Subscribe
Share
Share
Embed
Confessions of a Shop Owner is hosted by Mike Allen, a third-generation shop owner, perpetual pot-stirrer, and brutally honest opinion sharer. In this weekly podcast, Mike shares his missteps so you don’t have to repeat them. Along the way, he chats with other industry personalities who’ve messed up, too, pulling back the curtain on the realities of running an independent auto repair shop. But this podcast isn’t just about Mike’s journey. It’s about confronting the divisive and questionable tactics many shop owners and managers use. Mike is here to stir the pot and address the painful truths while offering a way forward. Together, we’ll tackle the frustrations, shake things up, and help create a better future for the auto repair industry.
Mike Allen [00:00:02]:
Oh, good morning from sunny Myrtle Beach, South Carolina, where it is brisk, but at least it's not raining anymore. How are you doing?
Matt Lofton [00:00:10]:
I'm doing fantastic, Mike. I'm just glad to see you. Can you see what's in the background, by the way?
Mike Allen [00:00:19]:
I see your bronze trophy from, uh, from the go-karting. I'm super proud of you. Wait, no, you just zoomed in. There it is. Oh, you've learned out how to use the hand signals for Nice. Oh yeah, fancy. Well, you know, if you put the right filters on your camera, you might be able to make it look gold. I'll send you a picture of mine and you can sample to get the filter right.
Matt Lofton [00:00:40]:
I almost typed my name in today for our meeting as, as Señor Trace.
Mike Allen [00:00:44]:
I'll tell you, I entered an adult go-kart league competition at my local track. And, um, the first several weeks of competition was for points. And then, um, they've got different groups that are all running. And then, uh, this week was you line up on the grid, uh, according to points. Uh, it was a rolling start for the first time because it had been a standing start for every other week. And the top 3 finishers in each group moved on to the final next week. And so I was tied for first place in points in my group, and, uh, the other guy had the tiebreaker, so I started second in a rolling start. And rolling start's way different than a starting, uh, standing start.
Mike Allen [00:01:35]:
And it is— I 100% did not know what I was in for. And, uh, it was a bunch of good old boys, and they just ran me right the F over. Uh, and I did not— I did not qualify for the final. I, I struggled to finish in 6th. It was pretty ugly. And humbling. There's different types of racing, and we've established that that is not one of the types that I have enough practice at yet.
Matt Lofton [00:02:00]:
So yeah, you'll get there anyway.
Mike Allen [00:02:03]:
Yeah, well, you know, as long as I'm willing to dump enough stupid money into it on toy karts that are governed heavily.
Matt Lofton [00:02:09]:
Anyway, well, you know, a $100 bill goes a long way to take that governor off.
Mike Allen [00:02:14]:
Yeah, yeah. Suddenly I've got 50% more horsepower than everybody else on the track. Yeah.
Matt Lofton [00:02:20]:
High school kid, $100. And all of a sudden, all of a sudden you're a second faster than everybody.
Mike Allen [00:02:27]:
All right, so, um, today, uh, obviously I'm, I'm not coming to you from my home office like normal. Uh, family and I are out celebrating spring break, so I've got, uh, just the AirPods and the laptop. We'll see how that quality goes. We're going to leave it up to producer extraordinaire to filter out all the background noise. Uh, so if you have any bad noise, uh, on this episode, dear listener, send hate mail to, uh, Braxton. That'd be great. ConfessionsOfAShopOwner@gmail is his, and, uh, he'll be sure to get all the hate mail. Um, but we— I had some conversations, uh, about partnership and, uh, some of the pitfalls of partnership and that kind of thing while we were at the Elite Conference, um, earlier this year, and those episodes have been released and they've gotten a lot of feedback.
Mike Allen [00:03:17]:
and, um, I felt like it was reasonable to kind of stretch that conversation out a little bit from a coaching perspective because one of the things that was really important to me when I had a partnership was the advice and, um, and, and help that I got from my coach at Elite, Jim Murphy, at the time. Um, and so I just kind of want to go through that process again with you as if we were starting anew. I want to talk about the different types of partnership that we see out there. Why a partnership agreement is important and what are the kind of the pieces of a partnership agreement that should be considered, why that's the time to have the conversation, right? But just to recap my take on it, I think like, look, most businesses fail, right? So it's safe to say that most partnerships fail as well. I'm sure that there are a lot of partnerships out there that have been wonderfully successful. But on the whole, partnership is a great way to turn a close working relationship or a friendship into animosity over a long enough period of time and a lot of stress and, and that kind of thing. So I'm not a huge believer in partnership, but at the same time, I can, I can understand because I've lived it that going out on your own is scary and having somebody alongside you to do that with, it's like a safety blanket, man. It's, it's not nearly as scary if you have somebody that you can talk to every night.
Mike Allen [00:04:53]:
It's like, it's like a marriage in a very high degree, right? And, you know, sometimes you have one person has all the skill set and one person has the money, right? And so that makes a partnership. And the dynamics, the power dynamics in that type of partnership, because there are a lot of them out there, can get really tricky as well. So have you had partnership experience in your life, or has it always been just family business, or what's your experience been?
Matt Lofton [00:05:25]:
So I had, I had two partnership LLCs that we created for some pretty much startup concept to sales. So we had an engineer that worked with us at the family business, and we created some side, side businesses to create some products. And, you know, the concept was we would get proof of concept on the design and then sell the design to, to a larger company. So we were able to do that successfully to completion with one, with started with one idea and then the other one died on the vine. But, you know, my take on partnerships— and then I've seen Dad go through different partnerships for things that he did in the past, mostly just trying to help people out, you know, they would enter. So I've seen good and bad side of it. My personal belief, along with my experience in partnerships, is a large reason that a lot of partnerships fail is just like you said, people go into it with either friends or family, and it's a, it's a trust agreement with a handshake. And there's not a lot of real conversation that happens prior to about all of the things.
Matt Lofton [00:06:40]:
And like you said, it's, it really is a lot more like a marriage than anything else. And, you know, successful marriages are built off of good communication on the front end and alignment. Right? So if you can like somebody, if you meet them and you guys can get along, you know, from a personality standpoint, but if, if your goals and visions for your life aren't aligned with each other, you know, the likelihood of success for the partnership or the marriage is going to be lower than 50%, right? If I'm a career-driven individual and I got empire building on my mind and you want to live in a single wide and you're happy living in a single wide, nothing wrong with either one of those paths, but they don't intersect with each other very well. And so, you know, same, same concept on the professional partnership. And that's, you know, I think a lot of times, like you said, people have a, they have a common dream, but they have a different idea about— they're not aligned with how that dream is going to come to fruition. And I think a lot of times the dream is— it looks clear and the same, But if you really sat down and fleshed out the details, they're way apart from what they, you know, I have a dream of owning a shop. You have a dream of owning a shop. You're a good service advisor.
Matt Lofton [00:07:54]:
I'm a good technician. We get together, we start a shop, right? But then when it gets into the, the actual nitty-gritty of how the shop is going to be run and how everything is supposed to go, there's a, there's a big variance there and who's going to put in the work and what that work is going to look like and That's, you know, typically where we see friction and arguments that pop up. And then there's nobody wants to have the difficult conversations on the front end of what happens when we have those arguments, right?
Mike Allen [00:08:27]:
I'm here for it, man, because the time to have the hard conversation is when everybody's getting along and when everybody's happy and excited. Because like you said, so often it's complementary skills or one has the skill, one has the money or whatever and they're fired up and this is going to be awesome. We're going to change our lives. Let's go, man. It's like a high five and a handshake and a beer and let's get to work, right? And this is not just the automotive space. This is all across industries. I think it's probably more prevalent in the trades, but I mean, I know people in lots of different fields that have made the mistake of going into partnerships without a clear understanding of the nature of the partnership and, and how it's laid out. And, you know, it's one thing if the business fails to launch or it just kind of dies on the vine like you talked about, but what happens if it turns into a multi-million dollar business and there's no clearly defined partnership agreement, there's no clearly defined structure of, uh, you know, shareholder, uh, equity? You know, I mean, that's And then, and then when you're talking about millions of dollars, then the conversation's way more awkward, right? Um, so, you know, I think you've got— if you're going into business, if you're a technician or a service advisor, we've got some listeners who are from outside of the sector who are just tired of the white-collar life and, you know, the middle management BS and they just wanted to go out and buy a trade business.
Mike Allen [00:10:00]:
We've got some of those listeners as well. If you're looking to take on a partner to grow that business, you have to have a business operations agreement, a partnership agreement, a buy-sell agreement, all these things in place. Spend the money with an attorney now. And I know that at startup, money is tight and every penny counts. Do not skimp on that.
Matt Lofton [00:10:24]:
100%. And, and both sides need an attorney, right? You can't share an attorney because an attorney has to represent an individual, right? He can't represent, you know, both parties. And so that's, that's the other thing that I see is usually one party is the one that gets the attorney and sets up the partnership agreement, and not by anything deep, no malicious intent. Yeah, no malicious intent, but the, the partnership agreement becomes one-sided. Right? So I was fortunate enough that our, our local family attorney just happened to be in our little small town, just happened to be a phenomenal, uh, you know, a phenomenal attorney. And when I went to go meet with him about our partnership, uh, idea, he sat me down and he said— he asked the other individual to leave the room for a second. He said, Matt, let's have a one-on-one conversation. Let's just see where we're at, and then we'll go from there.
Matt Lofton [00:11:16]:
And he said, listen, I I need to know who I'm representing here. Am I representing you or am I representing him? All right. And he said, if I'm representing— he said, I can't be both. And he said, my recommendation is if I'm representing you, he gets his own representation. Right. And so we were able to start that. And so the structure that he laid out for us is what we kind of carried forward. And it worked really well.
Matt Lofton [00:11:39]:
And the second partnership that we had, there were some issues. With it that we had to dissolve the business. Like I said, it, it died on the vine, but it died on the vine because things were not done, uh, per the agreement, and we were able to have an easy break from it, like you talked about. So what he— the structure that he laid out for us is he said, hey, I'm going to represent you, you need to go get your attorney to represent you, uh, we're going to sit in a room together, um, as the group, and we're going to play what if. All right. And we sat down and went through every single scenario of the business being successful, of things stalling out in the business, how distributions are going to happen, what the buyout, you know, what happens if one partner doesn't, you know, doesn't meet the obligation, who owns the assets inside of the business. If it is successful, what does the distribution look like, you know, at the time of exit? All of those things, you you know, were planned out. And then he would take that to his attorney and do the same thing.
Matt Lofton [00:12:41]:
And then we, we agreed on who had the final red line of, you know, of the agreement.
Mike Allen [00:12:47]:
Yeah. So, and look, if you're listening to this and you're thinking about going into a partnership, uh, and you're concerned about hurting feelings in this my attorney and your attorney back and forth, if you're concerned about hurting feelings at this point you don't need to be in business together anyway, because this is the easiest that your interpersonal conversations will be, is before you're even in business together. So, uh, if you and your partner getting separate attorneys and having back and forth conversations about that, that type of situation is uncomfortable, then maybe you need to be thinking about whether or not you should be in business with this person at all anyway. Um, so just putting that out there. Before we dig too deep in, I do want to talk about the different types of partnerships, at least the different types of division of ownership that I've seen. You know, the most common handshake agreement is, you know, 50/50. And, you know, what 50/50 means when it's not clearly defined is a nightmare. But it's, you know, we split all the profits.
Mike Allen [00:13:53]:
Does that mean that everybody put the exact same amount of money in? Does that mean that everybody puts the exact same amount of time? Or skill in? I don't know, especially if you don't have a clearly defined agreement. And then, you know, like you said, who owns the assets of the company if the company goes defunct? Who owns the debts of the company? Do both of you sign on all the notes? You know, that kind of thing. So of the partnership methodologies out there, the one that I think is the most wrought with, you know, possible disaster is 50/50. Um, so, uh, I get that out there. 50/50, I think, is, is a mistake waiting to happen. Um, yeah, what I had— go ahead.
Matt Lofton [00:14:38]:
No, I mean, my thing is, I think you're 100% right. I mean, there's, there's no decision out there that can be a 50/50 decision, because if there's a 50/50 decision and we disagree on it, there's no outcome to the decision. Somebody has to be You know, somebody has to have 51% to be the decision maker because some decisions need a decision even if there's disagreement in it. Right. And, and then the other thing that I think that, that you brought up there. So, I mean, the assets of things, again, I mean, how many times have we heard, hey, we got a handshake partnership agreement. One of the guys is the technician. He brings all that.
Matt Lofton [00:15:17]:
He brings all his equipment. In and then leaves in the middle of the night with all of the stuff, right? So if we're going to have a 50/50 partnership, then maybe your, you know, maybe your assets that you bring to the table are your contribution, but that equipment is now owned by the entity and not you as the individual. Because I'm bringing cash to the table, you're bringing equipment to the table, and you can't leave at 2 o'clock in the morning with all the business assets you know, that it takes to produce a profit. And just because you get upset about something, right?
Mike Allen [00:15:49]:
But we hear it all the time, happens constantly, right? And it's like, look, if you're not willing to take all your tools and equipment that you've accumulated and make it business assets because you don't trust that that guy's going to be your partner, and he's— maybe he's bringing $100 grand of operating cash into the business as business assets and you're bringing $100,000 worth of tools, it's all the company's now, right? That's— and if you're not comfortable with that, maybe you don't need to be a partner with this guy, right, or gal, right? So these are real things to talk about. Now what I had, um, and at the advice of my Elite Coach at the time was 51/49. And before we went into— now this was, uh, He's a store manager for me. You know, he said, I'm never going to leave the business unless it's to open my own business. And I obviously didn't want that to happen. We were— I was looking to get my second location at the time, and I was like, hey, man, why don't you stay and run store one and you put in some seed cash and we'll go open up store number two. And we'll do 51-49 on it. And, you know, and but understand that that means that ultimately final word and decision falls on the 51 and 51 is the boss.
Mike Allen [00:17:18]:
Now we're sharing, we're sharing profits almost exactly even, right? There's a 2% variance, right? So when there's distributions, you know, if we take $100 out of the company, 49 of it is yours, right? 51 of it is mine. So, uh, there's a very nearly equitable distribution of, uh, the spoils, right? Um, but it is not in any way equal in the distribution of authority. Uh, so there's a very clear hierarchy, and I think that that is a healthier way to go about it. Um, and still, even with that and with an ironclad partnership agreement and a very clear understanding. We had all the uncomfortable conversations in advance. Um, still, after, you know, 5 years, we just started to rub, rub on each other and had, you know, some friction. And, but it allowed us to, you know, get divorced with minimal, uh, with minimal salt, you know. So yeah, uh, I think it worked.
Mike Allen [00:18:17]:
I think it worked okay. And, um, it was a safety blanket for me because I was scared to go out on my own. right? Uh, and it helped him get his feet under him and learn how to operate a business a little bit. And now he has a successful business, uh, after we, uh, split paths. And so it, it ended up being good for both of us. Um, but I think the intentionality with which we went about it and the clear communication that was involved early on helped establish that. Um, So I believe that if you're going to go into partnership, that's one of the best ways that you can do it. The other thing that I've seen a lot of guys do who are, you know, trying to build large, larger operations with multiple locations is they'll have a smaller percentage minority partner who is the operating manager, owner of that location.
Mike Allen [00:19:13]:
So there might be somebody that has 10, 15, 20 stores, and each store has a 10% owner that's a separate 10% owner, and they run that store, and they, they're there open to close, and they have that ownership and that buy-in. Um, I'm fascinated by that concept and that methodology, but I'm not familiar with it because I don't firsthand know anyone like intimately enough that we can have these conversations that's done it that way. Do you have any exposure to that, Matt?
Matt Lofton [00:19:43]:
So I mean, the only exposure that I would have to that would be just through the private equity world. Because I mean, that is essentially how private equity operates in a lot of cases, whether that's an internal team member that has some sort of equity stake in the overall entity as a whole. And so the, the family business that we had that we sold out to private equity, the individual that they put in charge of running that project He was the operations manager for that arm of the private equity company, and he had an equity stake in each one of the, the companies that were owned in that side of the— in, in that portfolio of the fund. Um, so, and it was a small percentage, but it was a big enough of a percentage that it was worth it for him to manage it well when it exited, uh, because, you know, his return on, on on his time was considerably more than what his salary was to, to run it at that point in time.
Mike Allen [00:20:40]:
So small size, very big pie.
Matt Lofton [00:20:42]:
Yeah, yeah, that's right. And so, um, I've seen it that way, and I do know of people that, um, in our industry that do exactly, you know, exactly like you said, that kind of run that same model, um, of, of giving— whether, whether they're giving a profit share type agreement you know, to a store manager, or they've actually cut them in as part of the, the ownership structure. I've seen it both ways.
Mike Allen [00:21:09]:
Yeah, I think it would be interesting to have an episode in the future talking about, uh, kind of non-traditional, uh, compensation for, you know, really important employees. Uh, I don't want to say golden handcuffs because it implies something negative almost, but ways to, you know, was it phantom stock or profit share or how other ways that people have found to, uh, really highly reward key employees for high performance and to keep them invested with an ownership mentality in the business, maybe without actually giving shares of the business, you know.
Matt Lofton [00:21:51]:
Yeah.
Mike Allen [00:21:53]:
I think— go ahead.
Matt Lofton [00:21:55]:
I mean, what I was going to say is I think that those performance plans can work very well if you have the right type of employee with an owner mindset. I think if you give that type of a plan to an employee that doesn't understand the concepts of the P&L and net profit very well, it's just a bonus and they don't really understand how they're getting that money and therefore it doesn't really have the impact that you would intend to have on it. But I mean, if you look at it, almost all of your corporate-run food chains work that way to some extent, right? So your store manager runs the P&L of the store and they meet with corporate, you know, on a monthly basis and have to go over the, you areas on the P&L, and they get paid off— they get some sort of a, a commission off of the net profit of the store, or in some cases the gross profit. But even at like a Pizza Hut level, you know, you know, down to that. But certainly once you get into like Applebee's and Ruby Tuesdays and those kind of chain stores, um, they, they typically run, uh, run that type of model. And you know, that was one of the other things that I wanted to say. There's a lot of other industries that make partnerships work very successfully. I just think they come into the partnership agreements in a different way, right? You know, they're, they're more— the partnerships are more white-collar and strategic than they are, you know, handshake, friend or family.
Matt Lofton [00:23:29]:
And I think that's the biggest difference in our industry that we see is we come into this with a lot of, you know, naivety. Is that the word?
Mike Allen [00:23:37]:
Um, yeah, you know, Trust, trust, and faith.
Matt Lofton [00:23:41]:
There's a lot of trust, and we have a lot of good intentions on the front end, and, you know, you know, we, you know, we're going to do the handshake and, you know, the blood oath, and everything's going to be fine. And it's— but there's not a lot of strategy put into what the partnership is. But I think partnerships can definitely work. I don't think that there's, uh, necessarily a a 100% reason to always stay away from it. I think family partnerships are something that should definitely be, be met with some level of caution because that's always—
Mike Allen [00:24:18]:
not only do you destroy a business, you also destroy a family, make Christmas awkward forever.
Matt Lofton [00:24:23]:
That's right.
Mike Allen [00:24:25]:
You know, I do want to back up real quick. You mentioned that there's not any point in giving one of those types of plans or small equity shares to a key employee if they don't understand how it's structured. They don't know how to read a P&L and a balance sheet. And I think that is really important and really often missed. And not everyone is a natural teacher, right? So just because you understand how to read your financials and what, you know, knobs to turn to make the numbers move in different directions and that kind of thing, thing doesn't mean that you can impart that knowledge on someone else. One of the things that I've done, uh, to good effect is I sent the guy that we were talking about before, who was a manager who became my partner for 5 years, uh, and now my director of operations. I've also sent them, and I'm thinking about sending another one, uh, in 2 months. You've got, uh, another one coming up in Charlotte, North Carolina.
Mike Allen [00:25:22]:
It's the Elite Fly with the Eagles program, um, and it's 3 days, but it's like a complete shop operations crash course boot camp, right? It's— now I know they've got financials, they've got marketing, they've got hiring and recruiting, they've got benefits, they've got sales, they've got everything in that, right?
Matt Lofton [00:25:40]:
Yeah. And so what we've really done, so we've kind of revamped it over the last 2 years. Um, so even, even Steven that's been there before, it would be completely different, unrecognizable if he came to the one in Charlotte. Um, We just hosted one in Los Angeles last month in February, and it was the same group that we hosted to last year, automotive group. They requested that we come back out again. I would say probably 50% of the, of the people in attendance there were recurring from the previous year, revisiting with us. And, and the feedback that we got was they thought they were going to come and get the same thing that they got last year, and they were just happy to kind of get revitalized and pepped up and all that kind of stuff. They were like, man, this was completely different.
Matt Lofton [00:26:23]:
And so the really the outline that we have, you know, that we've created now, we tried to, it used to be so much information that it was hard to come back and be actionable with it because you just got, you got a small sample size of so much and it was all really good, but it was really difficult to come back and say, I'm gonna do this because I learned this. So, What we did was day 2 of Eagles is now we do a complete deep dive into the financials and it is 8 hours of the financials. So we're, we're going, we're doing workshops on the P&L. We're doing a breakeven workshop where you take your P&L and we sit down and calculate your breakeven in the class. We determine, you know, we take that information and figure out what your labor pricing strategy should be. And, you know, determine, you know, what your effective labor rate target should be, what your door rate target should be. We spend a lot of time, you know, breaking down the different benchmarks inside of the P&L, much like we've done on the show before. And then we do the same thing with the balance sheet and try to, try to put some time on the balance sheet and then give some, some simple KPI structures that they can follow when they go back that try to help them learn the business math without it being so, you know, so complicated that they feel like they need a CPA, you know, license to be able to get it done.
Matt Lofton [00:27:50]:
So just some quick rules of thumb, you know, that they can, they can judge the health of the business in different areas. And then day 3 is operational excellence, where we spend some time going over what the core processes of the business should be. How do you write a process? After you write a process, what do you do with it? How do you implement it with the team? And so we do some role plays, you know, where we're going to ask— we do a workshop where we ask the team to build out an SOP based off the structure that we've provided, and then we role play the implementation of that. And it's, it really is a, it's an incredible 3-day course with a tremendous amount of take-home value.
Mike Allen [00:28:34]:
Okay, let me put in a little bit of shameless plug here. It's May 14th through 16th in Charlotte. It's the Fly with the Eagles boot camp. If you go to eliteworldwide.com/events, you can register there. And if you use Confessions300 as a coupon code, they'll take $300 off the registration price, which is a killer good deal. So Confessions300, it's elite, elite worldwide.com/events and use code Confessions300 and save a bunch of money. I'm— I feel like I'm definitely gonna, uh, send Stephen, if not, uh, Stephen plus one, uh, to that. So I wish I could go, but I've got, uh, another event I've got to go to in Virginia immediately after that, and Amanda would kill me if I was gone for 5 straight days yet again.
Mike Allen [00:29:27]:
Yeah, so, um, All right, so I want to dig into what a partnership agreement looks like, you know, what some of the key features of a solid partnership agreement might be, and what, you know, what are some of the considerations. You said that you sat down with your attorney and you went through all the what-if scenarios. That is super important to go through all the what-ifs. And so You know, just for example, part of my partnership agreement was what if one of us dies, right? I don't want to be in business with his grieving widow, and he doesn't want to be in business with my grieving widow if that happens. So what happens to the other person's shares if one of us dies, right? And there are multiple ways to go about that, and that can be discussed. You should discuss that with your business coach. You should discuss that with your attorney. If you don't have a business coach, obviously you should call Elite.
Mike Allen [00:30:26]:
What happens if they get a divorce and he loses assets, or your business partner loses assets to their spouse in the divorce? How does that affect your business potentially? You know, one of the things that was part of our partnership agreement was that our wives signed the partnership agreement waiving all right to any business assets. You know, but what happens if we're single when we start the partnership and then we get married in the middle of the partnership and then it falls apart, right? So you have to consider all of those things, and you need to have the answer to those what-ifs written out in the partnership agreement that everybody agrees to. Um, so those are just a few of the scenarios, and you're 100% right.
Matt Lofton [00:31:14]:
So we played that what-if on 3 different visits, and I would say we probably had 20 hours wrapped up between those three, you know, conversations and then the subsequent conversations we had to have after, you know, after those meetings to come up with the answers. And he gave us a bunch of— he gave us survey questionnaires, right? And we had to fill out the survey questionnaires of, you know, how do you see this and how do you see this? And then we would bring it in. So it was essentially an alignment survey, you know, that he had for— here's a scenario, how do you you know, what is your opinion on this scenario, right? And then, you know, the partner would write out his idea of how that could go, and I would write out mine. And then we had to sit there and talk about it, you know, when we got to the meeting. And he would, he would advise me, and he would advise him to get advice from his attorney on ramifications of that for him on his side of the equation. Um, and, and again, you'll be surprised how much some of those weird what-ifs happen. I mean, the same, same concept of having an employee and all the weird stories that we could tell having employees over time, you know, why they end up exiting the company. You know, there's just, you know, anytime people are involved and more than one involved, anything is possible.
Matt Lofton [00:32:32]:
And like you said, nobody thinks about somebody getting hit by a bus or a plane crash, or, you know, um, like you said, two single people getting together and then they both end up getting married. Now the spouses are intermingled in it, you know, because legally they're 50/50 on their end of things and that wasn't defined in the agreement and so on and so forth.
Mike Allen [00:33:56]:
All right, so much warmer in here. My tootsies were freezing. So, you know, that I think again, what we were talking about was making sure that you go through the what-if scenarios. And if you don't know what all the what-if scenarios are, then again, your attorney does. If you have a business attorney, they've, they've gone through this exercise before and they can, they can feed up those scenarios for you. I like what you talked about, about having a having surveys that both of you fill out separately and then come together and look at what you think, how you think it would have worked out. Because unspoken expectations and assumptions is one of the biggest things that sinks a partnership. Yeah.
Mike Allen [00:34:42]:
And realizing how far apart what your assumptions were can be really eye-opening for sure. Um, another one of the scenarios that really needs to be covered in, or another one of the things that really needs to be covered in a partnership agreement, I think, is I think it's reasonable to have job descriptions in there, what the expectations for each person are and what their areas of responsibility are. And especially if you've got, you know, that variable skill scenario where one person is the service advisor, one person is the technician. Or one person is bringing, um, all the job skills and one person is bringing all the money. Yeah, you know, sometimes just bringing money is enough, right? And, and get out of the way and let the other person go about it. But that needs to be defined. Yeah, because what happens if the handshake agreement was, I'm just going to bring you money and you're going to go build a business, and then 6 months in, this— the money person is like, I want to start exerting some control over how you do things, right? Yeah.
Matt Lofton [00:35:43]:
Well, and, you know, if it's going to be that way, what you're talking about there is, is a, you know, is a financial backer and then a sweat equity backer. Right. And, you know, there needs to be some, some understanding if there's somebody with sweat equity involved. How does that— how does their equity vest in the company? And that was what we spent a lot of our time on because that's exactly what our scenario was, is I was just a guy that wrote a check. And the project had a predetermined budget about how much was supposed to be to design the prototype. And we put in milestones that said, I'm only going to— like, it has to get to milestone by this date and time, or else there is no vesting of the rest of the project. So that way, that protects you as the financial backer of saying, I'm not just going to endlessly keep writing money out of my account. For something that, for, you know, you as the sweat equity partner aren't delivering on, right? You're constantly missing, missing objectives and deadlines, then that's not a sound investment for me on a financial backer side.
Matt Lofton [00:36:48]:
So, you know, making sure that you understand that, you know, if you do have a sweat equity partner, what do they have to produce to— for their shares to vest, right? Because you can't start off with— if you have a 60/40 partnership and I'm 60% because I'm the money and you're 40% because you're the sweat equity, and on day one your shares are vested with no proof of concept, right? That doesn't work out very well, right? So there should be some level of proof that you can deliver on the return that I'm expecting before your shares vest. And that those conversations need to, you know, like I said, they just, they got to be had. And most of the time I would say, I would say 90% of partnerships would never start if they truly sat down and had these conversations.
Mike Allen [00:37:35]:
And that's probably not a bad thing.
Matt Lofton [00:37:37]:
That's a good thing, right?
Mike Allen [00:37:39]:
Um, yeah.
Matt Lofton [00:37:40]:
So because most people would say, you know, well, I'm not going to come and work for XYZ for, you know, a, a worker's salary, you know, so to speak.
Mike Allen [00:37:51]:
Yeah.
Matt Lofton [00:37:52]:
You know, with no guarantee of, you know, of payout. But when you start a business, there's no guarantee of payout. You know, I try to tell them absolutely the reality. I'm not saying that, and I don't say this with a source of pride because it was my own stupidity as to why it took this long, but I, I went 3 years when I started my business with no salary. And, you know, so there's no guarantee that just because you start the business even without a partner, you're going to be successful right out of the gate, you know, right out of the gate. And I remember people telling me, you know, really successful people that I knew, they're like, look, plan on, plan on living very skimpy for 3 years. And I'm like, oh no, this is— we're gonna be just fine.
Mike Allen [00:38:30]:
And, uh, man, Yeah, that Firestone that I worked at was doing $3 million a year in revenue. I know that they were making at least $1.5 million.
Matt Lofton [00:38:38]:
That's right. Yeah. And so, yeah, you know, so you gotta, you know, I think that, you know, just really understanding how both parties vest, you know, again, like you said, what the distribution looks like when it actually does start making money, you know, because that's the other thing is, is most people don't get into a bunch of, well, there's not a lot of arguments in the middle. There's a lot of arguments on the polar ends of it, which are the business is losing money and one person is taking a lion's share of the loss and there's resentment that the other one is not right. Or there is the business is wildly successful and one person is taking a lion's share of the benefit of it and then the other person is resentful. Right. And so both of those sides of the spectrum really need to be fleshed out. What does it look like if the business is not doing well? And if you know going into it that you're taking all the financial risk on the front end and then sharing some of the reward, you can't be mad about it when that happens, you know, for sure.
Mike Allen [00:39:42]:
Um, so let's talk about, uh, buy-sell agreements, uh, right of first offer, right of first refusal, uh, valuation formulas, that kind of thing. I think it's really important that, uh, because a lot of times You know, life changes. I think that there should be in a partnership agreement a number of triggers that enact a buy-sell agreement. Someone is in an accident and is not dead but is incapacitated for 6 months or more, for whatever your time frame is, or for life or whatever it might be. Well, then that enacts the buy-sell agreement, and here's how it's formulated. And you can Your creativity and ability to agree defines, you know, how that can be. But, um, it might just be that, you know what, I'm sick and tired of this business, I'm gonna go get a job flipping burgers at McDonald's and have low stress. Um, that same situation, you need to know my partner can't go sell to just any, anybody because I don't want to be in business with somebody else.
Mike Allen [00:40:49]:
So The person who has the right to purchase first is the other shareholder, right? And not just, well, yeah, of course I would offer to sell it to you first. Well, what if you hate each other? I'm going to go sell it to a jerk, right? You know, or whatever. So that needs to be in writing and the mechanism by which that is done. How is the notification given? How is— how much time is the other partner allowed to put together the financing to be able to buy? The shares from you.
Matt Lofton [00:41:17]:
Is there a third-party arbitration that comes in and sets the value of the company, or do you— are you presetting the value of the company based off of, you know, the operating agreement? Um, yeah, all of those things. And like you said, you can, you can have different buy-sell agreements for different scenarios for the buy-sell, right? In other words, you know, there's a voluntary exit. Hey, what if I as the majority partner want to push you out? I want to leverage you out.
Mike Allen [00:41:44]:
You know, I mean, and you can get a time to have that conversation is before you start.
Matt Lofton [00:41:50]:
Yeah, but you can set it up in the front end that says, hey, I'm going to set this up that says if I, if I do this and I give you XYZ notice, I'm going to buy you out of what your, you know, what your shares are because I am the majority and I have the right to do that on the front end, right? Um, you can set it up to where, you know, there's a different buy-sell agreement for a divorce. For, you know, what happens, what happens if bankruptcy, you know, goes down. All of those things can be, you know, if there is misconduct, right? So if one of the individuals is an operating entity, which is how a lot of this works, what happens if there's a, if they were an employee and you, and there was a fireable offense, a sexual harassment, inappropriate, you know, inappropriate communication with a customer, they develop some sort of a, you know, a life habit that doesn't, you know, promote well to their, their work environment. And as if they were an employee, you would fire them, but now you can't fire them because they're a business partner, right? If you think about these things on the front end, you can set it up that says, hey, there's a morality clause, you know, in this that says if, you know, if this happens, you lose your vested shares. Right.
Mike Allen [00:43:04]:
I have an acquaintance who was in a technology startup and they were doing really well and they were growing rapidly. It was 3 partners and one of the partners had a drinking problem, had a drinking habit, and he was probably a functional alcoholic. Right. But when he was inebriated, he would do really inappropriate stuff. And he did some really inappropriate stuff in public while drunk and it hit the social medias, right? Yeah. And that would have destroyed their company pretty quickly. But they had that type of agreement and press release within 48 hours. He's— his employment's been— or his association with the company has been terminated.
Mike Allen [00:43:57]:
He's no longer a shareholder, he has no equity in the business, and they erased him from all online material. I mean, it's like he didn't exist. But that probably saved that company, uh, that they had that in place and they acted immediately. And that doesn't happen unless you've got, uh, that type of agreement in place.
Matt Lofton [00:44:18]:
Yep. And that's some— so I mean, the, the what-if game, I mean, you have to go way far down the rabbit hole in all aspects of the agreement. You know, like you said, when you're thinking about this stuff, because I mean, sure, you don't know what can happen tomorrow. Anything can happen, and people change. We're dynamic individuals. Our lives change, our situations change, our personalities change. And you know, somebody can, like you said, somebody can wake up tomorrow and have a bad day and make a controversial tweet or X or Facebook post or whatever we want to call it, and, uh, and it has a, a rippling impact on, on the entire organization. So, you know, those are just things that, like you said, just have to really be, you know, really be thought about.
Mike Allen [00:45:03]:
Um, and so I think, um, one last thing that we'll touch on, uh, the I think you need to look at the document also as kind of a living, breathing document that needs to be revisited on a semi-regular basis. Yeah, just like an estate plan. You know what your estate plan is now versus, you know, 15 years from now, where you are in life, your financial standing, the needs of your family and children. All of that changes on a regular basis. You know what you think the business will look like when you're starting it versus what it looks like in 10 years. Typically are wildly different things, right? So, uh, it is reasonable to revisit those agreements as long as everybody agrees on any adjustments that are made, right? But having a rock-solid partnership agreement and business agreement in place and put it in the safe is better than not having one at all. But have one and then revisit it every 3 years, I think, is reasonable. Whatever time frame is reasonable for you and adjust it as needed.
Mike Allen [00:46:14]:
Like, two single individuals start a business and they both end up married, and that wasn't part of the agreement. You need to make that part of the agreement, right? You need to make those adjustments. Um, you had no kids, now you have kids that you want to provide for. Make adjustments. The nature of the marketplace has changed, the nature of the business has changed. Maybe you started out as a detailing company and now you're an auto repair business. Maybe you started out as a diesel specialty and now you're full service. Things change, and so you need to be willing to revisit partnership agreements and make adjustments.
Matt Lofton [00:46:47]:
So, yep. And, you know, 100%, I would say one of the, you know, one of the best things that I learned from my dad— my dad was really big on us having a family meeting, you know, amongst him and the kids. Even if, even if some of us were— because not all of us were always in the, you know, active in the business. But we met twice a year, every year, and he would sit down and, you know, we had a stakeholders meeting. And, you know, we had conversations about, you know, who was in the will, who was not in the will, you know, what that looked like. And, you know, based off of the business and what the, you know, what the trust looked like and all that kind of stuff. And it changed. I mean, it changed every single time we met.
Matt Lofton [00:47:35]:
And sometimes it was voluntary change that everybody was like, yeah, that makes sense. And sometimes you didn't get a say in it. It's just how he felt in the moment. It's what it was. But at least you knew, you know, what was going on. And I would say anybody that has a— if you're filling out your articles of incorporation at the end of the year and you have a partner that you need to sign off on, on the articles of incorporation, you should meet at least twice a year and have some sort of a, you know, a real you know, a real meeting of the minds of the structure of the business, the performance of the business, you know, review the partnership and pull out those, you know, pull out that partnership agreement and remind yourself of what it was. Is it still valid, right? Did you come up with more questions that you didn't even think about on the front end? Because that can happen too. You know, what happens if you, if you create an entity together as a one-store location, that store is wildly successful and the other partner wants to take, you know, wants to take his earnings that he's made off of that and go start location number 2, right? Is there anything that's— is there any non-compete with a, you know, with the who owns the licensing of the name? Because the entity can be owned 100% by, you know, by one individual if there's an operating LLC and a licensing LLC.
Matt Lofton [00:49:02]:
Right. And, and those are things that need to be talked about or what keeps them from starting another business on a completely different name. Right. Have you, you know, have you set an area up that says, hey, no competing, but you can't invest in a competing business within 50 miles of this location? Or any location that we would create with this name? Yeah, um, you know, all those things really need to be, you know, need to be thought about and talked about. And you might not even be thinking about multiple locations when you first open up your, you know, your one-bay, your one-bay, two-man operation. And then all of a sudden all your dreams come true and it, you know, you have all this money and now other options are available to you. You know, you just really got to go through, you know, go through the checklist If you're— if you don't, if you don't know how to do this, reach out to us at Elite. We do have these checklists available.
Matt Lofton [00:49:54]:
Like you said, you know, your coach helps you go through that and gave you guys a lot to think about. So if you're, if you're entertaining the idea of a partnership and you're unsure, you don't have support on this, reach out to us. At bare minimum, we can email you a checklist of things that you guys need to sit down and talk about that covers a lot about what we talked about today.
Mike Allen [00:50:15]:
Awesome. Thanks, man. I think there's a lot of value there. Not the normal level of shenanigans and, uh, and inappropriate jokes that I typically bring to the table, but maybe some actual value. Um, I think that, uh, is an important conversation to be had. So, um, that's good, man. I appreciate you.
Matt Lofton [00:50:39]:
Yeah, man, thank you.
Mike Allen [00:50:40]:
Uh, remember, Fly with the Eagles. Uh, what were those dates again?
Matt Lofton [00:50:44]:
It's, uh, May 14th through the 16th in Charlotte.
Mike Allen [00:50:48]:
Okay, uh, this year, elite worldwide.com/events. Use code Confessions300, you'll get $300 off registration.
Matt Lofton [00:50:56]:
Yeah, and we do cap those classes out at 60, um, 60 attendees to make sure that everybody gets a little bit of one-on-one attention while we're there.
Mike Allen [00:51:04]:
And y'all have been selling them out of late.
Matt Lofton [00:51:07]:
We have sold out the last 4. So if you're entertaining it, from a value standpoint, the normal price is $699. We have a discount code I know that you alluded to, and we're going to get some of the information out on the Facebook page there with the registration link. But there's a heavy discount for the listeners. I can promise you it's the best value in automotive training out there.
Mike Allen [00:51:29]:
No question about that. 3 days of training for $399 with that coupon code is crazy good.
Matt Lofton [00:51:34]:
Yeah, and I know it seems like a deal that's too good to be true. Why would— you know, there can't be that much value in a class for $399. Um, our— I mean, they're— we're upfront and honest about it. I mean, obviously we have some selfish benefit of having people there because we would love an opportunity to, to share with you for 3 days and then turn that into a relationship after the fact. But it's not a sales course. We're not sitting there and it, you know, There are some companies that use that as a— you get 1 hour of value and then, you know, 6 hours of, you know, beat over the head to sign up for their, their program. And that's not, that's not what our course is. We're trying to pack as much value into those 3 days as possible because, you know, our belief is if we can provide that value for you over the 3 days, that you're going to see the value in what you could get out of our services after that as well.
Matt Lofton [00:52:26]:
And out of the— we had 60 attend or 65 attendees at the last one in Los Angeles. Out of the people in that room, I mean, some of the other benefits that you get outside of just listening to myself and Tom and Joe talk for 3 days, and you know this through being in the peer group, you know, the networking ability that you get from, you know, some of the other attendees is just as good, if not more valuable than the training that we're going to give you standing up there and talking. There were 4 shop owners in that room that, that when we were going around and doing the, you know, the P&L reviews, netted over $1 million at one location. So I mean, to have 4 people in one room that are netting $1 million out of one store, that's rare, you know. And I'm not saying we have that at every event, but I mean, how much would you, you know, how much would you pay to sit down in a room with somebody that was you know, that successful that you had, you got 3 days of access to, to be able to ask questions along with getting some outside training, you know.
Mike Allen [00:53:25]:
And I think it's worth noting that these are very finely tuned operators who are still coming to classes like this. There's always something to learn and still asking questions.
Matt Lofton [00:53:38]:
And, you know, and that's, that's one thing, and, and you notice this too, the shop owners that are usually the best are the ones that go to training and act like they don't know anything. You know, those are usually the ones that when we sit down and take a look at the numbers, they're, you know, they're, they're—
Mike Allen [00:53:55]:
so you're saying when I, when I go to training and act like I know everything, uh, I'm surrounded by people who are sitting in the corner quiet?
Matt Lofton [00:54:02]:
You're really good at self-deprecation. I would put you in that category. I haven't, uh, I haven't seen you stand up and, and beat your chest in front of a group of people before, so I'll give you credit on that.
Mike Allen [00:54:15]:
Oh man. All right, well, thank you for that. Um, I'm gonna let you go, man. It's been a great conversation. I appreciate you. Uh, kids are starting to stir. I think it's about time to get ready for the beach.
Matt Lofton [00:54:26]:
Yeah, well, you guys enjoy the beach, and, uh, uh, look forward to seeing you guys coming up at some of the events.
Mike Allen [00:54:32]:
Awesome. See you, dude.
Matt Lofton [00:54:33]:
All right, see ya.