Rare Exceptions to Dave Ramsey’s “No-Debt” Policy

From Ramsey Solutions HQ, this is the early leadership podcast where I take calls from leaders like you about what it takes to win at any stage of business. I'm Dave Ramsey, your host with over 30 years of experience in the trenches doing what I do every day and still do and we're here helping you, we love small business people, we love leadership and we're glad you're on our tribe and that he is here doing things in the United States today if he has. If you have a question, you want to talk about business, particularly small business. Just call us.

You can complete the form at Entre leadership.com. Askk or you can call us at 844 944 1070. We would love to hear from you. Ross is with Us in Louisville Kentucky Hi Ross, how are you? I'm doing good Dave, how are you? Better than I deserve. What's happening in your world? Okay, so I own an electrical contracting business and we make between 5 and a half to 6 million dollars a year. We are on track to hit 10 million this year and we had a good year last year and our accountant suggested we borrow money to cover our tax bill or because we just spent most of it.

To pay the

debt

, you, you, did not set aside your tax money well. I just started my business, so I didn't expect to do this well nor did I necessarily know how to do it, but I mean, you knew. You were making money hand over fist and your accountant knows that you are making money hand over fist. I guess so, I see it was called December 27th, no, I mean what happened in June when you guys were making 5 million on the way to 10 million, no one talked about it. taxes no, I hadn't, we didn't talk to our accountant until she called in December when she asked us to get our books up quickly, okay, you're running this like it's a $1 million business, yeah, because you need to be ta you need to do tax planning every month at your level and you need to talk to whoever is doing your books every month and determine what your tax liability is going to be and make sure you put it aside so you don't I won't make it to the end of the year and have a damn bill $200,000.

Okay, I don't like them, I don't like surprises like that. Me neither, okay, not at all. I took all our extra money for the year and paid. I was actually

debt

free the week before December 27th and then it hit me with this. You were debt free not counting the fact that you had $200,000 and owed the IRS, so you are not debt free. Yeah, right, wow, where are you? we're going to borrow $200,000 uh your recommendation was that we draw down the line of credit and borrow that and then um and then pay it off as quickly as possible next year um but I'm trying to figure out what do we do to not be in this situation again. never again, yeah, I mean now, I want to know right now, this month, the first three months of this year, I want to be in balance and be what you want, what you need to be, you know, it's almost like what you need. letting go of withholding on yourself is the basic concept, right, you're supposed to do quarterly estimates to start, where the heck you probably need a new accountant.

I think he has a I think he has someone. who is used to doing small business. I'm not sure QuickBooks will survive a $10 million business you probably have, you probably have a crappy account on crappy software. I would say we grew quickly this year, just getting started and yes, now. Trying to figure it out, yeah, how many years have you been open? This will be my second, so you made five million one year, 10 million the next. No, we did 5.5 this year, this one in 2023 and under contract for 2024, currently. you have 9.8 million under contract, okay, and last year you made five, you did what, uh, one, okay, you need to hire a CFO or at the very least an internal controller to manage your books and develop a good software that is as sophisticated as the size of your business and as part of those tax plans and set your quarterly estimates because you will get your ass kicked with fines for not doing your quarterly estimates in your third year, in other words you have to pay your taxes. you have to pay your taxes during the first quarter on March 24, okay, and in addition to this other problem that we have, this other problem just reveals how weak and primitive your systems are, how fast your business is. grown up, congratulations on killing him, that's awesome, but now what's going to happen is that your lack of systems and your lack of sophistication will cause you to lose him if you don't, you won't be able to gain anything but stupidity.

I have tried it. and then you have to put good software, yes, you need to hire an accountant, I mean a certified public accountant, an internal controller at least who works for you full time and does nothing more than manage your payroll, your books and your taxes. and keeps it up to date and working with an outside accounting firm is fine. I use an outside accounting firm for my taxes and they work with our financial team within Ramsey today, but making sure, for goodness sake, that my taxes are up to date is the last thing we need.

Being behind on a stupid IRS, so your solution to this disastrous mess is the right solution. Take it out of the line of credit. Return it as soon as possible. You'd rather owe the bank for the line of credit than the KGB. The IRS penalties and interest are much higher than the line of credit, yes, yes, because I think the lines are around eight and a half percent or something like that. I don't even care, you don't want the IRS in your life, it's the last thing they do. You'll ruin everything, you'll have them breathing down your throat, man, you don't even want to, no, no, no, no, so do what she said, delete that line, but much more important than that is to fix this so it doesn't come back. to happen and that is hire a controller get someone who is on top of your books update your software QuickBooks won't handle a company this size you need to look into something like netw Suite or something put something more sophisticated in It will also help you with the cost of the job and then if you work with an outside company, that's fine.

I don't think she's sophisticated enough because at some point during the year, if you're running that kind of volume, she should have it. been raising my hand saying we gotta get it, you're gonna get it, you're gonna get in trouble here with these taxes, man, I mean, I don't like to be surprised by my lack of systems and the people in my life that are supposed to They tell me what to do, they help me and they don't. I think you probably need to update your software, your accounting, and you need to bring some accounting help into the building, controller level at a minimum.

CFO to the max and that's what I would do if I were in your shoes, very very good stuff, congratulations on your success, be careful, success is one of the main causes of failure. H this is the senior leadership podcast Hi guys I started ramsy Solutions on a gaming table 30 years ago during that time we had too many different systems and they slowed us down that's why now we use net Suite netw Suite works for us and will make a difference too for your business, whether you're just starting out or on your way to becoming a multi-million dollar company.

Netw Week can scale with you to help you communicate across departments and better plan ahead. You will see that you know that you are moving forward and backward day by day, but things like analysis accounting human capital management all that could be another story or maybe you are not a tech expert, everything is fine netw Suite will help your company in your situation to increase your speed. More than 37,000 companies use netw Suite to know their numbers and better understand their business. so visit netw today and rest assured they can help you become the business you want to be in 5 or 30 years to learn more get a free product tour at netsuite.com Ramsey that's a free product tour product on netsuite.com Ramsey on Seating for the main Leadership Summit is completely sold out, livestream passes are still available and going fast, so reserve your spot today at the Entre Leadership.com Summit and You will connect with over 3000 other leaders around the world. here world class speakers like the New York Times bestselling author of Atomic Habits James Clear no Smith Memorial Basketball Hall of Fame coach Mike K Coach K the first female F-14 Tomcat fighter pilot Carrie Loren I Dave r and many others with a Live streaming happens to you and your entire team can stream the entire conference without worrying about travel expenses or time out of the office, plus you'll have access to replays of all your favorite talks for 60 days, so get your team together and have a party to watch the live stream of the summit.

I promise your business will never be the same get out your phone, visit the Entre leadership.com summit Lock your livestream pass today Jacob is with us in Georgia Hi Jacob, welcome to the Entre leadership podcast Hi Dave, how are you today? Better than I deserve what happens, hey, I just called. I had a bit of a brag to share with you today. Great, so, yeah, tell us about that. Yes, I currently own and operate a small window cleaning business here. In Blue Ridge, we have a top line revenue of around $100,000 over the last year, well for you, around 175, great, and at this window cleaning company, I have had the pleasure of meeting some really great people , really great people, really great community leaders and about two years ago, I got involved within a Scholarship Foundation, I'm on the board of a local home pra organization, um, this organization. started in 2019 um year to date uh We've awarded uh just over uh 375 $370,000 in scholarships uh to uh to students within our current geographic region uh around four different counties here wow, that's amazing yeah, so It's a pretty special, uh, pretty special group of kids to get involved with, so academic to do, what, where they go to school, so we're, um, with this organization, we feel that, uh, the trades in particular.

They were a very neglected group of children. uh going to uh going to the trades uh buy kids if you want so uh we wanted to focus on that particular demographic of kids so so far we've awarded 36 scholarships um these ships cost $10,000 a piece uh we separate that uh between each semester $5,000 a piece per semester um and uh it's just man it's absolutely special to be involved these days. Wow, way to go, congratulations, well our micro friend will be delighted to hear this. This is great. you know you have the micro Works uh that they give away scholarships for exactly the same thing and uh it pushes people and helps people to get into the trades and do different all kinds of different things, but well done sir, congratulations, it's a great use. your time and your energy, right?

Yes, it absolutely is and it's very humbling to see these groups of kids come every year. We, we, plan to donate $200,000 this year. The best couple of trades, two or three, that someone can do if they go into the trades these days, my goodness, there is not a bad choice, I don't think we're seeing many welding students, uh, going through uh, HVAC. technicians plumbers whatever, it's necessary, I mean, it's every way, they all make very good money, can't they? Absolutely, um, that's phenomenal, Jacob, that's a good performance and a good use of money, well done. Sir, well done, we really want to thank you, we appreciate you calling and bragging, by the way, if you don't know what Jacob was referring to in the early leadership podcast, we invite you to call and tell your bragging stories, the people of little companies do not.

We don't have anyone they can brag to in America. We love you. We think you should show off. We must sing from the top of the mountain. Baby when we win. You should just howl at the moon. Let's do it. thank you for joining us America I'm Dave Ramsey your host this is the leadership podcast Call us with your questions your comments about business and leadership the phone number is 844 94410 70 or you can leave a message on the website We will contact you and we will a call here on the air that is on Trade Leadership.com.

Ask him if he is looking for Theory. It's in the wrong place. We talk about the five stages of business here because we've lived them and because we've walked through them with people like you who run businesses over the last few decades, we work with tens of thousands of small businesses across the United States, most of us started At the stage of the routine where you feel like you're on a treadmill, it's all up to you and if you're smart and lucky and learn to delegate a little bit and manage some time, you can move on to the Pathfinder stage and there it is. where you need to have a very clear idea.

The direction you get in chaos mode in the Pathfinder stage and you are clear. Direction with some clarity and errors. Core values ​​have a lot of communication. You can go to the stageTrailblazer and this is where you need people to scale your business. You need leaders in their positions, you need more than just yourself to help make decisions and think like an owner, so planning, repeatable processes and leadership development will surely get you to the stage of peak performance where you are likely to gain the most. amount of money. you have done in your life and your business can become too comfortable because winning is everywhere and if you are not careful you can get caught up in that and you have to impact everything and create a relentless culture of improvement that will take you to the last stage of the five stages , the Legacy Builder stage, where we start talking about succession, where we start talking about making this last beyond you.

Next Generation Development Estate Planning, all that kind of stuff comes into play at the Legacy Builder stage, so give us a call if you want to join a conversation with hands-on folks at iCal. If you want a theory of leadership, you need to go somewhere else because I do this every day and there is nothing here. Theory, uh, almost none of the following will be Steve in St Louis. Hi Steve, welcome to the Early Leadership Podcast. Hi, how are you Dave, better than I deserve? What's happening? Hey, just a little background and then I'll give you my question.

So, we have a family business that I've been away from. I'm getting ready to do it again. It's like plumbing and digging and plumbing and digging, yeah, those are two very different things. A lot of the plumbing we do is like installing septic tanks and stuff, so we have the back of the excavator, that kind of stuff is fine, so we do some residential stuff or you could do some INF, a little bit of infrastructure light too, okay? Yes, okay, and last year's net profit was 215,000, so I want to go back to the family business with the expectation that my brother will sell it to me because my half-brother is who. owns it, I wanted to see it, so I'm going to go back and knock the rust off my plumbing and excavation knowledge and then I'm going to start doing almost like a succession or preparation, like learning how to bid and uh, how to pay taxes, all the backdoor stuff and I was willing to see during that succession period if there's anything you can implement.

I guess he would protect me if something happened to him because he doesn't have heirs like that. They are interested in running it and that is why they want to sell it to me, but if something happens to it before the purchase is made, is there something we can implement or how? That way it simply won't be sold and the money won't be split. among his heirs I guess you've been doing. I've been driving a truck. I worked for him initially and then in 2008 there was a slowdown and he was like not breaking even so I ended up driving a truck.

I'm driving a truck. locally now and I've been talking to him interested, none of his kids are interested in this and it's something my dad originally started so it's something I enjoyed and that's why I want to do it again. How old are you? 37, okay? Okay, yeah, you can just have a contract with him that outlines the price and method of purchase and locks him in and gives him a way out if you leave or are incompetent and they have to fire you or not. drugs or whatever, so I mean we don't want him to get stuck with you if you go bad, but on the other hand, you don't want to be on the spot, you know you don't want someone else to end it if something happens. happens to you, so your estate where you will die would be subject to fulfilling that contract, so you would go to a lawyer and draft a simple purchase or purchase option contract, but the contract would cease to be valid in the event that it does not did it.

It didn't work for some reason or another and that would all be outlined there, okay, yeah, I wasn't sure since I wouldn't have actually taken ownership if it could have been implemented, so yeah, it's just you. Re contract is a purchase contract that says you have the right to buy it under the following terms and it may not, it may take three years to close this deal properly, so it doesn't have to be that way just because you have a 30 year contract. days, it could be that you know that he has the business under contract and during and part of that contract is this apprenticeship period where he learns the skills necessary to run the business and, if during that time, the guys decide to separate, he is not obligated to sell it to you, then okay, and then if something happens that protects me, I can still pass something on to him like, for example, if he dies, that protects you, yeah, okay, one thing you can add to that if you want.

It's a more sophisticated touch and I wouldn't really do this until you've been in the saddle for at least 6 months, but if someone is in a partnership they usually set it up and you don't, but they usually set up what's called a purchase agreement- sale that sounds like this: He buys life insurance that makes you the beneficiary, so part of the deal is that he would buy a term

policy

because I don't know how much he will pay for the sales call. It's a million dollars, okay, you're going to pay a million dollars for this deal, then he buys a term

policy

for a million dollars, in case of his death, before executing the contract, that money is left to you. you and then you are obliged. using that money to buy the business from your widow or your heirs, okay, so yeah, basically give them the money that comes from that right and that would be what's called a purchase and sale agreement and that's not a pretty standard thing and temporary insurance. if it's in good physical condition it's not very expensive so it doesn't cost much to implement and you know where I'm at in your shoes I might even be willing to pay for that policy that's fine because it gives you what it gives you. the money to buy out the heirs instantly and execute this contract if something were to happen to him, but again, you guys need a lot of EX, uh, provisions in the contract that if someone misbehaves, we can get a, we can fix it, okay?

I mean, if he starts doing drugs and selling and running and putting diggers in ditches and things you need to get out of there, yeah, because that, yeah, that wouldn't do it, yeah, you're GNA, you're gonna be stuck with a bill that I don't need, uh, and a headache that you can't afford, so I mean people get into things like that, you know, so I'm not saying your brother is going to do that, but I'm just saying that you need, you need Provisions. I call them going crazy Provisions if someone goes crazy what's going to happen what are we going to do right and then you just work all that out with a lawyer so yeah, those are standard exit clauses in a contract like this okay, yeah, a good general practice attorney, this is probably going to cost you a thousand dollars $2,000 to put this contract together, it's okay and it's going to be worth every penny because it's going to explain every little detail that when this happens, the next thing we're going to do is this and this happens, we do this and that it's all bad stuff, but it also describes under what conditions you will become an owner and you will go through a year-long apprenticeship to learn to relearn or learn the skills to estimate, operate and manage the business, um and so on, you know, and then of that year, you are going to pay X and Y and after another year of that payment X and Y, then you can buy the business under this formula. for this price, this multiple of net earnings or whatever, however you calculate this, uh, in this situation, all of that will work, it will all work perfectly, very well done Steve, good thought and a very, very good question when the family does these things. a handshake and you do it under an assumption, well we all know how to assume what that makes you don't do that, get it all in writing with a lawyer, this is the early leadership podcast.

I'm Dave Ramsey, your host, this is the early leadership podcast. Our question of the day is from Nathan in Texas, we own a lawn equipment company and primarily sell new and used zero turn lawn mowers. Is it wrong to allow our customers to finance their equipment purchases because, as a business owner who doesn't believe in going into debt, I am violating my ethics by offering financing for more expensive equipment. I don't think you are, but you have to decide that I can't decide that, so let me break this down for you. I teach people like Dave Ramsey, the money guy, millions and millions and millions and tens of millions of people have followed our advice to get out of debt and stay out of debt, that's our product, our product is not clippers of zero turn grass, our product is in business leadership, helping small businesses.

They run their businesses, it's not about zero turn lawnmowers, your product is the equipment you sell, so my product is getting people out of debt on the money side of our equation, the right thing for me It's putting people into debt while I get people. getting out of debt would be so hypocritical and counterintuitive that it would be a violation of ethics, which is why we do not accept credit cards at Ramsay, we will take your debit card only your ACH, we will transfer your wire transfer, your cash, but we will not accept your card of credit. and we don't offer funding for anything we do because in my case, because of who I am and what I teach, I would be very well known for that, that would be very hypocritical.

However, you are known for your zero turn mowers. They are not known for this if you own a Pizza Hut, sell pizza and not taking a credit card is an option or taking a credit card is an option for your Pizza Hut or your zero ton lawnmowers, either. You know, you have a financing agreement with whoever. John Deere or K Cabota or whoever is right, many of them have their own means of financing now, it's very similar to what we are dealing with: if you are a Ford dealer, you would have Ford Motor Credit available and probably local bank financing available as Well, if you own a car dealership and you believe in Dave Ramsey and you believe in being debt free and running the car dealership debt free, I don't think you're violating ethics by offering financing now, I think you're always violating the ethics if you are letting someone do something or something worse than that, encouraging someone to do something that you know is out of bounds and will be harmful to them, we all know that you can borrow more money than you should and if you you know, you know.

Someone has financial problems at TR Finance and you even suspect that they are lying on the loan application to get this approved because they are so desperate for that piece of equipment, well obviously we don't want to participate in that because they don't want to participate in being the cause someone to lose everything. I'll give you an example in the old days, the local banker was all there was, there was no stupid Chase or Bank of America. God help us right where someone was in another city. When you made a decision about your life, it was Joe or Henry or whatever name you want to connect to this, the local banker and you knew him from church and your dad played golf with him, you know everything, you met him, and so on. the '50s if a guy came home from the war and wanted to open a hardware store and didn't have enough common sense to do it, but didn't have enough common sense to know that he didn't need to do it and he walked into Joe the Banker and said I want borrow $100,000 or $50,000 or whatever you would have borrowed in 1950 to open a hardware store um can you uh uh Me and I want to put up my dad's farm as collateral, well the banker looks at this kid and goes to look for a child You don't know how to run a hardware store.

I don't want to have to foreclose on your dad's farm. It would be unethical for me to give this loan and the banker would refuse to do what the banker does which is give loans because he knows that the child is going to lose Family Farm by doing this or there is a high probability now of course move forward fast until the day Bank of America makes that loan three times as much and charges them a lot of interest and they'll end up with a family farm because they don't have a soul, but the local bank in those days, the Community Bank, did.

There are some of those that still exist. Some of those types of bankers continue to become fewer and fewer each year as I get older, but that's the situation. I know you look at this and leave now. Would I tell you to go borrow money from the bank? No, I'm not telling you to do that, but if you were to go to work with a community bank, re GNA gets a very different deal, a different set of eyes looking at the deal than you would with one of these soulless Mega banks. , you know like Fifth Third oh God help us please no you know that kind of stuff right? you know that's what you want to be, you want to be Joe the banker, you want to be the guy who's a member of the community and doesn't screw his neighbors right, and if you have a kid, that doesn't need to be done.

If you're taking on this kind of debt, you know I'm not going to participate in this deal, but if you have a guy you know a perfectly capable girl who is perfectly capable of handling this situation and they're going to finance it, but you don't think personally on loans. I don't think that's unethical. I think you have to present those ideas and if they come up, you can always tell the person.people. Hey, I pay cash for everything. I'm just telling you ahead of time and, uh, I always encourage cash here and we encourage you to pay cash for everything, um, but we do have the financing available if that's what you want to do instead of the first thing that comes out of your mouth. .

Do you know that we have 0% interest in these Zero Turns? Like God, no, I mean, maybe the first thing that comes out of your mouth is not the funding, maybe it's like a last resort, it's kind of quiet, it's only for people who you think will do well and, you already know. you make some value judgments about not screwing your neighbor and etc. now again I don't have that option, it would be very hypocritical of me to do that and I'm not tempted to do it at all. I wouldn't do it anyway, huh, but I wouldn't say that you, Nathan, who are in Texas are unethical because you offer to finance your equipment business, just like I would say that Pizza Hut or the local pizzeria owned by a guy or girl from your community, it is unethical to accept a credit card at the pizzeria.

They probably won't think twice. and so on, that's how they see it, again, ethics is the best business ethics they can do. Jesus already taught us to treat other people the way you want to be treated, so any of you who have any business ethics questions about how to treat them. an employee how to deal with a supplier how to deal with a customer how to deal with a refund situation ask yourself if the roles were reversed treat other people how you would like to be treated if I were sitting there, how would I like to be treated to you?

In your case, they treated you well. The person who wants to fund wants the dignity of being an adult and wants to decide for themselves if they want to fund, they don't want you to dictate it to them and some of those people get mad at me when I dictate to them, but again I don't have a choice to be me, so that's what you're dealing with, although it's a very good question, so always treat people how you would want to be treated if I were incompetent and inept. I wish someone I'm trying to do business with would think that and think they're screwing me and I was setting myself up to lose everything because I made a deal with them.

I wish they would do it, you know, to convert me. down and I and I will reject someone in that situation. I'm not going to ask anyone. I'll give you another example. Just discard one. Other. Keep throwing them. But this is good. This is a good discussion because. Business ethics sometimes is really um American companies don't have much soul left, everything they do is virtue signaling, so those of us who run small businesses with soul have to think about this kind of thing, for which we have people who want to advertise on the senior leadership podcast or the Ramsey Show and those ad spots are national and they're super expensive and if they add if I take an ad, that's the only way the guy can do it. paying the bill for the ad is if the ad itself generates you so much revenue that, you know, otherwise I'm going to bankrupt you trying to get paid, then I'm unethical in taking on that client and we've turned down a lot of potential advertisers during the years because we think that if this doesn't work when they pay our bill, they will go bankrupt or they just won't be able to pay the bill, either of them will completely ruin them, so we don't accept that Client because it is not good for the client, I want say, it's good for us to get the money if we can get it, but it's not good for the client, so we don't accept, we don't do business in a way that causes our client to go bankrupt because then we want our client to be around forever and be our customer forever, they are very hard to get and it's wrong, it's unethical so that's what we're dealing with, a very good question of the day Nathan, thank you very much for sending that Hi friends, that concludes this session .

Remember a tired warrior better than a trembling critic. This world needs more high-quality leaders, so step up and lead. I'm Dave Ramsey, your host, thanks for listening. the early leadership podcast