10 Minute Coffee Talk Interview with Mark Podolsky about Invest Local and Franchise Warnings

Mark Podolsky from www.TheLandGeek.com dialed me up for a brief coffee talk conversation the other day.

Here is the video of the interview.

Original blog post is here: http://www.thelandgeek.com/coffee-talk-david-barnett/ 

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Delegating tasks vs. delegating responsibility. What every business owner needs to learn before they can grow.

I had a great consulting call the other day with a business owner who was thinking of selling one of his businesses. He simply didn't have enough time for it.

Why was this guy able to have 5 or 6 managers reporting to him when he was an executive in a big company but now only one manager was driving him crazy?

Learn about the difference between delegating tasks vs. responsibilities. Want to speak to me? http://www.clarity.fm/davidbarnett

Transcript:

Hey there I want to make a little video because I had a really cool call with someone on the phone the other day. A quick consult call and it ended up being an hour. It was a business person who owns a couple of different businesses and two of the businesses that he owns are the same. But they are in two different provinces, so they are far away from each other. And basically every year he sits down and does some planning as to what he wants to do for the coming year. And he looks at all the options for all these businesses, and he wanted to talk to me about the idea of selling his business that is in the neighbouring province. And I basically I asked him all sorts of questions. But it came down to two questions about this potential selling of this business, and I basically asked him, why do you want to sell? And he had opportunities to use money, that was number one, and number 2 it took a lot of his management bandwidth and waste a lot of his time. 

So we went through briefly the whole idea of selling it and sort of did a back of the napkin calculation of what the business might be worth, what the terms of sale likely would be, and how much money he would end up with if he tries to sell it. And is that enough to accomplish his other goals or opportunities etc. But when I started asking him about the personal reasons for getting rid of this other business, what kind of time or bandwidth does  this would take up for you? He started to explain to me that sometimes every day there is something he has to deal with in that other business. Now I had spoken with this entrepreneur before, and I knew a little bit about his history, and I knew that he was a senior level vice president of a large corporation. And would have had many managers reporting to him when he was back in the corporate world. So I asked him, I said, how many managers did you supervise when you were in your corporate job? And he said, quite a few, sometimes five or six.

And I said were you stressed out and had no time then, and why were you able to manage five or six managers in your executive role, and you are having difficulty and stressed out by managing one manager now. And it's a great question, in fact he wasn't able to answer it. So I had to prod him a little bit more, and basically it comes down to something that his fundamental in the book E-Myth by Michael Gerber. And it's the difference between entrepreneurs and technicians. And even people who know how to properly manage and be entrepreneurs sometimes need a little bit of coaching and a little wake up call to get themselves back on track. When he was a corporate level executive and had many managers beneath him, he would manage by numbers. So a person reporting to him had a certain role and they had targets they had to meet, and he let them work at that. And he probably review the numbers every week or every month, and when there were problems he would outline expectations and give them support or help if they needed it.

But he let them do their job. So in big corporate enterprises, what you see is a delegation of responsibilities. In small businesses what you technically see is not a delegation of responsibility but a delegation of tasks. So the owner is so busy he can't do everything but he still wants to make all the decisions. So I pointed this out to the guy, I said you are interfering in the work that the manager has to do. And they are not making decisions, they are not doing everything they could do because you are always getting involved. So why are you managing in this fashion today where before when you worked for the big company, you didn't do that. Again, why, what's the difference? And what I think, and this is from my own experience and observing so many small business people over the course of time, is the difference is, it's your money. When you are the executive at a big corporation some person that reports to you, they might make a mistake that costs $10,000 and while it may affect you and it may affect your bonus or something by having an impact on the numbers for the year. It's not your $10,000 they lost, it the company's $10,000.

And I think it's that level of detachment in the big corporate world that allows these big corporations to actually function because people will actually delegate responsibilities. And not be so concerned that any little mistake is going to cost the individual within the corporation personally. Now in a privately owned small business it’s totally different because if he let that manager do their job, and made a decision that lost $10,000 they just lost 10,000 of his dollars. And that's the difficulty, so I think it was sort of a breakthrough with this guy and he realized that what a lot of people do is that, there is never a good financial reason to sell a profitable business. You can never get for a good profitable business what it is worth to you. That's why people who sell small businesses always do so because they have a pressing personal reason. The numbers never quite make any sense, you always at the end of the day go, Jeez well if I just kept it for another 2 or 3 years I would have the same money anyway, right. So that's why you have to have a personal motivation to actually pull the trigger and do a sale. So he is going to work on himself over the course of the next year and try to actually delegate responsibilities to his manager in the other province. And try to manage the way he used to back when he was an executive. I thought that, that was a really great call, if you would like to speak to me about some of your business deals or talk through a decision or pick my brain and do a quick consultation. I'm available all the time. The easiest way to get to me is at clarity.fm/davidbarnett. Any way until next time talk to you later. Bye

The Invest Local Book blog is all about small business, franchises, local investing, home economics, small business systems and borrowing money for your business. It's full of great content and I look forward to seeing your feedback.  Sign up for my mailing list and don't miss a thing! [CLICK NOW]

[VIEWER QUESTION] How can I trust that my information will be safe when buying or selling a small business?

People are always worried about their personal information, especially when it comes to the details of a private business.  Would it surprise you to know that buyers and sellers both have compelling reasons to safeguard the details of a small business for sale? Watch:

Transcript:

Hey there this is Dave again from the investlocalbook.com blog site and I got a question from someone who is talking about their personal private information when it comes to signing the NDA non-disclosure agreement, when being a buyer or seller of a business. Basically asking, can I trust that the other party is not going to divulge my information? Well let’s look at it from both sides of the transaction. So, from the sellers point of view they want to sell a business. And their personal private information might include the financial statement of the business. And of course they are worried if they share that information with prospective buyers, that these buyers will go and share that information with other people. So here is the one thing that you have to understand. The buyer is motivated to buy a business for some reasons. Either they hate their job, they don't have a job, they want to expand their existing business, what have you. If they break confidentiality and tell people that your business is for sale, they might ruin your business which will destroy the very thing that they are trying to buy to achieve their goals.

Now as long as they understand that, so when I was a broker I use to tell that to buyers, I use to say, look you have to protect confidentiality of this information. And even the fact that the business is for sale, because this is the solution to you problem. And if you break confidentiality, you are going to ruin the solution to your problem. And that usually took care of things. I only ever have one buyer that had callous disregard for confidentiality, and I fired him, he was gone. Now from the other point of view, if you are a buyer and you are disclosing personal information to sellers and brokers etc. Then it becomes a question of what kind of professionals are you dealing with, and you know one of the greatest tools that has come along in the last few years that can help judge how professional someone is, is a website called LinkedIn. On LinkedIn, you can look someone up and you can see how many contacts they have, and you can see how many people endorse them; give them a little thumbs up or a plus sign. 

for different skills. For example if you go and look me up on LinkedIn; David Barnett, you are going to realize that over 99 people have endorsed me for entrepreneurship, close to that number for small business etc. There is a whole list of attributes, those people have actually looked at me, they know me, they are connected to me and they say, yep, David is an expert in that field. So when someone looks at my LinkedIn profile and they see hundreds of endorsements, it's a really great way to know that you are dealing with a professional person. On the other hand if you go and look in someone's profile and they are like four people that endorse them, then you have to wonder, how well is this person known in the community, how long have they been in business, why don't they have this web of connections with other movers and shakers in the industry. It's one of the ways that you help verify if you are dealing with someone who is out there and who is what they say they are.

 If you are a buyer and you go to a broker who says he is connected to all these different people and all these different businesses, then there should be evidence of this online. Any way that's my insights into how you can know whether you trust someone with your private information. If you are interested in learning more how to buy a business, you should be checking out my online business buyer course which is at, www.businessbuyeradvantage.com. See you next time thanks.

The Invest Local Book blog is all about small business, franchises, local investing, home economics, small business systems and borrowing money for your business. It's full of great content and I look forward to seeing your feedback.  Sign up for my mailing list and don't miss a thing! [CLICK NOW]

7.55X Return on Investment for this student! Why you should take my local investing course

I had a great conversation with a student who took my local investing course.  They're about to do a deal which will pay them back many times over just from the lending fee involved in the deal.

You can take this course.  Sign up at www.LocalInvestingCourse.com

The Invest Local Book blog is all about small business, franchises, local investing, home economics, small business systems and borrowing money for your business. It's full of great content and I look forward to seeing your feedback.  Sign up for my mailing list and don't miss a thing! [CLICK NOW]

Another happy customer.. Thanks Byron!

Byron has left a new comment on your post "I need your input: do you want to learn how to do ...":

I am so glad I found your blog! I love learning new financial concepts and strategies related to business ownership and personal finances. 

[VIEWER QUESTION] What are the best cash flowing businesses to buy?

What kinds of businesses can produce the most cashflow? Are there certain types? Let's see.

Transcript

Hi there everyone it is David Barnett and this week I am answering a question from Bruce and Bruce asks: What are the best businesses to buy with respect to cash flow? Now as far as my understanding of what cash flow means is I want a business where a high percentage of the sales ends up down in my pocket. So, there is really three categories of businesses as far as I am concerned that can create a high degree of cash flow. 

The first sector is what we will call regulated businesses; now when you first think about regulated businesses you might think about larger businesses like: power utilities or natural gas pipelines for instance. Anywhere, where rules and regulations prevent new competitors from entering the market. This can be good for protecting the profitability of the players that are already there. Now, in some jurisdictions there are some regulated industries that would be considered small businesses that you could get into. Where I live for instance it is highly regulated who can be in the bottle return business, so there is only a certain number of a licences out there. And what  that does is it limits the competition for each region of the providence meaning that the operator who has the licence can probably get a little bit more profit out of that business than he would be able to if there were many competing businesses all around him, so that is the regulated industries.

The second category would be your service businesses where you don't have a high cost of goods sold. So this would be in contrast to a business where you sell goods; let’s say I sell oil I take in a dollar of sales I might have to take $0.90 of that dollar and turn around and use it to buy my product.  So, that is a commodity business, I wouldn't consider that a high cash flowing business. If you compare that to a service like house cleaning, you may have a labour component but you can adjust your labour input to meet demand, to meet the sales. So if you don't have work and you don't have homes to clean you then cut back on the hours that you employ your employees so that you can have more of your sales fall through to the bottom line. And that is why there is such a huge service sector in the industry and I even consider things like restaurants to be part of the service sector. Because, they tend to have a low cost of goods sold. if you can meet that breakeven point every month. Then a high percentage of your marginal sales over break even ends up down in the net income one.

The third category of businesses that would be a high cash flowing sort of business to get into would be a business that you work once but get paid many times. So, think about for example the books that I write; each one of them took days of my time and effort to write and then edit and then prepare them. But now that they are done I can sell them over and over again and every time I sell them I earn money but I don't have to do any work. That is why we see such crazy sky high valuations in the world of IT or online businesses. There is a term in the online world called "SaaS" or software as a service. Where they take what might have been years ago a piece of software that you would buy but instead of selling you the software they put it online and they let you use it for a monthly fee. There are all kinds of things on there now that you can probably find that can be offered as software as a service like accounting packages and things like this. Even google apps like google docs if you are business; you can sign up I think, I believe it is only $5 per month per user.

But if you consider the fact that the work gets done once and is now out there on the internet and now serve thousands or tens of thousands or millions of people with the same platform then obviously all these customers that come in are creating more work for the people that built the system. Now that it has been built it is up there it is running, so those are your three categories; regulated businesses, service business and call it technology or intellectual property businesses where you create or do something once and are able to sell it many times over. 

Anyway Bruce I hope that was helpful for you and as always if you enjoy my video please like or share it that is how I grow my viewership and if you want to make sure you don't miss out on any of my latest offers or new videos be sure to subscribe to my email list.

  

The Invest Local Book blog is all about small business, franchises, local investing, home economics, small business systems and borrowing money for your business. It's full of great content and I look forward to seeing your feedback.  Sign up for my mailing list and don't miss a thing! [CLICK NOW]