Episode 62: Live Coaching with Rennie featuring Special Guest Client John – Transcript

Wealth On Any Income Podcast Episode 62

Rennie Gabriel  00:09
Hi, folks, welcome to Episode 62 of the Wealth On Any Income podcast. This is where we talk about money tips, techniques, attitudes, information, and provide inspiration. I'm your host, Rennie Gabriel. In past episodes, we spoke about how to build an income and expense report, how to measure the level of pleasure based on where you spend your money, how to track your money in 5 - 10 seconds, what to look for in a net worth statement to see how close you are to Complete Financial Choice®. And last week, we had Jody Miller-Young, who spoke about the advantages of natural foods and homeopathic remedies for your pets. Today, we're going to be doing a coaching style interview with John Brody (not his real name). It may go longer than the usual 15 - 20 minutes. John's a business owner of a company in Canada, that does work for offices, malls, restaurants, and hotels. He has 12 employees. He's 30 years old, married with one child. Gross revenue for the business is about 170,000 a year. And he has some investments, he's got a couple of six-unit properties, a home that he owns. He owns the warehouse that operates where the business operates. And his current problem is a lack of borrowing capacity because the 12 units he owns are in his personal name, and the laws are different in Canada than they are in the United States. So I'm going to talk about the categories most people fall into that I work with. And then we'll talk about the guidelines I use when I'm working with people. Does that sound okay, John? 

John (client)  01:53
Sounds great. 

Rennie Gabriel  01:54
Okay, so the three categories. The first is someone who's just earning a good income, and they're upset is that they're paying too much in income taxes. They may say something like, we've got friends, they're earning the same thing we're earning, but they're paying half as much in taxes as we are. What are they doing right? Or what are we doing wrong? So that's category one. Category two, is someone who doesn't have that issue, they've got a good accountant. And the accountant may have referred them to me, but they'll say, now the taxes aren't an issue, I want to be sure that I pay off my home mortgage before I stop working, or I want to be sure to get my kids through college without it being a problem. Or when I stop working, I don't want my standard of living to change. They usually have investments. And they may say, I think my investments could be providing a greater return. The bottom line is it's the feelings. The feeling is things are good, and they want it better. Which takes me into the third category, which is someone who says, oh, gee Rennie, I'd like to be in category two. They may have student debt or other debt in their way. And, again, it's the feeling that they're working hard, but they're just treading water, and they're not getting anywhere. Now, correct me if I'm wrong, John, but would you say you feel like you're in category two where things are good, but you want it better?

John (client)  03:21
I think I'm in category two and a little bit of category three, because I feel like we're in a good station. But we want to always take it to the next level, and it's getting up there.

Rennie Gabriel  03:32
Great. So I'm going to give you the guidelines I use when I'm working with people. And so take out a piece of paper and a pen. And I'd like you to write down the left hand side of the piece of paper, the word "coach" with each letter under the other, C, then O, then A, then C, and then H. And these are my guidelines that I'm going to go over with you. So the first C stands for Client. And that's you. And what I'm getting at is I'll give you some ideas, some suggestions, some recommendations, maybe even some referrals. But the bottom line is, as the client, you make the final decisions, you're going to choose what you want to do. I'm not going to make choices for you. Does that make sense? 

John (client)  04:22

Rennie Gabriel  04:23
Okay. The O stands for Ongoing. Granted, we're just having this one call. Generally, it's an ongoing process. It's sort of like, if you went to the gym one time, that's not going to take care of your health for the long term. Right? 

John (client)  04:40
In a way. 

Rennie Gabriel  04:41
Okay, so but in this situation, it's just going to be a one-off situation. The A stands for Accurate data. You know, the data I have is generally accurate right now, but obviously the more accurate, the more intelligent my comments can be. And we'll do the best we can with the data that we have, and any future answers from the questions I ask of you. The next C stands for two things. One of them is it's Confidential. I don't discuss your situation with other people. Obviously, there are a lot of people listening to this broadcast, but we're not using your real name, so hopefully it still maintains confidentiality. And the second part of that C stands for Comprehensive. I'm going to ask you how you feel about things because the reality is how you feel has determined the actions you take. That makes sense, doesn't it? 

John (client)  05:37

Rennie Gabriel  05:38
Okay. And the last item, H, stands for How I get paid. And I get paid three ways. This is, you know, the fun part of the work I do. One way I get paid are fees. My fees are $400 an hour. There's no charge for this. The second way I get paid is I may refer you to someone else. And they may share commissions or fees with me. That doesn't happen very often. but if it does, I'll let you know. And the third way I get paid is non-monetarily. And what I'm getting at is, because I do such an excellent job, a lot of clients and CPAs refer other clients to me. So I look at that as an additional way of getting paid, in addition to my fees. Now, one of the things I should have said when I started this is that you may want to have some conversation with your clients about the work you do, and how you work with them. So what I should have said is, as I'm talking about how I work with people, you could think about how you work with people and incorporate this into when you're bidding on jobs, or working with prospects or clients. Does that sound like a good idea?

John (client)  06:55
That's actually something we're in the process of developing.

Rennie Gabriel  06:57
Terrific. All right, great. So the next part is, I asked if you're comfortable with my fees, and how I work with people, and because this is free, I would think your answer is yes. Is it? 

John (client)  07:11

Rennie Gabriel  07:12
Okay. So you said that your goals were the following. And this is where I ask what you want to accomplish from our time together. You said you want to be a present parent to your daughter, which is fabulous - putting family first You want to hit financial freedom through revenue property in the next 10 years. You've already purchased some. And you want to sell the company to the employees who helped create it in the next 10 years. And that's a great way of you also continuing to have an ongoing income as well. So you're on the right track in terms of your goals. I also asked what your wife - the goals your wife has are - and she said to raise her child to be a successful, happy human. Fabulous. Develop a private professional practice in the next five years. What kind of work does your wife do now?

John (client)  08:08
She's in the mental health field.

Rennie Gabriel  08:10
Okay, great. Like as a psychologist, a family therapist, social worker . . .

John (client)  08:16

Rennie Gabriel  08:17
Psychologist. Okay. And she wants to build a comfortable house for the family. And I think you're working on that right now. I think you said there's like, you got half a wall behind you. Is this the home that you're remodeling? 

John (client)  08:30

Rennie Gabriel  08:31

John (client)  08:32
Yeah, we're currently in the process of a major reno.

Rennie Gabriel  08:36
Okay. So this is for the folks listening in, as you listen to my questions, and John's answers, rather than judging the situation or someone, look for similarities in your situation. Look to see where you might be investing your time or energy in areas that don't serve you for the long-term. Look at your goals and ask questions like the wealthy. Questions that start with, how, where, when, what, or who? Like, what actions can you take to move more powerfully toward your goal? So, John, if of the three goals that I stated, if we only have the time to complete one of them, which one would you choose? Which is the most important?

John (client)  09:29
Financial freedom with, through revenue properties. That's the top one.

Rennie Gabriel  09:36
Okay, so let's talk about that. You've got three, no - excuse me - you got two six-unit properties. So you got 12 units. And are they fully rented? 

John (client)  09:54
100% rented.

Rennie Gabriel  09:55
Okay. And is the rental income at market or higher or below market?

John (client)  10:03
I have one building with everyone at market. 

Rennie Gabriel  10:07
Mm hmm. 

John (client)  10:08
And that building cash flow is about 2800 a month. 

Rennie Gabriel  10:13

John (client)  10:15
And then I have another building that has half the tenants below market and half the tenants at market. 

Rennie Gabriel 10:22
Mm hmm. 

John (client)  10:23
And that one cash flow is 1400 a month.

Rennie Gabriel  10:27
Okay. And so I've got to take out my calculator, because at my age, the math skills have diminished significantly. So they're cash flowing in about 50,000 a year. Okay. Terrific. And that's about, that's a little less than a third of what the business is generating. Now in terms of having the business purchased by the employees over the next 10 years. In the United States, we have a, an entity called an ESOP - Employee Stock Ownership Plan. What form of ownership is the business in right now?

John (client)  11:09
Currently, it's an incorporation. I haven't . . . I remember I looked at the ESOPs to set it up eventually. But it was something a little further down the horizon once I got all the revenue properties under wraps.

Rennie Gabriel  11:24
Okay. And the reason I ask is, you know, I know what's available in the United States. I don't know what's available in Canada. So am I hearing that an ESOP is an entity that's available in Canada?

John (client)  11:37
Yes, it's a structure that's available here. 

Rennie Gabriel  11:39
Oh, terrific, okay. It may be an expensive way to go. Since you already have a corporation, one of the things that you could be doing is gifting certain employees over time, shares of stock. In other words, transferring some ownership. Now was your plan to give 100% of the business to the employees or a portion of the business over the next 10 years?

John (client)  12:05
I was planning on giving basically, there's two or three crucial employees that will likely and have shown interest in eventually becoming owners of the corporation. But I also need to ensure that they're going to succeed in it.

Rennie Gabriel  12:22
That they're going to succeed. Is that what you said? 

John (client)  12:25

Rennie Gabriel  12:26
Oh, yeah, absolutely. And so am I hearing that not all of the employees who are there would be would be owners of the entity?

John (client)  12:38
Yeah, there's a, there's a few people that wouldn't be interested in it at all, when I broach the subject with them.

Rennie Gabriel  12:45
Mm hmm. Okay. Yeah. I've discovered, I've been doing this works for so many years, I've discovered there's two very, maybe three distinct personalities. People who are employees who wants to be employees, they don't want responsibility other than to show up, do their work, get paid, go home. There are others who want to be entrepreneurs. They want to have a business or they want to have ownership in a business and they're willing to take on those responsibilities. And I would say the third group are people who want to and are, and aren't, are not willing to. So it sounds like you have a couple to three employees who want to do that and are willing to do that. Is that correct? 

John (client)  13:32

Rennie Gabriel  13:33
Okay, and what are the kinds of things that - we're talking about increasing revenue. So what are the kinds of things that you could do in the rental properties to increase the income? Are there areas where you could provide some amenities that the tenants want that they don't have yet?

John (client)  13:52
We currently started in one of the buildings with below market rents. We started adding internet to some of the units and charging people internet fees. Apart from that I'm stuck with three people there that are in their 80s and it's an iffy subject to how to deal with and so you don't, we raise the rent what you can each year, but you can't push people out. It's rude. It's not not right in the grand scheme of things.

Rennie Gabriel  14:23
Exactly. It's, it's karma.

John (client)  14:26
Yeah, there's only so much it would do for profit. When there's . . .

Rennie Gabriel  14:30
I've had a similar experience. In a three-unit property my wife owned, the tenants were in their 80's. And of all of our tenants, they were the only ones who had no computer, no internet access, and no desire to have it. And so any communication had to either be by the telephone, or a letter or my showing up in person. I couldn't send them an email to ask anything or find . . .They couldn't send an email to me to say, the toilets backed up or whatever. Yeah, I understand that situation. Now regarding the business. What opportunities do you have to grow the revenue of the business? Because based on the number of employees, was the gross revenue 170? Or was that your net revenue? 

John (client)  15:25
That's net. 

Rennie Gabriel  15:26
Oh, that's your net. Okay, good. So what's the gross?

John (client)  15:31
Gross, we're at 1.7.

Rennie Gabriel  15:33
Okay, great. All right. So . . . Oh, so you've got a 10%? profit? 

John (client)  15:40

Rennie Gabriel  15:40
Okay. Great.

John (client)  15:42
That's something we need to increase. 

Rennie Gabriel  15:44
Yes. So are you familiar with the book, Profit First, by Mike Michalowicz?

John (client)  15:52
Yeah, we follow those guidelines through and through the business.

Rennie Gabriel  15:56
Terrific. All right, great. So there's two areas, one is obviously taking profit first and setting it aside. And the other is looking way, looking at ways to reduce expenses. And the third thing is obviously increasing the revenue. How are you obtaining your business now?

John (client)  16:19
Right now it's primarily return clients. 

Rennie Gabriel  16:23
Mm hmm. 

John (client)  16:24
And their scopes are growing. So as they grow, we've been growing with them.

Rennie Gabriel  16:29
Okay. And have you asked . . . So I'm guessing that they've come back to you. They're growing. They like the work that you're doing. And therefore, that's why they come back. Have you asked them - assuming they're happy, because they're coming back - have you asked them for referrals to clients who are like they are?

John (client)  16:51
Right now we're on a project where it's a large mall, and we've had one client refer us to the next client, and the next client. And so right now we have like four clients in the same space, which is great, because it's one trip to site, one trip, everything's kind of reduced in terms of travel time, and whatnot, but everything is still unique and really in our wheelhouse. 

Rennie Gabriel  17:16

Rennie Gabriel  17:16

John (client)  17:16
Getting referrals has never been our hard point. It's really, the hard point in the business is actually producing the work and finding skilled trades people right now, which is a whole other issue that I think we face post-pandemic...

John (client)  17:17
. . . in the world. 

Rennie Gabriel  17:33
So am I hearing that getting more business is not the issue, but being able to produce the result and having the employees is the bottleneck? 

John (client)  17:44
Oh, yeah. 

Rennie Gabriel  17:45
Okay. One of the things that I'm thinking about is very, is the same way that when the people you're doing the work for are happy, and they refer you to someone else, even if you're not asking - so that's terrific. Is it possible that the employees that you find the most dependable would know people like themselves who could do similar work? 

John (client)  18:13
They might. 

Rennie Gabriel  18:14
Okay. Have you asked any employees for referrals for future employees?

John (client)  18:20
I've done that with three people with varied results. We've had one great success and then two failures. 

Rennie Gabriel  18:31
Okay. All right. 

Rennie Gabriel  18:34
Yeah. So if you're talking about baseball at 300, that's a great batting average. To change the perspective a little bit from two failures and only one success to, 'Hey, that's a 300 batting average. That's great in professional leagues.' Okay. The point is, you did it, and it can work. All right, let's see what else . . . Okay, there's that, the revenue, the profit. What areas have you seen where you believe you could reduce expenses to increase your profit margin?

John (client)  18:35
So 33% hit.

John (client)  19:11
The majority is in the labor portion. And a lot of it is also it's, it's combination of labor and materials. So it's reducing material costs when everyone's going through shortages is difficult, but semi-doable, because you asked for, I've started to do is asking people if I pay them right away instead of net 30's will they knock off 2 or 3%? And I've been getting a good response with that. My, my labor rates are high and so it's basically it's minimizing the amount of labor, so invest in more into automation, and ensuring everything is properly planned to reduce the overall labor burden on a job.

Rennie Gabriel  19:53
Okay, great. So it sounds like - sounds like you're looking at the possibilities in terms of your vendor payments. And one of the things - a friend of mine had a sheet metal fabrication company. And one of the things that he did to increase his profit margin had to do with reducing the waste of materials. In other words, making sure that things were cut and used in a manner that reduce the level of waste, which meant the same amount of material could produce more end product. Now, I don't know, with your business, what that would look like, but I would assume you could see it.

John (client)  20:40

Rennie Gabriel  20:41

John (client)  20:41
There's a possibility there. 

Rennie Gabriel  20:43
Yeah, it's sort of like, if you need - and I'm making this up, because I'm not in the construction industry - but if you were creating 10-foot ceilings, and you have 12-foot pieces of lumber, okay, you're chopping off two feet for each stud. Well, where can those 2-foot pieces be used? Can they be used as 18 inch separators from the 10-foot? You know, it's that kind of stuff, which I'm sure that you're already aware of, you're probably doing, but there may be similar materials, where you could do something like that. Does that make sense? 

John (client)  21:28

Rennie Gabriel  21:28
Yeah. And like I said, I'm not in construction, but you are. So you could see those kinds of things far better than I could. All right, so that deals with some of the areas of creating additional revenue, reducing expenses, and if we're going to be talking about you creating financial freedom in the next 10 years, one of the things that you'll need is a number of, is an income number you need to maintain your style of life. And so what would that number be at this point?

John (client)  22:00
This point about, well it's 50 plus 170. So it'll be about 220.

Rennie Gabriel  22:10
Okay, so am I hearing that you need the full 220 to maintain your current standard of living? Or is some of that extra?

John (client)  22:19
Oh some of it is extra for savings. But, yeah, so technically, we probably need about 160, 170.

Rennie Gabriel  22:29
Okay. All right. So that gives you about 60 to set aside to continue to invest, to continue to grow your net worth. I remember you said that the the 12 units are in your personal name, and that's a problem in transferring that to an entity in Canada. We don't have that issue in the United States. You can transfer from an individual to an entity and as long as that ownership stays the same from the individual to the entity, there's no additional taxes. You can just do a straight transfer. Are you also paying yourself first and setting aside money to continue to have for investments, whether it's in real estate or anything else?

John (client)  23:16
Yeah, I'm paying myself both a management fee for managing the properties, as well as a salary being pulled from the businesses net before I deal with, before it hits the the the net profit, there was a salary for myself being pulled currently. 

Rennie Gabriel  23:33
Okay, terrific. All right, great. Is there an area that we haven't touched on, that you want to discuss?

John (client)  23:41
Not really, I think we hit in most areas here.

Rennie Gabriel  23:44
Okay. I'm certainly not going to talk about how to be a better parent to your daughter. That's not what our call is going to be about. 

John (client)  23:52

Rennie Gabriel  23:53
But let's see if we covered all of the areas that you wanted to talk about. And we talked about,  the millwork company to the employees, financial freedom, we've got an income, we've got an income goal for that. And, okay, you want to be a present parent to your daughter. So it appears that we have covered the issues that you want to cover. You understand how I work with people. Have I given you some things to work on without me?

John (client)  24:28
Yeah, there's a few - to be more clear with my overall numbers - goals. Really look at where to reduce expenses. It's not something I've been thinking of constantly, as well as changing my thought process is definitely something, because I was more pessimistic about it.

Rennie Gabriel  24:47
Oh good - well, feeling a little bit more optimistic is a great approach. And how closely do you work with your accountant in terms of reviewing your numbers?

John (client)  25:00
We review them. I review them with my bookkeeper every month. And then quarterly with my accountant.

Rennie Gabriel  25:09
Okay, fabulous. Well, John, I'm going to say that you are on track for accomplishing what you want. And as long as you maintain the 10-year time horizon for your goals, that could spur you to look for more ways to trim the expenses, increase your profit, which increases your savings, which allows you to invest more. So terrific, I'm gonna say you're on track.

John (client)  25:37
That's good. Thank you. 

Rennie Gabriel  25:39
You're welcome. And when we broadcast this episode, it's going to be sometime in October, I will let you know when that happens. 

John (client)  25:45
Thank you. 

Rennie Gabriel  25:45
You're welcome. And so let me finish off this episode. I want to thank you, my listeners. And thank you, John, for your participation. One of the things that John and I discussed when the recording ended, was how great a book is, and that there's no book that can do two things that are vital to success in business. One of them is the book cannot interrupt faulty thinking. As an example, John was feeling that he wasn't accomplishing his goals, that he wasn't doing much. And that was not correct. He had gone from about 2.5 in gross revenue and 78,000 in profit to 1.7 in revenue. Yes, the revenue went down, but his profit increased to 170,000. So that's a dramatic shift. And the book, can't acknowledge him for that and can't interrupt that faulty thinking. The second thing we discussed was that a book can't hold him accountable to anything. He mentioned that he's in a Mastermind group with some other general contractors. He's in a small Mastermind with 10 other contractors. And what they talk about is dealing with whatever issue it is, like, let's say it's a supply issue, a labor issue. And they have six weeks to come up with solutions. And they work on this together. And that's a part of what is creating the transformation in his business. While he's only been doing this for a few months, it's the mastermind concept from the book, Think and Grow Rich. So what I was able to see was that he was absolutely on the right track. One, he had some people around him who could support him, as he supported them in this Mastermind group. So that solves the second thing that the book cannot do, which is hold someone accountable. The people in his Mastermind are holding one another accountable. So I just wanted to add that to the recording, even though John wasn't on it. And I thank you again, for listening, my listeners. You can listen to the Wealth On Any Income podcast on your favorite platform. And please rate, review and subscribe. And if you'd like to know how books, movies and society programs used to be poor, and what the cure is, then log on to wealthonanyincome.com/TEDx. You'll hear my TEDx talk and can request a free 27-page roadmap to complete financial choice and receive a weekly email with tips techniques or inspiration around your business or money. Again, that's wealthonanyincome.com/TEDx. Next week, tune in and until then, be prosperous. Bye bye for now.

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