FROM INCOME TO LONG-TERM WEALTH | Episode 6 with Meny Hoffman & Simeon Friedman

Okay, we're on to episode number six. Wow. >> Wow. >> So, last one is it was a was a a packed one because it was loans. And this is a topic that gained a lot of interest of people. I'm not going to bore you with all the questions, but um somebody asked me like, why didn't you even touch the difference between uh personal guarantee and and a non-secured loan? >> Right. >> Um especially because you you spoke about a lot about the relationship you have with the banks. A lot of them the the non-secure, I think it's called in the industry, are not usually the typical bank that you have. It's rather these one-off banks that are trying to get into the relationship and trying to give you like 100 to 50 type of unsecured. What is What is the difference for the audience? >> In in general, know that um chances are your business your whatever whatever loan you're going to get from the bank is going to require a personal guarantee. >> Mhm. >> Um I've I've seen situations where it's not required. Um believe it or not, it's on larger companies that have a significant amount of equity and assets where they don't need the personal guarantee of of of the of the uh >> individual >> old of the owners. But chances are any middle small middle-sized company is going to require that. Um meaning the the owners are guaranteeing it and then technically they, you know, if something happens, they can come after your uh personal assets. Uh so, people have to be aware of that of that concept. Um and uh that's why you have to give them your personal tax returns, your personal financials so they see who they who who they're dealing with. But talking about guaran- uh being a guarantor on a on a on a mortgage um or on a business line of credit, for your own business, it's it's a requirement and you're going to have to do it, so do it. There's no reason why not. Um but I've seen situations where um people don't realize what being a guarantor is, where they where they relied on outsiders to be the guarantors on either a mortgage or on a business line of credit. Either going to a a parent, going to a uncle, or whatever it is where they're willing to be the guarantor. Um I can tell you a story about that briefly. >> Sure. >> Uh before that, um I've heard a story um if it's true or not, but this is the point. We're in the 1930s, there was a professor uh uh a law professor that started the semester and asked the question to all the students sitting there with his bow tie and those days with a cigar and he says, "I have a question." It's the first day of of the semester and he says, "Could anybody give me the legal definition of what a guarantor is?" So, student raised their hand. "A guarantor is someone that signs off and um He says, "No, that's not a guarantor." Well, that's the next guy. "Guarantor is somebody that obviously has um a net worth with enough assets to secure a loan and that's willing to sign Oh, that's not going through everybody. No. He says, "Write this down. This is the legal definition of a guarantor. A guarantor is a fool with a fountain pen." >> [laughter] >> Oy vey. >> Why is that? You're just guaranteeing the the the loan. The loan is being used by somebody else. That other person can do who knows with what what with it. Uh can get into default, but you're signing off on it. Right? To a story where people don't realize I I the I had a client many many years ago that was um I don't know if he was sued, but Chase Bank came to him and I should really mention the bank, but it's reality. Chase Bank came to him and said uh with a demand letter for $900,000. $900,000. I've never borrowed $900,000. Calls the bank or his attorney calls the bank. He says, "Yeah, yeah. He was a guarantor for a line of credit on this and this business, which happened to have been his nephew's business." He says, "Yeah, that's right. 10 years ago I was a guarantor. He needed a $100,000 line of credit and I gave him my I was willing to help him out." Since then, 10 years later, the line of credit had increased because the business increased. We the business owed $900,000 and was in default and they foreclosed or whatever it is and they came after the guarantors, which was him, and he had to settle on this on this demand. Uh he didn't It's only $100,000. Yeah, but 10 years later it was $900,000. So, hence a fool with a fountain pen. >> Yeah, so but at least we we know the what CloudSleuth does. So, but at least know what you're getting into. >> You have to know exactly because if you're a guarantor, you you can help this guy, this guy. Eventually it accumulates where if you let's say you're going to need financing for your child and you're exposed in a lot more places than you should be, it's going to hurt you. >> This episode of the Let's Talk Business podcast is sponsored by Float Digital and Pipedrive. Sales is the lifeblood of every business. No sales means no revenue and no business. So, if you are a business owner or in sales, you already know how important it is to have a proper CRM. A good CRM helps you manage your sales process and keeps leads from falling through the cracks and make sure you have the proper reporting so you could analyze what's happening every single day. If the CRM is too complicated or not set set up properly, the team just won't use it. When that happens, leads get lost, follow-up get missed, and ultimately deals stall. That's where Pipedrive comes in. Pipedrive is an easy-to-use CRM designed to make tracking and sales process simple. You can see your pipeline at a glance, move deals forward, and make sure you never miss a follow-up. And we've built an AI, get insights to help you close more deals. But that's not all. Easy to use doesn't always mean efficient. That's where Flow Digital steps in. I'm personally a Flow Digital client. That helped me set up the Pipedrive at Pitex. Speaking from personal experience, I could attest they're the best in the business at setting up CRMs and automating the sales workflow. As one of the top Pipedrive experts, Flow Digital builds automation and AI-powered workflows that handle the busy work. Pipedrive becomes one of your most powerful tools for your sales people. As a listener to the show, you can sign up for a free Pipedrive trial at flow.digital/ltv. Where you'll get a 45-day trial of Pipedrive, plus you'll be able to get a 45-minute consultation to get your CRM set up the right way. Once again, that's flow.digital/ltv. So you get the best of both worlds. You get the easiest CRM out there, which is Pipedrive, and you get Flow Digital to help you set it up. Remember, your business and your sales team will always thank you for setting the right system, so they could focus on closing more sales. >> You remind me a story. One day I woke up, it was years ago, um, and you know, [clears throat] I come out in the morning and and I'm looking for my car. And it's not I remember where I parked. And then I said, "You know what? Maybe I forgot where I parked." And I'm starting to remember, going this side of the block, that block, my car is not there. And somebody says, "You could check if it was towed or something." I thought maybe it's no park No, it's it's a you you're allowed to park. Ends up to be that I was, um, a signer on a former employee by me that needed a co-signer for his for his lease. I signed, he had tickets, they towed my car. >> [laughter] >> See that? >> [gasps] >> Okay. So that was a lesson on that. >> So now we have another story. >> No, I still I just you just reminded me of that story. It was years ago, but but again, you could do hesed. You could do what know what you're getting into. And plus I'll just mention for people that are listening to this obviously within the community is sometimes these things could also be a huge ribashala because the bank is borrowing money on that on that name which ultimately he's responsible for the for for the interest. And and just consult with a roof as far as even if you do it, just consult with a roof. I recently found out about a mortgage on a huge construction part where there were two partners and one partner didn't have good credit. So he said, you know, take the mortgage in you and then we'll have like a star that we're partners. >> Right. >> And the roof said that >> is is exposed for the interest. >> For the full interest. So that's a you're basically borrowing for your partner on without without a heter iska. >> Yep. >> So let's get into our topic today and you know, there's a lot we covered a lot and I think this is I left the the best for the for the last. So we're going I'm going to divide the topic today's topic in in two. Let's see how much based on the time we have. So first I want to I want to speak about the topic of unfortunately we see a lot of people are building a liability versus an asset. They're building themselves a job versus wealth. I want to I want to from an accountant perspective the value you've seen a lot of exits. You have worked with companies that actually work towards an exit. Give us a that accountants view as far as you know, you could make a living for x amount of years, but at the end of the day if you don't have x y z you're not building a wealth. You're not building an asset that you could leave for your kids or for future for a sale. Give us the fundamentals around that. Then I want to speak about a very important topic that came up a lot through the the the engagement with the people listening to the series was about partnerships. I'm not going to cover everything, but some some of the fundamentals about partnership. But first, let's speak about how do you go from a job liability to building real wealth? >> Right. Uh building real wealth and we're just focused on specifically a business, right? We're not >> Yeah, we're not talking about real estate or anything that you're building that's just making you income. It's the business. The business should be a piece of wealth, an asset. >> The the first mindset one should have is that if their primary source of income is their business, chances are it's the most valuable asset that they have. Which needs the most >> Could be the most valuable >> the most valuable asset that they have, at least from a financial standpoint. It has to be nurtured. It has to be taken care of. Uh you have to have your involvement uh and complete focus on getting this uh asset to grow. As it grows and it makes more money, you're developing wealth in two parts. Number one is you're making more money, which you can then do other other things with, other investments. And number two, it's increasing the value of your business, right? So, depending on what somebody's plan is, somebody may have a long-term plan and somebody may have a more shorter-term plan. So, let's say somebody has a plan that I want to build this company so that in 5 years from now I should be able to sell it. That's one strategy. Another another strategy would be I want to build a company so that I should have something to give to the next generation, which is a much more much longer a longer strategy. And depending on which strategy uh you're looking to do, uh you have to run your business differently. So, as an example, uh for you to sell your company down the line. Chances are if you have a lot more market share, i.e. you have sales in various different regions in the country or whatever it is, it becomes an attractive company, right? So, there your drive is to expand and increase your sales, um uh have the products, um broaden the base of products, broaden the regions in where you're servicing so that there is an attraction for a company that has its tentacles, so to speak, across you know, across many regions, where let's say somebody is out in the west that is in a similar business as you and they want some they want a company that has a footprint more in the northeast or east, right? For them it's attractive to buy your company because then they can uh have, you know, >> another another market another piece of the market. >> you want to make sure that you build your infrastructure so that the machine can operate on its own. What I mean by that is the machine doesn't operate its own, but you're creating pieces within your business, departments, uh the leadership, uh decision-making. You develop the different different uh components of your business and and make it solid. The financial reporting, um the the logistics, uh the purchasing department, the uh sales force, whatever components you're building into the business. Although there is a cost that uh that uh this this takes that comes along with it, but you're investing in the infrastructure your company again makes it attractive. So, you know for yourself, I'm spending a lot of money, but my end goal is I don't have to make a lot of money now, right? But at least I'm building an asset that potentially I can sell it for a lot of money. And then on the long term long long term strategy is the more as you build meaning my goal is not to just expand in revenue locations slowly slowly. I solidify this region or this product, move to the next. You build slowly slowly slowly which then requires you to create certain teams within your company, but that's a much more slower build so to speak, but your business becomes more and more solid where you can say established in 1976 or whatever however far back it is, but as the business is uh has a reputation and a and a name which again is recognizable uh increases its value where you may bring children into the business to continue that, uh but you want to just have the pieces in place for the long haul. >> Mhm. I just want to add, you know, this there's a line that I've I've I've used a lot when I work with businesses is you you you have people that you work for the business or you want to have the business working for you. I think it's a very strong line. It it sounds like just a cheesy line, but there's so much in it. Yeah. You could constantly work for the business or you could have the business work for you which actually makes the difference between a liability and an asset. >> To that example, I've had a story where I was at a client um uh and I was watching him. >> Mhm. >> Was it him? He was on the phone with I think it was Verizon or something where there was an issue with the with the bills and whatever. He was on hold for 15-20 minutes or whatever, but then he got it done. Puts down the phone and he says, "Simeon, that's what happens. Persistence. A dollar is a dollar, right? You're not going to And he he got it taken care of. $187 issue." I say, "I don't understand. You have an inventory of time every day. 8-hour day, 10-hour day, right? The value of your time is worth more than $187. You can be You can micromanage, but when you micromanage and you you you don't have the ability to back up and look at the big picture, you're going to be limited, right? Have people to rely on. Delegate. Learn how to delegate. Um uh because if you're going to be a control freak and everything has to run through you, then the business the business's capability of growing will be limited as to what you can handle. So, part of it is like you said that a person wants to be an employer employee of his company all his life on that. Obviously, you got to make that decision. And you have to set up functions that can be handled by others so that you can back up and look at the overall picture and also have some say in it, some some >> So, there's a very common very very successful book out there that highly recommend for people to to to read it. It's called Built to Sell. And the premise of the book is how to set up your company if you want to exit eventually, if you want to sell it. However, what really stuck with me is the beginning of the book is that you may think this book is not for you because you're not planning to sell the business. You're planning to keep it for yourself. You're planning to leave it for your kids. That's the mistake. That's the mindset I wanted to bring you into. That even if you want to keep it for yourself, even if you want to leave it for your kids, if you build it with a foundation of an exit, you're going to emphasize on certain pieces of the business that's important. You shouldn't become the slave of the business. >> That's right. In other words, like my what you're saying is that doesn't necessarily mean that I want to sell it, but I want to build it in a way that it's a it's a saleable business. >> Yeah. Right? >> Yeah, and and and I think the the the obvious is what you mentioned before, but I think for our listeners to really get into it is go through a week of your life. If you're the business owner, and see if if you go for a vacation for a week, how many times do you have to be pulled back into the business? Or you come back, what type of decisions weren't made because you weren't here? That's the places where you could hooked you could have checks and balances to see are you you know, sucked into the business and the business cannot live without you? >> Right. >> In which that's usually the that's usually the foundation of the conversation. Um let's let's in again that SOPs and delegation and teams which we'll get into it, but let me just for you know, to to put things in perspective based on the the the exits that um you and your team have been doing for companies and what you've seen in these conversations what increases valuation? Which of the components in a business will increase the valuation the overall valuation to make it more attractive for somebody to say, you know what? I let me look into buying this business or when when the valuation >> it it depends on what what the business is obviously, right? So, there's no one rule. Um and then I'll explain to you what I mean by that. Uh if you have a business and again >> Yeah, I'm not talking about if it there's synergy like you said before like I I we just want to get customers from the East Coast versus the West Coast. I'm talking about somebody just out there for business broker to say I'm I could sell this business. >> Right. So, most sales go on a multiple of your EBITDA. >> You want to explain what EBITDA is? >> EBITDA is your earnings uh your earnings be before income taxes, depreciation uh sorry, your the earnings before interest um uh interest expense, uh taxes, depreciation, amortization, which is in essence your operating income cuz depreciation and interest is really a side expense that you have because of uh so, they take that they may look at an average over the past 2 years, 3 years, last 12 months, whatever they look at and they pay you a multiple uh of that >> number >> of that number. Depending on the industry, depending on what it is that you're selling, what what value your company has, they may pay three times, six times, 10 times, 15 times. It all depends on and the way potential buyer looks at it is if it's say a hedge fund that's has capital and they want to make investments. >> They need to deploy it. >> And they need to deploy it. So, they have a model where they have to have a certain amount of return on what they're what what they're investing. So, they gave a multiple where they know that the business is going to be generating over the next five years X profit, which is going to give them the return that they want. And then you have you know, you have people that they just want to buy a business that's going to give them, you know, that that buying it because they want to have a business that's going to give them profit. And then they have to calculate in their mind in how many years do I expect to get back my investment, right? So, that's why the multiple is why why you go on a multiple and also depends on what the multiple is. Uh but where you do get high multiples is when when there is a where you have a certain value that strategically is worth a lot for someone else, which means that maybe your profits are not great, but with your concept or with your proprietary software or product or whatever it is where somebody says if I had that, I can do so much more with it, right? If only I had that, that gives a reason that gives a person reason to pay you a higher multiple, even though I'm not buying it necessarily for the product. I'm buying it I'm not buying it for the profits. I'm buying it for the infrastructure, the assets cuz I can do so much more with it. So, it depends on who the buyer and the seller is and and depending on what your business is, you want to strategically uh yourself up for that. If you know that your business has a uniqueness to it, right? Then you want to um build that uniqueness, hone into it. So, the more uh the more um revenue you have and the more customers you have and uh you know, it becomes more and more attractive. >> Mhm. Also, predictability. Like if if if it's a predictable business that uh you know, obviously the the buyer potentially looks at it as a less of a riskier um >> Right. >> terms of >> Correct. >> Got it. Um in terms of in terms of the setting up a financial team. So, I want to touch on that because you mentioned before about the better infrastructure you have is decision-making with the people in-house, less dependent on the owner, there's more value to the company. So, this the this is something that I've can came up many times as throughout the series or people just would reach out to me in general about the question. So, a small business owner is used to having a bookkeeper, okay? Then they they maybe have a data entry person for for you know, AP AR. There's also the term I think I need a controller, I need a CFO, fractional CFO, accountant. How do How do you see the the the the the you know, each person and what what are they bringing to the table? Like what are the different functions of these things? >> I Aside from getting to the function, you ask yourself if your question is on what each function is or when someone says I need it. >> let's let's quickly speak about the functions. >> So, the function is a a book a bookkeeper technically is um a bookkeeper is someone that enters in you know, that keeps the that that enters in the transactions in the book and keeps track of you know, whatever it is. Maybe does bank recs and and basically data entry and making sure it's all up to date, etc. Uh then you have a controller which is on a higher level that sort of has may have a bookkeeper under them to help them making sure that they get, you know, all the information in there and then the controller would, let's say, deal with the the bank where you know, they have to borrow from the bank and make sure the payments are out, make sure that that their that the collections are being are being made, your vendors' bills are being paid, you know, and sort of owns, you know, owns the department on that level. A CFO is a more higher level. Think of it more of of close to the executive level, right? Which is the CFO at the end of the day reports or has ownership of all finance in the company and reports to the owners, right? So, the CFO is sort of on top of everything, which means that when the business has to make certain decisions, either we got to make more investment, we want to expand, we want to buy another location, the CFO wants to be able to make that decision based on information on the ground, right? So, and he helps the owners make those decisions. Uh he wants to make sure that the data he's he's getting or the financials that he's getting are true, right? That he can rely on it. Uh so, that's more of a higher level and this is for the point of where a business owner, you know, finance is not my strength. I'm good at what I do. I need somebody at my level on the finance side. So, the CFO would be the finance brain that the owner doesn't have that he has at at at his level. >> More more with the with the proactive um forecasting and understanding where you would >> They would be obviously a CFO utilizes the finance team, you know, to assist with with getting the information and how he wants to see the information or what assumptions he wants to make, whatever it is, but >> So, so which which level of a company like where does a company need to be to decide, okay, I need to I I outgrew just a bookkeeper, I need a controller, or I need a CFO? >> there's no rule of thumb, where okay, I'm in business for a year, check, now we got to get doesn't work like that. >> One thing that keeps on coming up on these episodes is all about cash flow and financing for businesses. Now, if you're a growing business, you sometimes have a cash crunch. Why? You're investing in infrastructure, inventory, and or sometimes you just want to have something available. That's called a line of credit. For lines of credit, I wanted to introduce you to my friend Moshi from Capitalize. He is somebody I've known personally. I've recommended him for many many businesses when it comes to businesses line of credit. So, if you are looking to have a line of credit available for your business, or maybe you have a need immediately um in order to expand and grow your business, reach out to Moshi. Go to ptaxgroup.com/loans, where you're going to be directed to Moshi directly, and he will actually guide you through the process, tell you your options, see what's available, and ultimately help you to the finish line. Remember, financing and loans, you have to be responsible how you use it. We spoke about it on the podcast, and we'll continue to speak about it. But, if you need it, or you want to have it available for reserve, reach out to Moshi. Again, ptaxgroup.com/loans, where you'll speak to Moshi, and when you speak to him, make sure to tell him that Manny Heff Me sent you. >> Uh there is a natural progression that happens, which is as your business become obviously when you're a simple business, you can a bookkeeper would be just good enough. Eventually, the business becomes more and more complex, and there's a lot going on, where you have to have a team of people handling it. Right? Now that I have a team of people handling it, and everybody has their function, how How somebody manage the finance team, right? So, you have the controller who's on top of the finance team, make sure the receivables, accounts payable, payroll, human resources, whatever whatever is there. So, there's somebody that has to sort of manage the finance team, right? Now that we have the finance team in place, right? Over time, and this goes over time. Oh, I have a bookkeeper. I need somebody else because she's handling or he's handling too much. I need somebody for collections and receivables. Now you hire somebody. So, now you start started to build another part of that team. And then eventually you say, "Okay, now I have five people that are doing different things, but who can I who who can come here make sure the systems are working right and tie everything together?" So, that's where the controller would come in. And then let's say you need now at the next level where you need to make business decisions and the controller is good at what he's doing, but he doesn't necessarily have the business sense to help me with my decisions strategically or planning or whatever it is, then you want to bring in a a higher-level CFO that sort of looks at it from a from a from a much higher level. Right? But it's a progression. It's not like when do I need when if your business grows and things are falling through the cracks, you'll know that you're missing certain links. And then you're going to want to fill those links. >> Got it. And I I think what's now it's it's it's a little bit more accessible because there's the concept of a fractional CFOs which if if you're a smaller company >> that's something that that small companies can really utilize where you have professionals out there that have CFO experience that your company cannot afford a or doesn't necessarily need on a full-time business a full-time CFO. There are professionals that you can engage. They come in once a month, twice a month, or whatever the agreement is where they have the experience and you literally have a CFO at your beck and call when you don't necessarily have to have it as a full-time position. So, it's something definitely to look at. But before you look at it, other than the title CFO, you have to really you have to really have the need for it, not because, you know, I can say I have a CFO if you Correct. You don't understand that. >> Yeah. I I I think I think what I what I've seen in the past, the simple the simple um the simple way of looking at it from a different lens is the bookkeeper is usually reactive. Things that already happened that need to be entered. The controller is more active, so he has a good grip on stuff happening. And the CFO is the is the proactive in terms of forward thinking, planning, strategic decisions that are not yet in the business, but we need to see where from the lens that where we are and where we want to go and see how these things match up. Got it. Okay, so let's talk about the topic of partnership. Um again, disclaimer, every situation is different, but a little bit fundamentals you've seen a lot, I've seen a lot in terms of a general partnership is what should a business owners think before entering with the partner like taking a partner in the first place? >> Uh actually, this is this is a subject matter that I feel passionate about. Uh the reason for it is that, you know, everybody in their business wants wants an opportunity to uh you know, to sort of take a break from what it is that they do on a daily basis and um do something else. >> Mhm. >> Uh when when it comes to partnerships, the reason why it's me taking a break, assuming that I'm dealing with these issues, is because it's not an accounting function. It's a simple relationship function. You have two people that have a relationship, i.e. a business relationship, and they're in partnership, and issues may come up, you know, and you're dealing with uh there's a personality um uh there are personality issues and um and there may be no issues, but they just want to make sure that they have a sound partnership, you >> You so that's something that's not really accounting related. The fact that you have an accounting background, so on the financial end you can be very helpful in how to structure it. Um knowing having experience of clients that are in partnerships where issues may come up or have come up that you utilize that experience towards um these individuals, you know, to help them um is is something that that is very um rewarding when you can accomplish something. Uh but getting to that, you know, it would be very very important to discuss the concept. >> Sure. >> And what it is that that uh uh you know, people should should look out for. Um so I would say, let's go with the assumption that there is a partnership. What I mean to say is that there's two people that are in business together. Not going to get into the subject of I'm in business on my own, should I take in a partner or not, right? Which is a a different discussion. But let's assume at And again, >> Well, let's let's let's let's >> You want to You want to go there? Okay. >> I'll tell you because because this question has come up, I would say at at least once or twice a month it comes up it's on startups. Sometimes even on people that are successful that just feel that they they just can't can't do it on their own. >> Right. >> And and this question comes always up and there are people that said, you know what, I asked my father, I asked my my share and he told me, "No, don't take a partner because 10 years ago Zady had a partner and it didn't didn't work out and stuff like that." >> I do believe and again, this is my personal preference that everybody has certain places where they shine and certain places where they don't. And sometimes that places where they don't shine, they could actually take an employee to fill. Sometimes the nothing will replace a owner >> Right. >> in that seat. >> Right. Right. >> So something you have to know yourself, could I survive the lows and the highs on my own? >> Right. >> So I think that alone is is I'm not going to we're not going to go into much detail on that. But, I do want to just not not ignore the topic that if you feel that that in order to bring out the best of yourself will only happen with a partner and the partners complement each other not only now, even eventually when we're going to split up what the responsibilities are. >> Right. >> Then go for it. We're not talking about investment partnership. We're talking about working partners. >> Right. So, that definitely is definitely is a plus where if somebody know and again, let's say there's a business concept or whatever it is and they know what their limitations are and they have a friend or they're aware of somebody that has certain talents that can be very complementary >> Mhm. >> to this business and like you say, so go hire somebody. The that could be an angle. The problem is that when you hire somebody you're still the owner and the responsibility the business completely relies on you now. The buck stops here as they say, right? That's ultimately your responsibility. It is helpful or it takes away some of your stress where certain responsibilities that you may not be good at, you have a partner that that is their function and that they handle. >> Mhm. >> And like you say, I can shine in my side and you can shine in your side and then when we work together you know, it it's a good recipe for success. Obviously, that may be a very very very very good move. >> I actually just I just I want to share because I think it's important for the listeners to hear this. I recently had a story that I brought together two people in the same line. One is a phenomenal sales guy. He doesn't want to do anything back end. The other guy only wants to back end and he had an issue for the last 3 years in his business on sales. >> Right. >> And it's the best shoulder possible because everybody's in their zone. Matter of fact, they have an issue nowadays that they can't keep up on growth because the sales guy is is shining just bringing sales. Operation wasn't used to to that level of >> Like they say the recipe the recipe for a good partnership is if 1 + 1 = 2 >> then then you get a lot of crap. >> right? If 1 + 1 = 3, 4, or 5, then obviously obviously it would be the right move. >> Okay, so let's go back let's go back. So I just want to get it out of the way that that that alone is a conversation of its own, but it's it's it's not a one-way um >> No. >> It you know, it has you have to know where you're coming from, what your strengths are, what your weaknesses are, and see if the answer to that is that is the partner. >> Correct. Correct. >> So let's go back to your chain of thought which you said assuming there is a two people getting together. >> the question is got to put together a partnership agreement. When is the right time to do it? Right? >> Yeah. >> Many times I've seen that there was no solid a partnership agreement and then when they came to me to sort of work it out was after their after they're started some sort of I'm not going to say dispute, but certain disagreements or certain philosophies and how the business should should go in which direction. And being that we're not on the same page, we got to put together a partnership agreement and avoid problems. >> Lack of alignment. >> Lack of alignment so to speak. Uh to do it at that time is doable, but it's a lot more difficult. Um the best time to to put together a partnership agreement which can deal with very very sensitive issues is when everybody is on the same page and we love each other and we have the best relationship. The fact that you have an agreement it's not meaning and the agreement can have discussions about buyouts and splits and all that stuff. Me buy splits I mean we're we're we're we're >> We're just barely sliding away. >> And we love each other and this is going to be great. That is the best time to to actually put it together because then you have you have the you know you have the relationship where you can deal with sensitive issues and then nail it down and then take the agreement put it into a safe and hopefully you'll never have to go back to it but that's usually the best time for for you to do it. And then the question is what's the mean? What's a partnership agreement? What should I address? What what I mean we're partners it's 50/50 we have to put in money you put in 50 you put in 50 we share the profits 50/50 what else is there? So there is a lot of a lot of components that one should consider to at least discuss and come to terms with which down the line in 10 15 years from now could be a problem unless you take care of it early on. >> So what are what are the highlights of those things that are usually go into such agreement without going into every nitty-gritty? >> So the one very important thing of a partnership and we touched it but it should really be solidified. So when we say that a partner has a certain function and duty versus the other partner has their function and duty and like we say that each one has their own talent document as far as what each one's responsibility is. If you don't document it then it could become a who's going to take care of it? No you should take care of it. Oh that's not something that I do you should take care of it. Right? It becomes that. So to understand what each partner's function is with within the business and obviously you want to set that up based on each partner's specific talents right? A different thing that you you you have to take into account is if the business is going to have to have money right? Be very clear as to how how that happens. You want to set decision making with regards to in other words what authority does one partner have over the do I have to go to my partner for every decision? I mean, do we have to have a meeting, a board meeting because I got to decide on this and that? So, you want to set the the threshold as far as where I'm in my authority to do A, B, and C, and I have to necessarily say obviously the partner trusts me because our interests are in line. I want the business to be successful. So, that has to be spelled out. Uh you may want to spell out if uh in the future you want to bring children into the business, right? Set that up early. I want guy has One guy wants to bring two children into One child Set Set up what the what the what the parameters are. >> I've seen partnerships where you can't employ any of your children, right? Uh >> I actually had had this conversation not to to derail the conversation, but I had this conversation with uh with a very smart guy years ago, and he said we spoke about a partnership about uh third party, and that was the sticking point about the kids. He says, "You know what? I feel bad because this always comes up as one of the things when partners come up, and then most of the partners decide okay, no kids or something like that." And he's building a >> sense, that's how you do it. >> He wants to leave a legacy for his kids, and all of a sudden that's a >> partnerships can can change, right? >> Yeah. >> They may say you can employ your child, but you can't give shares away to a child or whatever it is. >> Again, I've seen companies where they had a rule no children in the business, >> And eventually things change. >> things change because they had talented children, right? So, but again, you it has to be discussed. >> Mhm. >> Um if has to show a partner you know, >> That's injured or sick. >> injured or sick, right? Or passes away. What is What happens now? Um I'm not talking about the situation where a partner embezzles the business as opposed to you know, how to deal with it. Um Uh you know, these things these these things have to be discussed, and where we really run into problems I have seen, especially when somebody's been in partnership for quite some years, right? Where there is one partner that's the workaholic. And they're putting in 12, 13, 14 hours a day. The other partner is doing their function, but they're more of 9:00 to 5:00, I'm doing my thing, etc. Where the frustration starts not really between partner and partner. You can have the family of the workaholic complaining. Like, I don't understand. Why you you're never home. You're a 50/50 partner, he's home, he goes on vacation, he has a life, you're working for Yanam. You know, it can become a can become a >> Yeah. >> uh friction in in that component. So, that's many times I deal with such issues where we have to then create a and again, once you're 50/50 or whatever the partnership is, there's no way out of it, right? >> Yeah. >> There's a buyout, right? >> Mhm. >> So, how do you deal with it? So, you have to equalize or level the playing field so that at least the partner that's putting in the work uh can't complain. Yeah. You know, [clears throat] but >> But by the way, on that, I'm I'm I'm curious to see how how you um respond to some of that, but I've I've worked on certain partnerships where we we knew the going in that this is going to happen. This guy is a workaholic and this guy is just desperate for a partner and the other guy will add value, but more high-level not not everyday. So, we split it up the the you know, the dividends of partnership and then salary. So, we said, you know what? >> That's definitely that's that's one tool. At least you're getting paid for your >> 50/50 on the on the dividends, but I'm getting extra paid, so I'm taking out extra hundreds or whatever 200 whatever the depending on your role to to to make up for the extra effort or hours. >> where there's a money partner that says, I'm a money partner, I took the risk, you're the one that's active in the you're getting paid with your profits. >> Mhm. >> To which the person is saying, "Yeah, profits is profits. I should be paid for my work. If I'm not here, then somebody >> Somebody else would have to come in, yeah. >> Right? And then the part then the money investor says, "So, how am I getting paid, right? I put in the risk." So, you can work it out where he gets a salary, he gets a preferred return on the money that he invested. So, now you're getting paid for your money. >> Mhm. >> There's different ways to level the playing field, but you want to you want to set it up in a way where one can have a complaint against the other. >> Let me ask you, because you mentioned it before about certain things in a relationship something change. We also see it like I sometimes see two two people just starting off a business and they're now busy like for a month about a partnership agreement. And sometimes they'll I'll speak to them and I'll say, "You know what? You don't even know if the business will be exactly what you're planning it to be and you're busy now with every scenario. So, I sometimes advise people to do something preliminary for the first 6 months or 12 months and then in part of that agreement is by month 12, if we continue >> makes that makes sense. And then again, I'm not I'm not saying do a partnership agreement, you going into business, do it today. >> Yeah. >> You don't know where it's where it's leading, but early on in the partnership when things are moving in the right direction and you're growing and everybody is sort of filled their their position in the company and you can you have the ability to foresee certain issues or whatever, you do it at that time. >> Um there's one thing I I like sharing when we speak about this topic is I've seen and I want to hear your take on it. Um I've seen just about partnerships break up when the business is successful just as many times as when the business is not successful. Like the the human nature says things are not working out and therefore partners have a get into friction. I've seen equally or even more times when the business is actually booming. And that's where the one partner versus the other partner starting to see I'm adding all the value, you're not and stuff like that. I've seen the same thing. >> where the frustration happens where at the end of the day the partner one partner gets more credit for the growth and the other one is sort of sitting around. But a partnership is a partnership. You have You have a choice. You buy him out. And what are the terms of buying out? >> Also should be clear and defined. >> in the partnership. >> What are What are the biggest financial uh mistakes you've seen partners make from the get-go? Like we spoke about one of them, understanding like long-term who's investing in a business. We spoke about uh >> Uh the problem that I have that I that I see um often, let's first put the one one issue, let's get it out of the way, which is for whatever reason one partner is sort of taking out too more money than the other partner. >> Okay. >> Right? Um So, that's an issue. >> Mhm. >> If partners have to have a husband have to have a schedule, make I call it a black book. Have a black book, as they [clears throat] say, for memory's sake. We have no issues. Got it. No issues. Especially you find it with family members where two brothers in a business, they trust each other, they love each other, but at the end of the day for memory's sake, the money is accounted. For memory's sake, have a ledger where you where you have uh uh a column for each one and you know exactly where you're up to. Just so in the event in the future, you'll need to know. You have that information. I've had a situation where there was two partners. Uh they want they hired us to do a forensic. Um one partner accused the other one that the other one took out much more money. They hired us to do a forensic job going back 20 years. >> Woah. >> Uh 20 years. Once he didn't trust him, this and that, we we did the forensics. It came out and the other partner complained that I'm spending money and whatever you don't trust me. Came out that the partner that made the accusation had taken out more money than the other one. And he told us, "Okay, you can stop with the forensic job." And the other one that didn't even hire us says, "No, no, no, no, no. You go ahead. You continue until you get to the end." Bottom line is, you don't need a forensic accountant to come in and make that calculation. Keep a book just for memory's sake and have a trust, right? Yes, I took out more, but we know how much more, right? >> I I I got to mention this. When I was a kid, I used to go to my father. He had a knitting factory. Um those days like uh hundreds of knitters like before before stuff was ex- um you know, exported to China. And I I I as a kid I loved like uh um you know, office supplies and stuff like that. So, there was like a closet of office supply. At one time, I still remember I I went to the closet and I said, "Um tatty, I want to take a stapler with staples." He says, "You can't. I have a partner in this business and I'm not just taking supplies. It belongs to the business, not my personal. I'll buy you. Here's a couple of dollars." It taught me a lesson. Like, that's how you have to look at your business. If you have a partner and if everything is 50/50, again, you're living a relationship with that that's that was just a principle from the from the older generation. But in general, what we're speaking about it's a very important topic. >> a funny story. I don't know if I should say it, but I I I figured I'd say it. >> [laughter] >> Um I'm a partner with um I have a partnership in the firm together with my father. Um and we obviously have our arrangement with how part how um you know, what share the profits are and etc. And we treat ourselves, you know, it's obviously a father and son relationship, but the trust level is to the top, right? And it's an admirable to see how how we're very very um concise as far as how the fish burners are and and uh etc. There was once a situation that was like 12 years ago. Um where I got the calculations and the I run the numbers and I see that my you know, for some reason my father was off by not a big amount. Couple of three, four thousand dollars. But I noticed it. Now what do I do? Do I go and say, "Hey, you made a mistake. It's my father and it's $3,000. But on the other hand, he may find a mistake and then say >> Bother him even more that you didn't say >> I didn't you come to me or why didn't you notice it? Do you review the cash register or whatever it is? I was in a rock and a hard place. What do I How would you handle that situation? >> So, I'll answer with another story. Uh there was once a guy that that um that came to his boss and he said, "My paycheck is off with $170." And the boss said, "Last week it was I gave you extra $170. You didn't tell me. Says the first time you made a mistake, I couldn't I couldn't care, but it's but it's twice that you made a mistake. [laughter] I have to have to bring it to your attention." >> So, at my end I was thinking what am I supposed to do? >> But the short answer is that is I'm bringing >> I should tell him, right? >> Bring it to your attention just because it strengthens the relationship. It doesn't diminish the relationship. >> I made the calcu- I took a piece of paper. I ran his calculation, my calculation showing the difference on a piece of paper. I folded the paper. And I knew that in his desk he had a Webster Dictionary like a pocket dictionary. I stuck the paper in. That's it. And lo and behold, a month later he came calling me at the office. He says, "So, sit me and I I noticed by the way that I made a mistake." So, I say, "Could you open your drawer?" He opens the drawer. I say, "Pull out the dictionary." He takes out the dictionary. >> It's there. >> Wow. >> The way I did it was I accomplished both. A, I didn't have to tell him. And second of all, when he >> He notices it. >> noticed it, so at least he knows that also knows >> Beautiful. Beautiful. So, I want to I want to speak about two more um topics related to partnership. One is um um and and it's becoming even a bigger issue what I'm seeing is where today with ChatGPT and all the other AI tools, people um neglect taking legal advice or taking professional advice, let's call it, and they're just saying, "Oh, we could do a partnership. Let me go to ChatGPT, put in the basic terms, spits out a a What have you seen throughout the years? What's the importance and how much should a person spend on on a real partnership agreement? >> So, as I say um um It you you know, a penny penny What's the expression? Pound foolish? >> A penny cheap. Yeah. >> Penny cheap a pound Um when it comes to something that can affect your life, a partnership agreement between your between your partners, right? It's a relationship, a business relationship, which ultimately would be a successful business relationship. That is a serious matter where you want to have it done, and both parties should agree to have it done the right way. Doesn't mean you have to go to a large Manhattan firm, but you go to an attorney that has experience um that understands the culture, understands the the people, and puts it together. If you just want to check it off your backs, then you can go on Google and get the boilerplate and and and and that's it. So, you have it, right? Cuz the bank wants a part partnership agreement so we have what what to give them. But at the end of the day, you want to spend uh the money, not talking waste the money. You want to spend the money in things that are important. When it comes to any Now, you may have questions, legal questions that you can technically search on your own, but when you're dealing with an issue, a bank loan document, right? Yeah, it's boilerplate. It's not so boilerplate. The bank's it's it's small for a reason, and it's not so boilerplate. You have to go through the process, and you may have to spend a little money to to get it done. But you have to know where to spend and where not to spend. When it comes to agreements, you The only time you need the agreement >> is when you need it. >> is when you need it. And when you need it, you want to make sure that you're protected. If you're never going to need it, you're right. So, don't spend the money. So, then why need it to begin with? You're obviously doing it if in the event I will need it. So, you want to make sure that it's drawn up in a way that when you'll need it, you'll be protected. >> Yeah. There's this There's There's saying out there for years I've heard it um which is if you make an agreement like a gentile, you're going to live like a Jew. If you make an agreement like a Jew, you're going to live like a gentile. Which means is if if you focus it's it's sometimes hard because it's the beginning of a relationship or it's it's it's not a it's not an exciting moment because any agreement will have this back and forth. And and and and but, if you have it, at least you squared it away and you have it >> be aware that by dealing with it, they shouldn't look at it as if you know, like when you have a there's the concept of a prenuptial agreement. Here we're getting married, you know, and we're talking about a prenuptial. So, you're already there's a trust issue? >> Yeah. >> Again, when it comes to partnership, you want to just say that for us to have a healthy relationship, >> a >> we want to know that at least we set the rules. And you set the rules, nothing wrong in setting the rules. >> Yeah. And again, I can't I can't emphasize this enough that one is could be the beginning if your mom is a startup, beginning of of that you might not have all the details you need. So, you might have like a a period you make a a basic agreement for the first 6 to 12 months and then eventually >> it on your on your business plan, have a timeline at some point to address it. And obviously, the more you're in your business, you know, >> much more of the details. >> with each other's parts and how the business is going to to come up with a good agreement, but you should take care of it early. >> Yeah. Now, I will I will close that that a lot of great partnership is mutual respect. You could have the the most amazing partner on books on the books. You could have the most amazing partnership agreement. But if there's there's no mutual respect, eventually this is going to fail. So, good partnership is understanding we will have disagreement. But we'll still mutually respect each other. >> And we we know we're going to we're going to agree we're going to agree to disagree at times and come up with ways to figure it out. You're saying mutual respect, there should also be trust. >> Yep. >> Trust, the same way you want to be successful, your partner wants to be successful. You may have a disagreement how to get there, you work it out. Um but uh and then you have success. >> Any final thoughts on the series of finance, let's talk finance? >> Yes, I guess this is the last episode. >> For now. >> For now, I think it was a it was a lot of fun. Um we tried to keep things um as simple as possible, cover as much ground as we were able to cover. I think we covered a lot of ground over six six episodes. Um and it really is a pleasure of mine to share it my call it my knowledge, it's really not I mean it's my knowledge, but it's my experience. And if it could help somebody else at least to put something in someone's mind where they should start asking questions. >> Yeah. >> And trust professionals. Um ask the questions and don't do everything on There's nothing wrong with asking questions. >> I will say this, um there's one question I want the listeners to constantly ask themself is, if you stepped away today from your business, are you leaving a job or are you leaving an asset? And if you have this question constantly in your mind, you want to listen again and again to these episodes and make those changes because that's actually makes it a change from a job to an asset. So, it was a pleasure and I know this you know your time is valuable. Um I know there are people reached out to me. I know we we link it in the show notes. If people want to reach out to you for a consultation to review what's happening in their business or anybody else in the firm, um are you open for that? >> Sure. >> Okay, so um I know the snfco.com which is the website. Um is there a direct email address or something that >> send their info at snfco.com. >> Okay, or the phone number is 718-232-1111. >> 1111. If you forget that number, then >> go to snfco.com. Now, um I will tell you this. Um most of the people in business probably have an accountant. Sometimes you want a professional advice for a certain situation in your business. Sometimes you want to discuss the partnership you have outside of your especially if you have an existing accountant, you want to maybe have an outside opinion about it. Um these are the places where you sometimes want to reach out to Simeon or somebody else in the firm just to have that outside advice and then uh hopefully um they could guide you to the proper um the proper solutions. I also want to thank you for listening. I want to tell you there's a bunch of other series in the in the making, so stay tuned for that. I want to thank this um series um sponsor which is Flow Digital and Pipedrive. We spoke so much about data. We spoke about knowing the the numbers at your fingertip. Part of it start starts with sales, the CRM. Um have a system in place. Don't rely on your memory. Go to flow.digital/ltb and you're going to have an exclusive 45-day trial plus the team of Flow Digital to actually help you implement. Thank you for listening and we'll see you again the next series. This episode of the Let's Talk Business podcast is sponsored by Flow Digital and Pipedrive. Sales is the lifeblood of every business. No sales means no revenue and no business. So if you are a business owner or in sales, you already know how important it is to have a proper CRM. A good CRM helps you manage your sales process and keeps leads from falling through the cracks and make sure you have the proper reporting so you could analyze what's happening every single day. If the CRM is too complicated or not set set up properly, the team just won't use it. When that happens, leads get lost, follow-up get missed, and ultimately deals stall. That's where Pipedrive comes in. Pipedrive is an easy-to-use CRM designed to make tracking and sales process simple. You can see your pipeline at a glance, move deals forward, and make sure you never miss a follow-up. And with built-in AI, get insights to help you close more deals. But that's not all. Easy-to-use doesn't always mean efficient. 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And that's a wrap for today's episode of the Let's Talk Business podcast. I hope you enjoyed the practical, no-nonsense advice that our guest shared. If you found value in listening, I would be so grateful if you could share the episode with your