You can pay managers a flat rate or include a bonus. But never pay managers with equity in your RV Park. In this RV Park Mastery Podcast we’re going to focus on why giving managers part ownership in your property is never a winning strategy.
Episode 95: Never Pay Managers With Equity Transcript
Wages keep spiraling up in America right now. We have the minimum wage going up significantly here and now in 2024, you're having to compete with all other forms of employers every time you get somebody on the payroll, and then you have to fight to keep them on the payroll as they get other offers coming in, as we become a nation where no one really wants to work. This is Frank Rolfe of the RV Park Mastery Podcast. We're gonna talk about what to do when people want more money, and more specifically, why you should not try and pay them using equity in your RV park.
So let's first start by talking from what's going on in America. You have a workforce that ever since COVID has become of this new mindset that working is optional, so you have people who are just giving up on work. I don't know what they're doing; living with relatives or working in the gig economy of driving for Uber occasionally. I'm not really sure. But the bottom line is suddenly you've got fewer people wanting to work, and as the economy re-opened coming out of COVID, people needed workers, but yet many weren't ready to go back to work, they decided they were just gonna sit this lifetime out and not do it anymore. And at the same time, you've got all kinds of labor unions out there rabble-rousing that they can get people ridiculous sums of money, case in point, UPS drivers who are now making $170, 000 a year, it's rumored, and even the UAW who then campaigned, the head of the UAW campaigned that he could deliver to all those auto-working folks the same package the UPS was getting, and he failed miserably.
But this very attitude has gotten strange, millennials right now claim that the minimum amount they would have to get in a job to make it worthwhile for them to get up and go to work is $80, 000 a year. So against that, in the same backdrop of American labor market, comes a rare reality, you've gotta have a manager in your RV park, and you have limitations on what you can pay them. So when someone comes to you and they say, "Look, I need more money. I want more money. If you don't give me more money, I'm gonna go get a job over there at Taco Bell," you have to respond with some kind of plan. And one mistake some RV park owners make is that they think, "Well, here's what I'll do. I'll give them equity in the business, therefore people will show up, they'll do a great job because they are a part-owner. They're no longer just an employee, they're a partner in the enterprise." And that has always proven historically to be an extremely bad idea.
Now, why is that not a good thing to do? Well, the first thing is you typically burn through managers on a consistent basis, because being an RV park manager is not something that everyone is cut out for. You have to wear a lot of hats, you have to have a lot of skills. You have to be part of the day, a people person, part of the day, a doing things with your hands person, part of the day, a numbers person, and not everyone is that well-rounded. And the problem is if you pay people in equity, what do you do when you lose them? That's the first big road block is, "Okay. You could give them equity in the RV park, but then what happens when you fire them? What happens when you catch them embezzling or whatever. So you'll say, "Oh, okay. Well, you're out the door," but yet they still have the equity in your business. So the simple fact that you turn people over on a regular basis, pretty much precludes this concept of giving them equity.
But there's even bigger problems. So most of your RV park managers, they don't think like you do. You put together the deal to buy the RV park, you contributed the capital that you earned fair and square, you got the loan together. You've got the whole big picture going on, but that's not them. They are just worker bees; they just like to work but they're not entrepreneurial by nature. And as a result, they don't think long-term. So you may buy the RV park, you may do all these wonderful things with it, 'cause you know you would love to build a business you can leave to future generations, you'd love to build equity and wealth in that business, but they just think short term, they just think today, they think about this coming weekend. And when you trade people equity instead of current wages, what you're basically doing is you're only gonna appeal to those who have a really long-term interest in the business, and most people just don't.
So you're thinking it's important to them because it's important to you, but in fact, it's not really important to them at all. So they would trade a mountain of money years into the future for a tiny, tiny amount right now, upfront in cash. So it's not a very good motivating factor, is the problem. It is to you, you think it's highly motivating, but to them it's no big deal, so as a result it's not really going to work well long term. Also, you invite a whole new wave of litigation when you start giving equity to an RV park manager, because now you have to worry about not only litigation from your customers and litigation potentially from a manager, but now the litigation from a partner, someone internal to your group. They could sue you for any number of reasons; claiming you did a bad job, claiming that they could have done better, claiming that your bad actions damaged their future value in the RV park, any number of things they could trump up.
Remember that we live in a nation that has more attorneys than all the rest of the world combined. We are a one-stop litigation machine, so as a result you can't be creating your own land mines by creating your own new avenues of litigation. Finally, managers are not so valuable to your RV park that they're even worthy of having equity. Think for a minute of why you have all the equity in the RV park, that's because you raised the money for the down payment, you put the loan together, you found the deal, you negotiated it, and then upon closing, you've turned it around, you're operating, you've done all those things. What's the manager done? Let's compare that, the manager may answer the phone, interact with the customer. Is that the same? Is that on the same level? Do you really need the manager for that business to succeed?
I can tell you right now, the answer is no. RV park management can go through cycles of having weak managers, and yet they still persevere, they still survive. They just replace that bad manager and they replace them with a better one. The business doesn't fold, it doesn't collapse. If you look at a restaurant, for example, the manager is key. If the manager doesn't buy good quality food ingredients, and if they don't manage the cooks and the service personnel and keep the restaurant tidy and are unable to survive the inspector who comes by doing the health and safety violation checks, then the business could go completely out, almost immediately. It happens in America every day, restaurants have the highest failure rate of any business, and that's because it's so hard to survive with a bad employee; they can literally tank your entire business.
But that's not the case with an RV park, people come to your RV park, most importantly, because they're there to park their RV in that location. That's the big thing. Now, the minor things are important, it could lead to negative social media reviews, it could make that customer to leave early or never come back if such things as it's not clean and maintenance and just the general attitude when they check in, but it's not to say that the manager can destroy it all because they're not there for the manager. The manager is just a side bar item, he is not by any means the main part of your business. The main part of your business, you put together, because you chose the right location with the right infrastructure and all the right physical plan attributes for the business to flourish, not because of them. If you had an NFL team and you have a great quarterback, like the Kansas City Chiefs have right now in Mahomes, that's worth it. They pay Mahomes a huge amount of money because without him the team can't go anywhere and they know it. But the RV park manager has none of those characteristics, so because they're not, by any stretch of imagination, the most vital part of your business, they're just not worthy of equity. It just doesn't make any sense.
Now, I could tell you endless number of horror stories from people who did give equity to managers, it never has a good ending that I've ever seen, but I cannot give you even one example of it ever working. And to me, that's a very troubling trend. I wouldn't wanna do something that all of the other RV park owners before me had tried and failed with, I wouldn't wanna repeat what they did. As a result, when it comes to compensating your RV park manager, go with money, give them a healthy amount, give them an attractive bonus if they can take actions that benefit the business, but leave equity off the table.
This is Frank Rolfe of the RV Park Mastery Podcast. I hope you've enjoyed this. Talk to you again soon.