The 40-Hour Work Year: Are You Working Too Much in Your Property Management Business?

Scott Fritz believes that if you are a property management business owner and you stay in that business, your company will be worth less than it would be if you train your company to work without you. He joins Alex on The Property Management Show this week to discuss the different between an entrepreneur and a business owner, and what you can do to work less but produce more. Scott Fritz: Angel Investor | CEO | Business Coach Scott has been an active angel investor since 2001, and before that he founded Human Capital, a PEO company that handled outsourcing for all human resources work like insurance, legal, and payroll. Once that company grew to a revenue of $170 million, he sold it. Then, he wrote a book called The 40 Hour Work Year. He’s also the founder of GrowthConnect.com. So, there are plenty of ways to reach Scott. At PM Grow, he’s teaching a workshop and delivering a keynote. We wanted to know what he means by his belief that “if the owner stays in the business, the company is actually worth less.”  The Ownership Paradox The dangers of working in the business instead of working on the business are well known, especially if you’ve read Michael Gerber’s e-Myth. The danger for owners is that when you are ready to sell your company, you’ll get an offer. If you’re working in the business, all of the compensation you’ve been taking to run the business will not be added back into the bottom line with the sale. Someone will have to replace you and the work you do. That’s going to be a cost for your buyer, so you’ll lose money. Even with property management acquisitions done on the topline, there’s still a line item for owner’s wages. If you own a property management company, you may have the mindset that you’re selling a book of clients. That’s a mindset you need to change. A property management company has more than a book of clients or a collection of doors. It also has intellectual property, brand value, etc. If you’re just selling book of clients, you’re getting a low multiple. If a buyer wants to acquire your company, but they know that you as the owner have to stay in place to run it, you’re going to get an offer that’s lower than the offer you would get if the company was running itself. In his book Simple Numbers, Straight Talk, Big Profits, Greg Crabtree says that you have to eliminate gamesmanship. True up your salary based on what you do in the business. He says not to pay yourself $30,000 and then take $200,000 in distributions. The IRS will notice. And, don’t pay yourself $200,000 if your job is only worth $100,000. Pay yourself whatever it would cost you to hire someone else to do what you do. Don’t chase pennies instead of dollars. Human Capital: When Outsourcing Makes Sense Managing human resources gets expensive and complicated for growing businesses really quickly. Scott’s clients were diverse in size and scope when he ran Human Capital, and he says that there isn’t a magic revenue number at which a company should consider outsourcing HR functions. It’s more about headcount and complexity of the business. Scott had clients with only one employee and they outsourced HR for insurance reasons. Other clients had more than 500 employees before they began to outsource. It’s not necessarily where you are that drives your need for this resource; it’s where you want to be. If you have 10 employees doing work in-house, but you want to expand into four other states, you’ll need a PEO. Maybe your headquarters are in Michigan but you have offices elsewhere. Every state is different, so outsourcing this function can make a big differen...