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Episode #18 - Financial Statements for the Small Business

• American Gutter Monkeys, LLC • Season 1 • Episode 18

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If you own a small business—or you're thinking about starting one—this episode is a must-listen. Chris and Dennis break down the three financial statements every business owner should understand: monthly and annual sales reports, profit and loss (P&L) statements, and the all-important balance sheet.

From tracking seasonal trends to spotting early signs of trouble, they explain how these tools can help you make smarter decisions, grow more confidently, and build real value over time. Packed with real-world examples, this episode shows how numbers don’t just measure your success—they help you create it.

Chris:

Hello everyone, welcome to Episode 18, Financial Statements for the Small Business. Today we're digging into a topic that sounds boring, but trust me, it's not. When you understand your numbers, they tell you what's working, what's not and where your business is really headed. You wouldn't run a gutter install without a level. Don't run your business without using your business financials. In this episode, dennis and I walk through how we use our monthly and annual sales reports to spot trends, catch slowdowns early. We talk about P&Ls and what they actually reveal about your profitability, and we dive into the balance sheet, the one financial statement that reveals the real value behind all your hard work. You'll hear how we use these tools to make real decisions, like when to hire, when to expand, when to buy trucks or buildings, and while tracking these financials has helped us grow year after year. So grab a cup of coffee, sit back, relax and welcome to Monkey Business Radio. All right, hello Dennis, how are you doing.

Chris:

Chris, I'm doing well. How are you Good? Good, Going to be talking about business financial statements today Sounds boring, but it isn't. It doesn't have to be. We've spent some time on this in the past, but this is a little different today.

Dennis:

Well, Chris, we use business financial statements for everything. So if we're talking about valuing your business, we're going to use business financial statements. If we're talking about marketing 101, we're using business financial statements for that too. If we're talking about eliminating debt, taking on debt, we talk about business financial statements in a peripheral way all the time. So we're going to talk a little bit more specifically about them what they are. I mean a little bit about how we use them. But, yeah, your business financial statements mine are very important. I mean a little bit about how we use them. But, yeah, your business financial statements mine are very important. I use them every day. Every day, no matter what group I'm talking to, no matter if it's a franchisee or if it's a potential franchisee, we're always making reference to our business financial statements.

Chris:

Yeah, you've noticed it even on these podcasts, so we keep coming back to these financial statements.

Dennis:

No matter what the subject is that we talk about, there have my financials in front of me, and so does Bruce, and so does Andy, so we can answer any question they may have.

Chris:

Yeah, we were just talking to Bruce just before the show. He had about six hours to prepare for the last guy that came in and he just went to the statements, pulled them all out.

Dennis:

That's why we do it every day. Rolled them out, yeah, statements. Pulled them out. That's why we do it every day. Rolled them out, yeah, because it tells you so much and when you make reference to your own financials every day, you can almost find anything very quickly because you know exactly where it is. Today, we're going to focus on just a couple of business financial statements. We're not going to get overly technical on this. The three statements we're going to talk about today you know your annual sales reports, your profit and loss statements and your balance sheets. Those are the three big ones.

Dennis:

You know, one of the first things that a new business owner becomes aware of is sales. You know he's got a new landscape company, he's got it going on and he hits the ground running and he's banging $20,000 a month in sales. He's doing good. It's his first season. He's looking at that 20,000 a month. Now he wants to hit that number every month and he starts in May and June and July. He's doing good. Okay, he's focusing primarily on what we call your sales figures, your monthly sales report, which, when you put 12 of them together, you get an annual sales report.

Dennis:

Sales I like to go month by month and then at the end of the year we do a compilation and we have an annual sales report and this is going to give me a look, month by month, year to year, how we're growing in terms of gross revenues only, and I am constantly looking back. So we are in the month of May right now. I'm forever looking back at last May, two years ago, three years ago, may, and actually right now I'm looking at June. May is set, we're moving through May, things are going well. So I'm looking at June and I'm saying what did we do a year ago, two years ago, three years ago, june, and I can make a comp to that.

Dennis:

Okay, you know, three years ago we did X and two years we did X.1 or X plus one. Last year we did X plus two. This year I went to X plus three, whatever that number is. So I'm making comparisons to the same month a year ago, two years ago, three years ago. That's why we keep monthly sales and we keep annual sales and when you put them all together you get a good look. Let's say the last five years.

Chris:

So what kind of conclusions can you draw from those comparisons? I use these all the time you look two years back or something like that, can you say that was related to advertising or weather, or number of people I had, or Okay, so here's what happened recently.

Dennis:

We had a great year. Cape Cod got a monkey, south Shore got a monkeys. Just in general, we all had a good year. Okay, we turned into the new year and Cape Cod got a monkeys and South Shore got a monkeys. Those are our corporate locations, each of them. We just busted it out with a record year by a lot for each of them.

Dennis:

Now, february that was in January February was cold, really cold, the coldest February in 10 years. We had enough snow to cover the rooftops but not enough snow to form ice dams, which is one of the specialties in the wintertime is we remove ice dams. There wasn't enough snow to create ice dam, but there was enough snow to not allow us to do our gutter cleaning and our gutter installs. It was too cold, too nasty. So we really took a beating in the month of February and I can look at February and look at the last three and say, yeah, we did not have a good February, and I just make a asterisk, a note. It was weather driven and we'll make a note. You know, very, very cold came into March. March was rainy and nasty and gutter cleanings were up but gutter installs were down. So again, another, what I would call. Not my best month as a company both South Shore gutter monkeys and Cape Cod gutter monkeys they were off a little bit. Again. I'm looking back at last year March two years ago, march, three years ago, march and I see we're just having a terrible March and I made a note at the end of the month in my report. It was very rainy, installs were down, cleanings were up and we move on to April, april.

Dennis:

I start getting concerned because in this particular year, the new administration in Washington announced the possible threat of tariffs and the bottom fell out of Wall Street and then there was mention of possibility of eliminating some tariffs to Canada and some of these other smaller countries and all of a sudden, the market's back up again. Up it's down, it's up, it's down. Now by mid-April. I'm wondering are we in recession? And it's been 10 weeks, but it's also been 10 weeks of really cold weather and really rainy weather. So I don't know, is this slowing us down? Is this a recession? Is it driven by Wall Street or is it just weather related? So I have all this in front of me and I'm talking, you know, 10 weeks in a row, chris, and I'm getting concerned and I'm making adjustments based upon that, and that was just my annual sales figure.

Chris:

Yeah, so it's interesting. You annotate that as well. It's just not numbers and stuff like that.

Dennis:

You say, oh yeah, this is what's happening all the time.

Chris:

So you can look back three years ago and say, oh, it was rainy here too, but only thing that tells me that my profit and loss statement doesn't tell me that, my balance sheet doesn't tell me that.

Dennis:

No, my monthly sales reports and my annual sales reports tell me that. And so this year I made several changes. I made changes internally, function-wise. I added an extra layer of protection internally for my gutter install process South Shore and Cape Cod. I add an extra band of advertising on a podcast streaming station and all of a sudden we're pulling out of it. It's working. Now.

Dennis:

The weather's better, wall Street is booming. We had a little bit of a down day yesterday, but basically the last two weeks of Wall Street has been climbing nicely and the weather got better. So all of the things I was concerned about showed improvement, especially my scheduling my schedule's full again. We seem to be pulling out of that slump we were in. So was it a slump? Was it a nosedive, or were we flirting with recession and then we avoided it? I don't know, but it was my sales figures that I follow that alert me to this, and every year I'm going to say, for the last five years other than no, 2020 and 21,. Covid and those first two COVID years we actually did really well, but 22, 23, 24, and this year, 25,.

Dennis:

Each year I have a little bit of a lull and it always seems to occur during a time that my install gutter installs are down, and that's usually not weather related. It can be, but it's usually not. Sometimes it's economic related. There could be a lot of factors. So when I see this downtrend in my annual sales report and my monthly sales reports I start asking myself what could it be? And I look at the four or five most likely causes. Number one marketing. So I call my marketing people and I check with all my radio people. Are my radio ads hitting? Are these working? I talk to the crew chiefs Are you guys putting your signs out on the job sites? Are we getting all the exposure that we need and what we want? If so, we move on to the next level and over the years it happens once a year and I make a little bit of a change and every year we seem to recover. So I'm a little bit of a hiccup in our annual process. It could show up in April and May. It could show up in July, august. What we do is we make changes based upon that and usually we improve overall as a company, because now we've added an extra layer of protection against things like this.

Dennis:

So a couple of years ago we had a situation much like the one that we're discussing now and one of my coworkers, charlie, he had an idea and I said that's a good much like the one that we're discussing now. And one of my co-workers, charlie, he had an idea and I said that's a good idea, charlie, why don't you take it and run with it? And what he did was he would go every two weeks and review all the quotes that we put out for gutters, for installs, and he would take out the ones that we got and he would do a follow-up call to all the gutter installation quotes that we didn't get. And what we found was Charlie was nailing 10% to 15% of them. Wow, and so, yep, and it's only two to three days every other week.

Dennis:

And we integrated that Because it worked so well, we kept it going and we integrated into our normal process that, because it worked so well, we kept it going and we integrated into our normal process. And to this day, charlie still does that process, probably two to three days every other week. Wow, and that has made us a stronger company. And you know what, chris? It all comes from our annual sales report and our monthly sales reports. That's where it comes from.

Chris:

So this is your real-time data. You've got a lot of data streaming in here and we'll talk about some of the other stuff you're using, but this is kind of your real-time adjustments you can make using this data.

Dennis:

My annual, my monthly sales reports. For me personally, they drive every day what I do. Every day I'm looking and, of course, if things are going good and booming, my day is really easy when things are booming, are going good and booming my day is really easy when things are booming.

Dennis:

Everybody's busy, the office staff is firing on all cylinders. I don't even have to show up. Everything is great. I still show up, but my burden is light. These last 10, 12 weeks it's been heavy because I keep running tests and I keep looking at things. I'm looking and I'm poking. I'm trying to find out what the heck is going on, and I think we've pulled out of it. Things are looking at things. I'm looking and I'm poking. I'm trying to find out what the heck is going on, and I think we've pulled out of it. Things are looking good again. Everybody's busy, all the trucks are firing on all cylinders, literally and figuratively.

Chris:

It's a nice sunny day on the Cape today. It is Maybe that's going to help Been a lot of rain.

Dennis:

So, chris, those are my monthly and my annual sales reports. That's where all that information comes from. It's the simplest thing, but there's so much information in there. For me, and the longer you're in business, the more track record you have, the more valuable all this data is.

Dennis:

Monthly sales, annual sales, you know, yeah, that's one component. You just hope that you're pricing things right so you're profitable, which brings us to the next. So are you making money? Are we making money? Sales are good. Are we making money? That's where we have our P&L, our profit and loss statement. Do them by the month. We also do them by the year.

Dennis:

Now, to be honest with you, chris, I don't do monthly P&Ls anymore. It's, for the most part, unnecessary at this point because I know we're profitable and because almost all of my profitability is tied towards gross sales. Because you got your fixed costs and then you got your variable costs and my fixed are what they are, my variables. Everything is a function of sales. So my payroll is a function of sales. Back that out. My monthly marketing budget is a function of projected sales. We back that out. So the monthly P&Ls are very important, I believe, early on in your life. But as you grow and you realize, okay, you're hitting profitability every month and your gross profit on each unit, each widget, is X and as long as you're doing 10X, 20x or 250X, you're going to be profitable. So monthly P&Ls, I believe, are important early on, but in the long term, I think your annual P&Ls are more important. I'm buying inventory this month for work we're going to do next month. I mean there is a delay. That's why I don't do month to month.

Dennis:

After three or four years of business and you're very profitable and things are going smoothly, doing monthly P&Ls isn't worth the accounting time. It's a little bit of a distraction, but you know a profit and loss. An annual P&L or even a monthly P&L is. You grow sales and then you take out payroll. You know tools and equipment, marketing, disposal fees, material insurance. You know workers comp and the like, fuel for the trucks and so on and so forth. Those are your expenses.

Dennis:

And when you do this monthly your first let's say two to three years in business, what you're doing is you're really fine tuning. You're saying you know what you're looking in. You're saying my payroll is a little heavy. I either have to increase my prices on my widgets or I'm going to have to decrease payroll and that's what a monthly P&L will tell you. You know those first two to three years and you know what you're going to do. You're going to trim payroll a little bit or tighten things up a bit and you're going to add 5% to the price of your product or service. So now you're widget, you're getting a little bit more, you've tightened up payroll and you can look in three, four, five months in a row.

Dennis:

Payroll as a percentage of sales is no longer an issue and you fix that. And you did it because of your monthly P&Ls. And annually though, that's when it shows you how much you made for the year, and that's important because that's my annual P&L a copy of it is sent directly to my accountant, my tax man, and we do all of our own internal accounting here. But we have a former teammate of ours from Bentley College, dave Doucette. He's our tax prep guy and so, yeah, I just take my annual P&Ls, I send him a copy and I send him my annual balance sheet. All of that just goes right to Dave. I don't send him receipts, I don't send him anything at all other than four or five pages. That's it. It can fit in one manila envelope or it's really the click of a mouse. These days. Four pages, five pages, that's all Dave gets from me. It makes his job easy.

Chris:

Well, you start, you work with a lot of people just starting out in business. I mean, that's part of your consulting business. What do you find with this P&L? When you walk in the door and start chatting with them and ask them about this sort of stuff, what are you finding?

Dennis:

The first thing is a lot of people don't know what a profit and loss statement or an income and expense summary. They're the same. A lot of people don't really know what it is. Sometimes I find I have two or three young folks right now that I'm working with on their household budget. That's again entry-level accounting here's your income for the month and here's your known expenses expenses that you got to do. You got to pay the rent or pay the mortgage. Well, so I treat a startup business like that. That's why we do monthly profit and losses with a startup. So they understand. I don't want them running for 10 months in a row and then hitting December and having no idea as to what went on over the last 10 months. But if the new young owner, the rookie, the startup guy, does a P&L month one and then two, you know not only does he now know how to do it, he knows what it means. You know not only does he now know how to do it, he knows what it means. And by month five they're making adjustments all on their own, without my telling them or anybody else. They're just naturally becoming immersed in the business. That's why I really love monthly P&Ls for the startup. It shows the new business owner exactly what's going on. And a lot of franchisees, a lot of small business owners. They're really smart, they know stuff.

Dennis:

Andy, my business partner here at the Cape Cod Gutter Monkeys. He came from a corporate world, he was the CFO, he was vice president of finance, but he didn't know how to run a small business. And I said here's what I recommend, that we start out with these three statements. And he knew right. He goes wow, that's a great idea. Yeah, those are good ones. To start with, he doesn't need sales breakdown figures. We haven't sold anything yet. He was used to running the financial department for a $50 million a year company and now we're starting a company that hasn't sold a single widget yet.

Dennis:

So even with somebody like Andy, there's a learning curve, and even myself, so I've always been self-employed. But anytime you start a new business there's a learning curve there too. So, yeah, those first I'm going to say six months, maybe eight months, we did monthly P&Ls and then we didn't need to do them anymore. So I think it's important when you're starting out to act like a rookie, even if you're a veteran coming from another field, because there's so many little things that happen in business.

Dennis:

I remember Bruce got his MBA and I don't have an MBA, I don't have an advanced degree. And he said yeah, sure, I have an MBA, I just don't know how to start a business and I don't know how to run one. I know how to go into an existing company and function well amongst the people there, but it's something new. Listen, when you're starting a business and you are now marketing with your own money, there's a big difference than working for XYZ company and you're marketing with the boss's money. When it's your nickel that's going out, you're right in the check with your own money. There's a big difference.

Chris:

Yeah, it's like what is it an MBA? They'll tell you everything you need to know about dating, but they've never had a girlfriend. Yeah, and I know even here we've had meetings with our own franchisees. They'll come in and I think one time you actually sat down and you asked them the question how do you know if you're making any money or profits? What are your profits? What are you basing your profits on? And I came up with all different sort of things oh, what's in my checkbook? What's in this, what's in that? It was kind of interesting to hear it.

Dennis:

That was one where I started the meeting with a little round table. And what is the most important document in your arsenal right now? What is the most important financial document? And some of them a couple of them, I think said how much money's in the checkbook. Yeah, checkbook came up, it probably did. Another one said weekly payroll as a percentage of sales that week, which is very, very short sighted, and actually two people said that. I think one said it and the next one agreed.

Dennis:

You know, what I'd rather see like my steering wheel is my monthly and annual sales report. That's my daily steering wheel. My big picture roadmap would be my balance sheet, because that tells me the value of my company. But for day to day it's my monthly sales reports as compared to last year, this month and last month and next month, just because that monthly sales tells me how I'm doing in comparison to other months and I always want to see a little bit of growth. Everything in my arsenal, like my Excel sheets, it's all color coded too, so I can glance and it's color coded. I can say wow, last year we had 10 up months and two down months. Because it's color-coded, I can see the two down months right away every time.

Dennis:

So as you grow your platform and you grow your business financial statements, you'll naturally color-code them to however you want them. There's no right or wrong way. The only right way is what works for you. And as long as it's a GAAP, a generally accepted accounting principle, as long as it's done in that format, it's good for your accountant, it's good for your bank, it's good for almost all purposes. So yeah, the P&L that's going to tell me at the end of the year if I'm profitable and, if so, how profitable I am and what that does. That tells me a lot of information too.

Dennis:

So end of the year, I look at profitability. We do this all the time. We say, boy, we're going to take it on the chin, we're going to owe because we pay our quarterly taxes as a corporation and it looks like we didn't pay enough. So we're going to get hit hard on April 15th. And sometimes, like this year, we overplayed our hand last year and we overpaid a little bit and we got a lot of money back this year. But when you do your P&Ls by year two, three, four now you know this. So you know like, as you're coming into the end of the year.

Dennis:

Call it December 31st, the annual year is over, the fiscal year is over and I can put together a P&L fast, real fast, and I can look at my last four or five years and say hey guys, we're in good shape, we're getting money back on April 15th which is what I said this year, because there was some nice things that fell in our direction Some of the new trucks we purchased were actually fully deductible in a single year. So 2024 was great because we bought four trucks that year. They're fully deductible in a single year, so 2024 was great because we bought four trucks that year.

Chris:

They're fully deductible in a year.

Dennis:

Well, one of them was 14,500 GVW gross weight and so anything over 12,000 GVW was deductible in that year, that fiscal year. You bought it. It doesn't get amortized, it gets expensed, Wow. So that was 100,000 plus or minus expense that we didn't know was coming. And when I looked at the numbers and this is like January 3rd I said to the guys in the office we're in good shape, we're getting money back this year, so that allows me a little bit of freedom over the next three and a half months. You months from January 1st to April 15th, and actually we get our taxes in in February and we knew by end of February, early March, we're getting a lot of money back. And so we go OK, we're in good shape, we effectively don't have to worry about paying quarterlies in April and June because we're getting so much back in April and June, because we're getting so much back. So when you have a recurring profit loss statement after a while, you can just glance at it and know stuff.

Dennis:

I remember years ago when we lived in New Hampshire, I owned a roofing company good-sized roofing company and I walked in and Mark Secord, a lifelong friend and he was my accountant at the time. He owned an accounting firm in Littleton, new Hampshire, and he was waiting for me and it was like April 10th or something or April 5th, so his office was like a beehive of activity. And I walk in and he hands me my taxes and he says, hey, here you go and here's what you owe. And I glanced at it and I said, mark, did you account for my SEP deduction? And he goes oh geez, no, I forgot about that. He says, how did you know that? And I said well, because this was left blank and usually it's filled in, you know, and the number here looks a little too high anyway.

Dennis:

And somebody that was in the office said in what world does the local roofing contractor know as much as his accountant? Well, in my world it is, because I am a bit of an accountant. I happen to be a roofing contractor and I happen to drive a truck and kind of look like a roofer most of the time, but I'd done it so many times I could tell. At a glance I knew what I was expecting and the numbers were off a little bit and all I did was flip about three pages in and I could see that he forgot to allow for my SEP deduction and he just said come on back in tomorrow, we'll have it ready for you.

Chris:

He just said you know you don't have to make those payments this year ahead of time. That's going to save you cash flow and all that other stuff. It helps you out all over the place.

Dennis:

Yeah, it's a huge advantage and even when we have, like this year 2024, we had a really big growth year, but at the end of the year we had a little bit less in the company operating capital, but we bought four trucks.

Dennis:

We also added about 24 or 26 parking spaces. I mean, we grew a lot. So when you have a year like that that adds, first of all, four trucks and an added 26 parking spaces, that makes my balance sheet look good because I added to my balance sheet, but it makes my bank account look a little weaker, which, well, that's what happens when you buy four trucks, and so at a glance I don't worry that my operating capital account is lower than it normally is at the end of the year. I know why it's there Because we added more assets, but those are assets that are now producing revenue and those assets are all bought and paid for. So again, just understanding the P&L and all that is in the P&L, start doing a balance sheet right away, because as you grow, it makes it so much easier. And really, the final business financial statement we'll talk about today and then we're going to bring them all together, is the balance sheet.

Chris:

Yeah, we've had a whole podcast on balance sheets and IP and all that sort of thing.

Dennis:

Yeah, and we're not going to dive too deeply into that end of it. But a balance sheet. It balances the left is the same as the right. It's perfectly balanced. Balances the left is the same as the right. It's perfectly balanced. So your assets go on one side and your liabilities go on the other, and any difference between the two is either a net profit or a net loss. So on the asset side, assets are good, liabilities are bad, so to speak. On the asset side of things, I like to point out three types of assets that we deal with every day Current assets A current asset is cash, or cash in the current working capital fund for your business Accounts.

Dennis:

Receivable that's money that is owed to you. You've already completed the job. The customer hasn't paid you yet. That's an asset. You just haven't picked it up yet. Prepaid expenses If you've purchased inventory but you haven't took delivery on it, well, that's an asset. So it's already bought and paid for any type of prepaid expenses. One of the examples I use is quarterly taxes. They're all prepaid. Well, this year I'm getting two of those four quarters back. That's an asset, it's prepaid. So that's why I consider prepaid taxes as an asset, because even if you owe the taxes now. You don't because it's prepaid, so you pay your quarterly taxes At the end of the year. That's an asset. So current assets.

Chris:

That one takes a little bit for my mind to wrap around that one, but okay, prepaid taxes. It's an asset Taxes are easier to understand, I guess.

Dennis:

If I prepay my taxes and you don't, at the end of the year let's say so somewhere around April 15th you're going to owe, let's say, $160,000 in corporate taxes. I'm not going to owe any because I prepaid them last year. So one of those is a good thing, right, okay. So that is an asset. And in the case of my example this year, we overpaid last year on the books. So when we turned the corner into the new year we knew we were getting a refund. That's an asset. So current assets Another current asset is inventory.

Dennis:

I don't count it as that in my world. My asset, the main component of my asset, is aluminum products. I have $200,000 in aluminum products in my warehouse. They're not going bad and in fact Andy overpurchased a little bit a couple of months ago, before there was talks on tariffs, just in the event that aluminum prices did creep up a little bit the two main products that we use in aluminum. He bought another probably 5,000 pounds of each. So he ordered an extra five tons of aluminum just in case, and all we do is warehouse it. Aluminum doesn't go bad. We're going to use that in the next six, seven months anyway. No big deal. So I put my inventory under fixed assets a building, the building we're sitting in, trucks, company trucks those are fixed assets Inventory. Because my inventory is large and it doesn't need to turn over that fast. I call it a fixed assets Tools and equipment, office furniture, computers, desks, all those things. They're fixed assets.

Dennis:

And the other component of the asset column is intellectual property and that's that very subjective one that we talk about all the time. And you take the total of all your assets and you add it up and it adds up to a big number. And then you look at your liabilities. You've got long-term debt, mortgages, vehicle loans, any recurring payment that is more than 12 months out. I've heard certain accountants tell me, you know, if you have your truck on a five-year payment, once it gets under 12 months you only have 10 months left. Sometimes they don't call that a long-term debt and I think it's acceptable either way. But you take off your long-term debt and if you don't have any long-term debt, well then you have a zero in that column. Current liabilities those are financial obligations that are due between 30 days and a year. It's your recurring bills and if you pay your bills every month you really don't count that as debt. None of them are over 30 days. They get paid every month.

Dennis:

So your balance sheet, that's where you take your assets minus your liabilities, and what you get is either a net profit or net loss. In this case, it's your net worth, chris. I think that's the most important one, because sales are great, but sales don't indicate profitability. The amount of revenue you have in your company checking and savings accounts, the amount of capital that you have, that's important too. Profitability is good. But your net worth, your balance sheet, your number, that's what your company's worth. Some of it might be subjective, but the truth is this is the big one. The balance sheet, this is what your company's worth after all these years of working hard two years, three years, four years and you can watch that number grow If you stay on top of that. You're going to look at your sales numbers and they're growing every year. And you're going to look at your balance sheet numbers and the bottom line on the balance sheet is your value and that number is growing every year. And as you watch these two numbers grow, and if you do this monthly and you do this annually, you're going to have a really good grip on profitability, on revenue streams, you're going to have a great look at your annual and your monthly sales figures. But, more importantly, you're going to be watching that balance sheet every year and you're going to say wow, this year we bought two more trucks and we still added a little bit to our capital reserve account.

Dennis:

Question I'm asked often is what kind of a salary do you take? I take a small salary, so does Andy. We don't take a big salary and for the first seven, eight years of our current business life we rarely, if ever, took a bonus. All the money went back to the company because we looked and we looked at sales. Let's say, year one we did 300 and year two we did 600. We just doubled our sales. My sales went up 100%. That means my company's sales report just showed 100% growth.

Dennis:

And let's say, the next year we go to 900 grand. So we went from three to six to 900 grand. So year three we grew 50% and then we went to 1.2, and that's a 33% growth. So our growth in sales was 100%, 50%, 33%. Then we had another growth, 33%, then a 25%, then a 20%. So even though we're growing about the same $300,000 or $400,000 a year, we're growing steady and this is just an example. This is in our exact numbers, but we're growing at a rate. You know, by year five we're growing at a rate of about 25 to 33%.

Dennis:

We were also having good years on Wall Street during that time period. We were having some 20% years. But typically Wall Street will produce about 10% to 13% growth on average every year, usually about 13% in recent years. So I got to ask myself as a business owner, I take a salary that I can more than live with. I don't have kids anymore. They're all grown. They got kids of their own. I don't have car payments or mortgages. My life is boring, my life is easy. So, chris, if I take a bigger salary, what am I going to do with the money that I don't need that I take in salary? Well, hopefully, if you don't spend it on a painting.

Dennis:

I'm not going to buy anything stupid or a boat or anything like that, right?

Chris:

What am I going to do? You're probably going to put invested in the stock market.

Dennis:

I'm going to invest in the stock market at 13%. Right, but why would I take a bigger salary and invest it in the stock market at 13% when my own company is still growing at a rate of 25% to 33%?

Chris:

Yeah.

Dennis:

So when you take your sales report and your balance sheet report and you line them up and I'm just talking about sales after five, six years is still growing at 33%, and six, seven, eight years growing at 25 and 20% steadily, my sales are growing.

Dennis:

I would rather have put my money in stock in my own company as opposed to Wall Street. Invest in yourself, right, right, even though we were having good years I mean, 2022 was a bit of a flat year or down year, but other than that, we've really been rocking it down on Wall Street. But then, alongside of it, I'm looking at my business value, growth, the value of my balance sheet, and back in the beginning, year one, I didn't have any business value. I owned a truck and that's it. I didn't have sales. But as I start looking at my business value and I just take the valuation off the balance sheet and it looks like the first five years, zero, 50%, 33%, 144%, 27% that's huge growth, especially that 144% year. And then year seven, we grew another 140%, again, largely because we moved into a new facility, we bought a new building.

Chris:

Yeah, this is fascinating to me because I'm looking at the sales growth over here. So that year you had 25% sales growth but you built a new building, moved in there. That was a big asset. You added it's a huge asset and it jumped to 140%.

Dennis:

Where can you earn 140% on your money?

Chris:

In your own company you can and this is another thing. That's hard when we're talking to franchisees and why I'm in my garage now, I'm comfortable here, leave me alone why we're so intent on saying, well, think about some real estate. Think about this, because this is where your business value, that you're building real wealth through business ownership shows up. Is in this column, here at 140% this year, because you built that building. You went ahead and invested that money.

Dennis:

And we also were able to do that. We moved into this new facility about three years ago and this building was built out of cash flow. We bought a small bay over in Sandwich here on the Cape, the next town over year two Year one we started this company out of my garage. Year two we bought a small bay, we paid cash for it it was about a buck and a quarter and about two years later we outgrew it and we bought a bigger bay over here in the industrial park in Mashpee, where we are now. We used the profit that. We used the value that we had in the first building plus the profit, and that gave us a big shot in the arm. So we took the remainder out of cashflow. We bought the second building. We had that building about three years, maybe four, and we were busting out of the seams. But also that building took a big jump in value because post-COVID real estate skyrocketed and so when we bought this building we had more equity in that other building. We're able to turn in and buy this one and with the equity that we had in the other building plus we already own the land that it's on we didn't need a whole lot of money to complete the project and we're able to do it out of cashflow without taking out a loan. Part of the reason is we kept taking small salaries and reinvesting in this company. That was about to have 140% growth year. We didn't know it at the time, but that's what we've done Now.

Dennis:

At the end of year 10, at the end of year 10, in our current business life my sales growth only showed 11% and my business value growth was also starting to level off. We only had an 11% growth year. That was two years ago. So now, chris, I ask the question what do we do with any additional revenue? Do the owners take an owner's bonus and invest it in Wall Street? Now it's a roll of the dice, because it appears that my sales growth and my business value growth is beginning to level off Again. It's not a bad thing. No, you're an established company now.

Dennis:

Right, but also we're bigger, yeah. So you know, if my business is worth a million dollars and it grows by a half a million, it grew 50%. Yeah. If my business is worth 10 million and it grew a half a million, it grew at 5%. Yeah, it still grew at the same dollar amount, but it's a much smaller percentage.

Dennis:

So this is why I like to see my small business startup clients and my franchisees and all people that I work with to really wrap their brains around this type of business financial statements, because it makes you so much smarter. You feel like you're on financial steroids when you're talking with your bank, when you're talking with accountants, and I got a call from a partner in a potential franchise. So the franchisee came in for a meeting a week ago. He had his accountant give me a call yesterday and his accountant you might say he grilled me hard for 30 minutes and honestly, it was just a casual conversation because I knew everything he was going to ask me. Before he asked me, I already had it up on my computer screen and every single question he asked me I had the proper answer for him in like a minute and so, once again, having a great knowledge of your own company is such a powerful tool. That's why I love these three pieces of financial data. It's how I live my life.

Chris:

Yeah, it is kind of fascinating. This is not my background. I have an engineering background, so it's kind of introduced a little bit. When we were originally talking about joining AGM, of course a lot of this stuff came up, but then, as we've kind of been talking to the franchisees and now talking to people who are interested in buying a franchise and people who are interested in potentially AGM, all this is playing out right in front of me and it's really amazing because we've been going through it as well on the podcast, so I'm just seeing this playing out in real life here. It's pretty amazing to watch.

Dennis:

Everything we do on the podcast for the most part is in theory. Yeah, but it's not that far removed from reality.

Chris:

No, and that's what I'm seeing now. It's just every time we've done a podcast, a week later we're talking to somebody or somebody's coming in asking questions and it's like, oh well, we just covered that on the podcast. So it's almost like I'm getting a business degree.

Dennis:

You know what? I see people on television I'll see like a couple come on the Shark Tank or something and they say we don't have a business degree. But we've been watching the Shark Tank for 13 years. I hear this all the time. I don't watch that many episodes anymore, they're just too many of them, but I like to catch the new one. I think on Friday night they have it and it's really great to see that because people can learn a lot. They can learn a lot just by osmosis, being in the same room in the same environment.

Dennis:

And, as I said, a lot of what we do here on the podcast is theory. But beginning Monday morning to Saturday afternoon, football teams are talking theory. There's no offensive line closing in on the quarterback. Quarterback wears red, You're not allowed to hit him. So from Monday to Saturday it's all theory. But if you play it out in Bill Belichick Tom Brady language, that theory converts very nicely. On Sunday afternoon, Not every play is going to get a first down. You're not going to score every single time, but you certainly increase the odds by what you do between Monday morning and Saturday afternoon.

Chris:

Yeah, that's a great analogy. Might be a good way to go out here. We're reaching the end of our time limit, so you have any final thoughts for us?

Dennis:

Gosh, chris, I don't Again. What an enjoyable topic. I hope it was helpful for people out there.

Chris:

And yeah, if you're a small business person or you know someone's in small business, you know, refer this podcast to them, because it's got a lot of great information. And I'm telling you, as we go through these podcasts and we talk about these things, I'm seeing them play out in real time here. It's been a very compressed time since I've been here. I've been here two years. It seems like a lifetime, but we've gone through a lot of different things.

Dennis:

So many moving franchisees.

Chris:

We have people coming in interested in the company, so there's a lot of stuff going on. I'm seeing this play out in real time and I can tell you it's theory and you know, during the podcast. But we do have our Sunday afternoons here where we're actually making use of this stuff.

Dennis:

So so, chris, thanks again for having me, and no monkeys were harmed in the making of this podcast. All right, we'll see you guys next time.

Chris:

Thank you for tuning in to monkey business radio. If you enjoyed today's episode, please make sure to subscribe, like and follow us wherever you get your podcasts. It really helps us reach more aspiring entrepreneurs like you, and if you've got a question or topic you'd like us to cover, leave a comment or reach out to us on social media. We'd love to hear your thoughts and keep the conversation going. Don't forget to leave us a five-star review if you found the episode valuable, and make sure to share it with anyone who might benefit from our tips and stories. We'll see you next time. This podcast is produced by American Gutter Monkeys LLC. Build real wealth through business ownership. For details, visit us at AmericanGutterMonkeyscom.