You Need to Accept That You’re the Boss
In this week’s podcast episode, the owners talk about how easy it is to get in trouble when paying taxes and how hard it can be for some owners to enforce employee performance standards.
Good Morning!
Here are today’s highlights:
Would you pay $2 million for a virtual-assistant business that is growing but not profitable?
Ami Kassar and Chris Hutchinson talk leadership on Ami’s podcast.
Thanks to the big-bang approach, one big city downtown is doing surprisingly well.
A PE firm is looking to do for special education what PE firms always do for the industries they go after.
THE 21 HATS PODCAST
This week, in episode 193, Sarah Segal takes Paul Downs and Jay Goltz through her recent QuickBooks nightmare: Right before tax season, Sarah ran her P&L, and it showed a profit of $250,000—but she knew right away that that couldn’t be right. It then took a bookkeeping SWAT team to figure out what exactly had gone wrong. “I was literally on the verge of tears,” Sarah tells us. “How am I going to do this and not be late on filing my taxes? And credit to this woman, who, I swear to God, was like my therapist and my bookkeeper. She was like, ‘Don't worry, Sarah. We're going to figure it out.’” Which they did—and which brings an important reminder: Not every dollar that comes in the door should be counted as revenue.
Plus: What do you do when a new employee isn’t working out? When is the right time to intervene? Do performance improvement plans actually work? Are grace periods a good idea?
Also: Jay emphasizes a little understood reason why it can be important to fire fast. And Paul explains what he likes about the AI search engine Perplexity.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
BUSINESS FOR SALE
Michael Girdley analyzes a listing for a growing virtual assistant business. The asking price is $2 million, or 1.3 times revenue but with no profit: “It makes sense because virtual assistant work is becoming increasingly popular. Post-Covid, basically, all of my business friends know about virtual staffing and are getting comfortable with it. It’s also a fairly simple business to run. You have to figure out a training program and a hiring process, and then you’re pretty much set. Lastly, you gotta love that recurring revenue. These businesses tend to get higher purchase prices because it makes it very easy to predict what future income is gonna look like.”
“I’ll be honest, this is not an easy gig. VA staffing is a red ocean — if you Google it, you’ll see a bazillion people and companies offering basically the same service. That means your margin is getting squeezed on both sides: your competition will force your prices down, and your VAs are going to be asking for raises which drives your costs up.”
“It also means you’re going to have to spend a ton on advertising. Most of your clients are going to come from Google, Facebook, or YouTube. And unfortunately for you, those platforms are very efficient at charging you (and everyone else) a really high rate, so it ends up the tech giants are the only ones making any money.”
“If I called this place, the biggest question I’d have is: how am I gonna get my money back? Right now, they’ve got no profit. Normally you’d raise prices or cut costs, and stop investing in growth. But that’s not going to work here, because of the pricing pressure I already mentioned. So what’s the path?” SUBSCRIBE HERE
REGULATION
The Biden administration has imposed a staffing minimum on nursing homes: “The final rule, proposed in September, requires a registered nurse to be on-site in every skilled nursing facility for 24 hours a day, seven days a week. It mandates enough staff to provide every resident with at least 3.48 hours of care each day. And it beefs up rules for assessing the care needs of every resident, which will boost staff numbers above the minimum to care for sicker residents. For a facility with 100 residents, it translates to a minimum of two or three registered nurses and at least 10 or 11 nurse aides per shift, as well as two additional staffers who could be nurses or aides per shift, according to the administration’s interpretation of its new formula. Set to phase in over the next few years, the mandate will replace the current vague standard that gives operators wide latitude on how to staff their facilities.”
“The nation’s 15,000 nursing homes are regulated by the federal government, which pays for the majority of stays through the Medicaid and Medicare federal insurance programs. Neglect and abuse have been concerns for decades, but the crisis of care reached a peak during the pandemic, when more than 160,000 nursing home residents died of covid-19.”
“The pandemic exacerbated staffing shortages in nursing homes. Poor wages and grueling working conditions put large amounts of stress on a low-wage workforce, which is made up mostly of women, minorities and immigrants. An independent study released last year by KFF, a nonprofit group specializing in health care, said around 80 percent of facilities would need to hire more staff to meet the new requirements.”
“‘It is unconscionable that the Administration is finalizing this rule given our nation’s changing demographics and growing caregiver shortage,’ Mark Parkinson, president and CEO of the American Health Care Association, the top lobbying group for the nursing home industry, said Monday in response to the administration’s release of the final proposal. ‘Issuing a final rule that demands hundreds of thousands of additional caregivers when there’s a nationwide shortfall of nurses just creates an impossible task for providers.’” READ MORE
LEADERSHIP
This week you can hear Friend of 21 Hats Ami Kassar interview Friend of 21 Hats Chris Hutchinson on Ami’s podcast: Among other things, they discuss how Chris was able to have an entrepreneurial experience in the Air Force before starting the leadership company he runs with his wife and how he prepared his staff to run the company when they took a four-month sabbatical. LISTEN HERE
REAL ESTATE
The downtown doom loop appears to be breaking in, of all places, Detroit: “Barely a decade after Detroit declared bankruptcy, the city is emerging as America’s most unlikely real-estate boomtown. A development frenzy has gripped Detroit’s central business district. Big companies, including Ford and developer Related Cos., are spending billions of dollars on office buildings and other properties. Dan Gilbert, a Detroit native and the billionaire co-founder of home lender RocketMortgage, is leading the city’s revitalization. His new skyscraper, still under construction, recently topped out at 681 feet, making it the city’s second-tallest tower. It sits across the street from downtown Detroit’s first Gucci store.”
“Detroit’s downtown recovery is already ahead of schedule. Its abundance of once-empty buildings offered opportunity. Many are nearly a century old, with small floors and beautiful architecture, said Eric Larson, CEO of the Downtown Detroit Partnership. These are exactly the types of buildings that work well as apartment conversions.”
“In more robust markets, such as Midtown Manhattan, these buildings would have been torn down and replaced by characterless glass office towers with cavernous floors. But in Detroit, they remained as ruins, waiting for someone with money and local pride to come and convert them. That person turned out to be Gilbert, who moved his mortgage company’s headquarters downtown from the suburbs in 2010.”
“He calls his real-estate development strategy the ‘big bang approach.’ Downtown needed apartments, retail, and modern office space. ‘Well, what do you do first?’ he asked. ‘We thought, you really have to do it all at the same time to make it work.’” READ MORE
Half a million for a parking space? “There are plenty of places in the country where $500,000 will buy you a beautiful home, an estate even. In parts of Boston, it gets you a parking space. On Beacon Hill, the Brimmer Street Garage offers perhaps the city’s most exclusive parking. Real estate agent Betsy Herald has sold three spots for around $500,000 a piece in the past year, including one this month. And in a neighborhood of lavish homes and little to no parking, Realtors say, some residents barely bat an eye at the cost. ‘If you’re purchasing a house at that level, to add in $500,000 for that parking convenience is really not that shocking,’ said Herald, recalling that every space she sold was paid for in cash.”
“Parking spot sales aren’t easy to track. Public listings are rare and spots are often included in condo or home sales, making their value unclear. But when the true cost is revealed — recent sales have been for hundreds of thousands of dollars — they provide a stark indication of how expensive the Boston housing market is.”
“It’s not just Beacon Hill. On the edge of the Back Bay, a couple received a $750,000 offer for a parking space in 2022, The Wall Street Journal reported. [Realtor Beth] Dickerson is currently selling an outdoor, parallel parking space on Beacon Street for $350,000. The valuation is based on what the market for that area indicated, she said, noting that a nearby spot sold for $385,000.” READ MORE
HEALTH INSURANCE
PRIVATE EQUITY
PE is now looking to do to special education what it always does to the businesses it buys: “To understand how New Story changed under private-equity ownership and what private-equity takeovers could mean for the special-education landscape, Business Insider reviewed more than 3,000 pages of public records and spoke to 20 current and former New Story employees and parents. Many of them said that under Audax, New Story pushed to expand at the expense of student safety and academic progress. While parental complaints and even lawsuits alleging mistreatment are not uncommon at special-education schools, records of complaints and interviews with parents and educators show that New Story's focus on profit under private-equity ownership added an alarming layer of stress to special education.”
“Under Audax, New Story gutted departments focused on quality and education and struggled with turnover. The company's hiring practices grew so lax in some instances — including hiring an administrator who was fired from her previous school for failing to report suspected sexual abuse — that state regulators expressed alarm. Some parents, like Sarah, grew concerned about the inappropriate use of restraints and isolation.”
“Shanon Taylor, a professor at the University of Nevada, Reno, who studies privately run special-education schools, told BI that private equity's push to make big profits is fundamentally at odds with special education's mission. Since the schools are generally paid flat reimbursement rates by school districts or insurers, she said private-equity firms make money by cutting costs.”
"’They'll cut the number of employees. They'll pay employees less. They'll hire less-qualified employees so they can pay them less. They're going to defer maintenance on their facilities and not have the equipment necessary in those facilities,’ Taylor said, speaking about private-equity firms generally. ‘All of those things then are impacting the services to these vulnerable populations.’" READ MORE
RETAIL
You might be surprised by what you can do at a drive-thru these days: “In Memphis, R. Bernard Funeral Services offers a drive-through viewing option for people to grieve from their cars. ‘The drive-thru viewing will not replace the traditional service,’ the funeral home website said on its ‘what makes us unique’ page. ‘There’s also a registry book to sign outside, and a memorial box for anyone who wants to drop off a sympathy card, so the family knows that you paid your respects,’ the website said.”
“Health care is being handled from people’s cars in Atlanta. A business called DriveThru Urgent Care launched last year, and treats time-sensitive medical needs. The business model was born from Covid-19 — remember all of those drive-through vaccine clinics?”
“The world famous Little White Wedding Chapel in Las Vegas has a drive-through package, and people can get married in as little as 15 minutes. The ‘Tunnel of Love’ ceremony includes a religious or civil ceremony, a witness if necessary, and two poker chips.”
“A daiquiri to-go is a confusing notion, but in New Orleans, it’s omnipresent. New Orleans Original Daiquiris offers the frozen beverage via drive-through at its many locations throughout the state, and has been doing so since the 1980s. According to open-container laws there, as long as the alcoholic beverage has a lid, no straw protruding from the top, and has not had any contents removed, it’s fair game.” READ MORE
THE 21 HATS PODCAST: DASHBOARD
The Right to Start a Business: This week, Victor Hwang, who is founder and CEO of Right to Start, talks about what he and his organization are doing to bring down the barriers that make it harder than it has to be to start and build a business. Among other things, we discuss the state-by-state progress Right to Start has been making, the drivers behind the recent surge in business starts, and the need for capital sources beyond banks and venture capitalists.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren