The 40-Hour Work Year: Are You Working Too Much in Your Property Management Business?

The 40-Hour Work Year: Are You Working Too Much in Your Property Management Business?

Scott Fritz believes that if you are a property management business owner and you stay in that business, your company will be worth less than it would be if you train your company to work without you.

He joins Alex on The Property Management Show this week to discuss the different between an entrepreneur and a business owner, and what you can do to work less but produce more.

Scott Fritz: Angel Investor | CEO | Business Coach

Scott has been an active angel investor since 2001, and before that he founded Human Capital, a PEO company that handled outsourcing for all human resources work like insurance, legal, and payroll. Once that company grew to a revenue of $170 million, he sold it. Then, he wrote a book called The 40 Hour Work Year. He’s also the founder of GrowthConnect.com. So, there are plenty of ways to reach Scott.

At PM Grow, he’s teaching a workshop and delivering a keynote.

We wanted to know what he means by his belief that “if the owner stays in the business, the company is actually worth less.” 

The Ownership Paradox

The dangers of working in the business instead of working on the business are well known, especially if you’ve read Michael Gerber’s e-Myth. The danger for owners is that when you are ready to sell your company, you’ll get an offer. If you’re working in the business, all of the compensation you’ve been taking to run the business will not be added back into the bottom line with the sale.

Someone will have to replace you and the work you do. That’s going to be a cost for your buyer, so you’ll lose money. Even with property management acquisitions done on the topline, there’s still a line item for owner’s wages.

If you own a property management company, you may have the mindset that you’re selling a book of clients.

That’s a mindset you need to change.

A property management company has more than a book of clients or a collection of doors. It also has intellectual property, brand value, etc. If you’re just selling book of clients, you’re getting a low multiple.

If a buyer wants to acquire your company, but they know that you as the owner have to stay in place to run it, you’re going to get an offer that’s lower than the offer you would get if the company was running itself.

In his book Simple Numbers, Straight Talk, Big Profits, Greg Crabtree says that you have to eliminate gamesmanship. True up your salary based on what you do in the business. He says not to pay yourself $30,000 and then take $200,000 in distributions. The IRS will notice. And, don’t pay yourself $200,000 if your job is only worth $100,000.

Pay yourself whatever it would cost you to hire someone else to do what you do.

Don’t chase pennies instead of dollars.

Human Capital: When Outsourcing Makes Sense

Managing human resources gets expensive and complicated for growing businesses really quickly. Scott’s clients were diverse in size and scope when he ran Human Capital, and he says that there isn’t a magic revenue number at which a company should consider outsourcing HR functions. It’s more about headcount and complexity of the business.

Scott had clients with only one employee and they outsourced HR for insurance reasons. Other clients had more than 500 employees before they began to outsource. It’s not necessarily where you are that drives your need for this resource; it’s where you want to be.

If you have 10 employees doing work in-house, but you want to expand into four other states, you’ll need a PEO. Maybe your headquarters are in Michigan but you have offices elsewhere. Every state is different, so outsourcing this function can make a big difference and protect you from liability and lawsuits. One of Scott’s Human Capital clients had come to his company because he was sued for providing financial advice at a Christmas party.

Consider shopping for a PEO when you’re ready to outsource your HR functions. It’s a good investment, and this advice comes from a guest who no longer has a stake in it and a host who is grateful to be using a PEO at his own company.

The 40-Hour Work Year: Growth, Structure, Sales

Scott’s book is about growing a business, structuring that growth, and moving the owner into a passive role so that the business can be profitably sold.

There’s a lot to gain from the book even if you’re not ready to exit your company. It’s about setting up your business so you can exit at any time with the maximum multiple you want to receive.

Here’s an analogy. When you want to sell a house, you don’t wait until it’s run down and the weeds have grown high enough to cover the windows to sell. You fix it up first and then you sell.

We want you to fix up your business – not necessarily to sell it right now, but to be ready to sell.

What if you’re an entrepreneur who enjoys running the company?

If you’re doing what you love and creating a legacy business, don’t feel bad about staying there. Create the business you want and create the life you want. You don’t want to own a job – you want to own a business. Make sure your company is structured so you can do that. Find your unique ability so you aren’t slaving away and trying to make things work while your people are miserable and overworked.

But, what if you’re ready to elevate?

Scott has three easy steps that you can take right now.

  1. Take your total annual compensation and divide that by 2,000. That will give you your hourly rate. If you earn $100,000 per year, divide it by 2,000, and you earn $50 an hour.
  2. List all the things that you’re doing for your business. There might be 30 things when you list every task and every responsibility.
  3. In the next 30 to 60 days, pick the three things that you absolutely need to stop doing. As long as those things are under your hourly rate, you can eliminate them from your to-do list. So, perhaps one of the items is that you go and change locks on all the doors you manage. Surely you can pay someone less than $50 an hour to change those locks.

Over nine to 12 months, you can move the 30 things you’re doing down to five or 10. Those are the high-dollar, high-value things that require your specific talents. You’ll be more productive.

Which brings us to this question – are you busy or are you productive? If you’re doing things that you can hire someone else to do at a lower wage, you’re not productive. You’re merely busy.   

Income and Implementation and Having the Right Mindset

You may be thinking that you’ll have to give up some of your income today to make the company work better in the future.

You do.

It’s the only way to make money. When Scott was ready to transition out of his business, he knew that he and his partner would have to take a temporary pay cut. So, they did. They cut their salary by 60 percent, but they used that money to buy a building, invest in software, and hire executives. Within nine months, they were back to earning what they had before taking the pay cut.

Your mindset can be your biggest weakness as an entrepreneur. Have you ever said these things?

  • I can’t hire someone right now.
  • I can’t train someone to do this.
  • I can’t grow my business right now.

If you’ve said any of those things – well, you’re right. It’s all about your mindset.

If, instead, you say:

  • I can hire someone.
  • I can train someone.
  • I can grow.

Then, guess what? You can.

Make sure you align with your partners if you have them. You need a structured way of doing things, and you need a Buy/Sell Agreement in place. It’s hard to think about these things when you’re just starting a company, but a structured Buy/Sell Agreement can avoid messes and attorney fees.

Mistakes in Property Management Acquisitions: Back to Mindset

The main reason that people don’t sell their property management companies to people who are ready to buy them is mindset. There’s a fear of not having something to do, especially if it’s a mom and pop business that’s been around for decades.

One of Scott’s potential sellers pulled the plug on the deal because her CPA warned her against the taxes she’d have to pay when she sold her business.

That’s a huge mindset issue, especially when the money and the terms of the sale would have more than eclipsed the pain of a tax bill.

In Scott’s experience, the people selling property management businesses are usually selling the only business they’ll ever own. But, the people buying a property management business buy new companies as frequently as they eat lunch. That can sometimes put sellers at a disadvantage. 

There’s a difference between entrepreneurs and business owners. Entrepreneurs have the experience of jumping off a cliff to start a business. They will usually be willing to sell. A business owner will be less likely to sell because running a property management company is all he or she knows.

Be intentional. Decide what your intention is, and put the plans in place to support it.

Know your end game.

If you’re an owner who ultimately wants to train the company to run on its own so you can transition out and eventually sell for as much money as possible, you need to work on the T-word.

Trust.

You cannot build your organization if you cannot trust your team. Let them fail and let them learn. When you get to a level of trust with your executive team, you can successfully transition out of the way. Read Speed of Trust by Steven Covey Jr. Its exercises will help.

Tips on Life and Business and Health

Scott, writing about a 40-Hour Work Year, subscribes heavily to work/life balance. Alex asked him what his morning routine looks like and how he stays centered. Here’s what Scott does:

  • Wakes up and listen to a recorded program called Bible in One Year to get his head straight and focus on God.
  • Does some journaling to reflect on what has to be done and what’s at top of mind.
  • Goes to the gym for 30-45 minutes most days.
  • Drinks a lot of water.
  • Spends an hour a week somewhere quiet with everything turned off. Think freely about ideas, what was great about the week, what fell short, etc. This opens up your mind to creativity, which entrepreneurs need. Record all your ideas.

Thanks to Scott for sharing what he knows and what he’s learning.

Hopefully all our listeners are coming to the PM Grow Summit April 17-19 in Austin, Texas.

You’ll walk out a different person.

Visit pmgrowsummit.com to learn more.

Alex Osenenko

About Alex Osenenko

Alex’s professional mission in life is to help small businesses grow and thrive. Alex is the President and CEO of Fourandhalf.com and a Co-Founder of the PM Grow, Inc. His business philosophy is simple: Happy Customers are created by Happy Employees, which results in Happy Shareholders. Alex's deep commitment to entrepreneurship and improving the lives of small business owners everywhere empower him to host “The Property Management Show” bi-weekly Podcast and speak internationally on the subjects of Growth, Marketing, Sales, and Entrepreneurship.

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Alex Osenenko
President and CEO

Alex’s professional mission in life is to help small businesses grow and thrive. He is the President and CEO of Fourandhalf.com and is serving his 5th year on the Board of Directors for CALNARPM.

After spending 9 years in the trenches with his property management clients, Alex draws on his experience to host “The Property Management Show” Podcast and co-authors a weekly Property Management Blog on Fourandhalf.com. Alex has extensive experience speaking for various NARPM events at the local, state, regional and national level.

Alex is a graduate of San Francisco State University with an Electronic Commerce Systems Degree. His business philosophy is simple: Happy Customers are created by Happy Employees, which results in Happy Shareholders. Alex serves on the Board of Directors of CALNARPM (California Chapter of National Association of Residential Property Managers) and hosts a Podcast “The Property Management Show“, available on iTunes.

 

John Bykowski
Chief Operating Officer

After graduating from the University of Michigan with a film degree, John proceeded to do everything but. During his career, John has specialized in operations and has developed processes for small companies in diverse industries, such as bleeding-edge marketing technology, social networking, trade shows and exhibitions, and cloud software. John and Alex had worked together previously, and when he needed someone to help take Fourandhalf to the next level and beyond, Alex brought in John as his first employee, and later, business partner.

In addition, now that he’s using his film school know-how to help property managers look their best in their blogs, his mom no longer feels his degree was a complete waste of time.

Danny Morris
Director of Account Management

Born in Australia and growing up in Israel, Danny has spent a lot of time traveling the world between those two places. After completing his military service in Israel, Danny began following his biggest passion, writing, which he discovered while backpacking South America and publishing his first book.

When it was time to unpack, he returned to Australia to complete his Journalism studies amongst the beaches of sunny Perth. Danny is a huge online fan and after working in a number of related jobs, he finally gets to combine his two favorite things, working with media and people.

Marina Osenenko
Product Manager

Marina draws upon her real estate, business operations and customer service expertise for Fourandhalf. Her favorite part of being with Fourandhalf is the opportunity she has to really get to know our clients, build professional customer relationships and truly be part of a team that assists in their success.

Her time away from work is happily spent watching her children grow up and attempting to keep up with them! Any spare moments beyond nurturing her children are filled with hiking, spending time with friends, exploring the Bay Area and squeezing in a non G-rated movie every now and then.

Marie Liamzon
Product and Marketing Manager

Before joining Fourandhalf, Marie worked for one of the largest banks in the world. She took on different roles, but couldn’t find what she was looking for. She pursued a variety of side projects until she finally decided it was time for a career change.

Marie is very passionate about helping people and learning new things. In her spare time, you might catch her exploring new places and taking far too many pictures.

Kyle McLean
Customer Success

Born in San Diego County, Kyle McLean has since migrated to the Oakland woods. A fan of tall trees and tall tales, he holds a bachelor’s degree from the creative writing program at the University of California, Riverside and is a licensed California Certified Shorthand Reporter.

After a few years as a freelance court reporter, Kyle has joined Fourandhalf for an opportunity in sales and digital marketing. In addition to reading and writing, his hobbies and interests include gardening, hiking, soccer, coffee brewing, and craft beers.

Karen Wyle
Account Management

Originally from the Philadelphia area, Karen moved eight times in seventeen years all over the East Coast and to the Midwest before settling here in Northern California six years ago. She is an alumna of Brandeis University with a BA in American Studies and earned a MBA in Marketing Management from Indiana University in Bloomington. Karen’s business career has been well-rounded, with experience including advertising, direct marketing, corporate retail, product management, new product development, and new customer generation. Beyond an office setting, she has been thrilled to volunteer her time giving back to the community with KPMG’s Family for Literacy, at her daughter’s school, and as a Girl Scout Troop Leader. Karen enjoys music, good food, traveling to new places, completing jigsaw puzzles, meeting people and making connections.

Karen became a part of Fourandhalf’s Account Management team in 2016, relaunching her marketing management career after a pause to raise her family. She is excited to rejoin the business world and to work with such a strong marketing management team.

Paige DeRuyter
Account Management

Paige graduated from Chico State University with a degree in Journalism. Her favorite part of working at Fourandhalf is helping clients create and produce educational blog content to grow their business. She is an avid sushi enthusiast who enjoys riding her bike and watching college football and in her free time.

Nissim Boozaglo
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After working as a Radioshack store manager, Nissim decided to change his career path and pursue his passion for music production by getting his B.A.S. from Expression College for the Digital Arts. Nissim has a beautiful 8-year-old girl and loves cooking delicious homemade food and going camping with her! At Fourandhalf, Nissim is responsible for the implementation of the clients’ Landing Pages and Google Adwords campaigns.

Theresa Barnes
Campaign Director

Theresa Barnes was born and raised in the Bay Area and graduated with her Bachelors Degree in Communications Studies at San Francisco State University. She worked in aviation at a private FBO for 3 years, and other industries, before joining the Fourandhalf team. She finds a balance between being a young mother, work, and living a healthy lifestyle outside of work by staying as active as possible. She is dedicated to customer satisfaction and having a great work ethic.

Brittany Stephens
Campaign Director

Brittany recently moved to the Bay area after graduating from California State University Chico with a degree in Business Marketing. She is known for her excellent communication, customer service skills, and shameless nerdyness. Her passions include: music, tabasco, Lord of the Rings, and the Golden State Warriors.

Logan Jones
Business Development

After graduating from CSU Chico with a Degree in Business Marketing, Logan moved back to the East Bay and pursued a career in sales. With an attention to detail and a relentless drive, he strives to improve himself and his passions each day. When not at work Logan enjoys playing guitar and writing songs, and occasionally performing around the Bay Area. He is an avid sports fan keeping up with everything SF Giants, 49ers, Cal Bears, and Golden State Warriors.

Hope Lumbley
Account Management

Hope recently moved to the Bay Area after graduating from Chico State University with a degree in Journalism. She is coffee crazed, dog obsessed and hopes to visit all National Parks. One of the greatest times in her life was when she lived abroad in Costa Rica and hopes to travel more of Central America in the future. She feels blessed to work for a company who supports her love for travel and the need to learn more about what the world has to offer.

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