Debt-Free to $1.5 Million in Debt (Now What?)

Summary

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The EntreLeadership Podcast – “Debt-Free to $1.5 Million in Debt (Now What?)”

Date: February 11, 2026
Host: Dave Ramsey (Ramsey Solutions)
Episode Theme:
Navigating debt, leadership growth, and sustainable business decisions in real-life entrepreneurial scenarios.

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Episode Overview

In this episode, Dave Ramsey offers real-time business and leadership coaching to callers grappling with tough financial, operational, and relational choices. The driving theme is the relationship between debt, risk, and sustainable business growth—explored through candid listener calls. The episode expands on core Ramsey philosophies: prudent financial management, organic business growth, and the transition from hands-on work to true leadership. Ramsey dissects not only financial strategy but the psychology of leadership, succession dynamics, and the art of building lasting value in business.

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Key Discussion Points & Insights

1. From Debt-Free to $1.5 Million in Debt: Henry’s Dilemma

[00:57–05:59]

• Caller: Henry from Madison, WI. Owns two companies (construction & roofing). Rapid expansion led to over-budget on a dream facility. Now holds $1.5M in debt (against $3M annual revenue), when two years ago both business and personal were debt-free.
• The Ask: "What does Dave Ramsey do in my situation?"

Ramsey’s Key Advice:

• "Say out loud that Dave Ramsey is not going to get in your situation and you knew better. Okay, then we'll answer your question, but we can't just leave that hanging out there." (Dave Ramsey, [02:19])
• Calculate actual profits:
  • Gross profit: ~30%, but net profit: ~$500K after taxes and expenses.
  • Living expenses: $120K/year → leaves $400K/year excess.
• The Path Forward:
  • Live on a set wage ("take home enough to live on"), then throw every surplus dollar at debt payoff.
  • Debt can be eliminated in ~3–4 years if disciplined.
  • The building is a real estate asset; not an operational necessity for the business functions, but could increase efficiency and brand value.
  • “At the end of the day, this is really a real estate transaction.” (Ramsey, [04:01])
  • Future profits will likely increase post-construction, accelerating debt reduction.

Notable Quote:

• “Just set a living wage at home and you declare that number and any dollars that come in beyond that per month in net profit, I throw it at the mortgage until the mortgage is gone.” (Dave Ramsey, [05:00])

Memorable Moment:

Ramsey’s good-natured tough love:

• “Next time you’re in the construction business, control scope creep... Do it for yourself like you do for your customers.” ([05:00])

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2. Transitioning from Tradesman to Leader

Anthony in Syracuse, NY: [08:05–12:10]

• Caller: Anthony, construction business owner ($2M revenue, 11 employees). Moved from fieldwork into office leadership via Ramsey’s executive coaching.
• The Ask: "How do I embrace—not just endure—my new leadership role and avoid being pulled back into fieldwork?"

Ramsey’s Key Advice:

• Acknowledge the identity shift:
  • “If you keep being the guy swinging the hammer, you just end up owning your job.” ([08:56])
  • Take pride in building people, not just projects:
    • “The guy that's in charge...is the builder, not the guy swinging the hammer....Take pride in my leadership skills rather than in my technical skills.” ([09:04–09:38])
• Use “big things and broken things” as your new criteria for involvement.
  • "In my prayer time one morning, I felt like God was saying, you need to work on big things and broken things." ([11:23])
• Stand back with pride as your team excels—even if you’re not on the front lines.

Notable Quote:

• “It’s like watching your kid do something right...I can stand back with pride and see...successful at something. And same with your team members.” (Dave Ramsey, [09:27])

Memorable Moment:

Ramsey reflects honestly on his own struggles with this transition, naming the temptation and the discipline required to lead effectively.

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3. The Complexity of Buying a Business

[13:12–31:24]

Ramsey delivers an in-depth solo segment on evaluating and purchasing businesses—a mini-masterclass in mergers & acquisitions the Ramsey way.

Key Points:

• Organic growth is best:
  • “My tendency is...you’ll end up better off just getting a truck and some tools and start.”
  • Organic, ground-up growth is less risky and more educational.
• Due diligence is non-negotiable:
  • Always “dig, dig, dig, dig, dig into the details.”
  • Look at tax returns, books, talk to sales team, customers; “no surprises.”
• Valuing a Business: Three Approaches
  1. Gross Revenue Multiplier – mostly for highly standardized industries; rarely appropriate for small businesses.
  2. Book Value – sum of inventory, equipment, and receivables minus payables; essentially the asset liquidation value.
  3. Net Profit Multiplier (Cap Rate):
     • The most common in small business:
       • 4 to 5 times net profit after deducting a manager’s salary.
       • “If the business is making $200,000, it's worth $800K to $1M.” ([20:00])
     • Pay cash for acquisitions. "You don't need to be going $250,000 in debt to buy a sub shop... that's an anchor around your neck." ([19:01])
  • Separate real estate from business operations: Don’t conflate the value or financing of property and the business entity. Rent with option to buy is preferable to tying up both at once.

Notable Quotes:

• “Sometimes buying an existing business is a shortcut to success... sometimes it's a shortcut to a nightmare.” (Dave Ramsey, [13:42])
• “The only reason it's a great location or a great brand name...is if it creates profit. Otherwise...it's just nostalgia.” ([22:42])
• “If you can't do due diligence, don't buy it.” ([15:10])
• “If you're buying for book value, you're buying a bunch of stuff, not really a business.” ([18:00])

Memorable Moment:

Ramsey’s blunt but insightful warning:

• “If you have a great location and you're not profitable, by definition you don't have a great location. Hello.” ([22:50])

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4. Family Business & Borrowing: Philosophical Divide

Jake from Mexico: [32:12–41:00]

• Caller: Jake, runs family-owned gas station chain: 40 employees, $21M revenue, $2.6M debt, $5.5M in assets.
• The Ask: "How do I convince my dad (the company founder) that borrowing is risky and not sustainable for long-term growth?"

Ramsey’s Key Advice:

• Debt always equals risk:
  • “Debt equals risk. More debt equals more risk, period. And he has broken his risk meter.” ([34:50])
• The test: 100x the problem:
  • “If this is so dadgum brilliant, are we going to like it when we have 100 more of these?” ([34:03])
  • If scaling the debt makes you queasy, the model is dangerous.
• You can’t argue someone out of deeply held—especially successful—beliefs:
  • “Those convinced against their will are of the same opinion still.” ([37:00])
  • Wait until leadership passes to the next generation to change course.
• Anecdotal evidence: Ramsey reflects on his own real estate crash and a real estate investors’ club where everyone either “got out of debt or went broke.”
  • “All the rest of us are now out of those properties. Lost everything....It wouldn't last. It didn't survive the test of time, which tells me it's not wisdom.” ([38:40])

Notable Quotes:

• “You destabilize the future growth and the sustainability...the more debt you carry, the less likelihood you’re gonna be here.” ([35:59])
• “Debt...it drains cash flow, it lowers stability, it magnifies the mistakes you make.” ([34:54])
• “Time will kick your butt. It will expose your stupid.” ([39:30])

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Notable Quotes (By Time & Speaker)

• [02:19] Dave Ramsey: “Dave Ramsey is not going to get in your situation and you knew better. Okay, then we'll answer your question...”
• [09:04] Dave Ramsey: “The person that's in charge, that's writing the checks and is making the decisions...that's running the orchestra...that's the builder, and that's you.”
• [19:01] Dave Ramsey: “You don't need to be going $250,000 in debt to buy a sub shop... that's an anchor around your neck.”
• [34:50] Dave Ramsey: “Debt equals risk. More debt equals more risk, period. And he has broken his risk meter.”
• [38:40] Dave Ramsey: “It wouldn't last. It didn't survive the test of time, which tells me it's not wisdom.”

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Important Timestamps

• [00:57] – Henry’s debt dilemma
• [01:02–05:59] – Ramsey’s prescription for accelerated debt payoff
• [08:05–12:10] – Anthony’s transition from tradesman to office leader, and the psychology of letting go
• [13:12–31:24] – Deep dive: Ramsey’s guide to buying a business (due diligence, valuation, pitfalls)
• [32:12–41:00] – Jake’s generational debate over debt, Ramsey’s risk philosophy, and sustainability

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Overall Takeaways

• Debt Must Be Tackled Head-On: Use all excess profits above a living wage to clear debts rapidly; resist rationalizations or wishful thinking.
• Leadership is About Growth—Not Just in Revenue: It requires stepping back, nurturing others, and learning to take pride in legacy and influence, not just action.
• Build Businesses Organically When You Can: Acquisitions bring hidden dangers; due diligence is crucial, and pay with cash wherever possible.
• Debt = Risk—Always: The long-term sustainability and peace of mind always beat leveraged short-term gains, even if it takes discipline and generational change to shift a company’s culture.
• Wisdom Survives the Test of Time: Strategies that seem to “work” short-term often reveal their flaws across decades.

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Episode Mood & Tone

Direct, candid, practical, and empowering—Ramsey balances empathy for callers' struggles with his signature tough love and down-to-earth financial wisdom.

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For additional resources and to submit your own business questions, visit:
https://www.ramseysolutions.com/shows/the-entreleadership-podcast

Transcript

[A]

From the headquarters of Ramsey Solutions, this is Entree Leadership where I take calls from leaders like you about what it takes to win at any stage of business and leadership. I'm Dave Ramsey, your host with over 30 years of experience leading in the trenches right alongside you. If you've got a question you want to ask on the show, fill out the form on entreeleadership.com ask or call and leave a voicemail at 844-944-1070. I am Dave Ramsey and I'm glad you're here. Thank you for joining us guys. We appreciate you again. The phone number if you want to be part of this is 844-944-1070. Henry is with us in Madison, Wisconsin. Hi Henry, how are you?

[B]

Hi there. I'm great, how are you? Thanks for taking my call.

[A]

Sure, man. How can I help?

[B]

Hey, so I'm the owner of two companies since 2017 and one is a construction, one is a roofing company. Started the second one in 2019 actually and grew exponentially over the years. And finally last year started the construction of a brand new facility and warehouse which has always been my dream. However, we went way over budget because it's in town and just a lot of unknowns at that time. So right now we're sitting at, we're in the building and it's fantastic, it's amazing. However, I have been a follower of you for a while and two years ago I was debt free as a company and personally. But today because of the new building. That is beautiful. We have $1.5 million of debt for this new building. Our revenue last year combined with the two companies was right around 3 million. So my question to you, I know what you teach, but I'm just. What does Dave Ramsey do in my situation?

[A]

Well, I mean we have to say out loud that Dave Ramsey is not going to get in your situation and you knew better. Okay, then we'll answer your question, but we can't just leave that hanging out there. So what's the profit on your 3 million?

[B]

The profit is roughly 30%.

[A]

So 900k.

[B]

That'S gross. So net about half of that.

[A]

Okay, so you're making a half million dollars a year taxable income?

[B]

Yes, sir.

[A]

And that's after you pay yourself a salary?

[B]

No, that's included.

[A]

Okay, so that's your entire income personal. Your entire personal income. Correct. What's it take for you to live at home?

[B]

10Amonth.

[A]

So 120 out of, we'll call, let's call it 520 for the fun of it. So you got 400 to work with. So live on 120 and throw 400 at the debt every year.

[B]

Okay?

[A]

And you're done in three and a half years.

[B]

Okay.

[A]

The building's worth what.

[B]

The building will appraise right around 2 million.

[A]

Okay. All right. So you'll have a $2 million asset that's paid for by then. I mean, we're talking three and a half years by then. It'll be appraised at 3 million and it'll be paid for. And that's really what you've done. There is not a business debt. You really just invested in some real estate.

[B]

Okay.

[A]

Cause the business actually would have operated without the real estate. You just chose to build this for the business that made the business operate more efficiently and maybe better. And you said it's beautiful and it's probably attracting some customers and some excitement and some other things around the brand. And that's all good. But at the end of the day, this is really a real estate transaction. And just what I would do is I just pay it off out of your excess. So, I mean, you could change the formula up, make it 150. You're taking home, I don't care. But, you know, take home enough to live on and a tiny bit more and throw all of your surplus profits, net taxable income, profits after taxes are paid and everything, every dollar you can squeeze out, we just throw it at that building. You know, you should be done in three to four years. I mean, your profit's probably going up every year, isn't it?

[B]

Yes, certainly. I mean, this past two years they didn't because of the build, but yeah, they have. They can only go up from here.

[A]

Yeah. So, I mean, it might be faster than three years, you know, but somewhere in the two to four year range you should be debt free again. And then next time you're in the construction business, control, scope, creep. I mean, this is what you do. You should be doing it for your customers too. So don't let this stuff happen when you're running your own stuff. But anyway, we're there today and yeah, the trick is just how fast can we clean it up? Within reason. And what I do, just set a living wage at home and you declare that number and any dollars that come in beyond that per month in net profit, I throw it at the mortgage until the mortgage is gone. And it should be two to four years, depending on what the angle on profitability is and all that kind of stuff. That's what we're looking at. So, Henry, thanks for the call. Sounds like a good business. You sound like you're running it. And like you said, a hockey stick up into the right, baby. Get it. Get it.

[C]

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[A]

It's hard to grow your business when you're stuck in the day to day. If you're working 60 hours a week and spending most of it putting out fires, you got a big problem. Your business is running you. You're just a fireman. Hey listen. You can't grow a business until you grow yourself. That's why you need entre leadership executive coaching. Our coaches have helped thousands of small business owners go from stuck and frustrated to scaling and confident. They'll help you uncover the blind spots, overcome what's holding you back, and focus on the work that actually grows your business. They got your back. So if you're tired of spinning your wheels and you're ready to lead your business with confidence, go to entreeleadership.com coaching fill out the form to talk with one of our team members or just click the link in the show notes. Anthony is in Syracuse, New York. Hi Anthony. How are you?

[B]

Good, Dave. How are you doing?

[A]

Better than I deserve. What's up?

[B]

I own a residential construction company with 11 employees and we do about 2 million a year in Sales. My question is, how do I embrace my role as an owner who is now focused on the business rather than being in the field?

[A]

Have you got somebody in the field to do what you're doing?

[B]

Yes, I did your executive coaching advisory group, and everything worked. And now I'm in the office all the time and everything has worked, so I just don't know what to do now. It's hard for me not to get pulled back into wanting to do my old jobs.

[A]

Okay, so you don't enjoy running the business. You want to work in the field.

[B]

I want to do it both. I enjoy running it, and I like working. I like being everywhere, but I can't do that.

[A]

Well, it's not going to take you where you want to go. You're going to end up just owning your job if you keep being the guy swinging the hammer. Right?

[B]

Exactly. Yeah.

[A]

Yeah. So. Well, yeah, I guess we redefine what it means to build a house, and the guy that's in charge of everybody that's doing the building is the builder, not the guy swinging the hammer. So maybe you're saying I took pride in the actual work because I felt like I was building the house, but really, honestly, the person that's in charge, that's writing the checks and is making the decisions on the subs and the schedul forth that's running the orchestra, that's up there with a sheet of music, got everybody dancing. That's the builder, and that's you. So it may be just a matter of what you are taking pride in. And so I had to reach a point when I started delegating that I had to take pride in one of my team members doing something with excellence that I used to do. And I went, okay, that's. You know, that it's like watching your kid do something right? Your kid, you know, kid, this kid's going to. I can stand back with pride and see my. One of my kids be successful at something. And same with your team members. You can be stand back with pride and go. I taught them that I created the environment where they can flourish and prosper. And so I take pride in my leadership skills rather than in my technical skills. And that's where I started to derive energy from that. Rather than just, I have to be the dog in the spotlight all the time, but instead, I've got Ramsey personalities that are the dog in the spotlight, and I can stand back and just be proud of them. I don't have to be in every location and every time. Is that making any Sense it does.

[B]

Did you ever get pulled back into, like, wanting to do those things? Because, like, that stuff's easy, like building and running a job site and that stuff's like, I know it. It's easy. I can do it in my sleep. But, like, being in the office and looking at scaling and like, over, like, big, big viewers, that's where it's, like, the struggle is, because it's, like, easy for me to go back to what I know.

[A]

Well, I did reach a point where instead of going back in my prayer time one morning, I felt like God was saying, you need to work on big things and broken things. So I did get pulled back in if something was a big new launch, or I did get pulled back in if it was broken, if it wasn't running. Right. Like, if your superintendent's not doing a good job and you gotta step in and make sure the job's getting done, maybe hire a different superintendent, fire that one or whatever, then you're gonna get pulled back in in those situations. But I'm not getting pulled back in if everybody's job and it's running. I need to stay out of the way and let them do it.

[B]

That's hard for me.

[A]

Yeah, and me too. And that's when I said I'm working on big things and broken things. That's my new assignment in order to grow the business to where we are. You know, it's just a matter where do you want to end up 10 years from now and what's going to take you there. And apparently this is taking you to where you're running the business rather than working in the business. And that's a good step for you. But I think you've got to identify where it is you want to go and what you've got to do to get to where you want to go. And if you want to be a guy swinging a hammer 25 years from now, then you're going to step back in. But if you don't, then you're going to have to continue this path. It's the only way to not do it is to build a team to put yourself in that situation. So, yeah, I guess it's a normal pull. Particularly someone that takes, like, craftsman's pride in their work and that's a normal pull. And, you know, me being on the microphone, deciding to put a Ramsey personality on the microphone, they gotta bring it. I gotta be proud of what they're doing. They gotta have high quality, but I still gotta step out of the way. Owning a business can Be a heavy load. You want to serve your customers well, make a healthy profit and grow. And your team, family, and customers are all counting on you. And now everybody's talking about AI like it's magic and you're wondering how to keep up. You're carrying a lot, but you don't have to do it alone. That's where NetSuite comes in. Over 43,000 businesses, including Ramsey Solutions, use NetSuite to lighten the load by bringing all their numbers into one system. Accounting, inventory, CRM, payroll, the works. And now NetSuite's AI takes it further. Automating busy work, flagging inventory issues, spotting cash flow problems in real time, and catching risks before they hit. So you're not just closing the books faster. You're making decisions confidently. And when your numbers are right, that takes a lot of pressure off your shoulders. And yeah, switching systems is a big move. But netsuite still success process gets you up and running fast. Go to netsuite.comramsey for a free product tour and to schedule a time with a NetSuite rep. That's NetSuite.com Ramsey one of the things that comes up around an Entree leadership event, if I'm at Entree Leadership Summit or Master Series, and oftentimes comes up with the call on the show here as well, is this idea of buying a business. Should I buy a business? Well, I met a guy the other day who had a huge, huge operation, and he had done all of his growth by acquisition, meaning he went around the country buying up people that did what he did and put them all together and then created this conglomerate, this huge operation, and it was all by purchases. Ramsay has grown with virtually no purchases completely organically. So I have not used that strategy to grow. So my tendency is most of the time when I'm talking to a small business person, unless you're already in a business, working there, and they say, all right, I want you to buy it from us. That's different. But if you're walking around on the street with an idea and I want to be in XYZ business, let's just say I want to be in the heating and air business. I'll just make up something. Okay. My personal opinion is you'll actually end up, in most cases better off to just get a truck and some tools and start and, you know, just make some money, hire some people, buy another truck, make some money, hire some people, buy another truck, start hiring some office staff and create some processes, learn how to run a business and grow the business. Organically, from the ground up. That is what we've done. And honestly, a lot of times when you buy a small business, you're buying a basket of trouble. There's a lot of stuff going on, but there are instances where it does make sense to buy a business. But I think sometimes what people are doing is thinking that buying an existing business is a shortcut to success. Sometimes it is, sometimes it's a shortcut to a nightmare. So you really want to know what you're getting into if you're going to buy. So first rule, if you're going to buy a business either just from the outside or you're working there, I want you to do due diligence. And that means you really have to get the fine toothed comb out and comb every tangle out of this thing. I want to look at the tax returns, I want to look at the books, I want to talk to the sales team, I want to interview customers. I really want to know every stinking detail about this business. No surprises. I really want to get under the hood and spend as much time on that as I can. When we're buying a piece of income producing real estate, say an office building or an apartment complex or a warehouse or something, we put the property under contract and then we go through their books for due diligence. We look at every lease, we look at every piece of paper, we look at the streams of income, we pull the taxes for ourselves, the property taxes, we run our own quotes on, the insurance, we check the zoning and make sure it's zoned legally. We do and we look at everything. I bought a piece of property the other day and we even drilled it and had it checked for epa, see if there had been any kind of leakage of gas or anything on that property before because it was in a commercial area. And I was a little bit worried that there had been, you know, you can get into dadgum EPA mess. So due diligence, you really dig, dig, dig, dig, dig into the details on that last piece of property we bought. We took six months digging through the details before we took closed on it. So take your time and go deep on the due diligence. Most people are lazy about that cut short and the current owner doesn't want you to see all their junk under the hood. But don't buy it if you can't get under the hood. Don't buy it if you can't do due diligence. Now once you get to that point, you need to pay cash for a business. You don't need to be going $250,000 in debt to buy a sub shop, a pizza parlor, heat and air company. And you got this lien on your house and you got this anchor around your neck and you're trying to go swimming. So you save up and pay cash for whatever it is you're buying. Which again leads us back to starting it from the ground up, possibly because you don't have the money. But if you're sitting on that kind of cash, you say, I'm actually going to buy this business. I've done my due diligence. Then. There are three different methods to put a valuation on a business. One is a gross revenue multiplier. Now, a gross revenue multiplier would be in an industry where it's very standard That x times 10 times gross or 15 times gross or 5 times gross is the valuation. Because the operations of that industry that you're in are so standardized that when you've got that gross, it automatically means a Y amount of profit. X gross means Y profit. And so you don't have to think about if it's there or not. So, for instance, I've been in the broadcast world, and in the old days, a lot of radio stations were being gobbled up and bought by corporate. So an iheart or a Cumulus would come into the market and buy a radio station. And radio stations throughout my career have gone anywhere from 5 to 15 times cash flow. And they don't. So they're not looking at profit. They're just looking at the gross revenues minus a couple of items and basically what they call cash flow in that world. So that's a gross rent multiplier or gross multiplier, gross revenue multiplier. Very few small businesses actually sell on that. If you're in a franchise situation where there's 2,000 stores just like yours, they may have a standardized gross revenue multiplier and say it's just worth. That's what it's worth. But most small businesses, when you're purchasing them, I would not use that method. But it is there. That's one of the three methods. The second method is book value. And book value is if you close it and collect all the receivables and pay the payables, sell off the inventory and sell off the equipment. What is that pile of money? So the, you know, I was talking to a guy the other day, the equipment was worth $1 million or 1 1/2 million dollars. And so the book value on that business was at least one and a half million Dollars just because he had that much in equipment. And so because if you just bought it and sold the equipment, you'd have a million and a half. So if you bought it for more than that, you'd lose money on the transaction. If you bought it for less than that, you'd make money on the transaction. So in receivables, obviously that's the collectible receivables, that's companies that owe that business money. And then payables, you gotta pay the expenses and net it out. And so what cash do I have in the checking account after I pay my bills and receive all my outstanding invoices? And then I sell off the equipment and I sell off the inventory. What have I got? I was talking to some friends the other day that are winding down and they looked at selling their business and they figured out that their inventory and their locations were so valuable that they were more valuable if they just closed them. So they're setting up a two year going out of business strategy. And they've got several stores, so they're going to put some of them out of business the first year, some of them out of business the second year. And at the end of it they'll end up with a bunch of paid for real estate and have cashed out all the inventory and all the receivables and they'll go home with a pile of money. That's their strategy to get out. Because they can get more for the business on book value than any other way. By cashing out the inventory, cashing out the equipment and cashing out the cash, that's your book value. Now if you're buying a business for book value, you're really not buying anything as far as the business goes, you're just buying a bunch of stuff. Cause the business is not really making anything. The typical way that we value a small business is a multiplier, what's called a cap rate, capitalization rate on the net profit, the taxable income that the tax returns show on the business, not what they think they make, not all this nothing matters then but the net profit. Now if most small businesses will go from four to five times net profit. So if the little business is making $200,000, that means it's worth 800 to a million. If the net net profit after the manager has been paid to operate it, and you're an absentee investor, all expenses have been paid to operate the business. What is that net profit now? And so if the owner is not paying himself except out of profits and he's running it. Then you've got to take a manager's salary out of those net profits before you do the multiplier and again, four to five times that. So four times that means you want a 25% rate of return on your money. Well, that's a lot. Well, I can get 14 or 12 on mutual funds and small business is ultra high risk for me to buy a small business as an investor. And that's what you're looking at here. So I want a 25% rate of return on my money. That's four times. A 20% rate of return on your money is five times. So again, somewhere in there is the valuation. Well, we have a great name. Our brand is known in the city. We've been open 80 years. Doesn't matter. We have a great location. It doesn't matter. The only reason it's a great location or a great brand name or great brand recognition is if it creates profit. If it doesn't create profit, it's just a wish. It's just nostalgia. If you have a great location and you're not profitable, by definition, you don't have a great location. Hello. So that's just bullcrap, you know. Well, everybody knows our name. Great. How's that monetizing for you? I want to see profit as a result of that. Otherwise, you just have created a Sunday school class where you have a great name and don't make a profit. That's okay if you want to be a Sunday school teacher. It's not okay if you run the business and you want to sell it. You want to sell it, it better be profitable. 4 to 5 times net profit after all expenses, including a manager to operate the business if there's not one already being paid out of that P and L take that out of the profit before you run these numbers. So that's the proper way to value it and then pay cash. Now, you've also heard me where one gen 1 or gen 2's buying out gen 1 or where a key employee or two are getting together and they're buying out the boss or they're selling it to somebody else. Whatever. The only way I would ever consider, I personally wouldn't do this, but it's the only way I would consider not yelling at you for doing it is for you to set it up and say, okay, I'm gonna pay. This thing's making $200,000. We're gonna pay you 800,000 for it. And you know, I'm gonna take the manager's salary. So there's still 200,000. I'm gonna step in and be the manager and I'm making 200,000 profit beyond me having a living wage out of that manager's salary. So if you're already working there, you just keep your existing salary and it's coming out, but you still have a net profit of 200k, still have a sale price of say 800k. Then you say, I'm going to give you 90% or 80% of the net profits until we reach 800. Then if there's lower net profits because Covid hits, you're not bankrupted by this transaction because they get 90% of the net profits. So if net profits are 100 instead of 200, it's 90% of that. And if net profits are 500, it's 90% of that. And you pay the 800 off even faster. So hopefully it goes that way that your net profits are ever increasing. And so the amount going towards the 800 and when we get to 800, we're at full stop, you're paid and we're done. But you get a percentage of profits until we get to the number. Hopefully they're increasing profits. So we get there faster than the four year mark or the five year mark, depending on how we valued this thing. But that's how you can work through giving evaluation on a business. Otherwise you're just doing what we call asset purchases. And when you're just buying equipment and because the equipment is not producing more value in profits than the actual cost of the equipment, which means the business is failing, by the way. So if you've got a million dollars in equipment and the business is only worth 800,000, that means you've bought stuff that isn't producing a rate of return. There's no ROI on it. So this transaction sucked. So now you sell the equipment off. And that's a better deal than trying to sell the lack of profit that you have. But you don't get both. You get either book value or, or you get a multiple of profits or you get a multiple of gross reps, one of the three, you don't get to double up, go, oh well, we're gonna get this and this. Now the third, the last piece of this is a lot of small businesses have wrapped into them a real estate deal. Separate the real estate deal out, buy the business for what the business is, and then have the option of buying the real estate and rent the real estate back from the current owner. So we're going to, it's a restaurant and we own the building. Okay, we're going to buy the restaurant and rent the building, separate the real estate out with an option to buy the building later. We might want to move the restaurant out of the building. We might want to move the construction business out of this building. It may not be a good location after all or it might be fabulous and then you can buy it later. Once you've gotten the business itself paid off, then you can go do the real estate transaction with the option on it. But you don't have to wrap them together. As a matter of fact, it's not healthy mathematically to wrap them together. You can get yourself in a pinch and really get screwed up on where, where the value is in this deal. And I've had people say, well, I mean, I'm getting the real estate and the real estate's worth x. Well, you just did a real estate deal. You didn't do a business deal. You're not buying a business. You're buying dirt and mortar. So don't get confused about what you're working on here. Are you trying to buy what we call a going concern, a business that's profitable, that makes money? Are we trying to buy a piece of real estate? And if you get the two convoluted, you're going to screw up your numbers and your analysis on this and create a serious mess for you. So there's a little diatribe on buying a business, something to think about, a couple of things for you to put in your pipe and smoke. If you're working 60 hours a week and most of that time is spent putting out fires, you got a big problem. Your business is running you instead of the other way around. You're a fireman. That's why you need entree leadership, executive coaching. Our coaches help you uncover your blind spots, overcome what's holding you back and focus on the work that actually drives results. If you want that kind of clarity, go to entreleadership.com coaching and fill out the form to talk to our team or just click the link in the show notes. Guys, if you want to help us out, please consider following and subscribing, sharing the show, leaving us a nice five star review. Cut the link out, send it to somebody, say, hey, listen to this show. You're our best marketing. Tell people we're here, please, we need your help. Tell them we exist and you have been doing that. Thank you. Our numbers are way up on this show and we greatly, greatly appreciate you. Thank you for hanging out with us. Jake is In Mexico. Hi, Jake. How are you?

[B]

Hi, Dave. I'm doing. Doing well. How about yourself?

[A]

Better than I deserve. How can I help?

[B]

All right, so I co. Run a family business with my dad, my uncle. We run a chain of gas stations. I am a general manager here. And we have about 40 employees. We do about $21 million in sales per year. And we started this company about 12 years ago with about $1 million in debt and $1 million in assets. So technically a $0 net worth. Today we are at $2.6 million in debt and $5.5 million in assets, which would be about 2.9 million in net worth. But my concern is our net worth is only growing when we add more debt to it. And my dad says borrowing is how we grew. But I believe we'll never become debt free if we keep this pattern. I love my dad and I respect what he has accomplished, but I just disagree with his methods. How do I lead up and convince him that continuing to borrow isn't wise?

[A]

Well, he's never been had the marketplace smack him across the head for doing this. So he's probably not going to be convinced by you because so far debt has caused him to win as far as he's concerned. So I don't know that you or I could convince him to not do this. I think he's going to do it. Cause it's the only thing he's ever known, the only part of the discussion, the only thing you could bring to discuss. And you can do this, but I truly, I don't know that you're gonna get a lot of headway. Is okay. Sometimes when I look at a strategy inside of our company, I say, okay, what happens if we 100x this? They're like, what? Like, okay, if this is so dad gum, brilliant. Are we gonna like it when we have a hundred more of these? And you know, let's just take your thing. You got 2 million and 2.9 million in debt, right?

[B]

2.6 million in debt, 2.9 net worth.

[A]

Yeah. And I gotta tell you that even your dad. If we said, okay, let's go 30 million in debt instead of 3 million and we'll have 50 million in assets instead of 5 million. If that doesn't cause his stomach to come up in his throat, there's something wrong with the man.

[B]

I've been listening to you for a while and I used that example on him, but it didn't. Yeah, didn't make his stomach come up to his throat yet.

[A]

Yeah, yeah, okay. He's destined to have have the crap smacked out of him by the market. I can't stop it. The. Because here's the thing. Debt equals risk. More debt equals more risk, period. And he has broken his risk meter. His risk meter's malfunctioning. Because when you start Talking about carrying $30 million worth of debt on $50 million worth of assets, if that doesn't cause you to break out in a little bit of a sweat, your risk meter's broken. Meaning he's not properly perceiving that this debt equals risk. He thinks it does not equal risk. And it does. It drains cash flow, it lowers stability, it magnifies the mistakes you make. Because when you borrow into them, you make bigger mistakes than you would have made if you paid cash. Because you're not doing as big a deal then. And so you know, he's going to continue to parlay this. I don't think we're gonna keep him from doing it. I wish we could, but I mean, until someone understands that debt equals risk, they play with it like playing with a snake. Cause they don't think the snake's actually going to kill them and you're going to get bit and you're going to die. I mean, it's what's going to happen, you know. But you keep screwing around with snakes because you don't think they bite and they're kind of cute and we're going to mess with them. But then you get, you know, no, no, I don't do that. I have the benefit of having gone broke in my 20s because I did stupid butt stuff and I was a lot dumber than your dad. Your all's ratios on this debt aren't that bad. They're not scary. But the fact that he doesn't perceive risk with it means that you're probably going to continue to raise the debt. And so it's just. You destabilize the future growth and you destabilize the sustainability. Whether or not the company's gonna be able to be here 20, 30, 40 years from now. The more debt you carry, the less likelihood you're gonna be here. That's the risk that is taken. And you know, even people that believe in using debt understand that. So for instance, in finance class, you know, when I was taking basic undergrad level finance class, we're running case studies on publicly traded companies. Now when publicly traded companies take on debt, they can take on bank deb, but they can also issue bonds and that's debt. And we were taught when we're Analyzing the stock price of a publicly traded company that if they're carrying too much bank debt or too much bond debt, that we lowered the valuation on the stock price. Why? Because the bond debt and the bank debt represents risk. And so we devalued the company because they were taking on risk. We're taught that in a basic analysis and undergraduate finance class. So, you know when you're running case studies and learning how to crunch the numbers on your PE ratios and all that stuff. So all that to say that even sophisticated people that believe in debt, that don't think Dave Ramsey's a troglodyte, that even they say debt equals risk and more debt equals more risk and enough debt, if you're too heavily debt laden, devalues the company because that risk is gonna come to roost on you and you're gonna lose at some point. You're gonna get your head taken off. So that's again, your question was how do I lead up? And I don't have a method to convince someone. My grandmother used to say, I mean, I can teach somebody something and then they can decide. That's the only thing I can do. My grandmother used to say, those convinced against their will are of the same opinion still. So even if I sat down with your dad and explained all that, he's going to look at me like, yeah, but it's always worked for me and I'm not going to stop doing it. So I don't think you're going to keep him from doing it. The only thing that happens is that when someday, when it comes around and you're the one in charge, then you can try to reverse the trend and start using some of the profits to clear the debts, which will add to your profitability and add to your sustainability and lower the risk of the operations and add more peace to the deal. But you know, it just another example. I'll throw one more in and then I'll quit. So I was in, before I went broke in the real estate business, I was in a real estate investors club. And a lot of those guys were doing nothing down real estate and they were buying real estate with high leverage. I was too. That's how I went broke. And the interesting thing was there were several people in there that had generated a million dollar net worth and that owned a lot of properties. They were buying houses primarily and I was buying houses and I was doing renovations and fixes and flips and I was holding some of it. So I had a million dollar net Worth was 25 years old is 1985. It was that long ago. So here's what's interesting. I went broke using those methods. Every real estate investor and there were over 100 of them that were in that club, either got out of debt or they went broken. No one stayed in the middle, sorta using debt. They either turned their back on it and sold off properties, took the equities and cleared the mortgages on the other properties and became debt free with a smaller portfolio or they went broke because they kept using debt, kept using debt, kept using debt. No one said, I'm going to back off and just do medium levels of debt. No one tried to. No one landed in the middle successfully. And let me just tell you, out of 100, four of them didn't go broke. All the rest of us are now out of those properties. Lost everything. That's decades later, not 10 minutes later, not 10 months later. But the point is, it's not sustainable. It wouldn't last. It didn't survive the test of time, which tells me it's not wisdom. And so the test of time, you try to pass the test and you fail. Time will kick your butt. It will prove your. It will expose your stupid. And so the problem, Jake, you've got is your dad, his risk meter is broken. He does not perceive this as risk. And I wish I had magic words to tell him to stop, but I don't. Maybe some of you listening heard me, but I don't think this guy's going to, I'm afraid. I'm sorry, Jake. Sounds like y' all got a fun business. It sounds like it's going good and I sure hope it goes well. And I hope I'm wrong, but right now that's the way it feels, folks. Remember, better a wary warrior than a quivering critic. This world needs more high quality leaders, so take courage and lead. I'm Dave Ramsey, your host. Thanks for joining us on Entree Leadership. If you're a business owner who's been grinding it out and rarely gets time to step back and think clearly, I want to tell you about something special. The Live like no One Else cruise is a seven day experience in the Western Caribbean with me and the Ramsey team. This isn't just a vacation. It's an intentional time away to reset your perspective and celebrate the progress you've made financially and professionally. And in 2027, we're bringing entree Leadership at Sea back. That includes special Entree leadership breakout sessions you can sign up for. Designed specifically for business owners and leaders. You'll get practical teaching real Q and A and focused time to think through your business with people who understand what you're carrying. Space is limited. Learn [e-mail] events or click the link in the Show Notes.