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Welcome back to the Business of Beers podcast. Your daily dose of strategies, tools and tips to help you build an eight figure business. Today's episode is a clip from one of my YouTube lives. If you'd like to hear the whole thing, there's a link below in the description. Cheers.
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Cash Cash System. So now this is number two. So first we need to get the right mindset, then the next we have to think about money. Right? Right. And there's a couple things here. First is you really have to have an understanding of your big numbers. In most businesses, it's going to be these four variable fixed. All right? So you're gonna have four big cost categories of your business. And so you should know right now, like, if I said, hey, last month, like, what was your business's payroll percentage? What was your cost of goods percentage? You know, what's your variable cost and what's your monthly, like, fixed cost? I can tell you right now, for our stores, we want payroll at about about 27%. We want cost of goods about 23%. Our variable cost is about 12% because we pay, we pay minus 10% for royalties and stuff. And then we have about 2% or so in credit card fees. So, like, every single, every single sale, whether we're doing, you know, we do 50 million, 100 million, 5 million, 10, whatever, we've 12% we got to pay. Right? Doesn't matter. And then fix costs. Like, I know my average store cost me 25,000amonth, something like that, to run, like, outside of, like fixed payroll costs. And so, like, I could just, I could look at a report every single week and tell you, last week if payroll was 30%, cost of goods was like 27, you know, variables always going to be the same. I could pretty much tell you, like, did we make money or not? Because I'm like, all right, you know, and with all this, our goal is 15% net. And I could tell you that if we lost three points here up in our payroll, if we lost four points here in our cost of good, that's seven points. And, you know, so I'm probably going to be about 8% that week just because I know my numbers so well that, like, week to week, I don't even need to wait for the, like, I don't even wait for the account, like our team to finish the books, any of that stuff, because the business literally comes down to these four numbers. And in fact, it's actually much simpler than that because what it really comes down to in my business is our sales and Our pay percentage. Now, this is gonna vary depending on, you know, what your business is. But my point here is, like, from a system approach, you need to boil your business down to the simplest terms possible.
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To.
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To the. To. To, like, the number. Like. Like. Like. And I'll show you in mine here that everything else. Like, it doesn't matter what everything else is because, you know, if you can nail these two numbers, everything else looks fine. All right? So, for example, cost of goods, like, our cost of goods is really 23%. It's. It's 24%. Maybe it goes to 25. Some are 22, whatever. But, like, it's actually extremely steady. We don. It would be pretty rare for me to have a 27 or a 30 or higher than that. It would also be really rare for me to have, like, less than 20%. Like, it's pretty steady between 23 to 25. So, like, in my mind, I don't really think about it because I know it's gonna be a steady number. I also know my variable cost, right? Which is. Which is like, my cost. I pay it to Midas, is also an extremely fixed number. It's. It's literally 12%, 12.5% or whatever depends on, like, you know, did we swipe more American Express cards that week or not? But it. But it's not gonna vary significantly. So in my mind, I'm like, all right, I don't have to think about this. I don't have to think about that. Then I've got my fixed costs, and I've got my payroll, okay? So this is how I think about it. Fixed costs don't change, right? For me, it's $25,000 a month. It is what it is, roughly per store. And. And so the goal is that you drive revenue high enough to dilute your fixed costs, right? So that your numbers can fall in line. So, for example, I could just tell you if we did $25,000 in, like, revenue per store, and if payroll was at, let's say, 27%, I am probably going to be around, I would say, 14% that week as, like, our net, okay? Like, which includes, like, depreciation. That includes, like, interest and specs and stuff like that, right? I can. I know for a fact that if we do, like, $22,000, that. And payroll is. Let's say it's 30%, our net that week is probably going to be, like, maybe 5%. We're barely going to make money, right? Just because when the sales drop, that means the fixed costs eat up A larger percentage of your profit. And then also because your, your, your, your, your sales are down, the salaries that you have to pay to your managers is going to eat up a higher percentage as well. Right. And so, so these are the only two levers that I really care about are what are we doing in terms of our. For me, it's our average sales per store and like what is our pay percentage? Similarly, like if we do $30,000 and payroll is at like 25%, I don't know why I put a percentage up here. Right? So this is sales and this is pay. If we do 30,000 at 25%, you know, we are probably going to be like, we could be like 16 to 17%. Right? Because I know that we're again, we're driving volume diluting costs and pay, fixing your pay. The only way that I've got to this point is because I've spent a lot of time in my P and LS in the numbers just going over and like. And I've created some other content around this. I have a basic course if you guys want to kind of see my whole process. You could buy it, I could drop it in the link below. It's relatively inexpensive, but basically going through the entire process to figure all this stuff out so that later you can know your numbers. I talk to owners all the time and I'll ask them, well, what's your pay percentage, you know, what's your net? And they just don't know. They're like, oh, I don't, like, I don't know what it is, right. And it's gonna be really hard to. And a lot of this I come back to is being intentional. Like you want to be intentional with as much part of your business as you can do, whether that is how you spend your time, how you spend your money, what changes you need to make. And so if you, it's hard to be intentional though and like take action if you don't know what your numbers are, right? So that is the first part of it is knowing that from there I'm going to look to do. Now it depends on what it is. But you know what's called a break even analysis. So for we have, you know, we're opening new stores, right? We opened one in February, opened one like in Jet, whatever, July we've got, you know, we're trying to get three or four, maybe five more new stores this year. And so a big part of me, the scariest part of opening a new store is you start from zero, right? You Start from zero. And it's this question of how long until you make money that is the scariest part for me at least to say, how long am I gonna lose money until I make money? And now this store is like, you know, at least supports itself, right? It can make, it can cash flow itself. And then from there there's like a limited upside, right? Like, I don't care as much about, like, oh, I got to make like, you know, I got. This store has to make $200,000 in the first year. All I care about is, is. Is breaking even. Like, it's like, I just don't want to lose money, right? It's like Warren Buffett's first rule. Just don't lose money. And so one of the exercises that you really want to understand, and this is part of like understanding your own P and L, is that, which is exactly how much do you have to revenue to break even, right? And so for most of my stores, I just kind of know that at this point it's about $75,000 a month that I have to do in revenue, assuming payroll is good, cost of goods is, our rent's not crazy in order for the business to make money. And so once we know what that goal is, it helps, like increase confidence that we can go out there and achieve it. But if not, if I didn't know what my cost to break even was or if I thought that, hey, for me to break even, like, I need to do, I don't know, $150,000 in revenue and my average store right now does, I don't know, 100, let's say 30,000. Like, that would be a pretty stupid idea at least, you know, in my world because, like, my store's only doing like, my Average storage is 130. Yeah. My best do 300. But if I brought a new store on and the break even is like 121 30, and like, that's just got much higher risk, right? And you're gonna have to have a way more confidence versus, hey, all I need the store is to do 75. I can handle that. No big deal. We can go from there. Second part of this cash system is creating what I call like the war chest, where the goal is, you want to set up three bank accounts, alright? We want to set up one that is for operating. We want to set up one that is for tax. Actually, hold on. We need four. Actually, hold on, I forgot the operating one. Want to call profit. And the last one is growth. All right, so in our business, we have, we have, I mean, we have way more than four bank accounts, but we have, in theory, they have labels and we have four of them. And so how it works is for every dollar that comes in, it goes into the, the operating account. So all the money, all the like deposits everything comes into the operating account. That is where we make payroll, we pay all the bills out of, like, we kind of have a number that we want that bank account to be at. And you know, we kind of keep it at that level. And then as soon as it goes over that, we're pulling money away. And when we pull the money away, we want to separate into three different accounts. Number one is taxes. So once you start making some money, you got to pay quarterly taxes. We also, you know, we have to pay taxes for like, you know, triple net buildings that we occupy, you know, that, that, you know, it might be $150,000 that we owe in property taxes that are due over the course of like, you know, two months in the springtime also when your income taxes are due. And so we treat this as like an escrow account. So every single week we are moving a certain amount of money for us. I don't, I don't know what is offhand, I think it's about, I think it's like $25,000 a week. But, but I'm, but I'm sure it could be whatever, right? But each week we kind of figured out, here's all the money that we're going to need to owe in income taxes, quarterly taxes, in property taxes, just all the money that's like not our money really. And so what we do is we, every single week, we just like move that money over and it sits there. You know, it earns a pathetic interest rate. Because what that does is then when income taxes come due, when these big bills come due, you're not scrambling because you've prepared for it, you're ready to go, you've overestimated, you've done all that stuff. And so even, you know, this last couple weeks, I mean, I owed, I don't know, $250,000. My brother owed about the same. So like, you know, we owed about $500,000 to the IRS. And so we had that in the account. And so we just took the money, paid it, and like, there's no stress because we were prepared, all right, Versus the way that I used to do it with was all the money would just sit in the operating account, right? And it would get bigger. But then like, in our minds, we're like, all right, well, we gotta save money for here. We gotta save money for this. We got all these other things going on. And then it kind of like puts a lot of stress because. And you then don't want to take distributions because you're fearful that, like, I'm going to need that money, right? And, oh, I don't know how much money I'm going to need. And there's like back to like being intentional because you don't have these systems in place and now you're all reactive versus proactive. And so the tax account, like, as painful as it is to write those checks, it's less painful when I've already written off the money that it's not mine. All right? And we actually over saved on that. And so then we each took like a distribution that kind of felt like a bonus at that point. Cause like, we've already written it off and then we're like, oh great. It's like, it's our money now. So you want to set up a tax account. Then we have these two accounts. One of them we call profit, one of them we call growth. Now for a while it was only one account, which is, which is why we added it. So I'm going to talk about the growth account next. So back to my, like the question I got, where do we have the money? You know, we want to put as much money back into our business as we can because it is, it is the best possible investment that we can make. I mean, I've had stores where, I mean, even this last store, we put $200,000 to acquire and open the store in February. And you know, that store is probably going to make $150,000 this year in the first year. So like, whatever investment could you make where you invest $200,000 and you get 150 back in the first 12 months, right? Not many. And that's like on my lower return, most of the deals we're getting at least 100% of our money back. And that one we didn't. You know, if we used debt, it would have been fine, but you know, we paid cash. But either way, we want to put the money back into the business. And so same thing, we are putting money into this growth account. And so we set a threshold. So I'm just going to make up some numbers. But let's say we want this operating account to be $100,000, right? So we say, hey, $100,000 is like our threshold. That's the number we're comfortable with. And what we're going to do is every week, whenever that number gets above it. So let's say we do we got 120k at Monday or Tuesday or whatever day we pick in the week. Then what we do is we take the $20,000 and in this case we would feed that into the growth account. The next week we do the same thing. Maybe that week we've got 110, we take 10k and we'd sweep that into the growth account. So each week we'd go and we'd be sweeping the amount of money over our threshold. Now that threshold is set at a comfortable level. We did it as a multiple of payroll. I think I want to say we did like five weeks of payroll or something like that. There was some sort of metric that we used that we felt pretty comfortable with from a balance like standpoint. All right, so the growth account becomes the same thing for you but escrow for you to grow into the business so that when you go out and you start chasing acquisitions, you start looking at new opportunities. Or for us, like we have an opera. We are currently buying one of our buildings that we occupy that the landlord wants to sell it. It's 1.6 million. So we're going to need 300 ish thousand dollars for the down payment with our bank. And so guess what, like we already have 300 grand in that growth account that we plan to put back into the business. And so we can just write that check from the growth account. And like again, it's not like we're pulling from savings. It's not like we're pulling from like this tax account or scrambling because we've proactively been saving all this money along the way to go ahead and do it. Now at a certain point you may say, hey, I want to continue to grow. I want to like grow beyond. Or I'm okay, I want to almost slow down the growth a little bit and I want to take some money and maybe push it outside of, outside of the business. And so that's what we use the profit account for. All right, so those are kind of the difference. So in that case, the profit account is money that we could take as distributions. So we're taking it out of the business. So maybe you could say, hey, what I'm going to do is I have $20,000 of additional capital that we don't need. Maybe you say, hey, I'm going to take 10k and I'll take that as into my profit account and I'm going to take 10k and I'm going to put that into my future growth account. Totally up to you in terms of what that looks like. But that. Hold on a second. I got a disk, I got a disk almost full on my laptop here. Hold on. Or my computer should be good. Cool. So this is our cash management system. This is how we run it. I mean, we've run this way for years. It is literally one of the, probably the most critical things that we've done that has helped us have money for deals. And it comes back to this idea of betting on yourself and that your business is the best possible investment that you can make. Once you have it, once it feels like an operating system. Because in the beginning, when you first start off, the business is a job, right? Like you go out and you work all the hours and your success is related to your direct input. And if you're not working, then the business is potentially going to suffer, right? And it feels risky to then put any money back into the business because it's not really a business, right? It's a job that you have. And the point or the goal of, of owning a business, right, is to remove that self and take this and turn it into what I call like a business. Which is. Now that's kind of the thing that I'm going to talk about here, which basically means now we have these systems. And a system is really just a repeatable process that you've documented that your team can run without you, right? And it can just go. People know what to do and it works. And you need these systems in order to grow. It can't be reliant on you. Otherwise it's back to being a job. And then, so this is where it becomes less, you know, I'm gonna say less risky for you to go ahead and say, hey, I'm gonna take that $100,000 and I'm gonna put it back in my business. I'm gonna grow it. Because now that can help me go from one location to two to four to six to eight. And. And I can actually build a team and I can remove myself out of the day to day. And I've got people that know what to do and are frankly potentially like better than me at it. And then the final stage, which is where I'm at today and where I think most people aspire to be, is that it becomes an investment and that your business itself becomes an investment vehicle, right? Where instead of putting money into a stock market and earning, I don't know, 10% or whatever it is, we can Say, hey, I'm going to go and put, you know, a million dollars into buying X number of more stores, even if they, even if we have to start all these from zero. Because I'm extremely confident that, you know, that $1 million, let's say I could get four stores and out of that could produce me, I don't know, 500k a year. Like let's just ballpark this, right? And so again, if you think of it as an investment vehicle, like why wouldn't, like if you said, hey, you could put a million dollars into something that could earn you $500,000 a year, like, and it just, it continues to make money every single year and eventually you could take that thing and you could sell it for, you know, I don't know, two or three million dollars or more or whatever down the line. Like that is a no brainer. This is the best investment you could ever make. And the challenge is that it takes this progression to get there, right? It doesn't happen overnight, but it takes you willing to do the work, to start the job, to be the hero and brute force it all. Take all the risk to then build the systems to create a business which now the thing you have people and leverage to then be in the investment vehicle, right? And then that's how these companies and people build these massive things is because there's no better investment than yourself, all right?