התמלול המלא של Stop Inheriting Broken Business Structures

correct one for them. 00:02:27.759 --> 00:02:42.080 But after we've done the review, we found that the existing structure is simply was tailored around the previous business owners' preferences and their lifestyle. 00:02:42.400 --> 00:02:57.599 And it really suits them, but it does not suit the current situation for them because now they have the opportunity to bring in partners, investors, and add more value to the business. 00:02:57.759 --> 00:03:02.400 Whilst that wasn't the goals for the previous business owners. 00:03:02.560 --> 00:03:13.280 So the structure wasn't set up to accommodate for the additional investors or partners to come in and scale the business. 00:03:13.520 --> 00:03:18.000 And this would be quite common when someone starts a business 30 years ago. 00:03:18.080 --> 00:03:20.319 Yeah, they wouldn't give any thought to selling it. 00:03:20.479 --> 00:03:22.000 They really just bought a job. 00:03:22.159 --> 00:03:27.759 We can put some stuff on the PL, we're running our own little business, and that's how it started. 00:03:27.919 --> 00:03:33.439 But some of these businesses actually scale to be big businesses over a period of time. 00:03:33.520 --> 00:03:33.599 Yeah. 00:03:33.759 --> 00:03:36.960 And in the real estate world, they've claimed a lot of doors. 00:03:37.199 --> 00:03:48.080 That could be investment properties, every settlement of a brand new home or the existing home, that gives you those next two customers, and before you know it, you've got 2,000 doors. 00:03:48.319 --> 00:03:50.080 And this business is worth a lot of money. 00:03:50.240 --> 00:03:50.400 Yeah. 00:03:50.560 --> 00:03:51.520 What was your findings? 00:03:51.840 --> 00:04:02.000 My finding was that, you know, especially when I was talking to the real estate agency that needing a review for the past week. 00:04:02.240 --> 00:04:10.319 So after the complete leader conference, I have been in touch with, you know, many of the agencies. 00:04:10.479 --> 00:04:21.199 And they also have asked me, you know, a lot of questions about adding investors to their businesses and whether or not their business structure is set up right for them. 00:04:21.439 --> 00:04:25.839 Is the current structure is working for them or against them? 00:04:26.079 --> 00:04:29.279 And they are just simply don't really know. 00:04:29.680 --> 00:04:42.720 And they don't really know whether or not the proposed new law that's is coming in in the next couple of years, for example, family trust, etc., will actually affect them as well. 00:04:42.959 --> 00:04:47.519 So this time around, it's perfect timing for a review. 00:04:47.759 --> 00:04:55.839 After I've reviewed, I just found that, you know, number one, the business structure itself does not accommodate for gross. 00:04:56.240 --> 00:05:00.720 Meaning it was set up for one family and one family only. 00:05:00.879 --> 00:05:11.759 For example, it might be operating under a commission structure where the partner might just have a hundred percent commission. 00:05:11.920 --> 00:05:12.639 That's it. 00:05:12.800 --> 00:05:14.319 They don't get any wage. 00:05:14.560 --> 00:05:24.160 So it does not accommodate for that business partner to wanting to grow the business because that affects their day-to-day earnings. 00:05:24.319 --> 00:05:36.319 And but yet they're bought into the business that they should really spend time building, but they don't really want to focus on that because that really hurts them in their own pockets. 00:05:36.639 --> 00:05:39.680 Let's go into a case study and we're gonna meet Pam. 00:05:40.240 --> 00:05:41.839 Take us into Pam. 00:05:42.399 --> 00:05:57.439 Well, Pam is a real estate agent, and she is a successful sales agent and was given an opportunity to purchase into the agency itself, and she has 15% ownership interest in the business. 00:05:57.600 --> 00:06:07.680 She's excited for the opportunity, and but and because she's no longer an employee salesperson and she now owns part of the business. 00:06:07.920 --> 00:06:35.920 But the thing is, she was a little bit taken back by the expectation now that she is the business owner because she feels that she needs to coach other sales agents so that they build up their own listing and then, you know, help build the business so that the business as a unit own earn more money and be more profitable. 00:06:36.160 --> 00:06:46.480 However, she's if she doesn't actually list and sell, she's not going to be remunerated because she's not on any some sort of base wages. 00:06:46.720 --> 00:06:59.680 So to me, there's no encouragement for Pam to actually build up the business and be the business owner and m offer that support to the business to grow because she's torn. 00:06:59.920 --> 00:07:01.120 There's a conflict here. 00:07:01.360 --> 00:07:04.240 This is a defining moment of anyone's career. 00:07:04.399 --> 00:07:08.000 Question one, why would you want to own a business? 00:07:08.240 --> 00:07:13.279 Now, for me, you start and grow and scale something to sell it. 00:07:13.839 --> 00:07:14.560 Definitely. 00:07:14.879 --> 00:07:18.800 But your mind has to be in tune with what's required. 00:07:19.040 --> 00:07:21.120 Business has front end and back end. 00:07:21.279 --> 00:07:29.920 When Pam's out there as a commission-based agent listing and selling real estate, she's generating very good income, doesn't have to look after anyone. 00:07:30.079 --> 00:07:32.240 All she has to do is list, sell, list, sell. 00:07:32.319 --> 00:07:32.399 Yeah. 00:07:32.560 --> 00:07:33.920 And you can earn incredible money. 00:07:34.079 --> 00:07:40.720 And you'll actually, in technical terms, you can earn more money as a star agent than you could as a business owner. 00:07:40.879 --> 00:07:43.360 And I think people don't give that any reference. 00:07:43.759 --> 00:07:52.720 You can, but at the same time, you know, there's a ceiling there because there's only so many hours in a day that you can list and sell.

00:07:52.800 --> 00:07:55.839 And that's the same with, you know, other industries as well. 00:07:56.000 --> 00:08:01.199 If you're a salesperson, you're a successful salesperson, well, you're going to be guaranteed good income. 00:08:01.439 --> 00:08:04.879 But you've got to go out there and do the work yourself. 00:08:05.040 --> 00:08:18.959 But if what if you're sick, you know, and you want to go on a holiday because you're on commission only, if you don't sell and you don't have something in the pipeline and you disappeared for a month, that cash is going to dry up pretty quickly. 00:08:19.120 --> 00:08:23.519 And that's the difference between own the business or owning a job. 00:08:23.839 --> 00:08:30.399 So as a well-performing salesperson, your tap can be switched off if you're not there doing it. 00:08:30.480 --> 00:08:34.960 Absolutely as a business owner, if you could get 10 of them doing it, imagine what you could do with that. 00:08:35.200 --> 00:08:37.840 Yeah, well, that's where there's no ceiling. 00:08:38.080 --> 00:08:56.240 So that's why we want like a lot of people aspire to have a business, but they need to understand that you know, the income and the profitability of the business and the salible business is when you actually build up the business that can run successfully and profitably without you. 00:08:56.480 --> 00:09:11.679 So what your job is primarily is to teach and coach your team members to go out there and then feed those leads and income back to the business. 00:09:11.840 --> 00:09:16.799 And they get their cut, you get your cut for having them in your business. 00:09:16.879 --> 00:09:18.080 And that's how it works. 00:09:18.240 --> 00:09:28.799 So that's why a lot of big businesses, when they have more bum on seats, there's an opportunity that they'll have much, much more profit and they earn much, much more. 00:09:28.879 --> 00:09:30.320 And there is no ceiling. 00:09:30.559 --> 00:09:42.240 So you've got two options spend the morning coaching, working with people, growing the business, or option two, go out and just listen to sell real estate, which means you're not contributing back to the business ownership. 00:09:42.559 --> 00:09:43.519 No, not at all. 00:09:43.679 --> 00:09:46.159 And that's where the model doesn't work. 00:09:46.399 --> 00:10:17.200 So if that model continues, you're going to find that Pam's gonna end up um having this battle within herself, which is what she's experiencing now since she's been a business owner or part owner, and she's like, Well, I'm I'm a bit torn, you know, like I feel like I need to really support the team and support the business to grow, but I only own 15% of it, and then I still have the family that I have to look after and fend for. 00:10:17.279 --> 00:10:21.679 So I need to go out there and um sell my own stock. 00:10:21.840 --> 00:10:46.559 So, and that's where I think you need to stop and think that if you're actually buying into a business, the business model actually quite important, and you need to do your due diligence, whether or not that existing business model will support you and enhance your earnings, not you know, reducing reducing your earnings over time. 00:10:46.960 --> 00:10:56.639 Because at this moment in time, it seems like she would have been better off just sticking with her sales role and just you know doing a solo sale. 00:10:56.799 --> 00:11:02.320 And then rather than taking on partnership in a business that is not really growing. 00:11:02.799 --> 00:11:04.559 My very well explained. 00:11:04.720 --> 00:11:07.519 Let's move into the proposed solution. 00:11:07.679 --> 00:11:08.399 What should we do? 00:11:08.639 --> 00:11:20.320 Yeah, the proposed solution is perhaps, you know, if you're already in that business already, you're a part owner, have a chat with, you know, the your business partners and review your structure. 00:11:20.480 --> 00:11:21.840 And that's really important. 00:11:22.159 --> 00:11:28.879 It should be done really at the beginning before you go in to the business itself, but you don't know what you don't know. 00:11:29.120 --> 00:11:34.080 So at the at any point to actually speak to your business partner is good. 00:11:34.240 --> 00:11:39.200 At least it's actually a start and something's gonna be done, something's gonna come out of it. 00:11:39.440 --> 00:11:42.000 And you need to start with the end in mind. 00:11:42.159 --> 00:11:46.399 What does the business will look like in five or ten years' time? 00:11:46.559 --> 00:11:47.840 How big is the team? 00:11:48.000 --> 00:11:56.080 And how are you perceiving the business to scale and produce more income for you and your business partners? 00:11:56.240 --> 00:12:03.600 And you know, whether or not you want to add new business partners, is the current structure support that? 00:12:03.840 --> 00:12:07.200 So ownership in the future is very important. 00:12:07.360 --> 00:12:12.639 And how should you structure the business so it will be saleable in the future? 00:12:12.960 --> 00:12:16.960 And this is why we hear the words we're going through a restructure at the moment. 00:12:17.120 --> 00:12:17.360 Yes. 00:12:17.519 --> 00:12:19.919 Uh you hear that a lot, more and more and more. 00:12:20.080 --> 00:12:22.559 Let's go into define each owner's role. 00:12:22.799 --> 00:12:23.039 Yeah. 00:12:23.120 --> 00:12:28.480 So once you actually decide that you will restructure the business so it suits you. 00:12:28.639 --> 00:12:33.200 To me, where the business owner sits on the management panel. 00:12:33.360 --> 00:12:39.840 So the management panel, there are several areas, you know, and and you know this well, Lee. 00:12:39.919 --> 00:12:47.120 You know, you have marketing, you have sales, you have operations, and for real estate businesses, you have property management. 00:12:47.360 --> 00:12:56.960 So there are four core business operations here, and it depends on which business operations that you are leading.

00:12:57.120 --> 00:13:02.000 And so you need to identify your your role as the owner. 00:13:02.159 --> 00:13:12.799 We you can't do everything, and that just I want to emphasize that you can't take on the four yourself because then you know you'll find that number one, you don't have enough time. 00:13:12.960 --> 00:13:18.320 Number two, something will fall down the cracks because basically that you're just one person. 00:13:18.559 --> 00:13:26.720 So you you need to DV it up, you need to identify what are you good at, and some business partners will just take on the marketing. 00:13:26.879 --> 00:13:36.240 So feeding the pipeline to the sales team, which is head by another business partner or key person, and then property management. 00:13:36.399 --> 00:13:38.639 Well, you know, there's key person there too. 00:13:38.799 --> 00:13:43.360 So there should be like a mini CEO running their own show. 00:13:43.600 --> 00:13:53.600 You because you are running the business, you're not gonna have time to do the operational work or sales work because you're too busy building up the business. 00:13:53.759 --> 00:13:55.840 So that's why it's called business development. 00:13:56.000 --> 00:14:05.440 You go out there and you know you build relationships and then you feed that relationship to your team so your team can learn and grow. 00:14:05.759 --> 00:14:12.559 Coach your sales team because obviously you're the business owners, you've done something right, and you're the lead salesperson. 00:14:13.039 --> 00:14:15.679 So it's your role to actually coach. 00:14:15.919 --> 00:14:26.240 That's where you're going to see your return on investment in your time because those people, your team, will learn, grow, and make you more money. 00:14:26.480 --> 00:14:40.080 Now, the defining moment here is remuneration because you've got to be paid of what that street level wage is now, which is probably gonna be significantly different to what you were earning as a professional salesperson. 00:14:40.399 --> 00:14:40.559 Yeah. 00:14:40.799 --> 00:14:41.759 How do you process that? 00:14:42.000 --> 00:14:48.639 So basically, you need to quantify it, you know, how much you're willing to pay, for example, someone your CEO. 00:14:48.799 --> 00:14:58.399 The CEO is not gonna come and work for you for commission only, because um they're not interested in running your business if they're only on commission only. 00:14:58.559 --> 00:15:04.399 They're only interested in their own sales pipeline so that they can line their own pocket. 00:15:04.559 --> 00:15:14.639 But if you actually remunerated that person according to the market value, you're you might well, you are the CEO, so you should be remunerated accordingly. 00:15:14.879 --> 00:15:22.879 So the wage has to be number one enough to pay for the day-to-day living costs to start off with. 00:15:23.039 --> 00:15:31.519 So they're not feeling cheated, they're not feeling short change, and then they'll feel like, yes, everything

else is my cream. 00:15:31.679 --> 00:15:46.000 So now you're actually going to have someone who's motivated and because they're they're number one, they they don't have to worry about earning the commission, can rely on that base wage so that they can do business development, team development, etc. 00:15:46.399 --> 00:15:52.080 And then whatever the business builds in terms of profits that become their dividend. 00:15:52.240 --> 00:15:58.799 And the more that they do business development and team development, the more the business grows. 00:15:59.120 --> 00:16:01.759 So is the profitability of the business. 00:16:01.919 --> 00:16:07.440 So there will be more at the end of the day for the business owners themselves. 00:16:07.679 --> 00:16:18.960 Now, what's interesting about this is when let's say there's four of us and we're all on these salaries and w we haven't gone light, we're being paid well, you'd want to get the rest of the people doing something now. 00:16:19.039 --> 00:16:24.960 Your motivation just changed because the break-even point of the business per month is now very serious. 00:16:25.039 --> 00:16:25.200 Yeah. 00:16:25.360 --> 00:16:27.519 Whereas before, if I don't sell, I don't eat. 00:16:27.679 --> 00:16:36.799 We've got all these people on salaries now, and so getting the people to do the work becomes a very different focus than just solo performance. 00:16:37.039 --> 00:16:39.600 Yeah, so it's operating like a business. 00:16:39.759 --> 00:16:43.440 You know, you are actually the CEO, you're being remunerated for. 00:16:43.600 --> 00:16:50.480 Your business partner might be the operations manager, the property manager, and they get minimum remuneration. 00:16:50.720 --> 00:16:57.120 And, you know, everyone's happy because they're being remunerated accordingly for their roles and responsibilities. 00:16:57.279 --> 00:17:05.200 And then they'll be interested and excited about building the business up so that everyone will win. 00:17:05.359 --> 00:17:12.559 So that's the business model that I believe scalable business and salable business should follow. 00:17:12.880 --> 00:17:15.680 Let's do a review of the whole arrangement. 00:17:15.839 --> 00:17:18.240 What are the five key areas you would focus on? 00:17:18.480 --> 00:17:26.480 Yes, so when people buy in an existing business, I think it's worth stepping back and reviewing the entire operating model. 00:17:26.640 --> 00:17:30.400 So the five areas to review is number one, ownership structure. 00:17:30.559 --> 00:17:33.599 Who owns what and does it still make sense? 00:17:33.839 --> 00:17:36.400 Number two is roles and responsibilities. 00:17:36.640 --> 00:17:39.279 What is each owner actually accountable for? 00:17:39.519 --> 00:17:43.279 So everyone brings in value into the business. 00:17:43.440 --> 00:17:53.119 You know, like you don't have to have equal responsibility, but you're actually bringing something into the business that that is your unique selling point. 00:17:53.279 --> 00:18:04.079 And you see it all the time that, you know, the sales guys wants to be partnered with the property management person because that goes hand in hand. 00:18:04.160 --> 00:18:08.240 And the same with, you know, a doctor will need a practice manager. 00:18:08.480 --> 00:18:10.240 So that goes hand in hand. 00:18:10.400 --> 00:18:17.119 It's not that the doctor is more special, but but the doctor can't operate the business without a practice manager. 00:18:17.279 --> 00:18:19.359 So that makes a perfect partnership. 00:18:19.599 --> 00:18:22.160 And then number three, remuneration. 00:18:22.319 --> 00:18:25.920 How are working owners paid for the work they perform? 00:18:26.240 --> 00:18:33.519 I like the term working owners versus an external owner who's invested but not working there. 00:18:33.839 --> 00:18:50.880 So, and if you actually have a silent owner, that makes the working owners, you know, more motivated to keep on working because they are being remunerated and they can see that the silent owner, the silent partner who's not working, they're just investing the cash. 00:18:50.960 --> 00:18:53.839 They're not getting remunerated for doing nothing. 00:18:54.079 --> 00:18:56.400 So that's perfect arrangement. 00:18:56.640 --> 00:18:58.640 And then number four, incentives. 00:18:58.799 --> 00:19:02.480 What behaviors are the existing arrangements actually encouraging? 00:19:02.720 --> 00:19:06.160 And last one, number five, agreements and contracts. 00:19:06.400 --> 00:19:13.440 Do the employment, commission, shareholder, and other commercial arrangements reflect how the business operates today? 00:19:13.839 --> 00:19:18.000 So, for example, Pam's wasn't remunerated at all. 00:19:18.160 --> 00:19:22.079 So her arrangement was she she earns commission only. 00:19:22.319 --> 00:19:32.720 So, yes, that really does not give her the right incentive to build the business and do, you know, sales coaching with her sales team. 00:19:32.880 --> 00:19:39.599 So that's really to me a downside of inheriting other people's arrangement and structures. 00:19:39.839 --> 00:19:44.000 Yeah, the big question is if we were starting a game from scratch, what would we do? 00:19:44.240 --> 00:19:48.640 We wouldn't be governed by the existing thoughts or behaviors. 00:19:48.880 --> 00:19:50.880 You would do it in the appropriate manner. 00:19:51.039 --> 00:19:51.200 Yeah. 00:19:51.359 --> 00:19:53.039 So that becomes the big question, doesn't it? 00:19:53.279 --> 00:19:54.079 Yes, it does. 00:19:54.240 --> 00:19:59.680 I mean, I'm not encouraging people to, you know, change everything when they buy the business. 00:19:59.839 --> 00:20:09.759 What I'm saying is you should really give it some thoughts on, you know, what business structures suit you and your business partners or your family. 00:20:10.000 --> 00:20:22.480 And then don't be afraid of making a step to change the the current structure so that it suits you better and it's more

aligned with your future goals. 00:20:22.880 --> 00:20:24.160 Yeah, it's interesting. 00:20:24.400 --> 00:20:27.680 The word changed could be replaced with updated. 00:20:27.839 --> 00:20:28.079 Yeah. 00:20:28.319 --> 00:20:30.799 Because how it started isn't where we are today. 00:20:30.960 --> 00:20:32.160 The tax laws have changed. 00:20:32.319 --> 00:20:33.119 Many things have changed. 00:20:33.359 --> 00:20:33.759 Absolutely. 00:20:33.920 --> 00:20:40.880 And I know next week we're discussing one of the most scary topics involving contractors, payroll tax. 00:20:41.039 --> 00:20:41.279 Yes. 00:20:41.519 --> 00:20:48.720 I'm scared when that one goes out because there's a lot of fog in the Australian business world regarding how that works. 00:20:48.880 --> 00:20:52.319 But wrap this one up, what's the final things in your summary here? 00:20:52.640 --> 00:21:15.920 The final word here is if you've bought a business bought or bought into a partnership or taken over from the previous owner, you should sit down with your business partners if and ask, if we were building this business from scratch today, based on where we want to be in five or ten years, would we structure it this way? 00:21:16.160 --> 00:21:21.279 So look at your roles and are you getting pay for building the business? 00:21:21.440 --> 00:21:22.720 Are you being encouraged? 00:21:22.880 --> 00:21:26.960 So if you are not, that means the business model is not right for you. 00:21:27.759 --> 00:21:31.519 This is such an important one, and just some closing thoughts from myself. 00:21:31.759 --> 00:21:33.440 Be clear why you're doing this. 00:21:33.599 --> 00:21:34.079 Yeah. 00:21:34.400 --> 00:21:39.519 Honor myself, I've had all different types of businesses, I've had business partners. 00:21:39.759 --> 00:21:40.880 That all went well. 00:21:41.039 --> 00:21:42.640 Usually it doesn't. 00:21:43.039 --> 00:21:47.759 A lot of people just think different, and no one's right or wrong, but you think different. 00:21:47.920 --> 00:21:52.319 Whereas today, it's just myself and my wife, and we we're the owners. 00:21:52.480 --> 00:21:56.640 Whereas in multiple owners, you're going to get multiple thoughts and thinking. 00:21:56.880 --> 00:21:57.359 Absolutely. 00:21:57.519 --> 00:21:59.039 And you would see this more than I. 00:21:59.359 --> 00:21:59.680 I do. 00:21:59.839 --> 00:22:00.960 It it's a marriage. 00:22:01.200 --> 00:22:03.920 Oh, it's it's yeah, it's very tight. 00:22:04.079 --> 00:22:06.240 Yeah, and it's very deep at times. 00:22:06.400 --> 00:22:15.519 And so you need to structure it right so that everyone understands clearly their role, their responsibilities, and their ownership percentage. 00:22:15.680 --> 00:22:23.200 And that's why I think having, you know, like a documentation, like a shareholders' agreement is also very important. 00:22:23.680 --> 00:22:24.240 It is. 00:22:24.400 --> 00:22:28.480 And for our listener out there, this may hit you harder than you think. 00:22:28.559 --> 00:22:36.240 But if you're the person working harder than anyone and the other people are benefiting off your efforts, that is not sustainable. 00:22:36.400 --> 00:22:39.119 And at some point you're gonna think, why am I back here? 00:22:39.200 --> 00:22:43.519 And there nobody else is here, yet we're meant to be equal partners. 00:22:43.759 --> 00:22:46.319 That's right, and that's when you end up with a divorce. 00:22:46.559 --> 00:22:47.759 A very positive ending. 00:22:48.000 --> 00:22:50.000 My Harris, thank you for joining us. 00:22:50.240 --> 00:22:51.359 Thank you, Lee.