'You've Completely Screwed This Up' – A Business Owner Asks Dave Ramsey For Help: My Dad Rakes In $20,000 A Month And Contributes Nothing

Running a business can be tough, but when family is involved, it gets even more complicated. That's exactly what happened to a small-business owner who called into Dave Ramsey's EntreLeadership podcast seeking advice. Gary's problem is that his father owns 51% of their successful dewatering company, takes $20,000 a month and doesn't contribute to the business at all.

The Backstory

Gary and his dad started their business 15 years ago, growing it from nothing into a $3 million annual success story. But while Gary works hard managing their team of 12 employees, his father's involvement has dwindled to zero. Yet, his dad still rakes in a hefty monthly payout – the same amount Gary takes – plus his share of any year-end profits.

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Gary's frustration boiled over. In 2019, he tried to buy his dad out, but the deal fell through. Now, he feels stuck. He's running the company but can't grow it because so much money goes to his absent father.

Dave Ramsey's Tough Love

Dave's advice started with a wake-up call: "Quit whining." He told Gary the key to resolving this issue is separating ownership from employment. Owners are entitled to profit distributions, not salaries unless they're actively working in the business. This means Gary should pay himself a proper CEO salary, something like $250,000 a year, given the company's revenue. After paying salaries, the remaining profits should be distributed based on ownership, with 51% going to his dad and 49% to Gary.

The current setup blurs the lines between salary and profit, which needs to change so that everyone's role and compensation are transparent. “Once it’s set up that way, then you could still have the complaint that your dad won’t let you buy him out and that’s another discussion,” said Ramsey.

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Gary also needs to have a direct conversation with his dad – without being confrontational – to explain why the current system isn't sustainable. Dave explained how important it is to show respect to his dad as the person who helped start the business. 

Gary should recognize his dad's role in building the company and make the buyout a way to honor both of their efforts. “Your dad doesn't feel like you've been nice and you saying that is not going to do anything but rile him up,” Ramsey advised.

The Path to a Buyout

Gary's ultimate goal is to buy out his father and he's already taken some smart steps. He's had the business valued and hired a joint attorney to help facilitate the deal. But Dave warned him not to let lawyers drive the process. Instead, he and his dad need to hash out the terms together over a cup of coffee, with the attorney helping to finalize the details.

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A Lesson for All Business Owners

Gary's dilemma is all too common in family businesses. Dave's advice highlighted three critical areas. First, ownership and employment should be separate. If someone isn't working in the business, they shouldn't be taking a salary. Profit distributions should be based on ownership, not employment status.

Second, planning for succession early is fundamental. Exact succession and transition plans can help avoid messy situations like the one Gary is facing. Establishing these plans ahead of time ensures everyone knows how the business will be passed down and how roles will change.

Finally, respecting the business’s founders is key. Honoring those who built the company cultivates goodwill and can ease difficult conversations. On the other hand, shaming them or dismissing their contributions often leads to conflict and unresolved issues.

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