How to Build a Team to Grow Your Wealth - Part 1 with Mike Ayala

Sep 13, 2023
 

 Episode Summary:

Have you bought into the lie that to become wealthy you have to be born rich, given a handsome inheritance, or maybe win the lottery? In this episode, investor Mike Ayala proves that all you need is a decent amount of grit and the right team. 

Mike Ayala, the host of the Investing for Freedom Podcast, is proof that you can start anywhere and make it big. From humble beginnings as an overworked plumber, he started his own construction company at 24 and has since been involved with more than 2,000 projects valuing upwards of $1 billion. He now has over 22 years of experience helping people find freedom by building teams and streamlining operations. 

He is also the CEO of Velocity Venture Partners, which offers investment opportunities for busy entrepreneurs.

In this episode, we discuss:

  • Why you need a team to help you build wealth.
  • Who to include in your team.
  • How to use passive income and the hidden money in the tax code to grow your wealth. 
  • Accrual vs cash accounting methods.

To learn more:

If you’d like to learn more investing tips from Mike, go to https://investingforfreedom.co/ or search “Investing For Freedom” wherever you listen to podcasts. If you are a busy entrepreneur interested in investment opportunities, go to: https://www.velocityventurepartners.com/.

You can also download his white paper “Overlooked Tax Deductions” to learn more ways to find hidden money in the tax code. Get your copy here: https://www.velocityventurepartners.com/tax/ 

To start using the tax code as a tool to grow your wealth, schedule a call with Pine & Co. CPAs: https://www.pinecocpas.com/consultation

Listen to episode 2 of this conversation here: https://www.youtube.com/watch?v=Xee5MOVjPBU&list=PLEAySceo1dnv-9LsCbhtHacA3a70TrtI5&index=3 

 

TRANSCRIPT

Kevin Schneider: [00:00:00] Welcome to the Hidden Money Podcast. Today we're going to have a great episode. We have a guest here, Michael Ayala welcome to the show, Mike.

Mike Ayala: Hey guys. Thanks for having me. I'm excited to do this. It'll be fun.

Kevin Schneider: Yeah, it will be fun. And, pre-meeting when we were just chatting, you gave a little bit of your backstory of where you came from, and I want to just explore that first off, as who are you and how did you get to where you are?

Mike Ayala: You were saying something there in the intro and one of my mentors - guy's name is Russ Gray from the real estate guys, and he always made this comment. He said, if two partners have the same strength, one of them's not needed. And when you said I was a Jack of all trades, I think what has made me actually successful is really getting focused on what I'm really great at, which isn't very much,

and then surrounding myself with those that are really amazing in those areas. So back to what Russ said, I think the key to all of this success is just really understanding what we're good at and what we're not good at, and then aligning- whether that's an employee or whether that's an accountant, a CPA, an attorney... or somebody to [00:01:00] just run their business.

And I've realized I have this disease almost. I used to think it was EED but what it actually is - I'm a serial entrepreneur / visionary, and so just finding partners to team up with has really been the key. So that's what started our first business. We started in 2004 and I teamed up with a partner who was basically a really good operator.

He was an integrator in the field and I was a visionary. I was essentially the general manager of the company and he was an operations guy actually running our mining division, and we really just connected well and worked well together, and, kind of where it started.

And I'll back up a little bit. I got married at an early age - I was 20, my wife was 19 when we got married. I was a plumber by trade working for a plumbing and heating company, and honestly, I was working out of town. I was working seven days a week. My wife was pregnant with our third child.

I was missing every minute of that, not seeing my family. I would drive home on Sunday night seven o'clock. Drive home, wash our clothes- it was a three hour drive, wash our clothes, have a cold meal, turn around at [00:02:00] 3:00 AM Monday morning, and go do it all over again, and I realized this kind of wasn't the life that I wanted.

And a lot of people nowadays, you guys maybe even experienced it yourself. realized I was a wage slave. Somebody else owned my time. I had all these desires and dreams. My wife and I had spent a lot of time, even as young as we were, talking about what we wanted life to look like,

and my dad was never present. He was a drunk alcoholic, all kinds of crazy stuff, and I just, I had this great example of what I didn't want to be, I didn't want to be the dad that wasn't present, or the husband that wasn't present, and here I find myself working this job, which was a great job and I was making decent money, but again, I was a wage slave.

We had some conversations and we pulled our 401(k) out between the two of us, had $75,000. We did this February or March of 2004, and we just thought to ourselves, we just have to make enough money by the end of the year to pay this penalty and these taxes, and we're off to the races.

And so we launched and started a business, and in our mind it was going to be me running a service van, him running a service van, and we were just going to own our freedom. [00:03:00] Well, It didn't really work out that way. We actually got our license in June of 2004, and by the end of the year, we had 17 employees, and we're doing a million dollars in revenue.

And talked about this off camera, but one of the things that I'll say, people are like - Wow, how'd you do that? You must have been some kind of amazing business owner or sales guy or whatever, but it's what I talked about. I didn't know anything about accounting.

I didn't know anything about sales. I was a plumber, and so I went and found the best consulting company that I could find in the plumbing and HVAC business. I just asked territory rep. I'm like- I need help, and to talk to this consulting company that Trane actually used to put their sales manual together,

and so she connected me with them. I hired them immediately, even though I didn't have the money to hire them, and I just did exactly what they told me to. The good thing about it was I was so young and naive. I didn't have years of experience. This is the problem with business owners-

It'll never work in my market. You can't do things that way. That's not the right way to do it. I've tried that. I tried that seven years. I didn't have any of that because I was literally just coming out of [00:04:00] the field, and I knew that if I didn't hire talented advisors and people around me that could tell me what to do, I was going to fail.

And what I often wonder is, why would somebody hire Mike Pine and Kevin Schneider, and not do what you guys tell them to do? I just, I didn't have any of that tarnished- I've been a business owner for 20 years, don't tell me what to do... I was- Tell me what to do, and I will do it!

And I just did it, and again, you fast forward less than five years, and we had a hundred employees, and we're on the Inc. Fastest growing companies in America. That's the high level. I mean, we can go wherever you guys want from here.

Kevin Schneider: I love that kind of that advice you gave just because this past weekend, so I have two daughters and both of them are in softball, and the first practice we had, the coaches stood up and said, 'I know y'all don't know everything. I just need you to be coachable.'

That's it. 

Just do what we say and get your reps in, and just keep practicing and getting better, and then you're going to see progress, and it's the exact same thing that I tell my [00:05:00] children- just be coachable. You don't have, you don't know everything. You're eight and nine. In business it's the same thing.

CPAs- we have 20 years of experience, certifications and education, attorneys- the same thing, and surrounding yourself with that team is so important. And one of Mike and I's frustrations- Mike Pine, if you pour your heart and soul into a client, and they just don't take the advice, you could see what they're doing is not going down the right road or the most optimal road, and it is a hard part of the job.

So that's a great piece of advice you just gave there.

Mike Pine: Yeah, I think you make a really good point. It's so hard for us to be humble and recognize what we're not good at, 

but I think that's key in business, and we see it with our successful clients, is though they have humility and understand this, these are the things they're great at, but there's a lot of things they're not good at,

and it takes a humility to recognize that, but if you can recognize that, and you try to start filling in the gaps.. Okay, so with me, I'm not good at the details and the structure of a [00:06:00] business, and man, it was so nice to have Kevin come on that's really good at the structure, 

and he's great at that. We do this personality traits kind of behavioral science thing with a consultant for our hiring and management of our team,

and one thing he told us in our seminar where we were learning how to use this great tool, is over 95% of all people marry the exact opposite when they're looking for a spouse, and I think it's kind of God's way of saying, 'Hey, look, you're good at some stuff, but you really need help in other areas.'

And he is giving us a natural desire to find the opposite of us that can fill in all of our gaps. And I think it's definitely key to be successful, but it's also a hard recognition to grow up one day and realize, 'Hey, I suck at these things. I need someone to carry the load in those.'

But if you can find the right people, it's awesome.

Mike Ayala: Yeah, I agree completely and discussed this, but my first partner and I were great business partners because we were so different, but also, I was so young then in the business world, there was areas that I didn't [00:07:00] appreciate about him too, and that when you bring up the spouse being so different, the difference between me and my business partner was that I didn't love him.

Kevin Schneider: You didn't have a commitment. 

Mike Ayala: Yeah, exactly. I was immature and so was We were really good partners until certain times that we weren't, and even my philosophy around advisors and mentors, that was one area that we always struggled with each other, because he actually told my service manager at one point in time, I don't need anybody to tell me how to run my business because he didn't agree. This consulting company that we were working with,

he didn't agree with the money we were spending, and some of things that we were implementing. And that's what really... ultimately, I sold the business in 2014. He bought me out. Not because we weren't great partners, but because we weren't values alignment, and so it's an interesting point that you make too, because If I had it to do over again, I would've probably respected his dispositions and differences more,

but I just didn't know then. I was so immature. I love that point that you make because me and my wife continue to just work through it because I love her so I'm not saying [00:08:00] fall in love with your business partner, but I am saying, we just need to appreciate those differences.

Kevin Schneider: Definitely hard to fall in love with your business partner. I think Mike and I are very opposite. Even though we're in the same line of business being a CPA, I have strengths, he has strengths, and we are really opposite on the personality scale as well too, but that makes us good.

Mike Pine: Yeah. 

We went to that consultant, who's probably one of the best vendors we've hired so far, has really helped us grow in our team. And we took this test, and he started off with us, said, 'You guys are the exact opposite. Congratulations on not killing each other so far, and if you can stay together, you're going to make great partners. 

So far.

Hey, Mike, on your, one of your websites Investing for Freedom, which is the name of your podcast, you've got this awesome quote. I'd love you to expand on it, but it's beautiful, and then I think it gets to hidden money in how you plan your life and your time. You say time cannot be managed, choices can.

Freedom comes by managing your choices, not your time. Can you expand on that a little bit?

Mike Ayala: This is [00:09:00] another thing that I learned early on and fortunately our business was growing so fast that I didn't have a choice but to hire, as many amazing people as I could. And again, I was not very experienced, so I didn't have the consultants, I didn't have the personality profiles, all the things that we do, or they were available then, but I didn't know, 25 years ago.

And so even then, the whole reason that I quit my job and started my company was because I wanted more time, freedom, and I wanted to be with my family more, but what I quickly realized was that my business could just as easily 'force me' -in air quotations- to work 100, 110 hours a week.

And so I quickly realized that the only difference between running my own business and working for someone else, is that I didn't have anybody that told me when I needed to quit or go home, and so I had to quickly realize that the only way that I'm going to keep my family intact was really replacing myself.

So back to that quote, you can't manage time. All of us only have X amount of time in a day, and really, if you want to limit your work hours to 8 [00:10:00] hours or 10 hours, or whatever it is for you, the only way to continue to get work done is to focus on what you're really good at, and so again, I just really learned early on how to leverage not only other people's talents in terms of the consultants, and the CPAs, and stuff that I worked for,

but when it came to employees, when we first started, I would... my partner and I both would work in the field all day long, and then we would come in at night and do estimates and do billing, figuring out how to do invoicing, and all this stuff. And then I quickly realized, I need to hire a bookkeeper and then we needed to hire more technicians, and we needed to hire more....

I was just hiring left and right. Like I said, within the of like, six months, I had 17 employees. So I went from never hiring a person ever, to having 17 employees, at that stage, Mike and Kevin, I had no choice but to get myself out of the field. It was either get myself out of the field, and figure out how to run an office, and run a sales team and run a marketing team, and run a dispatch team, or it was- lose [00:11:00] my family.

And in some respects, being a wage slave is actually easier, because there I can go home to my wife and be- 'Honey, what do you want me to do? Like, They're going to fire me if I don't work 17 hours a day.' But when we're the boss, we're the owner. 

Like, It's just really up to you and your wife to decide what's important to you.

And so again, you can't really manage time. There's only so much time in the day. What you have to do is learn how to leverage other people, and even when it comes to making money, if so many business owners are really bad at this.. This is actually why I got into investing in real estate, because I realized if I want to make $100,000 or $200,000 a year, yet I want to hire three positions that amount to $100,000 or $150,000 to replace part of my salary.

So many business owners are- I can't do that because there's not enough money in the business to do it. You have to make some hard decisions. You either need to invest in people or you need to keep doing what you're doing and keep your salary. And so [00:12:00] I actually had the consulting company that I was working with, this was 2005, so it wasn't that far into it.

I was at an annual planning event. We were doing three day planning and the entire first day was around your personal goals, and they made this comment- my head coach was actually speaking from stage and he said, 'If your business isn't helping you achieve your personal goals, you just bought yourself a job.'

And that hit me right between the eyes, because I'm at this period of time where I quit a job working 110 hours a week and I start my own business, but yet I'm a slave to my own time and constraints and money. And so we set a goal of buying two income producing properties a year to help create some of that that income that I needed, so that I could go hire more people and not drain my business.

And so many business owners don't think about it that way, and I think having those consultants in my life was an amazing thing because that set me on a trajectory, and as real estate investors, part of your audience probably is, we'll very easily go buy $100,000 [00:13:00] property that will pay us $10,000 a year. That's a great return. Yeah, I'll do that all day long, but so many of us will not invest $100,000 dollars in an employee because we want them to bring us 300 or 400 or $500,000 a year. When you look at those parallels on investing, I'm a real estate guy, through and through, but I also run businesses, and that parallel crossed for me because again, we'll do it all day long when it comes to a property, but when it comes to investing in people to free up that time, we don't want to invest in them.

And it's... I get it because it's messy and no guaranteed return. 

When we look at a property, we know, within reason, it's going to do X, Y, Z, but when we hire an employee, we're like- It might work, it might not. Maybe we're going to do sales, maybe we won't. That's what gets challenging.

Kevin Schneider: Yeah, and I think Mike and I are learning that as we grow. We're hiring more people and so you're letting go of control. And I like your thinking on this is because Mike, we had to come to that same realization as well, of [00:14:00] being CPAs. We bill by the hour. So there's $25 an hour tasks and there's $1,000 an hour tasks and a lot where small business owners get caught, and I think you got into this trap too, which made you op that Aha! moment of saying, 'Oh, I can actually keep my family in scale.' This is just saying I'm spending a lot of time on administrative, $25 an hour tasks- now I can grow my business, scale it a lot quicker and be more valuable, if I shift my time to my skillset of the $1,000 tasks.

So we had to come to that realization, and the hard part is when you hire people, that control has to let go, and a lot of small business owners will struggle with that because your name's on the door, you love the quality, you are in control of everything because you were doing it all, and you trusted yourself, and now you have to trust somebody else.

It is a different stress, but it's scalable, and you can actually start to make money. That's where the hidden money is, not more [00:15:00] so hidden money in tax deductions, but hidden money in growth and income generating and just focusing your time on a specific skillset that benefits your business the best. 

Mike Ayala: No, I was just going to say on that note too, as business owners, we train our clients, and this was... this is something that we really have to watch out for because if I wasn't a client of yours, and you had a certain onboarding process that didn't heavily involve Mike and Kevin, I may not know the difference, 

but when I program myself to be super in the loop, and then we try to peel that away later, that's where it gets challenging too.

So, it's really hard, and I think again, there's so much ego involved in it where we think we're the only ones that can do it. Where I was forced as a young entrepreneur, I was so lucky in so many ways. I was forced as a young entrepreneur to just get out of my own way, because I knew that the only way that this thing wasn't going to fall apart, is to get out of the way.

Mike Pine: Yeah. Hard lesson to swallow, but once you do, the proof is in the pudding. [00:16:00] You can see it. Sometimes it takes a while. You can't give up. You've got to stick to it, but if you do it, and you get the right team, and that's so important, getting the right team around you, it takes life of its own.

So at what point in your long career did you realize the power that our tax code has on your ability to grow your investment, your financial freedom? At what point did you realize that multiplier effect.

Mike Ayala: Let me back up first and I'll tell you the moment that I realized that my CPA was super critical in the loop, and then I'll answer that question. So I remember after year one, sitting in a conference room with the head partner, which was just a local firm, and they were highly recommended.

They've been in the community for 30 years. So I'm sitting with a partner, and I'm sitting with the person that was responsible for our taxes, and I asked her the question because in a year we did almost a million, I think it was 900 and some thousands in revenue, [00:17:00] and we showed $180,000... in profit or something in year one, and I asked her, I'm like, 'Where is this money?' I was so naive. I'm- Where is this 180?? I'm asking her to explain a P&L to me, really... but I didn't even what to ask, and I'm- Where is this money?

It shows that I made $180,000 profit, and Mike, kind of looked and she didn't really answer me. 

Mike Pine: Hmm.

Mike Ayala: Maybe she answered me, and I didn't understand it. I don't really remember it, but I walked away from that meeting realizing that there was something like some real disconnect between cash in my bank, and what this thing, this statement that she was telling. I knew that there was a big disconnect, and so I went on this journey of self-discovery, trying to understand the P&L, and all of that. You guys know it. At the end of the day, it was- I'm in a heavily receivables-type company, and we didn't have a ton of debt at that point in time, so it wasn't a ton of [00:18:00] debt,

but that would've been the answer. Where's your receivables, and where's your payables, and what's your debt service? But she couldn't even answer that for me. And so I quickly realized, and this we'll get to your question, 'When did you realize that the tax code was so important?

important Well, I found a different CPA firm because I went on that journey of asking, and between that, that consultant or the statement that he made- If your business isn't helping you achieve your personal goals, you just own a job. So they asked this question- they 'If money and time wasn't an issue, what would you have?'

And one of the things that landed for us was real estate. Simultaneously our new accountant was, which was also a local accountant, but he was much more aggressive and educational, he was telling- The best way to really offset some of this obviously- your tax deductions within the company, if you need vehicles, equipment, etc.

So he started educating us, and I understood that part and we needed a lot of equipment, so that made sense, but then also he started talking about real estate, and between that statement that consultant made, we decided to buy two income producing [00:19:00] properties a year, and our CPA was telling about tax deductions and the benefit of offsetting that, I didn't know anything yet about being a real estate professional, or any of the above,

Um, but to make a long story short, that first year we came back and we bought two single family properties. And then we were doing a ton of work as a plumbing company, and this mobile home park that was distressed, and the lady that owned it was- this was 2007- now the lady that owned it was an investor out of Vegas, and she was running into some development problem, and to make a long story short, she needed to fire-sell this. There was a guy that had a first position note in it that was assumable. I talked to the guy, he said- Yeah, you can assume it. I needed $85,000 cash down. I went and borrowed that because again, I was in a cash crunch. I didn't understand why yet, still, but I borrowed the down payment and I bought my first 72-space mobile home park in 2007,

and that process right there, going through that with my accountants, was like my first real education around... Yes, I had these two single families, created some tax benefit, [00:20:00] but when we were pouring, plumbing and infrastructure, and setting new homes, and we started remodelling homes, and that's where the hidden money was.

Just when I started sitting down with my accountant and seeing what this 72-space mobile home park did- not only bringing in revenue for my plumbing and HVAC business, but also spinning off cash left and right, but also the expenses that were running through there and investing in infrastructure.

And even then we didn't do a cost segregation on that. I don't know even know if it was a thing then, but my CPA then, didn't really say anything, that that just shows how important... by the way, I think he was great for the season that I was in... as you fast forward, I've then transitioned to another CPA group, now we're working with you guys on some things.

So it's an evolution too, and I think that's a lesson in sometimes you outgrow your team. I grew, outgrew my first accountant really fast, but then that second he was pretty great for the season we were in, but really that mobile home park opened my eyes to the hidden money.

Kevin Schneider: Mike and I are real [00:21:00] educational, and that's the whole point of this podcast too, is just put information in front of people, and part of our job as tax planners is we want to throw every possible strategy at somebody, not to overwhelm them, but to give them options of what fits their lifestyle.

And so a very common thing that we see is exactly what you just said, is a business owner can come in and say, 'I made $180,000 on paper. Where is that cash?' And cash can only go a certain number of ways. It either goes to the owner, it goes to debt, it goes to buying equipment, all that could be balance sheet items that's not reflected on the P&L,

but also, there's two different kinds of accounting methods. Now there's more than two, but generally speaking, and Mike and I will get into this more in the bonus content a little later, there's two different accounting methods- one being the accrual method of accounting, and one being the cash method of accounting.

What you just explained sounded like an accrual method of accounting, which means you are going to get taxed on the accounts receivable that you have invoiced. You [00:22:00] have done the work, but you haven't collected the cash to get paid on it. On accrual method, you recognize revenue when it's earned, not received.

In the same vein, you recognize expenses that when you incur them, not when you pay them. So in some instances, this is where analysis comes in, what methodology is best for that? Certain taxpayers, if they're in a heavy AR business, a quote method may just kill them tax-wise, because they're going to get hit with a big tax bill on the AR is still floating.

So we need to look at maybe, a cash method, and cash method is so easy for business owners, and that's why I love it is because you're paying tax on the money you receive in, and you're getting a deduction for the money that goes out. It's just cash basis. If your bank account goes up, generally you're going to have net income, and you're going to pay tax on that increase in your bank account.

Now, this is very simplistic, but that helps very small business owners to manage cash, manage- Am I making money? Are you, I don't know... is your bank account going up? [00:23:00] That's where I'm starting first. And then if money comes out of the bank account, it's either going to expenses, the owner, the debt, and something like that,

and you can even do a hybrid of the two. It's really easy to manage a business on a accrual method, but you probably want to pay tax on a cash method. You could do that. You can have your QuickBooks in an accrual method of accounting, and then when we get to the tax return, just say, 'Hey, I'm under the threshold

for having to be forced into accrual method, I'm going to do my taxes on cash.' So you get the best of both worlds. Just because accrual method does give you a more realistic picture of your business because it's taking into account your AR, what you should be making, and you can make those financial decisions.

Learning that lesson, that's why hopefully people listening to this could take your advice- is getting that team around you and getting that education, because knowledge is just power.

Mike Pine: Since we're talking to accounting methods, and Mike already mentioned Russ Gray, I feel like I owe it to Russ Gray to point out he says this over and over again- whether you're doing a accrual or cash, there's [00:24:00] another financial statement besides a profit and loss and a balance sheet, and it's called the cash flow statement.

So many business owners don't even know what that is, much less use it. I think generally, he would say that accrual gives you the best picture of what your business is doing on the accrual method, but if you don't have a cash flow statement seeing where your cash goes, and that would've been a great answer for that accountant,

you asked, Mike, 'Hey, where's my cash?'... ' Let me walk you through a cash flow statement.' As a business owner, you ought to be paying attention to cash, and cash flow statements can. It shows where all your cash is going, where it's coming from, and you can even do cash flow projections, which is super helpful helps you find and unpeel a lot of hidden money when managing your business.

Mike Ayala: Yeah. I think when you're asking those kind of questions too, when I think back to my early, young entrepreneurial self, and that question that I asked, either way, that answer from that CPA should have been a red flag for me, because either she didn't know, which I'm sure she did, or she thought I was too dumb to understand it at that point in time, and didn't want to take the time [00:25:00] to teach me.

And I'm just... when I think back to that moment, I'm guessing it was the latter, but sometimes I wonder too. So I think, just seeing those moments, that's why we hire these advisors is because we don't know, and I think it's just such a great.. like you said, the statement of cash We're even.. I think a lot of your audience and business owners and young entrepreneurs are even embarrassed to ask the question sometimes, which is why I love when I meet somebody like you guys that leads with education, because if you're not scared to teach outward and openly, you're not scared when I ask a question either.

And I honestly think that not just CPAs, but most professionals really just they want to make it as short-sweet as possible, and when we talk about billing by the hour, just try to get me out of there, and it's like I want somebody that's going to be a partner, like hold my hand,

and so I love the fact that you guys lead with education, because I think that's the win.

Mike Pine: Most people think of taxes only as an expense. In each episode of the Hidden Money Podcast, we will bust this myth and reveal ways you can use taxes to your [00:26:00] advantage, because there's wealth inside the tax code. There's hidden money there.

Henry: Thank You for listening to Mike Ayala today. We will continue the conversation with him. Don't miss part 2 of our conversation on our next episode.

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