explore the design, development, and business of great products. I'm your host, Chad Pytel, and with me today is Joseph Mocanu, Co-founder and Managing Director of Verge HealthTech Fund, which invests globally in seed-stage healthcare technology startups relevant to emerging Asia that focus on disease prevention and management, digital therapies, and health system efficiency. Joseph, thank you for joining me. JOSEPH: Thanks so much, Chad, for having me. CHAD: So you have been focused on emerging Asia healthtech for a little while both at Verge HealthTech Fund, and prior to that, how did you get involved in this space? JOSEPH: I wish I had a really cool, deliberate story that made it sound like it was a smooth transition from point A to point B. But I simply have to owe it to an opportunity to transfer to the region through my old employer which is Oliver Wyman, a global management consultancy. So I joined this consultancy in 2011 after doing my Ph.D. and MBA really to understand how to be a better investor, which, again, sounds a little bit backwards. But I had worked at a hedge fund in China just after my MBA, and I learned that they use management consulting techniques to add value to their portfolio companies. And I thought that's a great skill to learn. And it'd be great to even learn it in English and doing it in healthcare 100% of the time. So I had joined Oliver Wyman in 2011 in Toronto office back home, where I spent a lot of my life. And they asked me one day if I wanted to transfer to the Singapore office to help start healthcare over there. And when I went to Singapore, of course, it's this futuristic city, really well planned. It's got a lot of fine names and a reputation globally of being a modern cosmopolitan place to do business. Some people refer to it as Asia-lite. But the surrounding areas have a lot of issues when it comes to their health systems. I knew this from an academic perspective, having studied about the region before moving to Singapore but seeing it firsthand was a completely different experience. At the time, I was working for primarily pharmaceutical clients, helping them with market access and other commercially relevant activities. And they were faced with a fundamental challenge of trying to sell their product, which was usually placed in the premium category to markets that had difficulty affording this. And not only did it have difficulty affording this, it had difficulty in delivering it as well as in using the product appropriately, making sure it gets to the patients when it's needed at the right time, at the right dose. And so they were looking for partners. They were looking for partners on the ground that could assist with this delivery education, the technology, and the financing around it as well. Now, there was a real shortage of said partners on the ground. At the same time, there were also insurance companies that wanted to expand their business. They also realized that the policies tended to be a bit simple, and they tended to resemble one another across competitors. And also, to manage increasing claims, they had a tendency to increase the premium that they charged. This was not possible to do indefinitely. And at some point, they needed to actually manage the medical conditions, which you're probably seeing more and more of in the U.S. and in Western markets, less so of in this part of the world. And then lastly, you had conglomerates and investors who said, "Hey, we hear healthcare is going to be a pretty hot field. How do we get started? How do we invest?" And all of this basically set me on a mission of target hunting. And during the course of this, well, I met a lot of interesting companies, a lot of them really, really early in their journey and really too small for any of my clients to find a meaningful way to engage with them. And unfortunately, they couldn't get to the point where they are relevant and large enough to engage with without a lot of capital. This is where, you know, you'd have a nice investment ecosystem coming in to fill in the gaps. This, unfortunately, did not really exist at the time. And I had the hubris of thinking that I could do something about it by being an angel investor and starting to support these founders directly, which, thankfully, seemed to work to a certain degree. It worked to the point where one day, I woke up, and I realized I had 13 angel investments, 9 of which were in healthcare technology, and not a lot of money left in my bank account to do other things with. CHAD: Uh-oh. [laughs] JOSEPH: Yeah. And at the same time, I also realized that the work that those founders are doing is a whole lot more impactful than me sitting up until 3:00 o'clock in the morning every night writing PowerPoint slides or begging analysts to write the PowerPoint slides that would more or less sit and collect dust on my clients' shelves for various reasons. So I came to the realization that I need to do this full time. I didn't have, you know, $10 million in my pocket as reference to spending all my money on angel investments. So I realized that I have to use other people's money, and the way to do that is to join a fund. Now, the problem with that idea is that there weren't any funds that were doing this, like really, really early investing in healthtech companies in the region that was really geared to helping solve some of these really big access challenges. So then I realized I had to start a VC fund that did this and only this. So that's really kind of a long-winded introduction as to how I got started with this. CHAD: Yeah, I want to come back to the process of actually starting a VC fund in a bit. But I'm curious, were the companies that you were doing angel investment in and now doing seed-stage investment in do they tend to be local companies, or do they tend to be international companies that are planning to solve a problem locally? JOSEPH: It's funny you ask that. At the beginning, they were local. Well, actually, if I really were to take a step back, the very first angel investment I made was for a mentee, and she was based in Toronto. But I'd say that the first true angel investment I made, you know, it was in Singapore, first and foremost, because I was there. And then I started branching out. I started making investments in the Philippines. I started looking at companies in Taiwan and other parts. And actually, that opened my eyes to the fact that there may be other companies around the world that are trying to solve a problem that may not necessarily be in my own backyard. So I started to, you know, cheekily, I sent my wife to tech conferences around the world. And she herself is an entrepreneur from the tech industry; hardware was her specialty. And we started identifying companies from all over the world. And the second angel investment where I was the very first investor was actually from a company in South Africa with similar challenges. So the things that we saw as major health system deficiencies or maybe shortages in infrastructure and human capital were very much true not just in Southeast Asia but in a lot of parts of the world. And we noticed that while there were different reasons for why they ended up in that position, the outcome was similar. CHAD: I'm not sure that everyone listening has a good sense of what the healthcare landscape actually looks like in these different places of the world. So let's take insurance, for example; what is the insurance landscape, generally speaking, in Southeast Asian countries? JOSEPH: So, in Southeast Asia, we do have insurers. I mean, private insurance is certainly there. But it's just not -- CHAD: Do most companies have public insurance, too, like universal healthcare? JOSEPH: That depends on which country you're in. Now, the one interesting thing about our entire region is that they've all committed to universal healthcare coverage. I would say that the implementation thereof has been heterogeneous; let's put it that way. Out of Southeast Asian countries that are not Singapore, I'd say that Thailand probably has the strongest public healthcare system. And in fact, they even do health technology assessments, which is really looking at the true cost-effectiveness of a new intervention versus what's currently done in practice to make decisions as to whether they're going to pay for it. And they cover a pretty high percentage of their population with this. And then there are other places where the financing mechanisms are in place, but you don't necessarily have the doctors or the hospitals where they need to be to address the needs of the population. Still, we are dealing with places that are not fully urbanized. And in fact, a good deal of the population is still working on the pharm, basically. One of the other complexities of our region is that just between the Philippines and Indonesia, which together has a combined population of 380 million at least, maybe it's 390 now, you've got 25,000 islands, and not all of those islands tend to hold major tier-one cities, even though they can hold a lot of people. And if there is one thing about healthcare that seems to be a universal truth is that highly skilled workers like to live in the rich cities. CHAD: And so what I'm hearing is that on an individual island, if there's not a major city there, the access to the actual healthcare might be really limited. JOSEPH: That is exactly it. CHAD: In these economies in these countries, it's typical to have private insurance layered on top. But the pharmas probably aren't doing that, right? JOSEPH: Oh, no, no, unfortunately not. There are some pilots of trying to do co-ops or collective insurance or micro-insurance policies. But again, when you look at the amount of premium that they could pay in, the kind of coverage they get is pretty basic. CHAD: So, how does that landscape influence the solutions that startups are creating? JOSEPH: Well, first and foremost, you've got to try to get some sort of mechanism by which you can seek care without having to travel too much. And I think that concept is extremely familiar to all of us thanks to the global pandemic that I hope we're coming out of right now, although there's always a new strain surprising us. The idea of basic telemedicine is one that can have a great deal of impact in these populations. But even before that, just understanding the importance of healthcare, like, what the concept of healthcare is, what the concept of the modern medical system is, is something that a fair number of people never really had awareness of. And I'll call out an example country, and I try not to call out too many examples. But Indonesia did a really good job of educating people about the concept of healthcare when they promoted their universal healthcare coverage. Even if they didn't have the ability to deliver it as well as they wanted to or as widespread as they wanted to, at least they got people paying attention to this concept called health. So awareness is really the first step. The second challenge is all right, so you know health exists. When do you know when you need it? Where are you going to find a doctor? How do you know if a doctor is even good? And how do you know that the products that you're going to get are appropriate? So there are so many challenges that you have to face when you are in a lack of access situation. CHAD: I assume you're getting pitched on a lot of ideas coming to your fund, a lot of startups. Correct me if that's wrong. [laughs] JOSEPH: No, no, that's absolutely true. So one of the blessings and curses of being one of the very few super early-stage healthtech venture funds out there is that there aren't many of us out there. And when we started...let's just put it this way, if I could find a fund that was doing what I wanted to do, I would have sent my CV in, and I couldn't. And starting a fund was basically the last thing I wanted to do, having never worked at a VC before or ever raised money in my life before. So I still think that we are the only truly global impact-oriented seed - I hate the term pre-seed, but I'll use it because of the audience's familiarity with it- investment fund out there right now for healthtech. So by virtue of that, we do see a lot of companies. CHAD: So what are some of the criteria? JOSEPH: So I'd say some of the criteria that we look for is number one, are you solving a real problem? And we define a real problem by the breadth of the problem, like, how many people are suffering from it or how systemic is this problem if it's an infrastructural one? And depth being how severe is this problem: is it life or death, or is it a minor inconvenience? So first and foremost, it's got to be solving a real problem. Second, it's really around the team. You need a lot of clinical, technical, and commercial experience in order to pull off a healthtech startup successfully. And even before that, we want to understand why are you doing this? Because this is not easy. I'd say on a scale of 1 to 10, doing a startup is like an eight, and then doing a healthtech startup is like an 11. It's slow; it's technical, it's regulated, it's super risky. And health systems are very pathway-dependent in the intent to not have many things in common with one another. So it is really, really hard. So we want to know the motivation. Are you going to stick through the thick and thin, or are you doing this healthtech startup because you think healthtech is cool or hot this particular period in the market cycle? So that's another criterion. Another criterion is, well, what's your edge? I mean, okay, you can have a great team, and I think that is definitely a prerequisite. You can solve a problem. But do you have something that could make sure that you are going to be competitive and remain competitive? CHAD: Given the barriers to market entry that you just outlined, do most of the companies that you're investing in have any sort of traction already in the market, or where are they in the product development or business development cycle? JOSEPH: I'm going to give the ultimate cop-out answer of it depends. CHAD: [laughs] Yeah. JOSEPH: But I will qualify that by saying it depends on whether it's hardware or software, and it depends whether it's regulated or non-regulated. So if you are a software company that's unregulated so, what does this mean? It could be like a marketplace. It could be health education. It could be some telemedicine in a loosely regulated market. We'd really like to see user traction. We'd really like to see revenue even. However, if you're a device company and you need to get FDA before you can earn a single dollar, we're okay with it being a science experiment or a prototype on the table as long as the science part of it has been de-risked. So if we know that the fundamental scientific principles are sound, then we're willing to take the productization and regulatory risk because we've been through this journey ourselves. CHAD: And also, you said a team is really important, so if it's a team that has never gone through that before, that's less attractive than a team that has done it before, I assume. JOSEPH: Yeah, absolutely. However, one of the challenges is that outside of the U.S., certain European markets in Israel, it's really difficult to find a team that's gone through the entire medical device development process before. So you are going to rely heavily on your professional service providers, consultants, advisors, other investors who've done this before. And as long as you have at least a path to getting to a point where you can unlock and utilize that expertise, that's okay. But if you don't, then that's a really, really big risk. Mid-Roll Ad I wanted to tell you all about something I've been working on quietly for the past year or so, and that's AgencyU. AgencyU is a membership-based program where I work one-on-one with a small group of agency founders and leaders toward their business goals. We do one-on-one coaching sessions and also monthly group meetings. We start with goal setting, advice, and problem-solving based on my experiences over the last 18 years of running thoughtbot. As we progress as a group, we all get to know each other more. And many of the AgencyU members are now working on client projects together and even referring work to each other. Whether you're struggling to grow an agency, taking it to the next level and having growing pains, or a solo founder who just needs someone to talk to, in my 18 years of leading and growing thoughtbot, I've seen and learned from a lot of different situations, and I'd be happy to work with you. Learn more and sign up today at thoughtbot.com/agencyu. That's A-G-E-N-C-Y, the letter U. CHAD: Earlier, you said FDA. FDA is a United States thing. Do most countries in Southeast Asia have a local regulatory agency like the FDA that things need to be approved through? JOSEPH: Yep, every single one. The question is, what's the process to go through that? Generally speaking, the FDA, as well as the European equivalent, which is the CE Mark, are used as predicates in order to kind of shortcut the process, make it go a little bit faster. Because then you don't have to create a bunch of new work or get the local regulator to really try to do things that they're unfamiliar with. CHAD: You said it's fairly rare for teams to have concrete experience doing that in the local market. Does that mean that most of these markets have been served by, I don't know, large companies previously? JOSEPH: Yeah, and still are. A fair number of emerging markets don't even have the manufacturing capability to even do local production, so they require a lot of importation. I'd say that this is a different case when it comes to generic pharmaceuticals and maybe vaccines and some consumables. But complex devices and biologics are generally manufactured in more developed markets or larger economies. CHAD: Yeah. Well, you mentioned the pandemic, and I'm curious how the pandemic has changed either your prospects for the fund but also the market in general. JOSEPH: I would say, again, it's both a blessing and a curse. So during the start of the pandemic, there was a great deal of societal and economic uncertainty around where are we going to be as a species in six months? And I remember early 2020; it was kind of these Hollywood movies that would paint this kind of semi-apocalyptic picture of where we're going to end up. And as a consequence, people really puckered up and stopped investing in things. I would say that the other side of it is now much of the world understands what it's like to not have access to quality healthcare or even access to healthcare. You see people not going to the hospital for things that they ought to and then suffering the consequences at home, like, let's say, not going for that heart checkup, and then you having a heart attack at home and passing when you otherwise wouldn't have. Or even cancer patients having to delay their therapy because the hospital is just too full. So this concept of telemedicine which has always been resisted by both the payers and providers for being infeasible, or inaccurate, or impossible to fund properly, suddenly had to be done. And the concept of telemedicine is fairly old. I mean, how else would you treat your astronauts in space in the '60s if they got sick? So this is something that NASA thought of and invented and implemented, you know, decades and decades ago. And finally, this came forward. And I was pleasantly surprised to see...and again, I'll quote the U.S. here where The Center for Medicare & Medicaid Services or CMS actually reimbursed a bunch of remote procedure codes, which is pretty amazing. And I think that was opening Pandora's Box. There's no going back from that. So I think telemedicine is absolutely here to stay. And the real challenge now is really how to make it more user-friendly, how to improve it, how to improve the decisions that come from it. I really don't think it's going back. And as a consequence of this, it's really benefited a lot of our startups that were trying to build this remote-connected future anyway. CHAD: Has there also been an influx of those kinds of startups? JOSEPH: Absolutely. I would say that there has been a veritable Cambrian explosion of startups where everyone and their uncle is starting a healthtech startup as well as a healthtech fund. I see a lot of new funds coming up promising to invest in this space. So I think it's good in that there's going to be a lot of really new ideas, and hopefully, it's going to improve the standard of care for everyone around the world. But at the same time, it is creating a lot of noise, and it's becoming increasingly difficult to filter through that. CHAD: Do the solutions tend to be local? I guess the nature of my question was, you know, like messaging apps. [laughs] Different countries have different popular messaging apps. What do you see as the penetration of different telemedicine solutions in the different countries? Do you think it's going to be, oh, you know, this is popular in this country? Or do you think it's possible for one company to come in and really have a significant impact in the market across multiple markets? JOSEPH: Yeah, I think it's eventually going to be the latter. So at the start, you do see that you have your national champions. And like instant messaging apps, it's kind of like a 90-10 rule where the number 1 player takes 90% of the market, number 2 takes most of what's left, and then number 3 player caters to some niche or another. And I see two competing forces here; one is, yes, there may be a big player like Babylon or Crew who comes in and rolls up everything backed by heaps of capital. But the other thing could also be that all the health systems start saying, "You know what? Why are we working with an external company? Why don't we just develop all these capabilities ourselves and then keep the patient captive?" And you are starting to see middleware providers who are basically providing that telemedicine layer, white-labeling it, or giving API access to the providers themselves, the legacy providers themselves, and then allowing them to do that. And I actually saw this statistic...I don't know how accurate it was, but I saw a chart in the U.S. that white-labeled or internal telemedicine consults exceeded the number of Teladoc consultations, which is the largest platform in the U.S., at some point last year. CHAD: I'm wondering, do you know if Teladoc uses Twilio? JOSEPH: I really should know the answer to that question, but unfortunately, I do not. CHAD: Because my sense is the real winner in this game might be companies like Twilio because I think everyone is using them. [laughs] JOSEPH: That makes a ton of sense. So when we do look at some investments, we actually want to invest in middleware because why duke it out to be the platform when you're the utility provider? CHAD: So let's turn our attention to the actual creation of the fund. And I know you just opened your second fund last month, right? JOSEPH: Actually, this month. I mean, last month was the paperwork, but it takes time for stuff to get approved. CHAD: Yeah, fair enough. So you already said actually starting a fund was, I think you said, the last thing on earth that you wanted to do. Why was that the last thing you wanted to do? JOSEPH: Frankly, it was a whole lot more uncertainty than I was prepared to handle at the time. And I was either blessed or cursed with this momentary clarity of purpose where I knew with all my being that this is what I wanted to do with myself for, if not the rest of my life, a very long time. And the only alternative, or rather the only choice to pursue this at the time, was really starting a fund. So that's what I had to do, right? CHAD: And how large was the first fund? JOSEPH: It was pretty small; it was $7.6 million, which in local currency equates to a nice number of just above 10 million sings. CHAD: And where did you...I'm going to ask where that ended up coming from. But in terms of the mechanics of actually starting a fund, what did that look like? JOSEPH: Well, it depends on each market. But typically, what happens is you need to first have permission from the regulator in order to actually start and run a fund. So in Singapore, you need to apply for a venture capital fund management license from the Monetary Authority of Singapore. That's what had to be done first, and we got that approved in a pretty good time, actually. I think we might have captured a lull period because now, with all the funds coming out, I've heard the queue is months long in some cases. And then came the business of incorporating the fund itself and then starting to draft all the legal paperwork, the conditions, the private memorandum or prospectus, depending on which geography and how regulated you are, that you show around to investors once they've expressed interest in learning substantially more details about your fund beyond what a simple PowerPoint deck or a casual coffee conversation can yield. And then you start collecting commitments, and then you start collecting the money. And at some point, you have enough money to say, all right, we'll do a close or first close, and that then gives you permission to start deploying that money into investments. And some funds they'll only do one close, some funds will do a first close, and then a final close when they get the rest of the money in or some money committed and then calling the rest of it to come in. Or some will do multiple closes just so that they have the ability to keep deploying continuously while they're doing this fundraising process. And in our case, we were doing rolling closes. So we would close every few months, and we'd continue to deploy. And by the time we finished fundraising, we actually already had nine companies out of the 15 that we have in our portfolio done. So it really depends on all sorts of different factors, which we probably don't have that much time to get into. And I risk perhaps putting my foot in my mouth and misspeaking if I give too many examples. CHAD: [laughs] When it comes to starting a fund, how cookie-cutter is it? Or do you find yourself having to create everything from scratch, all the legal documents, whatever platform you might be...or access you might be giving to the people who are contributing to the fund? JOSEPH: I'd say, again, it depends where you are. I think in the U.S. and especially with the advent of great service providers platforms like AngelList and Assure, it is super cookie-cutter. In our part of the world, I still think it's somewhat cookie-cutter, but we got a little too cute. CHAD: [chuckles] JOSEPH: We thought, okay, it's our first time doing a fund. I've been an LP in other funds. What did I wish I had as an LP? And as a consequence, we introduced some hurdle rates of tiered carry, and even zero carry if we don't hit a certain return. And all that really did was just create more questions from the investors. So we should have probably done it as cookie-cutter as possible in hindsight. CHAD: So I often hear from founders who talk about how it's important to have a VC fund behind you that you agree with, and want to work with, and are excited about, and that can be value additive. Do you need, as someone raising a fund, do you need to consider things like that or other things when it comes to the people you're taking money from the fund? JOSEPH: Absolutely. Maybe knock on wood here, but our relative inexperience when starting a fund probably selected out all the folks who might not have gotten along with us anyway. And the fact that we're pretty straightforward and direct with what we want to do in our objectives probably helped with that selection process as well on the positive side. But I absolutely, absolutely can recommend having that alignment of values and mission with those who are on the journey with you for a good decade. It's like getting married, right? CHAD: Yeah. Well, so when you're planning a fund and thinking about time horizons, is a decade what you're thinking about? JOSEPH: Yeah, all things considered. So our fund lifetime was eight years from final close. But still, it takes time to raise the fund and plan the fund, and you have people that are on board even before the fund begins. So it is a decade-long relationship, at least. And then some of the larger funds because they want to have a longer investment period, will push that out even further where they're going to be a 10-year fund from final close. And if you have enough of your portfolio that hasn't exited yet but still has some value to be uncovered, you may ask your investors to extend the fund life even further. So this is a supremely long relationship that you have. And aside from evergreen funds that don't have a fund lifetime, I think this is about as long as it gets, although I have seen some people float the idea of a 20-year fund or a 50-year fund, but that's really not widely practiced. I think five years is the fastest I've seen, and ten seems to be the average. CHAD: Where did that first fund come from? How did you drum up the interest and decide who would be a part of it? JOSEPH: It's really the folks who have known me the longest or worked with me. So you know how they say when you're raising money for a startup, you get it from the three F's, Friends, Family, and Fools? For funds and for first-time fund managers, I think it's a pretty analogous group of people, although I don't think we have any fools. CHAD: [laughs] JOSEPH: And, unfortunately, don't have family either. So it's really all friends, old co-workers, old clients, and then the people that they introduced us to. There were some serendipitous moments where people liked what I said at a conference, or we asked a tough question. And people asked, "Well, how can you ask such a tough question?" Then they got to know us and then decide to invest from there. But majority of it was just introductions, warm introductions. We never did any cold emails. CHAD: Have there been any exits in the first fund? JOSEPH: Not just yet. We do come in as either the first or second investor in these companies. So there is quite a long journey that we expect before we, you know, see some exits. There may be some this year. But if I look back at my angel investments, there was only real serious talk of an exit at the six-year mark for one of the companies that's doing really well. And even that exit turned out to be just another, you know, the investor changed their mind, and instead of buying the company, they decided to just invest more money into it. So this is a long journey. CHAD: Yeah, definitely. Did that make putting together the second fund any harder, or is that what everyone expects? JOSEPH: I am cautiously optimistic because we're still so early in our journey that the only folks we've really spoken with are the ones who invested in our first fund or passed on our first fund because they don't back first-time fund managers. They come to expect that your second fund is built on the momentum of the first fund. And it's really your third fund that's built on the exit and actual realized track record of your first fund. CHAD: That makes sense. What do you think is next for Verge HealthTech? JOSEPH: Well, first things first, we got to get started with the second fund and see if we can build something to scale. I mean, the first fund was an experiment. It was a small fund, you know. Could we build the world's seed-stage global impact healthtech fund on basically a shoestring? And the second fund is now let's take everything that we wish we had for the first fund and scale it up so bigger initial ticket sizes because we want to own more, the ability to follow on properly, the ability to do more deals, which requires a much bigger team which we now have. As well as to go back and support the winners of our first fund as well as some of the companies that maybe we made a mistake on and passed but still have a strong enough relationship to revisit and get them on the next round or the round after that, or just new companies that the market has moved. You know, the area that we might have been really interested in at the seed stage is now a pre-A stage or an A stage. So that's really what we want to do with the second one. And it would be amazing to see where this goes. I'm thrilled that we actually have, well, I think, one of the best healthtech investment teams in the world; maybe I'm slightly biased with this. CHAD: [laughs] JOSEPH: And I'm excited to see what we can do together. CHAD: That's great. Well, I wish you the best. And I really appreciate you for stopping by and sharing with us. If folks want to follow along with you or get in touch with you, where are the best places for them to do that? JOSEPH: Probably LinkedIn is the best way to do it. Also, I have a blog on Medium, which I'm sure can be linked in the show notes. I've been really bad...I've been traveling intensely in the past half-year. But I promise my next blog post will be interesting. CHAD: [laughs] JOSEPH: Because I just got back from Rwanda and Saudi Arabia, which are two very, very different countries, however, with a great emphasis on improving healthcare, especially on the digital side. CHAD: Well, that's exciting. So folks definitely can find the links for that in the notes, which you can find the notes; you can subscribe to the show and a full transcript of the episode at giantrobots.fm. If you have questions or comments, email us at hosts@giantrobots.fm. And you can find me on Twitter at @cpytel. This podcast is brought to you by thoughtbot and produced and edited by Mandy Moore. Thanks for listening, and see you next time. ANNOUNCER: This podcast was brought to you by thoughtbot. thoughtbot is your expert design and development partner. Let's make your product and team a success. Special Guest: Joseph Mocanu.

Tooth and Coin Podcast
Financial Statement Analysis (Part Three of Three)

Tooth and Coin Podcast

Play Episode Listen Later Aug 20, 2021 32:41


Join the discussion on Facebook!TranscriptJonathan:Hey guys. This is the third episode in the series. If you've not listened to the first two episodes, make sure you go back in time to check those out first. It should be in the title of the episode which part in the series it is, so make sure you go back and check those out so that you have a full understanding of what it is we're talking about today. I just want to jump in here real quick and let you know that. We'll see you next time.Jonathan:Welcome to the Tooth and Coin Podcast, where we talk about your adventure of being a dental practice owner. In these episodes, we're going to be talking about problems that you will likely face as a practice owner, as well as give an idea about actionable solutions that you can take so that you can get past this problem in your practice. Some of these concepts are really big ones, some of them are very specific, but we hope that these episodes help you along with your journey. Now, a very important piece for you to understand is that this is not paid financial advice, this is not paid tax or legal advice. We are not your financial advisors. We are not your CPAs. This is two CPAs talking about informational and educational content to help you along with your journey. It's a very important piece for you to understand.Jonathan:Another thing that you need to know is if you enjoy today's content, join us on the Facebook group. We've got a Facebook group that is active with dentists that is going to have content talking about what we're talking about today. To continue the discussion, agree with us, don't agree with us, have a story to tell, have something to share, join us in the Facebook group. If you go to Facebook and you search for Tooth and Coin Podcast, click on it to join it and be able to join us there. Finally, if you need some more help, we're developing a list of resources that are going to be centering it around our topics of discussion to be able to help you a little bit more than what the content is doing.Jonathan:So if you'd like access to that, whenever it becomes ready, all you have to do is text the word tooth and coin, T-O-O-T-H-A-N-D-C-O-I-N, to 33444. Again, that's tooth and coin, all one word, no spaces, to 33444. Reply with your email address and we'll email you instructions on how to get into a Facebook group, as well as add you to lists to be able to send you those resources when they're available. And if they're available, we'll go ahead and send them to you, as well. On to today's episode. I hope you enjoy it.Jonathan:So we give that number to our clients every month. Here's what your breakeven point is so that they can have the context of, Well, I want to make $30,000, my break even point is $45,000. I've got to be producing $75,000, right now my average is $55,000. I got a lot of work to do. They know they got to influence it. They're not going to be surprised when they don't have $30,000 at the end of the month. They're going to know what that is. So, what about you in terms of breakeven point, things like that, what are some of the things that you like to use a breakeven point in order to be able to use in terms of management and goal setting and things that.Joseph:So I think it's probably important that we talk about the things that go into that break even point. It is a few additions to the calculator and a subtraction. When we look at a break even point, what was all of the costs involved from your P and L for the month? What was your total cost to operate? Then we're going to add back those owner's discretionary expenses, like the owner's wages. We're going to add that back. We're going to add back depreciation and amortization because those are paper entries that go on. And then we're also going to subtract out and say how much were your principal payments on your debt to get to your break even point. Those breakeven points, I find that to be most useful in determining how much cash you need to keep in practice.Jonathan:Mm-hmm (affirmative).Joseph:If I'm looking at a client that has a breakeven point of a $100,000 and they have $700,000 in their business checking account, I'd say you've probably got a little bit too much cash in your practice, it's not working for you. What you do with that cash, there's a lot of things, call your financial advisor and talk to them about that. But, if we've got a client that has a $100,000 breakeven point and their cash in the bank is $50,000, it's Look, we probably should slow down this owner's withdrawals. We probably should slow down all these different things. We need to get the cash to a point where you can sleep well at night, that you've got the liquidity to be able to operate.Joseph:And when we look at that ratio, your breakeven point to the cash in the bank, again, it's very similar to what we were talking about with the balance sheet and looking at their current assets divided by current liabilities. It's not the same exact number, but it's the same concept, how many weeks worth of cash that you have to operate. So if the spicket of income gets turned off today, how long can you operate? Can you operate for a month?Jonathan:Mm-hmm (affirmative).Jonathan:Can you operate for a week? Can you operate for six months, eight months, 10 months, 12 months? So those are the things that I like to talk to practice owners about. And we get the question all the time, how much cash do we keep in the practice checking account? And a lot of that has to do with the comfort level of the practice owner.Jonathan:There are some practice owners that want to empty the checking account out every month and take all that money home. There's some practice owners that say, Hey, I really want to make sure that I keep a $100,000 or $150,000 or $50,000. That number is different, that level of cash and comfort is different for everybody. The thing that I like about the breakeven point is it takes the emotion out of it and it just says, Here's how much it costs to operate your practice, period.Jonathan:Mm-hmm (affirmative).Joseph:Now we can figure out what you want to keep cash wise on hand with that.Jonathan:Completely agree. Honestly, I think that's probably one of the biggest comfort levels you can get as a business owner is to reach that cash goal. Because once you've hit that point, at that point, you can just optimize because and really work towards those goals. I really like using the breakeven point as a goal standard, too. Let's say that I have a personal income goal of $40,000 a month. We'll our average breakeven point is $50,000 a month. Again, we give our break even point to our clients each month. We also give a rolling quarterly average as well as we give a year to date average so that people can understand really kind of how's that breakeven point trending, where's my average, like what is the number that it looks like, so you can have a bit of normalization to that number as well.Jonathan:You have a little bit of a, of a plus or minus on there. Let's say a $50,000 breakeven point's the number that you've been averaging, a fairly consistent number, because obviously things go come up and down. Things will happen that create one time expenses. But, knowing that breakeven point by heart, knowing it's $50,000, if I want to make $40,000, then I know I got to be at $90,000 a month in collections. I know that has to happen. And if I know that we're going to be open 18 days out of the month, the quick math is `that's $5,000 a day.Jonathan:Let's see, $9,000 divided 18, $5,000 a day, yes. My almost a minor in math still works. So, $5,000 a day is what you got to get to in order to be able to hit $9,000 in collections. And all of a sudden, a number quantitative number that we can use in terms of the inside of the practice to quantify what it is we need to be bringing in. And we were to be able to set some type of a standard. If I know right now we're averaging $4,200 a day, I know that number has to change. I have to get an extra a hundred dollars a day in there. If I have that $5,000 a day number in my head, what I would tell people to do is break it into two segments. Break that into hygiene and break the into doctor production collection.Jonathan:Hygiene is usually a little bit easier for people to calculate on because it seems to be pretty standard. Over time, there's a normalization of hygiene revenue it seems like because there's just not a whole lot of extra services that get added into hygiene. You have a prophy and you have x-rays and you have, fluoride, maybe you have some perio treatment or something like that, if your practice is doing that. And, but overall, that revenue is fairly consistent from a hygiene perspective. So, let's say that you got two people there everyday doing hygiene, and you know that your hygiene's going to be somewhere around $1,800 a day in collections coming from your hygiene department. Every practice is going to be a little bit different, but what they do or don't do it in this terms of those numbers.Jonathan:So that gives you $1,800 a day, $900 a hygienist, goal. And it gives you a $3,200 doctor production in a day. And so that allows you to then say, Okay, if my goal is $3,200 in a day, what does that look like in terms of what I am commonly doing in terms of production? Is that two crowns a day, plus some exams and plus other things? What is that number, to you, as a dentist, as a practice? And there's that one new ortho case a day? What is that number? And that gives you a lot of power to set some type of a goal. And once you have those goals set, you can then bring your team in. And again, this is the reason to circle back to the part about having good staff is you want to have a team to be able to help you reach those different production roles.Jonathan:And that's where you start the training, you can start working on those different things. And I think it's a good starting point for allowing you to be able to come up with what you need to do in terms of what the production does. And again, that's just one use of the breakeven point. If I was a business owner, I would always know my breakeven point. Well, I say that, I am a business owner, I do know my breakeven point.Jonathan:But, for all my clients, I urge you to understand your breakeven point because there's a lot of power in that number from in a bunch of different aspects. I wish the breakeven point was just a standard financial statement number. But even though it's really important, to me, it's probably the most powerful number that you get from your financial statements, just not on your financial statement. It's not there. You have to calculate, you have to know what you're looking for in order to be able to look for it. So, to me, the breakeven points of like a magic number almost that everyone should know. So, that's the breaking point. Is there anything else on the P and L that you want to talk about because that went pretty in-depth on the P and L.Joseph:I like to look for trends, I like to see if things look out of whack, I like to look at measures of our percentages over time. I think that those are going to help tell the story as your practice grows or as your practice shrinks. It may be one of those things that you grew too fast, you have too much stuff going on, too much expenses, you hired a couple of associates and you're Man, I need to go back to just being a single practice owner. Those percentages will help you understand kind of what the story is and evens things out over time. So, those are the big things that I'm looking at, for sure.Jonathan:Yeah, same here. So let's move on to the last one. And Joseph and I talked about this financial statement before the call, and I said, You'd probably be surprised by my answer or this one. The last one was the statement of cash flow. And in terms of the statement of cashflow, what is it that you're looking for when you're analyzing the statement of cashflow?Joseph:So, the beginning number of the statement of cash flows is what was your cash in the bank, minus your credit cards, at the beginning of the month. The bottom number on the cash flows is what is that number at the end of the month? The statement of cash flows tells you how you got from your beginning balance to your ending balance. So, there are a couple of different things that go into how we got from A to B. The simplest, easiest way, and I'm not going to use the accounting technical term is number one is what was the profit? What was the net profit of business? And then we're going to add back non-cash expenses, depreciation, amortization, add those things back. And then we're going to subtract out, did we buy any assets this month, cash assets?Joseph:And then we're going to also subtract out and we're going to say, How much did we pay in principal payments our debt? So,, how do we get in cash in the bank from X to Y? So when I'm looking at the statement of cash flows...Also, how much did we take out owner's distributions? That's another pretty key component. When I'm looking at the statement of cash flows, first thing I'm looking for is Did the cash go up or down over the period? And then the next question is Why? As I'm looking at that, and then I also look at that ending cash balance and I'm looking at that breakeven point and seeing whether or not we're in good shape or not. If the ending cash balance is still seven times your breakeven point, it doesn't matter that cash went down $10,000, $5,000, whatever it is.Joseph:That's not a statement of alarm. I also am looking at the cashflow statement because we have a lot of owners that are saying, Hey, look, I'm not paying myself a salary. I'm a schedule C filer. How much can I afford to pay myself? And that's one of the first places that I go and kind of direct them at is to say, Well, let's look at your cashflow statement. Let's see how much cash was produced in the practice last month versus how much came out, let's look at that. I like to look at whether the cash increased or decreased and why and then I try to figure out how much was taken out in owner's distributions and was it enough or too much or that kind of thing in order to figure out where the cash balance is compared to the breakeven point.Joseph:So, those are some of the things that I'm looking for. If cash went down by $10,000, but that's because we paid off our line of credit, that's not a bad thing. If cash went up a $100,000 and it's because we took out a 50% interest, hard lender that's a bad thing. So, how did we get from cash in the bank at the beginning to the end and what makes up all of those different pieces? Obviously, loans are a big part of practice ownership, but if you're taking out a loan in that kind of a way where you're just desperate for cash and you've got to take it out at a really, really high interest rate, that's not something to celebrate because your cash went up because you took out a cash advance on your credit card.Joseph:That's not a good thing. So, cash at the beginning, cash at the end. And then how do we get there? What are those kind of bigger key components? Hopefully you run a net profit for the month, hopefully you took out some sort of an owner's distribution. You probably had some sort of a payment on your line of credit and you may or may not have bought a new asset inside the practice. So, those are like the high level things that I'm looking at. And just to make sure that it makes sense over time. And then comparing that to back to your breakeven point and why it's so important, comparing that back to your breakeven point and seeing what the cash looks like. How about for you? What are you looking for in a statement of cash flows?Jonathan:The first thing that I look at statement of cash flows again, if it's internally prepared by our firm, then I'm actually looking at it. If it's externally prepared, I usually just throw it in the trash because I know it's probably not going to be prepared well. Statement of cash flows is one of the most complicated financial statements to create, for some reason. I think that the reason is because most bookkeepers and most CPAs do not have any need for a statement of cashflow whatsoever, ever, when they're preparing a tax return. You do not need one for a tax return, at all. And so I think that most people just ignore it, they basically just hit the print button on their financial statements and statement of cashflow pops out and they give it to the people and they get along with it.Jonathan:I think that's what the standard is for most statement of cash flows. If it's internally prepared, I know it will be done well, I know that with the software that we use, the way we have it set up, it's going to give us what we need. If I'm looking at a statement of cashflow, like you said, the way the statement of cashflow is set up is a three prong approach as grouped beginning balance, plus or minus operating expenses plus or minus investing activities, plus or minus financing activities and the end is what your cash balance is going to be and there's going to be a delta between the beginning and the end to see where that money went to. If you don't normalize that, that number is going to be worthless, it's not going to make any difference at all, because you may as well have just looked at your bank statement because your bank statement has at the beginning of the month, how much cash is in there, has the deposits, has the expense, and it has an ending balance. Bank statement says the same exact thing. But in the statement of cashflow, it groups things into logical ways to be able to tell what's going on. Yes, the times when I would look at the statement of cashflow, or whenever I'm looking at a year end analysis to say... If I have client saying What happened to my cash? Statement of cashflow is where you typically tell them where the cash went to. You do a rolling number of showing them, Okay, well, beginning of the year you had this much cash you got this much in loans, you pay this much loans back, you took it out this much in extra whatever, and distributions, here's what you paid yourself and here's where your cash went to and that's the rolling number.Jonathan:That's the standard for small CPA firms or when you have small business clients, you have to do that almost every year for most clients, whenever you're a small CPA firm. For us, we don't do that because we do that every month. We do it in a customized way to show people three things. Number one is cash profit. Number two is what your cash profit versus your tax profit is. So, your cash profit is not what ends up on your statement of cash flow but we use that number to help us calculate what the cash profit is. We have to do those add backs, just like we did with the normalization of the income statement. And by the way, this is probably episode 12 now for the time of the cashflow. You have to normalize that to be able to say what happened to your money.Jonathan:I skipped over the third one which is what is your tax profit versus your cash profit? Because those two numbers are very different. And people get those really confused. We talked about on the financial statements, what's at the bottom doesn't make a whole lot of difference because it could be that the owner paid themselves something or another. Cash profits, the same thing. Your cash profit is not going to be anywhere on your financial statements, you got to calculate it in order for it to be reality. And you've got to normalize that cash profit. You find out what your cash profit is so you know how your business is doing, your tax profits really just there so you can kind of understand how much you've made from the IRS's eyes. So you kind of have an idea of what we will be paying taxes on at the end of the year.Jonathan:That's really the only use for the tax profit number. So, we use the cash profit for that purpose, which is derived from a bunch of different metrics inside of the statement of cashflow. We do utilize it because we also have things like the financing activities is the paying of the debt down and things like that. And they always get, even I get them confused. I don't remember the rules because the software does it for us all the time now. I think technically when you take out debt, it's an investing activity, but to repay it back to financing activity or something like that. Or maybe it's the assets go into the investing and then... It gets real complicated, real fast.Jonathan:There's a real reason why we don't look at it again because we never use it. The only time I'll ever use it is when I'm helping someone to understand what happened to their cash. And then you go in and if it's a well done set of financials, those numbers will roll the right way. If there's a bunch of journal entries done to dodo accounting every month, which is what a lot of firms do, the cashflow statement will not work because the journal entries will not be reflected appropriately inside of the table cashflow almost ever. So to answer the question again, the three things I look at is what is the actual cash profit and then what is the delta of cash? And then what does that versus tax profit?Jonathan:Those are the things that I look at a statement. They're not technically on the statement of cashflow, but that's what I look for when I'm using a statement of cashflow, in the grand picture of things. I think I had a client asked me, actually asked me this one time of, What's the standard that should be going into my investing activities inside of the statement of cashflow? Because they were really studious and they heard about statement of cashflow and they'd read some type of book that had said that there was a really important number that nobody talks about or whatever it is. There is no standard for that. In a small service-based business, it's very much what you're doing, not versus what other people are doing.Jonathan:And the ways and means that you get to those things, that isn't something you can normalize. I've used the term normalized too many times. It's not something that you can aggregate and then make an average of and have it be a meaningful number for anyone, I don't believe. Because there's so many different variables that go into it in such as what type of practice it is, what type of patients you have, how old is your practice, what's your production capabilities as a dentist. There's just so many different things that go into that, that it's a fool's errand to try and figure out is my investing activities, I'm assuming cashflow, optimal comparatively to the other practices that are out there, does doesn't exist. And help us, please, if there is a study out there that says that there's some averages that you should be looking at in dental practices, because I can only imagine what type of data they have. That, to me, is the statement of cashflow. So is there anything else that you wanted to add for that topic?Joseph:Back to that question that I got when I sat down and interviewed for a finance job. The guys told me his favorite financial statement was the cashflow statement and he was a private equity investor, so basically he wanted to know how much cash he could skim out of the business... Not skim out of the business, but he could strip out of the business -Jonathan:Sure.Joseph:In owner's distributions every single month. So, the cashflow statement told him everything he needed to know. Did they make a profit or not, add back depreciation, amortization? What were the loan paybacks? And then that's the cash I can then take out because that was the net change in cash over the point in time. I always struggled with cashflow statement whenever I was coming up through the ranks in CPA land and in accounting land. Balance sheet income statement always made the most sense, but I always got confused. You're talking about this financing versus investing. At the end of the day, the cashflow statement is trying to tell you, where does your cash go?Jonathan:Mm-hmm (affirmative).Joseph:Did it go up or down and why.Jonathan:Yep.Joseph:That's what you need to glean off your financial statement of cash flows.Jonathan:Yep, absolutely. And it's there, you just got to know how to read it. And that's another reason why tell dentists to not spend them a lot of time on that because context is so important. And if you don't fully understand the full set of financials in your industry specifically, you really just can't read a book to tell you how to read a statement of cashflow. It's not going to bear fruit. So to me, hopefully you got good advice and people are painting a picture for you rather than you having to know all the ins and outs of the different elements of financial analysis to be able to divine how these numbers are doing. Those are the financial statements.Jonathan:WE've touched over things, believe it or not. Even though we've talked a lot about the financial statements, we've just touched over the things. There's a lot more nuance that goes into the creation of these things. And, it's almost an art, in a way, of the start to finish creation of them and setting them up in a way in which can be analyzed appropriately. And that was something that I struggled with really heavily on when we started our firm was I wanted to teach everyone how to read their financials. That was my goal in life because I was Man, I want to teach them how to be... they're going to, they're going to be putting people at Goldman Sachs to shame because they're going to be able to know how to read the financials.Jonathan:And I quickly realized that there's no reason to do that. Just tell them what they need, show them what they need. And so what we do in our firm is we definitely take those financials and we paint a tapestry of the important numbers. A good set of financials can be six to seven pages along of data per period. And if you do that over a course of a year, you got a hundred some odd pages of data. What we do for our clients every month is we set up all that information by a single page report that lets people understand really well The answer to four questions, which is how profitable are we? How well did we spend our money? How much cash should we make? And where did that cash go to?Jonathan:But that's our goals with our financial analysis to give to our clients every month. And then we help people, if they don't understand what the numbers say, we teach them, we tell them how to read it and show them what happens. And then if they have any questions about the results, they ask us and we can give them our input from viewing that over 250 times a month. That's the way that we've approached this challenge and approached the problem of that there's not a whole lot of education out there about what are on the financial statements. And I'll be honest. I don't really think that there's, I don't know... I'm torn on this one at this point because my thinking has evolved so much over the past 10 years. Would you spend time if you a dentist going and taking a course, a three hour college course about how to analyze financial statements?Joseph:I wouldn't. I don't think it'd be a good use of your time. I think that if you've got a good CPA or a good accountant that can help you understand your financial statements then you can see what's going on month to month and tell you everything you need to know. I think a three hour course... Because it's not going to be relevant. The same metrics that they're going to teach in that they're going to talk about some of these higher level concepts, like the debt to income ratio or the assets to liabilities, or the current ratio. They're going to talk about a couple of those things. They're not going to say, Here's what your supplies and labs need to be each month. They're going to say, Well, this is a typical in your industry how much your overhead should be. If we're a construction business, we've got more going on materials than you do in a dental, right?Jonathan:And then there's also the different the cost to completion method or, what's the other one? There's another construction one. I can't remember it off the top of my head.Joseph:I mean, if you really want to learn this at a high level, go figure out your favorite publicly traded corporation, go figure out when their earnings call is, look at their financial statements and listen to the executives talk about what's going on inside of those businesses. I think that would be a lot better use of your time. If you really love Apple computers, figure out when Apple's earnings call is and go sit on their earnings call or listen to a replay of it and have them walk you through their financial statements. You get a lot more out of that because it's a business that you know and understand. Or any of these publicly traded companies that are in the dental space. They'll talk to you about what's going on in the industry. Those would be a lot better use of your time than taking a college class.Jonathan:I agree. And the other thing that's really important, closing thoughts, is that the financial statements, they tell you what happened from a financial perspective, they don't tell you everything about your business. Like I told you at the beginning of the conversation that there's people out there that thinks that the financials have everything in there and they don't. Like I said, they don't show you a measure of capacity. They don't show you new patient inflows. They don't show you your production per day. They don't show you your open chair time. They don't show you how many patients are coming in, being rescheduled for your hygiene every month or every day. Those are important numbers to know if you're a practice owner, but they're not on your financials. And no amount of financial analysis is going to give you any of those numbers unless you bridge the gap between practice management and financial numbers.Jonathan:And what we tell people is that we are CPAs. And I know there's a lot of blurring of the lines of what CPAs do and don't do, but for us, we're CPAs. We handle financial analysis and we help you with financial analysis. Practice management analysis should be done by practice management consultants. We are not practice management consultants. I know that there's a lot of blurring of the lines in the dental industry for what is a practice management consultant or not. And, yeah, we know a lot about the numbers, but I don't know your hygienist, I don't know your office manager. I don't know your management style. I don't know what type of patients you have every day. I don't know how you like to turn patients over. I don't know how you like to have your tools set up and how efficient that makes your assistant.Jonathan:I'm not going to tell you how to do those things. I've never been a dentist before. I can tell you how to be a leader and things like that, but I'm not going to be able to give you that practice management information. And so to me, in terms of the best financial advice I can give someone is to pay a practice management consultant for that time that you're spending, because you were paying a CPA, you're paying $200, $300, $400, $500 an hour for this advice. And if you have a CPA doing this for you, more than likely, all they're going to find is problems. Probably not going to have any solutions, probably it's going to be problems are going to find. So rather than paying them somewhere between $200, $500 an hour for someone to find problems, pay a practice management consultant between $100 and $200 an hour to find the problems and give you the solutions. Much better use of your money, so to speak.Jonathan:So financial numbers can help you look for areas of focus, but they're not going to be giving you hard, cold facts that this is optimal performance. That's not how financials work, unfortunately. That's a big misconception, too. And I think there's a lot of people out there that they get into this game because business is a game in a way. And they think that If I optimize the financials, I'm going to win this game. And it's not the financials. It's really the people that you got to optimize. It's really the performance that you got to... Practice management. It's a different game, it's a different thing. I want to make sure that I'm putting that out there that financial analysis does one thing, practice analysis, practice management analysis does a whole nother thing. It's a whole other ball game. Any other closing thoughts you have, Joseph?Joseph:Well said, Jonathan. And ditto those things that you said. Financial statements can tell the story, but they don't tell the whole story. They can give you a glimpse of where you're at and where you've been. That's the other thing about financial statements is they're always going to be backwards looking. I had this conversation with one of our clients a couple of weeks ago. Inherently, they are talking about what happened in the past. It doesn't tell you what's going on in your practice today, what's on the schedule for next week. Those are not going to come out of your financials. They're always going to be backwards looking. So the challenge is to marry the two. Come up with what your goals are, figure out what you did in the past and figure out what your future needs to look like to get to the place you want to get to. And I think that's where the beauty is.Jonathan:Exactly. I agree. It's been a fun set of episodes. Hopefully you've gotten a lot of value out of this, listeners. If you have any questions about this, obviously, we talked about this too much already to our loved ones, and they don't want to hear about it. So if you want to come over to the Facebook group and chat about financial statement analysis, we'll be there and talking about it. Maybe if you had some type of a really interesting number you found in your practice or you've had a way that you've been able to affect your numbers we'd love to have you over in the group and be able to hear about it. Or if you have any questions about what your numbers mean, we can maybe give you some context around that in terms from a financial analysis perspective. We appreciate you listening in. Hope you've had fun and we will see you next time.Joseph:Bye, guys.Jonathan:That's it for today, guys. I hope you enjoyed this episode of the Tooth and Coin podcast. If you are going to be a practice owner or a new practice owner, and you're interested in CPA services, head on over to toothandcoin.com where you can check out more about our CPA services. We help out around 250 offices around the country and would love to be able to have the discussion about how we could help your new practice. We do specialize in new practice owners, so people that are about to be an owner of a practice they're requiring, about to be an owner of a practice they are starting up or has become an owner in the past five years. That is our specialty. We'd love to be able to talk to you about how we could help you in your services with your tax and accounting services.Jonathan:And if you enjoy today's episode, again, go to the Facebook group. Talk to us about what we've talked about, join in on the discussion, and let's create an environment where we can talk about some of these things so that we can all help each other get through these things together so that this adventure of business ownership is more fun, more productive, and better in the longterm. Lastly, if you want access to those resources that we are currently building, just text the word Tooth and Coin to 33444. That's tooth and coin, no spaces. T-O-O-T-H-A-N-D-C-O-I-N to 33444. Apply with your email address. We'll send you the instructions to the Facebook group. We'll send you the resources when they're available and we will see you next week.

Tooth and Coin Podcast
The Challenges of Being a New Business Owner

Tooth and Coin Podcast

Play Episode Listen Later Jun 20, 2021 34:47


Join the discussion on Facebook!Full Transcript:Jonathan:Welcome to the Tooth and Coin podcast, where we talk about your adventure of being a dental practice owner. In these episodes, we're going to be talking about problems that you will likely face as a practice owner, as well as give an idea about actionable solutions that you can take so that you can get past this problem in your practice. Some of these concepts are really big ones. Some of them are very specific, but we hope that these episodes help you along with your journey. Now, a very important piece for you to understand is that this is not paid financial advice. This is not paid tax or legal advice. We are not your financial advisors. We are not your CPAs. This is two CPAs talking about informational and educational content to help you along with your journey. It's a very important piece for you to understand.Jonathan:Another thing that you need to know is if you enjoy today's content, join us on the Facebook group. So we've got a Facebook group that is active with dentists that is going to have content talking about what we're talking about today, to continue the discussion. Agree with us, don't agree with us, have a story to tell, have something to share. Join us in the Facebook group. If you go to Facebook and you search for Tooth and Coin podcast, click on it to join it and be able to join us there.Jonathan:Finally, if you need some more help, we're developing a list of resources that are going to be centering it around our topics of discussion, to be able to help you a little bit more than what the content is doing. So if you'd like access to that, whenever it becomes ready, all you have to do is text the word toothandcoin, T-O-O-T-H-A-N-D-C-O-I-N to 33444. And that's tooth and coin, all one word, no spaces, to 33444. Reply with your email address. And we'll email you instructions on how to get into the Facebook group, as well as add you to the list, to be able to send you those resources when they're available. And if they're available, we'll go ahead and send them to you as well. So onto today's episode, hope you enjoy it.Joseph:Hello ambitious dentists and welcome to episode number three of the Tooth and Coin podcast. Today, we are going to discuss the challenges that come along with being a business owner alongside me, as usual, is my trustee co-host, Mr. Jonathan VanHorn.Jonathan:Hey, hey you guys.Joseph:So Jonathan, I think what we're going to talk about today is just to get a chance for our listeners to understand what are some of the challenges that come along with that. So I think first and foremost, maybe we start with dental school. So what is it that a dentist, and I'm relatively new to the profession, what is it that dentists learn in school? Like when they're in dental school, what do they teach them?Jonathan:Yeah, I mean, the biggest problem is the easy one. And that's that they go to dental school to learn dentistry and to become a doctor and to be able to help people with their oral health. They do not learn how to become a business owner, which the majority of dentists go on to become practice owners. And so the number one challenge people are facing and being a small business owner in the dental industry is that they got to become a business owner whenever they've never owned a business before, or had any type of training in it.Joseph:It's funny that you say that, I was thinking about when I was a kid and I went to the dentist, I was maybe 15, 16 years old, something like that. And I got to talking and my dentist came in and he said this, that and the other. And he said, "Have you decided if you're going to go to college or not?" And I said, "Yes, I plan on going to college. And he said, "Well, if you go to college, he said, you should major in business." And he said, basically exactly what you just said. And I said, "Business, why should I major in business?" He said, "Look, I'm a dentist now. And they taught me everything that I needed to know about dentistry to get started in practice, except for how to run a business, no matter what you want to do, you're going to need to know how to run a business."Joseph:And I was like, "Okay, duly noted." That was one of the first people that kind of told me that I should major in business, depending on wherever you go. He says, "You're always going to need to know business." So what do you see Jonathan, as some of the different elements that go along with that? I mean, to me, business at that age, I certainly, business seemed easy to me. People come in, they get services, you pay them, you kind of go home and do your own thing. So, as we think about maybe some of the challenges of "the business" or running the business, what are some things that kind of immediately come to mind for you?Jonathan:Well, what's funny is that we went to school in the business world being CPAs we had to have business training. Our school that was related to business, almost like parallel to business. Even having classes so far as in that, where they teach you things like strategic management and things like that. But it's all book stuff really. I mean, it's not real world experience. And there's just so many problems with traditional education of what it actually even brings to the table when it comes to actually being a business person, so to speak. So there's only so much that information or education can give you when it comes to understanding what happens when it comes to owning a business. So all the people that are listening now that are either soon to be practice owners, or even the people that are already practice owners that already know this is that you learn most of this when you first become the practice owner.Jonathan:The education can give you a little bit of background, give you a little bit of an understanding of what you're getting into, so to speak. But if you've spent 15,000 hours learning how to become a dentist and zero hours learning how to become a business owner, whereas us being CPAs, we spend tons of hours in business school. We have more information. We may not have the experience, but we definitely have more information whenever we go into that situation in the first place. So the problems are stacked up on dentists pretty much from day one. The biggest piece is they don't typically have the educational background. Now I talk to dentists all the time. We even have at least one client of ours, Joseph, for Tooth and Coin that was a CPA before he was a dentist.Joseph:Really? Okay.Jonathan:Yeah. So it's not like they found that the secret to success is they had education. It's not necessarily that. It's a lot of being able to learn while doing as well. And it's not just the learning while doing. It's also the ability just to be able to see what you're doing and see if the things are going the way that they're supposed to be. And if you don't go into it with that mindset, you can, a lot of times, get caught in traps of repeating things that have gone wrong in the past. So the first big barrier again is education, which thankfully there's tons of information that's out there nowadays.Jonathan:I mean, people that are listening right now are receiving information about the business of dentistry, so to speak. And so you're learning a little bit about this problem. If you highlight it, if you address it, then you have a chance to overcome that challenge. So the education piece is the first one, is the first big part of it. Add into the fact that in dentistry, you also get tons and tons of debt for the education that gets you to be skilled enough to be a person to do dentistry.Joseph:Wait, wait, wait, wait, wait, wait, wait, wait. So you're telling me you got to go into debt to become a dentist.Jonathan:Oh yeah.Joseph:That's not something that the federal government just writes checks for that?Jonathan:Everybody's really big public health, but we're not that big on it. So much so that the taxpayer money goes towards paying all the student loan debt off for all those dentists out there. Yeah. There's horror stories of people getting out of dental school with a million dollars in debt.Joseph:What? A million dollars for school?Jonathan:Yeah, just for school. Dave Ramsey, if you've ever listened to him talk to dentist on the phone, he's always just completely perplexed by the fact that, that's a possibility. So, that debt is really kind of probably the second biggest challenge is that you're going to have debt for school. You're going to have debt, because you're alive in 2021. And you're probably going to want to have a home if you're in certain areas of the country. You may end up having a car. You may end up having, if you have children, you probably have school. You may have childcare that you're paying for. There's so many things that just stack up against you in terms of your cashflow going out the door on a personal level, none the less, the business level. Everything is kind of stacked up against you in the very, very beginning.Jonathan:And that's before you get to the business side of things. The way dental school happens is there's tons of dentists that get out of school and they're already married and have two or three kids and by the time they're working their first job, just because of the way that the age range works. And so sometimes we even have the spouse's school on there as well. A lot of the times we have dentists that are married to other dentist. That's before you get to the business side. Now, if you get to the business side, your choices are typically to go work somewhere else as an associate, hone your chops for a little bit, get better at producing and things like that. Or learn a bit more about the industry and the real dental world or you can go and become a business owner at some point in time.Jonathan:Most people probably give it a year or two out of dental school before they jump into practice ownership. I think that's generally good advice for the majority of people. Get out there, learn on somebody else's dime for a little while, while you're getting some cash flow in the door. Getting things set. There are dangers around that, because you might get a little too set and you might start getting a little too comfy, not having to do some things, but at some point in time if you're listening to this podcast, you've probably made the decision or have made the decision in the past that you're going to be a practice owner. And so if that's the case, then you're going to have more debt. It's more business debt, which is-Joseph:Wait, they don't give these practices away. They don't just like, let you come in and just take over for free?Jonathan:Yeah. Like I said, we're big on public health in this country, but we're not big enough just to help people pay for getting their dental practice up and running in the areas they want them to be ran in.Joseph:Is it even possible for them to save up cash? How much cash would I have to save up to not have to take out debt for buying a practice? If I just wanted to say, you know what, I'm going to work my tail off and I'm going to save up, how much cash would you think that I would need to save up to even start that process?Jonathan:So we've had people do it and we've had people that they're like, I'm going to wait five or 10 years until after I get out of dental school to start my practice, because I want enough cash. I'm going to live frugally for five years, 10 years, and I'm going to be debt free and I'm going to start this practice and it's going to almost be all cash almost. If you're going the startup route, then I would say budget at least 300 to $500,000. Your market may vary, your practice style and philosophy may vary. A good friend, Jayme Amos with Ideal Practices, how to open a dental office.com. He does startups and they do hundreds or at least a hundred a year. And I've heard them speak on the topic.Jonathan:And they're like, it just kind of depends on, do you want Cadillac brand things? Do you want the Honda brand things? Or do you want the, or sorry, it's like Tesla, Cadillac and Honda. Which of these different choices do you want to have in your practice? And it kind of just depends on your style and your brand and your vision for your business and things like that. So that 300 to $500,000, it's a wide range. Now, if you're going to go buy the real estate that goes along with that, it depends on the real estate process in your area. In Lepanto, Arkansas, a dental practice office, the building is going to cost you probably 150 grand. Whereas if you're in New York city, you were looking at 150 million or something like that. It's a big difference on the real estate.Jonathan:Yeah. So, more and more debt comes up, more and more. If you end up buying a dental practice, it very much depends on what type of practice you're buying. My kind of sweet spot, I feel like most people get into in terms of the buying of the dental ... of acquiring a dental practice. They're usually paying somewhere between 600 and 700,000. Well, that's a little bit too narrow of a range. Probably 600 to $800,000 for a dental practice. It's a one owner practice that has a bunch of patients and they're not doing a whole lot of dentistry.Jonathan:And that's kind of like the ideal situation. So, if you're going into business debt, and then it depends on what all types of upgrades you need, what type of equipment they have and all those other types of things. So, on the safe side, I would say minimum 300 grand to be upwards to anywhere towards a million for the business side of the debt. So [crosstalk 00:12:54] those are numbers ... Yeah. You add that all into the personal debt stuff. And you've got this big mole hill you got to climb up in order to be able to start getting to break even. It's one of these really unique industries where you start with a huge negative net worth.Joseph:We're talking about net worth, what does it even mean to have a negative net worth? What does that even mean?Jonathan:So, whatever your assets minus your liabilities are, is your net worth.Joseph:Okay.Jonathan:So pretty much, and this is, I think it's fairly unique to the US, but pretty much every college graduate starts with a negative net worth in this country.Joseph:Meaning if I add up my car and my bank account and then I take out of that my student loan debt or credit card debt or whatever, I own less than I owe.Jonathan:Exactly. Precisely. If you own less than you owe, which is a great way of saying it. Let's say that you've got a $250,000 house, and you've got $400,000 of student loan debt and $50,000 in credit card debt. All of a sudden, you're up to $750,000 in debt, and you've got $5,000 in your bank account. You've got negative $745,000 net worth, is what your net worth is.Joseph:Would you say that it's common, Jonathan, whenever people are either thinking about going into practice ownership or that they do start and go into practice ownership? Is it pretty typical to see a negative net worth at that point in their career?Jonathan:Yeah. I mean, I would say that's more common than not. And that is something that stacked up against you, but I want to make sure to make the point that people need to understand that debt has different types of meaning. So, if you're buying that dental practice that I was talking about 600, let's call it $750,000 that you paid for a dental practice that had an ample patient base, plenty of production to go around, you're going to be able to turn that thing into something. It's going to be able to generate a return of 350 to $450,000 a year, that you're going to be able to take home. Yes, you're taking on debt, but you're taking on debt in order to be able to attack the debt better. It's an investment.Jonathan:And it's an investment with an extraordinarily low interest rate based on the interest rates as of today's recording. So, that's not ... Ooh, debt bad is what a lot of people like to say nowadays. There is such a thing as leveraging other people's money to be able to make your debt go away faster, which is what I'm talking about whenever you buy a dental practice in order to be able to attack that stuff better on later. So, that's an important distinction I want to make, because I don't want to gloss over ... I don't want people to be thinking, oh, I'm going to have $1.5 million in debt when I start my business day one, but that's like an insurmountable number to get around.Jonathan:It's really not. Because if you think about it in terms of net worth, not only is that ... So you use that debt and you've acquired that practice, but as that debt is paying itself off, you're not building equity into that business, as well as receiving a cash flow from that business. And so you're getting both of them. And yes, there is interest payments going on and things like that, but we've got plenty of clients that have paid off their business debt within five years of being a practice owner and their student loan debt as well. Just because they got in and they didn't really have a lifestyle change and they went on and just paid everything down. So, that's the big second one. So the first one is education, the second one's debt. And it's impossible for us to not talk about debt as being a big challenge that people have to get over.Jonathan:And funnily enough, to me, the solution of getting out of the debt is to take on more debt, which is maybe counterintuitive to some, but if you-Joseph:It doesn't seem like it should make sense.Jonathan:I know, right. But from a math based perspective, if you're in flow doubles, but your outflow grows by 2% or 5% you're going to be able to, once that debt amount is gone, that 5% goes away. So it becomes worth it because your inflows are going to be more valuable than your outflows at that point. There are some people that I've spoken with that have been making a lot of money as an associate. It's fairly rare. Pretty rare that I talked to somebody who had a really great gig as an associate and could make as much as a lot of dental practice owners make, but those gigs do exist. It's just, you got to be a really high producer and get a really, really good position with a really great practice in order to be able to have that be a reality for most.Jonathan:So, anyway, so yeah, so those are two of the big challenges. The other challenges are, is just the, once you begin the experience. So, let's talk about that. Let's get past the decision to become a practice owner. Now, you'll say you are a practice owner, and now there's a problem with the fact that you've never ran a business before. And this happens to everyone. And I want to circle back to the original part of the conversation, talking about how we had business training. Just how many people do we know that went through business school that never owned a business. I mean, would you say it's, in all honestly, it's more than 90% of the people that we've probably graduated with do not own a business.Joseph:Yeah, for sure. Yeah. I think that's a good number. Don't own a business, haven't owned a business, won't own a business. They'll always be sat in the back of a paycheck instead of front of one.Jonathan:Yeah, exactly. So, that education piece isn't everything. I want to just hammer that point home one more time. But once you start that experience of being the business owner, I find that the challenge is that a lot of the times you tend to just do what has been done in the past, especially with the acquisitions. One of the biggest challenges I see people have is that they become a new practice owner and they kind of just fall into what everybody was doing in the past. They just kind of keep doing it and they don't really change.Joseph:Well, it's easier right? It's easy.Jonathan:That's exactly, exactly. Even in the CPA world, a lot of the times, people would just do what they did last year. That's kind of the rule is they call it Saly, same as last year.Joseph:Saly? Yeah, Saly. Say, you do it the same.Jonathan:Exactly. So, in dentistry you'll get into a new place and they have this pegboard system, they haven't gotten those computers yet. Everything's on paper. It works, so they don't want to break it. And some people, most people nowadays don't, but some people will fall into the trap of just being like, well, I don't want to rock the boat. So we're just going to keep doing it, how it was done in the past. That's an extreme example, but that goes down to the minutia of like, this is how we've done it in the past. And so people get stuck into these trends or this idea that the way it was in the past is always going to be the best.Jonathan:And in business, especially in today's day and age, you've got to be willing to adapt. You've got to be willing to do things better. You got to be willing to work on efficiency. You've got to be able to understand that a business is like a machine and it constantly has to be oiled. It constantly has to be tweaked. It constantly can be better. Now, there is an idea, and there is a concept that you could argue that at some point it's not worth it to continue or at some point, you just let it run. But in general, most dentists are going to probably lean on the office manager that's been there forever to learn about how to do AR. And you'll hear about it all throughout the industry and in newspaper reportings or anything like that. Office manager steals $300,000 and embezzles from in the office or whatever it is.Jonathan:And so there's dangers in that. And so, you've got to be learning while doing. So it's a challenge, but it's something that I think that dentists can overcome. I know that most dentists can overcome, because they've gone through dental school and they've got their really hard curriculums and so they've learned. They know how to study and hopefully know how to learn. The problem is, is that that experience comes along with some pretty hard work. And in most businesses, in a lot of small businesses, the owner does, the owner works too. In dentistry, if you're open 36 hours a week, you better hope you're doing dentistry for 36 hours a week.Jonathan:Not learning about how AR works or how the practice management works or handling the computers went down or talking to the IT company or sending an email to your CPA, because they've asked what a couple of transactions were that came through your bank account. Or listening to a CBS or something like that, because there's a new stimulus bill that's coming out that may affect you or may affect your employees or talking to vendors or all the other things that come along with it. There's so much work to be done in the dental space. And so little time to do the business stuff. You know, I admit it, I was one of those people that was like, man, being a dentist would be really cool. You don't have to work on Fridays. They're only open four days a week.Jonathan:And then I got into the industry and I was like, man, that is the biggest misconception maybe in the general public. And that is a danger and don't get me wrong. That's a challenge. Some dentists probably do it that way. They're so exhausted on that fifth day, they go home and rest. But especially in the beginning stages, you got to be willing to start learning about what's going on and adapting and changing and doing things better. So that's another giant challenge is the experience of learning while doing, and having to work while you're doing it. Because literally, if you're not working and doing the dentistry, you're not making any money. And so all those other challenges are going to rack up on you.Joseph:Would you say, Jonathan, that it's pretty typical or not typical for a dentist to have either a half day or a whole day dedicated to CEO day? Is that something that's pretty typical that you see out there? Or is that something that's kind of atypical?Jonathan:I feel like people are trending away from it. So I feel like the pressures of the day, or getting to, well, there's another half day at capacity I could add on there, if I just did dentistry during that half day. And so that does tend to happen in really busy practices, where they're like, well, we don't have any more capacity during the day. So I don't really want to add an associate. I don't really want to add more chairs, so what if I just add hours? And so that gets taken away. But yeah I would like to see more of that in a lot of our clients.Jonathan:I'm not saying that it's not prevalent. Like, it is very common for practices to be open four days a week, incredibly common and not the fifth. And the fifth is hopefully the CEO day. What does tend to happen is over a couple of year period, eventually that CEO day starts becoming a, every other week CEO day and then it becomes in every other month. And then it's like, well, I'll look at this once a year type thing. So yes, I do feel like it's trending away.Joseph:Well, let me ask, I guess back to the CEO day. So if we're talking to a brand new practice owner and they say I think I'm going to have a CEO day. What are some things that you think would be like the best use of their time in a CEO day? And we don't have to get into specifics. We can certainly get into specifics in later episodes, but as you have a day that you dedicate to being the CEO, whether that's a Monday or a Friday, or I have a couple of clients that do it Wednesday afternoons they carve out as their CEO time. What's the best use of their time, would you say, whenever they carve out the time to be at the CEO day or CEO half day?Jonathan:Yeah. That's a great question. If I were in the shoes of my clients, what I would do is I would have, on my CEO day, I would have kind of like my little things pile, which is like you get something in from the Arkansas dental board and you need to respond to it or something like that. Just something that is like a, you got to pay your license review or something like that. You've got your AP, which is accounts payable, which just means your bills are there. You need to take a look at, your office manager has already prepared all the checks for it and if the checks are attached to the invoice, which is attached to the bill, whatever it is. And you're looking at those real quick, signing them off and you just have your little pile of little things that you get done, probably takes you 20 minutes to do all of them and it's done for the week.Jonathan:I wouldn't let those little things pile up. I wouldn't let those little things be things I try to hit while I'm going through the week, because it would just distract me from the rest of the business and the dentistry to be done. That'd be kind of the first thing that kind of just knock out and get some wins in. The next thing I'd probably have any type of employee issues. That would be something I'd be looking at during that timeframe. So any issues in terms of, if there was anything going on with an employee that I needed to address. Training, any type of education that I need to get or anything like that would be what I would be going for. And then finally, and probably the most important thing would be, I'd be thinking about strategy and a bigger concept.Jonathan:What is it that we're doing here in terms of our overall vision as a practice? What is it that we're trying to accomplish and how are we going about doing that and what have our results been? And then I'll be working on goals that our company could set. They could be actionable and achievable and then tracking the progress of those. And that's what I would be doing in my CEO day. What about you, in terms of working in a bigger medical company, what would be something that you saw your CEO do that was effective or things that you did in the CFO world?Joseph:One of the things that they always did that I always wanted to do weekly was look at the numbers. So certainly, if we have a meeting every Wednesday, that was when I got to visit with the CEO, one of those would be reviewing the monthly results. You're obviously not going to review the monthly results every week, but one of those four meetings would be review and how did we do for the month, the prior month? And how does that stack up to the prior year? And then there would always be something else when it had to do with the numbers, either a vendor contract that came through or an opportunity to purchase a piece of equipment or opportunities for different types of discounts or different ways to do things.Joseph:One of the things that that CEO always wanted to do was they always wanted to know where the numbers were. And we got to where we created this dashboard that also helped them understand where the cash position was. And we did that on a weekly basis. If we take our cash in the bank minus our outstanding credit cards, how much cash do we have today versus last week versus the week before? And then we got to a point where we felt like that number needed to be whatever it is, pick a number, 50,000, a 100,000, 200,000, whatever the size of the business is. Obviously if your accounts payable weekly run is $300,000, then you don't feel comfortable with $50,000 in cash in the bank. So each business is different, but those are the things that our CEO was looking at every week and alongside the other stuff that you already mentioned.Joseph:But I think one of the things is that you've got to have time as a CEO to sharpen the saw a little bit. So Stephen Covey in The 7 Habits of Highly Effective People talks about spending time. If you had to chop down a tree, he'd spend seven hours. If you had eight hours to do it, he'd spend seven hours sharpening the saw, and then one hour actually doing the work. So spending time to sharpen the saw for your practice. I think that's something that I've seen really, really good CEOs.Joseph:And I mean, as you and I we're sitting here trying to run an accounting firm here, and it's very, very easy as you know, to get caught up in all of the day-to-day stuff and delivering client care. How much time do we actually spend getting a chance to take a high level view? And that's something that we've had to as a firm, me and you and the leadership team, we had to get together and say, we need to carve out some time to actually talk about all the stuff that's going on and really work on the business rather than just in the business.Jonathan:Oh yeah, absolutely. Yeah. I completely agree. And so we'll talk a little bit more about little strategy piece and what we think you guys should be listening to, or should be considering in terms of strategy. From a business and financial perspective. We are not dentists. So we're not going to be able to tell you, here's how you should do your treatment notes so that you have really accurate notes for all of your patients, because we don't know what that is. We just know that they exist and I've heard other people talk about them. And I know that those are the things that are out there, but we'll talk about it on a level that makes sense from a numbers and business perspective. Joseph, is there anything else you can think of in terms of challenges that I may have missed?Jonathan:Again, the big ones to me is just the lack of business education, which I hope I've highlighted that it's an issue, but it's not the biggest issue out there. The giant amount of debt that comes up with that. And then the fact that you have to learn while doing and working. Those are the three biggest challenges to me, for people that have never owned a business before and are going to becoming a business owner in the dental field. Again, I'm not including the challenge of overcoming the mental barrier that you need to be a business owner. I feel like that may be a different topic altogether.Joseph:Sure. Well, if I wanted to add number four, I would say that oftentimes a dentist will walk into a new practice, not have ever led a team before. And that certainly is a challenge that you're going to walk into an office, and there are going to be five to 15 people that are all looking to you for leadership. And that's something that we'll spend some time on, for sure, inside of this podcast is kind of developing and honing your leadership skills and how to have those different conversations, how to lead your team well, what is it that motivates people? How do you make sure that you're supervising well and doing well, because at the end of the day people want to work for a good place.Joseph:They want to do something that makes a difference. And all of that really boils down to your individual leadership skills as the CEO, as the head clinician, as the practice owner. So I would add number four and say that's one thing that is vitally important. And as you and I both know the ones that we see the most successful practices are the ones that have a really good leader at the helm.Jonathan:Oh yeah, absolutely. And it's not just leading the employees, it's also leading the patients and your community and everything else that goes along with that too. Yeah. That's a great point. So, and one of the harder things for me in terms of leadership and I've been open with this with my team is that whenever you're thinking about being a practice owner, and you're thinking about all of your employees and things like that, you're thinking of it in more in terms of that machine that I was talking about. You're thinking more in terms of like, okay, I pay them money and they do their part. And that transaction is it, that's all it is, but there's so much more to it than just paying a paycheck. Because if you're just paying them a paycheck then all you're going to get as someone who's there for a paycheck.Jonathan:And if all they're there for is a paycheck, then their time there will likely be fleeting. Lots of really good topics we can talk about in terms of that. And employee engagement and leadership and everything like that. We'll get to you in a future episode. So, yeah. So great talking about different challenges that new business owners that have never owned a business before in the dental practice industry. Is there anything else you want to end on Joseph?Joseph:No, that's great. No, I'm looking forward to doing this with you. Lots of great nuggets inside of that conversation, for sure.Jonathan:Well, thanks so much, guys. We will see you on the next episode of the Tooth and Coin podcast, and I will see you all later.Jonathan:That's it for today, guys. I hope you enjoyed this episode of the Tooth and Coin podcast. If you are going to be a practice owner or a new practice owner, and you're interested in CPA services, head on over to toothandcoin.com where you can check out more about our CPA services. We help out around 250 offices around the country. We'd love to be able to have the discussion about how we could help your new practice. We do specialize in new practice owners. So people that are about to be an owner of a practice they're acquiring, about to be an owner of a practice they are starting up or has become an owner in the past five years. That is our specialty.Jonathan:And we'd love to be able to talk to you about how we could help you in your services with your tax and accounting services. And if you enjoyed today's episode, again, go to the Facebook group. Talk to us about what we've talked about, join in on the discussion, and let's create an environment where we can talk about some of these things so that we can all help each other get through these things together so that this adventure of business ownership is more fun, more productive, and better in the long term. Lastly, if you want access to those resources that we are currently building, just text the word toothandcoin to 33444. That's toothandcoin, no spaces. T-O-O-T-H-A-N-D-C-O-I-N to 33444. Apply with your email address. We'll send you the instructions in the Facebook group. We'll send you the resources when they're available, and we will see you next week.

Tooth and Coin Podcast
What is a CFO?

Tooth and Coin Podcast

Play Episode Listen Later Jun 19, 2021 44:24


Join the discussion on Facebook!Full Transcript:Jonathan:Welcome to the Tooth & Coin podcast, where we talk about your adventure of being a dental practice owner. In these episodes, we're going to be talking about problems that you will likely face as a practice owner, as well as give an idea about actionable solutions that you can take so that you can get past this problem in your practice. Some of these concepts are really big ones. Some of them are very specific, but we hope that these episodes help you along with your journey.Jonathan:Now, a very important piece for you to understand is that this is not paid financial advice. This is not paid task or legal advice. We are not your financial advisors. We are not your CPAs. This is two CPAs talking about informational and educational content to help you along with your journey. It's a very important piece for you to understand.Jonathan:Another thing that you need to know is if you enjoy today's content, join us on the Facebook group. So we've got a Facebook group that is active with dentists that is going to have content talking about what we're talking about today, to continue the discussion. Agree with us, don't agree with us, have a story to tell, have something to share. Join us in the Facebook group. If you go to Facebook and you search for Tooth & Coin podcast, click on it to join it and be able to join us there.Jonathan:Finally, if you need some more help, we're developing a list of resources that are going to be centering it around our topics of discussion, to be able to help you a little bit more than what the content is doing. So if you'd like access to that, whenever it becomes ready, all you have to do is text the word toothandcoin T-O-O-T-H-A-N-D-C-O-I-N to 33444.Jonathan:Again, that's toothandcoin, all one word, no spaces, to 33444. Reply with your email address and we'll email you instructions on how to get into a Facebook group, as well as add you to a list to be able to send you those resources when they're available and if they're available, we'll go ahead and send them to you as well. So onto today's episode. I hope you enjoy it.Jonathan:Hello, ambitious dentist. So today we are talking about the CFO role in dental practices. One of the things that I talk to about, a lot of dentists about throughout all of my conversations is what a CFO is, what they do, how they are aligned with your business. Do you even need one? I'll be honest with you. There's a lot of confusion in the dental industry around the function of a CFO, what CFOs do and is your CPA your CFO? Is that who it is?Jonathan:There's a lot of misconceptions about it and Joseph and I are going to talk about that today. So if you didn't listen to the first episode, this is episode number two. On the first episode, we outlined a bit about what the podcast is going to be about. In this episode, we're going to talk a little bit more about that CFO role and what it is, how it works and things like that.Jonathan:Joseph was actually the CFO of a medical company that was in the services space and had a lot of success. Seeing that business go from around $3 million a year in revenue upwards to almost eight figures in revenue. So he's got a lot of insight to this and I'm going to be asking him and interviewing him on this topic. So Joseph, why don't we start with that. Let's start with what is a CFO and what do they do?Joseph:Great question. Thanks. So when we think about different roles inside of the organization, I think most people are familiar with a CEO and could probably even tell you what a CEO is, a chief executive officer, and you may have heard terms thrown around like C-suite. When we talk about C-suite, what we're talking about is all of the team leads that have C at the beginning of their name.Joseph:So you may have a CEO, you may have a CMO, a chief marketing officer. You may have a chief operations officer or COO, you may have a chief compliance officer. So the CFO is the chief financial officer of an organization. So I think that's first and foremost, as you look at the traditional C-suite has three seats, a CEO, chief executive officer. Basically the one that is spearheading everything, the CEO has the vision. They typically are the owner of the practice, owner of the deal.Joseph:You're going to have a chief operations officer. So somebody that makes sure that the operations of the company are out there and then you've got the chief financial officer who are making sure that all of the money works. That's as simple as I can break it down. What are your thoughts when you think about what a CFO is, Jonathan?Jonathan:Same. The financial side, the F in there which obviously stands for financial, not the other F, it is there to talk about money. It's talking about the numbers. Talking about the ways in which that business has measures and manages its money in terms of the way it's coming in and the terms of the way it's going out. Definitely that's what most people think about when they think about CFOs. What I find in small businesses though, is that there's not always room for a CFO. So the owner usually takes on in smaller businesses.Joseph:I think first and foremost, you got to have cash to run a business. You can't pay payroll on an IOU. So at some form or fashion, you've got to have somebody that is managing cash. So that is cash that comes in the business. That's cash that comes out of the business, that comes in and goes out lots of different ways. It may come in through a line of credit, a beginning working capital draw.Joseph:It may come in through patient sales and collections. It may come in through credit card transactions, and then it's going to go out by writing checks, paying credit card bills, paying employees, all of those different things. So first and foremost, a typical owner of a small practice is going to be the one that's making sure that the cash comes in and the cash goes out. At the basic, most simplistic level, that's the first role that people are doing.Jonathan:I agree. Usually the person who is the owner or ends up being the dentist, they basically have to be all three of those things. They've got to be the CEO, they've got to be the COO and they've got to be the CFO. In that CFO role, they've got to make sure that the money going in and out is going to the right places and that there is something to manage and there's things happening.Jonathan:So it's this unique problem that is in the dental industry, that you have to be all of these things in this organization. Now, pretty much every small business has that problem. Obviously I'm the CEO, CFO, COO of Tooth & Coin but I have other people that help me with those things, but I haven't always had those people because we haven't always been as big as we've had.Jonathan:So we've had to grow people into those positions as our company has grown and evolved and things like that, but in terms of that small dental practice owner, you mentioned you got to have cash and you got to move those things in and out. What is it that you see in the dental space, being the dentist are doing, maybe even unknowingly as CFOs? What is it that they're probably, whenever they're thinking about their practice at night, they're probably doing in terms of like what a CFO would normally do for you?Joseph:Great question. So I think that a lot of them are trying to figure out top line revenue which when we talk about top line revenue, what is the amount of services that have been delivered? We can measure revenue a couple of different ways. As someone comes in the practice and as they get a treatment and they get a cleaning, they get an exam, once that service has been performed, you are owed that money.Joseph:So that could be one way that we measure revenue. One of the ways that you can pull that out is pull that out of your practice management software. So they're trying to get an idea of how much revenue is generated. So the next piece of that, that I think that a lot of practice owners are looking at is how much cash is coming in the door?Joseph:So there are certain times that 100% of the service that you provide turns into cash the same day, or within a couple of days, if somebody writes you a check, brings you cash or pays with a credit card. So there's not often a lag time between those. What is most common is that there is a lag time between when the service is performed, when the revenue is generated and when the cash actually comes in the door. That's where there's often a difference in timing.Joseph:That timing, if you've got a great front office billing person, that's billing and pushing claims out the door, that may just be five days between the time we send it to the PPO insurance company and the time that an EFT shows up into our bank account. We may have patients that are paying us out a month to month to month.Joseph:We may have somebody that pays in full with care credit, or with a credit card that turns into money in the bank account within a couple of days. So all of those things, I think that small practice owners are trying to get their arms wrapped around all of these different things as money comes in the door, as revenue is generated. Then what they're trying to do is they're trying to figure out, okay, did I make enough money this month to pay rent, to pay my people, to pay my supply bill, to pay my lab bill, and hopefully to pay myself?Joseph:So if I'm set up and I've got payroll running out, hopefully I've generated enough cash coming into the practice to cover all of those expenses. Then at the end of the day, whatever is left over, it depends on who you talk to, but we'll just call it profit. Profit is the simplest way of doing that. As the money came in and the money went out, do you have more money in your bank account today than you did 30 days ago? Then I would call profit.Jonathan:So try and get some type of an understanding of how they're making money in practice from revenue to expenses, and then eventually paying themselves and profit and things like that. All within the responsibilities of that dental practice owner, who also is generating production and revenue every day, and managing employees, doing the marketing, doing all the different things that go along with their business. So, with that in mind, what was it that you saw whenever you went to your ... When you started your role as a CFO?Jonathan:Again, I could see many of my practices, and many of our clients here at Tooth & Coin are having the same issues as the business that you got into at the time that you got into it as the CFO. Around that $3 million in revenue mark, you got a lot of practices that are around that level, half a million, a million, 2 million, 3 million, but $3 million mark.Jonathan:They get to be pretty busy in a small business. So what is it that you saw whenever you walked into that business in the first day in the role of the CFO, that really just hadn't been done that needed to be done from a CFO perspective. Because again, that owner of that business couldn't do everything. There's just no way that you could have that type of skill set to be able to do everything on your own.Jonathan:There's a reason there's a million employees at Bank of America. The CFO there is not ahead of every financial element. The CEO doesn't do all the COO and CFO and all the other roles and things. There's reasons why there's more than one person doing all of these things. So what was it that you walked in at day one, your becoming a CFO from the smaller medical business to grow into where it was?Joseph:Sure. I think the first thing I noticed is the wild swings and cashflow. It wasn't a matter of, we had the same exact amount of money that would come in every month and every day and we were pretty product heavy. So we had to spend quite a bit of money to provide these specific devices and services before we ended up actually delivering the service. So as you're paying your lab bill, as you're paying your supply bill, there's all these huge outflows that go, and they don't always match up with your revenue perfectly.Joseph:So I would see these wild swings in our cashflow. So, as an inquisitive person, if you see wild swings in the cashflow, the first question you're going to ask is why. So the first question I started asking was, "Well, how do we get to deposits into the bank account?"Joseph:Well, insurance companies write us checks, patients write us checks, we take credit cards, all these different things. That's how money turns into the bank account. I'm like, "Okay, well, how much did we generate in services last month, for example?" Okay, we'll pull the rapport and we got all the billing done. We got all the services delivered and we would pull the report and they'd say, "All right, well, we did 300,000 this month. That was a great month."Joseph:I was like, "Oh, okay. Well, what kind of service was that?" "Well, we did 300,000 this month." I was like, "No, no, no, no. Like specifically, you've got eight lines of business here. How much did you do in each one of those?" They're like, "Well, we can think of those couple of big ones that we delivered. I know that our shoe business was big. We had some big shoe," but it was very clear early on that they were not measuring revenue by line items.Joseph:So when you translate that to the dental practice, it's like, well, how many cleanings are you doing? How much hygiene are you doing? How many crowns are you doing? How many are you doing that are implants? It's like, the first thing that you've got to do is you've got to measure what specific revenue pieces you did in each month. So, if we're looking at the month of January, I'm going to say we did X amount on this, X amount of that, X amount on that. Then we as accountants, what we like to do is we'd like to compare.Joseph:So I came in and said, "Okay, well, you did 300,000 this month. Well, what'd you do last month?" "Oh, we'll have to go back and rerun that report. We don't remember what we ran. Oh, but we remember that May, of last year was a really, really good month. We should run that month." So it became very clear and apparent that they weren't measuring how the practice was doing month by month by service line.Joseph:So that was the first thing. So the first thing I did is okay, why don't we categorize our sales? Why don't we just make it simple and just have three or four different big buckets of sales that are all kind of related and we'll just measure those specific line items, rather than trying to do some kind of procedure code, because the healthcare practice that I was in, we had a thousand different procedure codes. Some of them were the big numbers and some of them were the small numbers and there's all these add-on codes for these additional things.Joseph:So it's like, I don't want to look at a revenue by code line item because I've got a thousand codes that we use in the course of the month. Why don't we break that down and summarize that into three or four different ones that we can measure? Why don't we look at that for this month versus last month versus the month before, and let's figure that out. So the next thing that I figure out, I get in there and I'm like, "Okay, so that number of 300, tell me what that number is? What makes up that number?"Joseph:They pulled it up and I started looking at the individual patients that made up that line. It became very clear that what they were calling revenue was usual and customary. We may refer to that in the dental world as the UCR, the usual and customary rate, or you could just say, that's your general fee. I said, "Okay, well, of this 300,000 that you generated in revenue, is that going to be what turns into collections in the bank?"Joseph:They're like, "Oh no, no, no, no, no. Insurances, they all take their discounts." I'm like, "Okay, well, that's probably where we need to start measuring revenue. We didn't do 300,000 revenue. We did much less than that. So let's come up and figure out what's the allowed charge." The next thing that I figured out is that whenever I went into the allowed charge, they had taken a standard discount off of everybody.Joseph:So we had, in the business that I was in and we had the Medicare allowed fee. So basically what they did was they keyed in the Medicare allowed fee for every single patient that came through the door. What's the problem with that? Problem with that is not every single patient is on Medicare. We've got Blue Cross Blue Shield, we've got Humana, we've got UnitedHealthcare. We've got TRICARE, we've got a number of these different ones and I'm like, "Well, how do we know what Blue Cross is going to pay us whenever Blue Cross comes in?"Joseph:They were like, "Oh, well, we just adjusted off the EOB, or the explanation of benefits whenever it comes in." I said, "Okay. So what you're telling me is whenever we've measured that revenue, we measured it at the Medicare allowed rate, but we're not going to make an adjustment for the Blue Cross rate until next month when they pay the claim or next week when they pay the claim or whenever they decide to pay the claim?" They said, "Yeah, that's what we do. That's when we adjust it."Joseph:I said, "So this $300,000 number is not a real number. The $250,000 is not a real number. So why don't we drill in and figure out, well, what are our contracted rates for all of these different insurance companies?" And as you can imagine, Jonathan, they were all different. Blue Cross had a certain percentage off of the Medicare allowed, United had a certain fee schedule that they had determined. TRICARE had something different. We had a workers' comp that would take a percentage off of our usual and customary rate.Joseph:So one of the things that I've always subscribed to is the Pareto principle or the 80/20 rule. So I was like, okay, why don't we 80/20 this thing. What 20% of our payers make up 80% of our revenue? So obviously to go through, we had hundreds of contracts. To go through hundreds of contracts and trying to get all of those fee schedules immediately ready, that would have taken months.Joseph:So I was like, why don't we just take the top 20% of our payers, the ones that pay us the most money and why don't we go ahead and make sure that that is correct inside of our billing software so that we were able to get to an allowed fee. The other thing that I figured out was that the Medicare allowed fee changes every year. Some years it goes up, some years it goes down. I'm like, "Well, what's that Medicare allowed fee?"Joseph:They were like, "Oh yeah, we loaded that in a couple of years ago." I'm like, "Okay, we should probably upload the current Medicare allowed fee. We should probably upload the current Blue Cross Blue Shield fee." Because one of the things is that as your accounts receivable people have money that's coming in the door and they have an EOB, we should know and expect to know what Blue Cross is going to pay us for this specific client, for this specific line item and if they pay us different, we need to know about that.Joseph:We need to investigate that, we need to follow up on that and say, "Well, is it because they paid us incorrectly? Is it because this is a Tennessee Blue Cross Blue Shield versus a Texas Blue Cross Blue Shield?" What are these differences that are inside of this? So I think that was where it first started was we need to start measuring revenue.Joseph:We need to start measuring revenue. We need to record it. We need to be measuring it month to month. We need to figure out what is revenue and it's obviously not your usual and customary. I was having this conversation with the dentist the other day. I said, "What was your production for the month of January?" She said it was $30,000.Joseph:I said, "Okay, well, tell me more about that number. What is that number?" She's like, "Oh yeah, that's the UCR." I said, "Okay, you understand that the UCR is not what your insurance company is going to pay you that you're in network with?" She was like, "Well, yeah, that's not the right number." I was like, "Okay, well, the first thing we need to do is we need to figure out what are you generating."Joseph:Because her question to me was how much can I afford to spend on you know, this next thing or this next loan, or can I hire another employee or can I increase my salary? Can I take a draw? Is my rent too high? She started asking these questions. I said, "Well, the first thing we got to figure out is how much money is coming in the door and how much revenue is coming in the door."Jonathan:There's usually a reason that revenue is the first thing on a profit and loss, because it's the first thing you're supposed to be able to know about. I find a big misconception inside of the dental space is that the CPA equals the CFO. When I try and tamper expectations with all of our clients is that, look, there is a lot more to revenue than just that first line item. Whenever you file a tax return, you file income. Sometimes you have a cost of services or whatever it is that you put down there as well, but revenues is a one line on the tax return, but it's much more than that. So would you say that's a fair statement to say that one of the jobs of the CFO, one of the responsibilities of small dental practice owners in their role as the CFO is to understand their revenue?Joseph:Absolutely. I think that's got to be where it starts. It's got to be where it starts because we got to understand ... So we've got to put expense models together and figure out how much we can afford based on our revenue. Obviously your revenue is going to fluctuate month to month, year to year. I'm looking at financials in January. Financials in January look a lot better than December. Why is that? Well, we took a week off for Christmas to New Year's.Joseph:So January, we worked full month. February will probably be shortened because we've got crazy snow storms that have hit the United States and people have been shut down for a week. So there's always going to be some fluctuation of revenue, but it's got to start with that. So then if we can figure out, well, what's a general rolling average that we can forecast out for revenue, then we can break that down per month and we can say, "Well, what did we do in July of last year?"Joseph:"Well, July is always a great big month for us, but it never is quite as big as August. August is so big because the kids are coming back to school. They want to get all their dental work before they go back to school. So August is always a big month in dental. March is always a big month in dental because of spring break."Joseph:So then we can forecast that stuff out and understand what our revenue's going to look like so that we can build our expense models based upon that. I think that's a big thing for CFOs is, people like to talk and use the word budget all the time. They're like, "We need a budget."Joseph:I'm like, "Well, we need a forecast is what we need." How many patients came in the door last month? How many of those were new patients? What percentage of that? What was the percentage of each one of the different service line items? So can we expect that to come back? If it's a hygiene client, are they going to be expected to come back in six months?Joseph:Well, we had X amount coming in January. That means that we know that we're going to get a certain percentage of those to come back in July and we can look and compare that and say, "Okay, well, what percentage of hygiene clients actually keep up with every six months?" Okay, well, it's not 100%. We wish it was 100%, but it's not 100%. Is it 90%? Is it 80%? Is it 50%?Joseph:Well, if it's 50%, we've probably got some things that we need to work on with our front office staff to make sure that we're confirming appointments, whether they were doing all the things that you guys know that we do in order to make sure that people are coming in for their six month checkups, but we can start forecasting and start getting a picture of what things are going to look like from here on out.Joseph:We can say, "Okay, well, if revenue, this month is $30,000, but our goal is $50,000 and we know that we're projecting that next month is going to be $40,000, we know that we've got 10,000 that we got to make up. So where are we going to make that up? Is it going to be new patients?" All right. So let's say that it's going to be in new patients. How many new patients do we need? How many of those are going to be hygiene patients versus emergency patients versus some more complex procedures that we're running specials on?Joseph:So these are all the things that when you try to get a handle on your top line revenue and get a handle of the money that the business is generating, these are things that are all going to project out so that you figure out what you're going to do money-wise moving forward.Jonathan:So you mentioned a lot of strategic game plan that was coming up. To me, it's like, step one, understand revenue. Step two, create a baseline of what it is we know is happening currently and then step three, would be to design some type of a game plan to effect those numbers, to try and create something around those things.Jonathan:So like you said, maybe it's that where we find that our deficiency is in our hygiene recall rate. Do we have enough of our patients coming back in for hygiene after they come in for the first time? Do we have enough people to getting back on the schedule today compared to whenever they come back in the future? Or do we let too many people just walk out with our unscheduled treatment?Jonathan:How many treatment plans did we do today and how many of those were actually on the schedule? Did we have a conversion issue? Understanding those different components after you have a bigger picture idea and understanding of that revenue allows you to start optimizing and influencing those numbers. So is that what a CFO's role is or is the CFO's role to influence those numbers or is it to unearth those numbers?Joseph:So I think it's both. I think a great CFO is going to do both. I think that if you look at the accounting world, one of the things that's tough about the accounting world is we're always looking backwards in time. We're looking at what happened last month, what happened last year. We're generating a tax return four or five months later after the year's closed. So, if you're trying to figure out what you're going to do with your business in May of a year, but you're waiting on last year's tax return to get done or last year's books to get done, you're always looking backwards.Joseph:I think the best CFOs that are out there do a combination of both. Number one, they're reporting the results in a way that'll help us understand the past, but they're also looking at all of the different pieces that we know that are going to happen in the future.Joseph:We're going to take some projections. We're going to make some assumptions. We're going to look forward and try to figure out what is life going to look like moving forward. Then we say, "Okay, life looking forward. If I take the snapshot of it today, that's not where we want to be. So let's figure out where we want to be. Why don't we create some goals around this? Why don't we create a monthly goal? Why don't we create a daily goal? If it's a number of new patients that are coming in, how many new patients should you be getting per day?"Joseph:Then we can start to influence those numbers and we can say, "Okay, we know that where we're at today is X. We want to be at 2X of where we are. What's the plan to get there." So that is where I think good CFOs are able to really, really hone in on a practice and really help you move forward and help you project to the future and make good, smart business decisions and influence those decisions and help your team understand how they influence those decisions.Jonathan:So how would it be, again, this is, this is a question that I get a lot is do you think that a CPA, someone who works as a CPA for a dental practice, that that CPA should be the CFO of that company?Joseph:I just think that it's got to be a lot more granular than that. As CPAs, we're typically reconciling banks daily, weekly, monthly. We're looking at financial statements, we're trying to get everything to tie out. We're doing everything that we can to make sure that the books are right, which is a very important part of your financial picture is understanding what your books look like. But I don't think that CPAs are equipped to be out there and to be in your practice to know like, well, how many confirmation calls did we have on patient schedules today?Joseph:Okay, well, we can track that. We can get it in the software. We can create all these different systems that are out there, and then maybe the CPA can look at that, but I think that that's outside of the CPA's role just because we don't have access to all that. We don't have the boots on the ground.Joseph:Now, if you have a full-time CPA that works in your office, many practices do. Huge, huge practices. Once you get to several, several millions of dollars, you're going to have a controller onsite that's going to help you out with some of this stuff. Maybe they're going to have a CFO on site once they get to that 10 or $15 million mark so that you can do that. But if you're a CPA and you're working with 20, 40, 50, 100, 200 clients, there's just no way that we can project all of that granular detail out in order to to do that and to fulfill that CFO role. That's certainly my opinion anyways.Jonathan:I agree. I see a lot of it because I speak to Dennis every week and it's not uncommon for me to hear someone say one of two things. One being that I need a CFO and they think that they need a CFO because they need someone who's going to help with all of these things. Then we can start digging into it and it's like they're doing three, four, $500,000 a year in revenue. Or even all the way up to say a million to $2 million a year in revenue.Jonathan:I need a CFO because I need someone who's going to do all of these things for me. Completely get an understanding of my revenue, which just for the listeners out there, that means we're going to have to understand your production philosophies, we're going to have understand the way that you view dentistry, the way that you view your patient care.Jonathan:As you dentists know, every other dentist is going to be different. So every CFO is going to have to understand that about you as the provider, as well as any other providers in your office. The way that we do that as data people is, we look at the production procedure code, service mixes, things like that, to be able to see what that looks like, but that's on a very high level.Jonathan:If we were to be the CFOs for you, that would be what we would have to do from a provider standpoint, for us looking at our provider level. What I tell most of these people is, "No, you don't really need a CFO. You just need more production right now. You need more revenue, you need to do more dentistry or have more patients," and that's basically all I can tell you.Jonathan:That's exactly what a CFO would tell you if they were to be engaged with you right now is, "We don't have enough revenue, we don't have enough production and we don't have enough patients." There might be some small problems that that person could uncover, but the amount of money you would have to pay someone to be able to do that, to uncover those problems would be a negative value compared to what they find, because you'd be paying them a whole bunch of money because it takes a whole lot of time to understand all of these elements for every business.Jonathan:While dentistry, yes is an industry and single office owner practices are similar in nature, they're all different. They're all different nuances and things like that and most of that nuance comes from the provider, the person that is doing the production.Jonathan:So I completely agree that the CPA role is not designed around this and the cost structure is not designed around this. If we're charging someone say a $1,000 a month for accounting, bookkeeping, tax planning, tax prep, projections, keeping updated on all the things that are going on in the dental ecosystem from a financial perspective, we don't have the ability to be able to make sure that Susie in the front is entering in the production correctly into the computer. That's not what we're engaged to do. The amount of money that we typically are getting paid for that, we don't have enough time in the day to be able to be helping with those types of things.Jonathan:So it then falls back on the dental practice owner to do those things, unfortunately. So I completely agree. It's, CPA does not equal CFO. I guess that's the point I'm trying to make with that, is that people sometimes think that they're the same person. It's a very specific subset. It's a different skillset, number one, and number two, it's not typically what you're paying your monthly fee for whenever you're seeing these people come in.Jonathan:So I mentioned earlier, there's two things. The first one was the person I'm talking about. They need a CFO and I don't think they really need one, and the second one is that they'll have already had a CFO and they'll be looking for someone new, which is the reason they're talking to me and I'll look at the work that's been done and it's literally just CPA work that's been done. It's not CFO work.Jonathan:So it's what you're saying here. It's financial statement analysis is all that that CFO is doing. To me, financial statement analysis, yeah, your CPA can help you with financial statement analysis. Almost every CPA can do that. I'm asking this to you, Joseph.Joseph:Yeah, absolutely.Jonathan:So every CPA can help you with financial statement analysis. Financial statement analysis is like one line item of things that CFOs do out of hundreds of things the CFOs do. So CPAs can help you with financial analysis, which is the things we talked about. The way that our firm does that is through a management report that we send out every month, where we're calculating out and are rolling quarterly averages and doing overhead analysis and things like that, but that just is the overall picture of the results of the practice.Jonathan:It is not the granular detail of, we did, say, three times more crowns this month than we did the month before. That does not exist on a financial side, on the traditionally prepared financial statement done by a CPA firm. So a lot of times what I'll tell people is lean on these softwares that can pull these data elements out of their practice management softwares, like Dental Intel is really good. Practice By Numbers is really good and they can do some of these practice management data calculations for you, but don't lean on your CPA for those things because we're not traditionally trained for those types of roles.Jonathan:A lot of the times what I tell people is that CFO role, we can find the problems, but we can't usually find the solutions if we're not in that practice every day. So you're paying a lot of money for someone just finding problems. Whereas in this industry, to me, if you're a smaller business, you have to be paying a practice manager consultant to find and fix those problems a similar amount of money. So when is it to you that a dental practice should consider having an outsourced CFO or a CFO and just in general, that is not that owner of that business.Joseph:I think that all the stuff that you're hitting on definitely says to that. So the question is, we're dealing with dentist who are very, very intelligent people. They're all very entrepreneurial because they went out and started their own practice, or they're thinking about starting our own practice and want to start their own practice.Joseph:So they've got that grit and grind about them to figure all of this stuff out. I really don't think that it's something that they can't handle on their own. I think that it really boils down to time. Do you have the time to devote to this? Do you have the resources, the manpower that you've got in your office to help you out with it? At the point where you're doing dentistry five, six days a week, and you're busting at the seams and your schedule's full, that's probably time that you can probably hire somebody else to do that.Joseph:I certainly think a lot of startups can benefit from having an overall plan and just kind of having some goalposts to operate on to help them out with that, but I don't know that there's actually a magic moment where you say, "I need to outsource a CFO." Certainly as the practice grows, if you had 50, 60 employees or more, I think that's kind of like the traditional, that's the point where you need to have a CFO.Joseph:Once you're probably at probably 25 or 30 employees or more, you probably need to have some kind of a controller in place. Another question is like, well, at what point do you have an HR manager in place? Well probably when you get to about 75 employees. So I say that to say like the businesses that you and I work with, almost all of them are single office, two office, way, way smaller than that.Joseph:I think that they'll be able to wrap their arms around a lot of it, maybe with a little bit of coaching and some help on the side from some consultants and some practice analytics, different pieces that they can figure out there and certainly podcasts like ours, where they get a chance to go out and learn, like, what are the things we need to be looking at and measuring?Joseph:Okay, well, this is what we need to be looking at. Let's go measure it now inside of our software. We knew that we probably could, but now we know this is what we need to go look at. So I don't know. What are your thoughts on that, Jonathan? That's a really good question. It's probably one that several of our clients hem-haw around about.Jonathan:So to me, I don't see much of a reason for a CFO on a practice. From a traditional CFO role, I don't see any reason for a dental practice that's doing less than, probably at a minimum, 2 million a year in revenue. I don't see much of her need for a CFO. The money that you're going to pay for a CFO ... If we're talking dollars and cents here, if you're going to have a CFO, that's actually going to do the work that the CFO needs to do, you're talking like at a minimum, outsourced a day a week, maybe four grand a month, five grand a month is what you'll end up paying that person, if you're lucky.Jonathan:So 40, 60 grand a year for, not financial analysis, hopefully it's more than financial analysis, but basically looking for little problems and little tweaks that are going to have ... Let's say it adds a 10% increase to your revenue. That's great. That pays for that, but you got real lucky if that person finds a 10% change. More than likely what they're going to do is they're going to be overseeing stuff and helping set plans and game plans up and things like that.Jonathan:I just don't see that creating that much of an impact on that business. Conversely, you get a really good practice management consultant in there that can help you do a better job with your treatment planning or do a better job of turning nos into yeses when it comes to getting patients to accept care. Then that money spent is going to have a much higher impact on your practice from a dollars and cents perspective. So almost like my best financial advice is to not get financial advice from a CFO until you get to a level where the tweaks can be worth that dollar output effectively.Jonathan:To me, it depends on the practices and things involved. To me, it's probably at the three to $4 million range and about what you said. Somewhere 25, 30 employees. So for example, you hear about these practices and we have a few practices that are similar to this. That could be if expand and scale, but they'll do $2 million, $3 million in revenue and they'll have 20 or 15 employees.Jonathan:So they'll hit the revenue number, but not have as many employees. Those practices, they're probably already doing most of these things already because they got probably really high production per patient. They got really high operatory usage. They got really high efficiency from their employees, probably have really strong protocols in terms of their collections and payments and things like that. So those things are probably already in for those types of offices, but we're talking about is whenever there gets to be a lot of people involved, a lot of revenue and a lot of patients.Jonathan:That's, to me, when optimization starts creating an unexpected value that's high enough to be able to pay someone else to come in and help analyze and optimize and strategize around those numbers. So that's kind of my thing. So real rough numbers, but at the bare minimum, 2 million a year in revenue, probably closer to 3 million before you start having that conversation. Then also somewhere around that 30 employee and up mark is where you start having someone that can start doing this for you, or start paying someone to be able to do that for you.Jonathan:Real rough numbers, but every situation is a little bit different case by case basis, but that's in general what I would be saying. So we talked about some of the problems today that the dentists are facing is one, an understanding of revenue. Understanding what revenue is, how to analyze it, how to record it, how to you ... See what it is that you're doing.Jonathan:What does revenue equal, and what does that mean in dollars and cents perspective? Then what does cashflow mean? Then coming up with a game around those things. So one of the things that we're doing on this podcast is we're highlighting problems and then we're going to try and create episodes around how to address those problems. So expect in a future episode for us to talk about these problems and give you different ways, as a listener, to be able to come up with solutions and to be educated in these problems so that you can do some of these things on your own.Jonathan:So that is our episode on the CFO role in dental practices. We may do a follow-up episode in the future, but that is the episode for that. So any closing thoughts on the CFO's role in dental practices, Joseph?Joseph:I think the dental industry is just a great industry in general. It's something that I'm excited to be out helping dentists. Super, super smart men and women. Very, very, very hardworking. Very entrepreneurial. So a lot of this stuff, at the smallest of the small scales, at the small offices, they'll be able to figure it out. They'll be able to make those decisions internally and as you grow, that's going to be the point where you've got to figure out at what point does it make sense to invest in additional health.Jonathan:As a final thought, what are some of the other problems that a CFO can help with? We talked about understanding revenue, we talked about coming up with a game plan and I guess another thing would be to track the success or failures of that game plan. Is that accurate?Joseph:Yeah. I think one other things that I think a great CFO will help you out in the dental space with is figuring out what does your insurance reimbursement look like. I know there was a point in time where pick a company shows up and says, "Hey, we want you to be a network with us," let's say at Cigna, "And we're going to offer you X," and that's significantly below what your usual and customary is. So the question becomes, can we afford to take this contract?Joseph:It could be United or Concordia, or it could be any number of places. What's that look like? What's the financial impact of that look like? I talked to a client one time that was in the Midwest that was close to an insurance headquarters and they wanted to drop their reimbursements by, I think it was 30%.Joseph:I said, "Hey, by the way, we're making cuts. You guys are on the hook for 30%." So then the question becomes, and this is a great CFO question. So what percentage of your patient base does this insurance carrier represent and how much dollars in revenue does that mean per year and if we take a 30% hit in that specific insurance carrier, how does that project out? What this practice was able to figure out was that it would have been a couple of staff members.Joseph:I think that the impact of this was like two staff members. So they wrote the insurance company back and said, "We're not going to be in network with you anymore if you continue to say this, because every one of our staff members are important to us and you're taking away two jobs from our practice, and we choose not to do that."Joseph:That's a great CFO project to look at. Certainly, there's smaller contracts that you can afford to take bigger losses on and that kind of thing if you wanted to, but I think that understanding insurance reimbursements and your contracts and all those things. Of course, there's always plenty of people that you can outsource, you can do this with, but that's a big CFO role.Joseph:What's the impact of this specific contract going to be and how's that going to go? One of the markets that I was in had a big, huge FedEx plant and the FedEx switched insurance carriers and the insurance carriers dropped everybody that was in network. So it was like, oh my gosh, are we going to survive? Because so much of this town's employees ... And it was like, well, let's run the numbers. Let's see.Joseph:Well, it turned out that out of, let's say, 100% of the total revenue, only 5% of it was this specific insurance carrier. So I think we're going to be okay. It's not going to be great. It's not going to be helpful, but I think those are great things for CFOs to get a chance to look at for you.Jonathan:Cool, awesome. So we will follow up with those in future episodes. Stay tuned to the Tooth & Coin podcast to hear more about the different problems inside of the dental industry, from a financial management perspective that we will be addressing here on the Tooth & Coin podcast. So we thank you very much and we'll see you next time.Jonathan:That's it for today, guys. I hope you enjoyed this episode of the Tooth & Coin podcast. If you are going to be a practice owner or a new practice owner, and you're interested in CPA service, head on ever to toothandcoin.com where you can check out more about our CPA services. We help out around 250 offices around the country and we'd love to be able to have the discussion about how we could help your new practice.Jonathan:We do specialize in new practice owners. So people that are about to be an owner of a practice they're acquiring, about to be an owner of a practice they are starting up or has become an owner in the past five years. That is our specialty. We'd love to be able to talk to you about how we could help you in your services with your tax and accounting services.Jonathan:If you enjoyed today's episode, again, go to the Facebook group. Talk to us about what we've talked about. Join in on the discussion and let's create an environment where we can talk about some of these things so that we can all help each other get through these things together so that this adventure of business ownership is more fun, more productive, and better in the longterm.Jonathan:Lastly, if you want access to those resources that we are currently building, just text the word toothandcoin to 33444. That's toothandcoin, no spaces. T-O-O-T-H-A-N-D-C-O-I-N to 33444. Reply with your email address, we'll send instructions in the Facebook group. We'll send you the resources when they're available and we will see you next week.

Tooth and Coin Podcast
What is the Tooth and Coin Podcast?

Tooth and Coin Podcast

Play Episode Listen Later Jun 18, 2021 28:37


Join the discussion on Facebook!Jonathan:Welcome to the Tooth & Coin Podcast, where we talk about your adventure of being a dental practice owner. In these episodes, we're going to be talking about problems that you will likely face as a practice owner, as well as give an idea about actionable solutions that you can take so that you can get past this problem in your practice. Some of these concepts are really big ones, some of them are very specific, but we hope that these episodes help you along with your journey.Jonathan:Now, a very important piece for you to understand is that this is not paid financial advice. This is not paid tax or legal advice. We are not your financial advisors, we are not your CPAs. This is two CPAs talking about informational and educational content to help you along with your journey. It's a very important piece for you to understand.Jonathan:Another thing that you need to know is if you enjoy today's content, join us on the Facebook group. So, we've got a Facebook group that is active with Dennis that is going to have content talking about what we're talking about today, to continue the discussion. Agree with us, don't agree with us, have a story to tell, have something to share? Join us in the Facebook group. If you go to Facebook and you search for Tooth & Coin Podcast, click on it to join it, and be able to join us there.Jonathan:Finally, if you need some more help, we're developing a list of resources that are going to be centering in and around our topics of discussion, to be able to help you a little bit more than what the content is doing. So, if you'd like access to that whenever it becomes ready, all you have to do is text the word "toothandcoin," T-O-O-T-H-A-N-D-C-O-I-N, to 33444. And that's "toothandcoin," all one word, no spaces, to 33444. Reply with your email address, and we'll email you instructions on how to get into the Facebook group, as well as add you to lists to be able to send you those resources when they're available. And if they're available, we'll go ahead and send them to you, as well. So onto today's episode, hope you enjoy it.Jonathan:Hello, ambitious dentists. So it is the Tooth & Coin podcast, episode number one, and we are here to discuss this new podcast learning experience that we're going to be creating and developing, and to be honest with you, learning a little bit more about the business of dentistry with everyone that is listening in. I have with myself, Mr. Joseph Rugger, who is a team member with Tooth & Coin, a long time friend of mine as well. Joseph, why don't you tell everybody about yourself, about your experience in the accounting and the dental world, the medical world?Joseph:Yeah, sure, absolutely. So, I always get a chance to tell my story and I get a chance to tell some funny parts of it and some fun sections of it, so hopefully that's of interest to your group. So, I grew up playing competitive baseball and ended up getting a chance to play college baseball at a small school in Batesville, Arkansas called Lyon College.Joseph:Ended up finishing three majors at Lyon: accounting, economics and finance. So, members and money are born and bred into me and formally educated. My first job out of college, I got a chance to go work for my collegiate fraternity, so my job for a year was to travel the country and hang out with college kids. It was a rough job, but somebody had to do it. I ended up doing that for about a year. I always tell people that my salary at the time was $17,000 a year, and I figured out that I was too smart to not make any money.Joseph:So, I went to grad school at IU Indianapolis and did a Master's of Professional Accounting there. Spent about two years working in public accounting in the Indianapolis, Indiana area. Worked for a top 50 CPA firm out of Carmel Indiana, and it was May... I think it was May. And I was still getting up, going to work, and I'd parked my car outside and I was scraping ice off my windshield, well into May living in Indiana, and a buddy of mine called me, and my friends of course, back home in Arkansas were all going to the lake in May and doing things outdoors and hiking, and here I was, scraping ice off my windshield well into May.Joseph:Anyways, so, buddy of mine, his parents owned a prosthetics company and he called me in the middle of the end of busy season in the accounting world. And he said, "Hey, our controller just left. Do you have any interest in coming to work for us in the prosthetics business?" And I said, "Absolutely, would love to come visit with you." And I got a chance to work in the prosthetics business for a company in northeast Arkansas for about 12 years, spent a couple of years as the controller and spent the bulk of my time there as the director of finance and administration, which is a fancy way of saying the CFO and the COO.Joseph:We got a chance to do all kinds of crazy fun stuff. We had four locations when I started there. After I'd been there for a little while, we divested two of our locations, so we went from four locations in two states to two locations, and then over the course of the next 10 years, we opened up a number of new branches, expanded into another state, and by the time I left, we had eight locations across two states, had about 75 employees. Did a whole bunch of work for folks. We ended up seeing about 10,000 patients a year as far as delivered services.Joseph:So, we got a chance to really head up the finance arm, got a chance to really understand the medical billing side. We used HCPCS codes in the prosthetics business, and got a chance to see and learn ICD-9, and then that became ICD-10, and everything in between, and got a chance to understand the difference between a usual and customary fee, or a UCR fee and allowed fee. I was having a conversation the other day with somebody about how to measure your revenue, but got a chance to spend 12 years in the prosthetics business.Joseph:And then, actually, just got reminded on LinkedIn the other day that it's my three-year anniversary at Tooth & Coin. I had all these people say, "Hey, congrats on your work anniversary." And I'm like, "What in the world are they talking about?" Sure enough, February was my three-year anniversary at Tooth & Coin.Jonathan:My wife can tell you that dates are the things that I forget the most. So, I was not one of the people that congratulated you. So that's on mem though. So it's a little dirty laundry for the listeners there. So, cool. So you were in the medical industry. For the listeners, what would be the equivalent of a small to mid-size DSO pro office, somewhere that had eight to 10 locations doing somewhere in the eight figure range of revenue? Is that about accurate?Joseph:I'd say that's pretty close. Yeah. Yeah.Jonathan:Yeah. So, that's what you did in terms of a CFO type role. By the way, one of the episodes that we're definitely going to record is, what is a CFO and what do they do? Because I get a lot of calls about that and I try to explain it, and I'd love to hear what a CFO actually does compared to what I think that they do, since I've never actually been the CFO of somewhere.Joseph:Sure.Jonathan:So, cool. So you're a CFO and you've been at Tooth & Coin for three years now. What else is relevant in terms of your accounting, CPA, financial background?Joseph:Well, I think it's always interesting for me to tell people how I ended up working for you at Tooth & Coin. I think that's always an interesting story. So, I moved to the Dallas, Fort Worth area a couple of years ago, and I was interviewing for a couple of different jobs and working with recruiters. And I ended up getting a call from a recruiter to talk to them about being the CFO for a big dental services organization, or DSO, here in the metroplex.Joseph:I think they had about 80 or 90 offices across Dallas and throughout north Texas. And anyways, Jonathan, you and I have been friends for a number of years, randomly sat next to each other at a continuing education in Little Rock, and struck up a conversation and became friends. That was what? 15 years ago, I think.Jonathan:Yeah.Joseph:But anyways, we'd stayed in touch and stayed friends over the years. So, I had this interview coming up with this DSO and I thought to myself, "Who do I know that I can pick their brain about the different stuff that I need to study and prepare for this interview?" So I called you and reached out to you and said, "Hey, I've got this interview coming up. Would you be willing to share some stuff?" Anyways, and we started talking and you told me... a couple of days later you were like, "Man, if he's interested in making a move, maybe he should come to work for us."Joseph:So that started that conversation. So, been with you at Tooth & Coin for the last three years. Got a chance to do all kinds of really, really cool stuff inside the CPA profession on both the professional level and also on the volunteer level. Education is something that is near and dear to my heart, so I've done continuing professional education and taught continuing education across the country for both the AICPA, and I think I'm up to 16 different states across the U.S. that I've taught in.Joseph:I've taught in two foreign countries. I got a call from the AICPA and they said, "Hey, do you have time on your calendar to come teach in the Caymans?" And I said, "You know what? Something just opened up. I do have time to do that."Jonathan:"I think I can make that work."Joseph:Yeah. Yeah. I got another call to say, "Would you like to come speak at The Bahamas Institute of Chartered Accountants?" And I said, "Absolutely. I think that would be good." So, I've gotten the chance to teach and coach at the CPA level and certainly with lots of other entrepreneurs across the dental industry and across a number of other industries, and I really, really enjoy the educational part of what we do, because... Warren Buffett, I think, said it best, that accounting is the language of business and it's up to us to figure out what the story is.Joseph:The numbers do tell a story, and we've got to figure out, number one, make sure the numbers are right, but number two is to figure out what story that's telling. And one of the things that I'm passionate about is I really, really want to help small businesses grow and succeed. That's something that I figured out early on in my education, is that as an accountant, we're going to have that ability, and I'm trying to simplify that even more, Jonathan. And what I really want to tell them is, "I want to help you win with money," which I think is near and dear to our hearts as CPAs.Joseph:So, I've gotten a chance to travel quite a bit. I've been to, I think, 30 countries or something like that, been to all 50 states, hope to come visit your state, whoever you guys are that are out listening, and come hang out, teach some stuff, and that kind of thing. So I think that's all certainly relevant to our discussion here. At this juncture, I'm getting ready to become the chair-elect of the Arkansas Society of CPAs.Joseph:It's a volunteer organization that I've been a part of since I became a licensed CPA, and we're doing lots of great stuff inside the Arkansas Society, and to get a chance to share that's an honor. I was telling you this the other day, I'll be the youngest chair in the history of the Arkansas CPA Society, which is a really, really great honor for me to have.Jonathan:Another honor that you had recently bestowed upon you was the AICPA Young CPA Leader of the Year Award? Did I get the title right of that?Joseph:Yeah, so that was really cool. It's funny. My wife was kidding with me the other day. She was like, "Are we still young?" I was like, "Yes, we are still considered young." But it's the AICPA Young CPA of the Year in honor of a guy named [Maximum McColloughby 00:11:20], and it was named in his honor. And it's an award that sets out to recognize volunteerism in the profession, who's helping capital markets and who's helping the profession move forward from every angle, both from a professionalism standpoint to a volunteer to, what kind of impact are we making inside of our communities?Joseph:So, I was awarded that in the middle of a global pandemic and we were supposed to go to Las Vegas for this big convention. And of course, all that got canceled, and we ended up having... the AICPA did a great job, and we ended up having a really cool virtual ceremony that went out on Facebook live that you could go check out where I got a chance to come talk about volunteerism and what it means to me and hear some of my friends talk about the profession and the awards and all that stuff. But yeah, that was a big honor that I got from the AICPA.Jonathan:Really was. And just for people that are listening, that's the equivalent of the ADA giving out a Young Dentist Leader Award, and they only give it out to one person a year. It's not like the thing that you get in high school where you get to sign up for the who's who-Joseph:Who's who.Jonathan:and pay some money to be a part of it. It's a big deal, and we're really proud of you for it for be able to do that. So, cool. So, for anyone who has not listened to Start Your Dental Practice or is not aware of Tooth & Coin, my name is Jonathan van Horn. I am the CPA and the owner of Tooth & Coin, which is a CPA firm. We are located in Arkansas, but we help dentists everywhere in the country in the United States. We have clients in just about every state. We have around 250 offices we help out.Jonathan:And our mission is to help bridge the gap between you being a successful dentist and you being a successful entrepreneur. We do that in ways that we can help. We try to not venture outside of the realms of the things that we don't know how to do. We find that a lot of people make the mistake of trying to get their hands in too many cookie jars. We've learned through experience that the best way to help our clients is to give them the advice that we know the most about, and that is the accounting, tax, and business financial world, so to speak.Jonathan:And from a numbers perspective, that does mean a lot of things. And what we hope to do on this podcast is talk about a little bit about those things and help solve some of the problems that are out there in the industry that seems to stem from the fact that most dentists spend about 15,000 hours learning how to become a dentist and almost zero hours learning how to be a business owner.Jonathan:So, this podcast is hopefully going to be informative and help a bit with that problem. So, a little bit more about me. I was driven to the CPA world from a young age. I was from a small business family. My parents owned a small business, my grandparents owned a small business. My parents owned a furniture store, my grandparents owned a manufacturing company. And whenever I was in the eighth grade, my parents sat us down in the living room.Jonathan:My dad sat down on the fireplace, and he said to us, "Jonathan," and my sister and my mom. "The business had failed. We are going through bankruptcy. We're going to have to sell the house. We're going to have to move away from our family home that we lived in since I was born, and leave the place that I had known and grown up and loved."Jonathan:And so we had to move halfway across the state from one Arkansas town to a more rural Arkansas town, and if you think that you live in a rural place, I went from a town of about 25,000 people to about 8,000 people, and moved out of a four bedroom, two bath house that was in a pretty nice area to a two bedroom, one bath apartment that was in an area that wasn't the best. And it was a really rough time for my family.Jonathan:And my dad always said, "Jonathan, the reason that the business failed wasn't because the business wasn't working. It was because I didn't keep up with the numbers. I didn't know about the business side." My dad was the sales and marketing person. He was not the business guy. He was the person that made the sales happen, made the revenue come in, but he didn't ever keep up with the business side of things, the financial side of things.Jonathan:He'd actually relied a lot on my grandfather, the one who owned the manufacturing company, to do those things. But unfortunately, my grandfather died about... I guess it was at this point almost 35 years ago. So, he wasn't around very long to help out with that furniture store. And my dad always said if he had had somebody there that could have kept an eye on the numbers, could have kept an eye on how the business was doing from a business standpoint, that we would have been okay, the business would have survived.Jonathan:It went through a bit of a hard time, but we would have made it out of there if he just had a better eye on the numbers and a better eye on the business side of things. So, he always said that. He even says that today still. Actually, we had a discussion about this about a month ago, and he's still saying the same thing about coulda, woulda, shoulda stuff.Jonathan:So, I grew up thinking that that's what CPAs did, because that was what my dad said CPAs did. And I went into school and I got real close to becoming a math professor. So, a big fan of numbers. Always enjoyed math as a subject and had way too much nerdy fun with it, but did end up going the route of CPA, much like Joseph said. He wanted to make some money in the world. So I figured being a teacher was probably not the best way to make money in the world. So I thought, "Let's go with the CPA route," and also I could also be able to help a lot more people. When I got out into the CPO world, very quickly found out that's not actually what CPAs do, as I find a lot of people are surprised about.Jonathan:CPAs don't typically really help with businesses. The CPA industry was created around compliance. It was created around making sure that you filed and paid your taxes so that you don't pay penalties and interest or go to jail. We call that compliance in our industry, and I didn't want to do just compliance. I wanted to do more. So, after working for five or 10 years in the public space, helping out people with compliance, I said, "Enough is enough. I'm going to go and start this new business." And that is how Tooth & Coin was born, and our mission statement of helping dentist bridge that gap of being a successful clinician with being a successful entrepreneur was born.Jonathan:So, that's the story of Tooth & Coin, my personal story of how I became a CPA, why I became a CPA, and just a little bit more into the mind of who it is that's talking to you through these things. There is a podcast out there that you can go and listen to. It's called Start Your Dental Practice. Our CPA firm does specialize in new practice owners, so we have about 250 offices we help out with as of today, which is the beginning of 2021, and over 200 of those were new practice owners whenever they came on with us and our firm.Jonathan:So if you're a new practice owner, someone who's within five years of ownership, we'd love to be able to talk to you about how we can help you out with your dental practice as well. But to this podcast, the Tooth & Coin podcast, what are we here for? Why are we doing this? Why are we talking today? The purpose is fairly simple. I discussed it briefly before I went with my intro is that there are a lot of problems that need to be faced inside of the dental industry and a lot of the lessons that need to be taught to people in terms of what business is and how to approach it.Jonathan:There's a lot of confusion around a lot of different subject matter, and who better to talk to you guys about those things than a couple of guys that have experience running a CPA firm that helps out 250 offices around the country, someone who acted as a CFO for 12 years for a very big medical organization, and has helped lots of our clients right now that are dentists, help get their way through the business of dentistry and be able to talk about the things that we know how to talk about?Jonathan:So, the purpose of the podcast is that. We're going to be highlighting problems, we're going to be talking about the solutions to those problems, and we're going to be trying to give you resources around ways to be able to solve those problems. I think one thing that Joseph and I do not want this podcast to turn into, just for full expectations for you so that you guys can hold us accountable is, we don't want this podcast to just be informational only.Jonathan:We want this podcast to be actionable. We want it to be something that you can execute based off of. We want it to actually solve problems, not just highlight them. Anytime you do any type of content, it's hard to sometimes bridge the gap between educational, entertainment, and action. And we're going to do our best to focus on highlighting the problems, and then giving you the solutions and giving you the resources to be able to take action on those solutions. So to me, that's the reason for the podcast. Joseph, what are some of the things you're wanting to solve with this podcast, as well?Joseph:I think at a high level, Jonathan, you and I, we've got just such varied and similar experience of the business of healthcare here, and as we sit back and think... I'm as guilty as anybody else. I think everybody knows the stuff that's in my head, and as we have new team members come on, as we have new dentists come on, I find that there's a whole lot of stuff that's inside my head that not everybody knows, that everybody's not read all the books that I've read.Joseph:They haven't listened to all the same stuff that I have. And I forget that. So, I look forward to getting a chance to just really share some insights and some things that we see, and some things that each individual listener can take home with them and can digest and see how does it apply to their individual practice, their individual situation? So we've got all this knowledge and expertise. We want to put it out into the world. We want to help you build a better business, a better practice, a better life, eventually. That's really what we're trying to do, here. We're trying to help you reach your entrepreneurial dreams and goals and help you with all those things.Jonathan:Yeah, exactly. And another important piece of all of it is, I find a lot of the times, when a client asks us a question, there is the book answer, and then there's the contextual answer. And I feel like we're in a unique position to be able to give a lot of context around some of these, about how to approach the book solution versus the real life solution of what we've seen happen. Other things that we're going to be looking to do with this podcast...Jonathan:So, we're going to be looking to have this be an engagement platform with other dentists that are out there in terms of ways that you guys have solved the problems we're talking about. So, this isn't only about us sharing what we know. It's also about you sharing what you know` with the rest of the people that are out there so that we can all have a prosperous and full lives, so that we can all do better.Jonathan:We all can live a life of abundance, and there's always information that can be shared. And so, we're going to be having ability to grow a community out of this podcast, and we're also going to be using real life questions from real life dentists that are having these real life problems, and talk about ways that could potentially have solutions, things that could be answered. We're going to be literally pulling questions from clients of ours, of course, with permission from the client, or have it be anonymous.Jonathan:We'll be pulling real questions that clients are having so that we can answer those things, because if our clients are asking those questions of us, I know that the people that are listening are probably having those same questions. They need to be answered by somebody. And hopefully, we can give that answer and be a resource to the industry. So, that's the problem that we're trying to solve. That's how we're going to try and solve it. Is there anything that else you wanted to add, Joseph, in terms of what we're trying to do here with the podcast?Joseph:I'm looking forward to going on this journey with you, Jonathan. You and I have been friends for a long time, and we both have two things that are inherent in us: we want to serve and help other people, and we want to educate. I'm looking forward to doing both of that to our audience, with our audience.Jonathan:Absolutely. So, to give some of our audience members some ideas of the different topics we're going to be approaching whenever we come down in these episodes, some of the topics that we've already highlighted that we want to talk about. Understanding the business model of dentistry. We want you to know how much cash do you really need to have in your business. How to pay less in taxes while your net worth is more important than you think and why it matters. What's a dental practice's true value?Jonathan:Fixed versus variable expenses and your breakeven point. Analyzing your overhead. Staffing percentages, personal finance. Recurring charges, and do you actually use them? The purpose of continuing education. How to understand your financial statements, and why it's also a total waste of time. How to manage expectations whenever it comes to leadership. How to lead people. How to handle turnover in your office. Training protocols. Crucial conversations. Understanding what your sales and production actually mean in your office. Understanding how to handle new patients and how to measure your growth and how to measure your marketing expenses and calculate your ROIs.Jonathan:And just tons of more things that we're going to try and talk about. Those are the ones that we've literally just brainstormed off the top of our heads over the course of a few conversations that we could give full and really good information on, as between Joseph and myself. For areas where we are not expert subject matters... or subject matter experts, rather, we plan on reaching out to the industry and finding the best people to be able to talk to you about those subjects.Jonathan:So for example, we will not be talking to you about how to increase your hygiene revenue. That's not something that we're going to be talking about because neither Joseph or I has ever had to talk to a hygienist and tell them how to do their job. Now, we could have a conversation about how to talk to an employee and how to manage an expectation, but we're not going to talk to you and say, "Hey, this person needs to be doing... 30% of their patients need to be receiving fluoride treatment, because that's an industry standard."Jonathan:Now, I can tell you that may be an industry standard, but how you go from where you are today to that standard is anyone's guess for Joseph and I. And so we're going to have somebody on that's going to be able to actually answer that question and give you some guidance and help you with those things. So, that is what we'll be doing in terms of the episode breakdown. Again, the current format that we're we're working with is, highlight the problem, talk about the solution, and then give resources.Jonathan:That's what our content's going to be about. We're going to try and keep our episodes somewhere in the 20-to-30 minute range. We don't want you to have to devote a full hour of your day just to listen to our podcast. That is giving us some accountability to keep the episodes on point and not to go down too many rabbit trails in terms of conversation, and so that we can really make the time that you're giving to us and putting us in your ears to be as high-value as possible.Jonathan:So, that is our plans with Tooth & Coin podcast. We hope to have you guys on the journey with us, and if you would, make sure to follow us on all the social media, and we will see you on the next episode.Jonathan:That's it for today, guys. I hope you enjoyed this episode of the Tooth & Coin podcast. If you are going to be a practice owner or a new practice owner, and you're interested in CPA services, head on over to toothandcoin.com, where you can check out more about our CPA services. We help out around 250 offices around the country. I would love to be able to have the discussion about how we could help your new practice.Jonathan:We do specialize in new practice owners, so people that are about to be an owner of a practice they're acquiring, about to be an owner of a practice they are starting up, or has become an owner in the past five years. That is our specialty. We'd love to be able to talk to you about how we could help you in your services with your tax and accounting services.Jonathan:And if you enjoyed today's episode, again, go to the Facebook group, talk to us about what we've talked about, join in on the discussion, and let's create an environment where we can talk about some of these things so that we can all help each other get through these things together so that this adventure of business ownership is more fun, more productive, and better in the longterm.Jonathan:Lastly, if you want access to those resources that we are currently building, just text the word "toothandcoin" to 33444, that's "toothandcoin," no spaces, T-O-O-T-H-A-N-D-C-O-I-N to 33444. Reply with your email address, and we'll send you the instructions on the Facebook group. We'll send you the resources when they're available, and we will see you next week.

Lead Through Strengths
Strengths Based Conversations – Get ROE (Return on Effort) Today

Lead Through Strengths

Play Episode Listen Later Apr 4, 2021 14:43


Team Questions and Active Listening Impact Strengths Based Conversations      At Lead Through Strengths, our StrengthsFinder events are designed to help you dial deep into your strengths so you can understand yourself better and strengthen team performance. What better way to launch this goal into action than through meaningful activities and strengths based conversations that are grounded in your natural talents! But how do you keep the value of these conversations when your reality hits? Maybe these conversations feel weird to you over Zoom or MS teams. Maybe you don't know where to start, and you feel a little too woo-woo kicking off strengths based conversations when you're usually the person who gets right to business. Or maybe you prefer to leave the CliftonStrengths kickoff to the experts, so you're waiting for that to happen. In yet another idea-rich episode, Lisa Cummings and co-host Joseph Dworak will take you through fun and engaging ways you can create strengths based conversations, whether in full-length or “bite-sized” sessions, in-person or virtual. Even the popular online game World of Warcraft was an important part of their conversation, so join in. Lisa: You're listening to Lead Through Strengths, where you'll learn to apply your greatest strengths at work. I'm your host, Lisa Cummings, also joined by your other host this week, Joseph Dworak (claps and cheers). Joseph: Hello, hello. Lisa: We're going to talk to you about Strengthsfinder activities and strengths based conversations that help you go deeper as a team over time. Now, of course, in your ideal world, you hire Joseph to come in. He's your facilitator that you request. It's easy, because he has a bag of great tricks, because he's been doing CliftonStrengths for 20 years.  But sometimes people come to us and say, “Oh, gosh, you know, I don't have the budget right now, but I can buy everyone a StrengthsFinder 2.0 book.” So Joseph, if we were going to share some of our favorite kinds of things that might give someone a path to have solid strengths based conversations, what are some of your favorites? Joseph: Yeah, I have to give credit to Chip Anderson, who was one of the founders of the StrengthsFinder movement with Don Clifton back in the day. I saw him do this in 2001... I just started going through my own strengths and I was at a retreat with a bunch of USC and UCLA students that we were with, and I was kind of getting into their groove and Chip Anderson had everyone take our glasses. And he did this whole thing about strengths being the lenses that you see the world through, and we all have unique glasses.  And so then he had people divide up into the four quadrants, so people who have strategizing themes over here, and people who have Influencing things over here, and people who have Relating themes and so on. And then he would have a little bit like what you and I talked about before with a strengths mixer, where he would say, “What's the strength that you really like of your Top 5 and talk about it.”  The other person has to actively listen for a minute and the other person can't interrupt. They actually have to actively listen, which is his own skill in this day and age. And they would talk back and forth. And he would do that for two hours. And he would just, "All right, switch partners. Okay, what's the strength that gets in your way sometimes, and why? “What's the strength that fits you best, and why? “What strengths combinations do you see working together?” And he would just keep rotating and rotating and rotating. And I took that one. And when I became a strengths facilitator about a year later, I'd be some version of that for, as you mentioned, 20 years now. And that's a great way where it's one-on-one, because some people do well in the group setting, some people do well one-on-one... Some people will do well just reading the StrengthsFinder book on their own and doing it. But that strengths mixer, that's what came to mind when you asked that question about a good strengths based conversation to get a team started. Lisa: I love that. One idea that I used recently for Zoom meetings, courtesy of Charlotte Blair — thank you, Charlotte — she had this idea of renaming yourself in Zoom with your talent themes. So say, for example, I renamed myself Lisa - Strategic, Maximizer, Positivity, Individualization, Woo, (do as much as you can fit). You might have to truncate a little bit, so it helps to leave your surname off. That works great, because as you're in chat, you can have conversations about your activities. As you kick off these strengths based conversations, you start to see people's answers. And because that's the name label, you can see how that strength showed up and colored their answer.  For breakout room purposes, what I've been thinking about doing is: if you want someone in that mixer idea to be able to go in the same breakout room, then you pick a strength where you'd like to be matched up with somebody. You'd have to have a pretty large room. I would imagine it to be a 200-person kind of event for this to work. But let's say you want to find all the other people who lead through Learner. So you rename yourself Lisa - Learner, or I think you'd have to put Learner first so that'd be alphabetized: Learner - Lisa.  And then the person who's facilitating could use those to make the breakout rooms because then you could quickly grab anyone who is listed by Learner first, and it would be in order.  So I think it could be done. And if you had the team's reports in advance, and you wanted to pre-place people in breakout rooms, you can do that in technology. Pre-set-up your breakout rooms. Bite-Sized Activities: Keep The Strengths Based Conversations Short But Engaging Joseph: Yeah, and just a take-off on what you talked about where you have the common strengths: there's also the activity that I've done over the years where you have a certain amount of time and you have to find people who have strengths that you don't have. You ask them: What is that strength? How do you use it? What good is it for you? Maybe it's a strength that you're like, “Well, how is that even a strength?” But you can do the same in breakouts. You can even just be with 5 or 6 people and say, “Okay, I have these strengths. You have these strengths. I don't have Connectedness. Let's talk about that one. And how's that strength strong for you?”  So that was an old Gallup activity from way back, probably when I first started, and I think you could do that in a virtual setting as well.  Lisa: Yeah! There's one that I used to use in in-person events. Let's see. I would use this. It's like the spin-the-wheel sort of thing, where I would have the team brainstorm some challenges or questions that they're going through. And then you list the challenges as all the options, and then you can spin the wheel. And then you have to get into groups and really quickly say, “Alright, which strength could you lean on to solve for that issue? And how would it help you get through the challenge?”  And so to translate it in a virtual environment, there are actually spin-the-wheel apps, so you can share your iPad on screen, or whatever device and have the spin-the-wheel going and replicated in a virtual. Let's use this to kind of take the arc towards something that you said to me in the past, which was, that you've been really thinking a lot about how to introduce this stuff to your team in bite-sized pieces. You want to have strengths based conversations, but you don't have time for an hour long meeting every week. As we were just talking, I was thinking, “Yeah, we're stuck in an old-world thinking of what training activities are. We matched them to a time when we had 4 hours to spend together in person in a room.”  And if that's not our reality, and we need to get down with the new plan, which is, “Hey, bite-sized! What can we do when we have 5 minutes to do strengths together and it's remote?”  So what are some of the strengths based conversations you're having in that bite-size? Joseph: Yeah. That takes me way back to when I was working with some different collegiate teams. I remember I had a great partner-client, University of Maryland. I had the pleasure of working with a couple groups there. And they would always ask that question, because they were bringing me in more than once a year, which was great. But then they wanted to know: how could they keep the strengths based conversations going?  I would often give them 50 strengths based questions. They would typically choose one to use at team meetings. Ask just one question, and have everyone give a 30-second answer. So it might be 10 minutes, but they didn't need to be the expert StrengthsFinder facilitator just to ask those strengths based questions.   And one of those questions a lot of times would be, “Where have you seen a teammate’s strength that works in the last week or 2? Give an example of that.”  “Oh, I saw your Empathy here, and you did this there.”  And so those can be really short and sweet and keep people engaged. But I just think about that for how clients could keep the conversation alive, post the engagement of strengths. Lisa: Yeah, that's a big one - remembering to keep the strengths based conversations going after your CliftonStrengths kickoff meeting. It's reminded me of something that just popped in my head, facilitating last week on Microsoft Teams, where I said, “Post a GIF that demonstrates how your strengths are serving you this week.” That is a fun one. It gets the team energized, and it takes about 2 minutes. And if somebody posts some random thing, like a guy sliding on a banana, and you say, “Hey, Sally, tell us more about that one.” And then when she explains it, that becomes the piece that you expand. So you get a bunch of funny ones, but then you also got that one little deep strengths snippet that opened it up for that person. Joseph: Yeah, and, and that stuff is happening in instant messages between people anyway, so, bringing that out into the meeting is fantastic. And I think the image piece on that is so powerful, too. Because, for those who are visual learners, it can click in a different way than listening to you or I talk about the strength, or even the teammates talking about it to think, “Oh, I see that. I get that.”  And that's something we tried to do over the years, is get into the image. We'd ask, "what image would you think of with your strengths?" And then you combine that with narrative and you combine that with experience. That's where you start getting more powerful and it gets deeper and it sinks. It's where the fun really starts. Virtual Meetings: The Creative Ways You Can Strike Up Strengths Based Conversations Lisa: Oh, I think you just brought up something else just by virtue of talking about what we used to do. So if you think about the old activity where we'd bring in an image, (select the picture that best represents your strengths) as you're getting started, if you actually said, “Everybody on the team is going to be on a camera, and go around your house for just a minute and find something that represents your themes to you.”  And then people come back with props where you have the real-life object where I'm holding a pig that's flying, and I'm talking about how that seems like my Maximizer because somebody else may have thought, “When pigs fly, we’ll do that.” But I can see the quality steps from here to there, and the description of it makes it all come to light. Joseph: Well, what's interesting, you just reminded me, I have a friend who leads a faith community in north of San Francisco and he was talking about how they've been doing all virtual church for Covid times, and there's been a lot of debates saying, “We want to get back in person..." and all of this....that's a whole different conversation... But he was saying that they've actually connected more with their congregants more than ever because people are actually doing that, whether they're walking around their house and they're in their house where they were used to be in church together.  And now they do time of sharing and they can see what's going on in the person's house. So it's interesting. It's not even a fully-formed thought. But what you were just saying is really important. And then people are opening their houses up to connection. And that's a whole different level. So I'm still thinking about that one. But that's really powerful to have people walk around and kind of show that imagery piece. Lisa: Well, the lesson I'm taking away from what you just said is, many of us who facilitated in-person for years, our first thought is, “Okay, I had all of these great exercises that I did in person, can I retrofit that into a virtual environment?” And it may or may not work to translate old activities into a new environment. Instead, why not take the thing that seems like a disadvantage and turn it into something you only get when you're remote and you only get when people are in their own comfortable environment?  Or the things that maybe in the past we joked around about seeing moving boxes in the back, because it's your real life. You just moved. So now we have a conversation piece. Oh, where did you move? Are you still in Denver? Did you get closer to the mountains? I have 100 questions I could ask you prompted by the U-haul box that I never would have seen if we were in the office. So I think going native for the platform and letting it create a new set of activities, conversations, the way that we're thinking - even the cadence getting down to the small bits instead of, “Don't torture people with the full-day on virtual trying to do one CliftonStrengths workshop for six or eight hours virtual. Don’t do it. Don’t do it.” Joseph: And yeah, so interesting. And the thing that you made me think of was, I remember a number of years ago, and I think this game still exists, the game, the online game World of Warcraft. So you're a character, and to get things done, you typically have to work with other people as a character in this game. At some point, I read an article in, Harvard Business Review and that said, “If you can do well in a World of Warcraft, you can lead the teams of the future, because you're able to get people.”  And it was people who you have no rank on. It might be a 12-year old and a 40-year old playing at the same time, and you don't know who people are. And you have to get these people on, online, to work together. Wow, I hadn't thought about that till right now, but how prescient, based on where we are now, because now we're fully into that. We're fully virtual, and that in some ways those massively online games were 10 years ahead of what we would hit with Covid.  And it's even more true now in terms of how you lead with people. And how do you work with people? And how do you get up, especially in a flat organizational structure where you need to be collaborative. And certainly, the generations coming behind you and I, collaborations are just a given. It's different. It's not as hierarchical. I don’t like to be too “generation this is that” and others. But in general, they do prefer to be collaborative. So lots of good stuff here. Lots of stuff that tie in with strengths. Strengths help, so we use strengths. Lisa: Yeah, and I think even using the game example and relating it to workplaces that are complex, they're matrixed, they're global... You're on all different time zones, working with all different people in the organization at different levels in different departments and business units with different priorities... And if you can figure that out — and oh by the way CliftonStrengths, it gives you a lot of tools to figure out how to navigate that world — then, yeah, then you're on the right path to figuring out how to navigate work in the years ahead. Joseph: Who knew that online games would give us a glimpse of the future? Lisa: Yes, so if you're listening to this and you need a CliftonStrengths facilitator or a World of Warcraft... I just got it all wrong. What is it? Joseph: It's World of Warcraft.  Lisa: World of Warcraft. Okay, that's what I was about to say. But as the tongue twister was coming out, I was thinking I'm getting this wrong. Then, yeah, Joseph is your consultant. He's ready for you. Whether you need strengths based conversations or a World of Warcraft leader So be sure to go over to the leadthroughstrengths.com/contactus form and make the formal request that he'd be your facilitator. And he can bring some of these cool strengths conversations and activities to your team in bite-sized chunks, of course. With that, we'll leave you for now, and this has been Lead Through Strengths. Good luck to you as you claim your talents and share them with the world. Bye for now. Additional Resources To Help You Engage In Strengths Based Conversations  If you missed our previous episode with Joseph, First Step: Talking About Strengths To Get In The Zone, check it out as it articulates how talking about strengths beyond mere definitions results in quality interactions and higher productivity in their strengths.   The same idea is echoed by Adam Seaman in another episode when he said that relationships with a team are optimized better when you understand not only your strengths but their strengths as well. He offered the German word “umwelt” and the Freaky Friday concept, where you get to inhabit someone’s head and understand what they care about, how they make decisions, or deal with the world. In the world of strengths, this can obviously be activated when you get people talking about their strengths. Strengths based conversations also lessen the risk of missing people’s assumptions and expectations, which could be a source of conflict in the team. Here's a conversation guide that will help you prevent conflict. This one calls for an open conversation with each person on your team in a one-on-one meeting.

Lead Through Strengths
Using Strengths For Sales Teams

Lead Through Strengths

Play Episode Listen Later Mar 21, 2021 13:47


Applying Strengths For Sales Teams Can Boost Performance  If you look over those moments where you closed a deal or knocked out a killer proposal, you were likely in the zone. That whole idea of "flow" or being in the zone - it's a clue to your greatest strengths. Work feels effortless because either you were at your genuine best or you were dealing with a seller who was.  In this episode, Lisa Cummings and co-host Joseph Dworak reveal how voracious learners study up on a bunch of popular selling methodologies. Yet, sometimes they fail because they're implemented as if each person leads through the same strengths. You'll find out more about using strengths for sales. It's an individualized approach, yet it's easy to do because you're amplifying each person's good spots.  Here’s their conversation:  Lisa: You're listening to Lead Through Strengths, where you'll learn to apply your greatest strengths at work. I'm your host, Lisa Cummings, joined today by Joseph Dworak, another host,  Lead Through Strengths facilitator, and sales extraordinaire. Joseph: Hello, thank you. Lisa: Well, today I would love to talk to the audience about using strengths for sales teams - in the context of selling. So you have this unique position that I haven't seen in too many people, which is you've been a CliftonStrengths facilitator full-time, you've been a seller full-time, you've been a leader of sales people full-time, you've had a really wide array of these kinds of roles that allow you to know the philosophy behind strengths but also know how to put this into really practical application for a team.  Now, of course, not every listener that we have is a salesperson or on a sales team. So as much as we can today, we're going to apply this and make it functional and useful for somebody who might be able to pitch an idea in a business meeting, make a business case, do some influencing, because everyone is selling ideas. But when you think about using strengths for sales, let me just kick it off and say, "Say more about that." How do you see this benefiting a sales team? Joseph: I mean, so many ways. I think, people buy from people who they like and trust. And that's debated in the sales world but I would stick with that. And I think, at a really baseline, if you know who you are, you know how you're wired and you enter into a relationship with people in a way that's authentically you, that will differentiate you as a salesperson.  So if you're not authentic, I don't trust you, I'm not buying from you. Even if you have the greatest thing in the world, I'll find someone else to buy from. And one of the things in my current setting, which, I just absolutely love my company — they're fantastic, great culture — we from the top have been modeled to say, “We may or may not be a fit for you. If we're not, there's no drama with that." "If we are a good fit, great, let's keep talking. We know you have options. You could build something yourself. You could outsource, you could look at a solution like ours.” And we try to do that up front to say, “We're not here to push anything on you that doesn't work.”  Our products take sometimes a year, sometimes four months, sometimes a year, and they’re with multi-billion dollar companies, and so it's very un-transactional that way. And if we're in a competitive situation, which we often are, if other people are selling in competition with us and they are not those things, we will stand out.  And so I think the baseline “I know my strengths. I'm authentic in that. And I'm really upfront,” that can help. And I think, obviously, like you mentioned, that can apply to people who are not in sales roles — just being authentic and being you. So I hope I answered your question, Lisa, but that's what I think about. Lisa: You did, and you were taking me back to memory. So being in sales roles early in my career, where you had to memorize a script, and you were supposed to walk in and do a cold call, by opening a front door to a business and then launching into some scripted thing that doesn't sound like you at all - I remember, it felt so awkward until I decided to just discard that and do my thing. I was figuring out how to use strengths for sales before I knew it was a thing. Before I figured that out, it was awful.  I worked next to a mall, like old-fashioned indoor malls that you could walk into all the stores. There was a Franklin Covey store in there and they had all these inspirational planners and quotes and. It was my tool to revive my energy. After cold calling all day and just feeling so horrible because I was acting like someone else, I would start in the car, reloading on Zig Ziglar audio. And then I would go to the Franklin Covey store to try to re-energize myself with quotes and inspiration because it was such a draining effort.  But of course, it's all misplaced, like looking back on it from the future, I can see, oh of course it was really draining because I was using someone else's words, someone else's approach. Nothing about it felt right for me, and when someone receives you being disingenuous, I wasn't being that in a skeezy way but just like not me, they felt it. They felt my awkwardness. It makes them not trust me. Everything goes wrong about it. It wasn't strengths for sales. It was a template for sales - and it only worked for 2 or 3 people out of thousands. Use Your Strengths To Formulate Your Own Effective Selling Style Lisa: How do you help someone feel genuine when there are targets and quotas they have to cover? And, different companies have different types of requirements, but how does that come in where they can still honor who they are but they can also honor some of the requirements that the company might have with them? Can you use strengths for sales teams to align both sides? Joseph: That's a really good question. I think I would answer it two ways. One, I think if you hire the right people, that's not super hard. So I think Marcus Buckingham talks about...if you ever have to warn someone, you've made a casting error. So I always think about that, like, the best people that I've hired and the people who have done well, it's just directing them in the right way and helping them be who they are in the thing. But typically, like you've thought about that role, and you've made a good hire. And hiring is hard, but I love doing it. It's one of my favorite parts of the job.  The second piece is, I think, and I have to go back as you were talking before... I think I remembered a story, when I ran an admissions office at the university as you know, I've been kind of a career tourist and I'm always like, where we'll end up next, but it's been a fun ride — but when I was working in the admissions office in the university, I remember one time, my associate director was trying to get a lot of calls made to invite people to an open house. And she was enlisting people who normally didn't help us with more client-facing things. She was asking one of our office interns who was really introverted and really not wired for influencing people. She was more of the really organized, really productive kind of person. But she was like, “Hey so and so, you're going to make these calls." I remember I came back and this person was doing their darndest to make the call that they're reading a script. They did it, but it sounded terrible. And I remember talking to my Sales Director, and I’m like, “What are you doing? So and so shouldn't be making calls.”  “Why not, I gave her a script.”  And I'm like, “If you've given a script, you're probably a little bit off.” And I'm not dissing scripts. And I'm lucky too, I have enterprise sales folks who work for me, so they're pros of pros, and they're selling billion-dollar accounts like, they are at a certain level of functional expertise, where they do not have a script, typically. They may think about things that they want to say and hit, but I think the short answer to your question is, I think a lot has to do with hiring, and then I think you need to get people... I'm very results-oriented as a manager, so I give people different paths that they can choose to get to those results, where it doesn't have to be a formula that they follow.  And I think not everyone does that. But that's my, kind of where my background helps. It allows for their strengths in those different paths to get to the results. Lisa: Yeah, interestingly, that is a perfect way to sum up the strengths philosophy. It's not going to be that every single rep must make this many first calls on Monday, and take this many steps on Tuesday. Instead, using strengths for sales teams is giving them the performance outcomes and then working from that point of view, not working from the point of view of a one-size-fits-all.  And I have heard people go down that path with something like, “Oh, well, our organization uses the Challenger approach.” And then they're like, “Well, anyone who acts like a lone wolf is bad, and anyone who acts like a challenger is good, and anyone who has a relationship sales is bad,  because here, we are challengers.”  And they kind of bastardize the philosophies, and then make it sound like the only way for you to be successful in this organization is to use this one stereotypical way to talk to someone else. And it's just the opposite of strengths for sales teams.  Joseph: Well, yeah, and I'm really fortunate again. At my organization, my boss built a culture before I got there of, we look at… I mean, we're trained at Sandler, people have read Challenger, like, we're going through all of Jeb Blount’s cascade of books that he has in trainings, we worked with a gentleman called Joe Thomas out of Utah. And my boss is very much like, “We're going to provide you a lot of different methodologies, and we're going to combine them to be the unique best one for your talents.  But it's definitely the strengths that's in with that, because it was already like, we're not just Challenger, and there are people who use Challenger, but there's also people who are really Sandler-based, or there are people who are Impact Advantage based.  And we like to joke that my boss is like a ninja of all of those things, so he can pull out like the right one at the right time. It's truly amazing to watch someone who's done it for 20 years, and he studied, like, this master's level of sales because different situations call for different methodologies. So it also allows you to be flexible when you're in that moment. Strengths For Sales Is All About Being Authentic And Focusing On Fit Lisa: Yeah, that sounds very much like using someone's natural talents to honor their style. I remember being sold to as a business leader by someone who I knew personally. And when he was leaving the room, he did the old-fashioned Columbo technique on me, like - go back to the door, and you put your hand on the doorknob, and as you're leaving you, you have a thought, “Oh, one more thing.”  I mean, it was totally obvious that I was getting techniqued. There was a tactic being played like so clearly in front of me. And it lost so much credibility, because I'm like, “Hey, man” (I won't say his name here), I know you,” like, I got that moment, what that moment was.  It kind of undid everything that he had done before because it felt like a lie. And if I circle that back around to the way that you opened this up, it's about honoring who you are, what your talents are and how those show up to set you up to be at your best. The person who leads through Empathy and Connectedness and Developer and Harmony, they're going to approach sales differently from the person who leads through Analytical and Deliberative and Focus. It's going to look different. And it should, because it's going to feel right to them. Using strengths for sales teams is simply letting each seller do what puts them at their best. Joseph: Yeah. And, and one thing that I've appreciated getting back into in the software world is, sales is one of the hardest jobs. It's one of the most complicated jobs because you're being a consultant, you're being a project manager, you're being a coach. Sometimes you're being a sounding board, like, especially with the enterprise-level sale, where you're dealing sometimes with 50 people in the course of the sale. You have to be a politician, you have to be a diplomat. There's all these different things. It's interesting, the older I get, the more I realized, yeah, someone sees your technique, and then, “oh, no, that's a killer." You just have to be you.  I can think of someone who I ran into who was like that. They were really good at taking all the pieces, and they could put it into play. And they would say it and it just felt really inauthentic and rigid. And it was interesting, because after I didn't work with that person anymore, there was feedback from prospective clients who articulated that to me, kind of like what you just did, with the Columbo technique. And it's like, “Oh, no, we don't want that. We want it to be seamless. We want it to be helpful.”  And ultimately, it's about people, going back to, “Do they like and trust you?” And so you have to start there. And so if you... they start being like, “Are you using like some Jedi mind tricks on me?” That's not gonna go well. But I'm still learning a ton. And it's been great to be in an environment where they support learning that way. Lisa: Yes. Well, I think this is a great way to end the episode and broaden it. Because, number one, you started the episode talking about focusing on fit, and that is a brilliant way to apply the concepts that the best sellers use. Even if you're just trying to influence somebody in a meeting, and you're in an operations role, and you have nothing to do with sales, if you're talking to an audience and you're trying to offer an idea that you hope they will consider, If you focus on fit, it puts you in the other person's shoes, and it makes your message more palatable for them.  So I think that you offered a lesson that anyone could use in any role, even with your kids or your significant other. It's making an idea of something that fits both people. Joseph: Yeah, that's harder with family. I think my significant other will say like, “You need to parent that way too.” So I'm like, “Oh, sales is easy compared to parenting. That's a whole another conversation.” Lisa: We'll save that for another episode. Well, with that you've been listening to Lead Through Strengths, getting some great ideas about how to use strengths for sales, and how to not get stuck in that world of just being a user of tactics but instead coming forward with the genuine you using your differences to be your differentiators on the job.  If you would like Joseph to come in and do some team building with your team related to CliftonStrengths for sales teams, then be sure to request him over on our Contact Us form.  Alright, with that we will see you next time as you claim your strengths and share them with the world. Bye for now. Sell More Of What You Offer Through These Additional Strengths Resources The idea of ‘easy buttons’ supports this episode’s topic, as it encourages teams to tap on their natural talents, or whatever comes easily and enjoyable for them, instead of what drains them (such as following a script in selling or focusing on their weakness zone). If you want to sell better or have better influence, use strengths as easy buttons for better performance. Or listen to Andy Sokolovich as he shares tips on influencing audiences through strengths. These include identifying your talents and spending 80 percent of your time doing what you naturally love. So in the context of selling, that could be storytelling or just meeting people and talking to them. Again, it’s about being authentically you. Finally, in the episode Use Strengths To Create Customer Moments, Mike Ganino underlines the importance of creating an environment that helps each person bring their best performance to work. It’s about using individual strengths to get the experience you want for your customers and employees.

Lead Through Strengths
Managing To People's Strengths

Lead Through Strengths

Play Episode Listen Later Feb 21, 2021 12:42


Managing To People’s Strengths, A Simple Path To Better Performance This topic opens a series of interviews featuring Lead Through Strengths facilitator Joseph Dworak. Now this particular episode looks at the value of workplace conversations, especially when the team is remote. People have never been more hungry for human connection than today. In response to this challenge, Joseph models how a keen and intentional manager ensures that team meetings seamlessly incorporate business updates with open-ended questions about work or life — the answers to which become a goldmine not only for human connection but also for deeper insights into people’s strengths.  Pick up some great ideas, such as examples of these open-ended questions, and see if you can apply them in your teams as well. Here's a full transcript of Lisa's conversation with Joseph: Lisa: You're listening to Lead Through Strengths, where you'll learn to apply your greatest strengths at work. I'm your host Lisa Cummings, and today we have another host here with you, Joseph Dworak. Joseph: Hello, how are you? Lisa: Wonderful! And we are so stoked to have you here because in this series of having other facilitators come in and do strengths interviews, our customers are really loving this extra perspective from our CliftonStrengths facilitators so that it is not only my voice on the show.  We've been talking a lot lately about remote work, and how all of our spaces are combining work and life. Some of us miss workplaces and some of us love working from home. Some of us get in these awkward situations...you pointed out the fact that if somebody is looking at the video version, they see a U-Haul box in there. Because we're alive. Sometimes you move to a new house the day you have an interview.  So how has it been for you as a leader hiring people remotely, not meeting people that you work with? Talk to us about strengths and how you even try to incorporate that into a workplace when you don't see each other. I know you value the idea of managing to people's strengths, yet it's tougher to do when you don't have any "incidental strengths sightings" around the office. Joseph: Yeah, trying to find that connection piece between teammates who are completely remote and virtual. So the team that I lead, we have people all across North America and some of those folks have never met. Some haven't seen each other since last January in person. And so when we do have precious time together, we're trying to find ways to make a human connection. And you know what doesn't do the greatest job of trying to find a human connection: just going through bullet points of announcements and things like that. It's fine, but to get people really to share and open up, I try to do something a bit different. So yeah, back in a management leadership role in 2020, I did not know that COVID would hit, but then I took that job and so... I remember one of my coworkers saying, “Well, now you're going to see how it really is to be back in management leadership with this kind of challenge.” And we didn't even know what it would look like. That was like in March. And I had this sense that we need to stay connected throughout this time. And so we've been asking those kinds of open-ended questions to start meetings. You know, simply like, “What have been shaping events in your life?” And I always go first with my team to try to like, say, “I can do this so hopefully you can do this as far as you're comfortable.”  But then as they do it, other people will share and whatnot. And then as you mentioned earlier, like adding people to our team throughout the year, I think by the early January, we'll have hired 6 people to the team, so the team almost doubled in size or a little over doubled in size. And trying to incorporate those folks and making them feel part, and some of them have never met everyone else. And so they're coming on and they're totally new. And they're trying to figure out their teammates and the system and doing it a virtual way. It's been challenging but really fun. Lisa: It's a great way to make the best of it. Okay, I have heard our customers ask questions a few times when you talk about holding these meetings that feel a little different. Many of our listeners are already on board with using natural talents. They want to manage to people's strengths, rather than obsessing over weaknesses. They also want to do more. They don't simply want to have people listing off natural talents. To focus on people's strengths - it sounds like a simple concept, but when it comes to implementation, leaders start to feel dorky and awkward about how to incorporate these conversations. They meetings that aren't boring, that aren't just a bunch of updates.  But then, when you're trying to lead a meeting and say, “Oh alright I'm going to incorporate strengths into the meetings and we're going to learn about each other,” how do you go about introducing that? Because it has to be this thing that makes team members almost feel disjointed or like, “What's going on here?” Or do they raise up one eyebrow and say, “Who is this guy?" Or, “What's he talking about? Did he put something funny in his coffee this morning? Is he for real?”  So, obviously, there's a process of normalizing people to these kinds of conversations because that's going to be a different kind of meeting. But how did you set it up for the first time and get this thing going? Joseph: That's a really good question. I think I had some credibility with the team because I was a member of the team before I became their manager leader, so that helped. There was some trust there to be able to say, “Let me try something. Let me take you somewhere that we really haven't been before.” And then I did kind of go over, “Hey, there's this thing I've done for over 20 years. It's a tool called StrengthsFinder to help understand how people are wired and for what purpose, and how they can work better. " I've used it in lots of different settings and one of the things I would always talk about is, I want to manage to who you are, not just manage to just a general expectation, but really like, how are you going to get there and how can you thrive in your strengths. So I tried to tee it up with all of them to say this isn't just a random personality thing. This is something that's really part of who I am, and kind of what you get whether you like it or not as your manager leader. And so we did an initial session, StrengthsFinder overview, which you and I have done a lot of over the years, and then to try to use it in bite-sized ways over time where we'd just ask a strengths question at a meeting. Now what's happened is the team has grown. It'll soon be 13 people. And so, it typically means I can't ask everyone to share StrengthsFinder nuggets in every meeting. It would take up a lot of meetings. So I'm having like three or four people in each meeting share different things on different topics, and it's not always strengths-based. So then I think they actually look forward to our bi-weekly meeting. And certainly we do update stuff and we do like, “Hey, here's the sales plan for the year” and things like that. But I actually told them, today in a meeting before I got on with you, "I really value the fact that you all play ball and you ask these questions.”  And now new people are getting assimilated in. They just kind of go, “Oh, this is normal.” And they haven't really said much, and I think they just go along a bit to get along probably, but they're also like, obviously different. We're not just talking about quarters and targets. We're actually talking about who we are and how we work. We're actually managing to people's strengths so we can hit our targets better. For Open-Ended Strengths Questions, Go First As A Manager Lisa: Right. I bet it feels really enriching after that. And then the way that you set it up, I'm imagining myself in their shoes, and if you're telling me as my manager, “Hey, I really care about managing to you, and who you are," I'm thinking, “Ooh, there's something in it for me to go here and see what this thing is all about.”  As a way to give people a practical application for this episode, I know I'm putting you on the spot a little bit to ask for example questions, but could you give us an example of the kinds of questions that you might ask in a meeting? I think it will get the creative juices sparked for our audience. Joseph: Wow. That's a really good question as well. One that we used in consulting when I was doing StrengthsFinder consulting full time was, “What's a person that has shaped you along the way, and why?” Or like, today at our team we actually asked people to share like, “What's a place that has shaped you?”  And so, the team that I used to work with, we would use that as a way to get people to go a little bit deeper. And one of the things we always did was to go first. And so today I said, “A place that shaped me is growing up in the Chicagoland area. What you'll experience from me is really straightforward. I say what I mean, I mean what I say.  And that isn't the same way across the United States. There are different cultural differences in how people act and operate. And I use an example of when I moved to Minnesota. People are very Nordic up there and they are very polite and they don't always say exactly what they think. And so that took me years to understand."  So that was a question we have today, is like, “What's a place that shaped you and why?” And I think for the leaders who are listening to your podcast, I think it's important for them to go first before asking employees on the spot to do that. And I think you'll get a depth of answer depending on how comfortable people are. But then once they start doing it then, the next person will go a little bit deeper and so on and so on. Whenever we ask questions like that person or place or just share your story, I always learn things that.. I've only known some of these folks for three-plus years, now I'm still learning new things about them and how our teammates are. And so that's one really easy way to do it, Lisa. It's really not rocket science but it works. Lisa: That's wonderful. And one thing I've been trying to incorporate in personal life that sounds sort of similar to what you're doing with the team is Becky Hammond from Isogo Strong. She's made these conversation cards, and I've been using one of the questions from the conversation cards with my family. And since everything has been remote, it's been a way to stay connected, and we answer one of these questions, and for workplace purposes, you can filter in or out the ones that are a little more personal. But that would be a nice way for someone to have like a cheat deck to get started with as well. It helps you manage to people's strengths without it feeling like a big mountain to climb. You're already busy as a manager, so no need to create the friction of learning how to be a StrengthsFinder trainer on top of your day job.  And your point about leaders going first to model an answer — I think it's big. I think as a trainer or facilitator, if you can share with someone what an answer might sound like, they understand the direction because these questions — although they're simple and clear — they're just not normal meeting. They are not normal workplace conversations, although I hope it can become normal. Joseph: They really aren't, and I think that's why sometimes people will give you that eyebrow raise or they'll kind of go, “What's going on here?” Because I think other questions that we've asked in different meetings are only focused on quarterly targets. I've asked like bucket list questions like, “talk to me about 2 or 3 things that are on your bucket list that you still want to do in life.”  We've had things where people have said, “There's this island in Russia that's very remote, and it's almost like Russia's Alaska. It's just very remote, I forgot the name of it. But the streams are overflowing with trout and there's kodiak bears and all this stuff going on. And one of the members on a team talked for about 5 or 7 minutes on why he wanted to get there. And it's like a multiple-day journey to fly to Russia and then charter a plane to get there. Everyone's riveted by the story. They're leaning forward to hear it.  I'm always looking to see, are people doing email while someone else is talking? Are they actually paying attention? Are they locked in? And when someone starts talking about going to a remote island in Alaska someday, people listen. You know, like this is different. So it's fun to do. It's really fun.  There’s Power In Blending The Language Of Strengths With The Stories You Share   Lisa: Yeah, it sounds excellent. And I can imagine the nuance that you learn about a person when you get 5 to 7 full minutes. This is a really cool insight for me as well. I'm learning from you as a facilitator because I'm thinking about... My tendency is to get people on the chatbox, have 100 people ask the question and then see the chat go brrrt with all of these short answers but they're more surface-level answers. And then your approach here, if you're doing it with a tighter-knit team, you're really going to get some depth that helps you learn about what makes that person tick. And of course, the magic is that you pick out nuances that help you manage to people's strengths and motivations. Joseph: Well, there's that piece certainly and then, what we always try to do in the past was that when we started talking about strengths, often you could hear strengths in their answers, right? And so you're like, “Well when you talk about that, I could really hear your Achiever saying, ‘I have 20 things on my bucket list that I want to check off’, or, ‘How are you doing Woo in this virtual format when you're not meeting people?'"  And I even said to my team earlier today, one of the things that I promised them was that I would help them with networking referrals, and I don't know that I've done great with networking referrals virtually this year. I really relied on face to face, and that wherever I go, whatever city, I would say, and if I was in the Boston area I'd be like, “We should hang out.”  You and I did that virtually at one point, as a phone call, but it's just better if you can be in person. But you definitely will hear their strengths in some of those open-ended questions, and they don't really know what you're doing at that point. But if you're a trained facilitator, or if you're a manager who has a lot of experience in strengths, you can start hearing strengths in people’s answers.  Lisa: Right. I think that's just the perfect way to end the episode because it's not just the question itself but what the answers and what the listening and tuning into each other allows to happen in the future. Because now you can spot their strengths. Now you can begin to manage to people's strengths and assign clients based on their natural talents. Now you can notice what works about them. Now you can mix the language of strengths that you have with the stories that they tell, and it makes it concrete for them so that they want to unleash that more in the workplace. Beautiful. Well, as a listener, if this prompted your interest and you're like, “Man, I need to get that Joseph Dworak into my organization to do a team builder. I want to get this going,” then be sure in our Contact Us page, when you're filling out that form, make sure to do a specific request for Joseph. And with that, we wish you the best as you unleash these questions and help people claim their talents and share them with the world. Bye for now. More Resources About Bringing Out And Managing To People’s Strengths If you are high in Connectedness, Communication and/or Relator, chances are you’ll crave for workplace meetings where you can maximize certain conversations for relationship-building and human connection. You are most likely a great storyteller and an active listener. Especially if you are a manager who is trained on strengths, you’ll easily pick up a team member’s strengths through planned and random interactions with them. For example, in the episode Engage Employees Through Strengths, marketing consultant Grace Laconte immediately identified an Achiever from a team member who shared a morning process that goes, “Every morning at 8:32 I do this. Every day I have to do these things in order.” But managing to someone’s strengths doesn’t stop at spotting who they truly are or how they work. In another previous episode, Lisa explains how to Prevent Conflict By Knowing Your Talent’s Needs, Expectations, and Assumptions — a great guide to help the team get along better at work.

Web3's Website Workshop
Premium Vs. Shared Hosting

Web3's Website Workshop

Play Episode Listen Later Feb 11, 2021 9:23


You’ve heard the saying quality over quantity, right? We are sure it has come about when talking about food at restaurants, television shows, and now even what type of hosting to choose as a business. It’s essential to know when to make the right call for what business expenses need priority.  Is choosing premium hosting worth the higher cost? Or can you get everything you need without spending more than you need to?  In the debate; Premium Vs. Affordable hosting, we uncover the hidden truths behind choosing the right option for your website. Affordable hosting Affordable hosting is often a server with generic software where you can build whatever you want. Thousands of websites opt for this option because of the price. If you are willing to spare one coffee per month, it may be worthwhile. It is perfect for smaller businesses with limited traffic, files, and storage on their pages. They are stored and hosted on a single, shared server. These perks do not always have to mean they lack functionality. But, they're built for any platform which can lead to performance and security issues. Cons The term shared hosting is an interchangeable word for cheap hosting as it does just that. By opting for cheap hostings, you will be sharing the features with others. It may result in a slower load speed. You will also be limited to other features such as security and resources like a personalised domain name.  Your audience may question the authority of your website when it ends with wordpress.com. A clean and on-brand URL will help put the metaphoric cherry on top of your website. Cheaper plans have storage caps and data limits that will restrict your capabilities on your website. Storage caps directly affect your page's performance and can even extend to your search engine ranking efforts.  Nobody likes a slow website. Sharing the same hosting server with other sites will increase your load speed and decrease your click-through-rate. Pros Do you love to hear the bad news before the good, or is it just us?  Shared or Standard websites are more affordable, less complicated, and quicker to finish up. You still get all the necessary features to keep your website up and running in a cheap and obtainable way, letting you focus on other areas of your business in more detail.  The main feature which stands out is the price. You will be saving up to ten times more by relying on shared hostings. The extra money in your pocket can make the difference for other significant business aspects that may not have cheaper options. You can always upgrade at a later stage.  You can look at it like you are renting an apartment - you share the space. It means you cannot use up a lot of space on your pages. But that doesn’t have to be a bad thing. I mean, minimalism is trending after all. Because you are renting this space, that means the landlord will look after any maintenance or updates along the way.  Premium Hosting If you flinch at the words: painfully slow, hacked or crash, you’ve probably experienced this from a cheap hosting service. You are not alone. After receiving increased traffic or running out of bandwidth, your site can often come to a halt. These are some of the reasons why premium hosting may be for you.  The Pros Your website is your most valuable asset. Security is an important feature that drove James and Joseph to invest in premium hosting to grow Web3. Premium hosting servers have reliable measures to ensure your website is safe and secure. They send data through a secure SSL network for monitoring that enhances their reliability. These protocols also mean reduced load time, even while being inundated with traffic. Your website will have 100% allocated for optimal performance, which will aid your Search Engine rankings. You can feel rest assured that your site is in safe hands.  The Cons  Premium hosted websites often cost more and take more time to finalise. At web3, we use WP Engine, which offers several different hosting solutions for WordPress, from around $38 / month. They allow for a generous amount of websites, domains, visitors, storage, and bandwidth. WordPress and other hosting companies tend to charge more. They host on better infrastructure designed for WordPress. They also build for that platform and can offer better support, security, and admin work.  With a new website or business, you don't need all those extra features. You can suffice with a more affordable hosting option. One that will get you up and running without making you break that piggy bank. Now, this is where cheap hosting comes into play.  Conclusion  It is necessary to know what exactly you want from your website. It will allow you to look beyond the price, which is often the feature that stands out the most. If you're after a run of the mill site with no upkeep, the affordable option will suit you nicely. However, to save you future headaches, we recommend investing in a premium hosting service. Transcript James: Hello, everyone, and welcome to another episode of the Web3 marketing debate show. I'm your host, James Banks.  Joseph: And I'm your host, Joseph Chesterton. James: And today, we will be debating everything and everything about hosting. So premium hosting versus affordable hosting. Unfortunately, I'll be taking the affordable hosting corner of this debate. Joseph: Sounds like you are preparing to lose already, James. James: We'll see about that, Joseph. Joseph: And I'm obviously on the premium hosting side. James: Well, without further ado, let's start the show. So Joseph, why is premium hosting better than affordable hosting? Joseph: Well, James, websites are one of your business's most valuable assets. If your website isn't working for you like it's crashed or it's down, then you potentially could be losing millions or even billions of dollars. You need to invest in really good hosting.  With affordable hosting, you run the risk of having your website hacked, crash, or run out of bandwidth. So as a result, you would lose business and lose reputation for your company.  Good hosting is everything. Yes, of course, it may cost more, but that comes with support, it comes with better infrastructure and it's easier to build your website on.  So that's about all that we need to cover. Thanks for listening in and we'll speak to you next time. No, I'm kidding. James, why is affordable hosting better than premium? James: Probably should have clarified this before we started, but I guess we need to define what is premium hosting and what is affordable hosting. So in your words, Joseph, what would you define a premium web host? What are some examples? How much do they cost? What's the difference? Joseph: A premium host usually is dedicated to the platform you're building for.  So for example, WordPress, you'll find managed WordPress hosting companies, generally have a higher price tag because they are hosting on better infrastructure that's built specifically for WordPress. On top of that, they build specifically for the platform and can then offer better support, security and administrative work. They do that on the server.  Whereas affordable hosting is often just a server with generic software that enables you to build whatever you want. But this isn't specifically built for WordPress or any type of platform. It means that you may run into performance issues, security issues, and the list goes on. James: Okay. And how much would a premium WordPress website hosting server costs per month, approximately? Where do they start at and what's the range? Joseph: Premium hosting depends on your usage requirements. We use a company called WP engine and they offer several different hosting solutions for WordPress, and they start at AUD$38 a month and scale from there.  They allow for many sites and a generous amount of visitors, storage and bandwidth. That is something you probably won’t see on shared hosting or affordable hosting, which is what we're calling it today.  Affordable hosting can cost anywhere from a dollar a month to... I guess it could cost hundreds of dollars, but generally, you would see it priced around $5-20. That's generally the affordable hosting range. James: So what I'm hearing is that for a managed specialised service, such as a managed WordPress hosting environment, it's going to run you the cost of maybe about $40 per month. But you'll have the added benefit of better performance, more security, specialised hosting environments, so on and so forth. But I can get exactly that for $5 a month. So why would I pay four or five times the price for the same thing, Joseph? Joseph: Arguably, if the server was the same as the affordable hosting as far as hardware goes, yes, you probably could get that. But the thing is, you won't get 24/7 support. You won't get prebuilt themes in WordPress.  You won't get automated backups that... Well, you may get automated backups but you can’t guarantee that they will work if your server crashes. With premium and managed hostings, you don't usually see them crash. Whereas with affordable, you run the risk of it crashing.  You get a team of people that manage the server so that if things like security issues become an issue, then they'll fix it for you, and you can rest easy knowing that your business is well looked after online. James: So basically what you're saying is, although you have to pay more, what that added cost means is, added supporting service. But what if I want to take care of it myself and pocket the change? What would be the value in that case? Joseph: I mean, you could do that when you're trying to run a business, you run the risk of your website going down and then having no one to bring it back up, except for yourself.  It might be limited support, but you'll have to wait 24 hours or even pay for support or get shipped to another company. We found this out the other day when we were helping a website recover from being crashed on their own affordable hosting.  When we contacted the provider, they said, "Yeah. We can help you, but it's going to cost X amount, and it's going to go through a third-party provider. We're not going to do the help for you." We had to recover the hacked website that was down for the client on our own, which we could easily do. But if you're on a managed hosting platform, then they will take care of that for you.  They'll be able to restore the website in seconds, rather than a couple of hours that it took to recover.  On top of saving money, the reason why you pay the extra amount for premium hosting is that the platforms that they post on, the software that they provide is fine-tuned. It will run your software better than just the generic software you'll get from the affordable hosting. James: Well, that's a pretty convincing argument, Joseph, but what about my emails? These whizzbang high-performance servers that you're talking about don't allow me to put my emails on it. And I've got emails coming out of the wazoo.  If I were to not have a server without emails, it's going to cost me so much more. Why would I even consider having to go to the server that doesn't allow me to put my email accounts on it? Joseph: It's funny you say that because that was another issue that a client came to us about. They had three websites hosted on their affordable hosting, and they had email accounts on top of that and a dozen accounts that were filling up.  Each account had a couple of gigabytes of emails hosted on it, and when your hosting server only has, in this instance, 20 gigabytes of storage, when your email accounts are on the same platform and each account has a couple of gigabytes, there was no room left for the hosting, which crashed the website and meant that the website wasn't able to be used. And then on top of that, all the emails were bouncing because there wasn't enough space available for the emails to come through.  The better option is you should use a platform like Microsoft or Google or any other email provider. Let them take care of the emails for you.  There might be a cost per account, but if your server goes down, then you will lose not only your website, but you will also lose your emails on top of that.  That's a pretty huge loss to your business if both your emails and your websites go down, especially if you rely on them to make money day today. James: Well, you're probably thinking by now, "Well, geez, there wasn't much of a debate with this show," and why? It's because it's the truth.  Over the past 10 years, Joseph and I have been in the web game, we've dealt with over a hundred different website hosting companies. All of the major ones you can think of having the same rule: you get what you pay for.  You pay for peanuts and you expect diamonds, that's just not how it works.  Particularly in the case of web hosting, you get what you pay for. Hosting for your website is in proportion to all other business, marketing and advertising expenses. It’s one of the last things you'll ever have to worry about. It shouldn't even be a cost consideration.  Of course, if your actual website is working for your business, keep things safe and secure. Rest easy at night and invest in high quality, premium hosting infrastructure. You won’t regret it.  Take it from us, out of dealing with how many retrieved hosting horror stories we've had to help people fix over the years. I can't even think of how many that has been.  So with that said, if you need help with your website, whether that be cheap hosting, poor quality, unreliability, spam issues or you're getting hacked, drop us a line at web3.com.au.  We can help you get set up with an infrastructure that will not let you down.  So with that said and done, we will wrap up another episode of the Web3 marketing debate show. For the next episode, we'll be talking about all things SEM and SEO-related software.  Stay tuned and we will talk to you again real soon.   Discover more at: 

Web3's Website Workshop
Website Design vs. Performance

Web3's Website Workshop

Play Episode Listen Later Feb 4, 2021 6:48


So you’re building a website and want to not only attract but increase all the right customers to your site? This podcast uncovers two of the best ways to increase traffic to your website: Design and Performance. Depending on your goals as a business, your website’s needs will vary completely. This is something we’ve learnt working with many of our diverse clients. Each website we develop is custom-designed and encapsulates the brand's essence to appeal to customers.  Most people think you have to sacrifice one to get the other. In some aspects this is true, but not always. This tug-of-war debate will help to guide your online strategy and make your website easily stand out from the competition.  James: Hello everyone, and welcome to another episode of the Web3 Marketing Debate Show. We've got another firecracker of an episode today. What's better?  Is it having a nice, really awesome, beautiful, pretty website that is the benchmark of design?  Or is it better to have more of a stripped-down, not as well designed website, but it performs like a bat out of hell? So I'll be taking the website design side of this debate. Joseph: I'll be taking the website performance side. So let's get stuck into it. James: Awesome. All right, let's get started. So, all right, Joseph, performance. Why do you want to have a high-performing site as opposed to one that looks like it's the Mona Lisa of websites? Joseph: It's funny you say that because you can actually have a nice website and it can be good at performance. There are times we've seen nice websites, but are absolutely trash when it comes to performance.  You need a high-performing website that loads quickly converts customers, and is a true asset to your business. It's super important to have a high-performing website. Now, performance doesn't come out of the box. You do need to tune your website to be performing. Take our website, for example. I would say our website looks quite spectacular, but it's been tuned and built for performance.  The results show when you have a high performing website, the ROI and results you get from the website are night and day. Whereas, if you just have a nice-looking website, chances are you're losing a lot of traffic and performance that your business deserves. So James, tell me why design's better than performance. James: Well, I'm a videographer and have some fantastic 4k high-resolution films that I want to show. I want to have people when they land on my website, to see my video and the high-resolution, detailed work. I don't want to have them click through to some embedded YouTube play. I want them to see it as soon as they load.  It might take a bit of a performance hit, but it allows me to immediately engage my audience with the work in which I do.  Why can't I have that, Joseph? You're a developer. You know that it's a trade-off.  Performance means sacrificing one or the other at some stage. Why can't I be able to achieve the design that I want? Why do I have to make sacrifices when it doesn't make sense for my business to do so, or my audience? Joseph: Well, the thing is, you don't need to make a huge sacrifice in instances like that. There are techniques that you need to use for video to make sure that your website performs how it should.  You can have videos and a pretty website. But out of the box, (particularly on a lot of WordPress themes that buy from marketplaces) are trash when it comes to performance but look nice.  At the end of the day, your website is an asset and needs the best performance it can for the best ROI for your business.  James: Well, you could load a straight HTML document with a couple of words on it and call it your website. But it's all black and white. If your audience lands on a website like that, they're going to have a pretty poor impression of your business.   It will look like you've half-assed it.  It could be the fastest loading site in the world. But if there is no design, there's no professionalism in the brand presence. It doesn't matter how well-performing it is.  You're going to lose your audience. You're going to lose the purpose of why this thing exists.  Your purpose is to engage your audience and inform them about what you do. This will encourage them to take a positive action towards achieving the objectives of your business online. So what do you have to say to that, Joe? Joseph: A good example of performance over design is Amazon. They've got some design, but it isn't the core of what they do. Their core is making money and growing their business, focusing heavily on performance.  They did a study (I can't remember the exact numbers), where they lost tens of millions of dollars because the speed was off by a millisecond. This was a hugely critical aspect of their business.  So if you've got a website, and by the way, it doesn't need to be just text on the page in black and white. You can have a nice design and performs well. But performance has to actually be part of the plan of the website.  It can't be something that you think of afterwards.  Otherwise, you then have to re-engineer certain parts to make sure that it is performing. Website performance is incredibly valuable and you can have both. It comes down to how much you want to sacrifice. James: That was well said. This underlines the importance of what a  professional web design agency should do for you. Because it's actually not a debate of design versus performance.  Do you want to have a nice design or do you want to have a site that loads fast?  No, you can actually have a beautiful, well-designed website that performs and loads quickly if you know what you're doing. And this isn't something that is done once the website has been built or while it's being built.  This goes down to the fundamental planning aspects.  That's the website strategy for you to be able to create a website that's visually appealing to your audience. But also performs and produces a result for your business. This is something that is a skill. This takes experience. This takes know-how in how to do this well. A lot of websites that have been DIY'd, or businesses that come to us with sites that look good but perform terribly is because of what they haven't considered. They've looked at it purely from a design-only angle. They haven't considered the performance angle.  Or you get very fast loading websites that look terrible because they typically have good development capability, but terrible design capability, which also then misses the mark.  You can have both, and this is what we do at Web3. We have both design and development talent in-house. This allows us to bring both worlds together and create something that works the best in both worlds for our clients and our customers. So that's another episode of the Web3 Marketing Debate Show. As always, I hope you learned something new and we'll be back soon with another debate around creativity versus data.  I can't wait to announce this one and yes, rumble in the ring with you, Joseph. Joseph: Can't wait. Bring it on, James. James: Awesome. All right. That's a wrap. We'll see you again real soon.

Web3's Website Workshop
Landing Page Software Vs Building Landing Pages in WordPress

Web3's Website Workshop

Play Episode Listen Later Nov 20, 2020 8:05


  Episode Transcript James: Hello, everyone, and welcome to another episode of the Web3 Marketing debate show. I am your co-host James Banks. Joseph: And I'm your co-host Joseph Chesterton. James: And today we've got another fire starter of a debate. Landing page software. What is better? Third party standalone landing page software I.e. ClickFunnels, leadpages. Or is building landing pages in your existing content management system such as WordPress the better way to go? Which one is better? Before we kick things off, I'll be taking the, do your landing pages in your existing websites content management system side of the debate and Joseph will be backing the why you should use a third party system to do this and keep it separated out. So, without further ado, let's kick things off. Now, Joseph, I'll let you start. Out of building landing pages in your existing CMS versus building them in a dedicated landing page software. It's the Leadpages, ClickFunnels, so on and so forth. Why is building it in a dedicated landing page software tool better than just building it in your existing website system? Joseph: Well, it all comes down to the software being built for purpose. Take WordPress, for example. Its aim is to be able to blog and create website pages for your website. Creating landing pages that are dedicated for purpose and specifically around converting leads into your business. Then, using landing page software that's built for that is far easier to do. Just the time and cost associated with that. It's far less having things pre-built for you with layouts that have been tried and tested many times over. Not only that, but then being able to track and see what actually is working with the metrics available through the landing page software and then being able to improve on those landing pages that you build. It simply is night and day different to something like doing it yourself in WordPress or any CMS. So that's why I think the landing page software is a better option. What's your opinion, James? James: Well, you mentioned that it's going to save you time, and it's going to be easier. It's not. Because here's the thing. You got to learn another a completely new system. A completely new page builder to then create all these landing pages when, if you've already been able to put a site together or you're familiar with your existing websites content management system. Let's just say, for example, it's WordPress. Most people use it. It's the most popular one. If you can pull together a page in WordPress, then you can create a landing page in it as well. You just have to change the header and the footer and then adjust the body of it to match the intent of what you need it to achieve. You don't have to go and learn another system. You don't have to pay for another tool. You have to do any complex domain mapping between your existing domain on your existing site to a new one. You have to worry about any of that stuff. You just create a new page and subtract a couple of elements. That's the easier way to do it. And you don't have to worry about another system to manage its simpler. Joseph: It sounds too good to be true, James. I'll take your word for it. But at the end of day, which one performs better? Landing page software or WordPress? James: Okay, let's back up. If you're using landing pages, and if your goal and objective is to use landing pages as part of your digital marketing strategy. Then we can safely assume that conversions and the objective to convert your audience and your traffic into some type of conversion goal. Whether be leads whether that be sales, whether that be opt-ins or whatever it might be, is the primary objective. So why should that stop at the leading page? Your entire website should be fast. It should be performant. It should be optimised for conversions as opposed to, Okay, let's just have, like, a brochure Ware website. And let's just make the landing pages conversion optimised. No absolutely not. As we know, the pathway for conversion in the modern era is so multifaceted, so multi disciplinary. It's rare that someone arrives on a landing page and then just converts right there. No, they'll generally check out your website. They'll go across all aspects then check out your business. Any potential page on your site could be a point of conversion. Hence, why when we talk about which one performs better? Okay, yes so fit for purpose. Landing pages do generally perform well but why shouldn't your whole website perform just as well as your landing page if you make your whole entire website perform well then your landing pages built inside your website will also perform well. Then you get the net benefit of having everything perform better, not just one or two pages on your site. Joseph: It's a good point you make about having a website that works for your business, but we're talking specifically about landing pages here, So let's take away the design, let's take away the speed performance and let's talk about why landing pages are better. It's because you can do more things in a easier way and you don't have to potentially know how to code it. Landing page software. It's all about getting landing pages quickly and being able to utilise what the landing pages that have been built or can be built to be able to market to your audience. So the software itself all the major players include things that are easy for you to see the performance, like the metrics. On top of that, you could do things like maybe split testing and being able to do tests to ensure that what your pages are set up to do, will do what you intend. The landing page software companies build these landing pages based on best practises. When you're building landing pages, you can utilise these templates, and the guesswork is taken out of the equation for you because they built it for you. And then you just have to slap in your logo, slap on the images and Bob's your uncle, your away and ready to go. It's as easy as that, whereas with WordPress, you won't get those metrics and things that landing page software will provide you. So marketers and people that are in these platforms day in and day out will love it because you can, easily set up landing pages with drag and drop software and you're away. So that's why landing page software performs better, in my honest opinion. James: Well, I have to disagree with you Joe because the problem is you mention yourself when you're just slapping a logo and slapping some images and hit the go live button. This is the problem because there's a completely foreign system to what your websites built in, even if you load in all of your design, all of your typography, your colour palette. It's a different code base. You will get brand and design inconsistencies with what your main website looks like, which then makes your brand and business look not very professional when you have a website over here that looks one way and another website landing page over here that looks like another way. As long as you've done anything correctly and you build it within your existing website, you'd have to go and reprogram all of your styles and everything is already there, so you have a much more consistent look and feel. Plus, it also saves you time because you don't have to go and redo all these settings again. But ultimately in summary. At the end of the day, these are all tools. These are all tools that are used to solve a job. In some cases, it may actually be simpler and easier and better to create the leading pages in a third party tool. At Web3 we prefer to build our landing pages in our existing client websites where we have designed and developed them from the ground up. That way we make sure the actual core website is fast. It's free of code errors. It's optimised properly, and the design and how it's all put together is optimised for engagement and conversions. That's why when we create landing pages in our existing WordPress theme that we create for our businesses, we know that they're going to work because we make sure the foundation's are done right. This is what gives us a superior performance. And the businesses can save time because they're not having to work between multiple, different business systems to try and achieve the same goal. This is how we do it. But ultimately, at the end of the day, It's what makes sense for your business and how your business has been set up online. If you need any help and advice on understanding what's going to work best for your business, then as always, feel free to reach out to us. Go to web3.com.au and get in contact with us today? So that is another episode of the Web3 marketing debate show. I hope you learnt something new and we will talk to you all real soon. Find out more about this episode and join the conversation at https://web3.com.au/better-landing-pages.

Web3's Website Workshop
Woocommerce Vs Shopify: Which one to use for your eCommerce website

Web3's Website Workshop

Play Episode Listen Later Oct 29, 2020 9:17


In this episode of the Web3 Marketing Debate Show, we talk eCommerce. Arguably the two biggest platforms in eCommerce are WooCommerce and Shopify. We'll assess both platforms from the perspective of small to medium businesses who are considering setting up an eCommerce website or needing to add eCommerce to an existing one. Which platform is the best one for selling physical and digital product and which one is better suited for small to medium business. Listen ahead and we will share our insights in this eCommerce episode. Let the debate begin! WooCommerce VS Shopify Episode show notes James: Hey everyone. Welcome to the Web3 Marketing debate show. I am your co-host, James Banks Joseph: and I'm your co-host Joseph Chesterton. James: And today we'll be weighing in to an all time heavyweight debate, which is WooCommerce versus Shopify. Which one is better? I will be taking the Shopify ring of the corner in this debate. Joseph: and obviously I'm on the WooCommerce side. James: All right, Well, without further ado, let's start. So, which one is better for selling physical products? WooCommerce or Shopify? What's your opinion, Joe? Joseph: Okay, so first of all, WooCommerce. It's built on WordPress. It has a huge open source community made by the people that actually build WordPress whereas Shopify. It's all closed source and you can't actually modify your website to the exact needs that you require, whereas WooCommerce you can. To actually sell physical products. It's a seamless integration with your website. Selling physical products on your website is an end to end solution. It starts from customer coming to your website. Your products are listed on your website, not on a third party platform. The customer chooses the products they wanted buy, clicks add to cart. Person puts in their payment details and is able to pay on your website using payment gateways that you choose. If you're selling products that are physical products then you're obviously going to need shipping. So WooCommerce integrates really well with all the major shipping providers. With WooCommerce you can list an almost infinite number of physical products. Each product has its own product page with all the info that you would expect: description, gallery, variations and so forth. So yes, it's a very good platform for selling physical products. James: So you mention community. I mean, Shopify has probably one of the most, if not the most passionate community of eCommerce merchants in the world over 700,000 of them. Yeah okay, I might agree with you that there's more individual WooCommerce sites per se than Shopify. Data speaking, that is the truth. But are they active in the market? Are they passionately commerce, business people that are there to help each other out? I think a big part of it is the difference between open source versus close source, particularly around selling digital products, is Shopify has everything you need to do to basically get an online store to sell physical products up and running within five minutes or less. Good luck trying to do that with WooCommerce. You're going to be there for a lot longer, trying to figure out the right themes, trying to figure out the right plugin mix to make it work. And on top of that, you have also vulnerability. That open source has versus a close source. Secure platform, like Shopify does not have as much. So that's my point of view why Shopify is superior for selling physical products online. What's your counter argument to that? Joseph: Well, all platforms can be compromised, the fact, that it is a huge community building. The platform means that it's peer review, whereas who knows with Shopify, maybe it would be hacked in a second if someone just did some sort of exploit on the system. Okay, moving on. So it's clear that both platforms can sell physical products, but not everyone needs to sell physical products. What about digital products... James? James: Well Shopify, is not only excellent at selling physical products. It's also great for digital products. It has a whole slew of apps that can be integrated into your Shopify site to allow it to do things such as direct digital download sales, online course sales, selling MP3's, music for your musicians out there. Same with video. And the list goes on and on and on. It has got great community support. These arent sort of hackjob plugins that just some random throws up. These have been verified through Shopify, and they've got a great community support. So it is a fantastic platform for doing this. On WooCommerces front. It's more of a mixed soup off a huge variety of plug ins that all say they do the same thing, and often the case they don't. It's very difficult, in my opinion, to know what is the best way to sell products digitally through WordPress eCommerce such as WooCommerce. WooCommerce is you can switch off its inventory control, but it's still sitting there is still weighing the site down. It doesn't really function as well as a pure play digital products selling platform as opposed Shopify. It can be, it can't be flipped to do that and do it very well. Joseph: OK, so you're attacking, what, the free plugins on the WordPress plugin repository. Whereas, well actually there's a dedicated WooCommerce platform of reviewed plugins that will do exactly what you need with what you're after on your website. WooCommerce does digital products very well. Just as well, as physical products and the checkout process adapts to selling digital products very well. There isn't any need for inventory solutions, but if you do need to then sell products that require inventory, then WooCommerce can easily just integrate straight in. It's part of your website, so it looks like it's just another page on your website. You can integrate with things like memberships and selling courses and membership platforms so that it's a seamless experience for all your customers. James: All right, well, I'm sure the question everyone wants to know is, Why is WooCommerce better than Shopify for small and medium businesses? And in my opinion, is this is the thing is that no matter how hard you try with WooCommerce, you cannot get an eCommerce store up and running. That has a nice, decent design, is well developed. It doesn't break any of the coding and development rules that could hurt your site from things such as organic search ranking point of view. It has a turnkey checkout everything you need to know everything you need to get started and it's so simple to get one up and running. I think I've been able to do it in about two minutes flat and you just simply can't do that with WooCommerce. You know, WooCommerce, yes, it is quite an advanced, powerful tool, but you typically would need professional help. Or you really have to know what you're doing to pull off an effective well optimised online eCommerce store whereas Shopify takes away all of that hard thinking from you and gives you the ability to set it up yourself quickly and easily and get your products to market as fast as possible so you can start making money. That's what we're all here to do as business people. Joseph: Well, James chances are, with 30% websites already running WordPress, you don't actually need to set up a new platform to just sell products online. You can use WooCommerce and integrate directly into your existing website. You don't need to change the entire website, just to sell products. WooCommerce is free to get started. You can do everything that you need to sell products online and it will integrate into your WordPress website just fine. Of course, there's thousands of plugins and things that you can install on your website to increase the amount of flexibility and control on your website, but those are optional paid extra, so you don't need to use them if you don't need them. WooCommerce grows with your business. You're not locked into plans that increase. The problem with Shopify is that as your shop grows, you then have to pay more for all the hosting and platform, whereas with WooCommerce as it's way more flexible and will allow you to scale at a greater rate. James: I think to bring this all together, ultimately both are good, both are very good eCommerce platforms. You can create a successful eCommerce site on either one of them. Either would WooCommerce or Shopify ultimately it boils down and typically our advice is that how do you plan on actually running your eCommerce business. Is eCommerce more of say, like a side extension to your core business, which isn't eCommerce. As Joseph mentioned, typically in that case, the business would probably already be on WordPress. So then extending the existing WordPress site to include WooCommerce to allow for eCommerce sales is often the best way to do it because then you don't have to respin the business. You don't have to relearn how to use a separate platform and then manage a completely separate platform on top of our existing content management system, which just becomes a maintenance and management nightmare long term as organisations grow. However, if you're a pure play eCommerce store and, you know, you're wanting to run and manage the store yourself with the minimal design and development help and you have a relatively straightforward store, no crazy custom integrations that requires sort of custom development. Usually in that case, Shopify is the better solution, particularly for businesses that are starting up. There's Shopify plus, of course, which is for your mid to enterprise level clients. That's a whole other thing we won't get into. But ultimately it boils down to what is the right tool for the right job for your business. If you need any help and assistance and understanding which one will be best for your business, that's what we're here to do. So reach out to us. Web3.com.au. Get in touch and will happily advise you on what will be the best way to get your business selling online and what would be the best way to execute it online. Any final comments on your end Joe? Joseph: Nup. James: Haha, Well, that's a wrap. We'll see you again on the Web3 Marketing debate show real soon. Discover more at https://web3.com.au/woocommerce-vs-shopify/

One Movie Punch
Episode 704 - Dune (1984)

One Movie Punch

Play Episode Listen Later Feb 2, 2020 16:21


Hi everyone! Welcome back for another week of reviews here at One Movie Punch! This week, we have a mixture of film reviews for your enjoyment. On Monday, I’ll be reviewing THE RHYTHM SECTION (2020), starring the incredible Blake Lively in a potential franchise launch. On Tuesday, we’ll be picking up the first of two reviews from Jon-David, aka Mafia Hairdresser, who will be joining the podcast as a regular contributor going forward. He’ll be reviewing THE CAVE (2019) this week, an excellent companion piece to last week’s FOR SAMA (Episode #703). On Wednesday, I’ll be reviewing CLOSURE (2018), a daytime comedy noir which will include interview segments from writer/director Alex Goldberg. Thursday will see the return of Christina Eldridge, aka Durara Reviews, who will be tackling perhaps the most unlikely animated film nominee at this year’s Oscars, KLAUS (2019). Andrew returns on Friday with another Fantastic Fest feature, this one heading towards a limited to wide distribution in theaters, entitled THE LODGE (2019). And on Saturday, I’ll finally be reviewing the powerful documentary TRANSFORMER (2017) as part of our Under the Kanopy series. Of course, today we have our first Sponsor Sunday event for the year, with a film chosen by our third sponsor, Matthieu Landour Engel. We had the pleasure of reviewing Matthieu’s short ZERO M2 late last year in Episode #661, along with the full interview in Patreon Episode #P019, still publicly available at patreon.com/onemoviepunch. We were very honored to have him join the growing list of sponsors last year, and that made him eligible for Sponsor Sundays today. Every sponsor at One Movie Punch gets the opportunity to force me to watch and review a film, but I can’t really say watching David Lynch’s DUNE (1984) is something I need to be forced to do. If you want to get in on the action for Sponsor Sunday, head over to patreon.com/onemoviepunch and sign up at any level. A promo will run before the review. Also, because Matthieu is such an awesome person, in lieu of any specific promotion of his projects, he’s asked me to put a plug in for Darcy Prendergast’s recent short film TOMORROW’S ON FIRE, which is currently available on Vimeo. The short film is being used to raise awareness and funds for the recent Australian wildfires. As someone who has had to evacuate twice due to wildfires, I can certainly appreciate this effort. You can find Darcy’s work on Twitter at @d_prendergast, on Facebook @ohyeahwow, and on Instagram @dancy_predatorghast. Check the show notes for a link to the short film, or check social media. Tomorrow’s On Fire by Darcy Prendergast LINK: https://vimeo.com/383034313 Subscribe to stay current with the latest releases. Contribute at Patreon for exclusive content. Connect with us over social media to continue the conversation. Here we go! ///// > ///// JOSEPH: “And now, One Movie Punch presents an interview about the real star of DUNE (1984), the unnamed House Atreides pug, with his only remaining descendent, in a segment we like to call...” JOSEPH: “PUGS! IN! SPACE!” JOSEPH: “Translations will be handled, as always, by One Movie Spouse. So, what is your name?” AMY: “I do not have a name. My father did not have a name. My father before him did not have a name, who played in the film. In fact, I find names to be outdated, human concepts, which David Lynch was trying to move beyond in this questionable adaptation.” JOSEPH: “Wow, that’s a very... uhhh, astute observation.” AMY: “Thank you. You are a lot more polite than your other human counterparts.” JOSEPH: “Right. So, let’s get to the movie. What was it like for him to be the only pug on set?” AMY: “It is my understanding that he faced major discrimination because of his breed. You know, pugs were originally bred as companions for Chinese Emperors, before they became the toast of the town in Europe. But even back then, my ancestor could feel the rising anti-pug discrimination we see in today’s Internet memes and videos.” JOSEPH: “That’s quite insightful. Did everyone treat him as a mere animal, or...?” AMY: “I must say that he had nothing but praise for a then young Patrick Stewart, enjoying most his time filming the battle scene. They often talked about the lack of enthusiasm he had for the part, but my ancestor assured him things would work out. And wouldn’t you know it, three years later Patrick Stewart would become Captain Jean-Luc Picard of the Starship Enterprise.” JOSEPH: “We have to wrap up here. Do you have any thoughts on the upcoming adaptation by Denis Villeneuve?” AMY: “If casting is any indication, then we might be in for a real treat. Of course, with no mention or images of the House Atreides Pug, I’m not sure this new adaptation could ever have the same refined audience.” JOSEPH: “Well, I appreciate you taking the time. I know it must have been... rough to fit us into your schedule.” AMY: “Really? A dog pun?!” JOSEPH: “My bad. On to the review...” ///// Today’s movie is DUNE (1984), the science-fiction epic written and directed by David Lynch, based on the novel written by Frank Herbert. On the desert planet of Arrakis, nicknamed Dune, a precious resource known as the spice is mined, which contains the ability to fold space. As House Atreides assumes command of the planet, young Paul Atreides (Kyle MacLachlan) discovers his destiny, gets glowing blue eyes, rides a giant worm, and, yes, has a pug companion. No spoilers. I have always been a voracious reader. Before we could carry the Internet in our pocket, or stream whatever we wanted, whenever we wanted, I would throw on some instrumental music and read. It began as a steady diet of young adult detective novels, especially Alfred Hitchcock’s “The Three Investigators”. It turned into reading nearly all the available Dungeons & Dragons novels, during the heyday of TSR, Inc., before they were bought out by Wizards on the Coast. And after I made it to college, and the Internet became a thing, an older gentleman I met in a Stephen King newsletter group recommended Frank Herbert’s “Dune”. I had seen the movie, of course, which I thought was so-so. He laughed (or however we did that before text abbreviations over e-mail) and said I owed it to myself to read the first book, or the first three, or all six of them if I felt so inclined. And after a trip to a second-hand bookstore, littered with cheap mass market paperbacks, I picked up the six for a song and placed them on the shelf for break. I was working full-time at the university during the summer, but after work I went home, made dinner, watched a little television, then headed to my room for some music and started reading “Dune”. Three weeks later, I had finished all six of them, reading voraciously on breaks, back at the apartment, even at the bar waiting for friends to show up on the weekend. I absolutely loved the books. Frank Herbert’s “Dune” series is easily one of the best science-fiction series out there. He nails that combination of hard science-fiction, not just with the science itself, but with the social and political structures, all while blending in a clear messianic hero story. Translating that rich, immersive world to the screen has mixed results, a combination of special effects limitations of the time, and the fool’s errand of trying to cram a multi-year political saga into just two hours. Contextually speaking, the practical effects are really good for 1984, a melding of classic Dino de Laurentiis production values (think CONAN THE DESTROYER and a host of lesser-known sword and sorcery films) and some attempts at cutting edge digital effects, including a shielding mechanism and the classic glowing blue Fremen eyes. Die-hard science fiction fans have learned to be forgiving with effects over the years, but not so much the general audience. Many critics, and many audience members, probably couldn’t help but lump DUNE into the other de Laurentiis pictures, much like how science-fiction is often lumped into fantasy and the other so-called pulp fiction. I adore the film score and soundtrack, by Brian Eno and the band TOTO. The sets and costumes are all excellent, and actually do the lion’s share of the world-building. World-building is where DUNE tends to struggle the most, which isn’t just trying to collapse everything into two hours. From the opening monologue, we are assaulted with information, an attempt to collapse the history into something manageable, but also I think to get the petty details out of the way for Lynch to take us on a more surreal journey through this universe, focused more on the emotions and the meaning. DUNE is chock full of Lynch’s emotional storytelling, which runs counter to Herbert’s storytelling style. The clipped dialogue and the internal monologues, all staple Lynch features, felt out of place. And once everything is set up, we go through what could easily be eight hours of content in about ninety minutes, including a two-year resistance movement. Perhaps if Lynch had the space, or the inclination, to develop the world, we could have seen a science-fiction “Twin Peaks”. I thought the film was so-so when I first saw it, and after reading the novels and seeing it again, I think I still only find it so-so. I want to close on some thoughts about the franchise, especially with the upcoming remake by Denis Villeneuve. My desire to read all six novels back in college wasn’t just because they were so great. I was also hoping to finish the novels before taking in the mini-series produced for The Sci-Fi Channel, which I found far superior to today’s film. Better effects, more time to explore, more time to marinate. I was also impressed by their follow-up series, which collapsed the next two novels to close out the initial trilogy. It didn’t do as well as hoped, either critically or with the larger audience, and there was the small franchise reboot that found massive success called, and let me check my notes here, BATTLESTAR GALACTICA. I streamed that in a couple months as well. Twenty years later, we’re getting another attempt at a remake. If anyone can manage this, it’s Villeneuve, as ARRIVAL cements his understanding of hard science-fiction, and BLADE RUNNER 2049 (Episode #332) certainly shows he knows how to take care of a franchise. Can he do what Lynch could not in 1984, with even better special effects, and a side-car television series? We’ll find out in December 2020, or maybe if it’s pushed for reshoots. I would actually want a Game of Thrones style show, starting with the prequel novels based on Frank’s notes to build up the houses, and explore the larger universe. For me, watching 1984’s DUNE is the equivalent of cramming the entire first season of Game of Thrones into a two-hour film. It was hard enough collapsing it into ten episodes, but it was such a masterful translation. “Dune”, as a franchise, would be incredible in a similar vein, especially now that producers know audiences don’t mind humongous casts, intricate plots, political intrigue, immense worlds, and tenuous characters. The series could continue into the core six novels, with the obvious series bail out points being the end of the first novel, the end of the third novel, the end of the fourth novel, and the end of the sixth novel. You could even do a split timeline show, inserting the prequels and a larger, more drawn out story of Paul Atreides on his journey. I know I would. DUNE is Lynch’s so-so attempt to adapt Herbert’s epic science-fiction novel for the big screen, perhaps an irreconcilable difference in storytelling focus. It looks and sounds great for 1984, with many of the correct pieces in place, but ultimately feels too rushed being shoehorned into a feature-length film. Science-fiction fans owe it to themselves to see the film, and I would further recommend the first novel, which fills in so many of the details missing from the film. Everyone else, just know the film also has many, many good parts, even forward-thinking parts, that are definitely worth a single viewing. Rotten Tomatoes: 53% Metacritic: 40 One Movie Punch: 6.5/10 DUNE (1984) is rated PG-13 and is currently playing on VOD.

WCG Bizcast
Bourbon and Business | Business Tax Deductions Part 2

WCG Bizcast

Play Episode Listen Later Jan 7, 2020 21:36


00;00;14;09 [Jason]: Jason Watson with WCG Incorporated here in ColoradoSprings, we're a local tax and accounting firm. Joined by RachaelWeber and Joseph Bassett, both tax professionals for us. We'realso hosted by Axe and the Oak here in Colorado Springs, they'vebeen gracious enough to open up early for us, part of our Bourbonand Business00;00;31;29 series, podcasts and videos. We just got done wrapping up a videoand podcast on some of the bigger deductions that we see, cars,that's always a big one for most small00;00;42;29 business owners, meals and travel. We're going to talk this time or,this time around about home office and then all the other likegoofier ones, if you will.00;00;54;25 So, you know, tell me the rules, Rachael, on the home officededuction.00;01;00;04 [Rachael]: It's got to be used regularly and exclusively00;01;03;27 [Jason]: Okay.00;01;04;26 [Rachael]: In your home.00;01;05;13 [Jason]: Okay, regular and exclusive and have a business.00;01;09;01 [Rachael]: A Business purpose.00;01;09;14 [Jason]: That's probably true for every deduction on a plan, right?00;01;12;18 [Rachael]: Yeah.00;01;12;27 [Jason]: For a business deduction to be a legitimate businessdeduction it has to have a business purpose. So, use regularly andexclusively. So, can you break those words down for me? What's"regular" mean?00;01;23;15 [Rachael]: "Regular" means you would be checking your emails,invoicing your customers, doing administrative work. Okay. Meetingwith clients, holding your inventory. It could mean a whole host of00;01;37;27 [Jason]: Right.00;01;38;03 [Rachael]: of things. You're just doing that on a regular basis, notonce a month00;01;42;26 [Jason]: Right.00;01;43;14 [Rachael]: but on a regular basis.00;01;44;21 [Jason]: Yeah. And one of the words that the IRS will also use too is"continuous", right? This is regular and continuous, it's, it's, got alife, you know, it's got a cycle.00;01;53;28 [Jason]: So yeah, absolutely, regular is a big deal. We have folksthat have a rental, one rental, you know, they have a W-2 job, theyhave all those things and they're trying to say, I have a home officeto manage my rental. It's just never going to happen. Now, if wehave 10 rentals, 6 rentals, that's all you do is manage your00;02;11;02 rentals. We have some people that have 3 or 4 VRBOs or Airbnb,short term rentals and that is all they do.00;02;18;24 [Rachael]: Time consuming.00;02;18;29 [Jason]: Their working that stuff 100% so yeah, so that's regular.How about exclusive Joe? Joseph? What's exclusive?00;02;24;27 [Joseph]: So, let's say you have an extra room in the bedroomthat's you want to use for your home office and it also can't be yourtheater room. So you know, that's gotta be exclusively used forbusiness.00;02;33;20 [Jason]: What if you're a videographer and the theater is yourbusiness? I'm teasing you.00;02;38;03 [Joseph]: Well, you have an argument there. Or, or00;02;38;24 [Jason]: No, but you can't mix the use, yeah00;02;41;07 [Joseph]: Right, unless you run a daycare out of your00;02;42;13 [Jason]: Right.00;02;42;21 [Joseph]: House as well.00;02;43;05 [Jason]: Yeah, and daycare has its own special rules and this is notthe podcast for that because00;02;47;27 [Joseph]: Right.00;02;48;01 [Jason]: I don't know those rules by a memory. I look them up oncein awhile when I have to, but that's it. But right, those are some ofthe shared use stuff can be daycare. Other than that, it's regularand exclusive with a business purpose. So, tell me some of thebank, the benefits of having a home office00;03;05;25 deduction or home office reimbursement.00;03;08;10 [Rachael]: Reimbursement? Is that part of your mortgage interest?00;03;13;15 [Jason]: Okay.00;03;13;23 [Rachael]: Your real estate taxes,00;03;15;05 [Jason]: Okay.00;03;15;19 [Rachael]: Utilities.00;03;16;21 [Jason]: Okay.00;03;17;09 [Rachael]: Could become a small deduction.00;03;19;21 [Jason]: Okay.00;03;21;11 [Rachael]: For you, a business deduction.00;03;21;18 [Jason]: Yeah absolutely. And what are some of those expensesthat aren't otherwise available to be deducted? And mortgageinsurance, we say yes, right?00;03;27;29 [Rachael]: Mm-hmm00;03;28;14 [Jason]: Schedule A property taxes, we say yes, but how about theother ones?00;03;31;04 [Rachael]: Utilities, insurance00;03;33;19 [Jason]: HOA dues.00;03;34;21 [Rachael]: Yeah. Mm-hmm.00;03;35;24 [Joseph]: Repairs. Okay, so suddenly those become deductible andin a world where otherwise it wouldn't be.00;03;40;11 [Rachael]: Right.00;03;40;21 [Joseph]: Yeah.00;03;41;01 [Jason]: Okay, and how do we calculate that home officededuction?00;03;45;17 [Rachael]: Well we do it by square footage.00;03;48;07 [Jason]: Yeah, that is probably the most common, is squarefootage. You could do it at room by room, the IRS allow that, theyactually mentioned that in Publication, what? 587, or whatever it is.But I've never seen anybody do room by room.00;04;00;15 [Rachael]: No.00;04;00;20 [Jason]: It's always, usually, I shouldn't say always, but usually it'ssquare footage, yeah. So what's the basic calculation? It's thehome office space divided by00;04;09;24 [Joseph]: Total space of the house.00;04;10;26 [Jason]: Yeah, the total space of the house. What if you use yourgarage, then what do you do?00;04;15;08 [Joseph]: You include it.00;04;16;12 [Jason]: Include it where?00;04;17;08 [Joseph]: In both.00;04;18;01 [Jason]: In both numerator and denominator? Yeah, exactly. So ifwe're going to take the benefit of the garage and it's not otherwisein the denominator then we have to add it in.00;04;29;26 [Rachael]: Mm-hmm.00;04;30;02 [Jason]: Yeah, exactly. So, that's home office. What's this 50 milerule thing? Who wants to talk about that?00;04;38;14 [Joseph]: Right, so the 50 mile rule's, you know, kind of a safeharbor if you will, that if you know, your home office is within 50miles of your tax home then you can, you know, deduct expensesassociated with00;04;50;29 commuting from the tax home to the home office.00;04;54;17 [Jason]: Yeah, exactly. It's, they want, "they" being the IRS and thetax court, they want your home office to be, there's no written ruleon this, it's more of a contrived rule.00;05;06;23 But your home office needs to be within 50 miles of your tax home.Your tax home is where you earn your revenue. So, the greatexample, in one of the tax court cases, is a surgeon had a home inPennsylvania.00;05;23;05 He drove to New York, I believe, and it was 130 miles away. He wasattempting to deduct all those commuting expenses and becausehe was like, well, I got a home office. So then my commute is frommy bedroom to the basement. And then when I hop in the car, it'sall business miles, and of course the00;05;43;06 IRS and tax court said "No." They said it's too far from your taxhome, basically. So they dis, disallowed all those expenses asdeductible expenses and00;05;54;27 consider them commuting expenses, which is normally a personalexpense.00;05;59;03 [Rachael]: Mm-hmm.00;05;59;12 [Jason]: Non deductible. So, that's this 50 mile rule. What, youknow, talk to me about the audit rate risk for home offices and00;06;09;25 [Rachael]: [Inaudible]00;06;10;00 [Jason]: and, you've, and you've been doing taxes for a little bit oftime.00;06;14;07 [Rachael]: Just a little while.00;06;14;13 [Jason]: So tell me a little bit about the history.00;06;16;12 [Rachael]: It's kind of high. Yeah and it's, it's almost like they canwalk in and assume you're doing something wrong because they're,they're not easy rules. And you know, maybe the square footageisn't complete or they can say, Hey, what's with the day bed andyour home office?00;06;31;02 [Jason]: Right.00;06;31;13 [Rachael]: Or, and it's not just the deductions that you're getting,your utilities, your small amount of additional square footage, butit's that commuting miles00;06;42;07 [Jason]: Right.00;06;42;15 [Rachael]: That are, it's going to be pricey00;06;43;26 [Jason]: Yeah.00;06;44;04 [Rachael]: If its not done right.00;06;45;07 [Jason]: Yeah, absolutely. So, home offices, 20 years ago were notvery common, so it was a high audit rate risk.00;06;53;19 [Rachael]: Mm-hmm.00;06;54;11 [Jason]: Today telecommuters and all that stuff is a lot higher. Butnow we're back to not being seen very often because if you're aW-2 individual working out of your home office for a company out ofCalifornia,00;07;07;05 you would have to deduct that on Form 2106.00;07;10;19 [Rachael]: Mm-hmm.00;07;11;04 [Jason]: And those expenses, those deductions are no longerallowed. So, home office is almost been shrunk down to just forbusiness owners.00;07;18;02 [Rachael]: Yeah.00;07;18;29 [Jason]: So, how are we going to do that? Joseph, talk to, talk to usabout how we're going to do the home office from an S Corpperspective.00;07;28;20 [Joseph]: So, we'll use an accountable plan for the home office forthe S Corp and one of the reasons why we do that, so you know SCorp's are cash basis, you know, and00;07;38;07 [Jason]: Typically.00;07;38;23 [Joseph]: Typically, typically.00;07;39;14 [Jason]: Yes, small businesses enjoy using cash as their method of00;07;43;18 [Joseph]: Right. Accounting, it's simple. Depending on their grossreceipts.00;07;45;18 [Jason]: Yeah.00;07;45;27 [Joseph]: And we just, we have you record it, you know, for like, likeRachael said, your interest, taxes, insurance, and then you getreimbursed by the S Corp for your business use percentage of00;07;58;00 [Jason]: Okay.00;07;58;06 [Joseph]: Business expenses.00;07;59;18 [Jason]: So, just to back up for a viewers and listeners, anaccountable plan is the method used to reimburse people,employees for business use of their personal assets.00;08;13;03 [Jason]: Car, cell phone, home, are probably the biggest ones,right?00;08;16;05 [Joseph]: Mm-hmm.00;08;16;19 [Jason]: So, and we forgot to put cell phone down on our big list ofdeductions, but we can talk about that in a second. So, the benefitto that is we're getting reimbursed by our business. That expense iskind of tucked away on the S Corp tax return, using00;08;35;29 an S Corp in your00;08;36;29 [Joseph]: Mm-hmm.00;08;37;28 [Jason]: example as occupancy expense. Not that you can't defendit, not that we're doing anything wrong, but it certainly is not as highof an audit rate as filing Form 8829.00;08;49;29 [Rachael]: Mm-hmm.00;08;50;06 [Jason]: Which is clearly the Office In Home worksheet.00;08;53;12 [Joseph]: Right.00;08;53;20 [Jason]: That gets tucked on or tacked onto your Schedule C, if youwere to have a business only on your 1040. So, that just shrinksdramatically, the audit rate risk, from home office perspective.00;09;07;06 [Joseph]: And too, S Corp's already face a lower audit ratethemselves.00;09;10;14 [Jason]: Yes, 0.4% given I think 2017 data00;09;14;28 [Joseph]: Mm-hmm, 2017, yeah.00;09;15;02 [Jason]: Is the latest that we have now. So the IRS takes forever tocompile00;09;19;03 [Joseph]: Yeah.00;09;19;11 [Jason]: This stuff. I mean, I guess it makes a little bit of sensebecause audits take time00;09;23;07 [Rachael]: Mm-hmm.00;09;23;18 [Jason]: to generate and to do. But I still like to think we can live ina real time world. You know what I mean? Like we should know likeright now how many audits are happening. So, alright, let's talkabout commuting expenses. You know, you get up in the morning,you drive to WCG Inc, you know, is00;09;45;22 that an expense you can deduct?00;09;47;09 [Rachael]: No, it's not.00;09;48;01 [Jason]: Okay. Are you bummed out about that?00;09;49;20 [Rachael]: Yes, I am.00;09;50;08 [Jason]: Yeah, okay, we should write our Senators and ourCongress people. So, okay, so commute expenses? No. Even ifyou travel far, let's say you moved to Denver and you drove everyday down in the Colorado Springs, it doesn't matter, right?00;10;03;18 [Rachael]: Still personal, yeah.00;10;03;27 [Jason]: Right, so there's no like, Hey, we recognize that you'retraveling really far, we'll give you that deduction. There's nothinglike that. So, commuting expenses, parking, tolls, all that associatedwith going to00;10;16;18 your tax home if you will, are not going to be deductible. So, great,Country Club Dues, Rachel?00;10;23;14 [Rachael]: No, can't do it.00;10;24;15 [Jason]: No! Wow! Just hammered, boom.00;10;28;06 [Rachael]: Sad, yeah.00;10;29;14 [Jason]: Talk to me a little more about that. So we have someonewho has a membership somewhere, but they do entertain, shouldn'tsay that00;10;35;07 [Rachael]: Nope. Yeah.00;10;35;11 [Joseph]: Yeah, discuss business.00;10;36;08 [Jason]: They do discuss business at their country club.00;10;40;17 [Rachael]: Mm-hmm.00;10;40;20 [Jason]: How does that work?00;10;41;29 [Rachael]: Those expenses for the country club dues are going tobe personal.00;10;46;19 [Jason]: Right.00;10;46;25 [Rachael]: It's great that they're generating business00;10;48;29 [Jason]: Yes.00;10;49;07 [Rachael]: At the country club00;10;50;14 [Jason]: Okay.00;10;50;20 [Rachael]: but the dues are not deductible.00;10;52;01 [Jason]: All right, so this same member, buys a meal. The businesspurpose is clear. They00;10;59;20 [Rachael]: Yup.00;10;59;23 [Jason]: Were there to discuss business and now this individual isbuying a meal that's going to get tacked on top of his or her dues.How's that work?00;11;07;16 [Rachael]: That meal portion is going to be 50%00;11;10;14 [Jason]: Okay. Deductible as a business meal. Just, just like we'vealways done.00;11;13;06 [Rachael]: Mm-hmm.00;11;13;09 [Jason]: With meals. Okay, great. Talk to me a little abouteducation. Can you run education expenses through yourbusiness?00;11;20;21 [Joseph]: It depends.00;11;21;20 [Jason]: It depends, ah look just the classic accountant.00;11;24;28 [Rachael]: Yeah, maybe.00;11;26;00 [Jason]: Yeah.00;11;26;14 [Joseph]: If those education expenses are to improve your currentfield, then possibly. If they're to do something completely different,you know so if I was going to go to school to become a doctor now,which probably won't happen.00;11;37;13 [Jason]: Yeah.00;11;37;23 [Joseph]: But, those won't be deductible.00;11;40;03 [Jason]: Right, so the rule is it has to improve your current workskills. And you can even do, deducted a degree or even like, youknow, college courses, even if it leads to a degree, provided it'simproving your current00;11;57;20 work skills. So, you're absolutely correct, the other half of that is ifyou need it for certifications, like your continuing educations and allthat stuff. So, people who are CPAs have to go do all these, youknow, nauseating00;12;10;15 [Rachael]: [All laugh]00;12;11;02 [Jason]: Continuing Ed credits, you know, I'm sure we learned a lottoo, but you know, anyway, so, so that's education. How about yourchildren? Can you hire your children and consider them employeesand have the company00;12;27;10 pay for the education? Who wants to take that one?00;12;31;01 [Joseph]: I would say yes.00;12;32;07 [Jason]: I'd say no. [Laughs]00;12;34;09 [Joseph]: Like, the client advocacy in me would say Yes.00;12;38;13 [Jason]: Yeah.00;12;38;20 [Joseph]: Because of the, the relation though it will be disallowed.00;12;41;15 [Jason]: Right? Yeah, I was giving you a hard time. So section 127says if your child is 20 years or younger, they have attribution toyou as Mom and Dad being an owner of the company.00;12;54;21 If you own 5% or more of the company, you can't deduct thateducation.00;13;00;01 [Jason]: But if your child legitimately works, and is 21 or older, sowe're talking junior or senior00;13;08;24 [Rachael]: In college.00;13;08;29 [Jason]: If you're on a six year plan, you're a sophomore, right?Then the company can pay up to 5,250 a year, I think that's 2019limit. So, that might get index every year, like everything else. So,anyway that's education. How about client gifts? How do youhandle that?00;13;23;16 [Rachael]: Oh, they're $25 cap.00;13;27;08 [Jason]: Ahh $25?00;13;27;14 [Rachael]: I know, its really, yep. Mm-hmm.00;13;28;29 [Joseph]: Well they give you the $4 for gift wrapping, so00;13;31;16 [Jason]: And they give you $4 per pen or something.00;13;33;09 [Joseph]: Per pen, yeah.00;13;33;11 [Rachael]: That's advertising, yes.00;13;37;02 [Jason]: So, talk to me more about the $25 rule. Is that like all giftsor, or is it just for gifts to specific people?00;13;48;14 [Rachael]: It's gifts to a limited clientele. If you were handing giftsout to the general public and it was a lower cost, then that would beconsidered advertising.00;14;00;07 [Jason]: Okay.00;14;00;14 [Rachael]: And I think they give $4 for each advertising gift.00;14;04;21 [Jason]: Yeah.00;14;04;27 [Rachael]: Which I'm not quite sure what, you know, a pen or acalendar or something like that.00;14;08;26 [Jason]: Yeah, I don't know how much stuff like that costs either,yeah.00;14;12;12 [Rachael]: But your $75 wine basket is going to be a $25 businessgift.00;14;17;29 [Jason]: Yeah, and as I've seen it, read it maybe in Journal ofAccountancy, other things like that, but that's an individual limit. Soif you don't donate, or if you don't provide that gift to an individual, ifyou just do it to the business00;14;33;01 [Rachael]: Mm-hmm.00;14;33;10 [Jason]: There might be different rules00;14;34;03 [Rachael]: Yes.00;14;34;13 [Jason]: allowing you to take more deduction. So if you say, DearBob, thanks for all the business00;14;39;27 [Rachael]: versus staff at.00;14;41;03 [Jason]: Yeah, exactly.00;14;42;19 [Rachael]: Yeah.00;14;43;06 [Jason]: yeah, exactly. So, and you can see why, you know, theIRS is always worried about transfer of wealth without taxation.00;14;50;02 [Rachael]: Mm-hmm.00;14;50;12 [Jason]: Right? So if you, if you come in there with a bunch of clientgifts for one person it might look like a transfer of wealth. So, howabout professional attire? I am rocking the WCG.00;15;00;18 [Joseph]: That's true, very nice.00;15;00;29 [Jason]: On my shirt here. But tell me about professional attire.People will constantly ask you00;15;07;09 [Rachael]: Yep.00;15;07;28 [Jason]: I have to look good in my business suit, I have to have mynails and hair done, I have to rock, I have to rock this image.00;15;15;25 [Rachael]: And they're all personal.00;15;17;27 [Jason]: Yes, even though they're dead sexy, right? Even thoughthey're very good looking.00;15;21;21 [Rachael]: And necessary00;15;22;01 [Jason]: Yes.00;15;22;14 [Rachael]: Absolutely necessary. Yeah. So there's a businesspurpose behind it, but no tax deduction.00;15;26;09 [Jason]: Right. So what's the rule?00;15;28;07 [Joseph]: If it's not suitable for everyday wear00;15;30;00 [Jason]: Yes.00;15;30;11 [Joseph]: You can deduct it.00;15;30;20 [Jason]: So, if it's, yeah, so if you can, if it's suitable for everydaywear, easily convertible into everyday wear, then it's not deductible.00;15;38;08 [Rachael]: Mm-hmm.00;15;38;25 [Jason]: Right? Business suits are, you know, clearly somethingyou can convert to everyday use. We do have some, TVpersonalities.00;15;47;10 [Joseph]: Yes.00;15;47;15 [Jason]: We do have some models, you know, and we can, we canidentify some of that attire as costumes, something that theywouldn't, you know, be caught dead in. And that's true for some ofthese models, for sure.00;16;01;26 They wear stuff and they're like, I'm never wearing that in public. Itjust, it looks good on a cover of a magazine, but that's about it.00;16;08;15 [Jason]: Those are costumes, they're not suitable for everyday use.Those are something that we can deduct. TV personalities, they'llbuy, you know, a thousand jackets and they'll give them away andso those become marketing toys00;16;20;19 [Rachael]: Yeah.00;16;20;25 [Jason]: Or ploys or whatever, so absolutely. Let's talk about, perdiem and I'll just kind of talk about this real quick. Per diems a funnything. If you own 10% or more of a corporation and, and also theremight be some00;16;38;21 attribution there, where if your brother or your sister or your Mom or00;16;42;16 [Joseph]: Spouse.00;16;43;12 [Jason]: Whatever, then you are assumed to have the same,greater than 10%. If you are in that boat, you cannot take a perdiem reimbursement. So the scenario would be like this, I'm 100%owner of a corporation. I pay myself $71 a day for every day thatI'm in San Francisco, because00;17;02;15 that's the per diem rate. Let's say using 2018 numbers, I haven'tseen them, I haven't looked at per diem in a while cause we don't,we don't see 2106 expenses anymore. But, that would not beallowed. WCG Inc says, Rachel, we need you to go to, let's sayCortez, we really00;17;18;23 didn't like you very much. I'm teasing, Cortez is lovely. But, and wesay, Hey, we're going to give you $71 per per day that you're00;17;27;08 there for meals, that would be acceptable.00;17;30;11 [Rachael]: Mm-hmm.00;17;30;13 [Jason]: Now that will not be revenue to you. You maybe only spend$20, you know, whatever. You still get to take that $71 as tax freeincome.00;17;40;24 [Jason]: So, because you don't own 10% or more of WCG Inc.That'll change, you know, you'll own, own it all and00;17;49;07 [Rachael]: Eighty-five percent like you.00;17;50;09 [Jason]: Joseph, I'll be working for you one day, it'll be awesome.So, but that's per diem, per diem is a little tricky. There is the, themeals and incidentals component. There is the lodging component.The meals and incidentals component, as far as I know and read it,is00;18;06;24 available to Schedule C, Sole Prop, single member LLC types. Theminute you're a corporation or you act with a corporation through anS Corp election that gets tossed out the window.00;18;18;06 Lodging, regardless, is always going to be actual expenses. Youdon't get the high, low seasonal rates and all that stuff that you seein those per diem tables as a business owner. So, we ran throughhome office, all kinds of good stuff there. We ran through all kindsof other deductions that we get entertained with,00;18;38;10 quite literally, cause some people are pretty clever, right?00;18;41;22 [Rachael]: Mm-hmm.00;18;41;29 [Jason]: With, with their deductions. The bottom line is, people askme all the time and they ask all of us all the time, how do I save ontaxes, right? And the first thing I say is, look, your job is to buildwealth, not save taxes.00;18;56;12 We can save taxes along the way, that's great. But your job in life isto build wealth. Now, if you still want to save taxes the trick is tolook at what cash you're already comfortable with leaving yourbody.00;19;10;24 [Jason]: So go through your checkbook and try to figure out if therewas one thing that you missed or maybe this expense really didhave a business connection to it and I forgot that it did, or to digdeep. So, it's to look at the money that you're already willing tospend and try00;19;28;06 to find a business connection.00;19;29;23 [Rachael]: Mm-hmm.00;19;30;15 [Jason]: Now, I say find a business connection, like discover abusiness connection00;19;35;18 [Rachael]: Not create one.00;19;35;27 [Jason]: Not fabricate a business connection. So anyway, those,those are some of the other business deductions that we see a lotof: commuting expenses, country club dues, education, client00;19;47;20 gifts, professional attire, per diem, all that good stuff. We talkedabout home office in this segment as well. We didn't talk about cellphones. You know, cell phones, you know, folks will try to deduct100%, right?00;20;02;16 [Joseph]: Mm-hmm.00;20;02;21 [Jason]: "I use it for my business," oh, I know you use it for yourbusiness, I see that. But the minute you get a text saying, Heyhoney, you know, you're out of beer you should probably pick somemore up on the way home; and milk and eggs are low too. Nowyour cell phone's no longer 100%.00;20;17;04 [Rachael]: Mm-hmm.00;20;18;17 [Jason]: So, you know our firm-wide soft ceiling is around 80%, ifyou're a realtor, you're probably on the phone all the time. Peoplehave kicked landlines to the curb but still your phone is going tohave a high personal use and I, I believe, we believe as a firm, 20%is00;20;37;00 about the minimum there, meaning 80% is for business.00;20;40;26 [Jason]: Maybe you're a dentist, right? And you use your cell phoneoccasionally, you do have an office phone and all those otherthings, so maybe that's like 30% business use and 70% forpersonal. So, commonly we see cell phones being paid for by thebusiness and they00;20;58;19 truly are a mixed-use asset, so a mixed-use asset should be00;21;03;06 [Joseph]: Paid by you personally00;21;04;10 [Jason]: Exactly.00;21;05;00 [Joseph]: And reimbursed to you on an accountable plan.00;21;06;04 [Jason]: Yup. So, assets that you own personally should be paid forpersonally. If there's a business connection or use of that assetthen get reimbursed. No different than you working for Google andGoogle says, Hey, you know, drive down to the store, pick up some,you know, some pencils and we'll00;21;21;15 reimburse you. Well, you bring in a receipt and you're bringing inyour mileage log, and maybe you have to use your cell phone andall that stuff, and they would cut you a check for the business use ofyour personal stuff. So, anyway those are some of the common taxdeductions that we see here at WCG.00;21;36;06 My name is Jason Watson with WCG. I'm alongside Rachel Weberand Joseph Bassett. We're at the Axe and the Oak and this is a partof our Bourbon and Business series of podcasts and videos and wethank you for joining us and we'll00;21;51;00 talk to you real soon.

The Quiet Light Podcast
How to Sell a UK FBA Businesses and Not Get Killed By Taxes with Joseph Harwood

The Quiet Light Podcast

Play Episode Listen Later Sep 27, 2019 31:18


Selling a British company to a US entity is complicated to say the least. From this experience, we have learned that it is doable and an eye-opening experience from both the seller and the buyer side. There are opportunities out there, and with some perseverance, great returns on both ends of the deal. Today's guest, Joseph Harwood, a London based entrepreneur, was behind one of the most complex transactions we've dealt with in twelve years of brokering. Despite the challenges of selling an overseas company, we managed to help create an advantageous deal structure for both the buyer and the seller. Episode Highlights: What the tax situation looks like for a UK seller looking to sell to a buyer in another country. Types of transaction structures available to these sellers. The number one objection coming from the buyer side. How Joseph was able to see through the obstacles. What the process was like from the outset. The advantages of listing with an earnout. If and when doubt crept in for Joseph. The seller tax break on built-up cash flow on a transaction like this. Why this approach means that buyers have choices and a comfortable pace. Things that a UK based seller should consider for selling abroad. Transcription: Joe: Mark one of the great things about Quiet Light and the team that we have is we're always communicating in the background; helping each other out, asking questions, sharing information. And more recently we're seeing a lot of communication about the sale of UK based or European based Amazon seller accounts and the transfer of i. And I understand that you just took one on. I did a few years ago. Actually, there's usually a small component of most transactions that I do if it's FBA that there's a European run that 100% German seller account last year. We're always doing them and they're always different. Our buyers get a little bit concerned about buying one. And our sellers get a little bit concerned about the transferability of one. But you just took on a very complicated one. You've managed to do the transfer. It ended up being a stock sale and there was some definitive advantages to both the buyer and the seller in making this happen. Can you tell us a little bit about what this podcast is about and how you talked about the owner of the business there? Mark: Yeah. So the owner of the business is Joseph Harwood. He agreed to come on very graciously. I'm super happy he came on because in 12 years of selling online businesses this was easily the most complex transaction I've done. There was a moment where we had a sell-side conference call only; so only the advisors on the sell-side and I was the last person to join and the prompt at the beginning of the call said you are the 12th caller on this call. And I'm thinking 12 people on this call on the sell-side only to advise this transaction. Now you may be hearing the something and that's why I don't do a UK deal because it's complex. But here's the thing, throughout this process not only did we take what was a fairly complex business in terms of its operations we took a UK company which has some tax disadvantages being sold in the US and we managed to make a structure that worked out well for the buyer and worked out well for the seller. In fact, there are structures available which can be tax advantageous for both the significant degree. And our buyer in this case; God bless him, a great person, a great buyer, had the perfect mindset for this which was to not try and adjust this large transaction all at once. And everybody in the team did the same thing by the way just to address each problem step by step and the result of this is that he got a great deal and a great company that is growing like absolute bonkers that not a lot of people were looking at. And for him to look here and not rule this out based off the UK domicile only is a testament to him and I think will pay off pretty handsomely for him. On the UK side I know we talked to a lot of UK sellers that think that they can't sell a business and listen it's more difficult. We're not going to cast aspersions here and say that it's somehow easy to do. A lot of people do avoid UK based businesses but it is possible. It needs be structured right. We need to attack it correctly. And for those of you out there looking to buy if you can figure out this UK angle and it is something that can be figured out. We do have a template for it. It's a really good opportunity because there's some great businesses out there that aren't going to market right now for the very reason that those sellers don't think they can. Joe: I would say it's almost the unavoidable future, right? A long time ago we talked about can you even sell an Amazon-based business. Well, here we are millions and millions and millions of them sold. Now it's those businesses all have; a lot of them have a UK component to them and some are standalone UK businesses or really European businesses. It could be any country over there. So I think it's the future. I think it's important for both buyers and sellers to understand it. And I'm really excited to listen to this one myself and hear your most complicated transaction in 12 years come to a final close and successful transaction for both the buyer and seller. Mark: Alright Joseph thank you so much for agreeing to come on the podcast. For those of you who didn't pick us up in the intro and I'm sure Joe and I talked about this but Joseph you and I recently worked together along with Scott Dietz from Northbound to help sell your business. And I'm really happy to have you on because we love bringing on previous clients. Joseph: Yeah, glad to be here Mark and hopefully, I can still shine some light on a possible sale of UK Limited Companies to US buyers. Mark: Yeah and that's one of the things that I definitely want to talk about on this and just have a conversation with you. I know within Quiet Light Brokerage we have this conversation quite a bit and then I would imagine among UK sellers, it's probably met with some skepticism; the idea that you could even sell a UK business, e-commerce business primarily because of the tax situation. Could you just go over that for somebody who might not be familiar with what does a tax situation look like for UK seller who's considering selling their business? Joseph: Yeah so basically the big fear is doing an asset deal and then having to take your funds as income which is then transferred into a person's assets which is taxed heavily. If you get over; run about 100k threshold that's about 45% so doing an asset deal is technically really, really bad for you. So generally most sellers want to do a seller shares deal and then you get a 10% tax co entrepreneurs relief which is taxed personally up to; you have an allowance of 10 million in that and that's a 10% tax. So it's a pretty significant difference tax-wise depending on what kind of deal you can get. Mark: Yeah and I think buyers or sellers tend to be skeptical that they can do this. And this isn't just with the UK. I know Canada has something very similar. Australia has a similar structure as well where a share sale you get a pretty awesome tax rate. And then if you're doing an asset sale you're going to get absolutely killed with the tax rate. The buyers don't generally want to do a stock sale and brokers like myself I know when you and Scott first approached me I think that was one of the first things I told you. Like wow, I don't know about a stock deal. I can't offer something as a stock deal that's rule number one. And rule number two a buyer is looking at it; I don't know what would you guess would be the number one objection for buyers? I would say probably the liability carrying forward. Joseph: I think structuring wise it's complex because you're buying an entity and you're in a different country. So I think that in itself can scare a few people. It's a bit more of a learning curve. Mark: How many; let's count how many advisors we had on your team. So just on the sell-side, we had Scott Dietz, myself. Joseph: Yeah we'd retained Redpath US tax advisors who had retained a UK council. Mark: Oh so we have a UK council as well. Joseph: Well yeah they had a UK council retained within them. So that was kind of tax advice UK, US. And then we had a UK contract advisor and then our US contract advisor. So technically 4 different retentions of legal advice which ended up in quite a hefty bill I think it's a good learning process for the book. Mark: The thing is you can absorb that hefty bill. We're not going to discuss how much you sold your business for. I mean it was in the seven figures range. It was a good size. When you're talking about the difference between a 45% tax paying for advisors I mean it's worth it. But it did get complex in that there was just a lot of voices that were being heard with every single document that got shared. And I was just on the sell-side. We had Rochelle Locke who's been on our podcast advising the buy-side and they had their own people as well that were advising on the tax structure and everything else. There was a lot of advisors there so it was a bit more complex but I think part of that was because we hadn't done this before. Joseph: Yeah I mean I'm going to say it was a big learning curve for everyone involved. We were lucky to have a patient buyer who was determined to see the deal through to the end. And I think we from my experience have learned a lot about selling a UK company to a US entity. Yeah, it's a complicated process but looking back at it now the tax piece of the puzzle is; I mean okay every situation business is unique but there will be no way we would need to have as many detailed conversations because we're kind of aware of what issues can crop up tax-wise the permanent establishment thing and where the business is run from and those kind of things are more solvable. Now we're sort of prepared and then contract wise like I don't actually think we needed to retain a UK council until the buy-side presented documentation for it. And then we would have had the UK council review; the UK law side documents but I think Sean from E-commerce Small group would have been fine for just reviewing the actual SBA agreement. Yeah like it could have been simplified down but it was still in itself like a valuable process to learn. And there was so many great things about the tax side that sort of gleaned from that process. I think it was worth it. Mark: Yeah. I want to get into that in a little bit because one of the eye-opening things with your transaction was the number of tax advantages that you personally had as a seller and also the tax advantages that we were able to potentially introduce into the buy-side of the equation. And for those that are listening that are looking for acquisitions, there's actually an opportunity here which we basically uncovered to look at UK based businesses and save significant money in a number of ways. Before we get into I want to back up a little bit and just talk about what it was like when you first came on with Quiet Light Brokerage. Because I remember when Scott who you hired a while ago to help advise and again Scott's a great guy. He's super good at advising. He caught me at a conference in Austin and said hey Mark I got this great business for you. And then he went into a little bit of what it was and like I don't know Scott I don't know about the future. And then he said well we really believe this is going to be good and there's all sorts of reasons that we think; I mean not think but we know this business is going to grow by this much. And by the way, it's a UK company and I'm just thinking Scott come on. Joseph: Every step of the conversation it gets a little bit harder doesn't it? Mark: Right. And so the first time that I talked to you Scott and I were also at a conference and so I got up early; I think I was in Las Vegas, my whole mindset was okay I've got to get this guy's expectations set early on. I will take this on but this is going to be really, really difficult to do. And I'm glad though that you saw through all that because it did turn out to be a really eye-opening sort of exercise. But what was that initial upfront process like? I know you listed a business before for sale. What was it like going through that process with Quiet Light? Joseph: It was great. The first brokerage that I've worked with has gone to so much detail to answer so many potential objections from a buyer. I mean I'm surprised we got any no's after that the depth on our information pack and the seller interview. I mean the length you guys went to take to understand potential objections and understand the business as well; the risks involved and kind of highlighting it, picking up on the upsides, and really like understanding what I was doing with my company and the niche I'm in. I think that was a huge part of getting a buyer to the table who was ready to take on the risk that was over there. It's a Q4 niche. It's a very risky prospect. And I think the buyer saw the risk and the upside and was able to make an educated decision because of the information that had been put together. I'm not going to lie, it got to the point where it was slightly frustrating and we were having our firstborn son at the time. We intended to be listed and sold before that happened. We ended up a bit further behind than we actually wanted it to be. But in the end, it was right so we got a deal done. So that's all that really matters. Mark: Yeah and the good news is we beat your son crawling, right? He's not crawling yet. Joseph: Yeah exactly. Mark: Okay, so we got the business sold before he was crawling. Joseph: We got that. Mark: That upfront process was difficult but the lesson that I took away from that portion; your business was unique in a lot of ways like you said it was a fourth-quarter sort of product. And look a lot of Amazon products a lot of Amazon businesses are fourth quarter heavy but yours really relied on that fourth-quarter more so. And just to put this in context for people listening, the growth trajectory that we were seeing on your business was really, really significant. And some of the things we are anticipating we're pretty aggressive. And so that all came in this sort of short period and so there is this element of perceived risk. So the lesson I took away from this that was so good and again Scott did a great job with this was figuring out a structure that got you, Joseph, a good amount of money at close where it wasn't going to be a complete miss if things fell apart but also allowed you to ride some risk with the buyer and let them really cash in on the upside of that without risking all of the money on it. And so deal structuring to answer objections I think is really if I could summarize it. Joseph: Yeah. I really totally agree. And I think of brokerage firms just have this kind of cookie-cutter response to how they want a less to do it; it's 3x, it's 4x because of blah, blah, and blah. We listed with an earn-out and I think that one pulled a high multiple but two I think you already reassured buyer that we believed our projections and they weren't just pulled out of thin air and to kind of like; you know like we were really willing to go on that journey with you. And I think yeah that really helped. Mark: Yeah, I think so too. And a lot of people in your shoes don't want to do an earn-out because especially when it's first proposed you think I don't know who's going to buy the company. Like how can I trust them? First of all, A. complete credit to you to understanding the upside for you as well with an earn-out where you can tap into some of the future growth of the business. But then B. you're involved in this process all the way through and you saw the importance of knowing who your buyer was and being able to trust that buyer to be able to grow the business and be confident. We've got a fantastic buyer. Like you said he was great through the whole process and I think he's going to kill it with the business. Joseph: I don't think it would've been as easy to move forward if I wasn't as confident with the buyer. If it was a private equity group then I would have put the company in hands of someone who might not know how to manage an Amazon business effectively or specifically this kind of Amazon business. I think that because of this seasonality and SKU density I think it takes a kind of special approach to run a business and I think our buyer has that. So yeah I mean it's definitely important. Mark: Yeah. On the flip side and I don't want to speak for the buyer. I'm hoping to get him on the podcast. He's agreed but he's obviously busy with a new business. Joseph: He's pretty busy. Mark: So I totally get that but from his perspective where he's really, really smart is not only did he buy a business with some really strong forecasted growth, he bought a business where a lot of other buyers weren't even looking because they just discounted it saying UK, I'm not interested. And so it gave him some advantage as far as that. And look let's be honest it took a little bit more effort for us to find a buyer. We had a number of conference calls and nothing materialized. At the end of the day, we had a couple of good qualified buyers that were kind of competing but it took a bit for us to get there. Was her point; I'll answer this after you do, but was there a point along the way where you thought that this isn't happening? Joseph: You know, to be honest. I think at the start I felt like it wasn't happening the right way because a lot of the buyers that we're getting on calls were trying to keep me pretty significantly involved in the company and structuring their offer so they're otherwise around me to having salary or retained in a large amount of equity unless upfront cash. So it's a bit like maybe there's too much value in me and not what the company is actually doing and I'm so this unique entity. But eventually, with some of the other offers we received, we started to see some buyers really saying the value in the business too. Yeah I mean overall I don't know; I don't think at any point during the process I was particularly worried that it wasn't going to happen. I think there's always a buyer out there for what you're selling if you know what I mean. Like it's just what I was selling was a very specific thing that required someone who was willing to take a pretty significant amount of risk. And yeah we found that person. Mark: Yeah, and then again the offset to that risk for him is the upside on this, right? Joseph: Yeah. Mark: The upside is getting significant. And look there is value in you but I think from a buyer's standpoint when I look at how that dynamic worked out; I mean you were pretty vocal upfront saying I don't want to be working in this business moving forward long term just because you have other interests. You have a newborn son. You want to spend time with that son and that's totally reasonable. All the same, you are going to be doing some work with the business here moving forward mainly because you and this buyer get along wonderfully. And so he's accomplishing what other people we're trying to wrap up early on by really just having a good relationship with you which again is just as; we preach about this all the time, right? If you want to be a good buyer and be successful be likable. Joseph: Yeah I mean honestly I was a bit concerned because the buyer and I was sharing a lot of information about the business before close and in the end I just discounted that nagging thought in the back of my head to should I trust this person, are we actually going to close, are they just trying to gather information and then pull out or whatever and try and compete and yeah, I just put my trust in and the buyer and I think that really paid off. Mark: It's easier to trust a buyer when you see that they're spending a lot of money as well on their side with advisors, right? Joseph: Yeah exactly. Mark: That would have been an expensive fact-finding mission for him. Let's talk a little bit about some of the tax advantages. I mean we've already talked about just the advantage of the 45% to 10% on your side. But something you brought up; you came up, by the way, for people we didn't say this before but you came out and actually visited me here in the Twin Cities as well as Scott who lives in the Twin Cities. We had dinner. It was great. It was along with Eric as well from Redpath. The first time a client has come up and visited. It's fantastic; a lot of fun. But one thing you brought up in that conversation was the tax savings that you were able to generate as well on the money with; the cash within the business which is one of his kind of hidden benefits that maybe we weren't anticipating early on. Joseph: Yeah. I mean I kind of knew it existed as an option but because moving into the process I wasn't 100% sure if we would actually get a seller's stocks deal; I knew that was a big driver so something we were pushing forward but I'm… yeah, so basically to summarize the working capital and inventory within the company can also be released tax efficient during the earn-out because it's counted as working capital. So basically you sell the cash of the company and the inventory to the buyer and they then cycle that back to you. I mean you can do it as quickly as 10 days. We're allowed longer so we've got time to kind of work out the accounting side but they effectively buy the cash and you're giving it back at the entrepreneur's rate so the 10%. So instead of having to [inaudible 00:21:53.3] to take that money as salary or income and dividend, you can pull out the business into a personal through entrepreneur's relief at 10% which is a nice benefit and something that for anyone at sell-side you should really be considering the year before you sell your business you want to be building your cash reserves because you can pull that money out extremely tax-efficient right. Mark: In your case, it was; I won't put a number to it but there was a significant savings probably taking a large chunk if not the entire chunk of some of your advisors that you were paying to help us. Joseph: Yeah Mark, for sure [inaudible 00:22:30.6]. Mark: And so yeah we take a look at that; again the path that you sort of blazed here for a lot of other UK sellers with all these advisors, we have a pretty nice path down. I want to just touch briefly on some of the tax savings that we saw on the buy-side. Are you familiar with much of that or shall we pass over that? Joseph: I mean I think it's important. I don't totally understand the details; very, very top-level view. I know there's structuring that you can do with different entities in a holding company that achieves an effective tax rate of 21% then they sort of; a tweak of that is if you then pull all the company activities into the USA you don't have a person in the UK, the UK office, or whatever country you end up running the business in you don't have what's called permanent establishment in that country. So then the effective tax rate ends up being at 26%. So again it's still not bad like the flow-through tax rate of an LLC is 37, right? So, whatever happens, it's an effective way to use the dual tax treaty between the UK and the US and same with some other countries like Canada and Australia like some that you said before but yeah when it comes to the actual structuring that's more for a tax advisor to kind of discuss but yeah like it's one of these things. So once you get past the liability which can be solved contractually it presents a huge opportunity for both buyer and seller which is I think an important thing to have those conversations about because it's not just the seller that benefits from effective tax rates. Mark: That's right. So just to kind of recap here what we're talking about here is going from an effect of 37% here in the US. When we think about buying an Amazon business we typically look at just straight-up asset sale, you set up a new LLC and then you're going to have your earnings on that business tax at that 37%. Under this structure, it would require a different sort of setup with these companies and one could do with the details in that meeting because I don't want to get something wrong here on this episode. I hope to have Eric from Redpath on who can discuss this in more detail. But effectively going from that 37% like you said down to an effective rate of what was it 25%? Joseph: 21 or 26 depending on which country the operations are run out of. Mark: Right. And so that can be significant savings if you are seeing earnings well into the six figures. And in addition to that having that structure set up so if you were to say as a buying group I want to buy in the UK because let's face it there's a lot of U.K. companies that are really, really powerful and doing some amazing things. You now have a vehicle within UK to be able to acquire some of these properties and save on the tax rate as well. It's a double bonus there. My opinion from the buy-side it requires a little bit of setup but the benefits are definitely there long term. Joseph: I think it's one of the cool things that we sourced towards the dinner we had was not many other buyers are looking at these companies. And I think that gives the buy-side another competitive advantage. It's like some of the other larger brokerage firms they're not looking at UK companies. I remember having some initial contact conversations with my broker and the second we mentioned it was a UK company they basically took a 0.5 multiple off the company because they were like yeah we don't do that, we don't do stock, we don't do you know. And I think that approach to UK companies means that there's more of them available. Mark: Yeah. With a US-based company, we have this tendency where if you don't move quickly as a buyer and by quickly I mean days you're going to lose it and with a UK company often. And it didn't happen in your case actually when we actually got down to that LOI stage things did move rather rapidly. But there was luxury for some of the earlier buyers to basically take their time because they didn't have; normally we have a dozen or more people looking to have the property. In this case, we had less than that looking at this closely enough or for some competitive pressure. But I think that was crazy. And I think the pace was a bit more comfortable. What do you say; let's flip around a little bit here and kind of round out with this, there's a lot of UK sellers out there that may be looking at this and saying I've never really considered selling my company. Some of the things that you would recommend you've already mentioned building up some savings in your account before going to market. So that you can pull that out as a favorable tax rate but what else would you mention to UK based sellers that maybe haven't considered this before. Joseph: Yeah, sure. I mean I'm not sure what advice I have specifically for UK sellers. I have some good general seller advice like have your numbers in order, know your inventory values, have inventory management software if possible so you can pull inventory numbers at any given time, know your way around your balance sheets like having numbers over to a buyer as quickly as possible helps them be informed and helps you get the deal closed. I think that's fundamental you don't want to be waiting for your accountant to get this information. I mean for UK buyers I don't think I have any really specific advice or any more detail but like the buyers are out there. There are interested parties willing to look at structuring options and get deals done. I think it's an exciting time for UK companies which is not; there are options out there to get closes that are tax favorable for a UK company. Mark: Yeah, I would agree 100%. Again it's a bit of an eye-opening experience for me as far as just what we can do and where we take a look at the deal, structure it smartly from the beginning. I think the other lesson that I did pull away from this was just the benefit in bringing on good advisors. I know both on the buy-side and sell-side I see people hesitate sometimes. Maybe their books are a mess and so we recommend that they hire a bookkeeper. We have a number that we recommend that just do good work and sometimes people they balk at that. I don't want to spend 3 or $4,000 but the benefit you get out of hiring a good adviser I mean it pays for; it should pay for itself. It should pay for itself. Well, this is great Joseph. I know that there are going to be people out there who have questions about this. Are you open to having some of them contact you by email? Joseph: Yes for sure I'm happy. Anyone who wants to talk to me either buy or sell-side I'm probably not going to give you any detailed information in structures that I don't truly understand but yeah happy to sort of field any questions that this might bring up. Mark: Okay well, we will place some contact information for you in the show notes to this episode so I'll get that from you. I really appreciate you coming on here and taking the time to talk about the deal. I know it's not always comfortable talking about the deal that you've just closed because most of us let's face it we're introverts. Joseph: Yeah. I should be on holiday now really anyway. Mark: You should be instead you're still doing all this stuff. Hey, thank you for coming on. I appreciate you sharing your story with us. Thanks for trusting us to do the deal and most importantly as much stress as it was also just a ton of fun. Joseph: Yeah I mean I was generally enthused by the process. I really enjoyed the negotiating and closing and selling a company. It's the first time I've ever done so yeah pretty exciting. Mark: I can't wait for the next one. Joseph: Yeah me too. Mark: Sounds good. Thanks, Joseph. Joseph: Alright, thanks, Mark.   Links and Resources:

Mittelmaß und Wahnsinn
The Meeting (English)

Mittelmaß und Wahnsinn

Play Episode Listen Later Aug 14, 2019 19:29


In „Mittelmaß und Wahnsinn” I write that one of the properties of the matrix organization is that it keeps you busy; preferably by way of meetings. Again, this is not a new fact and thus it is also not surprising that there is hardly anything everyone complains about as much as the ineffectiveness and the inefficiency of meetings. “A total waste of time”, that’s the verdict about a huge number of these meetings. No wonder then, too, that there is a whole stack of literature and books about how to get rid of or at least make meetings more efficient. What you actually might wonder about is why hardly anything in that regard appears to have changed to the better over the past decades. My reasoning is that it’s human nature again that is responsible for that seeming paradox, that there are deeply engrained patterns of behavior success that – despite all the complaints – actually make us comfortable with the ways these meetings run. In the room But before we get back to that line of thought, let’s have a look at one of these meetings. Despite the fact that the specificities hardly matter, a bit of background first. We observe a meeting of the Board of Management of a company that is a subsidiary of a multinational corporation. This subsidiary is under quite some pressure. Results do not meet the parent company’s expectation and in three weeks’ time, they are supposed to present a strategy that gives confidence in significant improvements. A working group has been trying to devise such a strategy and has already presented in the previous three BoM meetings that take place on a bi-weekly basis. Progress has been – well – slow, especially as every of these previous meetings has left the working group with a multitude of new avenues and inquiries to being pursued. Now, time is getting tight and this meeting’s slot is set to come up with final decisions and a solid storyline for the strategy presentation. The topic is the last one on the agenda and scheduled for 45 minutes before lunch. The major protagonists are Joseph, the subsidiary’s CEO, three years in that role, with a long history in the overarching corporation. Rosemary, department head in Operations and leader of that working group, unanimously regarded as a high potential. She has been given that task as part of her development plan to expand her strategic view and exposure to senior management. Joe, the subsidiary’s CFO, a veteran of 10 years in that role. And finally: Jack, the Chief Sales Officer, having been hired about a year ago from a competitor. Besides these, regular participants to that meeting are the Chief Operating Officer, the Chief Digitization Officer, the Chief Legal Counsel, the HR Director and Lilly, the Director of Communications. A few regional Directors join via conference call. Ah, and of course there is Lawrence from StratCon, the company’s favourite consultancy. We set foot in the scene when Joseph begins apologizing … Joseph: Rosemary please apologize! We are 15 minutes behind schedule. We got somehow stuck in the discussion about our lack of understanding for the lack of entrepreneurial mindset in our company; especially amongst our middle management. But maybe that’s a good starting point anyway for the topic you’re going to present now, our new strategic setup and the concrete measures we are going to take. Yet, before I hand over to you, I have to announce that I have a hard stop at 12 because of another meeting I have to attend. Joe (raising his hand): Well, I have to run at 12, too, but before you start, I want to point out that I don’t like the habit of sending the document just two days before the meeting. Our policy is five working days and I need this time to prepare and double check with my team. Jack: Absolutely agree … and by the way: 30 pages plus appendix? That appears a bit too much to me. At the minimum we need a proper management summary. Rosemary (getting up, smiling winningly): All points taken but please bear in mind that we have had only two weeks between meetings and that we already strived to compress the strategy and measures onto 30 pages. Joe and Jack (raising their eyebrows, mumbling): Nevertheless. Rosemary (energetic): Well, lets get started. (brings up the first slide of her presentation) Joseph: But we must not phrase it like this! Rosemary:What do you mean? Joseph: Your intro slide says: “Turning the ship around”. – That’s way too negative. It sounds like we have been on the wrong course for years and would have to take radical measures now. That’s not my perception at all. Rosemary: “Correcting our course”, then? Joe: I still don’t like it. Still too negative. What we’re doing is to adapt to a changing environment. Jack: … based on a strong and proud past … The discussion drags on for about fifteen minutes until Lilly, the Comms Director steps in. Lilly: So, why don’t we phrase it like this: “Adapting to a changing environment whilst building on an outstandingly strong past”? Joseph: That’s it. Great. Thank you, Lilly! Rosemary, would you please make the changes. Rosemary: But doesn’t that sound a bit too … how should I say … too soft? They expect decisive changes and measures from us, don’t they? And we need such measures, don’t we? Joseph: Rosemary, let me tell you something. It’s always about the story we tell. Always. Sure, we face some challenges. And sure, facts matter. But it’s stories that stick. And beginning our story like “Turning around the ship” would disparage all the hard work and the passion so many people put into this company over so many years, wouldn’t it? No, it’s always better to start positive and build your narrative on that proud and positive past. Jack: I couldn’t agree more, Joseph! Rosemary, that’s a lesson for life. Rosemary: Well then, “Adapting to a changing environment whilst building on an outstandingly strong past” it is. With respect to the time, I move on to the second slide, showing the most recent figures we have … Joseph(interrupts): Ah, Rosemary, here we have another problem. Rosemary: What’s wrong? Joseph: The figures don’t add up. In my calculation 36% plus 44% plus 21% yields 101%. We surely cannot create one additional percentage point out of nothing. Rosemary: That’s certainly only a rounding issue. Let me elaborate on the figures …  Joseph: Well, Rosemary, probably it is but a rounding error but here’s another lesson for life here: If the figures don’t add up properly on your slide, your audience will lose trust in what you present. Thus, please make sure, they add up. Rosemary: Point taken. But have a look at the figures. We fell further behind plans again. Sales numbers didn’t meet forecasts again and costs do not show any sign of improvement. Joseph looks at Jack, the Chief sales Officer. Jack: I am totally surprised. I do not recognize these figures at all. Where do they come from? Joseph: Neither do I. I have a different picture in mind. Rosemary (looking at Joe for help): They come straight from accounting. End of quarter results fresh from the press and they point towards our biggest issues … Joe: Well, that’s why I emphasized the need to distribute these slides early enough so everyone can reconcile with his team. Jack: Exactly, Joe. Joseph: Yes, but tell me, Jack, do we have an issue there? Jack: Yes and no. Sales as such are going according to plan. Actually, we have a very strong pipeline now and I expect a significant uptick down the line. Where we have issues is closing the contracts and getting the figures into the system because of some technical problems we seem to have. Operations and Finance are in the process of analyzing the issues my people raised. I don’t trust that these figures reflect reality preoperly. About the cost figures I can’t say too much. These are more in Rosemary’s immediate realm. Again, the discussion goes a bit back and forth with people throwing in ideas why reality might differ from the figures reported. Finally, Joseph cuts the conversation short. Joseph (looking first at his watch and then at Rosemary): Rosemary, now we have a couple of problems. First, we spent so much time working on your first two slides that we have less than five minutes left for the remainder of your presentation. And second, your numbers appear to be a bit – how should I say – “wobbly”. How would you suggest, we proceed from here? Rosemary (slightly puzzled): Eh. Yes. Well. I don’t know. We have to forward the presentation in two weeks and I need your guidance on the whole storyline, the slides we want to present and of course the measures. Joseph: I have to run in fourminutes. Rosemary (bringing up a slide): Eh. Can we at least agree on the key message that reads: “We have serious sales and cost issues that we have to fix. In order to do so, we suggest a major restructuring of the sales department and a significant number of layoffs across the whole board”. Joseph: Rosemary. That is a bit premature, isn’t it? Not to mention the negative undertone again. I suggest we try finding another slot to discuss this in more detail. My calendar is rather busy but I’m sure, my assistant will find something. In the meantime, I’d like you to work on an improved storyline and getting your figures straight and vetted. Rosemary (devastated): But … Joseph: Lawrence, would you mind accompanying me on my way to my lunch meeting? Lawrence, the consultant: I’m glad to … Well, in the process of writing this, my imagination might have run a bit wild. I admit: not too many meetings have such a strategic quality and if so, some of them might be prepared and run better. On the other hand, meetings like this aren’t completely unheard of and the underlying patterns are more than widely spread regardless. The 10 sins that make modern meetings Preferring to spend time on the more generic and commonly understandable issues than on the complex and controversial ones. Having way too many participants. Coming only shallowly prepared to the meeting but either trying to hide that fact or putting the blame on the late submission of documents (or something else). The alpha-person (-male) establishing and exerting control from the beginning. Others also staking out their territory before the show begins. Getting bogged down on the first slides instead of managing to understand the full picture first. Getting bogged down on almost irrelevant things like semantics or rounding issues. Or colours or font sizes or compliance with the latest version of the company style guise. Questioning the validity of facts instead of just accepting them. Patronizing the more junior participants. If not humiliating them. Playing the ball into the high grass if some unfavourable topics arise. And sometimes building surprise coalitions to do so. Adjourning. And finally: the real decisions are prepared and negotiated outside these meetings anyway. Behind the scenes. No reason to feign annoyance No wonder then that we are so annoyed by these meetings. And changing it would be that simple. Just do it differently: invite less people, come prepared or use time at the beginning to let people get prepared, focus on what really matters, listen, use the time for valuable conversation, strive for commitment, let the experts flesh out details outside the meeting … . Actually it’s more than simple. Common sense. But if you want, you can find all sorts of research and frameworks and recommendations. The annoyance is here for decades. So are the proposals for improving the situation. Yet there is hardly any change. Thus, the bigger question might not be “how?” but “why?”. I surmise that despite all the sported annoyance some of us actually like the way these meetings go. If you do not have to create something tangible – like a P&L or a piece of code – meetings aren’t a bad way to spend time. First, the schedule as such gives you a purpose. When asked in the evening about what you have done, you can state that you have been in meetings all day long and everybody – your spouses included – will nod and smile compassionately … but at least understandingly. Second, being invited to the “right” meetings symbolizes your status and achievements. In a nutshell: the more senior the people are in the meetings you attend, the higher your level of importance is perceived. It’s always good if you can drop the comment “I’ve been on a meeting with the CEO for half the day …”. Anywhere. Third, we simply act out our natural behaviours as primates. All that things about alpha-animals, pecking orders, social rise and fall, acknowledgement and humiliation … . Fourth, these meetings are quite entertaining in a way. Smart people have put a lot of time, effort and creativity in putting together content and presentations. And smart people are sitting around that conference table to discuss these topics. No wonder, there is this temptation to get bogged down on the first piece that appears to be sufficiently interesting but common enough so that everybody feels comfortable contributing. And fifth, the downside risk is manageable. There are proven techniques to raise doubts, to obfuscate, to defer if the spotlight gets too close. And finally: the real decisions are prepared and negotiated outside these meetings anyway. Behind the scenes. Thus, maybe let’s stop feigning annoyance with these meetings, let’s stop pretending to look for better ways, let’s embrace them for what they can be: a great way to spend time at the office! We have to be there anyway to prove our passion, attitude and importance.

Achieve Wealth Through Value Add Real Estate Investing Podcast
Ep#13 Live in Dallas, Invest in Lubbock and When to fire your Property management Company with Joseph Gozlan

Achieve Wealth Through Value Add Real Estate Investing Podcast

Play Episode Listen Later Jul 30, 2019 55:39


Title: Live in Dallas, Invest in Lubbock and When to fire your Property management Company with Joseph Gozlan James: Hi Audience. Welcome to Achieve Wealth Podcast where we talk about value-add commercial real estate. Today I have Joseph Gozlan from Dallas, Texas. Joseph run's the record business group, which is a brokerage firm and also a sponsor of 500 units in Lubbock. And now let's welcome Joseph; and why not just have you tell about yourself?   Joseph: Awesome. Thank you. James. It's an honor to be on your podcast, I love everything you do. We're in the same mastermind, so it's an honor to be here.   James: Sure, absolutely. So, yeah, I mean, we like to talk details, right? There's no fluff here and there's no marketing as well. So let's go deep down into details about how you run your operation between being a broker, at the same time being a sponsor where you syndicate deal. So can you tell me how you split your roles there?   Joseph: Yeah, so it's actually very complimentary and it brings value to everybody in the transactions. So when we work with our acquisition groups, we have access to the tools that most sponsors don't have. We have access to Yardi matrix that gives us information about properties, comps, sales, rents and loans that are on the property that really give us access to information that is beyond what most sponsors have. And if a sponsor wants to get comps on the area, he either depends on whatever the broker provides him or they have to go out and shop those properties themselves.  So we have all that advantage of talking to other people in the industry, talking to other workers and really understanding the market better than most out there. So that's really the value that we can bring to our investors. On the other hand, we also bring a lot of value to our customers because unlike working with a 25-year-old kid for Marcus and Millichap or CVRE, we actually know what we're doing, we actually own those properties. We operate the properties so we can really get our clients through everything they need help with so if they need us to extend our lenders connections or insurance agents or so on, we can help that. We can help them calm down when Fanny Mae drives them crazy and tell them that's normal, that's just how Fannie Mae works. And that's not to say that there are no veteran agents at Marcus and Millichap or CVRE that don't know what they're doing, they definitely have some superior people over there that are more capable than most agents there.  But for the most part, if you're a new sponsor, you'll be working with the lower level agents in the agencies there. For sellers, what we can help with is because we have the operations experience, we can come in and take a look at the financials, take a look at the operations and offer tweaks here and there to their operations to help them really maximize their NOI, which as you know, maximizes the property value, the price we can sell. And I can give examples if you want.   James: Sure, sure. I mean, before we go there, I want to touch on one thing because you can see the seller's mind right? I mean, I've not sold one property yet so, I don't know how the mindset is going to be, but you work with a lot of sellers, right? So tell me why sellers sell?   Joseph: Oh, there's a lot of reasons. All the way from syndication groups that have completed the renovation plan, extracted the value that they were planning to and they're ready to sell just like they promised their investors two, three years later. And on the very far end of that spectrum, you have the older ownership that, and I see that and I cringe a little bit every time, but their kids want nothing to do with apartments. And that is just sad to see a 70 80-year-old person that worked so hard all his life to build a portfolio and now instead of being happy to build that generational wealth and to hand it over to the kids, they want nothing of it so they're forced to sell. So it's everywhere in between, but usually it's either a completion of a pre-planned execution plan or the kids don't want it. I got to get rid of it. Sometimes we come across distressed owners that went into something that was just not ready for and they want out. That happens too.   James: Okay. I mean, we had like nine years of expansion run right now, right? So the dynamic of buyers and sellers has changed. So, people who bought it in 2010, they have made a lot of money up to now, I mean, in terms of equity, they are brought up a lot of equity and they would have sold it somewhere 2013 or 2015. But there's a lot of people who are jumping in right now late in the game, as a buyer. And what do you think, they need to be watching here right now because we had one of the longest expansion markets right now.   Joseph: Yeah. So here's the thing, everybody that bought in 2010 and sold in 2015 regret it now because people that were in 2015 are selling now in 2019 and they still made a lot more money. So nobody has a crystal ball, we don't know where it's going. We don't know if it's going to end in six months so it's going to take another six years until we see a difference. Personally, I believe we are about 18 to 24 months away from seeing quite a few properties go on a distress sale but I don't think it has anything to do the way the market is going to behave. So we kind of reach to a place where the market is no longer steeping up and just a crazy incline, we're getting into a place where it's a plateau or maybe a little bit of a downturn in some of the markets in the country, but for the most part it just plateaus or creeping up a little bit in other markets.  But that's not going to be enough if people made a mistake buying. So I always say about multifamily, you make your money when you buy, but you lose your money on operations and who better than you know how critical operation efficiency is, right? Then I see a lot of sponsors out there that are not very good operators and I think that is going to cost them the property in the long run if they don't pay attention to the details and they don't really follow everything that happens on the property.    James: Got It. So I talk a lot about operators in my book, Passive Investing in Commercial Real Estate because I think they are the backbone of the success of a deal. Can you define an operator?   Joseph: Yes. Anybody that is involved in the day to day of the properties. If that person is not talking to the property managers, is not talking to the supervisor, is not talking to the owners of the property management or the VPs that are assigned to these accounts and just hands over the keys and forget about it, it's not gonna work. Because at the end of the day, and this is kind of like a little bit of a joke in this business where we buy 5 10 $20 million properties but we hand over the keys to people that have 50 $60,000 pay grade and they are phenomenal people at what they do but they still don't have the capacity or the business knowledge to make decisions for $20 million properties. So each level in the chain has their own decision rights and obviously, I don't make a decision of who is going to fix the faucet in J7 or is it more critical to do that faucet versus the plumbing in K9? This is a decision that happens on the property level. There are decision levels with the regional supervisor and then there are decision levels at the property management level company, the corporate office and there are certain decisions that we keep to ourselves like brand, right? If it has our name on it, it better run through us. It doesn't matter if it's a website or a flyer or advertising somewhere, we're going to make sure we control our brand so this is a decision that stays within our control. We also work with partnerships. We don't just come from all the way up top and we drop it down heel to the people on the property. We listened to our property managers, we get ideas from them, we work together to encourage them to be more than just order takers.   James: Got it. Yeah. Some asset manager, they want to be a sponsor, but actually, they tried to do more passive investor, where they give the keys to the third party property management and they hope that things will run well. I mean, market could have helped a lot of people in the past nine years, because market is booming even though you make mistakes, even though you did not do well as an operator or you have no clue of a multifamily operation, you would have still made like 100%, I don't know how many percent, but he could have made at least a minimum 50% right? If you bought it in 2015 and sell now a minimum of 50%  but I think that's a market, right? As an operator, you would have increased the value a lot more if you're a really good operator. So can you define why or can you let us know why did you go to Lubbock when you're living in Dallas, which is one of the hottest markets in the country?   Joseph: Well, we got priced out of the market, honestly. There's a lot of education groups that that push bids up. There is a lot of foreign money that came in. You've got to look at it from this perspective; everybody has their own strategy. Everybody has their own set of investors and those investors have their own expectations for returns. So, I'll give a few examples, right? The Japanese for investors, there's a tax law back home that if they buy anything in the states that is over 20 something years old, they get to accelerate depreciation and write it off in about three, four years. They don't need to make money, it's a write off for them. Their strategy is a tax write off so they can out beat us at any given point. If your strategy is working with foreign investors, we both know another syndicator that works with foreign German investors and he says that they're thrilled to get 5% returns. If that's the money he needs to pay his investors, if that's the returns he's got to achieve, he can overpay what we can afford because our investors expect more. So that's what I'm saying is you got to look at it. It's not just foreign investors, it's also family offices, it's also institutional money that came in and all these groups are looking for core markets. Dallas, Austin, Houston, LA in New York, Miami and Atlanta, Georgia. That's the kind of markets that they know. So we just got out priced from the market so we went out and went to the secondary markets in Texas.   James: Yeah. I think it's strange. Sometimes we see a deal is expensive but it could be just, it's expensive for you. Your investor base thinks that your returns are too low but there could be another investor base who is okay with that deal and they may get a benefit from other factors like tax benefits, which is for them is a great deal at this market. So yeah, there's no expensive deals, it's just who's your investment base, I guess. If you have Japanese as the investor base and maybe we can buy, the priciest deal in town and still make everybody happy. Joseph: I've seen them buy [12:18unintelligible] so yeah, you're absolutely right. If you're a 10 31 money and you're backed against the wall with the clock running down against you, you're looking at it and say, okay, all of that loss of potential taxes is my income now because I'm going to be able to recover that instead of paying that. So there's a lot of reasoning behind people's strategy and I learned not to judge somebody for [quote-unquote] over-paying without knowing what the background and where the funds are and what's the alternative they had.   James: Got It. Yeah. I think the biggest problem we see is over-beating when people over-beat on a deal, that's where you're paying the highest price whether you know or not, you may have won the deal, but you actually lost the war.   Joseph: Well, and that's where the smaller boutique shops like ours are a little bit better to work with as a sponsor because if you go to bid on a Marcus and Millichap deal or CVRE deal or JLLHFF, any one of the big brokers, they have hundreds of thousands of people in their distribution lists so you will be bidding against a lot of people.  Small brokers like us, we don't have a database that large; I wish I had, but we don't. So then the circulation of the properties that we have on our marketing is much smaller than the ones that the Marcus and Millichap guys have. And as part of that, we've learned to build a network of smaller brokers that we call broker with. So when you approach someone like me and there are quite a few small firms out there that are doing the same thing, not only that you get access to my less circulated listings, but I can also get you access to somebody else' less circulated listings that you wouldn't have been able to access because you don't know that small broker. James: Yeah. So let me ask you, I mean, you are a broker and we go to your role as an investor because it's interesting to talk to a broker, I've not talked to a broker on this podcast yet. So how does broker market deals in this hot market? Obviously, you're going to get a deal, we should think is a good deal; there are two types of deals, one is a deal that you think a lot of people will want to jump on it and there's another deal which you think is a bit pricey that are sellers testing the water right now, right? They want to check out how much they can get in terms of price. So let's say the first scenario where they are, it's a good deal and how would you go about marketing that deal?    Joseph: Yeah. So we try not to work with sellers that are completely delusional. If the property is worth $2 million and they're asking for 4, my chances of getting them a buyer is zero. I can't afford to spend all that time on a property I know I can't sell. So we have honest conversations with our sellers about what's realistic and what's optimistic and what's unreasonable. So we'll work with them on this and we will not take owners that are just unreasonable so that's just to address the types that you mentioned.  The way we get our listings out is when we get a listing, we first make a few phone calls and those few phone calls are to the buyers that have closed a deal with us, it's for the buyers that we know are capable of closing, the buyers that are, in our opinion, ready to pull the trigger and the most qualified buyers. And if we can get that property sold within those few phone calls, then that's great. If not, then we'll expand the phone call circle and then we'll send an email to a smaller group of investor, then a bigger email to a larger group of our investors and it's basically like a growing ripple in a lake. When you throw that stone first, there's a small circle, then there is a larger and larger all the way up until if we have no choice, we'll get it all the way out to those websites out there that are doing listings for apartments and so on. So we'll start small and we'll grow as we need.    James: Okay. Yeah, that's my theory in terms of off-market because usually, the brokers will try to sell within the people that they know because it's a multi-million dollar deal and brokers have the fiduciary responsibility to sell it as soon as possible to the seller, to the right qualified buyer.   Joseph: It depends on the seller. If you go to one of the big brokerages out there, then you are willingly putting the property into the blender. They will have 30 40 tours and they will have a lot of people interested and there is going to be a call for offers in maybe two of those and then there's going to be a best and final round so it'll take about four to six months of just a lot of disruption to the property. At the end of it, you might get a contract that will go through, you might fall for the first one and go to the second one, but eventually, they'll get it sold and they're probably going to get a top possible dollar for that property but in that time, that property went through the blender.  The way we operate and what we offer our sellers is a quiet, smoother transaction without disrupting the property with qualified buyer. Part of what we do, our responsibility to the seller is to qualify the buyer. And if it's not a qualified buyer, we're not going to get him on the property, we're not going to disrupt the property and we're not going to let him lock in on the contract.   James: Yeah, I mean, just to give a story, I had a guy who was a Newbie called me like two days ago. He said, "James, I found this 20 something plus unit deal and I'm evaluating with the broker." And I asked him, my first question is, "Why they need to sell to you?" And he cannot answer that question. So if they're now coming to you who are a Newbie, that means they cannot really sell it to a lot of experienced buyers. I mean 20 something units are the same across a hundred, 200 units; there are so many of qualified buyers out there where the brokers will have relationships with, where they want to sell to the qualified people rather than just go and give it to the Newbie.   Joseph: 10 to 20 unit is kind of like the first property so we're going to have to work with newbies anyway.    James: Yeah, that could be the reason.   Joseph:  But it's just a matter of is it a qualifying Newbie or is it a non-qualified Newbie. The question is that the broker should have probably asked him is where is the financing coming over from? Do you have a proof of funds and did you talk to the bank? This is a full recourse loan itself. There are ways for us to qualify even Newbies.   James: Okay. Okay. Got It. So let's go to your role as a sponsor. So let's go back to the market itself, why do you like Lubbock?   Joseph: Yeah. So Lubbock is, well, no longer, but it used to be a well-kept secret of a great economy market, it's in the middle of the panhandles, it's called the hub city, that's the nickname. And that's because it's one of the most important cities in over a hundred-mile radius. And it has Texas Tech University, it's the biggest engineering school in Texas, and they have over 37,000 students over there. And while we don't do student housing, there's a lot of student housing in the city, but we don't do student housing but the math is simple. For every four or five students the university adds, there's a new job in town. So today, Texas Tech supports over 13,000 jobs, on its own bring one point $2 billion to the city and just retail shopping alone, their students are doing more than $300 million a year.  So add that to a few other factors; economic factors in town that drive a really good economy, a lot of jobs, the unemployment rate in Lubbock is anywhere between 2.5 and 3.2. That's what I've been seeing in the last year and a half out there, which has a downside for a sponsor but we can talk about it later, but for the most part, having such a low unemployment rate in so much job opportunities really gives you more comfort in the B&C class environment because in the B and C class environment, if those tenants lose their job, they don't have a lot of financial depth. If they lose the job and they can't find a job within a week or two, they won't have money to pay the rent. So that's why picking a market that has strong jobs, strong economics was super critical for us.   James: So what is the downside? I don't get that.   Joseph: Oh, the downside is finding good employees.   James:  Oh, got it. Because everybody's being employed.   Joseph:  Because they always have options and they always move and we lost so many maintenance people just because they don't want to work hard. They can easily find a job where they don't have to work so hard so that's just has been a constant struggle out there. But that's just part of the pros and cons of every place.   James: So did you end up buying a deal in Lubbock because you got your first deal there or did you look in a few cities and you chose it or how was it?    Joseph: That's a good question. It's a combination of both. So, it wasn't our first deal, but it was our first big one and it just came through a relationship that we had with the property manager and a broker and we had a chance to take a deal off completely off-market and go for it.    James: Okay. Okay. So once you got a deal, you look at the market, then you think it's a really great market and you continue doing deals in the same market.   Joseph: Yeah, we operate a little bit different today, but that's just how we got to Lubbock back then. Today we are I analyzing markets with a big set of criteria that we're looking for and right now specifically because we try to get out of the way of our brokerage customers, we're looking at a few out of state markets.   James: Okay. Got It. Got It. So when you look at a deal, I mean, can you describe the type of things that you look forward to that describe to you that that is a good deal? Can you describe what are the things you look for in a deal that you would say, okay, I want to do this deal?   Joseph: Yeah. So, the market is the most important thing, it's that simple.  Jobs,  jobs economy, what do they do for a living, is that a one employer town kind of a situation, what's the risk with the market, what the market did back in 2010 when unemployment was high everywhere in the country, that's the things that we first take care of. I'm obviously making sure if we're talking about out of state, we'll always only go to landlord friendly states, that's another very important criteria for us.  But when you look at the actual deal, the actual property, we're looking for value add opportunities. Everything we've done was a heavy lift in value add and it's not easy and it's a lot of work, but it's the only way to really make money. So if I buy a stabilized property, I'm going to have to go find those German investors that are happy with 5% returns. So really, looking for the right value add opportunity when we know we can come in and make a difference and increased the rent and reduce expenses and basically a bump on the NOI that's what we're looking for.   James: Okay. So apart from increasing the rent and reducing expenses, is there any other value add that you think that you find it unique and you think that that's something that can share with the audience?   Joseph: Yeah, so there's a lot of strategies out there when you can leverage to either increase income or reduce expenses, but adding amenities is a good attraction that can help you increase rent. So if you have an on-site gym versus the property that doesn't have an on-site gym, people would be willing to pay a little bit more. A pool is a very big attraction in the C class environment. So we have one property that had a pool, years ago, way before we bought it, and they cemented it in so right now there's just an ugly area that has a fallen apart shed with a cemented pool. So what we're going to do is we're going to convert it to an outdoor kitchen with some picnic tables and shade, just to create a place where the residents can go and have an activity and have fun outdoors. So stuff like that really helps, obviously in-unit amenities is super critical. Upgrading the appliances, resurfacing the counters, replacing old carpets with vinyl planks, that's the kind of thing that people are willing to pay more for.   James: So what, what do you think, let's say, for example, increasing the rent. So let's say you had a million dollar budget to increase rent, but somehow after you buy it, you realize that you only have 500,000 so your budget has significantly reduced. So what's the most important value add that you would do?    Joseph: That's a great question, are we talking interior only?   James: Which one you think is the biggest bang for the buck? You have a reduced budget right now.   Joseph: Well, here's the reality of things, it really depends on the property. If the property looks like crap from the outside, it doesn't matter how nice you make the units look, nobody wants to live on a property that has no exterior light, a green pool and a laundry room that doesn't work. And if the property looks fine outside, I would put the money inside the units because the prettier the unit, the more they're willing to pay. So it depends on the property and what we have to do. Certain properties, if you gate them, it'll be great. Certain properties if you can fence the backyards and create small backyards for the first level unit, it can significantly increase your cost. In-unit washer/dryer connections, that is a big difference maker that people are willing to pay more for in our environment so if I can generate those, then maybe I'll do that.   James: Okay. So let's talk about fencing versus non-fencing property because that's something new for me. So can you elaborate a bit more? Which property makes sense to fence and which one doesn't make sense to fence?   Joseph: First, you got to have the fee the actual space to do that. So if they have sliding doors on the back and it just goes out to the street or just goes out to the green area, then you have the opportunity to just put two panels of fence and either close it or put it like the rod iron and now you created a small backyard for them. People love the opportunity of a private backyard. And I know that because we have two properties that are literally across the street from each other, one of them has larger layouts, the other one has smaller layouts but have fenced backyards and Patios and we constantly have to take people across the street based on the preferences. And you can clearly see that some people prefer to have fenced backyard over larger layouts, even at the same price point. And then some people prefer the larger layout so there's definitely a preference over there to some people.   James: So your fenced backyard, is that a single story unit or is there like a double story but you only fence the ground floor?    Joseph: Those mostly are a single story or townhomes.   James: Townhomes, yeah, I have a property, which is a townhome where it does very well with the backyard, people love the backyard.   Joseph: Yeah. We also have a property that is a two-story building. The first story has a fenced little patio, it's not a backyard, it's not big, but it's a fenced little patio. And then the second floor has a balcony right on top of it. So it obviously works for both the first floor and the second floor.   James: Okay. Okay. So you said this ground floor you put in a fenced backyard but the second floor's balcony, but don't the second-floor people can see the ground floor backyard?   Joseph: No, like I said to call it a back yard is a stretch, it's a small fenced patio.    James: Okay. Got It, got it, got it.    Joseph: It's about the size of the balcony from up top.   James: Oh, okay, maybe that's a good idea. Yeah, I have a deal right now, which we are trying to put a fenced backyard, but it's always like someone on the top will be looking at, so I'm just trying to figure that out and see where they are.   Joseph: You can go to linksupapts.com and see pictures of our property, you'll see what I'm talking about.   James: Ah, cool. Cool. And what about the inside? What do you think is the most valuable remodeling that you can do if you have a very strained budget? What do you think you have the biggest bang for the buck on the inside? Joseph: Okay. Painting floors.   James: Painting floors. Okay.  So that's what you would do, I guess, just to make it look nice inside and the flooring is more for turnover reduction, right?    Joseph: Yeah. People don't need a lot on the inside but seeing the vinyl planks that have, that wood-looking style and a fresh coat of paint on the walls, make a complete big difference versus the old run down carpet or even a new carpet. There's big research I read that talks about the first thing people are looking for, are pet-friendly communities. So obviously hard floors are a lot better with pets then carpets. If you look at any of our property websites, you'll see that the first list in the community amenity is pet-friendly and by the way, if you are not pet-friendly, that is the first thing I'm going to do to increase income.   James: Got It, got it. So you think thinking in terms of miscellaneous income, that's one of the easy value addition, right?   Joseph: Absolutely. Whether it's the pet deposit fee or is it pet rent or whatever you structure it at or just the fact that you allow pets is going to help you with occupancy so pets is definitely an easy one.   James: Got it, got it. So let's say you buy a deal now, it's a value add deal so what would be your first 30-day plan, 60 Day plan and 90-day plan or maybe one year plan on achieving your business plan?   Joseph: Yeah, so the 30-day plan is just to find our way around the property. Every property we picked up in the first 30 days, it's just a lot of dust and you've got to let the dust settle. There's going to be people that have not paid to the previous owner and you're going to have to evict them because they're not paying, period. You will have people that are going to just walk away because in their head it's new management so they're going to increase the rents tomorrow, even though we have contracts, we can't do that. There will be people that are going to try it, ah, new management, let's try not to pay and see what happens, right? So you'll have all that going on in the first 30 days. You've got to figure out who is the maintenance crew, what are they doing, take control over the employees what are they doing. Did you inherit the employees from the previous owner or not? Did some of them got up and moved with the previous ownership, that happens too. So first 30 days is just wrapping our heads around the property and trying to figure out what is where and who does what. After that, we better have our contractors out there and then we'll get started working. We have all that lined up during due diligence. We get bids during due diligence, we set starting work during due diligence and if there are any critical items then there'll be there day one. So our King David property, when we bought it, it was pitch black. There was not a single light on after hours and we had the electricians out there working on the lights the day we took the keys, we didn't wait 30 days or 60 days or anything else. The day we took the keys over, that's when that person was over there.   James: Yeah. The lighting at night it's just super critical. We focus a lot on lighting at night, make sure it's really, really bright. You know, it hinders a lot of crime, it just gives a lot more confidence to the current residents, they know there's a change coming, right? Because it's super easy to do that. Right? We just get the electrician to go and fix all the lights.   Joseph: Yeah. And then we have contractors come out to give us bids and they ask me questions like, well, do you want 3000 lumens or 5,000 lumens? It's like, guys, I don't care. Here's the definition; when you're done, I want it to look like a prison.   James: Fort Knox.    Joseph: If I don't get complaints from some of the residents that it's too bright, then you didn't do your job, that's our definition. So some of my contractors laugh and say, yeah, I know, prison.   James: So, going back to like one year,  within one year, your contractors is done and all that but when do you think you have to step in and what's the trigger point for you that you say, okay, we are not going in the right direction? What are the clues that you look for in the operation that, hey, I thought this is going this direction but we are not in that direction and what would you do in that case?   Joseph: Yeah, so I don't know how many of your properties were exactly on plan.   James: Of course, it's all 100% wrong.    Joseph: Life is what happens when you're busy making plans, right? So it's not about checkpoints, I'm going to check in at 30 days, check in at night, just checking out the year, that's not going to work. You've got to be constantly involved and you constantly have to adapt to whatever life throws at you and turn around. We had one property that when we bought it, it had three-year-old boilers in, so they were practically new that a year later, went up, $25,000 expense. That comes at you out of the blue, you're going to have to adapt, you're gonna have to work with that and figure it out.  The contractor tells you he'll be done by April and it's June and he's barely half-way through, you gotta roll with the punches, that's what it is. Just closer control, monitoring the numbers, working as a partner with the property management team, onsite and corporate, that's the critical things and you've got to work with it. If you made it in a year, that's great. If it takes a year and a half, takes two and a half, takes three, it takes three.   James: But what numbers would you be looking at in the P&L that you are thinking whether you're going the right direction or you're going in the wrong direction? Joseph: Yeah, so every month we take the actual numbers and we put them right next to our projections. So it's kind of like a constant check of where we are compared to the plant and did we spend the capitals that we were supposed to or not? Did we get the units upgraded or not? Did we make time or not? Do we see the increase in rente that we expected or is it below or you did we exceed that? We also have constant market surveys; just because I projected going from, I don't know, 800 to $900, it's great, but if the market went to $700, my projections are going to go flying out the window because that's what the market is. And the other way around, if I projected 900 and the market went to a thousand, I'm not going to stay at 900, I'm going to go to 1000. So, it's like a living organism, right? You got to adapt, you've got to follow, feel the polls, understand where the market is going, where your property's going, where you are and that's really what you got to focus on; it's everything, not just one. James: I think that's the job often operator, where you are looking on a day to day, month to month detail planning in terms of numbers and where you're going, whether you're going towards your business plan goals or you're going to divert from there. That's an important thing. That's what I see as an operator because if you look at nowadays, the GP ship I call it the general partnership, the ship. It's too many people when any investors come and invest in any deals but there'll be like one guy or maybe maximum two guys who are the operators. Joseph: Sometimes there is none. James: And probably you're right. Yeah. But I think if you look for the backbone of the deal, I mean, it may not be the guy who was raising money from you, it may be someone else who's going to be the operator and as I told in my book, just make sure that you look for who's behind the deal, who's the operator, who is the backbone of the deal, that person is the key person in that, going to make the deal whether it's successful or not.   Joseph: Yeah, and you really got to look at it from the perspective of everybody is focusing on getting the deal closed, but getting the deal close is just a little sprint run;  that sprint finish line is the starting line of a marathon and if that was a relay race, it doesn't matter what happened to the sprinter if he comes in two seconds behind or five seconds behind, because that marathon is going to take 24 hours and a lot can happen in that 24 hours. So the guy that runs the property that does the operation for three, five, seven, 10 years, the projection that the whole period is, it's a lot more critical than the 60 days that it took to put the deal together, raise the equity and secure the financing.   James: Yeah. Yeah, that's what has been happening. It's not bad, but I think as passive investors, they just need to know who is the person behind the whole deal. So coming back to some of your personal experience, I know you don't have your own property management company right now. You are using a third-party property management company and I know you did look at setting up your own property management company to take control and all that but can you describe what are the pros and cons that you see on both paradigm and why did you choose the current paradigm or are you planning to change in the future?   Joseph: Yeah, so for us, we had the transition property management last year and it wasn't fun; It was very painful, actually. So I was at the point where I said, okay, let's evaluate it, maybe I should just take on myself. And my conclusion, my personal conclusion, everybody's going to be different, was that, at this point, property management is its own business and you've got to operate it as a business. You've got to build the infrastructure of a company. So I knew that if I'm going to have to build my own property management company, I'm going to have to put aside my acquisition business and my brokerage business and put them away for about a year until I set up all the infrastructure and all the other things. So, for that purpose, I decided to just move on and get another third-party property management.  The advantages you get with third-party property management is you get decades worth of experience combined. If I would have opened my own property management, I would probably hire a regional supervisor and that person would probably have 10, 20 years of experience but when you go to a property management company, you have the owners, you have multiple regional supervisors, you have the back office people, and that's decades, if not centuries of combined experience that you're not going to get doing your own thing. So for us, the brain damage was just not worth it and not to pause to the other two businesses that we were running, maybe in the future, it will make sense. We'll reevaluate then, but at this point, we're not gonna do any of that. James: Okay. So yeah, that's important. I mean, it's a lot of work to set up property management and running it and whether you want to do it or not, it's your personal preference and all that. But I'm more interested in how did you get the signal? Hold on.  So my question to you is you change the property management but then halfway through one of your deal, in your property in Lubbock, what was the signal that you look for that triggered you that something's not doing right and I need to make this change now. I mean, how long did you wait to pull the trigger to change the property management? How did you change it because it's hard for a lot of asset manager to make that call, it's hard? Joseph: Yeah. It wasn't an easy decision to make because you have this relationship that you've built with the team in the property management, but there was just, let's take a step back. I think from my experience, the most important skill for a property management company is hiring skills, everything else is secondary to that because if they don't hire the right people, it's not going to work. And that's really what was the trigger on our transition is we just had a series of unfortunate hiring decisions, that we had to go through multiple supervisors and onsite managers that did not follow what we wanted to do and did not execute the way we wanted them to execute, did not treat our residents right. So that was really the last straw for us is kind of like we gave them a 'get better by this date' and it didn't so we just decided to move on and break the package.  There was no hard feeling, and I still talked to the previous property manager ownership, but we have accountability to our investors and we have accountability to our partners and we got to make sure that if things are not moving in the right direction, then we make a change.   James: But what was the signal? Because you are sitting in Dallas and this isn't Lubbock. And what is the signal that gives you that hint that something is not right?   Joseph: We had a property that we had a big surge of non-renewals; residents that didn't want to renew the lease. And that was really one of our big flags and since then we've already implemented a process where we bypassed the property management company and sent surveys directly to the residents to get a feel of what's going on in the property; how do they feel, how were they getting treated? So we just had a manager that when we were on site, she was all wonderful and great, but when we were not on site, she didn't treat the residents right and that was just really bad because retention is critical and when residents don't want to renew because the manager is not treating them with respect, that's a big problem. James: So, was the property management company with you sending survey direct to the residents?  Joseph: That was non-negotiable at that point.  James: Okay. Okay. So when you saw a lot of non-renewal then you said, okay, I'm going to just do a survey on our own, which is a very good thing because I think a lot of people struggle to identify that weakness, right? But you're right, non-renewal can be a good indication of how the management is treating them or whether the work orders are not being completed as to what the residents want. Because as you know, turnover is going to be the biggest expense in any market family operation, especially in Class B and C. And once you see that, that's a red flag there. So let me ask you a few other things that you want to give advice to Newbies, right? So can you name like three to five tips for Newbies who tried to start at this stage of the market in multifamily? Joseph: Yes. Start with, don't be optimistic. There's a lot of really optimistic underwriting out there that come across my desk and it's scary. Yes, the market might still go up, we don't have a crystal ball but if your exit strategy depends on you being better than the market today, then you've got a problem. If the entire market is at 90% occupancy and your exit strategy depends on you being 96% occupied, there is a problem there. If you plan on rents going up, but you don't plan on expenses going up, you've got a problem. So these are the little things in your underwriting that can really trip you because it's excels live, very easily. All you have to do is to tweak a number here and tweak a number there and you take a five cap transaction and make it an eight cap transaction. and that's just not something that you should risk. One thing I don't like in underwriting that you see a lot from big brokerages is a 1% loss to lease. I see you laugh; as an operator, I don't want a 1% loss to lease. If I have a unit that rents for $700 market rent, but I have a residence in it for 650, I'm not going to kick him out if it's time to renew; $50 a month, that's $600 a year; it's going to take me about $1,500 to renovate the unit, that means it's going to be more than a year and a half before I see my money back.   James: Yeah. And you have vacancies too and you have all the stress of turning around the property.   Joseph: That's what I said, it's like more than a year and a half at least so it's kind of like, why would I do that? And if you look at $50 out of 700 that's more than 1% so that's really where you see an underwriting like this, you need to scratch it off and put a more reasonable number in there. And don't ask me what is a reasonable number because it depends on the property. If your rents are $1,000 a month, you can take 2 or 3% but if your rents are 400 and you're not going to kick them out for $25, but $25 out of $400, that's 7- 8%, so that's really where you got to be realistic; you've got to look at the numbers. So when we have, for example, in the underwriting, we underwrite occupancy and we've projected occupancy for the next three, five, seven, 10 years, whatever the whole period is, I also have another table right next to it in the excel file that shows me what it looks in unit numbers because when you put 7% or 8%, it's easy to just think, oh, it's just 7% but if you have 7% out of a hundred units, that's seven units vacant but if it's 300 units, now it's 21 vacant units. So I always like to kind of put things back in perspective; percentages to dollars, dollars to percentages and so on just so people will kind of realize that, okay, it's not just a number that I throw on there. So that's what it's going to meet. James: Got It. Got It. So let's say for passive investors looking at a deal that's being presented to them, right? So we talked about the things that we want to watch out for even for newbies who are sponsors, but as a passive investor, how can they identify that this sponsor is being aggressive?  Joseph: So for a passive investor that looks at an offer, any offer, I say they have to focus on four different things. First, they got to look at the market. Just like we talked at the beginning, what is that market? What is the job worth? What is the economy? If you're going to have a property that has a 7% unemployment rate today in 2019 when the market is hot and there are more job openings than people that request unemployment, then that's not a great market to be in when the market shifts. So where's the market?  The second thing they need to look at is the opportunity, the actual deal itself. This is where you look at, how conservative is the underwriting, did they underwrite for vacancies, did they underwrite for economic vacancies, did they underwrite for capital that's going to have to be done capital reserves and so on? And the third thing they need to look for is the team, like you said earlier, who's the operator? What's their track record, what's their background? And then the fourth thing, which is something I just added recently, they need to look for one letter in 150 legal documents and that letter is, unfortunately, the letter F, just to make sure they don't get f'd. So my distribution is going to be considered the return on investment, return on capital, or is it going to be the return of capital with an 'F' because it's gonna make a huge difference between the two if you get a return on capital or return of capital. James: Yeah, I know what exactly you're talking about. Can you briefly explain the two scenarios so people can get it very clearly? What is the difference between the return on capital and return of capital? Joseph: Yeah, so if you give me $100,000 and I structure our returns as return on capital and I give you, let's say, a 10% preferred return, then in the first year, I'll give you $10,000 that's 10% of everything that has happened. The next year, if I want to give you 10%, I have to give you another $10,000 because your capital in the deal did not change, right? However, if I'm doing a return of capital, then the first year I gave you 10,000, your remaining of the capital in the deal is now 90,000. For me to satisfy the 10% preferred return, I'm going to just in a year a half to give you $9,000 this year and the next year it's going to be 8,100 and the year after, so on and so on so that's one thing.  The other thing is when we get to the sale part on the return on capital, if we had no capital event, like a refi' or something of that in the middle, then I first have to pay you back all your $100,000 and then whatever is left, we get to split whatever the split is between the sponsors and the and the passive investors. However, if I've depleted your remaining capital basis in the deal, so now you have let's say $50,000 remaining, all I have to do is give you your $50,000 and then we split. So by putting one letter in that document and there are usually 150 pages that you're going to get handed over as a passive investor and all they have to do is change one letter, just one. So I think that if a sponsor does that and they don't clearly explain that to you, then that's in my opinion, not so ethical. James: Got It. Got It. Yeah. A lot of times passive investors who jumping into investing passively in commercial real estate, know a lot about the deal two to three years after they started investing.  A lot of times they did not know all these types of details in the beginning because it's a fear of missing out, everybody wants to invest because they didn't want to miss out; that all their friends are making money in the same asset class and they didn't want to miss out. They forget about all the legal structures that they have in the PPM or the company agreement that's given to them.  Let me look at one last question; so tell us, where can the audience find you?    Joseph: Yeah, it's very easy. You can find us on our website, my email, my phone number, it's all there. It's Ebgtexas.com. That's our brokerage website, easy to find us.    James: Okay. Awesome. All right, audience, thanks for joining me on Achieve Wealth Podcast. And one thing to not miss out is make sure you guys go and look at Facebook; we have a new Facebook group called Multifamily Investors Group. We have grown up to like 680 members right now within two or three weeks. The first week, it's we have like 500 people. And that Facebook group we have created to show live operations from the ground up and talk just specifically about multifamily. We don't have a lot of promotions or spam there and hopefully, everybody's getting value. So I encourage you guys to go and check it out, Multifamily Investors Group on Facebook and join them. Thank you. Thank you.

Free The Seed!
S2E2 Lofthouse-Oliverson Landrace Muskmelon – Free The Seed! Podcast

Free The Seed!

Play Episode Listen Later Feb 14, 2019 36:09


Episode two of the second season of Free the Seed! the Open Source Seed Initiative podcast This podcast is for anyone interested in the plants we eat – farmers, gardeners and food curious folks who want to dig deeper into where their food comes from. It’s about how new crop varieties make it into your seed catalogues and onto your tables. In each episode, we hear the story of a variety that has been pledged as open-source from the plant breeder that developed it. In this episode, host Rachel Hultengren spoke with Joseph Lofthouse about his process of landrace breeding to develop varieties locally-adapted to the harsh conditions of his farm in northern Utah, and about the 'Lofthouse-Oliverson Landrace Muskmelon', a variety that came out of that breeding work.  Joseph Lofthouse Episode links Find seeds of 'Lofthouse-Oliverson Landrace Muskmelon' on Joseph's website. Free the Seed! Listener Survey: http://bit.ly/FreetheSeedsurvey ------------------------------------------------------------------------------------------------------------------------------------------ Free the Seed! Transcript for S2E2: ‘Lofthouse-Oliverson Landrace Melon’ Rachel Hultengren: Welcome to episode two of the second season of Free the Seed!, the Open Source Seed Initiative podcast that tells the stories of new crop varieties and the plant breeders that develop them. I’m your host, Rachel Hultengren. Every episode we invite a plant breeder to tell us about a crop variety that they’ve pledged to be open-source. My guest today is Joseph Lofthouse. Joseph farms in Northern Utah, where harsh growing conditions can make farming a challenge. We talk about how he has addressed this challenge through his plant breeding work, and Joseph describes ‘landrace breeding’, the process by which he develops genetically-diverse crop varieties that are particularly suited to his farm. Rachel: Hi Joseph – welcome to Free the Seed! Joseph Lofthouse: Hi! Thank you, Rachel and food-curious folks. Rachel: So I’d like to start by painting a picture for listeners of your farm in Utah and the conditions there. Where in Utah are you, and what’s the weather like through the growing season? Joseph: So I am in northern Utah, in Cache Valley, in a village called Paradise. And my growing conditions during the summer are desert conditions with intense sunlight in the daytime and intense radiant cooling at night. Super-low humidity, and I irrigate once a week. Rachel: And how long have you been farming there? Joseph: My family’s been growing in the same farm for 150 years, and I’ve been doing that my whole life as well, except for when I went away to the big city to work for a career, and then I came back home. Rachel: I understand that when you came back home, you found that the conditions that you were growing in, it limited what you were able to grow. I’m curious - what did you try that at first just wasn’t successful? Joseph: So a lot of crops, if I just buy something out of a seed catalogue, about half the varieties I buy that way will just plain old fail. And some things, like cantaloupe or watermelon, might be like 95% failures. Some things like turnips – any turnip that I plant is going to do well here. But the longer season crops, or the warmer weather crops, are hit-or-miss. Rachel: What are the aspects of your growing area that are the hardest for crops to tolerate? Joseph: Well, for warm- weather crops, it’s the radiant cooling at night. And for leafy greens, it’s the low humidity, because we might have 5% humidity in the evenings. And that leads to bitter lettuce and bitter spinach and bitter kale. Rachel: How cold does it get, with that radiant cooling at night? Joseph: We have about, sometimes, a 40 degree temperature change between the highs in the day and the lows at night. And the radiant cooling on the surface of the leaf, probably adds another- or subtracts another 10 degrees from that. Rachel: So that can get pretty chilly for a warm...

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