Dave: 0:22

Good morning. Good morning, everybody. It's another Friday. I hope we had a wonderful and amazing Thanksgiving. You know, it's a day after, so you know, sometimes some you're probably in a turkey coma, but if you're like me. But otherwise, I hope you had a great day full of memories. And we're here for another episode of the Business Unscripted podcast. And I'm alone today. So his internet isn't stable, but we're here. We still wanted to bring you an episode today. And today's a good one, I think. And I hope. We'll see. You're going to know more about this from me because obviously, you know, the conversation goes unscripted. We'll see how that goes. But uh, so if you're a business owner and you are aspiring to be, you know, grow, or maybe you're thinking about just getting into business and you're and you're looking for you know some advice or want to learn from lessons from business owners who've gone through it before, you're in the right spot. And so take a lesson, feel free to share it. Hopefully, there's one or two tidbits that you pick out of today's episode that will you know impact you and your business. But so grab your favorite cup of Joe. I already have my cup of Joe's, so today we got water, but grab your favorite cup of Joe and let's let's jump into the show. So today we uh we are joined by Katie, and and Katie is in the funding industry, and there's been you know a little bit of back and forth that that we have had related to different funding options that are available to business owners and uh whether or not they're they're good or beneficial, as well as you know, obviously on this podcast, uh some of the things that we talk about in terms of you know cash management and profit first and you know putting systems in your in your business in place and the benefits to your business of doing that, that she's been an opponent of. And so I invited her here to join us on the show to really talk through kind of her viewpoints, what she thinks is is the correct way, right, for you to to possibly set up your business to be funding approved, and whether or not funding approved is the best way to be. So, with that said, let's go ahead and and welcome Katie to the show. Katie, how are you? Good, and yourself? I am doing fantastic. It's a beautiful day in the neighborhood. So right on welcome, welcome. Go ahead and and and Katie, what we'd like to do is when we bring everybody out, give you just give a little background of who you are and you know the business service that you provide, and then we can kind of jump into to some of the the nitty-gritty and the fun stuff that we wanted to have a conversation about.

Kadee: 2:54

Right on. So Katie Sprinkle, I've been in business with business funding for six years, I've been in business with consulting for operations and strategic strategies for roughly eight years. I've had several businesses of my own. I have failed and failed better. You know, that's fail and fail better, right?

Speaker: 3:18

So most owners have.

Kadee: 3:20

Yeah. Graduated high school, went to my first business as a contractor, did dry roll and roofing, and ended up getting hurt. So we ended up going back to school and getting things a little more organized.

Dave: 3:37

Nice. And and so, what type of consulting, like you said, you've been a consulting for about eight years. What type of consulting have you been? So, for those that are listening that may not understand what that means, what does that mean?

Kadee: 3:51

So, a lot of the route to a lot of people's problems in business is their operations are not on point. So, all of the things that they do from day to day, people don't have standard procedures that everybody has to follow. A lot of business owners just starting out, or even two or three years in, kind of forgot that part. They had this wonderful idea, they want to make it work, it's their baby, they love it, great, but a lot of times the operations aren't on point, they don't have the standard the standardality to it.

unknown: 4:32

Okay.

Kadee: 4:33

So my job is I go and check all that.

Dave: 4:38

And so you so hot how give a you know 30-second overview. How do you act how do you check that for business owners that you talk to?

Kadee: 4:46

Well, at this point, I have an edge assessment that goes through 10 different dynamics of business. Each question in those 10 different dynamics gives me an idea of where they actually fall within those dynamics, leadership, financial, that kind of stuff. And then once they have those questions answered, I get all the answers. I can go through and set up a report as to where their business really is and what operations we need to share up. And then we go from there. If they want to become clients, great. If they don't, that's all right too. They at least have a report with some actual items they can work with.

Dave: 5:23

And and so what do you what have you found has been the number one thing that typically people are missing in their business?

Kadee: 5:30

The number one thing is ownership burnout. They don't have procedures in there for taking care of themselves.

Dave: 5:39

Yeah, number two burnout because they're working too much, they're underpaid. What what what are what have you seen?

Kadee: 5:46

Burnout because a lot of business owners believe that if it's gonna get done right, they need to be the ones to do it. So they're not very good at delegating.

Dave: 5:54

So then part of part of your experience has been coming in and helping them develop the systems to delegate?

Kadee: 6:00

Develop the system, yeah. Develop the systems that work right to delegate to their people. Yeah, and when I say work right, I don't mean like my systems, I mean like what works for them.

Dave: 6:14

Right, right, no, absolutely. All right, so let's let's jump into it. So obviously, you know, you you're in the funding space, right? And I I think it remember correct me if I'm wrong, but so our our sort of back and forth started. I think I posted something about profits first, right? And and having a cash management system in your business and how important it is to have good habits around cash in your business. And if I remember correctly, you kind of came back and and kind of said how how that is horrible or or a wrong way too for a business owner to set up their business in order to be approved for alternative funding.

Kadee: 6:57

Well, that's the basic gist. I don't think I used the word horrible.

Dave: 7:02

I think I used the- Yeah, I think it was I think it might be something something different, but it was along those lines.

Kadee: 7:08

Yeah, basic gist thereof. So the the reason, because I have done some looking into profit first. I mean, let's let's just be real, I research before I open my mouth. Okay, the reason though is all of the different buckets that Profit First has you put in moving money to.

Dave: 7:38

So so that that's that's the first thing that I'm gonna disagree with you on. I I I obviously do a lot of networking, and I have a lot of bankers, a lot of lenders that are in my business, in my networks, that I've had conversations with, and not one have told me that they have turned down somebody because they're following the profit first system because they have too many bank accounts. In fact, I've worked for organizations that have had 10, 15 different bank accounts.

Kadee: 8:03

So do you work with underwriters?

Dave: 8:06

It doesn't matter about underwriters. Well, yes, I'm talking to business owners, I'm talking to bankers, I'm talking to loan writers, I'm talking so nobody has once said that because oh my god, you have you have seven accounts, we're gonna decline you. Well, because anybody who understands business understands that it's not the number of accounts.

Kadee: 8:27

I didn't say it was not a decline, or even or even high high risk, but it is high risk, but it is high risk, and the reason it's high risk, and why the remote is high risk is because the lenders, the underwriters specifically, are looking at the operating account. So if you're making okay, if you're making into your account every day, say five thousand, that's your daily balance every day, but you're moving parts of that into different places, they're seeing that as so many transactions that your account cannot handle or can barely handle getting a loan or an alternative funding.

Dave: 9:17

Good. Well, no, not good. For alternative funding, yes, absolutely, absolutely good, right? Because think about this. So so so here's why I don't think that you fully understand how Profit First works, right? Money comes into your income account. If you make $5,000 a day, you have your income account. That's gonna show $5,000 a day coming in, right? The money then is gonna get split between operating, which is what's left to spend and actually manage your business. So if you're overspending your operating account, you probably you know have to cut somewhere, not get a loan to keep funding, right? The second one is it's profit, right? It's your actual profit savings, it's cash reserves to be set up in your business. Nothing wrong with that. The third is owners pay, right? So you have to make sure that you're getting paid as an owner, and it's not necessarily all your money, it could be the some of the profit distributions of the business go into that account, etc. But it's whatever set aside from operations for you as the owner. And then number three is tax or sorry, four is tax. So no matter what comes in, you have to pay the tax man, right? So so the the main basis definitions of what comes into an account is not extravagant. That's going like any person who understands business should understand that. And if you're not taking that into account, you're actually doing it to the detriment of the business owner. Because if you if you want, if you want to look at if you want to look at an owner and say, okay, you got five thousand dollars coming in, I'm gonna give you this factoring right loan or whatever, and we can get into the the actual breakdown of that, but like and not take into account that like, hey, well, you have some tax money that you're gonna have to do, right? You have no reserves set up in your business, that's more high risk than having a company that has tax reserves set up in different accounts or profit reserves, that's not high risk because they have money set aside for when things slow down or when things may happen. So a business that doesn't have any of that is more high risk than if they're separating it in different accounts to save up for things that they know are going to happen.

Kadee: 11:27

The other part of this is it's not gap compliant. That's my other issue.

Dave: 11:31

What do you what gap compliant? I'm an accountant. What are you talking about? So what are you talking about?

Kadee: 11:38

Generally accepted accounting principles.

Dave: 11:40

Yep, yep. Maybe not 30 years.

Kadee: 11:45

I mean, it's just so Mike's book.

Dave: 11:48

And whose book?

Kadee: 11:50

Mike, the guy that founded the system.

Dave: 11:52

Right. This isn't an accounting, it's not an accounting method. No, but this is cash management.

Kadee: 11:58

But what they have to do is they got to go back through and make everything gap compliant to do their taxes move those place.

Dave: 12:04

That okay. For one, profit first is a money management habit. It is not accounting. Let's let's let's just break that apart, okay? So when a transfer goes in, right? It's it does it's not that's that's not any sort of accounting, right? Your accountant, your bookkeeper would then go and say, Okay, that's a transfer from one account to another. They record it. That's gap. I don't understand what do you mean it's not gap compliant? Mike specifically says in the book that it's not accounting, and it's it's true, it's not. Nobody has ever said it's an accounting system, it's a cash management system, it's a habit system, right? Because you're you're you're saying that it's something that it's not, it's not accounting.

Kadee: 12:54

I just said it's not gap compliant.

Dave: 12:56

No, no, no, it doesn't cause problems. It is gap compliant. You can transfer between accounts and it's gap, but if your accountant is is recording it correctly. Like you can't that's not saying apples and oranges and and app or let's actually let's say that's like saying apples and and a cucumber are are not are not the same thing. You want to eat an apple, you say, Well, you're not eating your vegetables. Well, no shit, I'm not. I'm eating a fruit.

Kadee: 13:21

What I'm saying to you is that you're making the assumption that every business owner has an accountant or a bookkeeper. That not ever and not every business owner does. Some of them do it on their own.

Dave: 13:33

So again, that's you that doesn't make any sense, right? Well, how just because you follow profit first doesn't make you gap compliant or not. Like it's it's two separate things. Because even if you even if you just had a business account, not even following profit first, okay, and you transfer money out of your account, you're not gap compliant because you are not transferring it. So that's has nothing, that has nothing to do with the conversation. So let's get away from that because it's not nothing, nobody's ever said that profit first is an accounting system, which is what gap is, right? Gap is actually an accounting system.

Kadee: 14:09

Actually, where are you certified? There are some people that are certified that have said that yes, it is an accounting system.

Dave: 14:15

Where? Because it's not.

Kadee: 14:17

So if you look at the 57-page report that I did, I did.

Dave: 14:21

I went through it by I went I did page by page. Okay, so you saw the video page by page.

Kadee: 14:27

You saw the citations.

Dave: 14:28

I actually didn't see any citations in that, which is why I was put out in the video.

Kadee: 14:33

There are citations, they're all in italics. So the 57 page, not the 16.

Dave: 14:41

Which 57 page?

Kadee: 14:43

It's in my profile on LinkedIn under publication. And that particular document has all of the citations from financial advisors, from bankers, and from people who have dealt with businesses who have gotten completely screwed up on profit first because they were told that it's an accounting system, which I am glad that you're not saying that.

Dave: 15:08

Nobody that is certified in the profit first system would say that it is an accounting system.

Kadee: 15:14

So, Dave, you gotta admit there's bad actors in every industry. Come on, that okay.

Dave: 15:19

So then you okay, so so so there's bad actors. Okay, let's bad actors in every let's agree on that. There's bad actors in every industry, okay? But so what you're trying to say is because there's a bad actor who said that it's an accounting system, you want to destroy the entire system?

Kadee: 15:34

No, I'm saying the entire system looks bad, looks bad on London.

Dave: 15:39

So does good because people who are uh who are a strong, right? Cash strong company, they're gonna have savings set up. That's green flags, those aren't red flags, right? So any any any legitimate right loan underwriter is going to be able to look at a business as a whole, look at a balance sheet, look at a profit and loss statement. It's not gonna matter if they have 10 or two accounts.

Kadee: 16:06

You're looking at traditional bank loans.

Dave: 16:09

You're right. Because when a company's strong, they should be able to apply for a bank loan.

Kadee: 16:13

And they should.

Dave: 16:14

I mean, if only 20% of businesses, only 20% of businesses don't don't qualify, typically.

Kadee: 16:19

No, that's the wrong time. That's a wrong one. 20% of businesses qualify for a bank loan.

Dave: 16:24

No, no, no, no, no. That's not true. That's not true at all.

Kadee: 16:28

That is totally true.

Dave: 16:29

That is totally true.

Kadee: 16:31

Dave, you couldn't walk in and get a bank loan today. There's a reason.

Dave: 16:38

Go ahead, tell me what that is.

Kadee: 16:39

Okay, do you own your home or do you rent?

Dave: 16:42

I don't do any, I just sold my home.

Kadee: 16:45

Okay. So are you going back to renting or are you owning?

Dave: 16:49

I live with my fiance. She has her own house.

Kadee: 16:51

Okay. So you don't own the house, therefore, you can't get a bank loan because you work from home.

Dave: 17:00

I have a business address. I can get the loan.

Kadee: 17:03

I understand. But you don't own it.

Dave: 17:07

It doesn't matter. You don't have to have ownership. It's on financials. I get like I've talked to business owners that like, trust me, like it it's not, it's it's not 20% of people qualify. That that that's true.

Kadee: 17:22

It is 20%.

Dave: 17:23

That is the yeah, that's where where where's where's that in where's that statement? Or where's that data?

Kadee: 17:28

So that would be in the national federal census.

Dave: 17:31

Because I gave you the data of where it's where in the video I gave. I gave the data where I understand 80% of people.

Kadee: 17:42

My numbers from the national federal census of January this year.

Dave: 17:46

Do you have the link?

Kadee: 17:47

20% that qualify of small to mid-sized businesses.

Dave: 17:51

Do you have the link?

Kadee: 17:53

Out of 33.6, I do not have it right on hand. It's not in my sticky notes. But as of 2025, uh January 2025, 20% of small to mid-sized businesses qualify. And the reason is this year the loans, the loan structure through banks got super strong. In other words, they're wanting almost perfect FICOs, they're wanting that's in anything, though.

Dave: 18:21

That's not just business. So let's go there.

Kadee: 18:23

Like, like everywhere is FICOs, they're wanting everybody to own their building that they're in, whether it's at home or brick and mortar, anything that is based in the internet is not it, it's not bankable. They're wanting for you to have two to three times the collateral of the actual loan you want. They want two to three times the collateral, Dave.

Dave: 18:48

Right. And so what I'm telling you, what I'm saying is that a business shouldn't just go right for a BCA or MCA. It's not smart in 80 percent, 80, 80 or 90 percent of situations.

Kadee: 19:03

You're still using somebody else's money to make money. So, how is that not smart?

Dave: 19:06

You're not using anybody, you you you're be okay. Let let's let's take a step back here for a second and let's explain how a BCA MCA works. So go ahead, you're in the industry. Tell us how a BCA MCA works.

Kadee: 19:18

So an MCA is a merchant cash advance that is solely based on your credit card advance, uh your credit card processing, period. That's what an MCA is based on.

unknown: 19:29

Right.

Kadee: 19:29

Okay, a business capital advance is based on all your revenue coming in. Okay, so there's the first distinction. Second distinction, an MCA, most of those people doing that, and I say most of them because we just admitted there's bad actors in every industry, right? So most of those people are only looking at credit cards and they're not looking at the health of the business, they're not looking at what their daily balance is total and whether or not they can afford to pay it back. They're gonna take your credit card processing and they're going to do it at the same rate every day for the life of it. A BCA, on the other hand, is not like that. We're looking at the health of the business, we're looking at daily balance, we're looking at can you operate on 80% of your daily balance? Because we don't go any higher than 20%.

Dave: 20:25

So it's so it if you can if you can operate on on 80% of your balance, why would you need your loan? If you have 20% free every every time it's let's look at it from the let's look at it from the standpoint of the season, okay.

Kadee: 20:43

If you have the opportunity to buy $30, $30,000 worth of inventory that you know you can turn into $100,000 worth of sales, but it's time sensitive, you have to do it within the next week. You don't have the money on hand. Okay. You don't have the time to wait for a banking fund because we're between three to six months to get approved. Period. So your next option option. You're breaking up really bad right now.

Dave: 21:27

You're you're breaking up really bad.

Kadee: 21:29

There we go.

Dave: 21:32

So I think I think we might have lost here for a second.

Kadee: 21:41

How is it now? So bad. So bad. I don't know. Okay.

Dave: 21:56

Back to so so MCA, just to just to kind of you know, kind of recap really quick. So an MCA is based on your credit card processing, right? And BCA is based on your total revenue.

Kadee: 22:07

And only credit processing.

Dave: 22:08

Got it.

Speaker: 22:09

How do you repay it?

Kadee: 22:10

Yep, right. Cash, credit card. So repayment can either be daily or weekly, okay, and it's sometimes weekly. All right. Your daily payment is never going to be more than 20% of your you know, revenue coming in of your daily balance, period. You know, a couple of things I did so that I can give you real numbers. Okay. There is say you get a $50,000 offer at a 1.5 factor. Okay.

Dave: 22:42

So you're paying back $75,000 just by just just by just by yeah. Right. So you're paying $25,000 of interest. Yes. So don't you say what's that?

Kadee: 22:52

That's the cost of funds.

Dave: 22:54

Okay. Interest. It's interest. You can call it whatever you want. It's interest.

Kadee: 22:59

So let me get the let me get through this. So $25,000 cost of funds because that's the industry.

Dave: 23:08

$25,000.

Kadee: 23:09

Industry merges cost of funds.

Dave: 23:11

Right. But I'm letting business owners who know who are watching this. Is that yes, they're going to tell you it's called cost of funds, but it's actually interest.

Kadee: 23:19

So you're going to go over 18 months. If you're doing daily payments, that's 396 payments, because there are 22 payment days in a month. So you're got offered the 50 because you're the low your lowest month was 200,000. Okay. That puts you at $666 and seven or six hundred and sixty, sorry. Your payment per day is going to be 190 $189.40, which is 2.84% of your daily balance. But it does matter.

Dave: 24:01

It doesn't matter how much you're taking out of their daily balance, right? It matters what are you actually paying back. Okay. So if somebody takes $50,000, right, right. So you're going to give somebody $50,000 and they have to pay you back $75,000. Yep. Right? Right. And what's the typical loan term on those? Six months?

Kadee: 24:21

Typical loan term is about 12 months, actually. Which I've got one at 12 months if you'd like to hear that one.

Dave: 24:27

Okay. So that's to say 12 months. Let's just assume it's 12 months. But most because if you're paying back daily, right? You know, and and your and your money goes up higher in what in one day or you know, whatever, they're gonna take more, right? That's not it's not a set payment. That's no, it's a set payment.

Kadee: 24:42

It's a set payment, Dave. That's the problem. You're assuming it's a fluctuating payment because you're looking at it as an MCA. Okay. MCAs fluctuate. You're right. A business capital advance, it is a set payment every day for the 22 payment days a month. Okay, because we don't take it out on weekends. So for the 22 payment days a month, it is a set payment. Now, if it gets down to it's a slow, it's a slow quarter, and you know it's gonna be a slow quarter because you've done your projections and you know exactly what you're gonna be looking at. You call your provider. Hey, it's gonna be a slow quarter. They're gonna ask you, hey, can we see your bank statement again? Yeah, cool. You send them your bank statement, they readjust your payment, man. Because honestly, they don't want to get screwed either.

Dave: 25:32

Right. So they're gonna adjust your payment, charge you more interest, right? And so your payment's longer. Yeah, no, so what do you mean no? Any any loan company that's going to extend the term?

Kadee: 25:46

It's a straight payback. Okay, you pay back.

Dave: 25:51

So you pay back 75, okay. So you and you it typically 12 months, but let's say let's say you extend it, okay? Or let's say let me ask you this this question for BCAs. If you if you pay it off early, what happens? You still gotta pay back the 75, right?

Kadee: 26:06

You still have to pay back the whole 75, and less, unless what you have one of the wonderful ones where you have 90 days to pay it back at your 50.

Dave: 26:17

Which most people can't, but well, so you're saying sometimes there is there is an option that you can pay back in 90 days.

Kadee: 26:26

Yeah, so there are no matter what.

Dave: 26:27

So if you go to 91, if you go to 91 days, you're paying back $75,000 no matter what. So if you if you pay $75,000 in 90 days, like that's that's that's like three, two, what would that be? You know, a crazy amount of APR. Let's just say you go on the average.

Kadee: 26:45

Comes out to 18.5% average if you annualize it.

Dave: 26:48

How? Because if you take a year, you just told me a year, right? Average is a year that somebody takes 50 and pays back 75. That is a 50 APR. 50.

Kadee: 27:01

That's 50 payback of the of the funding. Yes, that's not the interest.

Dave: 27:07

Oh, it this is this is what they the industry wants. It's still interest. Any money that you pay above what you got taken as a loan is called interest, no matter what you call it.

Kadee: 27:18

Interest compounds, Dave. Ours doesn't, right?

Dave: 27:21

Right. So this is even worse, right? Because typically an interest on a loan would be better because if you pay it off early, you you pay you save yourself interest. This, you're actually just saying, you know what, you're paying me 25 grand no matter if you pay it on day 91. That's like a loan shark.

Kadee: 27:34

Now, if you pay it off, if you go if you don't pay it off on night a day 91, but you pay it off on day 120.

Dave: 27:45

You're still paying 75.

Kadee: 27:48

But you get a 20 to 25 discount on that.

Dave: 27:52

I just asked you what would happen if they paid it off earlier. You said they're still paying by 75.

Kadee: 27:56

No, I told you there's the 90-day core rate, that's what it's called, is core rate. And I told you, you put it in that they were still gonna pay the 75.

Dave: 28:06

I asked you, you said yes, we can go back.

Kadee: 28:08

You jumped it and you put it in that as they were still gonna pay 75. If they live out the life of the term for the 12 months, you're absolutely right, they're still gonna pay the 75. If they pay it off early, depending on how early they pay it off, 20 to 25 is what they're gonna get discounted on.

Dave: 28:24

So let's say this well, on average, let's say somebody pays it off in four months. What are they paying back? They get 50. What are they paying back if they pay it back in four months?

Kadee: 28:32

Well, that would depend on the discount from the lender, and I'm not gonna do that off. Well, the average is about 22, I think.

Dave: 28:42

22 discount on the 25,000?

Kadee: 28:45

22 percent discount on the 25,000, yes.

Dave: 28:49

Okay, so they're they're gonna pay 68. No, 80, 78. So they're still gonna pay back 19,500. So over four months, right? Which is 19,400 divided by 50,000, is 39.39. Okay, which if you annualize that, if you annualize that, that's that's 156 APR.

Kadee: 29:14

If you annualize that, it actually gets lower.

Dave: 29:19

Doesn't get lower. Does it get lower? That's not how interest rates work. It does not get lower.

Kadee: 29:25

It's not an interest rate, it's a straight payback.

Dave: 29:27

It doesn't matter. I'm talking about because what business owners actually understand, right? It's it's it's it's actually interest on the money. Interest on the money. It doesn't matter how you spin it. Well, money that you have to pay on top of a money that you get on loan is is interest no matter what. And you're looking at you want to call it cost of funding. You want to call cost of funding is interest. You just want to make the assumption that because it doesn't compound, it's not interest.

Kadee: 29:54

Well, no. What I'm saying to you is the problem is that there are so many business owners that don't understand this. I want to do it.

Dave: 30:01

It's worse.

Kadee: 30:02

No. Because a bank loan honestly can be worse for somebody.

Dave: 30:06

No, no, no, no, no, no.

Kadee: 30:08

Oh, yes.

Dave: 30:09

A bank loan, a bank loan is way more beneficial to a business owner than any sort of BCA MCA could ever be. I can guarantee that.

Kadee: 30:17

No.

Dave: 30:19

No.

Kadee: 30:20

For the people that for the people of the 20%, for the 20% of the uh business owners and small demands.

Dave: 30:26

Okay, let's just get rid of the percentages because we can agree to disagree on that. Okay, I guarantee it's not 20%, but go ahead.

Kadee: 30:32

I can guarantee it is, but that's beside the point. So here's the deal for the business owners that can take a bank loan, that can't afford it, do own their building, have collateral. Here's where things start to get hairy. Because a bank loan is a fixed payment every month.

Dave: 30:51

Yeah, you can refinance, but go ahead.

Kadee: 30:53

You can refinance, you can only refinance after one to two years, depending on your lender. So if you have a slow quarter and you still have a fixed payment of a thousand dollars a month, which is one of the lowest payments I've run into. Do you have a fixed payment of a thousand dollars a month?

Dave: 31:10

Depending on what you get, but sure.

Kadee: 31:13

If you have a fixed payment of a thousand dollars a month, but you have a daily balance of five hundred, you're operating on 65 to 80 percent of said 500.

Dave: 31:26

Okay, what why do you keep going back to this average daily balance? Like that doesn't matter. Like your payment, your your payment to the loan is is once a month for a thousand dollars, versus I have to pay a back of BCA every day. Like that doesn't make sense.

Kadee: 31:40

Do you only operate on your monthly balance? Or do you look at what you have coming in daily? What do you do?

Dave: 31:45

I I operate because I know what's coming in and out, and I know what's set for operating because my because no, not daily. Expenses come out once a month, like it depending on how they're set up. So, like I look at my account in my operating account, and I have what's going into my operating account covers all my operating expenses.

Kadee: 32:05

How do you determine what the percentage is for that operating account? If you're not looking at things, I've looked at the history, I looked at the history weekly. How do you know how much to put in?

Dave: 32:48

What do you mean, how much do I know how to put in? Because it's built up enough where based on the percentages that I've allocated in there that I set up for myself, based on historical review of all my expenses.

Kadee: 32:58

How do you get to those percentages? Because your historical review should fluctuate. So are you taking the average of monthly?

Dave: 33:05

I take a yearly view. Okay, so it's an average of a yearly view, and then you and then you allocate it into your percentages as you need, right?

Kadee: 33:16

Based on your actual situation, your percentage is based on an average of your yearly monthly expenses, is what I'm getting to, right?

Dave: 33:26

Sure. It's it's it's off of my known expenses, right? Okay. So how I initially set my percentages, how you initially start with profit first is you would look at what have you been doing for the last year. Most people that we find out are not paying themselves, not setting aside tax money, and not setting aside any profit reserves. All the money is pretty much going to operations, right? And if it's not, it's probably going to owners' pay. And typically, so if their operating's too high because they're spending money where they shouldn't, what we set, and let's say it's 75%. Well, then the first quarter, we maybe drop it down to 72% and we look at their expenses. We do some trending, we look at their pricing, maybe they're underpricing themselves. There's a lot of things that Profit First helps you to identify to improve in your business. Okay. But it's not a daily number, right? But it's not a daily number, right?

Kadee: 34:23

But that's how lenders look at it is through a daily uh lens.

Dave: 34:26

So now I've never I've never had to provide a day-by-day breakdown for any of my clients to their to their lender.

Kadee: 34:34

That's you do, but you don't realize it. Yes, you do, because any bank, any bank that's looking into is looking at their statements as well.

Dave: 34:45

Oh, yeah. So that's so the but the statement doesn't they the statement doesn't give you the day-by-day breakdown.

Kadee: 34:50

But it's the tells the bank statement from their account actually does give a game.

Dave: 34:53

Not the day by day, it gives you an average sometimes when it changes.

Kadee: 34:57

It gives you an average at the top of the sheet. You're absolutely right. However, your spending on that statement is broke down by every single transaction that you do day by day. So that's uh that's what they're looking at. They're taking all of those days and looking what your daily balance is. So you do provide it, you just don't realize it.

Dave: 35:19

Okay, but but again, you you we're we're we we were got to this point because you said a bank loan is is worse than VCAs or MCAs.

Kadee: 35:28

Because the the payment doesn't change, Dave.

Dave: 35:30

If you re fy it's once a month, right? BCAs are every day, as you just said.

Kadee: 35:37

If you re-fi it once a month, okay, your once-a-month payment. If you refi that, you know the bank can go up or down, right?

Dave: 35:46

Of course, that's how that's how things work. Interest rates go up, interest rates go down.

Kadee: 35:50

If you call your provider for a BCA, they're gonna take a look at your statements again. They're gonna want to see your last month's statement, okay? They're gonna want to see where this did uh did, and then that is what they base the new payment on, and they or they'll give you another loan and charge you more money, right? Oh no, no, see, that's where you're wrong. You have you have said it happened.

Dave: 36:17

Come on. No, you've said the fees are gonna happen to clients. Like they they call, they they want it, they want, they need they need it, they need an adjustment, they go, Oh, well, you're 50% paid off, so here we'll just give you another one, not realizing that you know, but it's I just saved a client from doing this because it would have cost them twenty thousand dollars. So come on, don't say it doesn't happen, it happens.

Kadee: 36:37

It's an offer for what's called a renewal, and they don't have to take it, Dave.

Dave: 36:42

They don't have to because if they talk to somebody that actually was outside of the industry, they wouldn't because they realized how much impact it has on their business.

Kadee: 36:50

Do you have any idea how many times I've told people not to take a renewal?

Dave: 36:54

I'm not saying not you. Um we we already agreed that there's bad actors, right?

Kadee: 36:59

So a responsible broker tells them, hey, this isn't the right fit right now, man. And that's where the broker's job comes in. Right. All right, my job, you and I've had this conversation back in April last year. You and I've talked about this. You had an offer, you had an offer, you didn't like it. I told you not to take it.

Dave: 37:27

Sure, we did after I already said I don't want to take it, I wasn't interested in it because I understood the numbers.

Kadee: 37:34

Yeah, and I told you you didn't like it, cool. Okay, one of the bad actors in the industry, which are not that many anymore because of regulations, but there are still some. A bad actor in the industry would have pressured you. I said cool, right?

Dave: 37:53

Sure, I'll give you that. I'll give you that. Some bad actors would would have probably pressured, right? Exactly. I'll give you that, however, right. The there's there's few and far between situations where BCA makes sense. One of the examples that you gave earlier makes sense sometimes because you have an ROI associated with the the option. However, the vast majority of situations when people are considering the insurance, but whenever they're considering the issue of a BCAMCA, it's because they're short on cash because I got to cover payroll, they got to cover other expenses that are already occurring. There's no ROI associated with it, and they do not realize that the detriment to their business that it has by taking one of these. So, yes, you may take out a $50,000 loan, but you're taking out $75,000 from your future cash flow. Like you're actually reducing your cash flow.

Kadee: 38:47

Any responsible broker would not suggest a BCA for that. Any responsible broker would say, Hey, let's look at a line of credit because that's gonna do you better.

Dave: 38:59

How is that gonna do any better?

Kadee: 39:02

Because if they're if they're in a situation where they've got to bridge a gap, okay, such as payroll, which I have some contractors that use the line of credit just for that. They have a situation when they need to bridge that gap. A line of credit is going to need to be better on that. Because, like a couple of contractors that I have, all right, they use that line of credit right before punch out, so they pay their dice. Okay, and then when punch out happens, they pay it back without interest.

Dave: 39:37

Well, line of credit is talking about it.

Kadee: 39:39

They only pay back the principal they took. Well, only if you hit the credit moment where that interest kicks.

Dave: 39:47

And what what's the typical in your industry? Like what's the different line of credit interest that you guys typically would charge?

Kadee: 39:54

So line of credit interest is zero is either zero to three percent, depending on where you fall within the matrix of the lender. Okay, straight up. I don't have those exact matrix numbers, they're gonna be real. But I have contractors that will use that line of credit on a Friday to pay their guys, okay. Their interest doesn't come due until the following Friday, but punch out is Wednesday, so they pay back before the interest comes to you on the on the advance or on the draw from the line of credit.

Dave: 40:29

When you say punch out, punch out means what?

Kadee: 40:31

Punch out is their final payment. I'm sorry. I used to be a contractor, I forget sometimes that not everybody knows that.

Dave: 40:36

So sometimes punch out is when you get the money from from punch out is final payment, yeah.

Kadee: 40:41

That's when the job is done, the con uh the con client pays the contractor the rest of the money.

Dave: 40:49

But in business, typically that doesn't happen. Typically, there's a lot of terms, there's a lot of, you know, so so what happens in most scenarios is that yes, you should hope that the job is done and you get paid, but more often than not, there's a delay, right? Maybe the money doesn't hit the account, you know, you're not able to pay it back. And then, you know, essentially now, oh well, now you went past Friday. Now now you're now you're paying the interest. You know what I mean?

Kadee: 41:11

So it's like now you're making a weekly payment and you're making the payment on the money walking.

unknown: 41:18

Okay.

Dave: 41:19

And it's a weekly weekly interest of three percent. Is that is that true? Like let's just say it's worst case scenario. Your weekly interest is three percent on the outstanding principal. So if you paid three percent a week, right, compounding, like because you weren't able to pay back and like maybe you had to pay, you know, and you only paid it down slightly, like that that that's a crazy amount of interest. So that's not a typical so just so you just so if you're a business owner and you're and you're you're considering lines of credits, right? This type of line of credit is hold on, this type of line of credit is completely different than a typical funding bank line of credit, right? A bank line of credit, you're gonna charge your interest monthly, okay? Not weekly. There's a big difference. I've never seen a line of credit at 26.5%, but go ahead. So if you charge three percent a week and you compound that, that turns into anywhere between 150 to 200 APR.

Kadee: 42:13

Okay, so money walking, let me explain that. That's principle, money walking outstanding. Yeah, principle outstanding. Money walking is anything that is outstanding. So if they did make a payment and paid it down, that three percent is not on the original draw.

Dave: 43:08

I get it. No, three percent, but but that three percent is still gonna compound.

Kadee: 43:12

Now, in your in the scenario that we were working with, you're saying that there was a delay in the money hitting the bank. Okay, cool. So pay it off when the money does hit the bank before the next interest cycle.

Dave: 43:26

But that by then they've had they've had other payrolls that they now have to do. Like, you gotta understand, like a lot of times it does take like you're talking in like a vacuum that, oh, yeah, it'd be great to just pay it off.

Kadee: 43:37

No, let's go back to your buckets, let's go back to your buckets. So put a bucket aside. You know, you've got this payment coming up, put the bucket aside.

Dave: 43:46

You're right. That's why Profit First works because this is why we're gonna do things that we adjust to people. This is why one thing that if pay people have payroll setup, the first thing we set aside is a payroll account, and we figure out how much of your gross money should be set aside for payroll and taxes that are related to that, and so every dollar that comes in, we set aside 67%, right? For some of these businesses or 30%, and we put it there, and they don't have to worry about it because the money that comes in is already there, and we build up a balance so that it already covers.

Kadee: 44:16

Can you agree though? Back to profit first, since we were there again. Can you agree that it's not right for every business? That there are some businesses that's just not a right system for it.

Dave: 44:29

Just like any system, you're right.

Kadee: 44:31

Okay, cool. I can also agree.

Dave: 44:33

Any business it's not right every day. I and and I would I would defend that 90% of businesses property first should be used for.

Kadee: 44:42

I and I understand that you're passionate about it, I get it.

Dave: 44:45

It's not passionate. I'm just it's it's a it's an actual like it's a habit, right? 82% of businesses, 82% of businesses fail because of poor cash management. That's a fact.

Kadee: 44:58

Where'd you get that number?

Dave: 45:00

Where did I get that number? Well, I'll be honest with you, I got that from Alex Ramosy when he was doing his launch. And I'm gonna assume that he did his research. But 82% of businesses fail because of poor cash management. In that same right presentation, we can look up the actual data relying on this, it's it's there. 52% of business owners are either break-even or losing money year over year. So poor cash management is the result of more businesses' failure, 80% of businesses' failure, than not having a system in place to manage your cash.

unknown: 45:41

Right?

Dave: 45:42

Likewise. Because here's the thing, here's the thing. Night 100% of businesses are gonna have some sort of tax due, unless they lose money, right? More often than not, they're gonna have tax due. Whether it's sales tax, whether it's you know income tax, you're gonna have tax due. And the tax man doesn't care whether the money is in the account or not. So if you're not setting it aside and you're you're you're taking too much out for yourself or whatever it is, you're investing in bigger equipment. So you buy equipment, but you're not able to write that off this year, so you still have to pay tax on it. Whatever it is, the tax man's gonna come. And so if you don't have that money set aside, same thing with payroll. Payroll comes every two weeks, every week, depending on how you pay your employees. And if you're not setting that money aside because you're just hoping that it's going to be there next week, and you didn't set it aside into the payroll account and it's sitting in an operating account, and now an expense comes in this week that you want to pay, but really you don't have the money for it, you pay it anyways. Well, now you just shorted yourself for payroll because you don't understand what should be set aside for payroll. It is a money management habit system, it is not an accounting system, it is not a save-all system, it is a where are you at now and how do you grow to be where you should be? And the idea is when you're working with somebody who's a profit first professional who is also understands how to run your business, you look at other things than just cash. You look at your expense spending, you look at your where can you cut, where can you be more efficient, you look at your sales and your pricing to see where else you can are you pricing yourself right? Are you underpricing yourself? Is your margin right? So profit first is not an end-all be-all system. Profit first is an identification management system for your cash. And when your operating account is too tight, well, hey, why is that? Did something happen? Did an expense come up that you didn't clear? Did you did you agree to an expense that you shouldn't have because it's not in line with where you need to be?

Kadee: 47:39

So contractors, let's go let's go with contractors because I know that business very well. Let's go with contractors. A contractor buys materials based on their different bids. Okay, correct. Okay. Glad we can agree there. They take they base on bids, okay. Now, when the bid is trying to get under somebody else's bid, so then get the job because that ultimately is how bids are done. You're always trying to get under somebody else. Okay.

Speaker 3: 48:16

Okay.

Kadee: 48:19

Sometimes you gotta take money out of your reserve to get your materials because you cut your throat on your materials, you've made sure you're pay your guys are paid.

Dave: 48:29

But contractors also advise any business owner to put any bid in that loses that money. There's no point in that.

Kadee: 48:39

Here's the thing sometimes you have to do it, man, just to get that bid.

Dave: 48:42

So you would rather take a job to that loses you money overall.

Kadee: 48:46

You sometimes you have to do it to get the bid.

Dave: 48:50

I would never, I would never advise, I would never advise any business to put a bid into a job that you know you're gonna lose money on, ever.

Kadee: 49:01

I get that you would never advise that, and that's cool. That that's I get that.

Dave: 49:06

However, it happens, why would you why would why why would any business do that?

Kadee: 49:13

So in construction, specifically that that industry, your guys still get paid.

Dave: 49:20

I'm not I'm not worried, I'm asking if you are a business owner in construction, which you said you have a lot of experience, right?

Kadee: 49:26

Uh-huh.

Dave: 49:27

Why would you ever put in a bin that loses you money? Why?

Kadee: 49:32

Because you you're trying to get underneath the guy, uh the guy in front of you.

Dave: 49:36

Why you haven't answered the question? I don't care if I win the bid. Why would you want to so you so you would rather win a bid from John Smith, but you it would cost you 10 grand and you're okay with that?

Kadee: 49:48

Most contractors do this at some point in their life, at some point in their professional life. Why? Because they need to win the bid, they need to be for what reason it's costing you money because they still have guys that have to work. Who cares unemployment? Go get another deal.

Dave: 50:08

Okay, so you would rather pay ten thousand dollars out of your pocket to keep it to have a job like that. Okay, and this is why I would never advise anybody. What this makes zero sense, zero sense that you would ever go out and put a bid in that you know loses you money. And what happens zero business sense, zero business sense more expensive because you run into something. Well, then hopefully you have a change order process as part of your agreement that you know if things are you know you know above 10% of cost or things change 10%, that you go back to the the actual client, they pay the difference. Although they're that's why also in bidding, you also have a 10% you know, kind of miscellaneous sort of buffer in covers those things. Okay, 15, 10, 15, right? That's supposed to cover that stuff.

Kadee: 51:43

That 10 to 15 covers what's known as waste, not new issues.

Dave: 51:49

Okay, right. So hopefully in your agreement, you've included it in there that if things have actually changed, that there's change orders that are made. I've been part of the contracting rules.

Kadee: 51:58

If you're reputable, it's at the discretion of the client.

Dave: 52:02

If you're reputable, you shouldn't do it then. Yeah, if you're reputable and the client wants something changed, then you lose money anyway. No, you can't because if the client wants something changed, you're going to go and you're going to do a change order and they're going to pay for you.

Kadee: 52:14

No, I'm not saying they wanted something changed. I said there's an issue that you run into. I have gone in and done drywall jobs where I've run into I need to hire an electrician to come in as a subcontractor.

Dave: 52:23

Yeah, and hopefully that would have been in your contract that said, hey, we are unsure of what's behind these walls. So if something comes up that's a big issue, you we got to change the to change the contract. Like that's that's how things work.

Kadee: 52:35

You can't just arbitrarily change the contract because it's up to the homeowner whether they want it done or not.

Dave: 52:40

Okay, and if they don't do it and they you can't get past inspection, then you can't do the job.

Kadee: 52:45

Right. So you lose money anyway.

Dave: 52:47

No, you don't lose money, you're not losing money because nobody's doing the work.

Kadee: 52:51

Well, that's the point uh problem. That's where you're looking at it very narrow.

Dave: 52:56

Most contracts I'm looking at it from a business perspective.

Kadee: 52:59

No, most contracts are not lumps, uh lump sum up front.

Dave: 53:03

You're right. I'm not saying that they are, I mean, but if you let's say this, let's just use an example in your situation, right? Let's say it's a $40,000 job. Okay, so it's a $40,000 job. You it's a reconstruction thing. Let's just say that in the contracting business. Yeah, you put in there, hey, we have no idea what's behind these walls. So there may be some things that happen that are out of our control that will need an increase, right? At the beginning of that contract, you do 10, you get a ten thousand dollar down payment, or whatever you say, 12.5, like maybe it's 33%.

Kadee: 53:38

Usually 23%.

Dave: 53:40

If you don't have any right down payment part of these projects, then you're doing things wrong in business and and and you should probably change your agreements. I know I don't know if people like one of the biggest changes I've given to people is start taking down payments. Okay, so so you get your down payment of 10 grand, you start doing work, you start you know doing demo, which should could be covered in your ten thousand dollar down payment. Now you find the electric issue. Okay, you go to the homeowner, hey, this is a big issue. We're not gonna be able to pass inspection, we're not unless we actually increase the bid. We got to bring in, I'll bring in somebody to do a bid. The homeowner then says, I'm not gonna do the electric. In your agreement, it should say in there that if they don't do anything that passes inspection, you'll stop work immediately until they they, you know, whatever, however, you want to work it legally. Okay, and then you're so no, you're not out, you're not, you're not out money, right? Nobody's worked to earn the other 30. It doesn't matter, it's not it's not lost income because you you haven't actually done the work to have to pay out.

Kadee: 54:34

It does show up as lost income when you put in your uh your that's not gap.

Dave: 54:38

That's not gap because you don't there's no bills associated with it, right? But there are bills associated with you come in, you do demo, right? Your demo work, you pay your guys, maybe it's five thousand out of the first 10, right? And and then the the 10 is is non-refundable, okay. So now you pay your guys, you pay the initial materials that you had to buy, and you don't lose anything because you don't have any bills that you have to pay out of the other 30. But you do have bills you have to pay. Why you haven't done any of that work? What do you have to pay?

Kadee: 55:06

Because when you put in your invoices, your bills, your invoices, okay, because let's get that terminology straight right now. Bills and invoices, same thing. Industry calls it bills, everybody else calls it invoices. Got it cool. It's the same thing with trucking.

Dave: 55:22

Bills, what you gotta pay, invoices are what you get paid, right? Well, yes, but invoices are you getting paid, bills are what you have to pay, right?

Kadee: 55:31

In the industry, Dave. A bill and an invoice is the same thing, it's the same thing with the trucking industry, too. It's the same thing, okay.

Dave: 55:39

Okay, but what but I'm I'm still I I don't understand what you have this amount of money set for this job.

Kadee: 55:50

So we're gonna go with your 40 grand, okay? 40 grand for the job you have now projected that you're gonna have that 40 grand. Now you run into this problem, okay. Okay, the business uh client said I'm not doing this, correct? Okay, cool. In order to get it set up to have a subcontractor, okay. Most subcontractors have a contract with their GC.

Dave: 56:28

I'm still not seeing the issue.

Kadee: 56:30

Okay, that contract pays out whether they're doing the uh the subcon or not.

Dave: 56:38

Well, that would be that it'd be a bad agreement. I would be that would be a bad agreement.

Kadee: 56:44

That's how the work in the industry. You have a you have a retainer fee. You have a retainer fee that has to be paid out based on that contract, right?

Dave: 56:53

So then don't don't contract your your guy, your guys. If the if the work starts, sure, I get it. Like I could understand, like if they started the work, but if if that subcontractor never started the work that needed to be done after the electric's done, then you're not losing any money.

Kadee: 57:09

It's like retaining an attorney, you pay that retainer fee for a year, whether you use the attorney or not.

Dave: 57:16

No, I I I get that. I get that. But what I'm saying is that you your agreement should be covering you for those things.

Kadee: 57:24

But you do the same thing with contractors or with subcontractors. A GC subcontracts at the beginning of a year with a list of subcontractors, electricians, plumbers, whatever. Okay, okay, that retainer is paid at the beginning of the year.

Dave: 57:42

I've never heard of this being done, and I've worked with contractors, but go ahead.

Kadee: 57:46

Yeah, the retainer is paid at the beginning of the year.

Dave: 57:48

That retainer, so you're paid, so that retainer is already gone, so who cares? Like that's not part of the specific job. I still don't understand why you're saying that if you get paid to how do you lose money?

Kadee: 58:01

You've lost part of the money that you paid for the retainer, the subcontract.

Dave: 58:05

How? Because they're just gonna do another job with you down the road.

Kadee: 58:11

So you can't agree with you can't agree with me that a it's a loss happens, and that's all right, you don't have to.

Dave: 58:19

No loss happens because nothing is spent after that, right? But a loss a loss, a loss to a business owner, right? So when so that's we want to talk gap, right? We want to we want to talk gap, right? We want to talk gap. When you get awarded a bid that's forty thousand dollars, okay, a job that's forty thousand dollars, that is booked as unearned income, right? And it's not even like the forty thousand is booked as unearned income, it's literally just what you've gotten paid, right? Yeah, there's people people moving in the house, so yeah. But you only book what you actually get paid, right? And so if you get put, but let's say you get the first 25,000 of the of the 40, right? So now the 25,000 you only book to unear an income, and then you book what you actually earn as you earn it, right? So maybe it's milestones, etc. That that you how you're doing it in the industry, right? The other, let's say 15 in this case is never on your books. So if you never finish that work and you have no expenses related to that 15, there's no loss. But there is why would you ever again going back to the point? Why would you ever put in that bid of let's say that $40,000 bid, you're putting it in, and based on what you had said before, you would put in that forty thousand dollar bid to undercut somebody knowing that it's gonna cost you forty-five thousand dollars. You would still put in that forty thousand dollar bid. That makes zero sense, and I would never advise anybody to do that.

Kadee: 59:47

Contractors, you would always keep working.

Dave: 59:50

It doesn't make sense to keep working, why would the business owner ever want to say, you know what, guys? I want to keep you working, I'm gonna pay an extra five grand for you guys to keep working. It would never do that. It makes zero sense.

Speaker 5: 1:00:03

There's a responsibility to your employees, unless, of course, you see people as inexpendable.

Dave: 1:00:08

So then go find another job where you can make money to keep them working.

Kadee: 1:00:11

It makes zero sense that you would literally sometimes that job doesn't exist, sometimes that other job doesn't exist, Dave.

Dave: 1:00:18

Well, then I would not then then you're gonna lose the job. No one, no contractor that I know to that I've talked with would ever put in a bid that loses that money. Okay, and one, I would never advise anybody to put in a bid that's going to lose that money, it makes zero sense. And you want to go back to people you you want to talk about seeing people as expendable, sure. If that's how you want to put it, but the idea is if the business owner continues to put in bids just to keep people working that loses them money, there's not going to be a business for them to work at, so they're gonna be gone anyways. So I this is this this this is this is asinight of me. I don't understand why you how you could say that you would advise to people that they put in bids that I didn't say I'd advise it, I said I've done it. Right, but it's still but that doesn't make any sense. I've said it happens in the industry, but I just don't understand why that would happen. It it just doesn't make sense to me.

Kadee: 1:01:11

Not because they have that responsibility to their employees and they feel it, and it does happen.

Dave: 1:01:18

Okay, and so maybe if they're following profit first, they would have a reserve that maybe they could pull from for a job like that that would cover the difference.

Kadee: 1:01:27

The key word in there is money.

Dave: 1:01:30

Now right, but if they were following profit first and they had a good profit first professional who understood that there was times that go slow, they would actually have a s a drip account set up that in times when things are slow, they're able to pull from that drip account to actually keep things whole. And that's what the difference is.

Kadee: 1:01:46

Again, the key word is if.

Dave: 1:01:47

I'm not saying you're but if they're not if they don't work. With anybody that's setting it up and they're trying to do it all themselves, they're just gonna spend it. That's the the human habit. Okay.

Kadee: 1:01:58

Well, and here's the thing: if if they're working with you, because I find you to be a reputable individual, straight up, if they're working with you, probably not gonna be an issue. If they're working with Joe down the street, who isn't one of the reputable guys, who is one of the bad actors, then they're not gonna be a profit first professional for a long time, I'll give you that. Right. And and that's just it. Same thing applies in the funding industry, right? We're gonna circle back here, buddy. Same thing applies in the funding industry. If you're working with me, you know you've done it. If you're working with me, you're going to get, you know what? If that's not realistic to you, don't do it. If you're bankable, you're gonna get go ahead and go to the bank. Okay, if you have the collateral and you have the FICO and you have everything that you need to have to get a bank loan, definitely go to the bank. But the people that fall through those cracks that aren't bankable, their next best option are people like me.

Dave: 1:03:05

Well, but see, I wouldn't even say, like again, in maybe 15 to 20 percent of situations, they should consider one of these options. And that is only when there is an ROI associated with what they need to do.

Kadee: 1:03:22

Well, I've got a coffee shop that uses their line of credit regularly, I've had an appliance, I've had an appearance that has got a RCA and a line of credit and came back under a new DBA for another part of their business to get another BCA. Okay, because it works. If there's an ROI, if there's an ROI, it works because there's a strategy, and you're right, it makes money for there's an ROI associated with the outcome.

Dave: 1:03:53

Now it reduces your ROI significantly, as we already talked about. So, for example, let's go back in your scenario to the the scenario you gave where somebody has a hundred thousand dollars of return and and they need to buy inventory for 30. Okay, yes, so typically that if you take that here, so yeah, it would be about a 70%.

Speaker 5: 1:04:15

It's gonna be it's gonna be a $70,000 ROI.

Dave: 1:04:18

Correct. How and so that's just gross profit margin. So let's say on that inventory, right? They have overhead, they have all that other stuff that goes into it. Okay. Now let's say the overhead of the company and they're a typical 10% you know mark net profits, right? So it costs them $30,000 to get $100,000, they net $70K, which means they have, you know, they have sixty thousand dollars of overhead expenses, okay, for that month. Let's just say that's just a month that they need debt in, right? And so that leaves them ten thousand dollars of profit, which is a ten percent profit margin. Okay, now in your scenario, just really quick, how much would they pay back for that 30?

Kadee: 1:05:02

I gotta do the math right quick, man. Because it depends on the other.

Dave: 1:05:05

Well, that's just typically it would be a 1.4 or 1.5 factoring, correct?

Kadee: 1:05:10

No. Average factoring is 1.2. I did 1.5, but worst case.

Dave: 1:05:16

Now I could do I've got let's say you're average, so let's say 1.2. 1.2. So that means they're gonna pay you back $36,000 for that 30. Okay, so now that six extra six thousand dollars goes directly to their bottom line, right? As another expense. So now their 10k of profit now only becomes a four thousand dollar profit, right? So now their profit margin is only four percent from ten percent. So that factoring actually reduced their profit margin by over a hundred percent.

Kadee: 1:05:52

So is bank loan. No, well, bank loan actually will reduce their profit margin too, because they've got to make the payments and they've got the interest that compounds.

Dave: 1:06:04

However, thirty thousand dollar loan from a bank loan, right? But a thirty thousand dollar loan from a bank I didn't say these weren't expensive, I didn't say that.

Kadee: 1:06:15

Never once did I say that these aren't expensive.

Dave: 1:06:18

Okay, but what I'm trying what I what I'm trying to say is that right, most owners don't understand, right? Which is why we're having this conversation. Yeah, exactly, right?

Kadee: 1:06:28

Yeah, and what I was trying to say, but you gotta let me have the conversation because here's the deal. Okay, yes, they are expensive, yes, they should be used sparingly and responsibly. Yes, there should be an ROI. And honestly, any ROI that you get on these, I advise when I talk to people that it should be anywhere between 60 to 70 percent of what they got.

Speaker 5: 1:07:02

So on top of what they got on top of what they got.

Kadee: 1:07:07

So if they've got 50,000, they should be making anywhere between 150 to 200,000 on that.

Dave: 1:07:17

Right, and but this is where again it needs to go that extra level because if you just look at top line revenue, right, which is what you're advising people on, and you're missing the whole other piece of it, I think something like this can easily turn that this can easily turn into something that's worse. So, like if in if in the case the previous example, if it turned into they were a 1.5 factor, right? They they had they meet your margin, right? They're definitely getting way more than 60-70 percent of what they what they got, right? So they they're making 70. But if they're a one point, if they were a 1.5 factor, right, they would actually have to pay back $45,000 for that 30, which means your net profit would be a negative number. If and only they'd be losing $5,000.

Kadee: 1:08:01

If and only if they accept the offer, just like decline it.

Dave: 1:08:06

Listen, it's human nature. Let me let me ask you this. I mean, come on, you show somebody who is in desperate need of $30,000. Hey, I got this great option for you. It's thirty thousand dollars. Here's what it is, and it's small repayments, right? You're not telling them how much total, right? You may show it on a document, but you're not gonna say it. You're gonna be like, Oh, I got this option, here's 30,000. It's it's only gonna be like, you know, 120, you know, every single day, you know, five days a week, you know. You're not actually saying, you know what, by the way, like here's the thing you're not, you're not so what you're saying is that you actually debt the whole scenario that I just did right here, you're looking at their net profit.

Kadee: 1:08:44

Okay, you're actually telling them once they get an offer, because I don't see the offers to begin with, my clients have to share them with me if they want me to know and they want an explanation and they want to talk about it. But once they have an offer, I get an email telling me they have an offer. I make a phone call every single time, and we have this discussion. That's what a good broker does.

Dave: 1:09:03

And so you actually break it down all the way down to hey, by the way, if you take this, you're losing money, yeah.

Kadee: 1:09:08

And if they're losing money, my advice is don't take it.

Dave: 1:09:14

And that would be the case in about 80 to 90 percent. No, what do you mean, no? Because unless they're doing it for an ROI, they're probably gonna lose money or at least reduce their reduce their profit.

Kadee: 1:09:26

Here's the thing just like with yours, you didn't qualify for anything that was gonna cause that problem. You qualified for something in microfunding.

Dave: 1:09:35

No, I I actually I mean I qualified that something that would put me in a worse situation, probably.

Kadee: 1:09:39

You qualified for microfunding.

Dave: 1:09:41

I think I qualified, I think because I just went through it just to see what I would actually qualify for. You know, I didn't need it. They wouldn't want me to pay like double what the offer was for.

Kadee: 1:09:51

Like, come on, like that's that's microfunding. There's a big difference. There's microfunding and macrofunding.

Dave: 1:09:55

Like if it's microfunding, yeah. I'll give you that. Okay, there's a big difference, sure. But there is a big difference. Here's here's the thing. Here's here's my problem with these things, right? Is that once like this case, okay? So one month they take the 30, right? Then they get back the hundred, they pay all their money, right? They they they pay back the 36. Okay, well now they definitely need to get it the next month because they don't have the profit to actually build it up. Why not?

Kadee: 1:10:22

Because because I would never advise them to take it if it's going to give them that low of a margin. So they don't need to get it.

Dave: 1:10:29

So on this, so so on this scenario, if it costs you 30 to get a hundred thousand dollars in inventory, and we break down the numbers the way you just did.

Kadee: 1:10:38

And we break down the numbers the way you just did because that's what a responsible broker does. Okay, I would never advise them to take it. I would tell them it's a bad risk because that's what a responsible broker does.

Dave: 1:10:53

It's not about getting it. Let me ask you, have you ever funded somebody that needed it for payroll?

Kadee: 1:10:58

No, I don't fund it. Bad risk. I won't do it. I personally will not do it. Okay, it's against my knowledge.

Dave: 1:11:13

The vast majority of uh of these types of situations are given to people that are trying to pay for payroll or trying to pay for things that have already occurred.

Kadee: 1:11:23

Okay, no, that's not the no, that's not that's the people you've that's the people you've met. That's not the vast majority of them. The vast majority are using it for growth catalyst, they're using it because they know they can get the ROI. The people you've met, I get it. They've either had bad brokers or made bad decisions, and it's cool. People do it all the time.

Dave: 1:11:48

It's just it's it's just a common thing. Just like that's like saying payday loans for people are well, they just needed it because they, you know, they they just needed it to payday, like that's the same situation.

Kadee: 1:12:00

No, it's not because a payday loan doesn't have the same kind of strict uh regulations, and by the way, payday loans are now illegal in almost all 50 states because of that reason.

Dave: 1:12:10

The amount of interest that they can charge, right? And that's the only thing you guys aren't regulating in terms of how much interest you can charge.

Kadee: 1:12:17

I never said it wasn't expensive. Matter of fact, I have said it several times that it is expensive, it's not being right used properly. I have said that several times. I've never said that I would put somebody in a bad situation because here's the deal. Okay, at this point, through the regulations that I have to use, all right. If you're not making 15k on your lowest month, you're not getting approved.

Dave: 1:12:47

Okay, but but that's 15k, like again, you're you're talking high numbers. You can be bringing 15,000 of revenue in and lose money, like that doesn't matter. Like, why are you only but if you only look at revenue, like that doesn't matter?

Kadee: 1:13:00

They're also uh underwriters are also looking at daily balance, time and business. Is the bank account in good standing? So if you had NSFs and not uh you know all that great stuff, negative days you're not getting approved if you have all those things, just like you're not gonna get approved in typical funding, right?

Dave: 1:13:19

But right, that's not what I'm talking about. That's not that that has never been a contention, and actually it was something where you said like profit first causes there to be more NSF, which I thought was pretty funny.

Kadee: 1:13:29

No, I didn't say that.

Dave: 1:13:30

That was in your first report.

Kadee: 1:13:32

No, I didn't say that.

Dave: 1:13:33

You said you said that the account increases the profit first increases the NSF, which causes you not to be fundable. And I and I actually debunked it.

Kadee: 1:13:41

I said it I said in that report that it could potentially cause that one in your operating funds. Potentially because if you have more coming out on operating month and you've already moved all this money, you either have to move money back or you don't spend it, you don't spend it. Well, you sometimes don't have to do that.

Dave: 1:14:03

You don't let your yeah, you do, you renegotiate, right?

Kadee: 1:14:06

If you if you can renegotiate your electric bill that went up because you had 15 machines running instead of 10.

Dave: 1:14:13

You would pay that out of your operating expense because the money would be there, right?

Kadee: 1:14:17

But if your operating expense isn't set up for 15 machines instead of 10.

Dave: 1:14:23

Well, you're so here's the thing back when you transfer money in, you're not transferring money just for the minimums, right? You're the idea is that you're transferring based on an average, which over right, let's say because you're seasonal, and you look at it, the percentage is gonna be the average. So you're going to on the slow months, you're going to be building up a reserve. So on the high months, it's actually already there, right? This is the better part of that. So likewise, if you're taking a BCA, you're not going to have NSFs.

Kadee: 1:14:49

Likewise, though, if you're taking a BCA, you're not taking that BCA. Usually, there are some people that get a little freaked out, but usually you're not taking that BCA for anything other than a growth move.

Dave: 1:15:06

I'm gonna respectfully tell you that that's incorrect. And I'm ranking the already of business owners that are looking for that, that are looking for a loan, it's because they're in a cash situation that they need money, whether it's for growth, whether it's for new equipment, whether it's for hey, I gotta come up with payroll and I don't have the money for it, whether it's I took too much money out and I can't put it back in. Like the vast majority of situations fall into the ladder too, right? They don't fall into the I need to buy inventory, or even if they do, we already just proved that sometimes it could still destroy your margin by taking one of these things and putting you into a worse situation. I think a responsible broker talk about the industry, though, right? The actual idea of a BCA. What most people don't understand, right? The business owners don't understand is how they work, right? They and that's different if you have a good broker or not. And a lot of times a good broker is still gonna present the information to you and say, Hey, I think this is your best option, right? And they're gonna say this is your best option.

Kadee: 1:16:03

Yeah, no, a good broker would never say that if it's not. A good broker would never say it's their best option if it's not, because it's not our job to put them in a bad situation, it's our job to make sure that it's the right fit at the right time for the business.

Speaker: 1:16:18

I'll give you credit for that, like yourself. I'm talking about the industry as a whole, though.

Kadee: 1:16:22

Yeah, and I am too. A good broker, a good responsible broker is the in the industry as a whole, is not ever going to put their people, uh their clients at risk when the numbers don't work, they're not gonna do it. Now, the bad actors, which we've already agreed are in every industry, the bad actors, yeah, they'll do it because they're they're committed they're commission chasing.

Dave: 1:16:49

Which I would say is probably the majority.

Kadee: 1:16:52

Not really. You'd be surprised with all the regulations. I mean, and the state of California, the state of California has regulations as to what terminology we can use and whether we have and most of the time you have to be a licensed broker to even present an offer. So the bank is presenting it, the lender is presenting it, not us. In New York, okay, in New York, there are certain factors that can't be used. In New Jersey, they won't even let us do it for certain industries in New Jersey because it's it would be considered predatory.

Dave: 1:17:31

And why do you think that's happening, right? Because the policymakers have to protect the actual individual who doesn't other than any idea what's happening.

Kadee: 1:17:40

Just like any industry that is still growing up, because let's be real, alternative funding is new for businesses, right?

Dave: 1:17:49

So just like any industry, and you saw and we see what it's done with with payday loans, how it's done to the individual. You're right.

Kadee: 1:17:56

Okay, with with the industry still growing up, just like any industry still growing up, laws are found, man. And I don't deny about it.

Dave: 1:18:06

This industry takes takes advantage of people that are desperate. I'll just like we can agree on that. You're taking advantage of people that are desperate with with 1.2, 1.3, 1.4, 1.5. Like that's crazy, right?

Kadee: 1:18:19

Now you're blaming the tool. Blame the people that are the bad actors. Don't blame the tool.

Dave: 1:18:24

I'm I'm blaming the tool, like you're blaming the industry. A BCA in general, right, is is a bad, bad investment, unless you have in this case, these individuals, right, were in the 30 to 100, right? They were getting a a you know a 70% margin, right? They were they're actually gonna triple their money, okay. But because of the the fact that they still have other expenses that got to come out of that money, it actually cost the business right a significant amount of their profit margin.

Speaker 5: 1:18:57

The bad actors are the ones that push it, and there are very few of those these days to be able to do it.

Dave: 1:19:02

Right, but what's gonna happen? Wait, what's gonna happen if you tell them no? Well, you know, they're still gonna go and they're gonna go do it if they don't understand what's going on, they're gonna find somebody else, or they're still gonna go against your you know, your advice. Like that all I'm saying is that it's fair choice moreover, right? And that's why I'm trying to educate people on it. That that BCAs, MCAs, whatever it is, they're bad for your business. You have to find other ways, and it comes down to money management, which is why profit first actually helps people to avoid the situation of having to take one of these options, right? That's going to cost them a significant amount of money.

Kadee: 1:19:33

And your money management, and I understand, I understand, okay. Money management is definitely important, whether it's profit first or other options. Okay, I get it, it's cool, but not everybody all the time has the money now to hit their growth, and they can't just wait for it.

Dave: 1:19:54

You're right, because they haven't planned for it.

Kadee: 1:19:57

Well, they do plan for it, they just don't plan it in a sp in a moment of time where I can get this right now because this is a sale that I didn't know about.

Dave: 1:20:09

Okay, but if if they haven't, if they plan for it efficiently, then they would have either the money set aside or the funding options lined up for them when it were to happen.

Kadee: 1:20:21

But the funding options come down sometimes to brokers. It's just an option, it's a tool, man. You can't blame the tool, you wouldn't blame your pencil for misspelling a word, right?

Dave: 1:20:35

Yeah, again, that's that has nothing to do with it.

Kadee: 1:20:38

Well, yes, it does. You're blaming the tool. It's not the tool that's bad, it's the bad actors in the industry. You're right.

Dave: 1:20:43

I am I am blaming the tool in this case because it costs business owners a significant amount of money to take advantage of it. So if the tool is bad, you can still blame the tool.

Kadee: 1:20:52

Well, no, a tool is a tool, yeah.

Dave: 1:20:55

Because the industry as a whole doesn't educate people on how much it actually costs. The business as a tool is trying to hide behind wording that they're not charging people interest. Well, this is just cost of funds. This is an interest, this isn't an APR. Don't worry, but it's just cost of funding. Don't worry, like that's that's the problem I have.

Kadee: 1:21:15

Well, you every industry has their own terms, yes?

Dave: 1:21:22

Not when it comes to cost of funds, no, no, yeah, that's just general.

Kadee: 1:21:27

Your interest rate, even with a bank, is still the cost of funds.

Dave: 1:21:32

Sure.

unknown: 1:21:33

Okay.

Dave: 1:21:34

But the fact is that you tried you tried to actually tell me, and I believe it was on the phone when you tried to cut when you call me, you're like, I don't charge interest, man. It's not interest, it's not interest. Yeah, it is.

Kadee: 1:21:43

It's cost of funds.

Dave: 1:21:44

You're hiding, you're hiding behind a word. You just admitted that the bank says the same thing, that your interest is cost of funds.

Kadee: 1:21:50

It's cost of funds. No, it's interest is the same thing. You just admitted it. It's cost of funds because that's the proper term.

Dave: 1:21:58

Okay, which in but in common knowledge, what what that means is interest, correct? Can we agree on that? That it to average 90% of people when they think of cost of funds, is they use the word interest.

Kadee: 1:22:11

We can agree that people are conditioned to believe that. Yes, we can agree that.

Dave: 1:22:16

Right, we can agree that we can't. When you say your cost of funds, that's really interest.

Kadee: 1:22:21

We can believe we can agree that people are conditioned by traditional systems to believe that. Yes.

Dave: 1:22:27

Wait a minute, but you just said banks use interest as cost of funds, and vice versa.

Kadee: 1:22:32

Well, bank in reality, we can't your bank interest is cost of funds. The problem with bank interest is that cost of funds fluctuates from month to month because of compounding interest. A straight payback has a straight cost of funds. It's interest, it's still interest, and you can choose to look at it that way. You're absolutely right.

Dave: 1:22:53

I'm not I'm not choosing to look at it that way. It's it's anytime you pay back more than what you get, it's interest. It's it's it's interest whether you call it cost of funds.

Kadee: 1:23:02

If I borrow 10 bucks from you and you want 15 back, the cost of funds is fine.

Dave: 1:23:07

It's an interest, right? It's my risk, right? It's that that's the point. I'm covering my cost, my risk in you of giving you back my 10. It's still interest.

Kadee: 1:23:17

It's cost. Any way we select.

Dave: 1:23:20

Because the IRS would require me to claim the five dollars is interest earned.

Kadee: 1:23:24

Oh, you're gonna claim that on the IRS?

Dave: 1:23:27

It's it's in the law, technically.

Kadee: 1:23:29

So, yes, technically, a funding, a alternative funding, that is the cost of funds. It's not necessarily the money. But it's interesting, it's not necessarily the money that's made by the lender because the lender takes their commissions to the agency.

Dave: 1:23:44

It doesn't matter. I'm not talking about that. It's still to the business owner interest that they have to pay.

Kadee: 1:23:49

Interest that they're gonna have to pay on is going to be a lot lower than say the $25,000 in the first example we ran through. It's gonna be a lot lower than they're doesn't matter how it's paid. Well, you just said they're gonna pay on that interest. They're still going to pay.

Dave: 1:24:05

Any fee, anything associated with getting that funding is still kind of a cost of that funding, which is interest.

Kadee: 1:24:13

We're talking about the lender now because they've got to pay taxes. I don't care about the lender, but you just brought up the business owner pay taxes on it.

Dave: 1:24:21

Sure. And of course, they're gonna have expenses related to just like any other business that has income coming in, they're gonna have expenses. I get it. That has nothing to do with this conversation. This conversation has to do with the fact that to the business owner, they are paying interest on that money. What however the bank decides to use their interest and and allocate the interest to other people, that has nothing to do with the business owner. The business owner is still paying the interest.

Kadee: 1:24:44

They're paying a straight cost of funds. The cost of funds in an internet alternative funding is a straight payback. The cost of funds in the banking industry is a variable payback because of compensation.

Dave: 1:24:57

Not variable, it's a set, it's a set interest rate and a set repayment. It variates. And if I pay and if I pay that loan back in full uh after the first month, I only pay that first month of interest. I don't pay somebody astronomically high plus interest.

Kadee: 1:25:16

Plus two to five percent of early per early payback.

Dave: 1:25:19

Most most loans nowadays don't have early payback penalties.

Kadee: 1:25:24

Two to five percent of early payback. It's actually most loans do have that, Dave.

Dave: 1:25:29

I've never actually signed a loan, whether it was when I was working for a $150 million organization, a $15 million organization, or myself personally, that had early payback penalties. Never had it.

Kadee: 1:25:40

And you are one of the few that have had that luck, and that's cool.

Dave: 1:25:44

It's you negotiated, it's it's called negotiating. Come on, it's it's called making people aware of these things, you know what I mean?

Kadee: 1:25:51

Negotiation on a bank contract very rarely happens, Dave. The fact that you have that luck is great. I'm glad for you, I'm happy for you. That's awesome. Sure, but unless you are one of those S corps or C corps, you're not going to negotiate because you're gonna look at that contract and you're gonna go, okay, I get the money, and I don't plan on paying it off early anyway, so I'm not gonna worry about that, right?

Dave: 1:26:13

So even if you let's say you you, you know, even if you do pay it off with the early payment penalty of two percent, it's still a lot less than paying a flat rate of 50,000 or whatever it ends up being a factory.

Kadee: 1:26:24

That early uh two percent isn't just on the principal, it's on what's left over. Yeah, I don't know. Because that's how banks make their money, Dave. I get it, they make their money based off of that, so they're gonna hit you for the two percent of what the total amount would have been had you paid it off all the way through. Oh, okay, and and two percent of that total amount is a lot less than two percent, two percent of three hundred and fifty thousand dollars plus your compounding interest because they do put that on. Plus their compounding interest because they do put that on there, you could be paying two percent of anywhere between five to six hundred thousand dollars, depending on what your payback was.

Dave: 1:27:03

Okay, so ten thousand. So you pay ten thousand if you pay off the three hundred and fifty thousand dollar. Now, if you were to factor that, yeah, if you were to factor 350 grand, let's just say even at 1.1 percent, that's you know, $35,000. Because I'm just gonna factor at $1.1, it's $35,000.

Kadee: 1:27:29

It's not $35,000, it's $30.

Dave: 1:27:32

$350,000 at a 1.1 factor.

Kadee: 1:27:35

Oh, I did $300. I did $300. So that's where our discrepancy is.

Dave: 1:27:39

It's $30, but yeah, because you have $350. But again, $35,000. Okay. And then even if you only pay, uh even if you get, well, I think you said like a even if you get a 25% discount by paying it off in the first month, right?

Kadee: 1:27:56

That's or in the second or in the harder or right.

Dave: 1:27:59

You're that you're still paying $26,000 flat if you pay that off. If you were to factor it, then if you were to get a bank loan with an early payment penalty. So it's cheaper to do the bank loan.

Kadee: 1:28:13

Where you're not looking is what is the strategy they're using it for. Because that's what that's what the big determiner is.

Dave: 1:28:21

If they're using it, like I've got a guy that is being why that applies to a bank versus a factoring situation here.

Kadee: 1:28:28

It it applies to both. So I've got a guy that is looking to apply. Okay, he's wanting to buy a building in Indiana, all right. Whole shopping mall building, okay. Okay, his ROI on that, he only needs four $4.50, I think he said. Don't have my notes right in front of me. He's will get that offer based on his revenue. Okay, his FICO is awesome, his revenue is awesome. He's no he's what's known as a paper. All right, he'll get that offer. But his ROI on that is 2.8 million. Okay, and I'm not what's the so his factor is going to be closer to the 1.1 because of his FICO is awesome. Okay.

Dave: 1:29:18

Okay, but I'm not what what does it have to do with the traditional loan versus BC?

Kadee: 1:29:24

Because the traditional loan he would have to wait six to eight months for he's already looked at it. With us, he can wait 48 hours.

Dave: 1:29:31

Okay, no, I'm I'm not saying that. So and again, this fits into the situation where I said maybe it makes sense for you to do it. I've never said that I'm I from the get-go, I said that there are specific situations where this makes sense when there's an actual ROI.

Kadee: 1:29:45

But you said the tool is the problem. The tool isn't the problem, the usage of the tool is just like with profit first. Profit first isn't the problem, the usage of the tool is.

Dave: 1:29:55

So in in in the case of the BCA, right, for anything that doesn't fit like one of these actual scenarios where there's a big ROI, it's the tool, right? Because in most cases, let me get you let me let me let me the most cases, right, would be that they're gonna be 1.3, 1.4, 1.5. 1.2 is the average comes down 1.2, 1.25 comes down to the average, right? But you probably have, and that's average because your 1.1s are like you just said, the bigger numbers, which then makes the average down to 1.2.

Kadee: 1:30:32

So the 1.1, the factor is determined by your FICO, but let's be fairly right.

Dave: 1:30:36

But what I'm saying is that if you have a lot more of these people that have better credits, they're going for like these bigger, you know, situations, like you just said, it's going to bring down the average, then the average owner who's looking to only get like 20,000 or 30,000. Okay, you know, there's three or four of those at 1.5 that added up to you know one of the 1.1, and the average is still gonna be 1.2 because the 1.1 is higher. All I'm saying, right, is that the tool, when you're looking to charge somebody that much significant extra cash, right, for the money that they're getting, it just builds a cycle because once they get the first one, now they take five grand out of their future cash flow. Now they're gonna have to do it again just to pay the next one another $10,000 out of their cash flow.

Kadee: 1:31:19

That's called stacking, Dave, and that's illegal.

Dave: 1:31:22

What do you mean? Every one of them are written where once you pay 50% off, you can pay, right? You can you can get another one, right? I'm not saying you can stack, not saying I'm not saying anything like that. I'm talking what I'm talking about is that once they get one you're feeling I'm going through the same lender all the time.

Kadee: 1:31:40

Because if you go through a secondary lender, if you go through another lender, that's called stacking and it's illegal.

Dave: 1:31:46

Oh, okay. But what I'm saying is that they then pay off the first one and get you another one. Right. Or or they paid off the first one and now they need another one. Another in the same situation. And now instead of five out of their future cash flow, there's ten out of their future cash flow.

Kadee: 1:31:58

You're assuming you're assuming they're taking a renewal because that's what it's called.

Dave: 1:32:03

Most authors are gonna have to.

Kadee: 1:32:05

No. Yes.

Dave: 1:32:10

If there's no ROI associated with it, most of them are going to be taking renewals.

Kadee: 1:32:15

Your case, there's no R if there's no ROI, why would they take it in the first place?

Dave: 1:32:21

Because, like as you said, they want to pay payroll, they need to cover expenses, they need to do things. So that's where the line of credit comes in.

Kadee: 1:32:27

That's where a line of credit comes in, and you and the entire tool is just gone.

Dave: 1:32:32

But even then, even then, it's still the tool. The tool at that point. So the tool for specific situations is fine. If it doesn't fit the situation, then the tool is the problem because the most of the people that it's generated to, most of the people that it's marketed to are not the people like your dude that needs 450 grand in 48 hours to buy a shopping mall. It's marketed the people that are searching, I need cash fast or I need cash now. How do I cover payroll? That's when it's marketed to you. And they get the pop-up because they're oh, get $50,000 today.

Kadee: 1:33:07

Where do you see those marketing? Because all I've seen on LinkedIn, Facebook, Instagram, Twitter. Well, X now.

Dave: 1:33:13

What do you mean? Where is it marketing? Where is this marketing? That's how it's pushed.

Kadee: 1:33:18

Well, no, that's not how it's pushed. That's how bad actors in the industry push it. It's not the tool, it's the bad actors and the lack of having a structure. That's the problem, Dave. It's not the tool, just like you wouldn't blame the pencil for misspelling a word.

Dave: 1:33:35

Again, yeah, you're right. You wouldn't charge the pencil, but it'd be different if the pencil you know created three extra words for every time you wanted to use one. There's a difference. So I get it, I get the analogy, but you have to control the pencil, just like the client has control of whether or not they take the funding. And all I'm saying is I want them to understand the funnel, right? Which is the actual implementation. Let's get back to one thing because I do have this is actually a good back and forth. However, on a lot longer than our typical ones, but I want to say Jimmy, you know, you know, Darren slash James, appreciate you you kind of sharing that comment there. I'm sure there's more than that, it sounds like, but it didn't show the entire comment. Yeah, I couldn't see it. The one thing, the one thing I want to I want to get back to, right? And then we can always do another one of these. And definitely is the the profit first right cash management system. See why again, as we talked about in some of these things, what is your issue with the profit first cash management system?

Kadee: 1:34:36

My biggest issue is that it does look risky when an underwriter looks at it. It may not look risky to the bank loan officer, but they're not the one underwriting. The bank loan officer knows what's going on there. They've we either worked with the person or can look at the look at the banking accounts and see it.

Dave: 1:34:53

What does the underwriter look at? The underwriter looks at a balance sheet, profit and loss, right, and bank balances, correct?

Kadee: 1:35:00

No. Underwriter looks at all those things, plus time and business, whether or not they own their building. They look at cash in and cash out of the central account. If there's so many transactions out of that central account, they won't even touch it because it's a higher risk.

Dave: 1:35:20

It's it's but it's not, it's going to other accounts in their business. Like they're gonna look at their balance sheet, they're gonna see five accounts and they're gonna have a hundred. So you're telling me a business, right, that's got five accounts that has bank balances of 50 grand are gonna get denied, but somebody who has one bank balance that's got five thousand is gonna get approved. I don't know.

Kadee: 1:35:37

No. Well, having one bank balance of five uh five grand isn't going to approve you in anywhere, straight up. Okay, one bank balance of five grand isn't gonna approve you for anything with an average daily balance of 5,000.

Dave: 1:35:49

And just that month end when you print the balance sheet, it says five thousand. You're okay with that. That that they're gonna get approved, right?

Kadee: 1:35:56

Average daily, yes.

Dave: 1:35:57

If the average daily is five thousand and the balance sheet at the end of the month says five thousand dollars in one account, you're gonna approve it. Versus versus a company that's got a balance sheet at the end of the month with five accounts that have you know combined balances of a hundred thousand. That's that's just something you're telling me that that's gonna be listen to five thousand dollars. No, I'm trying I'm trying to understand how this is I understand they could stop. They could just put five thousand dollars in an account, never touch it, never have any revenue.

Kadee: 1:36:25

Five thousand dollars. Well, then they're not gonna get approved anyway because it has to be verifiable revenue, but five thousand dollars a day as daily balance, because you said daily balance is a hundred and fifty thousand dollars a month in rough.

Dave: 1:36:38

See, that's why you can't use the average daily balance because just because they have an average daily balance of five thousand doesn't mean anything. The average daily balance put five thousand dollars in there at the beginning of the month, it could be five thousand at the end of the month, and it's gonna have an average daily balance of five thousand.

Kadee: 1:36:51

Average daily balance is only uh used to figure repayment, the month, the lowest month revenue in the last six uh three to six months, depending on the agency in the industry. Okay, that lowest amount is what the is based on.

Dave: 1:37:13

Okay, but uh but what about what I'm trying to get back to though is you say that having multiple accounts with transfers between the accounts is a red flag. If a balance sheet, right, if a business has a balance sheet with five accounts that has fifty thousand dollars between those five accounts, you're saying that's a red flag versus a company that has a five one account with a five thousand dollar. How does that make sense? How is that a red flag?

Kadee: 1:37:37

Those transfers count against them. In underwriting, those transfer.

Dave: 1:37:41

What do you mean it it's transfers to your own account should don't count against you, they're your own money.

Kadee: 1:37:47

They look at that as a high risk because you have all of these different accounts.

Dave: 1:37:51

It's like listen, if somebody's watching this, share this with share this with an underwriter. I would love to get their opinion on this because that makes zero sense, right? Zero sense that me transferring money from my my income account to my payroll account is is a negative red flag, or from my income account to my tax account is a red flag.

Kadee: 1:38:11

Oh, I'm going to share it with one of our underwriters.

Dave: 1:38:14

Great. I'd love to actually then include them on the show and let's debate that why they actually look at that.

Kadee: 1:38:18

Sure.

Dave: 1:38:20

So I it just makes zero sense why transfers between my own accounts, right? And and and here's where, at least my interpretation of it, is because you guys want to see all the money in one account. So you can say, look, I'm gonna give you a much bigger, right? A much bigger loan than what you should actually take, right? Because here's all your money in your account, in one account. This is why you should take the big money. No, what you should be looking at is let's look at like what's the actual spending in my in the operating expense, which money's going into the operating, and then let's say we're gonna give you money on that.

Kadee: 1:38:52

But they do, that's the point of the bank statements, dude.

Dave: 1:38:55

What do you mean? You just said it's a red flag if there's more than one bank.

Kadee: 1:38:58

No, the bank statements that we collect for the last three to six months, depending on which agency, right? That's the point is to look at their spending. That's the point to determine whether or not they care.

Dave: 1:39:10

But you just said that a red flag, right, is if I move money into my into my tax reserve account or my profit reserve account or my owner's pay account, that's a red flag versus having money all in one account.

Kadee: 1:39:21

It depends on the number of the transfers, too. So if you're doing two transfers a month, you're probably not gonna get red flagged. But there are some people that use your system, and again, I'm not blaming the system, I'm blaming the people that use it improperly and the people bad actors in your industry.

Dave: 1:39:37

You can do it daily, you you could do it daily, you could do it weekly, you could do it twice a month, you could do a monthly. It all depends on how often your spending happens. The more transfers you're doing, the more that red flags, but you're not transferring money in, you're not transferring money out, you're transferring money just between your accounts, but you are transferring money out to separate accounts. No, they're I mean they're all internal accounts. What do you mean?

Kadee: 1:39:59

So you're telling me that it's not that it's on paper only, right? Is that what you're saying?

Dave: 1:40:06

No, no, it it's it's your bank balance, right? You're gonna have five accounts at your bank, one bank, which are all separate accounts, five accounts, yeah. And you're gonna all the money gets deposited in your income, and then at your allocation time, whether it's daily, weekly, twice a month, whatever that balance is, you then split it up to your four accounts and it gets allocated out, and your income balance is zero.

Kadee: 1:40:27

And then your other accounts if it was only on paper, it wouldn't red flag, but because of the same account, yeah, it's never gonna be on paper because it's going to different accounts physically, those transfers look unsteady.

Dave: 1:40:42

Those transfers make it look unsteady, that doesn't make any sense because it makes it look like you're moving you.

Kadee: 1:40:50

Well, you gotta let me finish, or you're gonna get interrupted again.

Speaker 3: 1:40:54

Look, I mean I'm just confused.

Kadee: 1:40:56

It makes it look like you are moving money to either hide it or you're moving money to cover expenses in other places that you don't want people to know about.

Dave: 1:41:07

That's what it looks like. How does that look that way when you all the all the bank accounts are in the business? Because bank accounts are on, they're literally on your balance sheet. They can see it, they can say, Oh, here's his profit, here's his tax, here's they're seeing it in their statements. How can you say, how can you then say, Oh my god, this not this account's to hide shit? That doesn't make any sense.

Kadee: 1:41:28

They're separate accounts.

Dave: 1:41:30

But what are you hiding if all the money is in your accounting? If all the accounts are there, okay, and you see it on your balance sheet, how is that hiding money?

Kadee: 1:41:40

If you're making these transfers repeatedly, more than more than five, usually is what flags. If you're making these transfers repeatedly and you're not actually paying a bill, it looks like you're moving money to cover expenses that you're not going to pay.

Dave: 1:41:56

Outside of the business, but they're all internal.

Kadee: 1:42:00

You're moving the money outside of the account, the business, the primary.

Dave: 1:42:05

You move it from income to all your other ones, right?

Kadee: 1:42:07

Yeah, your primary business account is what underwriters are looking at, right?

Dave: 1:42:13

Because they want to give you more money than what you should. They don't want to take into account that you should have tax set aside. Yeah, you want to have profit reserves set aside, any of that. You're right. They want to see everything in one account and then help you that you'll spend and and not take into account that you didn't need to have tax money set aside.

Kadee: 1:42:27

And those are the bad actors. Those are the bad actors.

Dave: 1:42:30

What do you mean? You're you're advising it right now.

Kadee: 1:42:33

No, I'm saying that it looks bad to underwriters. I'm not saying don't do it, I'm saying it looks bad to underwriters. I'm putting out information whether you like it or not.

Dave: 1:42:44

But your your whole opinion, right, is that it by following this, it is not gonna help people qualify for your products. My whole thing is that it's even though it's actually to their benefit, to their benefit. It's it's a that's a difference. Typical loan officers are going to no, actually, no, I've had plenty of conversations. It doesn't matter, they're banks. Oh my god. I've talked to business owners that have actually talked and gotten loans. I've talked to the loan officers, they want a steady, stable company, right? Can we agree on that?

Kadee: 1:43:25

With a steady, stable income that isn't when that is not not moved more than four to five times a month. That is not true. No, that is completely true. And you keep saying a loan officer, the loan officer isn't the underwriter, they send it to someplace else.

Dave: 1:43:39

And if the underwriting officers are an actual bank or the ones that actually work with the underwriting team, and they actually would understand that understand. But here's what I'm telling you, and here's the thing that I'm if they can get the underwriter to believe in the system, then yeah, they're gonna get approved. Underwriters are gonna look at your profit and loss. Underwriters are gonna look at your balance sheet, correct? Right? They're gonna look at your statements, they're gonna look at your statements to actually you know verify that what's being spent is either being recorded somewhere on your balance sheet or your profit and loss, right? So there's no hiding money, there's no doing any of that because all the money's on the actual financial statement. It looks like it, Dave. It doesn't matter if it looks like it or not. You have my numbers right there.

Kadee: 1:44:19

The numbers are right there, looks higher risk.

Dave: 1:44:23

There is no high risk about it. There's no high risk because the money is on the financial statement. You're saying it's high risk. Why?

Kadee: 1:44:37

Because you're moving, you're moving more money into other accounts. It doesn't matter that's the way it was in the business.

Dave: 1:44:47

You're right, you're right.

Kadee: 1:44:48

It doesn't matter that they're all under the business umbrella. You're moving more money into the accounts than what you're actually needing to spend to sustain your business. In most cases, in most cases, well, I don't know how you apply it with your clients because I've never worked with one of your clients to actually see it straight up. Okay, but what I know how it's been applied to other people and their business.

Speaker 3: 1:45:17

Explain it then. How?

Kadee: 1:45:18

So here's how it's been applied to others and their business, and this isn't just me, this is other people, which in the 57-page report are notating. What's happening is people are misusing the system because they don't get told now.

Dave: 1:45:32

You and I both can they read the book and tried to do it themselves, or or what?

Kadee: 1:45:37

There's a lot of differences, or they have one of the bad actors in your industry, okay. So you and I can agree that you're one of the good guys, I'm one of the good guys in our respective industries. We can agree with that, right? Yeah, so when people are not told uh taught or explained to you how to use it, they pull some arbitrary numbers, and this is where it starts looking bad. They pull some arbitrary percentage because they think they understand it and it was never properly explained. They move that money around.

Dave: 1:46:11

What do you mean that yeah, but again, like no for one, no profit first professional would ever just pull a number out of the air. I mean, I'm so what it sounds like to me is people that you're talking to have read the book and decided to try and implement it in their business without getting actual advice, right?

Kadee: 1:46:27

Well, no, they've gotten actual advice from bad actors in your and your industry.

Dave: 1:46:31

I guarantee it was not a profit, I guarantee you it's not a profit-first professional. Okay. One, there's only 800 of us. Okay. Two, I guarantee you it's somebody who is also like is as a financial bookkeeper or accountant, was like, Oh, I understand this. Let me try to advise my clients on it without getting certified, because no profit first professional would pick a number out of a hat and say, Yep, we're gonna go with this. None.

Kadee: 1:46:55

But you asked me what you've asked me what I've seen, I'm telling you what I've seen. Okay.

Dave: 1:47:00

Okay, I'm not saying that's people that are doing it are doing it wrong. So I'm not going to sit here and say that that that's right and that that's situation because nobody should ever just pick a number out of the air.

Kadee: 1:47:09

And I'm not saying that it's right either. I just agreed with you that you and I are both one one of the good guys. Okay, just agreed that with you. I'm not saying you would ever do this. I'm not even saying a certified person would ever do this. I'm saying this is what I've seen. Okay, just like you've told me that you've seen it. What is this?

Dave: 1:47:30

James, if a person is using the same bank and has multiple accounts within that bank and they can clearly show all the internal transfers between those accounts, which you should see with the bank statements, what does that actually mean in the context of the cash flow profit process? Does moving money between your own accounts really count as cash flow, or is it just internal shuffling rather than actual revenue or profit? You're right. It's just it's just because you transfer a thousand dollars from income to your to your owner's pay account does not add thousand dollars of of revenue to your business. No, it does not add a thousand dollars of profit to your business, but it's still cash flow.

Kadee: 1:48:03

It's still cash flow.

Dave: 1:48:04

It's not cash flow. No, it's not, it's not cash flow because there's a negative out of the income and a positive into your owner's pay. It nets out to zero, it does not increase your cash flow. That's clear that up.

Kadee: 1:48:14

Zero cash flow is still cash flow, Dave, because it's still money in and out of a business.

Dave: 1:48:18

It does not change, it does not affect your cash flow. Okay, your cash flow statement would show a thousand dollars in and a thousand dollars out, it's gonna show zero number. Trust me, I'm gonna count. I know this, okay. I don't know, it's doesn't change or increase your cash flow. It doesn't, it doesn't arbitrarily you know create cash flow out of the out of thin air where you're trying to create or it doesn't do anything like that. What you're trying to say is a red flag.

Kadee: 1:48:41

Money moving is cash flow, money moving is cash flow.

Dave: 1:48:46

You're right, money moving in and then out, it's a zero. There's no actual net increase, net decrease. It's the same number. I do all you're doing is giving it a purpose.

Kadee: 1:48:54

I didn't say they're giving it a purpose. I didn't say it was a difference. I said there's cat, it's still cash flow. Even a net zero cash flow is still cash flow.

Dave: 1:49:03

Sure, if you want to you want to uh be strict clear about it, sure. But the actual fact of like when it comes to actually like arbitrarily creating cash flow, that's not happening. It's not arbitrarily creating.

Kadee: 1:49:14

I didn't say it's creating anything. I'm answering his question. How does it impact cash flow? It's still cash flow. It does not it may be a net zero cash flow, but it's still cash flow, it's still money moving, which by definition would be a net no impact, correct?

Dave: 1:49:32

Yeah, thousand in, thousand out. There's no impact to cash flow, correct? But it's correct. There's no impact to cash flow. That's not what the question is. The question is, is it impacting cash flow by having a thousand dollars in and a thousand dollars out? Does it impact cash flow? Impact a net does it impact cash flow?

Kadee: 1:49:51

A net zero. If you're gonna ask a question, you gotta let me answer it. A net zero cash flow does not necessarily impact cash flow unless that net zero creates a negative cash flow later someplace down the line.

Dave: 1:50:10

We have to do that in a way, it would never do that.

Kadee: 1:50:14

Well, yes, a net zero cash flow is like okay, your example where they came and it came down to four percent, okay, over long term with the BCA. Your example if your net zero cash flow eventually creates a negative cash flow, because that net zero needed to be allocated someplace else and didn't happen. So the thousand dollars that you moved needed to be allocated someplace else, but that didn't happen, which is what happens with the bad actors and the self the self-proclaimed people that read the book. Okay, if that if it creates that negative cash flow later on, then yeah, it is a problem. I'm not saying your clients have that. Well, yes, it is.

Dave: 1:50:57

Listen, oh my god. No, because what that is is an issue in the future, and you would transfer money to cover it, right? Like that's different cash flow because cash flow then out would be negative, right? That that's that's what correcting that is that you had more to spend, that negative cash flow went out. You don't have any money coming in. That's that's the problem. So again, you're trying to compare you're trying, you're trying to say oranges or apples, and that's not what the case is. Right. Transferring if you have if you have a thousand dollars of money in your cash, right? You have ten thousand dollars come in, right? You're ten percent supposed to go to profit, tens percent supposed to go to taxes, twenty-five percent supposed to go to your owner's pay, and the rest operating expenses. The net of that is zero because you had ten thousand, you allocate to the four accounts, right? Those are all zero, right? Cash flow for that, cash flow for that situation is done. Okay, that transaction is cash flow for that is done. It's a net impact of zero. There's nothing Katie Dave in that transaction of those four transfers, the net impact to your cash flow is zero. Now, in three months, hold on, hold on, hold on, hold on, hold on, hold on. In three months, if you are now overspending your operating expense, that's a negative cash flow because now your cash out is more than your cash in. That's not the problem of the three-month transfer prior. That's not it. The problem to that is because now you you didn't adjust, you didn't understand, or you didn't make adjustments, or you didn't have a drip account because now you're in a slow month, whatever it ends up being. Which is where I was getting to. Okay, so so no, a transfer out from three months ago that's net impact does not impact the future. Like, that's a separate instance. You can't say they're the same, or you could say, you know what, that thing that happened 12 years ago, that's why you're negative now. Like, that's not true. It's because they're not monitoring it on a regular basis, that has nothing to do with what happened three months ago.

Kadee: 1:53:05

Cause and effect, Dave.

Dave: 1:53:07

There is no cause and effect when it comes to one transfer out and into the other ones. Sorry, yeah, I'm not, you're just it's not gonna, it doesn't happen, you know.

Kadee: 1:53:16

And the thing is, you're going from your best case lens from certified people that know what they're talking about. And I have agreed with you that those people do know what they're talking about. I am talking about people that don't know what they're talking about, that don't understand it.

Dave: 1:53:29

Okay, but again, it's still it's you it still doesn't matter.

Kadee: 1:53:32

Like most of the cases that we're looking at that cause negatives because cause and effect does is a real thing, and it's a real thing for everything.

Dave: 1:53:39

Right. So so here's here's here's the thing, and one and let's let's let's address this first. So my understanding is if the money starts with you, ends with you, and no customer, lender, or outside party is involved, that's not just that's not cash flow. It's just an internal transfer, it doesn't create revenue, profit, or real cash flow. Is that wrong? No, that that's completely right. If it's an internal transfer, it does not create revenue, it does not create profit, and it's not creating any cash flow for the business. It's an internal transfer.

Kadee: 1:54:05

It's not creating it.

Dave: 1:54:06

It doesn't create, it's not cash in and it's not cash out, it's only an internal transfer, which is why on a cash flow statement, there's no internal transfer account, right? It's it's financing, it's operating activities, financing activities, and then investing activities. That's a cash flow statement. The three sections. There's no money between the accounts, right? Because it's not it's not actually cash flow activity, it's an internal transfer.

Kadee: 1:54:32

Prove where the money went. If you have five thousand in and you're moving money within a turn, prove where the money went. Yeah, if you have five thousand in your cash flow, okay, and you move money to uh to other accounts.

Dave: 1:54:48

Five thousand. What do you mean five thousand in my cash flow? Okay, so you're saying I have five thousand dollars in my income balance, yeah.

Kadee: 1:54:55

Five thousand dollars worth of revenue for five thousand in my income balance, right?

Dave: 1:54:58

That it's my allocation, it's Friday. I got five thousand dollars in there, right? So I'm gonna take ten percent, I'm gonna move it to my profit account. So I'm gonna put five hundred dollars in my profit account. You're going to see on my bank statements a transfer out from income and a transfer in to my profit account. No cash flow was created, it's an internal transfer.

Kadee: 1:55:17

I didn't say it was created, it's still money moving. That money moving, that money moving, not cash flow specifically, but the money moving is something underwriters look at, period.

Dave: 1:55:31

Okay, and they're gonna see the out and the in. There's gonna be no net.

Kadee: 1:55:35

Understood, it still doesn't look like there's not a risk. And most underwriters are gonna look at that and flag it. They're gonna ask questions. Dave, I'm not saying they're not gonna ask questions, they're gonna ask questions, they're gonna want to know what's going on, they're gonna know wanna know what your system is. You're gonna have to answer questions, period.

Dave: 1:55:57

And sometimes those answers are completely here's the thing if they're like if they're completely oblivious, right? Because they should have gotten all the bank accounts right for the business when they go to the body.

Kadee: 1:56:07

Should have, but not every owner does it.

Dave: 1:56:09

Okay, and then they're gonna say, Hey, what's this transfer out? And the owner's gonna go, Oh, here's my profit account. They're gonna give the profit, you know, statement, and it's all gonna be there. It's not gonna be a red flag, right? Maybe it's a flag for questioning, maybe it's a flag for questioning, but it's not a red flag for approval when they have all the information.

Kadee: 1:56:26

The cra the fact that they're questioning is the flag.

Speaker 5: 1:56:29

It's like throwing a yellow flag on the field, man. It's like throwing a yellow flag on the field.

Dave: 1:56:34

Okay, it's not a red flag. So let's let's so let's just say that, right? It's it's it's a yellow flag, right? They have to ask for more clarification if they don't have the information. Because now if they were a good business owner, right, and they gave them all their bank accounts, right? The five bank accounts, the underwriter, if they're doing their due diligence, right, would say, Okay, here's the income accountant, money's out. Oh, wait, it's in here, perfect. And they can try to transfer it because all the accounts are gonna say what number it is.

Kadee: 1:57:01

If the business owner does provide the accounting for all of the accounts, nine times out of ten, the way they're asked for it is their operating account. That's the way they're asked for it.

Dave: 1:57:14

And then and then, right, they're gonna ask for it, and then when they're going through underwriting, the underwriter is gonna say, Hey, where's this money coming in from? Right? Where's the money coming into the operating, correct?

Kadee: 1:57:23

The underwriter is not required to ask those questions.

Dave: 1:57:27

Okay, but if they were if they wanted to, you know, actually get clarification, right? Right. And if they only looked at your operating account, perfect. That's how I want them to look at it. Because in the operating account, right, the money getting transferred in there is how much is based on their average, their current allocation going into that account based on profit first, which is should be done based off of a calculation and assessment, not just an arbitrary number. Now, if somebody picks an arbitrary number, that's not that's not again the profit first professional or the profit first system. That's a person not understanding how to implement it. But those are the people that I So you can't say, again, if you want to go back to this, you can't say profit first is the problem. I get it, which is what you've done in all your reports. You yeah, you did. You said all your reports profit first is a problem because you just pick an arbitrary number and use it. I could go back to the report and pull it up if you want me to. You said that usage, Dave, the usage. You said you said profit first is a problem, right? Because you arbitrarily pick a number and then use it. That's what you put in the report. I I debunked that in my video back.

Kadee: 1:58:31

That is the majority of the cases that have been in the case studies, is the cases where people are not using it properly. And that was my point. When people are not using it properly, it is a problem.

Dave: 1:58:43

When people don't use condoms properly, you end up with babies. What's the problem? Like, is the condom the problem, or is it the people not using it? Like, I mean, like you're trying to blame me, or you're sorry, you're trying to blame profit first as the problem because people are misusing it. That's that was your exact report. That's how you're that's why you're writing these reports, right? You're writing these reports because you don't want people to follow profit first, right? No, I'm not sure. That's what you said. Nothing's not the 16 report the 16 page or the f or the 51 page I can now, I got more content, I can go out and create, right? Are there because you don't want people to follow profit first because you think that it's going to then cause them to not be approved for your loans and your your no?

Kadee: 1:59:20

I don't want people to follow it arbitrarily without the proper training or the proper professional.

Dave: 1:59:25

That's not how it's written. So there's a key, there's a key, how it's written, right? I've always said that there's certain situations, and yeah, so you know there's certain situations that they fit into one. We talked about like your your gentleman who's purchasing a mall. Great, it makes sense in those specific situations. But the way you wrote these publications, okay, you wrote them from the perspective of profit first is horrible for you if you ever want to get funded for a loan. That's how it was written. You can't, you can't, you didn't say you didn't, you, you didn't, you didn't per you didn't preface it by saying, Hey, profit first works when you do it correctly, right? You didn't say any of that. You said if the system is horrible, you should not follow it if you want to get approved for a loan. That's how you wrote it.

Kadee: 2:00:10

Read the second one.

Dave: 2:00:11

I will read the second one because you're right here.

Kadee: 2:00:19

You're absolutely right.

Dave: 2:00:20

I admitted to that in your in your headline here of the second one is a comprehensive analysis of the structural, operational, financial, and regulatory risks inherent in the profit first system. So you're trying you're saying with your sub-headline that it's the system that's the problem, not the implementation of the system is the problem. So don't tell me, don't tell me you didn't write it from the perspective that the that it's not the system the problem, it's the implementation.

Kadee: 2:00:47

I wrote an operational perspective, the second one.

Dave: 2:00:50

Now this is the second one. The second one, the profit first follow-up. The word operational, the the regulatory risk inherent in the profit first system. You didn't say, hey, it's a comprehensive analysis of the structural, operational, financial, and regulatory risk inherent in the implementation of the profit first system. You said of the profit first system. Okay, that's your sub-head. That's the headline. That's what you want people to get hooked into, is you want them to think that the system's the problem, not the implementation of the system. Okay. Yeah, yeah, you're right. I am gonna read all this and we're gonna come back, and we're gonna actually here's what we're gonna do. You got my it's two hours, and I gotta go because my son's got a hockey game. But what we're gonna do when we come back, we're actually gonna walk through this whole 51 page. I'll be the next episode that we walk through and talk through this. Whatever, yeah, whatever it is. I think because again, we we can it's it's not. The actual cash management. The cash management actually makes a business owner stronger, right? By having reserves, by having separate accounts set up that money is sitting in that has a purpose, that's makes you stronger as a business, not makes you weaker. Okay. So let's get away from that. Okay. Having reserves in your business makes you stronger. There that I've learned from $150 million organizations, $15 million organizations that I've worked for. You have to have reserves, or you're running the risk of having to go into a high interest, high cost type of loan. So we'll end with that. But we'll also say here one last thing from James. So you advise as a broker that you could suggest that they provide all the accounts use. Yes.

unknown: 2:02:34

Right.

Dave: 2:02:34

So it could be a lot of accounting.

Kadee: 2:02:36

Yes, you can send it.

unknown: 2:02:38

Right.

Dave: 2:02:39

Well, what you're advising is that instead of just, and what I've heard from you, and I think what James is kind of getting to here is instead of just saying, hey, give me your operational count, you should be asking for all bank accounts of the business.

Kadee: 2:02:53

Right. My personal way of doing it is you need the last three months of statements because that's what our system requires is three months. You need the last three months of statements for any bank account you operate with.

Speaker: 2:03:05

Perfect.

Dave: 2:03:06

And so if they see right, but they they should see the money in, money out. There's no red flag because they see it. They see what's being spent in the profit account. They see, and technically, what should happen for three months is that in the profit account, in the tax account, you're only gonna see that those balances are increasing because you're not paying for anything. Like profit distributions only happen every every quarter. Tax distributions happen every every quarter.

Kadee: 2:03:31

They're still gonna ask questions about why they're doing it, what they're using, you know, all that stuff. They're still gonna ask questions.

Dave: 2:03:36

And that's right, but that's not gonna be red flag questions. That's not you're not gonna get approved questions because you have you actually have okay, but in all your other documentation, you call it a red flag, but now you're yellow.

Kadee: 2:03:49

There are other red flags, and you know what? I can change my mind based on our conversation. Good.

Dave: 2:03:55

No, no, no, that's what I'm saying. Like I'm saying, like now we've gone from red flag to yellow flags, right?

Kadee: 2:04:00

You know, the conversation has been educational. I'm not denying that. I can change my mind based on the information that has been given today, just like you can change your mind based on the information given today from me, and it's cool.

Dave: 2:04:11

Well, that's why I said like I look like the BCAs, like we haven't even gotten in the MCAs, which are even worse, I think. But I don't think there's there's there's specific situations that BCAs can be used for. And we talked about it, right? Yeah, like if there's an actual ROI, but you also have to, if you work with a good broker like Katie, right, who is going to break down, you know, the fact that, like, hey, you're yeah, this makes sense maybe at high level, like you know, gross profit level, but you know, if if if you have you know a lot of overhead costs that also associated with this, you have to look at it the whole picture, which I would say you're probably a minority in that situation. I would be willing to bet a significant portion that you're probably the minority in that scenario.

Kadee: 2:04:53

And you might you may be right on that. I do know other people within the industry that do the exact same thing, but like mines butt, you know, attract like mines. Right. So, you know, I don't tend to associate with bad actors because they're the bad actors, and I don't want me to, I don't want my reputation to do that. I mean, just straight up, you know, just like you wouldn't associate with bad actors within your industry because you don't want your reputation screwed up.

unknown: 2:05:17

Right.

Dave: 2:05:17

And and that's where I'm definitely thinking like the fact is is like some of the scenarios that you talked about, it's probably because, and and I guess that would be on your end, like the the examples that you've got in this report, if if you say that there's people that have implemented, if they actually worked with a profit first professional, because I know for a fact if anybody went through the profit first training certification, that they would not just arbitrarily pick a number out of thin air and say, This is what we're gonna do for you, right?

Kadee: 2:05:44

Um I didn't say that they were working with professional, I said they're trying to implement it. Now, here's the thing you're certified, I'm certified, I'm a certified independent broker. Okay. Then the actual regulations through federal government, there are bills in play right now trying to fix it, but there are actual regulations that are saying we all need to get certified, they haven't been passed yet, right?

Dave: 2:06:10

Okay, so I'll give you that, and also like I think the idea there is that right, it's gonna limit the interest, like it is interest, right? Like if you charge somebody 1.5 on a factor, whether it's 100,000, 50,000, like they don't like people don't understand what that means. And and the fact that your the repayment is short term means the APR on that is huge, right? Because you know, just because you get you know 75,000 and if somebody took 50,000 out from the bank, they would pay right, you know, 30,000 back, right, or 20,000 back over a five-year term, that's a completely different issue because the APR is a lot less than requiring somebody to pay you back $75,000 today for a $50,000 loan in the next 12 months. So that's why it's called an annual percentage rate. It's how much are you charged interest every single year, right?

Kadee: 2:07:00

It also depends on how long the term is. I mean, you can go anywhere between four to 24 months.

Dave: 2:07:05

Okay, I understand that, but like even still, like you know, a 1.5 factoring, right, over even still a two-year, even still a two-year term is still 25% APR.

Kadee: 2:07:18

Well, uh 1.5 isn't gonna get a two-year term because that is the bottom. That's the bottom rush.

Dave: 2:07:25

So there you go. So somebody who's who's in that 1.4, 1.5 is probably gonna have a six, three to probably 12-month repayment term, right? For most of those, they're looking at this, right?

Kadee: 2:07:36

They're probably four to eight.

Dave: 2:07:38

Okay, so uh at four months, right? They're right. So they're they're so they're paying back a 50%, that's 150% APR at four months. If they were to if they were to pay that back in four months, that's 150% APR for that money. Okay, if they pay back in eight months, that'd be something like 75% APR. That's still ridiculous money that they're paying for the cost of money.

Kadee: 2:07:58

And I never said it wasn't it wasn't expensive, right?

Dave: 2:08:00

And that's all I'm that's all I'm trying to say. Like is that it's it's a crazy interest rate that people don't understand. That those people don't understand it, they just say they're in desperate need.

Kadee: 2:08:12

Comes down to, just like in your industry, comes down to the explanation from the professional they're talking with. If that explanation is clear and concise, just like you and I tend to give to our clients, customers, whatever you want to call them, okay, then they understand that. If it's not clear and concise because they've got a bad actor, then you're absolutely right, they don't understand it and they get themselves into issues.

Dave: 2:08:35

Or or or they end up, you know, they talk to somebody that's maybe not a bad actor, but they don't give them the full picture. Like that's the other thing. I mean, if they say, look, you know, hey, it's gonna cost you this much, then they break it down, you know, that's the minimum required, right? They hey they hey, here's your options, here's a repayment term, here's here's how much of your interest, right? That's why they created that whole truth in lending paperwork that they have to give to people now is that people have to sign off on it, right?

Speaker 5: 2:09:01

Most times just it's working with the other person responsible.

Dave: 2:09:05

But but see, the most times you guys don't even have a truth in lending document that people have to sign. I've seen some contracts that don't even like break it down, it's so hard that they don't even break down an interest or a cost of funds. And that's they just say, Hey, here's how much you're paying back, you know what I mean? That's one truth in lending opportunity, which is definitely what this is.

Kadee: 2:09:22

Yeah, that's the I get that.

Dave: 2:09:24

I get but that's also the industry, right? The lender of that, like is the industry, right? So the industry around these would be that's the minority of the lenders. We have 20 plus lenders through our system that compete for people's contracts, and they're very and I'm one and I would be like if you could if you could actually find out of those 20, how many actually provide a truth in lending document as part of them, right? So then, so then on there they they talk about interest, then right in the truth in lending.

Kadee: 2:09:53

In the truth of lending, they talk about the straight payback, the cost of funds, and they they actually break it down into an annuity schedule if you need to. They break it down.

Dave: 2:10:03

If you if you actually if you could, I don't even know if you can, but maybe you can like black out or gray out. I'd love to actually like review how it's broken down. I don't actually gray out a name or anything.

Kadee: 2:10:12

I don't actually get those contracts, but I can talk to a couple of my customers that might be interested in letting you borrow.

Dave: 2:10:18

Yeah, because I'd be interested to see how they actually break it down, you know what I mean? Like the ones that I've seen for clients that have gotten them in the past that you know, before they actually talk to me, none of them have the truth in letting because we're trying to figure it out. Hey, what's the what's the interest or what's the repayment or what's the early payment penalty, or what's the discount if you pay early? And a lot of those don't have it.

Kadee: 2:10:34

And it it is very much so transparent, there's no nine-point print because our lenders are reputable and they do require that because it is an industry standard that they have to pay, uh they show that it is the industry regulations. The truth of lending is a very real freaking law. FTC and then get F set up.

Dave: 2:10:53

The truth of lending, right, is when you're doing loans, which you know well, it'd be interesting to see because the truth of lending actually breaks down. Hey, here's how much you're financing, here's how much the the the interest that you're charged for that financing, you know, here's how many payments you have to make, and here's and so it would be interesting to see how that carries.

Kadee: 2:11:11

If I have if one of my clients would be willing to share that, I'd be happy to do that. I would have to sit down for it's gonna take me a couple of days. I'd have to sit down and black things out and stuff like that.

Dave: 2:11:20

Well, we we got some time. Like, I'm like, I think we're booked out for the next couple weeks, but uh I think you booked out till the end of December, my friend. Maybe, yeah, we we might and or with other things that are going on. So, what I would say is just definitely you know, let's book another time. I don't give me a time to kind of go through and and kind of look at the report, yeah. Write this other one that you kind of wrote.

Kadee: 2:11:40

So let's let's let's see if we can't start the new year off this way, have another conversation and get and get more truth out there, man. Let's do it the first time.

Dave: 2:11:47

Yeah, I think I was at the second, so for sure.

Kadee: 2:11:51

Cool. A couple days before my birthday, rock on.

Dave: 2:11:56

Yeah, if you if you just use the link and then you can book it, we'll be good there.

Kadee: 2:12:00

Cool. I still have your link.

Dave: 2:12:01

All right. If if you've waited this far, we love you. Thank you for watching. Comment down below if you have questions or anything like that. Comment down below. If you got a piece of this information that was kind of impactful to you, helpful to you, feel free to share it. Feel free to like the video, subscribe, do all that fun stuff. Katie, thanks for joining me. James, thanks for the you know, James Flash. Thanks for thanks for the interaction. And then for all those, we look forward to seeing you every single week. We're here live, 8 15 in the morning. This is one of our longer ones, but we look forward to seeing you all in the next one. Hope you always have a wonderful and fantastic weekend. Be safe out there and hope you had a great and amazing Thanksgiving. Have a good one, everybody.

Kadee: 2:12:35

Merry Christmas. Merry Christmas to everybody.

Dave: 2:12:37

Merry Christmas to everybody too. If we don't see you, well, you won't. I will I'll probably talk to them before then. So all right, everybody. We'll see you in the next one.