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- [00:01]
Austin Hankwitz
You're about to make a trade. Which u do you listen to? Is it get optioning those options or let's do a little research? Learn more@finra.org TradeSmart I'm NFL linebacker TJ.
- [00:16]
TJ Watt
Watt and this is my personal best. YPB by Abercrombie is the activewear I'm always wearing. That's why I reached out to co design their latest drop. I worked with designers to create high performance activewear that holds up to my toughest workout shop YPB by Abercrombie in store, online and in the app. Because your personal best is greater than anything.
- [00:43]
Austin Hankwitz
Zeta.com presents the rich Habits Radar A new Friday episode of the Rich Habits Podcast where every Friday morning we're coming at you with the biggest headlines impacting you and your money. My name is Austin Hankwitz, I'm joined by my co host Robert Krok, and as you can tell I've got a cold right now, so I hope I don't sound too nasally. My head's a brick, but we're getting through it. That's what we're excited about here with the Rich Habits Podcast and the Rich Habits Radar. The three things sitting on top of our Rich Habits Radar this week include Nvidia's quarterly earnings results, Jerome Powell's remarks last week at Jackson Hole, the new tariffs on cheap Chinese goods, and be sure to stick around to the end to learn more about how Amazon is entering the robo taxi race for the very first time. So Robert, let's now dig into our first story.
- [01:32]
Robert Krok
Yes, our first story is Nvidia's quarterly earnings report that's been top of mind for everyone and Nvidia's earnings results delivered upon expectations with continued growth in the company's data center business despite ongoing challenges from US Export restrictions on sales to China. Revenue reached a record 46.7 billion, beating Wall Street's expectations of $46 billion.
- [01:58]
Austin Hankwitz
Profits increased 6% quarter over quarter and 56% year over year. The data center segment, which accounts for the bulk of Nvidia's revenue, grew by 56% year over year, but just narrowly missed those Wall street estimates, contributing to that modest dip we saw in Nvidia's stock price.
- [02:18]
Robert Krok
And during the earnings call, CEO Jensen Huang emphasized the immense AI opportunity ahead, highlighting the ramp up of the Blackwell platform and the shift towards agentic and reasoning AI models that demand exponentially more compute power.
- [02:34]
Austin Hankwitz
It's a big key Takeaw ways from the earnings call included continued global demand for this AI infrastructure, major advancements in robotics and sovereign AI, as well as a cautious outlook on China sales due to licensing requirements.
- [02:49]
Robert Krok
A major highlight was the 17% sequential growth in the Blackwell Data center revenue with full scale production now underway across partners like CoreWeave. Jensen Huang called Blackwell the platform at the center of the AI race, delivering three to five times better AI throughput than its predecessor Hopper in power limited environments. Wong projected a three to $4 trillion AI infrastructure opportunity over the next five years, driven by hyperscaler CapEx doubling to $600 billion a year.
- [03:22]
Austin Hankwitz
Robert, let me get, let me hold 600 billion real quick. Let me just, let me just see that. Let me hold 600. Bill, what is that? All right.
- [03:29]
Robert Krok
So.
- [03:30]
Austin Hankwitz
So. Wong also mentioned on the call that China represents a $50 billion market opportunity, but restrictions have closed it to US firms he adv collaboration, noting half of global AI researchers are in China, but that US platforms must remain preferred for these open source AI models. The board also approved an additional $60 billion share buyback program. What does this all mean for investors?
- [03:55]
Robert Krok
Well, we believe Nvidia's earnings results continue to solidify our long term thesis on AI, its importance for the future and we remain bullish for the long term. As we always say, the show goes on, we don't have knee jerk reactions and we just really love the AI sector, the data center sector, and think we are going to be here for the long term and it's going to continue to grow and go up and to the right.
- [04:20]
Austin Hankwitz
A big takeaway for me is the positive relationship in how well Jensen Huang and his C suite executives have navigated the US export restrictions to China and how they're able to figure out those geopolitical conflicts and it just sort of sidestep some of the restrictions there. So it's really exciting to see that. Glad they're doing that and I'm sure it makes shareholders just as happy as well.
- [04:44]
Robert Krok
Yeah, we'll get to see. I think like you said, they've done a tremendous job navigating all of this tariffs and everything that's been going on. And now we'll see how they handle the next kind of hurdle with the Trump administration potentially wanting to take a stake in Nvidia like they're doing with Intel. So it'll be interesting to see how that moves forward because Nvidia is definitely in the driver's seat and I don't know that Jensen's going to want to tolerate that, but we'll see what happens next.
- [05:11]
Austin Hankwitz
Speaking of up, our next story is Jerome Powell's Speech in Jackson Hole so Jerome Powell delivered an important speech last Friday at the Jackson Hole Symposium, signaling a subtle yet very meaningful policy shift. Jerome Powell acknowledged growing downside risk to employment, specifically citing the big drop in job growth down to just 35,000 new jobs a month in 2025 compared to the 168,000 new jobs a month we experienced in 2024 and a very slow labor force uptick tied to that DEC immigration we've seen year to date. Now, while inflation remains somewhat elevated, Jerome Powell framed much of the tariff related pressure on inflation as transitory, as if we've heard that one before, suggesting it might represent a one time jump rather than sustained inflationary momentum.
- [05:59]
Robert Krok
And Powell left the door open for a possible rate cut as early as September, not entirely committing but suggesting that the shifting balance of labor market weakness and inflation risks could make a justified cut. He also emphasized the Fed's commitment to data dependent policy making and reaffirmed its independence from political pressures. Powell's remarks were interpreted as dovish and the markets responded accordingly. A potential interest rate cut lowers borrowing costs and the cheaper it is to borrow money, the easier it is to spend money. We all know that more money spent equals more corporate profits and the markets immediately price those profits into stock prices.
- [06:40]
Austin Hankwitz
Last Friday the speech also set the tone for some renewed liquidity, encouraging investors to move back into equities despite the mounting economic stress that we've seen year to date, as well as this chatter of an AI bubble. Since 2021, the Federal Reserve has been laser focused on the inflation side of this equation. As a quick reminder, the Fed has to focus on a dual mandate, keeping inflation low while simultaneously keeping unemployment low. For the last four years they've been focused on inflation. This was evidenced by their action of hiking interest rates at the fastest pace in over 40 years. But the Fed is instead focused on optimizing for that low unemployment, which is essentially confirming that rate cuts are coming. Year to date, 461,000 jobs have been revised down. So literally we thought we were going to have all these jobs, half a million jobs essentially just didn't happen this year. Which in my opinion is a valid reason to flip flop on this dual mandate. Right? Instead of focusing on inflation which largely has come down over the last three years, to now focusing on ensuring that the unemployment rate does not continue to tick higher.
- [07:45]
Robert Krok
I'm also of the belief belief that inflation is going to rebound higher because of these rate cuts. This is terrible news for lower and middle class Americans as inflation is essentially an additional tax on those individuals. For the upper class and wealthy, which is the majority of the asset owners in this country, this can be a very good thing when the Fed cuts rates within 2% of all time highs, which is where we're at right now. The S P500 loves it. In 20 of the last 20 times this has happened, the S P500 has responded positively with average return of over 13.9% over the following 12 months. And asset owners are about to be handsomely rewarded.
- [08:27]
Austin Hankwitz
Additionally, the relief in home prices Americans are waiting for likely won't come. Mortgage rates will drop, allowing home buyers the opportunity to enjoy lower interest rates, but they won't drop in a dramatic fashion. The Fed will likely cut by 25 basis points at a time compared to the 300 basis points that President Trump wants. The result will instead be interest rates on mortgages at about 5% with a higher demand as more home buyers now have inflated assets to use to pay for their down payments with a still very limited housing supply. As a reminder, gold is up 105% and bitcoin is up 450% over the last three years. The markets know higher inflation is here to stay, which means only those who own assets will beat inflation over the coming years. And on top of this, Jerome Powell is out of a job in eight months. And I assume Trump will appoint someone who's going to continue this interest rate cutting cycle as he's been very vocal about cutting interest rates. So Robert, what does this mean for investors listening to this episode right now?
- [09:25]
Robert Krok
Well, we've been saying it for a very long time. Be a net buyer of assets. The markets will continue to experience its normal ups and downs, but Jerome Powell made it crystal clear. He's now laser focused on the unemployment rate and ensuring Americans stay gainfully employed by ignoring, maybe not entirely, the rising inflation our country is facing. Inflation will likely accelerate. Do you remember what the stock market did when inflation accelerated dramatically during 20 and 2021? It skyrocketed, as did the values of homes, businesses and other risk assets. I have a hunch we'll experience continued momentum in the markets over the coming quarters as the Fed cuts rates, leaving non asset owners in the dust. So the biggest takeaway for me is own assets, buy assets, build your future and stop worrying about being a consumer and buying depreciating assets.
- [10:21]
Austin Hankwitz
It has never been more important to have a plan to be dollar cost averaging and to be investing in your Roth IRA, your Bridge account, your 401k. However, you can get money invested and working for you it has never been more important to do so. Inflation is at 3% right now. We could see it re accelerate to 3 and a half, 4 maybe more than that. Hopefully not. But if that's the case, it's like you want to be able the cash you have sitting in your checking account then loses value purchasing power by 3, 4, 5% every single year. Have to have it invested so it can grow more than the inflation, offsetting that, allowing your purchasing power to grow over time as well. So Robert, let's now jump into our final story here. In a major shift in US Trade policy, President Donald Trump has eliminated the de minimis exemption for low value imports from China and Hong Kong. This long standing rule, part of the Tariff act of 1930, previously allowed packages valued at $800 or less per person per day to enter the United States duty, making it a key enabler for cheap e commerce shipments.
- [11:30]
Robert Krok
As of today, August 29, 2025, the exemption has been extended to end for all countries. But the focus here is on China, which accounted for about 60% of all de minimis shipments in 2024. Over 4 million packages daily valued at billions annually.
- [11:50]
Austin Hankwitz
Wow. 4 million packages a day. That's crazy. So the de minimis exemption was originally designed to reduce administrative costs for small but it exploded in use after Congress raised the threshold from 200 to 800 in 2016. Chinese e commerce giants like Shein, Temu and Aliexpress heavily rely on it to ship affordable clothing, gadgets and household items directly to U.S. consumers, often undercutting domestic retailers.
- [12:18]
Robert Krok
And critics, including bipartisan lawmakers, argued it created an unfair advantage for Chinese sellers, flooded the market with low quality or forced labor goods and allowed smugglers to bypass inspection. CBP seized over 21,000 pounds of fentanyl last year alone, enough to kill billions.
- [12:38]
Austin Hankwitz
Wow. So what you're saying is that these people will smuggle in on these random it's a pair of shoes or something. They'll smuggle drug. Wow, that's crazy. So here's what you can expect. Expect to see 10 to 50% price hikes on these cheap Chinese imports. Especially fast fashion toys and electronics from sites like Shein and Temu and TikTok Shop. A lot of TikTok shop comes from China A now these platforms have shifted to US Based fulfillment or raised prices to minimize the impact. Sticker shock is already hitting shoppers. So if you're someone who's trying to, you know, get your Christmas presents early, it's a little too late here. It's, it's already gone into effect. Robert, you know, Chinese shipments very well as silly bands was made in China. And you understand the imports and exports and all that stuff here. What's some, some big takeaways.
- [13:26]
Robert Krok
Yeah, we could spend hours talking about this. But let's go back a little bit. And when you think back to Alibaba, when it first became hu in the United States, it was a great resource because they were enabling small retailers, people that had Etsy shops, people that had consumer brands, to be able to successfully source and manufacture goods in China that would normally come from China anyway. But the problem was China got greedy. Over the years we've seen AliExpress, which was a spin off of Alibaba, and we've seen all these other sites like Shein and Temu and all of them that were using all of these tariff advantages to be able to pummel U.S. companies and U.S. manufacturers. So they really did cross the line. So in essence, these tariffs now mark the end of an era for ultra cheap Chinese goods, forcing everyone to rethink global e commerce. And while aimed at fairness and security, they could raise everyday costs for Americans and reshape shopping habits. But again, I believe it's going to be very helpful long term to level the playing field for small US Manufacturers, manufacturers which there are tens and tens of thousands of them that have E commerce stores and different types, Etsy stores, et cetera, shopify stores, to be able to give them a fighting chance to be able to compete because there's never going to be a situation where US labor and US Manufacturing can compete on a cost basis one to one against China. So I think this tariff shift long term is going to benefit everyone by bringing more manufacturing back to the United States and not allowing China to just pummel all of us US Manufacturers and our brands that are associated with our companies.
- [15:15]
Austin Hankwitz
Robert let's now jump to our rapid fire stories. I've got three that I found this week. You've got three as well, Robert. I'll kick us off. My first story has to do with the Russell 2000. As you guys know, these are 2000 of the small cap names, right? So these are companies below a billion or 2 in market cap and they could be profitable. Sometimes they're biotech, but they're smaller in nature. But these Russell 2000 names have seen some momentum recently, especially when related to their large cap counterparts because the Federal Reserve is hinting at those interest rate cuts. Remember, with lower interest rates, these companies can borrow more for less, refinance existing debt, which means more money hits their bottom line. I firmly believe the Russell 2000 as defined as the IWM ETF will hit $300 a share, assuming we see rate cuts very soon. The second story I want to bring is the Q2G growth revision. So as you guys know, GDP for Q2 came in at 3.1%. Well, not anymore. They just revised it higher. 3.3%. Unbelievable. This came in from the Commerce Department's Bureau of Economic Analysis yesterday. Now compare this to the half a percent decline that we experienced in Q1 earlier this year. What caused the revision to go up was more consumer spending than originally thought thought and less government spending, which is pretty interesting. Now the last story on my rapid fire list here is lumber prices. Lumber is on the brink of a bear market. So lumber futures saw a surge driven by tariffs and optimism over lower interest rates recently, which pushed prices to the highest level in more than three years. But that enthusiasm soon faded away. Recent housing data dramatically disappointed expectations. Builders are scaling back now due to higher input costs, weaker demand and looming affordability challenges. The price of lumber is now 20% off their recent all time highs, putting the price of lumber in a bear market. So Robert, if you want to go build a house or do something cool with lumber and now just cost you 20% less.
- [17:17]
Robert Krok
Yeah, there you go. And always keep an eye on this if you are a builder and you're someone developing because your lumber package could go up or down by tens of thousands of dollars from when you want to order to when you actually order. I learned this the hard way one time, so. So make sure you're always considering all of these facts when you're building these bigger projects. So let's get into my rapid fire. I'm going to start out with Intel. I know I've been talking about it a lot, but Chief Financial Officer David Zinsser said his company has just received $5.7 billion on the US government's 10% investment. We talked about it recently that SoftBank also invested. I think it was $2.5 billion plus the US government's been getting involved and I think this is all really great news for intel moving forward. And the 5.7 billion came from a part of Intel's shares of the US Chips and Science act funding. And under this agreement, the US is buying 433.3 million shares at $20.47 each. Intel had already received 2.2 billion in grants from the Chips act at an earlier date. Another 3.2 billion will stem from the Secure Enclave program through the U.S. department of Defense elevating the total investment to intel at $11.1 billion. I've been talking about it. I think everyone needs to keep an eye on Intel. They are a US darling that's been really, really suppressed for a long time. They kind of missed the boat in the first wave of AI and I think moving forward they're going to be one of these up and comers in edge AI. There's a lot of opportunity there as well. And my second take today in Rapid Fire is the continued tokenization of real world assets. Everyone talking about it and I think the trend of bringing traditional assets on chain is gonna continue to gain momentum. Analysts suggested this institutional adoption could fuel a price bounce for assets like aave, which are positioning themselves as key players in the institutional defi space. We all know I've been talking about defi for a long time. There's a lot of great projects, so please don't sleep on defi. There's so much out there. There's aave, there's Ando Finance, Pendle. There's just a lot of great projects. And my last rapid fire take today is Amazon announces they are entering the robo taxi race. And this one was new to me. Zoox plans to continue to focus on scaling from pilot testing to full commercial deployment of its purpose built robo taxis. I didn't even know Amazon was getting in the robo taxi game. And this company is launching its first ride hailing service for the public in Las Vegas later this year year. Meanwhile, the company's state of the art facility in Hayward, California is being designed to eventually produce up to 10,000 robo taxis per year. Zoox is also conducting extensive on street testing not only in Las Vegas, but in San Francisco, Atlanta, Seattle, Austin, Miami and Los Angeles, preparing those metro areas for future expansion. So I'm excited to see this. You know, we've been talking about robo taxis and Humanoid robotics and self driving for a very long time and we want to make sure all of you are educated on where all the picks and shovels plays, who are the major players and how can you capitalize off of these secular growth trends. So we'll keep an eye on Zoox, which is owned by Amazon.
- [20:51]
Austin Hankwitz
Yeah, so Amazon purchased Zoox for a billion dollars in 2020, was founded in 2014 by a guy named Tim Clay and Jesse Livingson. So good for them. They're now billionaires. But shout out amaz entering the robo taxi race. All right, Robert, let's now jump to our Q A section. Of the episode. Remember, if you have a question for us to answer on these Friday episodes and that question has to do with being a small business owner, earning more money, anything to do with entrepreneurship, side hustle, anything like that, we're here to answer your questions. So our first question comes from Jessica. Jessica says, hey Austin and Robert, I love your podcast and I'm so excited about these Friday episodes. I own multiple small businesses and these episodes have been so helpful. Helpful. I have a question regarding solo 401ks and traditional 401ks for small business owners. Austin, you mentioned that you love the solo 401k and that Carrie.com is a great platform for it. I was looking into the platform and I realized that I don't qualify for a solo 401k. I own four main businesses. Two of them I co own with my husband. Two of them I own a hundred percent myself. Among the businesses I own 100% myself. I also have full time employees that do not include my spouse spouse. Because I have employees that are not my spouse, I do not qualify for the Solo 401k. I'm more than happy to set up a traditional 401k account for that business so that I can match the contributions for my employees. However, the process seems to be complicated with annual form filing and testing requirements. Is there a platform out there like Carrie.com but for traditional 401ks? My other question is I believe my husband would qualify for a solo 401k since he does not own any companies that have an employee. Would he be able to contribute to a solo 401k for the both of us? It's a really good question. Jessica thank thank you so much for tuning into the show. Shout out to you for being a successful small business owner. Four businesses is crazy. We're super, super excited for you. So are there platforms that allow you to set up a 401k for your employees? The only one that I've heard good things about, yes, there's tons of them. But the only one I've heard good things about is Betterment. B E T T E R m e n t.com, betterment. They offer 401k services for small business owners. Go check them out. But yes, your husband absolutely qualifies for a solo 401. He does not own any companies with employees. He can contribute to a solo 401k for himself but he cannot contribute on your behalf since you are not his employee. The contribution limit for solo 401ks is generally up to 20% of the net self employment income. But if you do a Roth solo 401k, you can actually jack that up to about $69,000 this year in 2025. Robert, what did you do for 401k stuff when running businesses? If it was bars, restaurants, anything. How did you navigate offering a 4.1K to your employees?
- [23:41]
Robert Krok
Yeah, we just never did it. It was one of those things where, you know, back then, let's go back 20 years, 25 years ago, there just wasn't all of the great programs to make it easy and affordable for business owners. Now it's different where we can offer, you know, bonus structures, we can offer equity on performance, we can offer 401ks. But because a lot of my small businesses have have 10 or less employees, we really don't get caught up in having to offer 401ks and all of these retirement plans to people. I don't know if that's a good thing or a bad thing. We pay well. We do give bonus structures, so that does help. But we just don't have a lot of experience in the small business world of offering these because a lot of our businesses like restaurants and things like that, people just aren't there for long periods of time. So 401ks just don't really come into play very often.
- [24:38]
Austin Hankwitz
So our next question comes from Robert S. Robert says. Dear Robert Noston, I really appreciate the Q and A portion of your podcast. I have a dilemma that you all could have some really good insight on. I entered into the private lending business and I recently did a deal with a contractor. Original terms of the deal was a 15% return on a hard money loan to complete a single family residence. I wouldn't have considered the deal if the property and the land were not owned outright. With no liens against the property. Had an attorney draft up an agreement including loan documents, draw schedule and default terms. After the initial draw payment of 50,000, we ran a title check on the property and liens were owed on the property. As first lien holder. With the property as collateral, I ended the deal. I gave him three months to pay back the principal balance plus late fees and attorney fees. He since filed Chapter 13 on the property and was able to stop me from foreclosing and collecting on the debt. Chapter 13 is restructuring so he had to pay back the courts, attorneys, taxes and IRS debt before starting payments on the first lien holder. I've noticed he's actually still investing in the property and hopes to mortgage the property property. But in the meantime I haven't been paid on the debt due because of the Chapter 13 process. If he has the cash to pay back debts and has abused the bankruptcy system to pay back his creditors, what options do I have to prove that he has the cash and is not paying back to his debtors? Also, the property has $800,000 of equity in it. Thanks for your help. Let me know what I can do. Robert, this is all you, my friend.
- [26:04]
Robert Krok
Yeah, this is a really tough situation and you definitely need to get a strong real estate state lawyer that understands, you know, is he in fraudulent conveyance territory, which I believe he is. This has happened to me many times where they cry wolf and say, sorry, I don't have the money in which they are then in breach of their contractual agreement and their legal agreements with the courts. So I would get an attorney involved check fraudulent conveyance. I would. Because you probably still have the right, if you do have the first lien that was in place prior to the bankruptcy to get the information as far as where he's at on the project, what is the value, how much equity proposed equity is in the project since it's not finished. And then I would have this attorney figure out how can you enforce your first lien rights, because I don't know what state this is in and I don't know how chapter 13 works in that state to if it deletes your first lien rights through the chapter 13 or, or if you immediately keep your first lien once the courts are over and they get their money, which is what I believe the situation you'll be in. And with that, you would still have your first lien rights in any equity moving forward when the project is completed. But just make sure you get a really good lawyer, not just a random lawyer that understands all of what I'm talking about as it relates to Chapter 13 and bankruptcy around real estate. Especially because you did everything right by having the contracts, the draw schedule and making yourself first lean on the project. The only thing I can add on top of this for everyone else listening is be very careful with hard money loans. Make sure that you are in a position where this person, let's say they have ABC LLC and that's who you're writing the contract with. You want to make sure that you get a list of assets from them, the person, person that is the owner of that llc and make them sign themselves personally on this debt along with the LLC so they can't pull that with you. And just file bankruptcy with the llc, make them personally liable as well. And if they don't like it, don't give them the money. Because at least then with that first lien, even if they file bankruptcy, you can go after the assets they already have.
- [28:25]
Austin Hankwitz
Personally, to be honest. Honest, I'm not well versed in any of them, but this guy sucks. Like, I think that's so unfair. I mean, you, he, you are the person that said, sure, I'll lend you money. I'm only asking 15 on this. Best of luck with your, you know, real estate endeavors. And now he's trying to sidestep you because of a chapter 13, you know, because you can do that when you file bankruptcy. Like that is so slimy. I'm so sorry you, you got drug into all that. That's just no fun at all.
- [28:56]
Robert Krok
Yeah. One of my best friends back in the day was in trouble and he was going to lose two of his restaurants. He called me, it was like nine in the morning, the city was there locking the doors and locking him and his family and everyone out of the restaurants with chains. And he said, can you save me? I had 15 minutes to get down there, talk to the city, talk to the sheriff, go to the bank, get a certified thumb funds, bring it back, hand them the check so they wouldn't lock up their restaurants. We signed an ironclad agreement that they were going to pay me back over a four year period with interest on the money. And about two years in, they stopped making payments. And it broke my heart because these were family friends of mine that I'd known for decades. And I won't cuss on film here on the podcast, but he said, go F yourself, go buy another mansion or Lamborghini. I'm not paying you any more money. Good luck. And what he did was exactly what this person did did before he filed bankruptcy. He did fraudulent conveyance where he took everything and he put it in his kids names, his wife's names, and he hid stuff. And then he filed bankruptcy so he didn't have to pay me and all the other people. He owed money. And I had the opportunity because I knew where all the bodies were buried, that I could have put him in prison. So I had a very long rough patch with myself saying, do I teach this guy a lesson? He was much older than me, or do I let him go even though I know he's still living a good life and he owes me a lot of money. Money. And I let it go. I felt it was the right thing to do because he would have went to prison if I would have filed suit against him knowing what I knew. And I didn't want to see him spend years in jail in his elderly years. So I let it go and it was a very hard time for me. So just everyone please learn from this. This is a great question. A horrible situation. Always make sure you're protected. And be careful who you loan money to.
- [30:44]
Austin Hankwitz
Be careful who you loan money to. And never loan money to your families and friends. Friends. Now our final question comes from Melissa. Melissa says, I own a commercial cleaning company serving medical offices and schools. We're at about 120,000amonth in revenue, operating at 28% gross margins. But our accounts receivable is killing us. Clients pay on a net 45, sometimes a net 60, while my payroll is weekly and suppliers want us to prepay on chemicals that we buy. I've patched gaps with a credit card float, but it is getting risky. What's the smart way to fix this cash conversion cycle? Should I negotiate progress building billing and late fees, Push ACH auto pay with discounts or set up a revolving LOC with my bank? How do you think about a factoring loan versus a revenue based financing versus a traditional line of credit for a service business like mine? Robert, I got a feeling we're on two sides of the fence on this, but I'll let you go first.
- [31:37]
Robert Krok
All right, I'll go my side of the fence. You are in the hardest part of entrepreneurship and small business ownership. On one side you're crushing it and on the other side you're stung carving because it takes so long because your money is tied up forever. I remember during Silly Bands having major retailers with multi million dollar orders and my float at that time was like 8 to 9 million dollars a month that I would have to wait each month. And sometimes I was up to 15 or 20 million dollars that was out that I would not receive back until 60 or 90 days, similar to your situation. So you have a lot of options. Options. You can get a factoring loan if you can find one that is reasonable and equitable for you. You can do a situation where you do, you know, these, you know, auto pays with a discount. Maybe it's a 5% discount or something like that where you set your vendors up and say, hey, if we can do an ACH and keep it to net 30, can we do a 5% discount to earn your business that way so I don't have to have such a long float? And then third, I think you could just go traditionally to your bank, to your credit union, someone local that knows your business and will really get involved with you and look for a reasonable line of credit. That way you're only using the funds for the amount of time you need it and you're only paying interest during that time. Now another option, I don't know if I recommend it because it is a little bit scary, is to find a lending partner. It could be someone that has, has, you know, equity in your company and you give up some equity for a lump sump loan to be able to get you 2, 3, $500,000 in to so where you always have that balance of cash in the account so you're not always starved while you're waiting to collect your money. But you have a lot of options. But it is a tough situation. I've been in your situation before and it might be where you find yourself in a situation where you have a multiple of different ways to put this together and prevent this problem problem with your accounts receivable killing you. As you said, it could be a mix of some factoring some hard money and some partnership mortgage or some partner loan or it could be a line of credit from your local bank.
- [33:51]
Austin Hankwitz
I think for the questions you asked, Robert did a wonderful job of answering them. I'm going to hit you with the absolute nothing. You don't want to hear this, but I'm gonna tell you because it's how I've run my business and grow at the speed of cash.
- [34:03]
Robert Krok
Cash.
- [34:04]
Austin Hankwitz
Don't go take on this 100, 200, 300, 400, $500,000 of debt to do this float stuff. Here's what I think. If I were in your shoes, I would either stop paying yourself so much every month and, and really bring up your retained earnings to about three to six months worth of your payroll. Just total spend. So like you never have to worry about floating this debt back and forth which could mean a hard three to six months. But it's just, it's a chapter of your life and the retained earnings is always going to be there because what's the alternative? The alternative is hey, we did this thing for a medical office and that medical Office owed us $40,000 that this month and they're going to pay us for the month of September in, in during the month of November. So it's a 60 day net. Well unfortunately that medical office, their doctor or person that was generating like they, they decided to move and now they're getting acquired and no one's going to pay it like oh, but I had to go borrow $40,000 to run. So it's like every time you take on debt for something so trivial and simple, which is just like you're getting paid the money anyway, you're going to get the money anyway. Like, just slow it down. Like, like people, in my opinion, make the mistake of like, I'm going to go into all this debt so I can go generate revenue. It's like, cool. True. But could you still generate similar amounts of revenue with no debt? And then also when you factor in the interest on that debt, like, I don't know, if I were in your shoes, Melissa, I'd see how I could slow it down. Or figure out how to pay yourself less over a 3, 6, 9 month period of time. Because you're the one that owns the business. You take the owner's distribution so you can leave more money in the business, allowing you to borrow less on a monthly basis, pay with cash along the way because you're going to save up enough money at some point where you're not going to have to leave more the business. It's all going to be there. And so you're going to be running at like a, you know, because you're net 45, net 60, you're going to be two or three months down the, down the road now you'll have enough money in this business where you can still pay for everything in cash. Here's the big thing though, and this is what really makes me upset is whenever I work with a company and I'm sure Robert's had a similar experience, and they're like net 90. It's like, I'm not your bank. I'm not going to like, I delivered the service, I delivered the product, I delivered what I'm supposed to do. And you want me to finance you for three months? Like, dude, get out of here. So I think you should have some really, you know, strong conversations, Try to get to net 30. All the business that we do now is net 30 to net 60 at most. Like, we do not do net 90 anymore. Net 15 if we can. But unfortunately that's just part of being a business owner. It's so funny because that's Robert, tell me if I'm wrong, but that's how you know a business owner from an amateur. And like an experience from an amateur is they'll do the service, then they'll hit you with an invoice. And the invoice is like dated the same day. And they're like, hey, can you pay me? It's like, no, like, I'll pay you in 30 days because that's what like, that's like what people normally do. So if I were you, I'd slow it down. I'd figure out how to move at the speed of cash, how to not go into credit card debt, debt at 30% interest, or these different types of loans, maybe a line of credit, like whatever you want to do, like have some of that cushion there. Makes sense. But I'd really consider how to slow it down. Find a way where you can make sure everyone still gets paid, which means that you might make a little bit less for the next couple months as you hoard cash in the business and your retained earnings and then use your retained earnings to pay for your payroll along the way, because that's what it means to be a business owner.
- [37:24]
Robert Krok
Well, I'm going to click it back one more time. And I really like that side of the fence. So that is why people love these episodes. And Melissa, I hope you enjoyed. Austin's take is, I think, back to Silly Bands at the time, and we had, we had it cut off at net 60. But I remember when Silly Bands fell off a cliff and really started to slow down. A year later, we were looking at all of the accounts receivable and I was still owed $3.2 million a year later. And we had all of these court cases. We had a big, big distributor that did exactly what you said they were in the uk I'm not sure. I don't remember. They did millions and millions of dollars with us. Somebody got their hands caught in the cookie jar. They ended up filing bankruptcy and then we had to chase the two founders personally to get the money. And we settled for pennies on the dollar. And it was just one of those things where think about that $3 million. And I think I only ended up collecting maybe 10% or a little bit more than that because they were on terms. So they were, we were their bank, just like Austin's and said they're living out of our money for 60, 90 days and then they just didn't pay. So anyone out there that's offering terms, learn from this. Try not to give. Give as little terms as you can because too many people want us to finance their dreams and that's not what we're here for. So just be careful and make sure to always try to negotiate that terms, especially in this case with Melissa, you have 28% gross margin. You can afford to give away 3% and say, hey, pay me net 15 and I'll give you 3% if you'll let us. Ach. So the cash flow is there to successfully run your business. So I love your take, Austin. That is why this is such a great podcast is we have two different opinions from two different outlooks. And I think it's really great to give people these options.
- [39:13]
Austin Hankwitz
I will say too be an invoice fanatic. I mean, that's honestly how we do it with my business is my business partner and I. We send invoices for that are due, you know, at the end of that month, the first week of the month, and then 10 days to 14 days later, we will email them back again, assuming, hey, want to confirm you received this? You know, making sure it's still in your inbox. And then we'll give them another email bump two to three days before it's due. I mean, like, we are, you know, you owe us money, we're getting paid, right? So, like, I want you to have that same mentality. If they're not paying on that 30, make sure they know that, hey, this is a net 30, or, hey, this is net 45. You got to do this. And if not, then, like, I got to go find someone else that can.
- [39:59]
Robert Krok
Yeah. One of the best things I ever did, and people thought I was crazy, and this was for my T shirt shop. We had so much money out. I was like, this is ridiculous. Why are people being allowed to pick up their orders, 500,000, 2,000, $5,000 orders, without paying their balance? There were no terms. It was 50% down, 50% when you pick up the order, when it it's ready. So I literally went to my, my controller and I said, give me a list of every customer. And then me, you, and Scott, the manager of the business, are going to sit down. We're going to rate the customers. So we rated them A, B and C and we cut out all Cs. These were the people that paid the slowest, that always made us chase our money. And that were the biggest, hardest complainers and hard to deal with. And it was the best move I ever made. So now in all of my businesses that are service based, if somebody falls into the CCAP category, they get yanked and they get pissed. I had people emailing me back, you can't cut me out, blah, blah, blah. I'm like, I can do whatever I want. It's my business. So always make sure you're keeping an eye, because a lot of the people that pay late and make you chase are going to be the same people over and over again, and those are the people you can cut out of your business.
- [41:10]
Austin Hankwitz
I've done the exact same thing. And. And remember, whenever you. You tell these people, because what we end up doing, whenever you tell these people, you're cutting them out. You're not coming. Cutting them out. You're letting them go as a client.
- [41:20]
Robert Krok
Y.
- [41:20]
Austin Hankwitz
Hey, I'm just. I've just. I gotta let you go as a client. I. We've had a good time, but I just, you know, I think we're focused on different things. We're not aligned on a couple things here. So I just gotta let you go as a client. But I'm wishing you the best. Right? It's not. I don't. You're fired. Get out of here. It's none of that. It's just. We're just going our separate ways here.
- [41:35]
Robert Krok
Yeah, we always hear the story online where the $50,000 client wires you the money in seconds and never asks anything. And then the $500 client is the one that makes you chase and ask 100 questions. And it's absolutely true. So anyone out there with a service based business, if you're struggling or you're having issues getting your money, cut out those C clients and you'll see your business rise because you'll be able to focus more on all the good clients that pay on time and don't give you a rough way to go to get paid.
- [42:04]
Austin Hankwitz
Everyone, thanks so much for tuning into this week's episode of the Rich Habits Radar. I hope you learned something. We love these Friday episodes. We're having a blast filming them and we will see you on. On Monday.