How Recording Studios Can Get (and Stay) Out Of Debt

This is the six figure homes studio podcast, episode 57,

listening to the six figure studio podcast, the number one resource for running a profitable home recording studio. Now your host. Welcome back to another episode of the sea six

figure home studio podcast. I am your host Brian Hood and I'm here with my assistant to the regional manager, Chris Graham. Chris, how you doing today buddy? Hey guys. I'm having a good week. It's been a period of growth for me. We've got a bunch of stuff going on family wise and otherwise it's been pretty intense to be honest, but it's been a good opportunity to sort of lean into that suck and grow through it, so I'm good, but for bad reasons. Yeah, dude, I'm sorry to hear that. Everyone of us, including myself, have had periods like that, but getting the good out of the bad is something we all go through and getting growth periods, painful periods is something we all must endure through and hey, I'm an audio engineer. It happens, right? So this is true. This is true. So speaking of taking bad things and turning them into good things, today's episode is all about getting out of an avoiding debt.

So we've talked about this on the podcast in the past debt and you know, obviously we're a business podcast. Debt is an important part of either how a business will fail, has failed or how avoiding debt, you know, made them successful. So debt is this crazy thing. There are, it's not a one size fits all answer. This is one of those advice buffets where we're going to say some stuff and you're going to say some of that was stupid, but some of it was cool and that sort of our hope here. First of all, we're just gonna Rehash some things we've talked about previously on the podcast. What's good debt, what's bad debt and anywhere in between. So a home mortgage in many cases is good debt, but not always. If you took out a loan to buy a mansion in Gary, Indiana or Youngstown, Ohio, probably not good debt. Probably not a good debt. No offense. My wife's from Youngstown, you know, I've been there. I'll never go back.

You've alienated tins of our listened to any of our listeners, maybe twelfth. So if on the other hand you're buying real estate in, say Nashville or Columbus, Ohio would, would, um, probably a pretty good idea, especially if it's in a good part of town with a lot of growth in it. So I own a house, I've got a mortgage, but as a result of that mortgage, I bought at the right time in the market and my home value has gone up when I finally sell my house, if I sold it today, for what it's worth, I would have spent nothing to live here. I actually would have made money living in this house over the past 10 years or so. So there's good, there's bad debt, but let's get into the business side of things. When it comes to your business, our advice to you is debt is almost always bad, specifically pre cash flow.

Now what do we mean by that? Cashflow is your business is regularly making money. Each month you're making deposits consistently, so that means you have money coming in and that's cashflow. If you are pre cash flow and you're like, well, I'm going to start a studio so I'm going to go $50,000 in debt in order to start it, not recommended by the six figure home studio podcast. So let's talk about that. There's a couple of things that you could do to go into debt. Brian, what are some things I could go into debt to make myself feel good today and bad tomorrow? Yeah, there's gonna be a number of things here that people that we've seen will typically go into debt for the first and the most obvious. I think as gear people love to buy gear on debt. That's just something that has always been a trap that people fall into simply because they don't necessarily want to practice something called delayed gratification.

So gears. One thing, another thing that people spend a lot of money on to go into debt is a commercial facility or even sometimes spending a lot of money renovating their home. Yep. For their home studio needs, and again, if that's pre revenue or pre cash flow, this is where it's even worse idea than anything else. You could possibly do third is an audio degree, you see this all the time. People spend a lot of money on audio degree upfront before they really even understand what's necessary as far as knowledge, skills, abilities and connections and what. Because maybe use that money for otherwise and then marketing. Marketing is a big one. Yeah. So I would say the audio degree one is probably the saddest stories we hear about. People are not. I bought a bunch of gear and then my studio one of the debt, it's I got a $60,000 audio degree from.

I don't want to say their name, you know, does it have an f and an s and it soul fail. Soul fail. It's sort of a. actually that's a really funny joke. So fellow university. Yeah. I got a $60,000 degree from Seoul Fail University. It's actually 78,000 article $78,000 and Oh, surprise, surprise. No one's hiring. Oops. So man, if that's you guys, I feel for you. That is some tough stuff right there. And I'm sure there are people that have gone to wholesale. The people we've interviewed on the podcast who it worked out great for them. I personally know more people who have a degree from Seoul fail university and instead it in no way help their careers. Then I know from people that have had successful careers from that university. So that's just my personal experience. Obviously. I'm probably a little biased here. Yeah. So sorry.

So fail. We don't mean to pick on you guys but SORTA Kinda mean to pick on you guys just a little bit and that comes back. That will be a whole rabbit trail, but I believe if you are charging someone for a college education, you are obligated to share the placement rate of people who have the degree and the placement rate for any sort of audio degree right now is not very good. It's pretty low. Do you know any numbers from that? No, but I would guess it's probably somewhere around a philosophy degree or a dance major. Not very high. So that being said, this is more of like a socio economic philosophy opinion of mine. I'll shut up about that. This is not about Audi degrees. This is about debt and the most important thing that you need to consider when you go into debt is what is your break even period? How long will it take you to make money as a result of that debt, which then pays off that debt. How do you get back to zero? A $78,000 loan to go to school for audio is a very, very, very long time to break even on that. Unless you are one out of a thousand people that lands some unbelievable job or is like the best salesmen of all time, so yeah. Anyways, let's keep going.

One final thing as far as debt is concerned that we didn't really discuss yet is taxes. Taxes is one of those things where if you are not putting money aside as a self employed audio engineer or studio owner, if you're not putting money aside for taxes, you're in debt and you're in debt to the worst debt collector you could possibly owe money to, and that's in America at least. That's the US government

in history. They're the most powerful organization ever. You don't want to spit in their eye, literally anybody else including like, I don't know, say Russia or a Great Britain would be a better enemy to have than the US government. So anyways,

so those are the different ways you can go into debt and I think there is a time and a place for some of this. Where do you draw the line for good and bad debt with gear marketing and specifically facilities, those three things because that's the three biggest areas that people tend to go to dead on.

Well, for me personally, and this is just me, if I can make money by going into debt within three months, then I'll at least consider it. Now. That's a really loaded statement because it could be. I'm not saying that I have a chance to make money within three months. I'm thinking, boy, I'm guaranteed. There's no way. I don't at least break even within three months that all of the sudden things get a little bit more interesting. So if you get a home studio, you're thinking about buying the $3,000 microphone. The most important question is, are you going to land a pretty big client because you have that microphone within three months, and if the answer is yes, well this guy said he'd hire me if I have an [inaudible] 87, your slip alert. If he said he'd hired me because I have this microphone, so I went out and bought it. Then maybe it was a good investment. You probably should've rented it because then that would have been way better, but then at least at that point, it's interesting. So this marketing argument can be made if you have a business model that is proven to work. You have done many, many projects. You've consistently had happy customers and five star reviews. Marketing starts to be something where you can at least consider debt in the short term to go into.

Yep, and I think Chris Graham is a perfect example of someone that has that proven business model, has the past, has the history and the knowhow on how to turn any amount of debt put into marketing, into a profit with relative certainty. So now let's kind of transition this in our pasts. You and I have both experienced debt, I believe, right? Yep. In my past I've gotten as high as 15 grand in consumer debt. I count that debt. I don't count my real estate investment debt because that to me is a whole separate thing and that we're not going to get into today, but Chris, you've probably beat me on that number I think you mentioned earlier to me.

Yeah. Well, as far as personal debt goes, my wife and I've been very lucky. We very rarely have had, you know, really any personal debt to speak of. You know, occasionally it'll be like, oh crap, we didn't have enough money to pay off her credit card this month, so we've got a few grants so we've been good there. But as far as the business goes, yeah, there have been times when I unwisely made investments when I bought equipment or when I spent way too much on online marketing and then had to hold that debt while I waited to break even on the expense. And occasionally when you do that, that's a dangerous game to play because if you make a big marketing investment that doesn't pan out. Oops, now I have debt and I have done that in the past. I'm still paying for that in many regards.

Probably about four or five years ago, I was spending money like crazy on paid advertising and I made a couple bad bets so to speak, and I'm still carrying a little bit of debt from that business is still totally profitable. I'm still very comfortable and that debt isn't a nice little spot where I can manage it easily. And that's one of the things I want to talk about today is to kind of come clean with you guys. You know, I've got a six figure business, but I do have some debt. I don't like the debt and I want to talk to you guys about how I got it, what I'm doing about it, and hopefully I can preach to myself. I say that constantly. That's the criticism. That's the criticism preached myself about how to not do this in the future. And I would say that the ultimate reason for debt often comes down to not having bookkeeping strategies or accounting strategies that keep you in tune with reality.

And this term of having a bookkeeping strategy where you're tracking your income, you're tracking your expenses, you're tracking what you owe to the government for taxes. This year, you're tracking every penny and every penny out and every penny that's going to need to come out soon is something called management. Accounting. Management. Accounting is like having a scoreboard. If you're playing soccer or football or baseball, it's like being able to glance up and say, oh, the scores four to three. Okay, and we've got two minutes to go. Okay, good to know. Management accounting is about building systems for your business where you can glance at it and be like, Oh wow, we're doing pretty good this month. That's how much debt I have. That's how much I'm going to. Oh, here. Pretty soon. And this is how much is coming in sweet. I know the score on the scoreboard.

If you don't know the score on the scoreboard right now, it's almost impossible to win. I'm preaching to myself here, but I'm doing my best so that my systems reflect the reality of my financial so that I don't make silly decisions like, yeah, I'm totally gonna hire this person and spend all this money training them, or I'm going to make this marketing investment or I'm going to buy this piece of gear, or, you know, fill in the blank. You need to be able to look at the scoreboard and say, Ooh Gosh, we're down by four and there's only two minutes to go, so why did it take you? You know, you haven't always had this management accounting thing implemented in your business, right? Yes. I've always been, well, at least for the past seven or eight years, just fascinated by the scoreboard analogy and this comes back to in seventh grade I played football and in eighth grade I played football and in eighth grade, by the end of the season, we had yet as a football team to win a game throughout seventh or eighth grade.

And we were tied up buddy. It was terrible. We were so bad. We were tied up at the end of our. Very last game, but our scoreboard didn't work and as a result we didn't call the right plays in order to score on time. We were being too conservative and when we should have been more aggressive. So I'm fascinated by this scoreboard analogy and for me what inevitably the hole that I always have gotten myself into is I've lied to myself and I've said, you know what? Quarterly payments here in the US, you're supposed to pay your taxes each quarter before they're due on April 15th. And I would say, well the fee for not paying my quarterly payment is so small. It's like the best debt I can have, but I don't know exactly how much money I will. Oh, come April 15th. And what inevitably would happen is I'd be like around, you know, January, February, March.

I'm like, feeling pretty good at the business is awesome. And I'm like, yes, I'm totally making lot of money. Like I'm out of debt. And then my accountant, would it be like, oh, here's how much you owe a debt. And so I get out of debt definitely right before tax season in the past that will past years, but then I'm right back in it because I got to write a five figure check to the US government. Yep. So it's like this endless cycle of and it's. And, and here's the thing. I don't want to focus too much on one specific kind of debt because every single person that's in debt right now is in a different area. So let's just put this from the perspective of anyone listening right now that is currently in a amount of debt that they find unmanageable. And this is probably a pretty fair amount of our listeners.

I think the average consumer debt, the average American, something like $56,000. So it's probably about right. Blows my mind. It absolutely blows my mind. But that was the latest stat that I saw. It might actually be higher than that now, but let's just say that someone's in that $50,000 of debt and they're in either a day job or a studio where there maybe maybe making that much money per year. How does someone get out of debt and let's just stick with the audio world just because I think the entrepreneur has a slightly different type of problem getting out of debt than someone that has a steady paycheck every single month. Yeah, from a day job, so let's just look at this from a. from a self person. How the hell do we get out of debt if we get to this point? Well, I would say we've talked about this on the podcast before in the past.

Our advice to you from a banking perspective is to have a personal account and a business account and that you keep the two completely separate when you have debt. I think it's important and I've had a lot of success in this recently to have a separate account that's debt related, so the problem with debt in the problem with accounting, the problem with running a business is that you need to be able to look at the scoreboard, like I said, and know your financial condition. At the drop of a hat. You should be able to pull your cell phone out and glance at it at any time and say, oh, I see how we're doing. Oh, cool. Here's the thing. Older generations that are older than me, this is mindblowing to them. They've never had the ability to do this because they didn't have technology on their side.

US as the younger generation, we have a bigger opportunity than any previous generation to actually run good businesses because of the management accounting piece. We can actually use automated services. We can actually use online banking to immediately and instantaneously be able to take your financial temperature and know how you're doing as a company and whether you're actually winning or losing. I think that's the big thing is first of all, keeping things separate us. One of the first things I teach new businesses is even if you're pre-revenue, just have a separate bank account that you're spending money out of and that you're keeping things separate from day one from day zero even. But I think the second step in this is, and this is a big step that a lot of people struggle with, is just taking your head out of the sand because people have this tendency to want to either ignore or pretend like something's not happening to them.

So as they're getting fatter, they refuse to look at their weight. They've refused to weigh themselves as they are going broke. They refuse to check their bank account and it perpetuates the issue. If you are gaining weight and you're never checking your weight, you have no comprehension of how much weight you're gaining. And so you're just continually going up and up and up. If you are broke and you have no money in your bank account and you never check it, you're now going to be more broke because you're getting overdraft fees on your debit card because you keep buying things you can't afford because you're never checking it and it perpetuates the issue. So I think for us, just being aware of where we stand, looking at the score and getting your head out of the damn sand is going to be the number one most important part of making this work. Yeah. And because we're successful podcasters, neither of us have ever struggled with this, so we're in a good position to teach it. I'm just saying speak for yourself.

I struggled with this comment, Chris. No, no, I get it. That's funny. No, that is. This is like, this is I all the time want to stick my head in the sand and ignore reality if I know I'm not doing so well and I love doing that right around tax season. And here's the thing. There's a great quote. I think I've it like 17 times in the podcast before there was the guy who wrote a book called Integrity By this Guy Dr Henry Cloud, and he said integrity is having the courage in one mess up quotes and this is the wonderful part of podcasts as we get to like edit all of this stuff and make you sound so damn smart except for this, for this specific time because James is going to lead this end, but try that again. Okay, here we go. Integrity is eating reality for breakfast without getting sick.

When it comes to your finances, when it comes to debt, you have to eat reality for breakfast. Do you have to accept that you have the debt and even sometimes when you don't want to. And Man, I have been there hardcore. Uh, you have to look reality in the eye and you have to say, okay, let's look at the numbers. I'd say more than just integrity. I think that's the recipe for any longterm success in anything you're doing. Yeah. And it's hard, man. It's super hard and I'm sure every single one of these struggles with this. And the ones that are thinking, I don't struggle with that. You struggle with it the most. So man, it is so hard. It is the human condition, and I can't speak for Brian, but man, this is this a struggle for me to sit down sometimes and be like, ah, I want to win today.

So I'm going to ignore what's not going well. And Man, that's the recipe for divorce. That's the recipe for failed businesses. That's the recipe for, you know, broken relationships. It's man, you name it. I think if you go back to episode number 51 wire audio engineers so bad with relationships, I think we discussed that pretty well there, which is we tend to gravitate towards those things that we're good at, which is fidgeting with knobs and compressors and eqs and we tend to ignore and avoid the things that were bad at relationships or insert thing here, money management, whatever. So everyone struggles with this. Whether you think you do or you don't. Every single one of us struggles with this in some way, shape or form. And we tend to cope by doing more of the things we're already good at and ignoring the things that we are bad at.

And that just compounds the problem. Super, super, super interesting. So this idea of management accounting, you know, being able to look reality at a moment's notice, right in the eyes and say, okay, I'm in more debt this month and I was last month, or I'm in less debt this month than I wasn't last month. Now something interesting happens when you have a scoreboard. You can look up at it and recognize, embrace the reality that you're not doing so well. Or you can look up there and say, Oh wow, I'm turning things around. This is going pretty well. Holy Crap. This is fun. Let's do it some more. There's this interesting thing that happens when you have the scoreboard where when stuff starts to move in the right direction, it's fun, man. And I tell you what, when I'm feeling great that the inverse of me wanting to stick my head in the sand, if I'm going to slow month or something like that, the inverse is true.

I get up and I immediately want to like look at the numbers, but yes, it's going well. That's how I am right now. Like I just lost about 12 pounds just by eating healthy and going to the gym and part of the process of doing that was managing our, checking my weight, checking the scoreboard every single day, whether I knew it was going to go up or knew it was going to go down and what I saw over a six month period was a very much a rollercoaster and then eventually I had stuck with it enough to where it started falling into where I wanted to see it and it was frustrating when it was a rollercoaster. It was frustrating when my weight was going up and I was doing nothing about it. It was super helpful as it's going down. So now let's talk about getting out of debt.

The fun part of seeing those numbers go down. Well, and here's the thing. If you are in debt, if your financial situation isn't great and you've got like you know your apple loan and your one credit card loan and your other credit card loan and this money that you owe to your friend Bob for that one thing, that one time. If you have your debt spread out over lots of different places, it becomes very difficult to keep the score because you have to do math in order to keep this score. My advice to you is when you're trying to get out of debt is to not have to do math is to figure out a way. K I s s, keep it simple, stupid, simple, stupid. Bingo. And another way that you do that is you have three accounts. You have your personal account, you have your business account, and then you have one other account.

It's your debt. One number that's this is my debt and two things happened. Then one, you have a scoreboard where you can look at the debt number and know whether it's gone up or down in the last month and two, you get used to living on a budget with your personal life and living on a budget with your business life where you're not making investments that you shouldn't be, not taking risks and that helps you get used to running your business in a consistent way each month and not being like, oh, I really feel like I need to buy, you know, fill in the blank piece of gear and suddenly the $2,000 purchase messenger cashflow up. Yep. So that first step is just establishing an easy to follow scoreboard so that when you are tempted with the opportunity, I used the opportunity to buy something that you want, you can quickly look at your scoreboard and say, nope, no can do, move on.

So here's how I would recommend doing that. There's a couple different ways, the maybe the easiest and cheapest way to do it. And this is going to surprise you guys, is to get another credit card. What? That sounds crazy man. So here's the thing, many business credit cards, if you have an LLC, which is what I recommend, you can go to the bank and say, I want to get a new business credit card. I did this on. I use chase. I don't necessarily recommend chase, but I use them because I've used them forever. I went on chase's. It's not a good reason to use somebody, Chris, but I digress. Go ahead. You're right. I went into chase's website, I applied for new business credit card and I knew within a day and that new business credit card has zero percent interest. What I then do, let me stop you really quick just to clarify something.

You don't have to be an LLC to get a business credit card is true. I have a business card under my studio which is a sole proprietor. So just a little side note there. Okay. Yeah, yeah. Don't get overwhelmed by the LLC. That's not part of this episode. Don't worry about that. So if you get an interest free credit card, then you begin to pay all of your bills, all of your business bills with the interest free credit card, and the goal is that you have monthly expenses with your business and you get to the point where maybe you have a different credit card for your regular monthly expenses that you pay off in full every single month. That's the goal, so that eventually that business credit card for your debt with a zero percent interest is holding all of the debt. So basically you're trying to move

the debt from all those little tiny accounts with probably higher interest rates than zero percent because it's going to definitely be higher than zero percent and you're trying to move that over to your credit card. Why Not Chris? Why not just move the debt directly from those other accounts into your

credit card? You can, which is a great point. You can do in many cases with the new credit card like this, you can do a zero balance transfer and what that means. I just did this the other day. I had a $4,000 loan through apple for some new computer equipment that we bought and it was interest free for the next year, but I was like, you know, that's multiple accounts. I want to be able to be reality focused. So when I applied for the credit card, I said, hey, I got a and he was $3,600 with apple and then the bank took care of paying off that for me and now that dead exists on the zero percent interest free credit card. I can look at that credit card added glance. I can literally pull up my iphone right now and I can tell you how much debt this Internet credit card.

So the goal here is that your personal account is consistent, your business count is consistent and your debt is completely separate from the rest of them so that you can glance at that and that's the single number that you need to know. Do I have less debt this month? And I had the month before? I do. I have more debt and it's extremely sobering. You mentioned before when you feel the gear slut fever coming at you that you can just pull out your phone and be like, that would increase the debt account. I'm not going to buy that. Nevermind. So it's sobering that getting your head out of the sand is sober and many people would tell you that my advice is terrible and for you it might be. That's the thing about financial advice. It's like audio advice. It is not one size fits all. We have a couple other ideas on how you could consolidate your debt. Before we move on to

that, I want to talk about the danger of zero interest and the lie that has zero interest sometimes and that is a lot of times when you have a zero interest offer. This goes for gear financing on sweetwater. If you're the kind of person that wants to take advantage of that, if you have a zero interest credit card apple, you want to make sure and a lot of these that at month 12 or whenever the zero percent interest thing in a lot of them, if you have any amount of balance left on that account at the end of the 12 months, all of the interest from that 12 months all of a sudden gets added to your account and that completely negates the entire point of using zero interest card or some other account like that to do this. So that's just something to watch out for.

Yeah, you need to make sure that if you do this method that you're using a. That doesn't get you like that. The chase ones don't do that. At least they don't today. They might tomorrow, but there are other options as well. This is going to be so lame and you guys aren't going to be embarrassed to hear me say this, but alone from mom and dad, if you can get alone, just a small loan of a million dollars to small loan of a million, huge so you could get a loan from a family member and if you do that, you at least have that one number where you're making a consistent payment to them and you know what that number is. The power of consolidation is that it becomes a scoreboard. You can see your debt in one spot as opposed to like, hold on, let me get my cochlear up because I've got like $14 for a counseling to add them all up so I know what my actual debt is.

Ohm, one minute and then you get distracted and do something else and then your head still in the sand. Consolidation is awesome because it gives you a scoreboard. You don't need a spreadsheet, you don't need any sort of fancy tools. You just need to open your phone and look at your bank account and you know what's going on. So you could do that loan for mom and dad would work an SBA loan, which I, I will confess, I know nothing about SBA small business association. So these are loans that somehow the US federal government has something to do with. There are a lot lower interest than a credit card. I don't have any experience there. We've considered having somebody come on the show to talk about that. I do have a small business line of credit. I don't think it's associated with the SBA program.

Mine is just through my credit union. I don't use it. I just have it in case I need it one day. That's like a 10 percent interest rate and it's lower than most credit cards, but it's still high in my mind so I don't use it unless it's something that I absolutely need to use it for. Yeah. Which brings up a good point. Having credit lines is a very good thing. Many people think like, well, you know, if you want to be wise, you should never have a credit card. You should never have a line of credit. No, that's so dumb. You should have as much credit as possible and not use it. That goes against Dave Ramsey's point of view, but in my mind I get credit. I opened up credit lines when I never need them, and that's the best time to do at the worst time to open up credit is when you absolutely are desperate for it.

Exactly. Well, the big thing here, we're just going to digress for just a moment into credit scores. The way that you raise your credit score is exactly the way you would think. You need to raise your credit score. If you were borrowing money from a friend is you borrow money and then you pay it back on time. You do this again and again and again, and the person you're borrowing money from gets comfortable lending you more and more money. That's exactly how a credit score works. So one of the reasons I'm able to own my own house was because as a 19 year old I got a $500 credit card in my name so that I could get an Ohio state visor cap outside of a football game and it was stupid, but thank God I was responsible with it. So now the age of my accounts is really, really, really high.

So my credit score is great for someone my age because I consistently demonstrated to lenders, Hey, I'll pay you back and on time. So moving on. Other ways of refinancing debt and we're not going to go super deep into these because these are all up to your individual situation, but you also have a home equity line of credit that you can open. It puts a lien against your house so that if you don't pay it, you essentially lose your house. So there's a lot of danger there, but it's a great longterm solution for debt consolidation because it's generally a lot lower interest rate because it's backed by what's called collateral your home and the tiny minimum monthly payment in a tiny minimum monthly payment. Right? And it's like an accordion, you can use it either way, you can put money in and you can take money out of a line of credit versus a loan where if you put money in, you cannot get it back out and that works really well for entrepreneurs like us because some months we might have a huge month and we can put a ton of money into that line of credit that we're paying off and then we're not paying any interest for months to come.

And then we might have a month or two months or three months where we make nothing or little to no money and we can pull money back out from that line of credit as needed. So line of credit and a he locked for them if we're using it in business to keep yourself, keep your income even. It can be a good use. But again, I don't know your situation. You can put your family in a lot of danger if you are massively irresponsible with this. Yes. So some of you are going to hear this advice and you're going to take it and it's going to be great. You'll have been wise in what part of this advice buffet you have selected and not just selected but the way you've implemented it. Exactly. So financial advice is an awful lot like fire in the right context.

It's really good. It'll cook a steak, you know, I love steak, it'll help me make smores and the wrong context. It will burn down all of Malibu, California. You know, it's a great thing in the right context. It's absolutely the worst thing in the others. So everything that we're saying is on you as an adult to figure out what to do with this advice and to look for other advice from other people who know more about this stuff than we do. So business is not a board game where there's only one way to win, where there's only one path. There are so many different ways to run a business successfully and you have to be aware of all the different tools that you have available to you to be successful. Well, I think we should talk about tools. I think that's something we should definitely talk about because there are so many great tools out there that would either a help you get out of debt or b, keep you from ever getting into debt and both of those are good things in my opinion.

So let's just chat about some tools. Yeah. I would first and foremost advise what I call. This is a tool. It's not like an APP or anything you can download, but I would call this the reoccurring expense audit. This is a tool that you can use and what the reoccurring expense audit is that you sit down at least twice a year and you get your bank statements out and you figure out what are you consistently spending money on each month. You get a spreadsheet out and literally it's the simplest spreadsheet. You can have to be like a phone, $50 phone in the left, $50 in the right apple computer loan, $37. Just go down there and get a list of all the different that you're paying money each month. Add those all up and that is the minimum amount of money that you need to stay in business.

If you fall below that number for any length of time, you're going to be hurting unless you get a lot of money in the bank. Are you including debt and that debt servicing your debt payments in that list of. Yeah, that's your overhead. Essentially. Your minimum monthly payment should be in there and once you know what that is, you can start to be creative about ways to remove that. So case in point, I was paying a fortune in web hosting because back in the day I signed up for rackspace.com. They were at the time, the best you could get and the best company I could go with to allow lots of people to upload files. To me that is no longer true. They are no longer the best company to use. They are not even in the top 100 yet. Not even close. Yeah. Best companies to use.

So I was able to take what was somewhere around four or $500 a month and turned it into $30 a month because new services had come out since I had done it. When you run a business and it grows $4,440 a year in savings right there is huge. So that wasn't a mistake that I made to sign up for rackspace at the time. It was a great investment and because uploading them my website was so easy, I made a ton of money on that. The problem was that I didn't audit myself frequently enough and ended up not realizing, not thinking creatively about are there ways for me to get out of having to pay this each month? Are there other services that have come out? Because every month there's new companies starting. There's new companies that are like, Oh, you can do file uploading it through us, or Oh, when I first started my business there was no such thing as dropbox.

It was yousendit.com and it was a pile of burning trash. It was absolutely awful. I like to call that hot garbage, garbage. It was some real hot, steamy garbage, and as technology changes, believe it or not, we are technology business people. If you own a recording studio, you are in the technology business. As stuff changes, you're able to change your technology and lower your costs. So back to what I was thinking about this tool, it's called a reoccurring expense audit. So sit down, make the easiest spreadsheet in the entire world, list out all of your reoccurring monthly expenses and see if there's ways to eliminate them. Is that simple? So you do the sum function. Then you add up what all your recurring expenses are and say it's $500 a month or $5,000 a month, whatever it happens to be. And then you get creative and say, well Sir and I can, I can sort based on what's most expensive in a spreadsheet.

You know, you can sort descending is what that's called. And you can say, Oh crap, well I'm spending an awful lot on my rent or I'm spending an awful lot of my web server. I'm spending an awful lot on fill in the blank and then you can start to 80 slash 20th and tackle the most expensive, most aggressive issues that are creating an intense amount of spending each month. If you go back to episode number 45, we have an entire episode on how studio owners are multiplying their income and minimizing their headaches using the 80 slash 20 principle, which Chris just mentioned. Yeah, so super powerful stuff. If you have a spreadsheet with all of your reoccurring expenses on it, you can start to see, well, what's the 20 percent of the things I spend money on that account for 80 percent of my expenses and you can start to figure out how to tackle those.

This is super powerful because getting out of debt is actually really simple. There's two parts of debt. Yeah, there's the offensive. There's the defense of debt elimination offenses earning more money, which we talk about all the time when the six figure studio, but the second part is smart defense, which is cutting out unnecessary expenses and go on your income statement or on your expense statement because those are things that are keeping you from paying off your debt. Those are unnecessary things you're paying for that you have just been putting off because you didn't want to walk into planet fatness and give them your cancellation notice in person so that that $10 a month isn't coming out of your account anymore. Bingo. So this is super, super powerful stuff because there's only two reasons the business fails. One is either they have absolutely no sales or two is that their expenses are greater than their income.

That's it. Those are the only two ways of business will fail other than the US government. Shut them down for some reason, which in our industry probably won't ever be a problem. Hopefully. Fingers crossed, fingers crossed. Yeah, so this is the big thing is to get your head out of the sand, you need to use this tool of a reoccurring expense audit to figure it out. Well, how do I spend less each month and if you have debt and you can figure out how to spend less each month, then you have more money to pay off the debt. This stuff is pretty simple, but you know, I have to confess I'm a work in progress on this. I am constantly looking at ways to do this stuff and reminding myself the importance of this. Here's the thing, Jeff Bezos at Amazon, I guarantee it, does the same thing. Tim Cook at Apple Does the same thing.

This is normal business, 101 stuff and the damn shame of it here is that they teach a calculus and Algebra and all sorts of fancy stuff in school, but they don't teach you this stuff. Actually, it blows my mind like that's why America is the average Americans in $56,000 in debt. Well, let's just talk about a couple of extra tools. We talked about that spreadsheet. The recurring expense audit, that's all important, but what are some some tools people can look into if they're looking to either get out of debt or stay out of debt. Mint.com is fantastic. Mint is a personal budgeting tool, so your debt is ultimately connected to your personal decisions in this industry. The things that you're spending money on. If you're dropping $500 a week on going out and drinking beer and you're in debt, you probably need a way to stop it. Stop. Yeah.

You need a way to be able to look at that. Mint is awesome because it plugs right into your bank accounts and can tell you, oh, you're over budget this month for beer or for restaurants. In my case, yeah. They also have an APP, an iphone or android app that you can download and it'll give you little alerts when you're over budget on things I use meant though not as much anymore because of another tool that while recommend at the end here, another tool by the same company into it as quickbooks. There's all sorts of different software you can use to just use some kind of automatic bookkeeping software for your business so that you can add a glance, pull, open the APP on your phone or on your computer and say, Oh, I have made this much this month and spent this much this month. It makes it really, really, really, really easy.

It's got a profit and loss statement. Yeah. You get a profit and loss statement for the low, low cost of like a couple bucks a month. Very worth it. I still use godaddy bookkeeping. Nothing about it has made me mad enough to switch yet, which Chris had an issue where he wanted to switch. If you've listened to this podcast long enough, you know that Chris and I both used Godaddy bookkeeping and then he switched. He cheated on me and switched to quickbooks. You know, I'm never going to forgive you, man. Well, there's a long story there, so quickbooks is great. Any sort of automatic bookkeeping software. This is an advice buffet, but the one piece of advice I would give to you is if you're like, well, I don't want to spen like $7 a month on bookkeeping software. That's silly. Please get over that.

Don't use a spreadsheet. That's another tool that you could use. If you're serious about your business. You have bookkeeping software, period. This is true. I'll fight anyone that says differently. I won't fight anybody for a difference of opinion on almost anything but bookkeeping software. It's a necessity. You have to have it. This is a plug for my new course, the home studio startup, which is everything you need to know everything you need to do everything you need to ignore as you're going from zero to $10,000 in audio, you can go to the six figure home studio.com/ten k for that. The reason I'm bringing this up is because a lot of that course talks about when to ignore certain things and then when to do certain things. If you are under a thousand dollars in income, don't worry about it bookkeeping app yet. Don't worry about quickbooks or Godaddy bookkeeping, worry about all the other things I talk about in that course first.

Don't worry about this stuff quite yet. There was a time when there's a place that you can start stair stepping these things on your business, but quickbooks don't feel too bad yet if you're super early in your career. That's my only caveat with that. Yeah, that's amazing and I love that about this advice buffet thing. Is that. Yeah, I just said that, but if you're at less than say $10,000 a year, it's a lot less important. If you're like 40, $50,000 a year and you don't have bookkeeping software. Yikes. Yikes. You need to fix that. Even at 10,000 a year. I'm just saying like if you've made less than your first grand or 10 grand total in your careers, then you shouldn't even be thinking about this yet. I would, man, I wish I had your course when I first started out. Sorry for the f bomb guys.

I try not to cuss him the mic and replace it with a, uh, with a chicken salad that, that'd be excellent. So I really wish that I could export your course back through space and time to say 2003, and the stuff I talked about in the podcast is almost all related to mistakes I've made and in some lucky scenarios, books I've read, but man, just know you're right, there's only 10 or 20 percent of all that you need to know that you actually need to know when you're starting your business. And if you don't know that stuff, if you don't execute on that stuff, it kills you from the start. Like your DNA. You're on arrival

or you can be executing that stuff, but you're also trying to execute the other 90 percent of crap that's wasting your time and you get no progress because you're spread too thin.

I'm so pumped about this course. Let me put this in audio terms. If you were like, I'm going to record vocals and you're like, are tell you what, here's a window. Got annoyment you 87,

you're sled. I've got, I've got like $100

maconomy super fancy microphone cable.

Yeah, there we go. And I've got, you know, I've got to

Pv mixing board from 1985. Then I'm gonna. Use The preamp on it and then I'm going to put it into like a $10,000 converter. This is a problem in. You're not going to record great vocals with that rig because you mess up the signal chain. You can't use this piece of crap preamp and all this other great stuff. Your business careers the same. If you don't get your signal chain right, it would have been so much better to get cheaper mick and to spend some of that money in a decent preamp and you'd get such a better vocal tone if you did that and that puts this and I think terms where your course is really valuable to someone that's trying to do this for a living is that they have to figure out how to balance the signal chain. They have to figure out what's important and what can you forget about.

You don't really need the hundred dollar fancy microphone cable if you've got $100 preamp, you know, that's a silly investment and man, like when I drop the f bomb and wish that I had this course, it's because I did such a bad job of figuring out what's the most important step I need to do next to grow my business from $1,000 to $10,000 or if it get started to go from zero to a thousand dollars. There's so many extra steps that people take that just aren't necessary that man. I wish I could send you back in time to teach me. I appreciate

the unsolicited plug. I'll give you your 20 bucks later, Chris. Thanks. Appreciate it. Alright, so it's 21. Oh, 21. Okay. Whenever we're negotiating. Oh Shit. Okay. Episode number. I don't know. Whatever. I can't get this last tool out here. There's one more tool I want to recommend here where you talked about mint. This is basically mince competitor, although it's tiny compared to mint. Mint is huge. Massive company owns it into it. This one is called you need a budget. Why Nab? Why in a b? It's like a smaller niche. It's funny because it's not free. It's like five bucks a month or something and it's a personal budgeting app, but this one is so much better than mint in every conceivable way. If you can get past the learning curve as a much higher learning curve, but it works much like Dave Ramsey's envelope system. If you don't have to go look it up, there'll be a link to it in our show notesPage@thesixfigurehomestudio.com slash 57.

Dave Ramsey's sorta like personal finance guru. Yeah, yeah, yeah. Dave Ramsey, the personal finance guru who has something called the envelope method, which is where you literally take all of your cash and put it into envelopes and those envelopes. You pull money out when you need money. It's like archaic, but effective. This APP is very much same way, but it's all digital. You have your digital envelopes and you have your money. You're putting into it from your influx every month and then when you have an expense that comes in, it's linked to your bank account. You approve it and it pulls it out of that envelope and that works so well from my brain and it forces me to have a semiautomatic solution. The thing about mint that sucks is it's fully automated. If you don't check it, it happens. If you check it and it's just one of those things, you can easily just start ignoring it because it's so much information. This one is basically you have to be actively looking at your finances in order to use the APP, and so I recommend this highly for those of you who are struggling to stick to any sort of system, so that's my one plug for a tool today.

Awesome. Well, I've got some ideas to sort of start wrapping this up here. Sure. Boom. I would say first and foremost, Brian and I are not finance experts. I'm sure there's some stuff that we said that in the wrong context would be catastrophic for some businesses. There's some stuff we said that would be awesome. For some businesses, the conversation of finance and a debt is about choosing what tools to use to solve a problem. This is really important to understand. The other thing that I think is super important to understand is that if you're the most talented producer in the entire world and you don't understand finance, personal finance, like how to deal with your business, you will have debt and if you don't know how to deal with it, you won't be producing for a living. It's super intense. You can absolutely take the gifts that you have and squander them by not investing in learning about finance and debt.

That being said, you're going to mess this up. You're going to leave money on the table. You're going to make mistakes. I've made many mistakes. The beauty of those mistakes is that when you make a mistake that costs you money, there's a pretty good chance that you might actually learn and not make that mistake again, and that's what is actually important here. Hopefully you take some of the stuff that we talked about here and you begin to learn more about this stuff. Take it into your own hands and you figure out how to either get out of debt or how to keep yourself from going into debt, which will lead you to hopefully be successful someday.

If nothing else, I just want people that are in massive amounts of debt right now to take this episode as a wake up call that a, you've got to do something. You got to do something, something, anything towards making steps towards progress and that's what I want people to do is instead of just letting life happen to them in debt accumulate and maybe their weight go up and you know, whatever, all these bad things happen to them. They're taking active steps towards progress and it's not going to be an overnight thing. This is not something you're going to wake up tomorrow. All the problems are gone, but you're going to be chipping away at it over time and hopefully through some of the stuff we talked about, you've at least thought about, okay, maybe there's an actually a solution to this debt problem that I have and that I am actually in control of this and I can start taking steps to it. Now, what we talked about in this episode may not be the best solution for you and I can guarantee you it's not best solution that exists out there, but you can start going to look and start making those steps towards progress and finding what is the best solution for your specific problem. Whether that's debt or whether it's your weight or whether it's your income or whatever. Start taking steps towards progress in those things.

So that is it for this episode of the six figure Home Stereo podcast. If you haven't already, you can go to the six figure home studio.com/community and join our free facebook community. This is where there are thousands of other home studio owners who are all trying to make it in this confusing world of business and finance and debt in marketing and business entities in everything else under the sun. This is where we all come together and help each other out, so if you haven't joined that community yet, go there now. That's the six figure home studio.com/community. Next week, Chris and I tackle a subject that we have not really touched on that much on this podcast before and that is business models. My business model is that I work with a relatively low amount of people, usually about four or five projects a month and I have a high average income per project, which you'll find out the exact amount next week as well.

In these projects. Take me a relatively long amount of time compared to Chris's business model. Chris has the exact opposite of my business model. He works with a lot of artists, so many artists. It will actually blow your mind. You'll hear the exact number next week, but it's average price per project is so much lower than mine, but also his average time per project is lower than mine, so two completely different business models to different paths. Both of us have reached six figures and beyond, and there's also a third business model, a third path to six figures, and we discuss all of those next week on the six figure homes studio. Podcast episode comes out on Tuesday morning bright and early 6:00 AM. Make this part of your routine if you haven't already, because this podcast comes out every single week. Rain or shine, Christmas or thanksgiving, doesn't matter. It's going to come out every week, so until next time, hopefully you got something out of this episode. Share it with an audio engineer friend of yours. Leave a review on itunes, but until next time, happy hustling.