Preppers For Business Part Two #28

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Preppers For Business Part Two #28

Bill Fairman (00:04):

Hi everyone! It is Bill and Wendy from Carolina Capital Management. Again, along with Jonathan Davis on our last episode and by the way, I am sorry, I keep forgetting. Please like us, please share, is the website and our last episode we talked about stress testing our portfolio. We touched a little bit on what do you do internally with employees and expenses. How do you make up for let us say a 25% loss of your income or maybe 50% of your business for a certain period of time? What do you do? And we were talking about not just market cycles that are controlling this, but you know, possible black Swan events where no one has control over that, but you still need to, you do not want to stick your head in the sand. You still need to position yourself for what do you do in an event where you lose that? There is a lot of companies out there that have, you know, three or four big customers .

Wendy Sweet (01:16):

All their eggs in one basket. Yeah! That is a scary place.

Bill Fairman (01:19):

And if they lose one of those customers, you can lose a ton of business now. It helps you because you are not constantly going out there looking for business.

Jonathan Davis (01:27):

You save on the marketing.

Bill Fairman (01:30):

It is very difficult. This is why I like diversity and you know, I have been commissioned sales most of my life and that was the one thing I always wanted to make sure is I would prefer to have more customers and do a little bit more work than having just a few larger customers because it really is devastating if you alluded a few weeks, we know people in the commercial brokerage arena that close one or two or three deals a year. They are large deals and they make a good living. But if you just lose one of them, there is half year a yearly income is gone. You know, how do prepare for that?

Wendy Sweet (02:13):

It is just like investing in notes and real estate that you are buying and renting out. You want to have you know more than one house to rent and you want to have more than one note that you are buying and selling because you are going to have that loss factor in there no matter what you do know what they say.

Jonathan Davis (02:29): You know you are in real estate. You either have lost money or you know you are about to.

Wendy Sweet (02:34):

Not with us though.

Bill Fairman (02:40):

The thing is if you are going to buy a note, you buy 10 if you buy houses, you want to buy 10. You do not want to buy one because you are always going to have a stinker or two and you need the other ones to make them. And then that also gives you time to find the ones that are not performing and get rid of those and find new ones that will perform.

Wendy Sweet (03:00):

That is right. So to kind of recap a little bit about what we talked about earlier, we were, at our trusted advisers meeting for freedom founders and they came in and said okay. It is February 9th the newspapers at your door and the headline in the newspaper says, you know, Carolina Hard Money just lost 50% of their business. What would you do? What are you going to do? And so we had to sit down and just come up with what we were going to do and it was a great exercise for us to go through. We did talk about, you know, making the company lien what, who would be on your lien list. That is kind of scary. We also talked about the importance of doing the stress test on where you are now, the current portfolio you have, all the things that you are doing. What are you doing now that you can cut back and you know we talked about the lien list, but the lien list as far as employees go. Another thing, and we do this on a regular basis, which I love that we do this monthly, this was brought up in the meetings. How often do you go through your financial statements, your bank account statements, your credit card statements, and see all the things that you probably do not need to be doing? We, you know, we do that in every one of our financial meetings every month.

Bill Fairman (04:23):

How many subscription services do you have?

New Speaker (04:26):

How many $10 YouTube videos and all the little stuff? I mean, even a car wash, I think out a car wash on there at $29 a month for a year on my personal credit card. And I did not remember that I even had it anymore. And you know, can you reduce your phone bill? Can you reduce your cable bill? All of these things that you know, seem like a little bit as you are adding up. But I remember we sat through one and we have saved ourselves $16,000 for the year and just little bitty things that had just creeped up, you know. So that is made us start doing it on a yearly basis. I mean on a monthly basis. And I’m really glad that we are doing that. But I do have a list of, I think eight things in front of me. You might have a couple more that we talked about in the meeting when we discussed what is the first thing that you would do? And I think the first thing that everybody came up with was communicate now what could be coming down the pike. And do that constantly. So everybody knows both internally in your office and externally with your customers or your clients and communicate when it happens exactly. So we were kind of thrilled. We had some communication ideas already in place.

Jonathan Davis (05:40):

Because it is great to have a plan when everything goes wrong and that is fine. But it is what are you doing now? What are you doing to prepare? And that was an affirmation, I think, for us where we said, yeah okay!

Wendy Sweet (05:59):

Affirmation. Two points.

Jonathan Davis (06:00):

So, you know we are taking those steps to get prepared for whatever it is and whatever it looks like. And I mean, we hope it is nothing and I hope it is never happens, but you know what does Warren Buffet say?

Wendy Sweet (06:18):


Jonathan Davis (06:19):

When the tide goes out, that is when you found out who was swimming naked.

Wendy Sweet (06:22):

That is exactly right. I love that one. It is a great thing to picture in your head. So it is the truth.

Bill Fairman (06:31):

That would be the people that are over leveraged under reporting.

Wendy Sweet (06:34):

That is exactly right. So communication was a really big thing and one of the things that we have committed to this year for 2020 as we are making sure that we communicate on a monthly basis via video and email to all of our lender investors. We want to make sure that all of them are informed knowing that you know what it is we are working on and just kind of our thoughts. So what is coming down the pike. And the other thing too, I really liked that we had already put into place too is we are putting together an advisory board made up of our lenders and investors and it is a great opportunity to.

Jonathan Davis (07:20):

It is important to discuss exactly what we are discussing now, which is, what do we do when this happens? What do you all expect of us? What are you all doing, you know?

Wendy Sweet (07:36):

Yeah, exactly! Because you know these folks are giving us their money. We want them to be whole as well in their other investments and their personal portfolios too. Because we certainly do not want them in a bad situation. You know when the correction comes down the pike too. We want to help each other, you know, stay afloat. So we were really excited about having that setup in place.

Bill Fairman (07:57):

So what was number one on your list as far as internal? You know, specific to our business employees expenses, you know when it cost us to run the business. But do you think the number one thing that we are looking at here first, what is our highest expense?

Wendy Sweet (08:15):

I think it is your salary.

Jonathan Davis (08:19):

I mean our house expenses.

Wendy Sweet (08:23):

You do not have to defend yourself. You are good, I am good.

Jonathan Davis (08:32):

With most companies our highest expense are our employees. That is, I think that makes up right at a third of of our expenses.

Wendy Sweet (08:44):

Right! So it is important that not only do we have the right people in the right seats, but that they are cross trained.

Jonathan Davis (08:52):


Wendy Sweet (08:53):

And that we have got a top tier level employee in place and we definitely are sitting in that position. We are pretty sure sided in them.

Jonathan Davis (09:04):

Or able to have it to I guess from loan origination or loan servicing to property management. They all have those skills and those capabilities.

Wendy Sweet (09:14):

That is right! So we are excited about that. So, keeping that communication out was number one. Number two, one of the guys, another fund manager, Mike Zlotnik said we should do a put option on insurance. Or put insurance on a put option insurance on. So, either one of you want to talk about that.

Jonathan Davis (09:35):

I am going to leave it to Bill. I am still kind of, yeah, it is insurances.

Wendy Sweet (09:39):

It is too uppity for me.

Bill Fairman (09:43):

I put option, I am going to have to defer until our next meeting when I can talk to Mike.

Wendy Sweet (09:47):


Bill Fairman (09:49):

I did the look it up and I was trying to translate it into what it actually is for and then how you and ensure it.

Wendy Sweet (09:58):

Okay! But you do not stocks all the time.

Bill Fairman (09:59):

Yeah! But I do not know how you are just essentially taking out insurance that you are going to come up with a particular sales price. Let us say you have an asset that is currently worth 300,000 right? So I’m going to insure, I am going to pay premiums to an insurance company that is going to pay me the difference between the 300,000 and when I ended up having to sell it for a future date if we lose.

Wendy Sweet (10:30):

Right, yeah!

Jonathan Davis (10:31):

So as you all can tell, it is not a system that we are going to.

Wendy Sweet (10:35):

Yeah, probably not.

Bill Fairman (10:36):

The fact that it is available.

Wendy Sweet (10:40):

Yeah! Pretty amazing. So we do need to check into that for sure.

Bill Fairman (10:45):

Reasonably priced then who would not do it?

Wendy Sweet (10:47):

Yeah! That is true.

Bill Fairman (10:48):

You get insurance on everything else. Right? And speaking of Mike Zlotnik, he is going to be our special guest next week.

Wendy Sweet (10:57):

Awesome! So number three, we are short on time, so I want to make sure we get through all this. So number three was the stress test to review and communicate the stress test. So we review the stress test, how did it come through for us and you know, where do we need to make those changes and then we want to communicate the results of that stress test to our customers and our employees. Right? Number four was an alive, love this one was reach out for more capital because when you are going through this, what better time is this than to buy up all the stuff that is just dropped in value, which is what Warren Buffet did, right?

Jonathan Davis (11:38):

When you are the ones that are not freaking out and not hitting the panic button, you are the ones getting the opportunities.

Wendy Sweet (11:43):


Jonathan Davis (11:43):

Because people will sell for, you know, pennies on the dollar and you know that the market is a cyclical thing and okay we go back around, we will come back around.

Bill Fairman (11:55):

So essentially you are sending up an opportunity fund. So you will be collecting funds, not necessarily to buy stuff right now but to try and it is tough to time it, but you can still buy stuff on the way down and still make money just like in stocks. And it happened the last boundary, that is where everybody made it.

Jonathan Davis (12:16):

You are right.

Wendy Sweet (12:16):

And I think that picked up, it says sell for more cash, gather more cash, which is also part of reach out for more capital. And somebody talked about using whole life policies at that point as well. So number six, help our investors increase their cash positions.

Jonathan Davis (12:36):

Which is what these conversations are for right now.

Wendy Sweet (12:40):


Jonathan Davis (12:40):

No going through, I mean it can even probably be on a one on one basis what assets or in your portfolio that maybe are not favorable in a shift in market.

Wendy Sweet (12:52):


Jonathan Davis (12:52):

And identifying those and selling them and at a price that is perhaps right now the height of the market.

Wendy Sweet (13:00):


Jonathan Davis (13:00):

Which would be a good time to exit those assets in cash.

Wendy Sweet (13:03):


Bill Fairman (13:06):

And by the way, cash does not mean in a mason jar or buried in the backyard.

Jonathan Davis (13:10):

I prefer the mattress.

Bill Fairman (13:11):

You can still make money on cash. Just like what we were talking about earlier. I know Chris Miles, we had him on as a guest, he has the whole life policy. You can sell something, take that cash that you get from it and you can sell fund the whole life policy that is gonna pay you four and a half percent guaranteed on that money and it is got asset protection involved. And then when it is time to buy an asset, you can use that capital to buy. And at the same time, you do not even have to take that money out. You can just borrow against it and it is still making money inside of that.

Wendy Sweet (13:46):

That is right. Like even right now is a great opportunity if you have equity in your properties, any properties that you have out there, I would not go personally any higher than 75% some people would, but I would stuck stick at 75% but any of course. But any equity that I have, I would try to get a line of credit put in place now because when you need it, they are not going to give it to you, right? So having that as an option as is always a smart way to go. Our other one here says one man’s crisis is another man’s opportunity, right? And then we have not parentheses beside that strategic partners. That is when it is really important for us to gather our trusted advisor friends, other fund managers that we know like and trust. And you know, what can we do together to attack the downturn? And I do not want to, you know, say run from it because that is what a lot of people did last time. I mean I was one of them running from what was going on. But really this is a, you know, any type of a downturn like you know what happened in 2008 is only an opportunity for those who are prepared for it.

Jonathan Davis (15:04):

Yeah! It is like trying to change your psychology because even if you take stock markets, most people buy high and sell low because it is that psychology like, “Oh this the stock is trending. Let me go ahead and buy it. You probably bought it at the top. It is market all this, the stock is not trending anymore. I need to get rid of it. I’m scared.” Oh well you know, you just sold it at the bottom of the market.

Wendy Sweet (15:34):

That is right.

Bill Fairman (15:36):

So, we had a local broker and on the Charlotte market, his name was Danny Fontana. He passed away a few years ago, but he had a radio show and he always said that the stock market is the only store that when you put any anything on sale, customers run screaming out of the store.

Wendy Sweet (15:59):

It really is. The next thing that we come upon is the go lien strategy and you know we talked about that pretty in depth on the last podcast part one of this podcast. But it is really important to think about that lien strategy. And that is not just with your employees, it is with your portfolio, it is with your expenses, it is everything you are doing. You know, I used to have people make fun of me because me and my dad had a text that we send back and forth. When I see gas at an incredibly low price, I always text my dad and say, “Hey look at what it is today!” And you know we get excited about saving 0.99% you know that not even whole penny is kind of exciting. But to be thinking that way, what are the little things that you can cut out? Because that 0.99% actually can add up to a lot of money when you start really thinking about it, right?

Bill Fairman (17:04):

That way, I can afford that case of toilet paper at Costco.

Wendy Sweet (17:08):

Of course you have to rent a storage facility to store all the stuff that you are buying at Costco.

Jonathan Davis (17:13):

But you know you said that lean list into your expenses as well and it kind of goes into like our plan if things do change and going lien into our expenses into how do we convert our portfolio from what it is right now, which is you know, mostly fixing flips or rent, you know, rental loans into all rental loans and part of saving that money is avoiding foreclosure. It is an added expense. It is at a time frame, it is all these things. So how do you get creative with your borrowers and your clients to avoid foreclosure? That is one of the things that we just discussed it.

Wendy Sweet (17:51):

That is right.

Bill Fairman (17:52):

By the way, and we are down to a little less at a minute and a half here. But one of the things that I think will help all businesses is the profit first model.

Wendy Sweet (18:03):

Yeah, that is a great book. Profits first. It is a great book.

Bill Fairman (18:07):

And it forces you to work within your budget, what is leftover. See, in most companies, your profit is what is left over in the profit first. You take your profit and your taxes off the table at the beginning and then you look at what you have left over and you only work with that. And if, by the way, if what you have left over is not enough to cover your expenses, you need to catch your expenses, right? So, that is a great tool to figure out where you are spending, and we talked about this earlier, making sure that we are not spending money on stuff we are not utilizing anymore, or maybe you are not getting the value out of it. Virtual assistants employees are a good way to start with that too. If it is something that can be done by someone off site, it is not as expensive as having somebody inside, right?

Wendy Sweet (19:02):

Right. You know the other thing too, I think we need to make sure that we just say this and everybody really should adhere to this as you know, when you have got things that are not going well and you are having an issue on, you know, how are you going to solve this? You cannot be afraid to be transparent about it with your centers of influence. The people that you know that are in business that you respect, that you know, like and trust that are there to help build you back up and not tear you down and go off and tell everybody. You cannot be afraid of that. You need to be transparent and you cannot be afraid to ask for help because somebody out there has been through what you are going through.

Bill Fairman (19:50):

And it is very important to be a part of a mastermind group. If you are not in one and you cannot find one, create your own. It does not have to be a lot of people that are in the same industry. Other business people that are in different places in their career and their lives. It is a great way to bounce ideas off of people and get people that are going to be honest with you. You do not want to be with people who are always going to say yes. You want people that are going to tell you. That is the stupidest thing I have ever heard you say.

Wendy Sweet (20:23):

We have heard that before too.

Bill Fairman (20:24):

I hear that a lot. That said, I hope this was helpful. The first thing you can do when we started is taking 25% of your income off the table for six to nine months just to test where you are going to be. Do you have the liquid assets to overcome any of this? What are some things you can do to still survive when you are not making that amount right?

Wendy Sweet (20:53):

Then do it at 50% and see what happens. Start out at 10 then do 25 then do 50 just see where you are.

Jonathan Davis (21:02):

And then when you start in that, if you don’t pass the 25 then you can start drilling down to the individual assets and seeing which ones are weighing that down.

Wendy Sweet (21:11):

That is great point.

Bill Fairman (21:12):

Yeah! And then sell those off.

Jonathan Davis (21:14):

Exactly. I exit those out of your portfolio.

Wendy Sweet (21:16):

Or you could bury your head in the sand and ignore it all.

Bill Fairman (21:18):

There is somebody will buy that asset.

Wendy Sweet (21:21):

That is right. One man’s treasure is another man’s trash or vice versa, right?

Bill Fairman (21:29):

Barnum and Bailey, Ringling barn. And I said there is a full born every day.

Wendy Sweet (21:34):


Bill Fairman (21:37):

Anyway, thanks so much for doing it as I am a bit, it was helpful. Remember to share, like check out some of the other videos that are available. Somewhere on this screen up, down or sideways. There will be a couple little icons you can press. Get over to some of our archive videos. So, until we see you again, I believe our next episode we are going to have Mike Slotnick with tempo opportunity fund, and he is gonna talk about his opportunities in his fund.

Wendy Sweet (22:12):

That is right.

Bill Fairman (22:13):

Mike is real good friend of us and he is a really smart guy.

Wendy Sweet (22:16):

He is the smartest Russian in the world and it is amazing. He is an amazing guy.

New Speaker (22:23):

He is smart than where he is from. Anyway, you will have a great day. Thank you so much.

Wendy Sweet (22:35): Hey, thanks so much for joining us this time. And if you really like this show, you will have an opportunity to see even more. You can choose up here, you can choose over here, you can choose down here, right? Awesome! Don’t forget to like and subscribe to our page and we look forward to seeing you again soon. Thanks.

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