Derek: [00:00:00] Welcome to the Three Degrees of Freedom Podcast, where we explore lifestyle engineering with our expert guests to bring you in alignment with your own three degrees of freedom, location, time, and financial independence.

All right everyone. Welcome back to the Three Degrees of Freedom Podcast. Today I am joined by Mr. Ryan Tansem. How you doing, Ryan? What’s up, Derek? How are you man? Hey, dude. It’s good to see you on the podcast today, and we’re glad that you’re joining us. For those who don’t know, Ryan, he is a seasoned entrepreneur who has mastered the art of understanding complex financial concepts and transitioning them into clear, actionable insights for investors and business owners, and so on and so forth.

Starting as an executive VP in his family business, Ryan orchestrated a remarkable turnaround, strategically positioning it for an eight-figure sale in 2014. Today he’s the driving force behind Aona, creator of the Intentional Growth Framework, and through educational training and his [00:01:00] fractional CFO services.

Ryan empowers business owners to view and operate their companies as financial assets, making their entrepreneurial journey truly rewarding, and he has a superpower of simplifying intricate financial matters. And he’s personally guided hundreds of entrepreneurs with it. And he is the host of the Acclaimed Intentional Growth Podcast And stay tuned to learn how Ryan helps entertain, helps entrepreneurs navigate financial freedom while making a meaningful impact.

So, Ryan, awesome to have you on the show, man. The first thing that we always like to start with is the basics. You know, this is a show about the three degrees of freedom, which is location, time, and financial. So please, can you give us a little bit of a feeling for where you are in those three degrees of freedom, and which is the strongest and which one do you want to pursue further?

Ryan: So I’m physically in my basement out of my house that’s located on the east side of the Twin City is in Minnesota. And I have got my freedom there since Covid [00:02:00] actually, because we fully run remote and now we’re a digital company. So, my freedom location was, I mean truly Derek, completely inverse like my old situation to now.

So I’ve got my location, my time. I’ve very much architect the, and designed the business to. Accommodate my lifestyle that I want over time. And then the financials I look at the financials in two aspects. One is cashflow, financial aspect, and then the other one is wealth creation on the equity side of assets.

So the one that needs help right now, I. It’s on purpose. It’s intentional, no pun intended, is I’ve been burning cash investing into my company ar Kona. So it’s been a cash suck ’cause we’re investing in it, but there’s equity growth happening. So I’m watching the wealth grow, but the cash flow distributions could kick in sometime pretty soon after our high growth.

So I would say the focal point will be the financial cash flow perspective over the next handful of

Derek: years. That’s well said. I can relate personally with this because the real estate business, what we like to call it is we’re [00:03:00] reinvesting in our business, right? We’re taking our workflow, putting it right back in to make sure we’re preserving the equity for our investors

Ryan: and for us.

Oh, Derek, my favorite comment is what? I had a client go, Ryan, I just really don’t want this to be another reinvestment year.

Derek: It’s like, amen. That’s so great, man. I love it. I love it. Alright dude. So let’s talk a little bit about the superpower of yours to demystify complex financial topics. it’s impressive skill and I want to ask you, how did you develop it and why do you think it’s essential for entrepreneurs who are looking for independence, to understand this or to seek help?

Ryan: Super cool question. I would say don’t learn it the way that I learned it, first of all , so how I got to simplifying finance for business owners is because I went to school for liberal arts, which was essentially I didn’t know what I wanted to do. I was a salesperson working for the family business.

And so how I got into this, Derek, I mean, Tell people maybe better understand me. I get a D in accounting and I like [00:04:00] literally d in accounting. I was a copier sales rep and now I teach finance to bankers, accountants, business owners. And how I got here was at, after I jumped in, after I jumped into the family business, we were doing 20 million in revenue.

My dad and I were sitting there. He was very distant from the company, Derek, for like. Six years. So there was enough cashflow in the company to hide a lot of sins. And oh nine happened. It turned our business upside down, just like I know the real estate market and everything at that day, that, time period.

And what happened was, Derek, we lost it. I was sitting in the bank in the c p a meeting with my dad in oh nine. We lost $950,000 that year on 21 million in revenue. So you need cash to pay payroll, pay your taxes, and keep the machine going. And it doesn’t matter whether you like accounting or don’t like accounting or like finance or don’t finance, like you have to have the money in the checking account Thursday night to wire it for payroll, to pay payroll.

You can never miss it. And so you’re forced to do that. And if you’re, for us, we were selling copiers and then servicing them. If I can’t afford the text, payroll or the new [00:05:00] equipment or the new consumables, then I can’t service it. It so like we needed to wake up, sell stuff and ser sell copiers and office equipment and service ’em.

I need. And what happened was my lack of understanding of finance and accounting gave me no visibility, Derek, into the future, which, and whether you’re in real estate or in business, you’re an investor of an asset. And the way I like to think about like what, whether you understand finance or not, if you and I bought something, Derek, and so right now it’s August of 2023, and if we were to look a year from now and say August of 2024, what will our cash position be in that investment?

While prepaying our taxes, while knowing we have enough money to fund the growth that’s tied to a valuation target, and we can take the distributions that we want. If I can’t have that visibility into the future, why am I doing this? Right. And like I was that kid in school like, why, why, why, why? And everybody just says, because if you wanna send me on a decade long journey of answering a question.

So the whole [00:06:00] framework you asked about was me answering How come no one can give me a real answer about what my cash position will be a year from now? And everybody’s like, well, we’re just guessing. I’m like, well, there’s gotta be a better answer to that. And so I kind of went from the ops route. The goal down to the debits and credits because no one could answer my questions.

Derek: Got it. So this leads me into my next question then, well actually, I want you to give us a quick overview of the intentional growth framework because, and, and when you do that, I. Maybe you can come at it from an angle of how your experiences shaped your perspective on viewing and running a company to help build this framework.

’cause I assume you must have built it off of after your own experiences with your own businesses or maybe talking with some other people. So give us a little bit of insight to the framework and then also how your own experience to help build the framework.

Ryan: Love it, dude. Okay, so I’m gonna start with, yeah, and you’re right, it was developed over a decade almost, of people looking at me like I was an idiot.

Me not start like being able to like, be like, there are six principles. And Derek [00:07:00] would look at me like, that doesn’t make any sense. Like, well now there’s five principles. So it was all of the like, So it was over like thousands of meetings, I mean hundreds of keynotes and all this refinement.

So the market really created it. This is, no, I did not come from the mountain. Say like, well there’s, you know, five principles. What happened was Derek is how it got, like, what is the concept? And here’s what I was trying to get at. And I’m gonna do a little bit of role playing right now ’cause this is what I do with my keynotes and I just love it.

And I started doing this 12 months ago. So before I explain what intentional growth is, what I do is I pull up this ca uh, this cabin. Like, it’s like a $4 million cabin on like Lake Tahoe. And I’m like, before I, before I give my story, who thinks I should buy this cabin? And I get the audience going like, yeah, yeah, yeah, go for it.

And then I go, wait, I forgot a little bit of context, Derek. I got twin daughters that are turning seven. I’m going into 15 years of sports, I’m not gonna have any time to attend the cabin. Should I? Would that impact your advice for me? And then people are like, ah, you know, maybe, yeah, I’d still do it. And I’m like, well what if I were to tell you it would [00:08:00] derail our retirement plan if I bought that cabin?

And then the couple people like still do it And then there’s, then I say, well, with my wife threaten to divorce me. ’cause she doesn’t want two buildings with two HVAC systems. Context is so important for our decision making, Derek, that like, so what happened was for 10 years, People would call me up and they would want advice.

And I’m like, what are we trying to solve for? And that that, it took me that long to figure out that people didn’t have a goal that made any sense, Derek. So then they’d be like, 20 million in revenue, 5 million in revenue, 50 million. Like go, just go pick up the Ink magazine and it’s all revenue, or how much people raised.

And then I think to myself, My dad and I owned a $20 million business that had 115 employees. We lost $940,000 in ’09. And if we would’ve sold the business Derek in oh nine, we’d owed the bank two and a half million bucks. Who caress about revenue? Mm-hmm. And so I’m sitting there going like, if 99% of the people are giving me the revenue answer, that means they have the wrong goal.

So then how do you go back to the [00:09:00] five principles? And we, we can unpack them if you want, but the question that, that kinda like all those things about the cabin. People would call me and be like, Ryan, do you think I should hire that second generation president? Or should I hire a recruiter to hire someone from outside for 250 grand?

Like, do you think I should launch that product or service? Should I buy that company? How much should I pay for that company? How much equity and how much debt? By the way, should I buy my company’s building because now we’ve got the company growing. Should we spend $4 million to buy the building? I don’t know.

Derek, how am I supposed to know if I don’t know what you’re, what is the goal and the goal? If we shift our mindset away from revenue? It’s the same thing with real estate. These are assets. We’re talking about equity prices and stock prices or net operating income. Cash. So with a business, it’s what’s the target?

Equity valuation at a point in time. Then it synthesizes all those decisions. So the five principles, Derek, the reason I call it a framework is one is I will never tell anybody what to do. We’re all adults, [00:10:00] right? I’ll never tell you what to do, Derek, but what I’ll do is if you ask me a question, if you’re soliciting my advice, I wanna know what’s your goal with what type, and back to your three degrees of freedom.

How close are you in these three degrees of freedom? Mm-hmm. What do we need to do with what timeline? What are the expectations? And then I can help you think through your trade-offs, but I’m not gonna tell you what to do. You’re grown up. So the five principles are used to synthesize, to bring context to that decision of the ones that I was listing off of, buy this, do that, hire this person, give them a framework of context to where they’re at and their goal.

Derek: This is awesome. So is this something that. People who are seeking the three degrees of freedom, let’s say that there are people out there who are on their journey to try to build something up and maybe they have something on the side, right? Like they’re working at W two, and they know that they’re actively trying to build a business.

And maybe most people who start off, you know, when you start a business, it’s many years of really hard, tough work. You know, it’s usually file and error and trying to like, just [00:11:00] make things happen and make things work. And luckily we don’t have usually high stakes unless you inherit something like you did right, where you walked into a business and there’s already a bunch of payroll and stuff already happening.

What advice would you give to some people who are just starting out based on those principles that you mentioned inside of your framework? And then also given the fact that people are trying to maximize their degrees of freedom. I know it’s about context, but maybe is there general pointers that you could give for most people who are out there that are just getting started, right?

Mm-hmm. Things to think about when it comes to the exit or when it comes to later on down the line.

Ryan: Sure, and I think this will be a good spot where I can, I’ll just quickly give a quick overview of the five principles. there’s so much material that’s for free on the website that people can go dive further into, but the five principles, they go in order and they’re a framework.

Again, they’re not telling people what to do, but it’s synthesizing your choices through these. So the first one is, what is your vision? What do you want from your business and your life? Whole time, essentially that’s tying to your freedom. Derek, what do you, what [00:12:00] experience do you want for yourself and the business over time?

Your legacy, your role, your community, all that stuff. Your vision, like the destination, the amenities, all that stuff. Second one is your financial targets. What are the financial targets that you need to hit to make the outcome worth it? So what is the target equity valuation and the cash flow you want on the way there?

Then the third principle is your exit options. We boiled them down for companies, Derek, in five ways, internal transfers and buyouts, acquisition entrepreneurs from my friend Walker Dibel that wrote the book. And then, ESOPs, employee owned companies, private equity firms and strategics. Each one of them will impact your first two principles, so understanding your exit options and how they’re gonna impact your three degrees and your financials.

And then the fourth, principle is your grow value. Once you understand what your point B is, the grow values, now you have context of your plan. Use the context to figure out whether you should grow value and where you should make your investments in your company. And so that way you know, when you and I were joking about, it’s another reinvestment [00:13:00] year, don’t blindly do that.

Reinvest with a calculated return like a, an institutional investor would you, everybody can do that. And then the fifth principle is your team of advisors making sure that if you have the right team and you know where you’re going, they can help you. So like Derek, I always joke around with the Google Maps analogy.

Can you imagine hiring a, travel agent and just refusing to tell them where you go? That’s what most advisors do. It’s like my c p a, the attorney, the m and a attorney, the banker. They’re like, they’re just making stuff up, man. And my dad and I didn’t know where we wanted to go. So those are the five principles and the goals that any question you can kind of synthesize them against those five principles.

To see if you’re on track and tied. Your decision is tied to your goal, but the three big takeaways that you were asking for about these principles, about how to make them actionable for people, whether you’re looking at having a passive investment, like how, like what kind of level of involvement should you or what would be the results of these five principles?

One is what the heck do you want and why? Like, [00:14:00] we have to think through that. What do you want from your long-term career? You know, we have 168 hours. If you’re working 50 hours a week, what do you wanna be doing? Who do you wanna be talking to? What topics do you wanna be talking about and how does the business impact that?

But the, so like what do you want from the business and your overall life and why? The second one is, what is the target? And with your world, Derek and real estate and business. We’re both illiquid assets and then you wrap around the stocks and bonds, your whole portfolio of business, maybe private equity or investing, and business and real estate and all the other stuff.

What’s the target net worth and the illiquid assets that you want to have at what point in time? And specifically actually in the talk to, I started off, my answer with what. It’s the target equity valuation, but the cash flow you want along the way there. ’cause if you think about, if you bought an investment property and it needed a bunch of rehab, but you didn’t have the cash to do the rehab, you’d have to slowly burn that cash and reinvest it.

So you might not have any available income while you’re building this net [00:15:00] worth. So if your goal is to actually jump ship, like make sure you have enough income while balancing the income to wealth, you know, the equity creation. And then the third thing I would say is, what role do you want to evolve in?

So that’s more like if you are actually planning on jumping shit from corporate America, how do you want your role to jump from corporate America? Maybe it’s six to 12 months as the C E O or the maintenance and property management firm. But then you have a plan to get out of that and you don’t jump and then get stuck like so many

Derek: people do.

Yeah, that’s great. I think that’s really good advice for people to really think about no matter where they are in their business. I think. If you’re starting or in the middle of it, or even planning an exit, I think that those are wonderful things to think about because we are the CEOs of our own business in the business of life, aren’t we?

Mm-hmm. So, you know, we are individuals that may be able to create multiple businesses or go all in into one of them. And sometimes our life and our business kind of melds into a single entity, where [00:16:00] we have a hundred percent be in harmony with both of them. Now. And I love the, that advice that you’ve give that you’ve given to people out there because I think it’s really important questions to ask and it compliments the three degrees of freedom and informs the three degrees of freedom or they inform each other.

But what I wanted to ask you is on your point regarding mentors and your team of advisors, right? Everyone in business, regardless of whether you have your own business or you’re looking to level up your game, even if you’re in the corporate world, if you’re working at W two, I still think there’s a place for mentors in everyone’s life.

You show me someone who is serious about something, and I’ll show you someone who has a mentor, right? Mm-hmm. Has time blocked out in their schedule and has a mentor coach. Right? So what I thought was super interesting as you were talking is sometimes mentors, they come at it from their own perspective and.

Us as the mentees, the people that are being mentored. We don’t have the foresight to tell the mentors what our perspective is and what mm-hmm. What it is that we’re trying to maximize. [00:17:00] So, I think, I thought it was really awesome of you to say that sometimes we have to mentor our mentors in what it is that we wanna maximize and what the context is based on, you know, the previous con conversation that we’re, that we were talking about.

So, do you have any advice or any situations where, specific situations where that came up, where you had to actually. Sit down with the mentors and be like, look, I appreciate your advice, but we wanna go in this direction. Or here’s the context. Or, how have those like adjustments been? And maybe you’ve worked with other people where you’ve had to sit down with their mentors and their team of advisors and be like, look, you know, X, Y, Z, this person that you’re mentoring doesn’t want that.

Or it’s not in alignment with what they really want. How often? Yeah,

Ryan: a hundred percent. Man. And like, actually, you honed in on Derek a unique, Circumstance in the industry of advice that I actually found dysfunctional and I wanted to help fix because like when that, the experience that I had, when, I mean $20 million in revenue, man, like we had a lot of pretty [00:18:00] heavy hitting advisors come in and I was part of Vistage, so my dad and I both were, I speak for Vistage now.

I mean like, so we were doing in quotes for the listeners doing all the right things, still flying blind. And what I think is so like how in God’s name were these people supposed to help us if we didn’t know what we wanted? Yeah, and this is so common. I have 365 podcast interviews where this is a common thing and hundreds of keynotes where it’s like the goal is just this re arbitrary revenue goal yet.

So Derek, the podcast used to be called Life After Business for the first few years before I changed its intentional growth, and this book, Bo Birmingham wrote finished big as how many people were upset after they sold, even though they made so much money, it’s because they didn’t know who they were and what they wanted from their company and their job and their career, and why.

And when you take that away, they’re like, I’m just no one. I’m Ryan. That used to be this person. So what happens is the dysfunction comes from if the advisors don’t know what you want, I. An attorney, a C P A, a commercial banker, [00:19:00] investment banker, insurance provider, you name any technical advisor, they’re all left brain tech technical technicians.

Right? When a business owner, I have watched and assisted clients who will take way less money when they transition their company. Because they’re financially free. Like I have a, we have a family friend that he sold this company to an esop, an employee owned company for a hundred million dollars, it was worth 190 million.

This is a very dramatic example. I know I’m overboard with this, but I’m explaining he didn’t need an extra $90 million and by the way, he died two years after he did the deal. Yeah. So like my point is, everybody would’ve advised him, Derek, to tell him to take the 190 because, we are supposed to optimize for the highest number.

He didn’t want that. We have to ask people what they want and what I want for someone to say, like, if you had two offers, Derek, like if one’s 5 million and one’s 6 million, but you take the $5 million one, you could look at me in the face [00:20:00] and say, here’s exactly why I took that lower one because they’re doing this and this and this is how they’re treating my clients.

It’s kinda like you don’t want, if you sold your house to someone and your grandpa built your house and they’re gonna tear it down for a strip mall, but it’s way more than the market value, you might say, no. It’s your call.

Derek: Yeah, yeah. Absolutely. I, I love that analogy because it’s all about what is important.

It doesn’t really matter if you’re going to triple your money versus double it. If you have to go that extra 20%, that’s 80% more effort where your advisors would be happy if they’re advising you to charge you for that time and it’s not important to you. Right. Right. And your advisor will tell you, financially it makes sense.

And you’re saying, it’s gonna take longer, it’s gonna be more of a pain in the butt. Yeah, I’ll be financially, but it doesn’t meet our goals. Like the goal is for me to have this nest egg so that when my kids go off to college, it’s the three degrees of

Ryan: freedom is the goal, man. Right. It’s like, and actually just to double down on this point, we had this business owner that was working with us like, oh yeah, we think we might be [00:21:00] doing this acquisition.

And we’re like, you told us you were planning on retiring in three to five years. Yeah. It’s like, if you buy this acquisition, you’re gonna be servicing that debt for seven, which means you, and they’re like, oh yeah, I don’t. I don’t think I wanna do that. It’s just like, and like, do you see We didn’t tell ’em what they wanted or we didn’t tell ’em what to do.

We just said, you told us your goal was this is contradicting

Derek: your goal. Yeah. You know, to make a layer of more complication on top of this, Ryan context changes. It’s always evolving, right? So people mm-hmm. Needs change. Right? Um, you know, like, which is why they’re, it

Ryan: is why, which is why it’s a print, it’s a framework, Derek.

So as that, as time changes and the decisions change, It’s not so prescriptive, you can’t evolve it. Love that. I

Derek: love that. Okay, so let’s, change gears from mentors and I wanna talk a little bit about growing business value. Now, obviously, growing business value is a common goal. I wanted to ask you [00:22:00] how you think entrepreneurs out there can help think about creating a strategic plan to increase the value of their businesses.

And I see here that there’s. Functional areas of these value drivers that contribute to that growth, plug into it. And I just like your perspective on people out there that are trying to just increase the equity in their building other in, not in their building, but in their business.

And I. I know right now that one way to do that is to take some income that you have and throw money back in. That’s what you and I are both doing right now with our assets. Right. Assets from the sense of it’s our business. So it’s mm-hmm. Yeah. Yeah. , that’s the truth. But I wanted to ask you like, what do you see as a common thing where most business value grows that’s maybe not so obvious, that maybe comes outta context or anything that comes to mind?

I’m, this is why I love, I

Ryan: love the analogy. Play between real estate and business, Derek, it’s, yeah, they’re both assets. So what do we want in assets? We want more equity and we want [00:23:00] cash flow. And the larger the cash flow and the more sustainable, predictable, transferable that future cash flow is, the more the equity of the asset is worth.

So I’m gonna start just to like, Level set with every, the audience on the real estate side. And then I’ll transition over to, to business Derek, and feel free to jump in and make sure that I’m course correct. But we have cap rates and net operating income in real estate. Right? And the higher the cap rate.

The riskier, the asset. Right. And I literally have a whole slide deck, Derek, when I’m talking about principal four. My Vistage workshops are in the bootcamp where I pull up buildings. ’cause every, so people are so familiar with it and they like, it’s like everybody understands like the same building. This one’s worth twice as much.

’cause it’s fixed up, right? Everybody’s like, yep. I’m like, well, business is the same way. And so when I think about this, an asset, like with real estate, if we don’t have an anchor tenant, Speaking more like commercial real estate here, but if we don’t have an anchor tenant, if we [00:24:00] don’t have, annual, you know, five-year contracts as if it’s in the slum, the asset value is gonna be lower and the cap rate’s gonna be higher, right?

Business is exactly the same, but we use different terminology. So what in business It’s called the weighted average cost of capital. The wack. So the high, then they call it the buildup methodology. So the higher the wack. The more return we’re gonna need ’cause the asset’s risky. How? Like if Derek, you and I wanna invest a million dollars in a laundromat, you and I are just gonna say, well, if we invest a million dollars in a laundromat, how sustainable, predictable, transferable are those future cash flows, right?

Yeah. And the less sustainable, predictable and transferable, the more the return we’re gonna need. For the risks we’re taking. Correct. And therefore the lower the valuation of the company, it’s literally just like real estate. So what happens is in business we take one divided by the whack equals the multiple.

So instead of talking about cap rate [00:25:00] or n o I, we’re just talking about this multiple, and it’s just one divided by. So if you take like 20, it’s five. It’s a five multiple. And the biggest thing in that buildup of risk, Derek, Is the company’s operational specific risk outside of industry? Like I’m, I’m acknowledging that, you know, different industries have a different kind of asset class.

Yeah. But like all things equal, sorry if I’m list, just to repeat for the audience, if I don’t lose you. The weighted average cost of capital is very similar to the cap rate. It’s the higher it is, the riskier the asset, which means the lower the value of the asset, the building or the company. We take one divided by like, let’s say it’s 20, that’s a five multiple.

That’s essentially Derek, how many years of cashflow someone’s willing to give that seller all based on the risk of the cashflow man. Mm-hmm. Just like, so what we’re trying to do with principle four is hone in on like within real estate. I always joke, or this is my joke, so you might not laugh, but whatever.

It’s like, I’m like, who wants to put a bathroom on the ceiling? No one’s gonna value it. And if it cost 30 [00:26:00] grand to put a master bath on the ceiling, you’re pissing the money away. Yeah. In business, there are exact analogies of if you invest in certain areas in your business, it’s just like farting the windstorm.

I don’t know else to put it, it just disappears. It’s not like you had no reason to do that investment and there’s no return. ’cause what we’re trying to do with the investment of E R P systems, the right people, standard operating procedures systems for marketing, for inventory. The more data and the more systemized we have, which takes investments.

Yep. The more that multiple grows, ’cause we’re reducing the weighted average cost capital or the cap rate. Yeah. It’s the same thing. Like if you, you would have a plan of how you’re gonna reinvest into the building. How you’re gonna use that cash and what your return would be

Derek: expected. I think it’s beautiful.

It’s very similar to what we have in real estate. I’ll give you an example for the audience of what this W A C C or WACC reduction looks like, in the form of cap rate, but [00:27:00] also in wac. Yeah. I guess also it’s W A C C. It could be this isn’t so crazy how parallel it is. Yeah, of course.

Of course. And what we did one time was. We had a one-time cost for utility company to go out and install individual meters on all of the units in the apartment building. Right? That way, instead of having a flat rate, which is $30 a month or something for each individual tenant to just bill back, what we did was we looked at, okay, how much cashflow are we gonna save each year if we install these mm-hmm.

Groups. We severely underestimated how much cash we were gonna save, which was awesome. Oh, nice. Yeah, I was gonna say, that’s a good surprise. Yes, it was. It was awesome because what we ended up doing was when we installed these things, yes, it cost us like $10,000 to have a plumber go out and install all of them.

But what it did was it changed the amount of water that was being used, water and sewer at the property, because now these tenants had to pay directly for it. So it’s not like they’re paying 30 bucks and they could use however much they wanted. So the behavioral [00:28:00] psychology behind it changed it. Yeah. To a point where we were accounting for, you know, $30 a month per unit.

Right. And we were saying, okay, how much are we gonna spend to save that money, right. So that we can pass along all the costs to the tenants. Mm-hmm. Then it switched to, okay, how much money are we, like it was explosive. It was real. That’s awesome. ’cause the consumption went down by a lot.

And that really helps a lot because now, you know, we don’t have that cost anymore. And, we easily like four or five x star money in that first year just by doing it. If you’re gonna evaluate your building off of NOI

Ryan: well, and, and the, the similarities are even more ridiculous too. ’cause my guess is that was a one-time expense.

Doing all of those installs, right? Businesses are the same way. Like I paid almost 300 grand in executive recruiting fees, Derek, the year and a half before we sold C F O, c I O, et cetera. I don’t You don’t do that every year? Yeah, just like you said. So we actually pull that out of, it’s called normalized EBITDA instead of N O I.

Right? And it says that we’re trying to get to the proxy for cash flow of one, you know, getting rid of the [00:29:00] onetime expenses. I mean, there’s so many similarities and it’s all about. What will the future cash flows be?

Derek: Of course. Yeah. I love it. Right. Fantastic. Okay, so we’ve, we’ve talked a lot about business dynamics, looking at specific leverage points so that you can try to, you know, reduce the wax of the value.

Yeah. Or modify the wax so that you can mm-hmm. You’re right. Reduce

Ryan: direct. Yeah. Whack. Nope.

Derek: So, let me talk about. Financials and organizing financials for the visibility. You mentioned this early in the show that without having a roadmap of where you’re going, it’s hard to know what plan to take.

It’s hard to know what to execute, right? Because if you don’t know your metrics and you don’t know your business, Well then what levers do you pull in order to try to make things work better? Should I buy a

Ryan: cabin, Derrick, right? I dunno. Like do you want one? Can you

Derek: afford it? That’s right.

So can you talk a little bit about how companies can maybe look to structure their financials or their records, to help get like a clear perspective on their trajectory, to make more informed decisions? ’cause I know this is a [00:30:00] common problem that runs across many people in many industries. I have since solved that problem, but I want to hear for you from you, how you’ve advised people to help like build a financial visibility type of framework for them.

So it all

Ryan: starts with trying to answer what I think are the common sense questions that entrepreneurs and business owners are trying to answer, which is, if I keep doing what I’m doing or I implement the strategies that I’m planning on, What will my cash position be in 12 months along with my prepaid for taxes and there’s enough cash left in the business to fund the valuation target, not some arbitrary revenue target.

Then what we can do is we can reverse engineer, and this is where I didn’t make any of this stuff up. And this is why I really like what I do, because I watch all these consultants over my career, Derek, where they build their Venn diagrams or their pyramids, and then they wanna die in that hill. Like this is the way to do it.

So the thing about this is like the [00:31:00] monks invented do the monks invented double entry accounting in the 14 hundreds. The spreadsheet was either invented by Bill Gates and Paul Allen, or they stole it. Regardless, I had nothing to do with either of those things, so I was not there at the design phase.

And so I’ll, all I’ll say is that what I used to do with our family business, even though it was 20 million, and I watch bigger companies and smaller companies make the same mistake because founders are typically not accountants or Wall Street financial engineers. I was building pools, or I was an F D A consultant, or I was an HVAC technician, or I was a digital marketer, you name it.

And probably a lot of people listening to the show who wanna jump ship maybe from their corporate gig. And I. Not finance, just like me. And so what happens is people project out only the income statement. And what happens is, you know, if you’re familiar with the income statement or the p and l, you have the revenue categories that you make revenue on, and then you have your cost categories, and then you have your overhead categories, and then you’ve got your [00:32:00] net income or net, not net EBITDA in my world, or net operating income.

So what happens is though, Derek, in the business world, I know this is very relevant in your world as well, but. You could, you can project all your income statement, but what happens is if I project out straight line, whatever the assumptions are, even if I take seasonality into approach or into consideration, o over the future forecast.

People raise their hand every single time. I’m like, Hey, raise your hand if you ever had the issue. If you’re gr you’re growing like gangbusters and you have no cash, everyone’s like me. I’m like, or have you ever sat down with your C p A and the CPA’s like, you did awesome, Derek. Yay. Congrats. Ta, your tax bill’s 250 grand.

And you’re like, where’s the cash

Derek: man? Yeah.

Ryan: So what I’m doing is I’m building up to, we can’t, we’re missing two parts of the story if we’re just projecting out the income statement. So these three statements, the income statement, the balance sheet, and the cashflow statement all mathematically tied together, and that is what [00:33:00] I believe creates this three dimensional view into the future that I was never able to see to answer the questions that I mentioned, which is, What is my cash position gonna be next year, in the middle of the year, not at the end of the year in the middle.

So if I wanna know, should I buy the extra inventory? Should I hire that person? Can I take my distributions at the same time and fund my prepayment of taxes? If we can’t see those trade-offs in clear view in that are tied to our goal, we’re making stuff up. Everybody just needs to say it because like it has to be tied to a goal.

And then when we have those trade-offs, if we don’t, those are, those answers are in the cash flow statement. So, sorry, stop me if I’m being geeky, man, but I like No, you’re good.

Derek: I’m, I’m picking this all up, man. It’s good. So what

Ryan: I love about, like, if you, just so you have the income statement, so people are like, it, this was this epiphany for me like five years ago, Derek.

I was like, what? He was like the red pill in the matrix for me, man, it was a total experience that I’m geeking out on finance again. Copy your sales rep. Dean. Accounting, just to [00:34:00] remind everybody is the income statement for my old business and a lot of the companies we work with, you sell something, a lot of times you have a receivable because, so we would sell things and we would invoice people and then it took us 30 to 30 days to collect the money.

If you don’t do receivables, you might have deposits. You sell sunglasses online. Someone gives you a dust deposit, that’s a, so the receivable is on your balance sheet as a liability. The payables are on your balance sheet is a, I’m sorry, your balance or your receivables are on your balance sheet as an asset.

Your payables on your balance sheet as a liability, so your income statement, Interplays with your balance sheet like that, right? So you can’t pay payroll with a receivable and everybody that owns the company knows that. So it’s important to monitor these things. ’cause if you don’t have enough cash, you can’t make payroll.

Back to my original quarter million dollar payroll, that issue that I had. So great. Literally. So now we’ve covered the interplay between the income statement and the balance sheet. Well, What’s the cash position? [00:35:00] What are my distributions? Do I have to put money back into the business? That’s in the cashflow statement.

Well, the cashflow statement is just a mathematical difference between the balance sheet over a period of time, right? So they ca, you know, if balance sheet from May one to June one, did cash go up or down? Yeah. Receivables go up or down, payables up or down, inventory up and down. And then that’ll give you your spot where you can see your distributions, your taxes, then cash position and it all has to flow together.

Derek, I say all that because we can reverse engineer the income statement from the goal, and then we can see how fast you have to grow and if you run outta cash on the way, and if you do

Derek: fix it. Yeah. So for those who don’t have a C F O, right, like there’s a lot of these people that I know that are, you know, buying single family homes or maybe they’re starting a Amazon, like an e-commerce business or something, right?

And they don’t have a C F O to help. Build all of this stuff. How, what would you recommend they turn to if they’re looking for something like this, right. If they wanna [00:36:00] try to have some of this visibility, this in this live, you know, profit and loss and balance sheet type reporting.

Ryan: So there’s a couple approaches that people are, do it without doing a selfless plug, because I don’t want to like, have someone beholden to something that I built. But like, I would say that, These are, I mean, I, we started with spreadsheets. I mean, it’s double entry accounting. It’s math. So you have to understand your business.

You have to understand operations, and you have to understand math and a spreadsheet and accounting. And if you don’t, yeah, and accounting and like, and if you don’t, it’s okay. Like I, I didn’t either. I knew what I needed to see. That was the key component. And everybody, honestly, man, like I’m so convinced that entrepreneurs and visionaries, then investors, they get that.

So then it’s having someone else. Do it for you in the MA manner. I just said because like entrepreneurs can project out an income statement and then you hand it over to your finance team and say, build out the cash flow and the balance sheet and tie it to the goal. So we have on our website a starter kit where I walk through people and a case study they can go through, they can see the case study for free.

We’ll make sure that you have the link. So I [00:37:00] literally, Derek show people and say, if you have the right, if you have a person you think is capable, have ’em watch that video and do that. And that’s why I do it in a spreadsheet. ’cause it’s literally like, I didn’t invent it. And there’s the video and it’s a spreadsheet.

So if they can’t do that, then explore other options like an outsource firm or a part-time person or something like that. And now there’s even technology out there that we plug into people’s accounting systems and stuff where it’s a software dashboard. So, but I don’t wanna, like people are capable of doing this on their own.

If you have the right people and you understand what you’re trying to

Derek: accomplish. That’s exactly what I wanted to hear because I want people to understand that all of these things that we’ve been throwing out, there are things that you can do. It sounds complicated, right? But, if you really dig into it, just understanding the vocabulary from where Ryan is coming from is.

Is half the battle and then you’ll be able to understand how to put it into effect. And there’s tons of tools and people out there that you can leverage, including Ryan himself. I’m sure he’d be happy to guide you now. Yeah. And the

Ryan: vocabulary, like they’re, it doesn’t have to be so [00:38:00] confusing.

And that’s what bothered me about the finance industry and the service sector. It’s like they we’re talking to entrepreneurs, they don’t understand this stuff,

Derek: like Absolutely. Hundred percent. So I wanted to ask you just a couple more questions, then we’ll get into our rapid round. Okay. but. It is.

The first one is we touched on this just briefly, but the business landscape is evolving as it always does. Artificial intelligence is coming. It’s more out there. It’s starting to affect more than just accounting and some of the financial pieces. It’s actually starting to become operations, including for mine.

Mm-hmm. As well. Mm-hmm. Like it’s literally starting to get me to be either more efficient or hire less people. Mm-hmm. That’s how impactful it is. How have you been seeing artificial intelligence starting to affect some of the businesses that you’re consulting or your business itself?

Ryan: Ooh. I just did a ni, 90 minute podcast on that a couple weeks ago, and I could pr I am doing an event on this topic and like I will try to be [00:39:00] succinct with it, um, with my response.

’cause the opportunities are endless and I’m not saying anything that, like, anything I’m about to say is probably not novel. I. But what we’re doing practically with our company and our clients, and kind of my thought about it, we can leave kind of the existential crisis of like general intelligence alignment and all the ethical stuff for different conversations with different people.

But for operations with the business, there are a couple components that I’m, myself, our ecosystem and our clients are focused on that. Derek one is kind of thinking about the bigger picture backwards. I t r economics is these, there are these economists that are on my podcast once a quarter and we talk about what’s going on in the, the leading indicators of different industries, different sectors, you know, what’s going on with the federal fund rate, all of these different things.

They have this, along with, I don’t know if you’re familiar with Ray Dalio. I’m a Big Bob. Amazing. I’ve read, I’ve read the Changing World Order book three times this year already. Yeah. He’s,

Derek: he’s really onto something there. I love it. Alright,

Ryan: so like, then for the listeners in there, if Derek’s talked about it, this Prosperity in the Age of Decline [00:40:00] book is these economists and they talk, it’s very much about the demographic cliff.

So this has to do with ai. So what I’m getting at is, There’s gonna be 80 million baby boomers Derek in diapers in 10 years, and nothing anybody can do about it. So what happens is we already are going at the slowest growth rate of the country and the world E economy in a long time. ’cause we’re trying to get another jolt out of an athlete that’s had 40,000 cortisone shots.

And what happens is we need to keep growing. So I am watching this AI thing instead. Instead of having this doomsday of like, it’s gonna replace everybody’s jobs. Oh yeah, my company’s gonna be able to 10 x without 10 Xing the people. It’s the hope. And this is a of the hope. That’s the hope. That’s the hope.

And what I think about this is interesting, Derek, is these people, the brain drain of every industry is happening. And so like I. Our gdp, P’S gonna continue to go down, and if we need to do more with less, so I’m watching our clients and the podcast that I did with this guy named Lauren, open [00:41:00] Model ai, where he is talking about having privatizing ai.

So basing these eight functional areas in principle four, like sales, marketing, ops, finance, how do we take these functional areas, enhance them, invest in strata, or invest in things that de-risk the cash flow? Because again, going back to if we de-risk that whack and de-risk the cash flow, we grow the value of the company.

So we can have these functional areas where we have AI bots or P like essentially AI for marketing, for sales, for ops, for finance. That’s helping the executive in that function. Yeah. Implement the strategies to de-risk the cash flow to essentially get where they want to go

Derek: faster. Yeah, I love that. And I love having executives, high level executives being able to turn dials, right?

With a mm-hmm. And that’s essentially what it is. You turn, dial, you tweak it, you split test it. And it’s gonna be a crazy world, Ryan, where we have people that are coming in, right. And we’ve got. We’ve got an AI [00:42:00] bot on your end that’s talking with the AI bot on the client’s end. Mm-hmm. And it’s mm-hmm.

It’s insane what this world may come, but you’re right. I think that the, this productivity comes down to how productive can we be in the United States. And the reason we got so competitive and had such a great competitive edge is that we were super productive throughout, you know, the fifties.

Mm-hmm. Right. And we’re just been kind of riding on all of that. Now, you know

Ryan: what’s really fascinating? One last comment on this is, The definition of a prompt. Here’s what’s super fascinating. That ties really into our overall concept of intentional growth. I can sit down and I’ll try not to make this long story, but like my partners did a whole private equity roll up.

They bought 18 companies 16 months, sold the whole thing for a lot of money, and they were spending like $5 million a month with EY on consultants and integration and all these things. You can sit down now in front of chat, G B T or other AI tools if you know what question to ask Derek. You can get the information.

We built a strategic plan for one of [00:43:00] our home remodeling clients in eight minutes. That had a C F O or c e o strategic plan with a C F O strategic plan tied to the CEOs with a 13 week, project plan. They’re like, this is better than anything EY gave us, and it took us seven minutes, and it’s back to this.

We knew what the goal was and what question to ask. So you can put me next to an EY kid that’s 21 years old, that’s charging $400 an hour, that doesn’t know what question to ask, and we will beat him. Her every single time. ’cause we know what

Derek: question to ask. That’s awesome. Yeah, no, it’s a hundred percent true.

After we’re done with this call, I need to show you the power of prompts. And because I think, yeah, there’s some really discuss, just discuss. It’s really neat. Anyway, so, we could go on talking about this forever, Ryan, and I really appreciate you coming on and sharing some of your wisdom with us.

But I have the rapid round, which is five questions that are meant to be asked in. Answered in 30 seconds or less. So let’s, let’s see if we can get through these quickly. If you’re up for it and you ready to go? Rock on. All right. [00:44:00] Number one, name, any resource that was or is essential in your journey to pursue your three degrees of freedom.

The understanding

Ryan: of money and Changing World Orders by Ray Dalio. Yeah.

Derek: Excellent, excellent Place. Number two. If you woke up and your business was gone, you had only $500, a laptop, place to live and some food. What would you do first to rebuild? I would start my podcast. I love it. Great answer. And also very like fulfilling to me and mm-hmm.

Also self. It’s the network man. It’s like we’re doing right now. I love it. Yeah. Alright. Number three. What does your self-reflection and goal setting practice look like?

Ryan: Bullet journals. So I’ve been doing bullet journals for seven years, analog, even though I’m a tech guy. Analog bullet journaling where it’s annual planning, quarterly day, monthly, weekly.

And then it’s the three wins every single night, three gratitudes every single morning, and then the three wins. And it’s just this constant refining of [00:45:00] making sure that I’m not off track. That

Derek: I love it, man. Fantastic. Number four, what are the core work habits that you attribute most to your success?

Curiosity.

Ryan: Curiosity in the pursuit of truth. I don’t

Derek: know what else to say. No, that’s great, man. Like those things account for a whole lot of success in many people that I’ve talked to already. Curiosity is the main thing because you approach things from a healthy detachment, but yet wanting to be hung, like hungry for knowledge.

And I can tell. And

Ryan: then you, and you don’t want to stop if it’s not true. ’cause if it, if the logic doesn’t make any sense, I’m not gonna

Derek: stop. Of course, of course. You want to be like, why is this still here? Yeah, yeah. Why, why, why? Alright. Last question I have for you, because we talk about time freedom as well, which is about systems and VAs and, you know, getting all of that in.

In order for you, what tool or process has become one of your most important time, money, or energy saving ninja magic tricks that you use almost every day?

Ryan: I, [00:46:00] this, ’cause I’ve had my personal productivity system that I’ve built. I’m pretty. I’ve evolved it over time to make it work for me over seven years.

But what is I introduced this year, Derek, which is, the superhuman, email tool. I didn’t actually go with the superhuman, but the split inboxes that they were talking about. So I’m actually onboarding my executive assistant that I’ve wanted for a long time, so I. My, the split inbox deal is I’ve categorized my work types, like clients, marketing, podcasts, content to consume.

So everything that hits my inbox, I immediately drag ’em over into these split folders, and then I schedule time when I’m gonna do those, so I don’t get anxiety every single time I pull up Outlook anymore.

Derek: You know? We got, we have a little bit more to talk about after this podcast, so we’ll talk after this.

Anyway, Ryan, it has been a pleasure having you on and really enjoy, like, you know, the, the. Just the, the fortuitous meeting that we had. Right. For your assistant reaching out and, you know, us being able to connect in this way. [00:47:00] I wanted to ask you though, if people out there in the audience who are listening now want to reach out to you and find out more about what’s going on in your world, how could they do that?

I’ll make it

Ryan: really simple. AR Kona, a r k o n a.io is the website, the podcast is there. The meeting link to schedule a meeting if you’re interested. Our online academy, that starter kit that I mentioned, honestly, Derek, I’m the Chief Revenue Officer. People can call my cell phone. Six one two seven two zero.

6 5, 3 0. And that, podcast I did when I told you that there was 80,000 people on. The guy gave my podcast or my email or my phone number out. I, you can’t even make it up, man. So I was like, Hey, what the heck? I’d never done it before. So there you go.

Derek: Awesome. Well, Ryan, I appreciate you, man. Thank you so much.

And for those, who have been listening, please do, check out Ryan’s website. There’s tons of information there. His framework is right there on the homepage. I just checked it out. When I first, got booked with Ryan here, and there’s tons of other great information out there. He is. Got a podcast.

Go check [00:48:00] that out. Tons of stuff that you can learn from him and all. Ryan, all the links that you provided, for social media and everything will also be put in the show notes for this episode. So awesome. Ryan, thank you so much for coming on the show. Derek, this has been awesome, man. I really enjoyed myself.

It’s been fun. It’s been fun. And for you listeners, we hope that you’ve been sharing in on the fun as well. So wherever you are listening or watching this podcast, please make sure that you like, subscribe, comment, just engage with us in general so that we can appease those algorithm gods and they can help get us more exposure to more great people like Ryan to come on the show as a guest or more, listeners like you so that they can listen into some of our awesome conversations.

So thank you, listener. And thank you Ryan again for coming on the show. Thanks, Derek. See you guys next week.

​[00:49:00]