Mindy Jensen: Welcome to the BiggerPockets Money Podcast, show number 296, Finance Friday edition, where we talk to Chris about the sometimes harsh realities of running your own business.
Chris: Well, when I was putting together my little summary for you guys today, this is the first time I’ve sat down and looked at my business financials in a while because I’ve been working 60 or 70 hours a week without doing the financials. And I was coming to kind of the same conclusion that obviously what I’m doing is not working the way I’m running it right now.
Mindy Jensen: Hello, hello, hello! My name is Mindy Jensen, and joining me today is my smart cookie co-host, Scott Trench.
Scott Trench: What a fully baked introduction, as always, Mindy.
Mindy Jensen: Scott and I are here to make financial independence less scary, less just for somebody else, to introduce you to every money story, because we truly believe financial freedom is attainable for everyone, no matter when or where you’re starting.
Scott Trench: That’s right. Whether you want to retire early and travel the world, go on to make big-time investments in assets like real estate, or start or reset your own business, we’ll help you reach your financial goals and get money out of the way so you can launch yourself towards your dreams.
Mindy Jensen: Scott, today we are going to speak with Chris, a man who lives up in Canada, but all the information still applies to anybody, no matter what area of the world you’re in. He lives up in Canada. He would like to be financially independent within the next 10 years, but he’s got some interesting curveballs being thrown at him right now. Most of them stem from the fact that he owns his own business.
Scott Trench: Yeah, I mean, I think, you know, we’ll get into this, but Chris is upside down. His business is not bringing in enough income to support his lifestyle and he’s got several employees and some real problems there. And I think this was a particularly interesting Finance Friday, a situation we have not come across before. And I think we had some tough, unfortunate advice that I think we hope we’re wrong on, but think probably might need to be implemented by Chris.
Mindy Jensen: Yeah, strongly considered. And, you know, we’ll get to that in just a moment. I do want to stress that this is advice specific to Chris, but not really specific to Chris because he is, you know, he’s running his own business. And I think there’s a lot of business owners who will listen to this show today and say, “Ooh, I feel seen.” And, you know, we gave Chris several options. We didn’t just give him one option: this is what you have to do, and that’s the only path to success. There are a lot of things to consider. And I hope that if you’re listening and this is making you feel seen, you think of the different options that we’ve given Chris and see if those can apply to your situation as well.
Scott Trench: Absolutely. Well, should we bring him in?
Mindy Jensen: No, we have to tell about the contents of this podcast. We have to talk about our attorney saying the contents of this podcast are informational in nature, and neither Scott nor I nor BiggerPockets is engaged in the provision of legal, tax, or any other advice. You should seek your own advice from professional advisors, including lawyers and accountants, regarding the legal, tax, and financial implications of any financial decision you contemplate.
Speaker 1: You know that feeling you get when checking your finances means logging into 5 different apps? That’s why I use Monarch. Setup takes about 10 minutes. You can link your accounts and everything you own and owe lands in one clean dashboard — banking, cards, investments, even keeping track of recurring charges. After that, you can stay on top of your money in just minutes, not hours per month. Monarch saves you time and actually helps you use it wisely. Use the code POCKETS at monarch.com to get your first year of Monarch Core half off at just $50. That’s 50% off your first year at monarch.com with the code POCKETS.
Mindy Jensen: Here’s a fun fact: you’re not just buying a house, you’re marrying the neighborhood, the commute, the noisy street — all of it. Till death or a very motivated realtor do you part. That’s the kind of real talk you get on Own It with Angie Hicks, the new podcast from Angi co-founder Angie Hicks. She sits down with designers, agents, and everyday homeowners to talk about what actually matters when you buy, renovate, or just try to survive your to-do list. New episodes every other week. Subscribe to Own It with Angie Hicks today.
Speaker 1: You don’t need me to tell you that rent and mortgages are only getting more expensive. That’s why Bilt created 3 credit cards designed to offer the richest rewards on rent, mortgage, and everything else you spend on. Whether you rent or own, you can earn up to 1.25x points on every housing payment without the transaction fee, no matter where you live. Points can be redeemed for flights, hotels, Lyft rides, a future housing payment, and much more. Turn one of the most unavoidable payments in your life into the most rewarding. Find the card that’s right for you and apply at joinbilt.com/bpmoney. That’s J-O-I-N-B-I-L-T.com/bpmoney. Use our link so they know we sent you. Terms apply. Subject to approval and eligibility. Bilt cards are issued by Column N.A., Member FDIC, pursuant to license from Mastercard International Incorporated.
Mindy Jensen: Chris and his wife are looking to hit FI within the next 10 years, but they have incredibly variable income, anywhere from $1,000 a month to $7,000 a month. His most burning question is, how do I plan for expenses when money is so unpredictable? Chris, welcome to the BiggerPockets Money Podcast.
Chris: Thank you very much, Mindy. I’m happy to be here.
Mindy Jensen: I am excited to talk to you. You have a lot of interesting aspects to your financial situation, so let’s jump right into it. What is your income and where’s it going? I guess I already answered that question — your income is whatever, and where does it go?
Chris: Precisely whatever. That’s a very good way of putting it, actually. Yeah, I’m running my own business, so it is very variable, and it has been kind of a ride for the last 6 months. Plus, my wife is currently on medical leave. So all told, I’ve got 2 rental properties bringing in about $850 a month. My wife’s employment insurance is bringing in about $2,000 a month. Canada has — I’m Canadian — Canada has this baby bonus basically that’s bringing in about $300 a month. Then my business, I mean, generally most months it’s mildly profitable, but it averages out to maybe $1,000 to $3,000 a month. All told, I’ve got income at around $5,700 a month Canadian. You can translate that to American if you really want to.
Mindy Jensen: Let’s just go with dollar for dollar and call it — because it’s the same, the math still works. Canadian math is the same as American math.
Scott Trench: What does your business look like 6 months to a year from now?
Chris: Ideally, I really need to stabilize. So I just hired on a new employee about 2 weeks ago. My first employee came on just longer than 6 months ago. So right now, I’m looking to stabilize and bring it up to a steady — I’m bringing in $5,000 to $7,000 a month after expenses. And then I can look to grow again. So that would be the 6-month-ish plan.
Scott Trench: How much — so what would you expect annual revenue for your business to be?
Chris: Revenue? I’m really aiming for somewhere in the $190,000 to $210,000 range sometime in the next year. Yeah, that pretty much sums it up. It is obviously very variable.
Scott Trench: So your annual revenue is $200,000. What does an employee cost?
Chris: Sorry, I’m hoping my annual revenue is going to be $200,000 in the next 6 months. Right now, I’m bringing in somewhere in the range of $120,000 annual. I’ve got a couple of bigger projects lined up, so hopefully these bring me up to $200,000. And my employees are costing me roughly $50,000 a year each, roughly.
Scott Trench: In base salary or base bonus?
Chris: That includes kind of everything — taxes, everything, yeah.
Scott Trench: Okay, great. We’ll come back to the business in a little bit here for sure. Where’s all the — so we’re bringing in $5,700 a month. Where, on average, very variable, where is that money going?
Chris: About half of it goes towards my housing. So that includes mortgage, insurance, everything — $3,200 a month, utilities as well. My 3-year-old costs us about $1,500 a month. Of that, $1,250 is going towards childcare. Household and food, we’re just under $1,000 a month, with food taking $600 of that. My wife and I spend about $375 each a month, so $750 for us. That’s haircuts, alcohol, I don’t know, a new microphone for my computer for a BiggerPockets interview. Then we’ve got travel — it was $350 a month last year, which was all combined into one big trip. I am Canadian, so we have universal healthcare, but I do pay for some private health insurance for dental, vision, any kind of PharmaCare stuff. Giving includes gifts and charities at about $300 a month all told. My cars, $750 a month — the vast majority of that is payment towards a $30,000 car loan. Then restaurants, $150 a month. If you add all that up, it runs into about $8,250 a month. That’s negative $2,600 — that’s the difference, if you might have noticed.
Scott Trench: Yep, we can definitely, definitely see that.
Mindy Jensen: Okay,
Scott Trench: where — how much cash do you — oh, go ahead, Mindy.
Mindy Jensen: I was going to say, right here I can see a couple of things to discuss, but Scott’s got a better point. Let’s finish up the numbers first and then go back and talk about these.
Scott Trench: Where are your assets and how much cash do you have?
Chris: So cash — I used to have a lot more cash. We’ve been living off of my savings for a while, so I’m down to somewhere in the $10,000 in cash. And then assets, if you add my cars together, they’re worth about $35,000, but my wife’s car being the vast majority of that. And then my business has about $5,000 in it, something like that, a bunch of outstanding invoices. And are we getting into equity now? Do you want to get into equity now as well?
Scott Trench: Yeah, let’s do all your net worth. So we have $15,000 in cash.
Chris: And then I’ve got 2 rental properties with total equity of about $210,000 and my primary residence with almost $370,000 in it in equity.
Scott Trench: Awesome.
Chris: So just shy of $600K net worth.
Scott Trench: Okay, so you obviously can see that you’re cash flow negative right now and have $15,000 in cash. I’m sure that that is somewhat stressful for you.
Chris: It — yes, it’s starting to come to a head. For a while it was okay. Now it’s starting to feel very, very stressful.
Scott Trench: Do you have a plan of action or a set course there to resolve the situation, or what is your thought process there?
Chris: Temporarily, obviously, there’s things we can cut out of that budget that we might need to for a little bit. There’s a few different ways we’re going to approach that. Restaurant spending and personal spending both have to come down temporarily — hopefully temporarily, I suppose. The childcare spending, we just filed our taxes 2 or 3 weeks ago, and theoretically we will now qualify for a subsidy for childcare spending because our income was kept very low last year in 2021. So I’m kind of hoping to bring that down by almost $1,000 a month. And then obviously some of these variable expenses, or expenses we can control more, have to come down as well. And of course, at the same time, I’m focusing on actually invoicing my customers as opposed to leaving the invoices on the side as something I’ll get to eventually.
Mindy Jensen: Okay. Okay. Well, yeah, let’s talk about paying yourself first and your company needs to get paid first. And I don’t know how a job works — is it, do you do the work and then you bill for the entire thing at the end, or do you bill hourly every week, or can you set it up in a different way so there’s a different stream of income?
Chris: So there’s kind of 2 different streams of income for the business — the energy audits that I do, typically residential, and those are organized through a service organization. So I bill them directly for that, and that I typically do monthly, relatively straightforward, and it’s about half of the revenue I’m getting right now. The other half is engineering projects where typically they’re only $1,000 to $3,000 in size, and I have been generally billing after work is complete. And the issue that I’ve had with that is work tends to stretch on, and even if I’m charging extra for the extra work, I’m not sending out the invoices. So I’m actually owed around — what is it — $35,000 right now in my business that hasn’t come in.
Mindy Jensen: Okay. So with the energy audit, this sounds like it is set up through like a government agency?
Chris: Sort of. They’re a nonprofit, but it is a government-run program, which is why it’s quite so busy right now in Canada, where houses can get up to $5,000 back to do green things, basically, and they require the energy audit to begin with.
Mindy Jensen: Are you doing this personally or is this being done by an employee?
Chris: So to follow the rules, which of course I do, I have to go in and actually take the pictures and do the actual energy audit. My employee does the background math and work, and then I sign off on it before it goes into the organization.
Mindy Jensen: Okay. And let’s see — I’m trying to think, if you’re doing these jobs weekly, you should be billing them weekly. And is there any difference in a job, or is it just, it pays $100, so here’s a bill for $100? Or how does that bill work?
Chris: There’s minor differences, but for the most part, it’s $300 per house, roughly. And my contract with that company says I’m supposed to bill them monthly.
Mindy Jensen: Oh, okay.
Scott Trench: So let’s just — forgetting about stepping away from invoicing the customer and the timing of cash collections, which I don’t think is your fundamental problem — it could be a problem, but it may accelerate the payments to some degree. But let’s just do some simple math. You said your business is going to do $120,000 annually right now, and it could do up to $210,000 with its current situation, right?
Chris: Roughly, yeah.
Scott Trench: You just hired your second employee, and both employees cost $50,000.
Chris: Yes, although I did forget to mention that one of those employees is subsidized for the next 6 months at 80%. So that $50K becomes $10K for 6 months, if that makes sense.
Scott Trench: Say that one more time.
Chris: One of my employees comes with a young engineer’s grant, basically, to the business. So he costs me $50,000, and then somebody pays me back $40,000 of that salary cost.
Scott Trench: Okay.
Chris: So yes, what you said was correct, except I forgot to mention that I am getting a subsidy for one of those employees.
Scott Trench: Okay. So we have $60,000 in expenses on $120,000 in current run-rate revenue.
Chris: Yes.
Scott Trench: Okay. So that’s your fundamental problem right there — $60,000 in revenue with your business is not enough to sustain your lifestyle. Right, so you do not yet have a viable business. Let’s do the math on your end state 6 months to a year from now. You think best case scenario, you’re going to get to $210,000 per year in revenue, right?
Chris: Best case might be strong. I think that’s my expected case, looking at the projects I’m quoting on right now.
Scott Trench: Okay, your anticipated case is $210,000, $220,000 — let’s call it $200,000 in revenue, a year from now. And you’re going to have 2 employees each being paid $50,000 — the grant will be over with at that point?
Chris: Yeah, it will be.
Scott Trench: Okay, so you’re going to net $100,000 in revenue, or in gross margin, I guess we’ll call it, at this point. You will have other expenses you will have to pay for your business besides the employees. What are some of those expenses that you’ll have?
Chris: It’s actually a relatively low overhead business, but yes, there are expenses. It’s roughly $3,000 a year in insurance, another — let’s just call it $3,000 again in terms of engineering licenses and keeping up to date with all that stuff. Then the only other one I really pay for regularly is paying myself a mileage allowance for my car.
Scott Trench: What about your engineers? Do they have mileage allowance?
Chris: No, they work from home and—
Scott Trench: Do they have equipment that you pay for?
Chris: Nope. I’m limited — our contract has them paying — I pay for paper if they print, that’s about it. Then there’s a couple of software licenses as well, so it’s another $1,000 or so on top of that. All told, expenses are running at about $10,000 to $12,000 a year, except for employees. I had some setup costs obviously, but those are all done at this point.
Scott Trench: Okay, so your employees — so we have $200,000 in income, or in revenue, we have $100,000 in employee expense, and we have $12,000 in other incidentals as a conservative estimate for your business, right?
Chris: Yeah.
Scott Trench: So that brings you to $88,000 per year in income that you will then pay taxes on. The net of which is what you can use to fund your lifestyle. Your lifestyle costs $8,250.
Chris: Sure. Yeah.
Scott Trench: So $8,250 times 12 is $99,000.
Chris: Yep.
Scott Trench: That’s the basic problem that I’m struggling with from your business perspective here. So something has to change in order for that to work out. Either the expenses have to get— and by the way, that’s a year from now, right? From that. So something has to change in order to do this. Where do you think the biggest leverage is?
Chris: I just want to throw in there that I do have the 2 rental properties which are cash flowing a little bit, pretty safely, as well as my wife is going to go back to work as soon as she is able to. And hopefully until then, the employment insurance keeps coming in. So there is a little bit of a buffer there. My wife was making about $45,000 —
Scott Trench: Got it. Okay. So we have another $45,000 to $50,000 in income there. What are your goals?
Chris: 6 months ago, I would have said stabilize my income and buy a couple more rental properties. Right now, what I really want to do is stabilize my business income at a much higher level. I want to grow the business and actually make it — I don’t want to make $88,000 a year. That wasn’t why I got into it. I could make $88,000 a year as an engineer at a job tomorrow if I really wanted to. So that is my focus right now — growing that business income up and making sure my bottom line makes sense for all the work I’m putting in, which is a lot.
Scott Trench: Great, that’s what I figured your goal would be. I wanted to make sure though that was the right case here. So let’s go through the workload again. What do you need the 2 employees to do?
Chris: I need them to do a lot of the technical stuff where I am just double-checking and providing my stamp. I don’t know how it works elsewhere, but in Ontario, the stamp is sort of the engineer’s seal — without the stamp, things can’t get built or pass building code. So generally how it works in engineering firms is the junior engineers will do a lot of the background basic math, the basic drawings, that kind of thing, put it all together, and then the senior engineer will come in and review and stamp and provide to the—
Scott Trench: How long does the work that the engineers are doing take you to do?
Chris: Oh, I mean, that’s very variable. I’m charging roughly $160 an hour for my time, and I’m charging $60 an hour for the junior engineer’s time, if that kind of helps with that. And that’s probably fair in terms of how long it takes them to do something.
Scott Trench: Here are some thoughts that are occurring to me. I do not believe you can afford a full-time employee right now. And I think you can definitely not afford two full-time employees. Based on the high-level things that I’m observing—and I’m going to go drilling into this, you can tell me if I’m wrong—my instincts say that a reduction in force or a layoff is in your business’s future, because it’s going to come down to you depleting your cash reserves or you continuing to pay your employees with what is currently going on in this business. And that is not good news. I’m not going to pretend that that is good news, but that’s what I see with my CEO hat on, looking at your business as an outsider. When you say my time is billed out at $160, and my team’s time is billed out at $60 an hour—that’s viable if you’re paying your team $25 an hour roughly, $50,000 a year. But you are not actually getting that arbitrage because your income is so variable at this point. So you’re not filling up—I can tell immediately that you’re not filling up these engineers’ time with billable hours in that 30-plus hours a week range that you can actually charge off to customers downstream. If you could fill that pipeline with 30 to 40-plus hours per week of time for your engineers to actually be doing that work, you might have a viable arbitrage business model there. But the simple unit economics don’t appear to be working out. So how much time are these engineers billing in your business?
Chris: Yeah, I mean, right now I have one, as I said, just started, so he is basically just doing training right now. And I did accept that there was going to be, I mean, obviously almost zero billed hours out of him for a while.
Scott Trench: But your gal who is billing hours—how many hours is she getting?
Chris: She was billing about 25 hours a week, roughly. A lot of that I was putting towards the background math for the energy audits as I also trained her up. She’s a new engineer, so I was also training her up to do the drawings and the heat load calculations and the math, basically.
Scott Trench: So she’s billing 25 hours a week at $60 an hour to your clients. You should be bringing in $6,000 a month in revenue from that employee alone. Is that happening?
Chris: That would be the goal. Like I said, right now she’s—she was doing a lot of the background math for the audits. So I was paying out about $80 for her to do an audit, and I was getting paid $300 to get that audit finished. And obviously I spent an hour and a half on it as well.
Scott Trench: Okay, so you’ve got a services business here. So that means the economics here are billable hours times rate times arbitrage, right? So you’ve got pretty easy math there. And maybe this is a good first step: build a KPI dashboard that you’re looking at on a weekly basis. How many hours am I billing out per week at my rate, which you said was $320?
Chris: Or $160. $160, yeah.
Scott Trench: Okay, my rate’s $160. What is my target goal for billable hours, and how do I get that number up? That is your number one job as the CEO of your small business. That’s your highest revenue driver. If you’re not billing 25, 30, 40 hours a week, something’s wrong with that. You’re like, why do you have employees if they’re not putting you on the clock, billing that time all the time? So let’s just do that real quick. If you can do 25 hours a week, you’re going to do $16,000 a month. And now you’re bumping against $200,000 in annual income alone, just from you. Is that possible? Is it possible to get you to 25 hours a week in billable time?
Chris: Just for me?
Scott Trench: Yes.
Chris: I mean, the work is there. Yes. I think I spend a lot of time in the background right now as well, doing the sales, the accounting, all the other stuff. But 25 hours is roughly what I’m doing at the moment. It’s just not all of it is—sorry, it would be 25 hours. This is complicated because I fix-price jobs generally, which is something else I have to stop doing. I need to start doing time and materials, because things go over through no fault of my own. But I’m working more than 25 hours a week for customers. I’m just not billing for all of those hours, if that makes sense.
Scott Trench: I have no trouble believing you’re working more than 25 hours a week. Don’t worry about that. No one’s worried about that. The question is, are you billing that to customers? So that needs to be—I would come off the call today, I would go back for the last three months, and I’d say, how much billable time am I putting in?
Speaker 1: How much billable—and then putting a daily and weekly dashboard, saying, how many hours am I billing at my rate, and what is my blended rate? Right? If you’re doing contract projects and they take you six hours and you’re billing them at like $300, you’re doing $50-an-hour work with that. So you need to be honest with that and say, my number one business goal is to get my time billed out as close to 40 hours a week as possible, not to get my employees’ time billed out at $60 an hour. That’s way worse arbitrage. Your revenue is coming from your time with this. And then that would inform your employment strategy, right? You may not even want an engineer if you come to that conclusion. You may say, no, an executive assistant is what I really need.
Scott Trench: Because they will be booking me, keeping track of my billable hours, hounding the customers for payment, invoicing them, doing all of the other stuff that is taking my time away from billable hours. That is the unit of value in your business right now—you and your time.
Chris: Unfortunately, yes.
Scott Trench: And that’s fine. That’s how you get started, right? And then after you get booked fully out, okay, now I’m going to bring on the next person and bill their time out at $100 an hour and pay them, you know, in the $50,000 range. Now you’ve got even better arbitrage than, I think, with these other engineers. It sounds like there’s work there for the $160-an-hour team. But that’s how you’d build a scalable enterprise here with a services-based business, I think.
Chris: Yeah, I can’t disagree. I think that is my goal. Right now I’ve been spending a lot of time training and bringing my new engineers up so that I can get them doing some of the more background work and actually bill them out. And I have been tracking—every hour I spend is tracked. So—
Scott Trench: It’s too expensive to do that, right? You can’t do that with your business model—you can tell that by looking at the very simple high-level math here. Your time’s worth $160 an hour, their time’s worth $60 an hour. You’re arbitraging at best $30 an hour.
Speaker 1: So if you work a 40-hour week for billable hours, we’re talking—what is that? That’s $25,000 per month in income. That’s $300 grand annualized. Every hour that you’re not working, training your employee, they’re going to arbitrage you $30 an hour, maybe, which—
Chris: can’t do. Yes, not today. At some point.
Speaker 1: And they’re not going to get up to that full level. So you’re spending $160-an-hour time to make $30 an hour maybe, downstream. And so that’s, I think, your fundamental problem here, and why you’re upside down on your cash flow situation—these employees are killing you from your bottom line. They may be good people, they may be doing all the right things, but the unit of value in your business is not their time—it’s your time.
Mindy Jensen: So I have a question. I don’t disagree with Scott as much as I want to, because we’re talking about two people and their jobs. And I would love to disagree with Scott and be like, hey, I’ve got a great solution, but I don’t. I’m wondering about the energy audits.
Chris: Yeah.
Mindy Jensen: You’re getting $300 for these, but how much time does it take to do an audit? I’m talking from the time you leave your office, you drive to wherever this property is located, take the pictures. And I’m a real estate agent, I’m out there looking at houses all day long. I’m not even looking at their energy stuff. It is really easy to spend an hour in a house just looking around and taking pictures and talking to the people. But then you have to come back and do the engineering work, which your employees may be doing, and write the report and submit the bill. I think these are taking a lot longer than two hours total, which is—
Chris: Agreed.
Mindy Jensen: Your time. And I mean, I’m thinking it’s probably more like three or four hours. So now you’re down to, what, $60 an hour, making on these audits?
Chris: Roughly, yes. And that has definitely been at the front of my mind recently. I started doing the audits more as a filler than as something I wanted to do full-time. And the demand for them—like, I’m booked out through the end of June for them already right now, just because there’s been so much demand for them. So I did start pulling back. I’m down to doing—at the beginning of June, I’ll be doing three a week instead of five a week, and I’m hoping to bring them back even further. But yes, the dollar-per-hour rate for them is nowhere near as high as what I get when I’m engineering.
Scott Trench: You said it’s five hours?
Chris: No, it’s less than five hours. I batch them together, so I’m doing two or three in a day on the road, and then it takes another day to get through those, so that’s $900 over two days, roughly.
Scott Trench: $900 over two days—so $900 divided by 16, what is that?
Mindy Jensen: I don’t know. Let’s get a calculator.
Scott Trench: $56 an hour.
Chris: Yeah, that’s about what I’ve worked it out to be hourly for those, for me.
Scott Trench: That’s why you have a lot of demand for that. Your time is worth $160, and people are getting you for $56 an hour, so you’re going to have demand for that all day. Now, that’s okay—that’s $100 grand a year from that. But that’s not okay if you have two employees who cost $100 grand a year, right?
Chris: Yes.
Scott Trench: So you cannot—if you have two employees that cost that, you cannot be doing activities that are less than $100 an hour, in my opinion. And you have to be doing a lot of activities that are $100 to $150 an hour in order to make up for that. You can do fewer activities that are $500 or $1,000 an hour with two employees with that. But you cannot be doing—this will bankrupt you. It won’t bankrupt you right away, because you’ve got a strong core financial position. You obviously made a lot of good decisions in the past and are strong with money overall, so you’re not in emergency mode here.
Chris: No, not yet, although we are heading in that direction, as I’ve noticed when I’m tracking my net worth. It keeps going up because housing prices are so ridiculous and I own three of them. But my cash on hand and actual cash flow numbers have certainly not been trending that way.
Speaker 1: I’m skeptical of a lot of financial products, but life insurance isn’t one of them—at least not term life. For the vast majority of you listening, term life is simply the right answer. And the smartest way to buy it isn’t one big policy, it’s a ladder. Your need for coverage isn’t flat, it declines over time. You’ve got a 30-year mortgage, a couple of young kids, maybe a spouse mid-career. In 15 years, the mortgage is going to be smaller and the kids are almost launched. So instead of buying one giant 30-year policy you’ll overpay for, you stack a few—say a 10-year, a 20-year, and a 30-year layer—so your total coverage steps down as your actual obligations step down. You only pay for what you actually need when you need it. Ethos is a platform that helps you find life insurance 100% online. You can get a quote in seconds and apply in minutes. There’s no medical exam—you just answer a few health questions online. You can get up to $3 million in coverage. Some policies are as low as $30 a month. That makes building a ladder genuinely fast. Get your free quote at ethos.com/bpmoney. That’s ethos.com/bpmoney. Application times may vary and rates may vary.
Mindy Jensen: Here’s a fun fact: you’re not just buying a house, you’re marrying the neighborhood, the commute, the noisy street—all of it, till death or a very motivated realtor do you part. That’s the kind of real talk you get on Own It with Angie Hicks, the new podcast from Angi co-founder Angie Hicks. She sits down with designers, agents, and everyday homeowners to talk about what actually matters when you buy, renovate, or just try to survive your to-do list. New episodes every other week. Subscribe to Own It with Angie Hicks today.
Speaker 1: When’s the last time you enjoyed checking your finances? Well, Monarch is trying to change that. Open it up, and in a couple of minutes you know exactly where you stand with your spending, your goals, your net worth, your investments—everything, all in one place. And it goes wherever you go. Quick check-in on your phone between meetings, or check the bigger picture on your laptop on Sunday night. Everything syncs, everything refreshes whenever you want. Use the code POCKETS at monarch.com to get your first year of Monarch Core half off, at just $50. That’s 50% off your first year at monarch.com with the code POCKETS.
Mindy Jensen: When you’re ready to start your business, Northwest Registered Agent helps you do more than just file paperwork. You get all the tools to build a real business identity from day one: a business address, website, phone number, operating agreement, free guides, and more at no extra cost. Northwest Registered Agent has been helping small business owners and entrepreneurs launch and grow businesses for nearly 30 years. They are the largest registered agent and LLC service in the US, with over 1,500 corporate guides. These are real people who know your local laws and can help you and your business every step of the way. With Northwest, your business is set up to stand on its own from day one. That means your home address, personal email, and phone number stay private. Don’t pay hundreds or thousands of dollars for what you can get from Northwest for free. Visit northwestregisteredagent.com/moneyfree and start using free resources to build something amazing. Get more with Northwest Registered Agent at northwestregisteredagent.com/moneyfree.
Scott Trench: Well, okay, so let’s come up with some actions here that we can do. Right, we’ve discussed some—I think we’ve zeroed in on the problem, and it’s an uncomfortable one, but do you agree that we’ve zeroed in on the problem?
Chris: I think so, yes. Yes.
Scott Trench: Okay, so first option, and the one that I would recommend here, would be explaining the situation to your employees and helping them find a new home. That may not be something you’re willing to consider, but it’s a good market—I’m sure they’ll be able to find other work. If you give them, you know, hey, in two months I’m not going to be able to do this, I’m going to keep paying you till then, but here’s the deal, I’ve got to fix this. So that’s option one. Option two is to try to stick it out and perform a deep analysis and say, how much $160-an-hour work is there for me? How many billable hours can I get in per week in a realistic long-term scenario for me? And do my current employees aid me in actually realizing that income? I think that’s going to be difficult, because I think that in order to maximize your time, you need to sell the client, which you’re not going to get paid for these deals, and you’ve got to do that. Then the best-case scenario is that that’s an hour pitch or something like that. Your executive assistant books all of the meetings, takes care of all of the billing, collects all the revenue, drives your schedule, makes sure those are the appointments. I think best-case scenario, you’re getting in 25 to 30 hours a week of billable time, and you’re working 50 hours a week in order to get that billable time. So that’s not bad—that’ll get you to $200,000-plus in revenue, in net revenue, before you pay the executive assistant with that. But that’s what I think is the best-case scenario here, within a 6-month to 12-month period for your business. What do you think? How’s that logic working out?
Chris: Well, when I was putting together my little summary for you guys today, this is the first time I’ve sat down and looked at my business financials in a while, because I’ve been working 60 or 70 hours a week without doing the financials. And I was coming to kind of the same conclusion—that obviously what I’m doing is not working the way I’m running it right now. There’s certainly—I do think there is enough work on the table, like enough engineering projects, that once at least one of these guys is up and running, I’m able to hand it to them, continue getting the sale on the next project, and doing the stamping. So I feel there is enough business there, at least for one employee, but I do definitely agree an executive assistant is probably very much worth the time, because I spend way too much time—and I do track every hour while I’m working.
Scott Trench: An executive assistant is only worth the time if you can arbitrage your time for that amount, and you don’t have your two employees. So this is not—I’m not saying go get an executive assistant.
Chris: No, no, no, I’m not thinking I should also hire another executive assistant. Great.
Scott Trench: Now, here’s one thing to think about with regards to your current employees, right? There is an arbitrage opportunity here for you. You are getting business that they can perform for the most part, and you just put your stamp on the approval—I don’t know if that’s the right motion for a stamp. You probably have a digital stamp.
Chris: Close enough.
Scott Trench: Yeah. So, so you— what you could— this is where I would consider using contractors instead of an employee, right? And you say, hey guys, this is not— but what I can do is I can help you find a good home that will have similar compensation overall with peers in my network, and I will contract you for this work for a higher dollar-per-hour rate. Right. So right now you’re paying them $25 an hour, pay them $45. Try the contract method so that when you actually get the work, you can bill it out to them and pay them $45 an hour. That’s an enormous raise for them for the work that they’re actually doing that’s adding value, and they can do it on a side project or afternoon, evenings, and weekends if they so choose. I’m sure a lot of people would jump at the opportunity to make that kind of— those kinds of dollars. Sure. And you can build these out on a contract basis. It’ll cost you more per unit, but you don’t have the risk of paying somebody $50,000 per year on your variable income. You only pay when you make money. And then once you get to a certain scale, okay, now it’s time to bring back the full-time employee because I know I’ve got enough consistent work of this nature that it will lower my overall costs and increase my profitability to bring in the employee.
Chris: Yeah. I do want to clarify that they are paid hourly right now. It’s not a salary. And it is understood that if I don’t have things for them to do, they will not be—
Scott Trench: So you’ve already mitigated that risk.
Chris: I have. I’m not— it’s not— I’m not guaranteeing them $50 grand a year. I am paying them at about that rate, and right now I have been having them work for about that amount of time. But like I said, a lot of it has been training, so not revenue generating.
Scott Trench: Okay. So you will get to that level downstream. So the problem really is your billable hours are not— instead of putting your billable hours out, you’re essentially generating work for these employees and arbitraging that, and that is not enough to cover your expenses?
Chris: Yes, at the moment that is pretty much exactly where I sit. Yeah.
Mindy Jensen: I think it comes back to this energy audit. That’s a lot of work. And I would be— I know you’re tracking a lot of time, or a lot of your expenses, but I would really be curious as to exactly how much time that audit takes you. Not just the typing up the math and all of that stuff, but driving there, taking the pictures, coming back and doing it. And even if you’re batching it, at what point— you said you have to do it. They can’t go and take the pictures and do the audit themselves. At what point could they? And at what point would it be worth it for them to do that? Or is it just— I really come back to this thinking, this doesn’t sound like these audits are really worth it. Do you have a contract that you have to fulfill obligations for? Or, I mean, I don’t think it’s fair that you just say, oh, I’m not going to do any more of these at all, you know, do whatever through June and then stop taking audits. You also said something about engineering work you’re billing at the end of the job, and you said you’re doing fixed price jobs instead of time and materials.
Chris: Yeah.
Mindy Jensen: And I’m not sure what sort of materials you’re doing.
Chris: That’s more of just a phrase. It’s basically just time. Yeah.
Mindy Jensen: Okay.
Chris: Occasionally travel allowance if I have to drive to site, that kind of thing, but for the most part, time.
Mindy Jensen: Okay. So do you know how much time it takes to do a job? Like, oh, you want me to do XYZ job? That is probably going to be a 25-hour job. So at 25 hours, it’ll cost this. And if you need to increase the scope, then I’m going to need to increase my price. And I don’t know how to phrase that, but I think setting up expectations upfront is going to be really important. And structuring the contracts differently so you get paid in a different way, like 30% upfront to start the work and 30% when you deliver your first report, or halfway through, or whatever, and then 40% upon completion. So there’s incentive for you to complete the job, but there’s also— you’re not waiting until the end for this $35,000 that, you know, all of a sudden plops into your account.
Chris: It’ll be a nice day when it happens. Well, I’m sitting over here in
Mindy Jensen: a perfect world.
Scott Trench: But yeah, that’s where an executive assistant, I think, could be very powerful for your business. Like, that would be the first place I would be looking in your shoes for an employee if I’m starting over and appraising my business as an outsider. Saying, great, like, you shouldn’t be— like, you should have somebody research a, you know, put in place Mindy’s terms, and then they enforce that for you, right? Work does not begin or get scheduled on your calendar to begin until the first payment’s received. You get going, finish the project through to completion, take a couple of sales calls for you to build up your pipeline and go from there. That’s what a healthy business of yours in your industry would look like to some degree. And it’s not— this is not going to make you a billion dollars, but what it is, I think, a clear-cut path to $200,000, $300,000 in annualized income per year, maybe more if you’re willing to put in 50, 60-hour weeks to get that billable time up.
Mindy Jensen: And another thing to think about is, is $160 an hour a good rate for your level of experience and your level of engineering prowess? I’m clearly not an engineer, so I don’t know what I’m asking, but like, is that the going rate, or are you billing yourself a little bit low?
Chris: So that is a little bit low against the current rate for an engineer, in my experience. It’s all actually published if you’re paying the right fees. So that’s like a 25 or 30% discount. And part of that is that I don’t have the overhead, and part of it is that I have the experience from my own old jobs, that kind of thing, but I don’t have the track record yet. I mean, my business started 2 years ago, but if you remember, 2 years ago was March 2020. So I didn’t do a whole lot for 6 months. And then after that—
Mindy Jensen: I’m laughing at you.
Chris: Yes. No, it was great. I actually incorporated on like March 16th and then Canada shut down as a whole on March 17th. So yes, it was a great start. But what I was trying to say there is, I was pricing low to begin with, and it is on my— like, this summer, as things start to ramp up, construction projects are ramping up again, to raise that rate for my own billable hours. And yes, I do want to start quoting not as fixed price but as estimates based on the job and then tracking my hours, because I already track all my hours, and that’s the way I should be doing it.
Scott Trench: So 2 years from now, you’re telling me you could be billing $200 or $225 an hour for these services and putting your income closer to $300,000 to $400,000 per year? Right? So now we’re talking. Now we got a little dental practice here or something. I don’t know if that’s what dentists make, probably more.
Chris: Probably more. But yes, it could be in that similar time range. I think a big part of it is I don’t mind working 40 to 60 hours— or sorry, 50 to 60 hours a week, and I’ve been obviously doing it. I would like to— part of the reason I was bringing on employees maybe early was to make sure that I can shove some of the work onto them, and not work the 50, 60 hours of sitting there designing ducts, which—
Scott Trench: Yeah.
Chris: Yeah, I don’t know if you’ve ever designed ductwork, but it’s not fun.
Scott Trench: You know, I think continuing to study the art of business and building a business is going to be really important for you, because I don’t— I think I’m just sensing you did not optimize for unit economics here and say, what are the actual things that drive revenue and profit in my business? And we’ve identified them here. The number one thing is your time, right? It’s a senior engineer’s time arbitraging. You know, unless you could also start with a different thesis, which is, I’m going to actually arbitrage junior engineers’ time for these projects, and I’m going to need 40 of them in order to drive this level of profit with that. That would also be a viable business model. Right. With that, but I don’t think that’s what you’re necessarily going for here. It sounds like the path to easy street financial freedom, to a certain degree, is get your time up to 35, 40 hours a week, move your rates toward the $225. Say 2 years from now, I want to be billing out 35, 30 to 45 hours, 30 to 40 hours a week, 25 to 40 hours a week, whatever you think is reasonable there in billable hours, at $225 an hour, and say, what do I need to do to back in there? Well, first I’ve got to start billing out my time right now at $160 an hour. That should be easy because I’m undercutting the market by 40% with all of these things. In theory, the business should be there. How do I get that business? Well, I’ve got to sell it, then I’ve got to schedule it, then I’ve got to book it. Some of those things are things only I can do, and some of those things are activities that someone much less skilled than I can do, and which of those activities can be done there— great. If I’m hiring an executive assistant and they’re idle much of the time, but it’s saving you from having to do 10, 20 hours a week of work, you’re making really good arbitrage on that executive assistant in that particular case. And maybe you can get someone fractional who can do that 10, 15 hours at a time with that. But that’s the path I see for that. The third option here— so we had 2 options. First one was go continue working your current business and consider layoffs for your current employees or finding them a new home. The second option is part of that first one— enacting part one, but then also saying, okay, let’s consider hiring an executive assistant and mapping out my time so that I’m moving that business towards the maximum number of hours. I guess that’s really the same option there. The third option here, though, the next option, is just close the business and go get a job in this space. But I don’t want to dismiss that out of hand. What does a job you could get, a W-2 job, pay?
Chris: It’s called a T4 in Canada. $80,000 to $120,000 would be kind of the expectation. That depends if I go on the technical side, where it’s probably more in the $80,000 to $100,000. Or the sales side, which is where I used to be, which would be $100,000 to $120,000 roughly.
Scott Trench: Great. So that would immediately— either option would immediately result in a huge increase in income over your current state. And the second option would be more than the best-case scenario for your business or the expected case for your business 1 year from now without any major changes. So I think you should look at those and coldly appraise that math, and think through, okay, if I’m going to run a business for myself, I’ve got to make much more than that, because that’s 40 hours a week, 45 probably, and you’re home and relaxing after that. So there has to be a premium above that if you’re going to work 50 to 60 hours, or some sort of advantage to your business, which—
Chris: Agreed, yeah.
Scott Trench: I could guess right now is going to be a lot of work that is frustrating and hard. Perhaps rewarding too, with a lot of that. But that’s not giving you the income that you could be getting from a—
Chris: Yeah, from a W-2, T4. Yes, exactly. Sorry about that.
Scott Trench: I didn’t know that was called a T4 until— Yeah.
Chris: It’s— I don’t know, we have our own tax-free savings account as well. We tend to name— like, you guys have what, the Roth IRA, and all these other ones that I hear about all the time on your show. We’ve got the tax-free savings account, which is exactly what it sounds like. We put money in and it grows tax-free, and we can take it out at any time. RRSP, which is the one where we put in— that’s pre-tax dollars. And those are kind of the two. That’s about it. There’s employee plans and stuff, but yeah, RRSP is a registered retirement savings plan.
Scott Trench: Just a simpler way of life up there.
Chris: Everything is just a little bit different. But I like our TFSA because I can put money in and take it out at any time, tax-free. So—
Mindy Jensen: Yeah, I want that too. I want to take money out tax-free anytime instead of at age 55.
Chris: You’re not allowed to— like, you’re not allowed to day trade in it. There’s some rules, but as long as it’s just general savings and investing, you can pull that money out tax-free.
Mindy Jensen: Wow, nice. Scott, I’ve got a couple of things before we shutter your business. And I’m not— again, I really want Scott to be wrong, but I don’t think that he is. Can you hire a salesperson to sell your time so you’re billing at $160 instead of pitching these jobs? And your wife is currently on medical leave— does she have any capacity to help out with executive assistanting in any way?
Chris: So we did try that, and that actually is her general role in real life, or before my leave, was executive assistanting. She’s just really not able to right now.
Mindy Jensen: Okay.
Chris: So we tried and it wasn’t going to work. As for hiring a salesperson, I do find it difficult. A lot of the sales I am getting is from people I know in the landlording community, basically. And it’s starting to come in cold, where my website is just generating— I’m getting cold calls from people now, which is nice, as opposed to going out to them. Obviously there’s background work there, but that can maybe— is more of an executive assistant than it is a salesperson, I think, because there’s certainly enough work to keep me busy. Like, the projects I have just lined up right now could keep me alone going for 2 or 3 months probably.
Scott Trench: At $50 an hour?
Chris: No, at my—
Scott Trench: At $160. Okay.
Mindy Jensen: At $160. Okay. So what if they can keep you going for 2 or 3 months? What is preventing you from billing at $160 an hour for 2 or 3 months? And I’m not trying to be mean.
Chris: No, no, absolutely.
Mindy Jensen: Because I mean, there’s more to it than just, you know, sit down and bill at $160 an hour. Like, that would be so easy.
Chris: Well, after this conversation, I’ve noticed that it is all the time I’m spending training my employees and not billing, and the energy audits, which, you know, I’m not contractually obligated to do. You had asked earlier if there was a contract. There is not. I could theoretically just say, no, I’m not doing it anymore, at any time. But those obviously take up quite a few hours, as well as training employees and getting them up to speed has been taking quite a few hours. So that’s kind of why I haven’t been billing at $160 an hour.
Mindy Jensen: Okay. And with regards to the audits, where do your employees have to be in order to be able to do the audits? Do they need more schooling, or do they just need more years of experience?
Chris: So they would need to pass an exam, but as soon as they pass the exam, they have no need of me, if that makes sense. There’s enough demand right now that they could go directly to a service organization and just start doing them on their own, if they wanted to.
Mindy Jensen: Okay.
Chris: Which I have pointed out to them is a possibility in the future. One of them could probably pass the test today. The other one could pass the test in a month pretty easily if they wanted to go that route.
Mindy Jensen: Not everybody wants to do their own thing. True. What does it cost to take this test?
Chris: Nominal amount. Not enough to worry about. Yeah.
Mindy Jensen: I wonder if there’s any benefit to having the one who could pass it today take the test and take over the audits.
Chris: She is actually based about 400 miles away from me, roughly.
Mindy Jensen: Ah, okay. So no benefit whatsoever.
Chris: No benefit to me. If we are talking about finding them other homes, and she could pass that test tomorrow, she could start doing them for a service organization in her area, if she wanted to. I’m not sure if she wants to. She hasn’t really expressed the interest, but it could be an option.
Scott Trench: Well, I think based on what I’m hearing, this is a great place to stay away from— from your business. You know, or conversely, if you just embrace those audits and you say, I’m not going to have any employees, I’m just going to do audits all day, that’s $100K a year right there, if you can do them. So it is a viable income stream for sure. It’s not going to get you to the several hundred thousand dollars in income, but you could certainly make a living and fund all your expenses and maybe begin building wealth, especially when your wife goes back to work, with that as a full-time—
Chris: I also don’t have to be scheduled this far in advance for them. So what I just thought about when you said that is, I could obviously say, okay, nope, don’t book me anymore at the end of June. Like, don’t fill my calendar anymore with those. And then, if I have downtime in the engineering work, there’s nothing stopping me from calling them and saying, hey, can I take 2 this week? And I’d be able to get 2 that week, absolutely. They’ve got a cancellation list a mile long, and they will for at least 6 or 8 months from now. So yeah, that actually does make a lot of sense on that side.
Scott Trench: Did you— we talked a lot about the business today, and I think for good reason, that’s the big item in your situation that we have to figure out here. But is there anything else that you want to talk about besides the business?
Chris: No, I mean, I know we need to cut back on our personal spending and we know where we can do that, as I think I mentioned kind of early on there. It’s not easy. We have gotten used to living— I used to make $110,000 a year in the sales role and my wife was making $50,000, and we didn’t have a kid at that time. So yeah, we started spending money. And it’s hard to pull back, but it’s not impossible at all to pull back. And we know we have to for a bit here.
Mindy Jensen: One of the biggest expenses that I see just jumping out is the childcare expense.
Chris: Yes.
Mindy Jensen: $1,250 a month. And this is going to sound super insensitive—please email me, mindy@biggerpockets.com, and tell me what a terrible person I am—but if your wife is on medical leave, $1,250 a month can go really far in other places.
Chris: We tried, we tried this as well. Kids are—
Mindy Jensen: I mean, I was a stay-at-home mom. Kids are a full-time-and-a-half job. It’s not like she’s just laying on the couch eating bonbons all day and watching TV while your child goes to school. You’re typically on medical leave for a reason.
Chris: And that’s what it comes down to. She is on medical leave for a reason. And we did try. We had my son home for 2 weeks straight without canceling daycare, because daycare spots are impossible to get in Ottawa. Impossible. So, you know, we spent 2 weeks with my son at home, and it just was not feasible, unfortunately.
Mindy Jensen: I know someone’s listening and saying, why didn’t you ask about that? Well, I did.
Chris: Yeah, well, that’s fair. And it is a fair question. We tried. Yeah, yeah.
Mindy Jensen: No.
Chris: And, you know, there are cheaper daycares available, but once again, it would take months just to get into them, potentially. And it’s something— we love our current daycare. It’s not really where we want to cut. We have other opportunities to cut, so we’re going to start there. And we don’t have any family that’s capable of taking care of a child either, so before anybody asks, yeah.
Mindy Jensen: Yeah, yeah. No, there’s— I mean, childcare is a difficult one to try and cut. And like you said, getting a good childcare, it’s worth paying for just to test it out. That was a really smart move. And then, you know, just because she’s on medical leave now doesn’t mean that she’s going to continue forever. When she goes back to work, you would need the childcare again. How old is your son?
Chris: 3 and a bit. Yeah.
Mindy Jensen: Okay, so you’ve got a couple more years of that.
Chris: Yes. And he’s a January baby, so it will be as long as possible before he actually makes it into preschool. Yes.
Mindy Jensen: Yes, I had a November baby, same thing.
Scott Trench: Well, how about any other areas that we can talk about?
Chris: I’m just looking over my income and debt statements here, but I don’t think so. Yeah, I don’t really think so. I mean, I’ve been spending a fair amount of time on my rental properties lately as well, because we had a sewage backup in one of them. Yes, that face exactly, Mindy.
Mindy Jensen: I’ve had a sewage backup.
Chris: Yeah, it took insurance almost 8 months to get through that. We haven’t actually rented that apartment back out yet. We’re hoping to get it on the market for early May. I spend a lot of time there, but the cash flow and the appreciation we’ve seen on that has been ridiculous. That $350 a month for rental 1—once we get that running again, we’re probably looking at almost $800, $900 a month of cash flow there as well. And that’s after I put aside money for furnaces, roofs, all the other stuff. It’s nice. It’s a good property.
Scott Trench: That’s great.
Chris: Other than that, I don’t really have anything else, any questions. I think this has been very useful. I’m going to have to sit down with my employees and see where they want to go. I would like to take advantage of the 80% grant for 6 months, because even if I’m paying him 20 cents on the dollar, at the very least, he’ll be able to run through the energy audit background stuff for me and some of the other stuff for a while.
Scott Trench: Yeah, that makes perfect sense.
Chris: Yeah, and it is an internship, so theoretically there’s no obligation to keep going after that. But yes, anyway, I’ll have to sit down with them and see where they want to go and how we can approach this.
Scott Trench: Before you sit down, I would take out your spreadsheet, and I would say line item KPI 1—key performance indicator 1—is my billable hours. How many hours did I bill? What was my blended rate? How many did I bill at $56 effectively? How many did I bill at $160? And say, okay, that was this week. Next week I’m going to move it up from $75 to $77 an hour. Then I’m going to get 15 hours instead of 10 billed. If you just start, if you just put that on your scorecard as your number one thing, then secondary one is employee number 1—billable hours, rate charged to customer, rate paid to employee, spread—right, with that. So you can come up with just a simple set of KPIs on, you know, half a page of a Word document, but put it in a spreadsheet. Yes, 15, 20 lines in a spreadsheet, and just update them, populate them once a week. I think you will see magic happen over a few months in terms of your revenue output.
Chris: And the thing is, I have all the background information. I have how much money I’m billing, how much time I’m working on each job, how much time they’re working on each job or training. It’s all there. I just need to put it together.
Scott Trench: And call your employees in together and show them.
Chris: Yeah, right.
Scott Trench: After you’ve done it for a couple weeks, have your weekly KPI meeting and say,
Chris: Yeah,
Scott Trench: here’s where we’re at. People understand capitalism with this—they need to produce more economics than they cost in order for it to be a viable employment arrangement.
Chris: Yeah.
Scott Trench: Right. And you can say, great, these are the goals of the business, and hey, here’s a little reward if we start hitting some of these bigger goals. That’d be one way to begin salvaging things with the current folks if you wanted to do that.
Chris: Yeah, I’ll have to sit down and run through all of that. Yeah, lots of good ideas and options here. Well, some not so great, but things that I might have to do anyway. So, yeah.
Scott Trench: Yep. You have 3 to 6 months before you run out of cash. So not an emergency, but time is ticking to think about this.
Chris: I mean, I started this process— I’m conservative when I estimate these things, I will say. I started this process with 3 to 6 months of cash, and that was 2 years ago. And I still have 3 to 6 months of cash. But yes, you’re 100% right, I have seen that. It’s been trending downwards anyway. So yeah.
Scott Trench: Yep. Well, Chris, thank you for sharing this. This is a valuable perspective that I think a lot of people are struggling with. And I think we’re really grateful that you’ve come on to talk about this. I know there was some hard conversations, or hard feedback, that we had for you, but I think this is going to help a lot of people to hear what you’re going through, because I think that this is going to be much more common than we’ll hear from a lot of that. I think it’s tough as a business owner to kind of come in and say, I don’t really know how to get this thing to the profit level that I want to get it to. And that, I think, takes a lot of courage. And I think we’re really grateful for you to come on.
Chris: I will say that when I originally applied, I was making $100K a year as an energy auditor and without any employees, and it was going to be very straightforward. And then I started growing, and it’s 6 months later. So yeah, things change, but I’m glad I came on anyway. I didn’t need to talk.
Mindy Jensen: You know what, that’s a really good point. Life changes really quickly, and your plans—I bet your plans 6 months ago were a little different than what’s going on right now. A lot of my plans 6 months ago are different than what is the reality of my life. And that’s something to keep in mind. Your plans should be fluid because life is fluid.
Chris: Yeah, absolutely.
Mindy Jensen: Okay, Chris, thank you so much for your time today. Thank you for sharing your story. I really appreciate it.
Chris: Thank you guys very much for having me. This was kind of fun. Mostly fun.
Mindy Jensen: It was interesting.
Chris: Yes.
Mindy Jensen: Okay, we’ll talk to you soon. Scott, that was Chris, the engineer from Canada, and I really, really, really wanted you to be wrong with your suggestions. I don’t think you are. I think it’s kind of a harsh reality for a lot of business owners listening to this. Just because you own a business does not mean that it will be instantly profitable. And you know what a lot of business owners do—they hire too late. They’re swamped with work, and they’re so swamped and they’re working, you know, 90, 150 hours a week, and then they hire somebody. And I think maybe in this instance, Chris hired a little too soon.
Scott Trench: Yeah, I hope I’m wrong as well. I think the real problem for entrepreneurs and first-time CEOs, and a lot of this, is it’s really hard to get the structure of your organization right in the early days. What skill set and employees do I actually need, and how does that work with where I want to get to a year, 2 years, 3 years from now? And so that’s where, you know, I think it’s really hard to be able to come up with that, right? An engineering firm needs engineers—that seems logical. Well, when we unpack it, maybe it’s more logical that the unit of value in Chris’s business is Chris’s time, and the employees that maximize the ability for him to bill hours are more valuable than mini Chrises—mini Chrises being more junior Chrises that are able to do some of the engineering work, but not all of the engineering work. And so that, I think, is hard, and it’s a guessing game, and hindsight’s 20/20. Maybe it’s easy for us to look at the situation now and say, oh, we could have done this. It’s really hard to do that in the act of building a business, right? A year ago, his situation could have looked like, hey, I’m doing all these jobs that look like this. Here’s what this employee will help me do and free up my time and all that kind of stuff. I think it’s just a challenge there. So no, no blame game going anywhere in the discussion today. I just think a cold look at the reality of the situation to me suggests that that business is not going to sustain 2 employees and Chris’s family.
Mindy Jensen: And I, like I said, I want you to be wrong, but I don’t think you are. And another option, another viable option, is to go back and get a job to get over this hump while his wife is on medical leave. You don’t shutter the business necessarily—you put it on hold. Maybe you do one extracurricular job instead of a whole full-time job’s worth of extracurricular jobs, while you’re waiting for life to kind of stabilize. But I think being fluid in life is the best way to live life. Make good plans, but be fluid with them.
Scott Trench: It makes you wonder—I don’t know, but I wonder aloud—whether service professionals that offer their time and bill it out, you know, what the difference between a W-2 and starting their own practice really is. You’d imagine there’s going to be a period where there’s going to be a lot less income, and then a period where there could be a lot more income. But I bet you the spread isn’t massive for most folks in kind of the mid-career phase of that. Perhaps the advantages of going into business for yourself need to be in the form of much higher income, or a scalable opportunity, or lifestyle benefits, in order for the switch from a W-2 in a field like Chris’s, or law, or something like that, to owning your own practice. Or you need to be willing to put in the 70, 80 hours a week—60, 70, 80 hours a week—for many years to get that off the ground, to then have, you know, the cake and eat it too: the more income and the better lifestyle.
Mindy Jensen: Yeah, I think you hit the nail right on the head there, Scott. If you’re not making more money and you’re not having a better income or a better lifestyle—
Speaker 1: You don’t need me to tell you that rent and mortgages are only getting more expensive. That’s why Bilt created 3 credit cards designed to offer the richest rewards on rent, mortgage, and everything else you spend on. Whether you rent or own, you can earn up to 1.25x points on every housing payment without the transaction fee, no matter where you live. Points can be redeemed for flights, hotels, Lyft rides, a future housing payment, and much more. Turn one of the most unavoidable payments in your life into the most rewarding. Find the card that’s right for you and apply at joinbilt.com/bpmoney. That’s joinbilt.com/bpmoney.
Scott Trench: Use our link so they know we sent you. Terms apply, subject to approval and eligibility. Bilt cards are issued by Column N.A., member FDIC, pursuant to license from Mastercard International Incorporated. You know that feeling you get when checking your finances means logging into 5 different apps? That’s why I use Monarch. Setup takes about 10 minutes—you can link your accounts, and everything you own and owe lands in one clean dashboard: banking, cards, investments, even keeping track of recurring charges. After that, you can stay on top of your money in just minutes, not hours, per month. Monarch saves you time and actually helps you use it wisely. Use the code POCKETS at monarch.com to get your first year of Monarch Core half off, at just $50. That’s 50% off your first year at monarch.com with the code POCKETS.
Mindy Jensen: Style. If you reduce your income, but you’re also working, you know, 10 hours a week, that’s great if that’s what you want. But if you don’t have either, then it may be time to really seriously reassess.
Scott Trench: Yep.
Mindy Jensen: Okay, Scott, should we get outta here?
Scott Trench: Let’s do it.
Mindy Jensen: From episode 296 of the BiggerPockets Money Podcast, he is Scott Trench and I am Mindy Jensen saying, gotta go, Buffalo.
