A young business owner called into Dave Ramsey‘s “EntreLeadership” podcast with a surprising dilemma: one of his employees asked for ownership in the company. The caller, a 22-year-old CEO of an outdoor recreation event company, wasn’t sure how to handle it. Ramsey’s response was part tough love, part strategic advice, and all classic Ramsey.
Too Soon For Partners
“You’ve got to be kidding me,” Ramsey said with a laugh. “I have two employees and I just started this and I’m 22 years old. We’re not dealing out equity at this point. No way.”
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The caller explained he started the business when he was 18 with a few hundred dollars and had grown it to about $500,000 in annual revenue. He hired the employee full-time to help run events while he focused on scaling.
“I pay them a salary,” the caller said. “And recently they were doing a good job so I gave them 10% profits on merchandise and 5% profits in the business at the end of the year. Even after doing that, they still insisted they want ownership.”
Ramsey didn’t hesitate. “Hit the road, Jack. Not a chance. The last thing you need is a partner,” he said. “The tail’s not wagging the dog here. You’re the dog, man.”
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Pay Like A Partner, Don’t Give Up Control
Ramsey shared how he compensates his own team at Ramsey Solutions: “I’ve got vice presidents in this place, I’ve got executive VPs, my operating board—none of them have a salary. They all get paid off of the bottom line of the company the 15th of the month following. They get paid a percentage of what the company created in profits the month before, and they make really, really good money.”
Ramsey made it clear that while the employee may be valuable, asking for equity in a small, young business is “asinine.”
“What they’re really after is more money,” he said. That’s why Ramsey recommended that he pay them as if they were a partner, but without giving them actual ownership.
Ramsey then outlined a compensation plan: pay a lower base salary and add a percentage of the profits from the events the employee manages. For example, if two events per month bring in $10,000 each in profit, and the employee is responsible for those, paying 15% of that profit would result in strong earnings.
You want him making money because the more money he makes, the more money you make, Ramsey said. “But if every time I hire three people, one of them becomes a partner, we’re going to have 73 partners when this thing grows. No, thank you.”
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Monthly Accounting Is A Must
One of the biggest takeaways from Ramsey’s advice was the need for clean, detailed accounting. He stressed the importance of closing the books monthly and using job-costing methods to track profit on each event.
“If you don’t know what you made on those two events, because you’re screwing around with your stuff receipts in a shoebox or something, then you can’t calculate his pay,” Ramsey warned. “And you’re not going to be paying him, and he’s going to be unhappy—and he would be correct.”
He also recommended paying commissions on the 15th of the month for the previous month’s events, in addition to a regular salary at the start of the month.
Ramsey wrapped it up with some encouragement. “You’ve got a fun little business going,” he said. “I hope it grows for you and you get 10 of him and they’re all making money off the bottom and you’re making money off the top.”
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This article A 22-Year-Old CEO Asks Dave Ramsey What To Do About An Employee Asking For Ownership. His Advice After A Sincere Laugh? ‘Hit The Road, Jack’ originally appeared on Benzinga.com
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