Does My Employee Deserve a Raise?

Summary

Detailed Summary of "Does My Employee Deserve a Raise?" – The EntreLeadership Podcast

Release Date: June 23, 2025
Host: Dave Ramsey, Ramsey Network

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Introduction

In this episode of The EntreLeadership Podcast, Dave Ramsey addresses critical business and leadership challenges faced by entrepreneurs. Through real-time coaching and listener calls, Ramsey draws upon his extensive experience to provide actionable solutions. The primary focus of this episode revolves around employee raises, cash flow management, promotion decisions, and strategic business growth.

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Listener Question 1: Structuring a Raise and Promotion for an Employee (Chris in Raleigh, NC)

Timestamp: [00:53 – 07:34]

Caller: Chris, a jewelry business owner with 35 years of experience, recently acquired a second store. He seeks advice on promoting an employee from the previous store who has four months of experience and has requested a raise from $18 to $21 per hour.

Discussion:

• Current Compensation Structure: Initially, the employee was proposed to be compensated at $18 per hour plus commission, with raises contingent on industry-specific education and performance.

• Promotion to Management: Chris wishes to transition the employee into an assistant manager role, which typically commands a higher wage and additional responsibilities.

• Dave Ramsey's Advice:

  • Stage Gating System: Implement a multi-stage compensation plan where the employee meets specific milestones before receiving raises. This ensures growth is tied to performance.

    • Stage 1: Current role at $18/hour.
    • Stage 2: Increase to $21/hour upon meeting predetermined performance metrics within 3-6 months.
    • Stage 3: Transition to a managerial role with a higher salary and potential profit-sharing.

  • Performance Metrics: Define clear, measurable goals such as sales targets, customer satisfaction scores, or completion of training programs to track progress.

  • Communication: Clearly outline the path for advancement to the employee, ensuring transparency and setting realistic expectations.

Notable Quotes:

• "People that are ambitious and that want to increase their responsibility, their value that they're adding and their income, they have to see a growth track." — Dave Ramsey [05:00]

• "Give her a path where she controls her destiny with her performance." — Dave Ramsey [06:08]

Conclusion:

By establishing a structured and transparent progression plan, Chris can motivate his employee to develop further while ensuring that compensation aligns with her growing responsibilities and contributions to the business.

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Listener Question 2: Managing Cash Flow in a Growing Business (Jorge in San Diego)

Timestamp: [09:37 – 15:34]

Caller: Jorge, owner of a frozen fruit and vegetable import company, is experiencing rapid revenue growth—from $3.9 million to an anticipated $5 million. However, he faces cash flow challenges due to upfront supplier payments and extended net terms for customers.

Discussion:

• Current Challenges:

  • Upfront Supplier Payments: Suppliers require wire transfers before goods are shipped.

  • Extended Net Terms: Customers are given 45 to 55 days to pay, delaying cash influx.

• Dave Ramsey's Strategies:

  • Assigning a Growth Factor to COGS:

    • Increase the Cost of Goods Sold (COGS) by 25% to account for the growth curve. This means for every $100,000 sold, allocate $125,000 in COGS to cover increased demand.
    • "Every time you sell $100,000 worth of cost of goods sold, you can buy $125,000 because you've held it out of your cost of goods sold." — Dave Ramsey [11:48]

  • Negotiating Payment Terms:

    • Secure annual contracts with suppliers to benefit from bulk discounts and extended payment terms.
    • Shift from immediate payments to delayed payments (e.g., 30 days after delivery) to improve cash flow without incurring debt.

  • Accrual Accounting Adjustments:

    • Properly account for revenues and expenses to match income with the corresponding costs, ensuring accurate financial tracking and forecasting.

Notable Quotes:

• "You're going to pay yourself market rent." — Dave Ramsey [27:13]

• "Real estate's a good, good investment." — Dave Ramsey [30:40]

Conclusion:

By adjusting COGS to reflect growth, renegotiating supplier terms, and fine-tuning accounting practices, Jorge can stabilize his cash flow, support continued growth, and maintain profitability without overextending financially.

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Listener Question 3: Promotion Dilemma Between Long-term and New Employees (Seth in Wisconsin)

Timestamp: [16:59 – 24:00]

Caller: Seth, a business owner with a decade-long employee and a newer, two-year employee exhibiting strong leadership traits, is conflicted about whom to promote to the General Manager role. He fears promoting the newer employee may disappoint the long-term staff member.

Discussion:

• Primary Concern: Balancing loyalty to long-term employees with the need to promote individuals based on merit and potential.

• Dave Ramsey's Guidance:

  • Merit-Based Promotion:

    • Emphasize that promotions should be based on competence and performance, not tenure.
    • "Seniority is not an indicator or an entitlement of the next leadership slot." — Dave Ramsey [19:07]

  • Cultural Consistency:

    • Establish and communicate a company culture where advancement is tied to measurable performance metrics.
    • Ensure all employees understand that promotions are earned through demonstrated abilities and contributions.

  • Managing Expectations:

    • Address potential disappointments by having open conversations about promotion criteria and future opportunities.
    • Encourage long-term employees to develop their skills to align with leadership roles.

  • Risk Mitigation:

    • Accept that not every valued employee will be promoted and focus on long-term business success over individual sentiments.
    • "Choose to not feel guilty. I'd rather feel guilty and not create a situation where I've done the wrong thing out of guilt tripping myself." — Dave Ramsey [23:50]

Notable Quotes:

• "Performance competency are the indicators of who goes into the next leadership slot." — Dave Ramsey [19:07]

• "It's better than the 10 year heartburn of having put the wrong person in because you felt guilty." — Dave Ramsey [24:13]

Conclusion:

Seth should prioritize the skills and performance of employees when making promotion decisions. By fostering a transparent and merit-based culture, he can make objective choices that benefit the business while minimizing personal biases and maintaining team morale.

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Listener Question 4: Evaluating the Purchase of a New Building for a Law Firm (Mary in Charlotte, NC)

Timestamp: [24:00 – 30:45]

Caller: Mary, owner of a law firm with 24 team members and $3.5 million in revenue, is contemplating purchasing a new building to accommodate expected growth. She seeks advice on evaluating the decision to ensure it's beneficial for her business.

Discussion:

• Considerations Before Purchasing:

  • Business Needs vs. Real Estate Ownership:

    • Ensure that the decision to buy property aligns with the firm's growth trajectory rather than being driven by current space limitations.
    • "Don't let the ownership of real estate dictate the size of your growth." — Dave Ramsey [24:22]

  • Future-Proofing:

    • Purchase a building that not only meets current needs but also anticipates future expansion, typically an additional 25% space.

  • Financial Evaluation:

    • Separate business operations from real estate investments to maintain flexibility.
    • Prefer paying cash for property purchases to avoid the complications and liabilities of a mortgage.
    • "Always pay cash. If you're not paying cash, don't buy a building, period." — Dave Ramsey [30:40]

  • Flexibility and Scalability:

    • Owning property can limit the ability to relocate or expand quickly if the business outgrows the space or market dynamics change.
    • "Let the business dictate the building, not the other way around." — Dave Ramsey [27:12]

Notable Quotes:

• "Don't let the ownership of real estate get in the way of that skill because you're burning a bunch of calories over here trying to be a good landlord to yourself." — Dave Ramsey [28:55]

• "Nothing wrong with being a tenant when you're in business." — Dave Ramsey [29:58]

Conclusion:

Mary should carefully assess whether purchasing a new building aligns with her firm's long-term growth and operational flexibility. By treating real estate as a separate investment and ensuring it supports rather than restricts business expansion, she can make a strategic decision that fosters sustainable growth.

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Final Thoughts

Throughout the episode, Dave Ramsey emphasizes the importance of structured growth, merit-based decisions, and strategic financial management. By addressing each listener's unique challenges with practical solutions, Ramsey reinforces foundational leadership principles essential for thriving businesses.

Notable Closing Quote:

• "Better a weary warrior than a quivering critic." — Dave Ramsey [30:31]

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For more insights and detailed discussions, visit The EntreLeadership Podcast.

Transcript

[Dave Ramsey]

From the headquarters of Ramsey Solutions, this is the Entre leadership podcast 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 got a question you want to ask on the show, well, you fill out the [e-mail] ask or you can call, leave us a voicemail. We'll get back to you, make you a caller on the show. 8449-4410-7084-4944, 1070. Chris is in Raleigh, North Carolina. Hey, Chris, how are you? Hey, Dave.

[Chris]

I'm doing well. How are you?

[Dave Ramsey]

Better than I deserve. What's up?

[Chris]

So. So, Dave, I've, I've owned a jewelry business for 35 years and just within the past three months, have bought an existing jewelry store in my town, taking it over.

[Dave Ramsey]

So that's your second location?

[Chris]

Yes, sir. Second location in the jewelry business. My main store does 1.3 top line. Yet to see what the new store does, but we're expecting to be able to do about 800 the first year out of it. And my question is. So I've kept one of the employees from the previous store. She's got about four months of experience in the jewelry business, and I'd like to work her into a management role. She's not there yet, and I'm trying to figure out how to structure her payroll to keep her happy and productive and on board. Yeah, that's basically.

[Dave Ramsey]

Yeah. So. So if you put a new person that was four months old on the, on the job at the old store, how would you have structured it?

[Chris]

So that person, if I brought somebody into the old store and they had four months experience, I would just bring them in strictly as a salesperson. They would get $16 an hour plus commission, and they would then get raises depending on the education that they. That they had completed in the jewelry industry and those sorts of things.

[Dave Ramsey]

Why would that not work here?

[Chris]

Well, I started her off at 18, but she was requesting 21.

[Dave Ramsey]

And I told her for 21.

[Chris]

Because she is from the other store and she knows how everything runs. And that was the amount, you know, how everything runs.

[Dave Ramsey]

You run a store.

[Chris]

That's very true.

[Dave Ramsey]

So I don't know. I mean, so, I mean, you're. You're making her assistant manager, not just a salesperson, is that right?

[Chris]

That is correct.

[Dave Ramsey]

Well, then that's a different comp than you told me you had at the other Store. Well, the other store, you're just a salesman. $16 plus commission. Right, Right. But now we've got a manager trainee is what we've got.

[Chris]

That's true.

[Dave Ramsey]

Okay, so that might be 20. That might be 21.

[Chris]

I can see her getting 21 plus commission at, as a manager, which with commission would put her at about 28 on average as a manager trainee or an assistant manager. I think. I personally think 18 is fair right now. And my thought was, as she moved up and took on more responsibility and took over management of the store, that I was going to pay her an hourly wage. And I was thinking about maybe doing a profit sharing plan with her.

[Dave Ramsey]

Okay. So what I would do is say, all right, here's the three stages. Stage one is where we are now. Stage two is going to be another thing. Stage three is going to be your final destination, which is manager with profit sharing. Okay.

[Chris]

Okay.

[Dave Ramsey]

And we're going to get there as fast as you get there. And here's what it looks like for you to stage gate, to level up in each of those things in order to get to stage two, which is, I don't know, whatever it was, $20, $21, $23, I don't care. And commissions, you know, I've got to get the store open. I got to get it running. And we need at least a minimum of three months of that. And I need you to complete these three things, whatever they are, when you hit these three levels, these three milestones, we're gonna move you to this no sooner than three months, no later than six months. Cause if you're not there by six months, we got another problem. Okay?

[Chris]

Right.

[Dave Ramsey]

So I need you to hit these, I don't care what they are, things that prove her competency and value.

[Chris]

Okay?

[Dave Ramsey]

Okay. And so it could be, like you said, completing a portion of education. It could be that we hit a certain level of profitability at the store, or we hit some revenue goals at the store, or you help me get two people hired, or I don't care, what are some things you need for her to prove herself that are measurable, objective, not subjective. And then she moves to stage two. And then when she does the next three things, then that has proven to you that she's ready to take the manager's role with a straight salary plus profit sharing.

[Chris]

Okay.

[Dave Ramsey]

And then you sit down with her and go, this is your path. I'm starting you here. But you control the speed at which we get to the other place by hitting these distinct goals. So the first thing You've gotta do is you gotta get to level two and you have to do these four things or two things or six things. I don't care what they are. You get us to there and at least three months has passed and then I'm gonna be comfortable with that and I'm gonna move you to $22 or $23. I don't care. Whatever the number is, that's a good number. Okay. And you know, and, but show her a path instead of slapping her and saying $18 or shut up.

[Chris]

Right? That's not what I want to do. Absolutely.

[Dave Ramsey]

So give her a path. Give her a path where she controls her destiny with her performance. And that we call, sometimes we call it stage gating or leveling up or whatever. But I mean it's, you know, when you hit this, you're gonna break. It's almost like gamified. Right. You know, when you get to go to the next level, Mario Kart, whatever it is. Right. All that kind of stuff. You see what I'm saying? So that's how I would do it in this case. And the biggest reason people leave is when they don't see a growth track. People that are ambitious and that want to increase their responsibility, their value that they're adding and their income, they have to see a growth track. They have to see this is going somewhere. If they feel like I'm in the other. The opposite of growth track is the dreaded dead end job. This guy bought the store $18. I can make 21 at Target and be bored. I'm going to Target. Dead end job. But sure, a future, it's bright. It's not a dead end job. That kind of. That's what we're doing there. So that's the. Yeah, good question. I like. Thanks for letting me noodle that through with you. Sounds like you got this thing on the run, dude. You can ran out of two.3 million dollar business out of two stores. I like this. Yay. Yay, Yay, yay, yay, yay. It's over to me. Yeah. Very good.

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[Dave Ramsey]

If you missed out on attending summit this year, but you're thinking about coming next spring, I want to give you one of our most popular talks for free. When you watch it, you're gonna get fresh leadership strategies that will make a difference in your business. This week. After you watch it, it's free. By the way, ask yourself, what would four days of content like this do for my business, my leadership? To watch this popular talk for free. Did I mention it's free? Go to entreeleadership.com sample talk or click the link in the show notes and you'll be ready to rock and roll. Jorge is in San Diego. Hi, Jorge. How are you?

[Jorge]

Good, good. How are you, Dave?

[Dave Ramsey]

Better than I deserve. What's up?

[Jorge]

Good to speak with you. My name's Jorge from San Diego. I'm the owner of a frozen fruit and vegetable import company. We source from countries all over the world. Last year we did a little shy of 3.9, and this year we're definitely on track to doing over 5 million.

[Dave Ramsey]

Good for you.

[Jorge]

My question is, we're running out of cash. How do we manage our cash flow so that we don't implode? We have an interesting situation where our suppliers from other countries, they request the wire transfer before it hits the port. And once we bring it in and we deliver it to the customer, it takes about 45 to 55 days net terms.

[Dave Ramsey]

How good is your accounting system?

[Jorge]

It's pretty good. I mean. I mean, I wouldn't say the best.

[Dave Ramsey]

It's. You're running cash or accrual?

[Jorge]

Accrual.

[Dave Ramsey]

Good. Okay. All right. When we years ago, we were on a. The problem you get into with cash flowing a hockey stick up into the right is that every time you sell something, if you're growing at A double rate, which you're growing at, you know, 4 million to 5 million. So you're growing a 20% rate. You not only need to replace the item that you just sold, but you also need to cover the growth out of that item. So what we did was we assigned a 1.25 to cost of goods sold. So we're putting an extra 25% back in, and that covers the growth curve. And what that does is reduce profits temporarily because we're rolling the money back into. In other words, you can buy, you know, 125. Every time you sell $100,000 worth of cost of goods sold, you can buy $125,000 because you've held it out of your cost of goods sold. You've allocated it in your accounting system. Does that make sense?

[Jorge]

That makes sense. Yeah.

[Dave Ramsey]

Yeah.

[Jorge]

To build up the cash flow, the reserves.

[Dave Ramsey]

Yeah, it's. No, it's not just reserves. It's simply to order 25% more in the next order than you ordered in the last order.

[Jorge]

Yes.

[Dave Ramsey]

See, I sold $100,000 worth, but when I'm going from 4 million to 5 million, I need $125,000 worth to come in, because I got to cover the new demand that I'm creating. I got to have the stuff, and I got to have the cash to buy it. Okay, the other thing you can do, the other thing you can do is start monkeying with the terms slightly on some of your purchases. So what we would do is we would go and negotiate a year's worth of purchases at a deal. And so if you've got one vendor that you're buying a million dollars worth from in a year, but you're just paying it out monthly, and it's just cash on the barrel head each month, you're not getting the break that a million dollar a year customer deserves. So I want to negotiate and say we're going to contract to buy a million dollars worth from you this year. You can go ahead and set that aside out of your stuff. But in return for that commitment, you're going to give us a further discount. Yeah, because all we were doing, we were just ordering. We were ordering just in time, and we weren't getting the discounts for the volume. And when we did that, it changed our profitability about, I don't know, somewhere around 18%. It really kicked our profitability up. And then we said, you know, you're gonna go ahead and have that stuff ready for us and you're gonna ship it on time, and you Know, we're gonna pay you 30 days later instead of in advance. And then that helped the cash flow, too. Now, you don't wanna get out there where you get six months later or something. Cause now you're taking on debt. And I'm not suggesting that, but it's just payment terms. You're having to pay in advance before you even get the stuff now.

[Jorge]

Oh, yeah.

[Dave Ramsey]

And as much as you're spending with some of these people. That's ridiculous.

[Jorge]

Oh, yeah, it's a lot. No, and no. Don't even. Not only want to get into the. Sometimes we reject the product. And that's even a bigger, you know, bigger problem right there, you know?

[Dave Ramsey]

Yeah. And then you've already paid for it.

[Jorge]

And we've already paid for.

[Dave Ramsey]

Oh, that's very difficult.

[Jorge]

We got suppliers, we got a credit. It's all.

[Dave Ramsey]

Yeah.

[Jorge]

You know, it's a very interesting business.

[Dave Ramsey]

Yeah, there's a lot of moving, a lot of moving variables. But my point is, the way you handle the cash flow is you turn the knob on two or three of those variables. And so we move the payment date out until after we get the product and approve it, and that moves it 30 days. We get a discount based on an annualized purchase rate. And we're accrual accounting setting back. Every time we sell a dollar's worth, we're setting back a buck and a quarter. So we're covering the 25% growth curve. Yeah, those are the things. That's how we turned the corner. And at that point, we were probably a $40 million or a $50 million business. And those changes took us from there to about 150 million. That was one of the things that did. It was overthrew. And it wasn't just the volume. We were doing a good job marketing, but the cash flow was sucking the marrow out of our bones because we weren't managing those three different things, the payment terms, the discounts, and then the accrual accounting properly. And once we learned how to do that, then we were our own bank and everything went fabulously. And I'm going with that one for sure, man. That's good stuff. Congratulations, Jorge. Proud of you. Keep it up, man. Bring it. Bring it, baby. Bring it. I love it.

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[Dave Ramsey]

Got an email question in from Seth in Wisconsin. I've got a 10 year employee who's been with me from day one who is an obvious candidate for a general manager type of role. However, I have a newer guy who's been with me for about two years who has shown me a lot more traits and skills that I'd like to have in a potential gm. My question is how do I navigate that as an owner and not disappoint and lose my 10 year senior employee in if I promote the newer employee who I think would be better in the role probably can't. If they have the expectation that they're moving into the GM role, I don't know that you're going to be able to remove that expectation. And so the problem happens. The solving of this problem happens before you get to this point in the problem. So I don't know that I think the cow may be out of the barn is what I'm afraid of. So instead what we've talked about around Ramsey all this time is time on the job. Seniority is not an indicator or an entitlement of the next leadership slot. Performance competency are the indicators of who goes into the next leadership slot. And if everyone knows that in the culture and it's been performed that way time and time again, everyone around looks around and goes. They will have seen a two year person pass a ten year person before and then they don't have the expectation of getting the role unless they're the best person for the Role. Now they may raise their hand and try to make the sale and say, I'm the best person for the role. Pick me. Pick me, coach. Put me in, coach. And that's okay. That's actually an indication of the person you want. They're eager, right? Enthusiastic. That's good. But they are not disappointed and go out and quit because we shuffle the deck and their card didn't come up on top. The next time we shuffle it, their card might come up on top, I don't know. And then you can talk to them about it if you're worried about it. But you've set the table inside the culture first. This sounds like you think so. I'm also guessing you have translated to your team that the 10 years on the job gives them dips. It doesn't. Just because you were sucking my air for 10 years, you were breathing my air. That doesn't mean you're guaranteed. There's no seniority. It's competency and performance, baby. And so that's what gets you the job. Nothing else gets you the job. And so I've got a 10 year employee who's been with me from day one. Obvious candidate for general manager type role, but not as obvious as the other guy. There we go. And so I'm afraid that this person is going to be disappointed and I'm afraid you're going to lose them. But I'm going to be okay with that. Because you put the best person in 10 years from today. If you put the new guy in the role and he becomes the superstar general manager that you think he's going to be and the other guy quits, are you okay? Answer is yes, you're okay. And you start making sure with your team that everyone understands that promotions and leadership slots are based on competency and performance, not based on seniority. And so I'm perfectly fine. If someone has been here 10 years and they're still in the same role we hired them in, that doesn't make me mad at them. I don't hate them. As long as they're doing their job there, that's fine. But. But if they're wanting to move up, it's going to be based on them adding value over and above their current position into the next position and showing competency and performance. And then we're going to, you know, we're going to give them a shot at it. In neither case do you get a guarantee. By the way, these are human beings, so we don't know what's going to work out in the end. But you ask yourself, what I do is I projected out not the short term pain but or the short term tears or the short term heartburn that you have. Feeling bad that the 10 year person didn't get it because you like them and you appreciate the fact they've been around 10 years and you don't want to disappoint them. I'm not trying to hurt their feelings. It's not my goal. I want them to stay in the next general manager job. We might open up another branch and, you know, they might get that one. I don't know. But the temporary heartburn of all of that is better than the 10 year heartburn of having put the wrong person in because you felt guilty. Yeah, choose. Yeah, let's choose to not feel guilty. Let's choose. I mean, I'd rather feel guilty and not create a situation where I've done the wrong thing out of guilt tripping myself. Kind of an issue. That's what I'm facing there. So anyway, that's some thoughts on our question of the day from Seth. This is the Entree leadership Podcast. You can't hold your team accountable to expectations you didn't set. When you try, everyone's confused. You need a way to clearly define roles and responsibilities for every member of your team. And our free. Did I mention it's free? Key results area template will make it easy. Go to entreeleadership.comkra right now to download it for free. Or if you're listening on Spotify or podcast, click the link in the description. I'm Dave Ramsey, your host. Thanks for hanging out with us, America. This is the show where an actual practitioner, not a professor with theory, someone who is a CEO, someone who is, who has grown a business from a card table in my living room to 300 million and 1100 people, actually answers your questions and tells you what I think. I've been doing this this morning here I was in that meeting today, here. And then I turn on the microphone and I'm here for you guys. So thank you for joining us. We appreciate you being here. The phone number is 844-944-1070 if you want to leave a good message and we'll get back with you, make you a caller on the show. That's 844-944-1070. Mary is in Charlotte, North Carolina. Hi, Mary, how are you?

[Mary]

Hi, Dave. I'm great. Thank you for taking my call.

[Dave Ramsey]

Sure. What's up?

[Mary]

Well, I own a law firm. We have 24 team members and our revenue is about 3.5 million. Might be a little higher this year. And I'm wondering if buying a building is the next right move for. For the business and really how I should go about evaluating that decision.

[Dave Ramsey]

Great question. Well, here's some things I have learned, some of them the hard way, and some of them by watching other people learn them the hard way. You have to be very careful and conscious of it. Even if you know about it, you still have to stay on top of the emotion of letting the building dictate the business. The business instead needs to dictate the building. Let me give you an example. Okay. We bought a 55,000 square foot office building she 20 years ago, probably. All right. And within four months of buying it, it was full. And I ended up renting out 28,000ft right behind us. And then I bought an office condo next door. And then we've ended up renting out 60,000ft a mile away because our growth, we spilled out of the building into adjoining properties. You follow me?

[Mary]

Right.

[Dave Ramsey]

And I had to be real careful that I didn't let the building dictate the size of our growth. And so if you bought a building for 24 people, and five years from now you had 50, and you don't want to move because it's your building, and you don't want to go be a renter now for 50, you now are letting the tail wag the dog. Is that making sense?

[Mary]

Yeah, it does make sense.

[Dave Ramsey]

So how long has this firm been open?

[Mary]

10 years. And we moved up in space. We're in our third office. So just like you, you know, we started off in one little room and then moved to a larger suite and then a larger suite. And now we really need double the space that we have.

[Dave Ramsey]

Yeah. And you need another 25% of that for future growth.

[Mary]

Mm.

[Dave Ramsey]

You double the space to house what you got today?

[Mary]

I think we could fill it. Yeah, we're. We're. We're functioning. But where we could definitely use more space.

[Dave Ramsey]

No, I'm saying if you. If you went into the space you need today, tomorrow, you're already short.

[Mary]

Right, Right. So I'd have to project a little bit into the future and maybe buy a bigger space than I think today.

[Dave Ramsey]

At the row at the growth curve. You're on. You need to buy double.

[Mary]

Yeah.

[Dave Ramsey]

What you need a day.

[Mary]

Yeah. And so if I do that, how do I. Let's say I felt comfortable, know, buying a big building. How do I really evaluate whether actually buying it, where I'm going to see an roi, Whether that's right. Business decision. Because I.

[Dave Ramsey]

It's not a business decision. It's a real estate decision.

[Mary]

Okay.

[Dave Ramsey]

Separate the two. Buy the building at a good purchase rate at a good price and pay yourself market rent. And that should give you a good rate of return on your real estate investment. And then if the firm outgrows that property at some point, move it.

[Mary]

Okay.

[Dave Ramsey]

Don't let the fact that you own the building limit your growth. That's what I was talking about a few minutes ago. And so, yeah, just give yourself room to expand and then also give yourself the mental permission to move beyond that building and sell that building or keep it as an investment and put someone else in there. By the way, that 55,000 square foot building I'm talking about, I still own it. It's a wonder. Rental property. But no Ramsey product is in it because we moved out here on 70 acres and started building a campus. And so now we're in 600,000ft. But so that, you know, and, you know, someday we'll outgrow this. Hypothetically, you know, and so hopefully it's a minute, but there you go. So, I mean, that's what you're looking at. And so you don't want to burn brain calories managing the real estate instead of running the business.

[Mary]

Okay?

[Dave Ramsey]

Let your. Because you're good at running a law firm, you've proven that. Don't let the ownership of real estate get in the way of that skill because you're burning a bunch of calories over here trying to be a good landlord to yourself.

[Mary]

Okay? So what I'm kind of thinking is, you know, if we find the right building for the right price and the numbers work out, do it, but just mentally have the mindset of we don't have to be here for the next 20 years.

[Dave Ramsey]

Right? You won't be unless you don't grow.

[Mary]

Yeah, well, I hope that that doesn't happen.

[Dave Ramsey]

Yeah, you won't be. I mean, because if you grow anywhere near the percentages that you've been growing in the first 10 years, 20 years from now, you'll definitely be out, even if you buy double. That's what the math says. So, I don't know, you may reach a point of diminishing returns and say, I don't want any more lawyers. I have enough of them. That could be possible. But, you know, but I mean, and you know, you may end up, you know, having some branches in other cities or whatever else as a larger law firm, a regional law firm, that kind of Thing rather than simply local. I don't know.

[Mary]

That's probably very likely. I think we're a regional firm, so I could see us, you know, opening an office in a nearby city.

[Dave Ramsey]

Yeah, exactly. And that, you know, you're in Charlotte, and so, you know, you go over to the, you know, the Durham Market or something, the Raleigh Durham Market or something like that and get some other things going. That's very possible. And. And then, you know, you. Then you're not straining the actual piece of real estate at that point. But I would rather you have rental be a tenant in every one of those cities and run the business well than let the fact that you own the real estate cause you to make bad decisions about how you run the business.

[Mary]

Okay, that makes sense.

[Dave Ramsey]

Yeah. And. Cause the amount of rent that you pay is not what's killing or causing you to grow.

[Mary]

No, our rent is really pretty reasonable. It's a small percentage of our expenses.

[Dave Ramsey]

Yeah, I mean, payroll is your problem. You know, it's not in terms of your P and L, it always is with small businesses. So. So, you know, you manage payroll. And then rent should be, you know, 5, 6% or something like that of your. Probably your top line or whatever it is, maybe a little bit more. But I mean, and then you don't think about anything. You don't think about air conditioners going out. You don't have to think about windows being cleaned. That stuff just happens automatically because you're a tenant. So there's an advantage to not having to burn brain calories on your real estate portfolio while you're running a business. But I love real estate, and so I have bought the properties and I have moved into them. I'm not against that, but just make sure that you're not locked in. I'll give you another example for the sake of our listeners. It's not for you, but where I see people make a huge mistake is like the restaurant business. Okay? Restaurants move because Cities move. What 10 years ago was a cool area is an area that's not safe to go in. What 10 years ago was not safe to go in is now the cool area. And if you own the stinking building and you don't move your restaurant to where it needs to go to because you're the owner. Then again, the real estate's telling the restaurant what to do instead of the restaurant telling the business what to do. But if you were a tenant, the lease run out, you're gonna move out there on the cutting edge and be in the cool neighborhood again. And so that's the problem with these kinds of things. And especially when you got something that is very retail driven now, you're not, you're a, a destination site. We're a destination site, so we don't struggle with that as much. But, you know, be careful to be, you know, in the area. Go ahead and be in an area that's a little green that the, that the market is growing towards, and go ahead and buy something a little bigger than you need. And that's for most of us out there. And always pay cash. If you're not paying cash, don't buy a building, period. You don't need the problems that, that, you know, owing a mortgage creates. I'd much rather be a tenant. Much rather be a tenant. There's nothing wrong with being a tenant when you're in business. Nothing wrong with that. And real, buying the real estate does not fix all of your business problems. It adds business problems. So. But you can make more money owning the real estate, so that's good. Real estate's a good, good investment. And again, I've done it. I love real estate, so I think you're on track to do that. Good question, Mary. Sounds like you got it on the run. I'm proud of you. Very well done. Hey, folks, remember Ben. Better a weary 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 listening to the Entree Leadership Podcast.