Latest / Contractor Business Builder Podcast / GCs - Fix Your Finances in 30 Days Using the MAP Method

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GCs - Fix Your Finances in 30 Days Using the MAP Method · Contractor Business Builder Podcast

0:10
Welcome to the contractors. It's live this month session is
0:15
going to be all about the money map to build wealth without
0:18
burnout. So the contractors edge lights
0:20
happen happens every month and every month we've got a new
0:24
topic and new training for you guys.
0:26
So hope you're excited to dive in here.
0:30
First things first, how is your energy?
0:32
How you feeling today? Whatever's happened, take a
0:34
breath, relax and enjoy some great education advice, plus
0:42
some resource I can share with you today on how to get a hold
0:45
of your financial. So you're going to get more
0:47
financial clarity and more Peace of Mind from the training today.
0:52
Why am I sharing this with you? I've got 20 years of contracting
0:55
experience in both subcontracting as well as
0:57
general contracting, systemized dozens of general contracting
1:01
companies, you know, top to bottom through and through.
1:05
And our big purpose that wrap result creators to lead a
1:07
movement towards systems leadership and generational
1:11
wealth for contractors who want more than just staying busy.
1:15
So the big picture and really making an impact in the
1:19
difference in your business and your life and the people around
1:23
you. So like to start with the end in
1:27
mind. What are you gonna, you know,
1:29
where is this going? What is the training today gonna
1:31
help you achieve? I want you to imagine you're
1:34
running your business. Everybody's paid up to date, you
1:38
got money in the bank, all your expenses are covered and
1:42
financials are not even a concern for you.
1:44
You're making decisions with full financial clarity.
1:48
So you know, you know your numbers, you know where the
1:51
finances are at, you're not worried, you're not stressed.
1:54
You know there's money coming in and you are sitting pretty.
1:57
That's the place we want to get to so you can enjoy more time
2:00
with your family, more time on vacation, more time enjoying the
2:04
things that you love, stressing about money in your business.
2:12
So before we get into the actual money map, which I'm going to be
2:15
going over right away, I want to bring up how not managing your
2:20
finances well affects your business.
2:23
I'm sure you've probably been in this position.
2:25
I know I have. I can remember trying to fill up
2:30
gas in my truck and realizing I didn't have any money on my card
2:34
to fill up gas. I had to scrounge through my
2:36
chain change, see if I had a couple of spare bills in my
2:39
wallet to go and pay gas. And I was just thinking like,
2:42
this is ridiculous. I've got 6 figures a month
2:46
running through my business and yet I'm still in this cash
2:49
crunch. How did this happen?
2:51
Why am I here and just like stressed out about money and
2:54
realizing there's got to be a better way there.
2:56
This cannot be the way to, you know, run a business.
3:00
Something's obviously gone wrong and you be you create a stressed
3:04
culture. Your, your clients can feel it,
3:07
your employees can feel it when money's tight, when the finances
3:10
aren't flowing, when invoices are off or late or you, you,
3:14
you're putting stuff ahead of time and robbing Peter to pay
3:17
Paul and all that kind of stuff. It just it, it affects the
3:20
entire culture of your business. And then when you're operating
3:24
on the red line, you run into the problem where business slows
3:28
down and the bills do not, you know, you still got your
3:31
overhead, you still got guys to pay, you still got to pay
3:34
yourself. And you run into these cash
3:37
crunches that are just super difficult.
3:39
Money goes missing as well and you if without the right checks
3:46
and balances and watching your numbers, having an eye on your
3:48
numbers, it's very easy for tools to go missing, materials
3:52
to go missing, guys to be putting in extra hours and
3:55
things like that. And you don't even realize that
3:58
there's this money that's just getting burnt in your in your
4:00
company due to mismanagement or not checking into things enough
4:04
material and project delays. So this is huge.
4:10
I know many contractors, myself included, I've been there where,
4:14
you know, you don't have money in the bank to pay everybody.
4:17
So you start, you know, trying to buy materials from a place
4:21
that you have credit on or you can only order materials like a
4:24
few days before you need it on a project because you, you just
4:27
don't have the cash flow or the capacity to actually manage the
4:31
business properly. And your projects end up getting
4:34
delayed or materials late. And it just, it creates
4:38
inefficiencies in the company just because you don't have the
4:40
money that you need at the right time to purchase materials, pay
4:44
people, whatever it may be. Payroll panic at the end of the
4:48
month, getting to payroll, realizing you got to send checks
4:52
and and direct deposits out to your workers or sub trades and
4:57
there's not enough money in the bank, you know, what do you do?
4:59
So we definitely want to avoid that.
5:02
Stuck in debt. I've been here as well.
5:04
Where you have some rough times, maybe you mismanage money or you
5:10
had a project that went sideways, whatever may be, and
5:14
you extend your lines of credit, then you extend your credit
5:16
cards. Then you start looking for, you
5:17
know, loans from the bank or what have you, You get high
5:20
interest loans and it's just a downward spiral.
5:23
The easiest way to get out of debt is to stop digging.
5:26
And you need to like set the bar and start working your way back
5:30
out of that. Because once you get in that
5:32
debt cycle, it, it is a very downward spiral.
5:35
And why you say the downward silent spiral is because this is
5:39
something as a business owner, as, as people, you know, we, we
5:43
don't want the world to know that we have, you know, money
5:46
shoes, or we've taken on a whole bunch of debt or, you know, the
5:48
business from the marketing side, every business on the
5:52
planet looks amazing from the marketing, typically speaking.
5:55
But behind the scenes, you know, there's a lot of chaos, a lot of
5:58
panic, a lot of can be debt trouble and stuff like that.
6:01
So that's one of the reasons why the financial side can be so
6:05
stressful. Money is something that you need
6:07
to get comfortable about. You need to be comfortable
6:09
talking with it, you know, not necessarily talking to everybody
6:12
about, you know, issues that may be happening with the money, But
6:15
as far as like the important people in your life or coming to
6:17
terms and being real, real as far as like I have this issue,
6:22
this is what's happened. We need to change, you know,
6:25
talk with whoever you need to talk with and just be able to,
6:29
you know, attack this and not just to try to, you know, take
6:34
the burden and do everything yourself.
6:36
And then collection roulette, where this is the robbing Peter
6:40
to pay Paul sort of thing, where you maybe have collection
6:43
agencies or, you know, payments are due and you're stretched
6:46
here, stretched there. And it's like you're always just
6:48
sort of flipping the buck over to try to keep everybody sort of
6:53
happy. And it's it's it's a pain in the
6:55
ass. And as you know, like this type
6:58
of stuff just really ruins business.
7:00
Business should be fun. You should be winning, you
7:02
should be making money and it just builds this beautiful
7:05
culture. But when there's money issues or
7:08
your money is not managed properly, you don't understand
7:10
your financials. That is one of the big killers
7:13
of business and makes business go from fun to to the living
7:17
hell, essentially. It sucks for sure.
7:19
So I'm going to help you get out of here.
7:21
And how are we going to do that? We're going to do that with the
7:22
profit map. So this is keeping things as
7:25
simple as possible, but these are the real three big functions
7:30
of the business that you need to get right in order to find the
7:34
treasure, find your money, and this is the map to get there.
7:38
So we're going to be walking through all of these.
7:40
We're going to start with manage.
7:42
So how to manage your finances, how to manage the accounts
7:46
receivable, accounts payable, all that thing.
7:48
Make sure that the system side of of of the financial business
7:52
is strong and getting managed. Then allocation.
7:55
So how do you allocate your funds across your company to
7:58
make sure expenses are paid, you're still making a profit,
8:02
you're paid, taxes are paid, everything is good, right?
8:05
So that happens with allocation. And then finally at the top,
8:08
you've got the profit. So knowing your numbers and
8:12
reports to see are you profitable, how much you're
8:15
profitable? What are the key factors that
8:17
determine your profitability and how does that affect, you know,
8:20
you're estimating and some of the other things that happened
8:22
earlier on before it kind of reaches that bottom line, the
8:25
reports of of your bookkeeping. So making sense, you see how
8:29
this is not complicated, but it's hard to implement and
8:33
there's some very key things that we're going over today that
8:35
will really make a huge difference for you in your
8:38
business. So first thing we're going to
8:40
start with is manage. So I mentioned earlier how when
8:46
business slows down, you can get into those cash crunches and
8:50
really be in a tough place. Like where's the next, you know,
8:53
paycheck coming from? Where's, you know, what's the
8:56
next project? And it's going to be really
8:57
scary. But there's also an inverse side
9:00
to this where when you get really busy, if you are not
9:03
structuring the right way, you can actually have just as big a
9:06
cash crunch by when you're doing really good as you can when you
9:09
are slow. And if you've ever had a lot of
9:13
sales and then realized, I don't know where all the money is
9:15
because the bank account is short, most likely you don't
9:19
have a good deposit and invoicing system to make sure
9:23
that the cash flow is steady. Because if you start a bunch of
9:26
projects, you're putting out labour, you're putting out
9:28
materials, you're paying for all the stuff up from your company
9:31
and the bank account, the windows down and you're like,
9:34
wow, I thought we're super busy. We should be making tons of
9:37
money. We would have a lot of money in
9:38
the bank, but it's not there, right?
9:41
And this is probably what has happened.
9:43
So first thing to talk about is accounts receivable.
9:47
Whenever you're dealing with a client, you want to make sure
9:51
you always have money in the bank from that client.
9:54
So the client should be funding their project.
9:56
You should not be funding your project.
9:58
So put your hand up right now and let me know.
10:02
I will not fund my clients projects.
10:04
My clients will fund their own projects.
10:07
Please, you know, make that whatever you want to call it,
10:12
make that proclamation right now and let me know that because
10:15
this is a huge issue. And again, I've I've lived all
10:20
of this stuff and learned the hard way and I'm hoping that you
10:23
can take this and implement it and realize that it's not hard.
10:27
But essentially you should have a deposit from the client.
10:30
So whatever makes sense for the project.
10:33
Depending on the project size, it could be 1020, thirty, 50%,
10:36
even if it's a smaller project or something like that.
10:41
So you should have a large, sizable deposit that stays in
10:44
the bank and you can pull against if needed, but that is
10:47
your money in the bank. And then you should always
10:50
invoice before that. That amount of money is used up
10:53
by your company. So client wants to build a new
10:56
home, fantastic deposit, 10% or whatever, let's say it's
10:59
$100,000 deposit. You put that in the bank.
11:02
Now you are going to have to mobilize your people, your
11:06
materials, maybe, you know, if you're in the planning stage,
11:09
paying for whatever maybe permits or design estimating
11:15
services, whatever it may be before they reach that.
11:20
Like you should be invoicing regularly and your invoices
11:24
should never exceed that 100,000 so that you always know that if
11:28
they defaulted on their payments or they're late on their
11:32
payments or there's become some sort of altercation for whatever
11:35
reason that they don't want to continue or whatever happens,
11:39
you know, there's a million one reasons why park project can
11:41
stall out. I hope that never happens.
11:43
And typically speaking, it's the worst case scenario.
11:46
But at least in that situation, you know that they're not going
11:49
to be holding money over your head to get some stupid little
11:52
detail done or to, you know, whatever, whatever the case may
11:57
be, always have money in the bank so that you can then always
12:00
be cash flow positive. And that way you can take on as
12:03
many projects as you can possibly manage.
12:06
You know, you don't want to burden yourself with take it on
12:08
10 projects. If you got, you know, no project
12:11
managers or one project manager, you can't can't facilitate that.
12:14
But money should never be the issue for taking on new projects
12:16
because the client is always paying for all the projects.
12:19
So not to be that horse here, but I hope that makes sense and
12:22
you realize how important that is.
12:23
Do not fund your clients project.
12:25
Alright, point #2 here is weekly invoice and process.
12:28
So you should have a weekly cadence of invoices going out.
12:33
Even if you don't want to invoice your client weekly, you
12:37
should be running a weekly process.
12:42
Your admin, your bookkeeper, whoever is going to be in charge
12:44
of this, you approve it before it goes out.
12:47
They can, you know, ask you questions if they have questions
12:51
or maybe you are the project manager has to give them a heads
12:54
up of like what what needs to be invoiced for.
12:57
But every week there should be a check like what do we need to
13:00
invoice for which clients? And, and you know, probably do
13:03
that on Monday or Tuesday so that the invoice can go about on
13:05
a Thursday and ideally you get paid by Friday, maybe the
13:07
following week. Set that expectation with the
13:10
client. Hey, we invoice, we will invoice
13:14
you every potentially every week or every two weeks.
13:17
We like to do this for, to make sure everything is upfront and
13:21
you know, what's being done on your project and so that we can
13:24
have enough money to continually give you an excellent service
13:29
and, and whatever rate. So just tell, just make it a
13:31
policy. If a client's like if you have
13:35
big milestones and the client has to pay out you know, 100,000
13:40
or $200,000, that's a little bit of a like big payment for them,
13:46
right? Even if they're funding with the
13:48
bank or it's like like they have the money, but in simple for
13:51
them to get it to you. They're going to be looking
13:53
through that invoice. They're going to be checking it.
13:55
They're gonna make sure it's going to feel difficult for them
13:58
to let go of like $200,000, even though they know that you're
14:02
doing a wicked like an amazing job and everything.
14:05
Some clients, they'll just pay you, no, no worries.
14:07
But generally speaking, whereas if you're, if you're invoicing
14:11
every week, two weeks, maybe 3 weeks and you're invoicing them
14:16
for like 15,000 or 20,000 or whatever it may be, that's a lot
14:22
easier for them. Like no problem, you know, send
14:24
off a check 10/20/30 grand, whatever, right?
14:27
It's not a big thing. They're probably not going to go
14:29
through with a fine tooth comb. Like, hey, have you actually
14:31
completed this? You know, what's this?
14:33
I don't understand this, right? It's not as big a deal and you
14:37
kind of honestly train them, but they get in the habit of like,
14:40
oh, every two weeks there's an invoice that's generally around
14:43
the same size and they send it to you, right?
14:45
So that improves your cash flow, that improves the client
14:48
communication. Any disputes as well that may be
14:52
coming up with the invoice is going to come up regularly,
14:54
right? If you're invoicing like you've
14:56
just completed the foundation on a project and it's a $200,000
15:00
bill and now they've got a dispute and you're moving
15:05
forward with framing and everything else.
15:09
Much better to have that dispute come up, you know, in the first
15:12
one, 2-3 weeks of you starting the foundation, then at the end
15:15
of the foundation and now you want to keep the project moving
15:18
and not delay it over, you know, some misconception or or
15:22
whatever with the client, right? So increase the cadence of your
15:26
invoicing and have that process dialed in and keep the, keep the
15:30
payments small as I mentioned, but keep it simple.
15:32
There should be, they should have multiple ways of paying you
15:35
if needed. Yes, you're probably going to
15:37
want to check or bank transfer or something like that, but make
15:40
it super easy for them to pay you so that there's no, you want
15:44
to remove any signs of friction whatsoever.
15:46
So is this making sense? Does that can you see how just
15:49
these simple processes and simple like understanding of of
15:55
the accounts receivable can really change how you manage
15:58
money in your business and then late payment process.
16:03
So heaven forbid that you get to the end of a project or you're
16:07
in a project and and then you know, they don't want to pay or
16:10
can't pay, whatever it may be, you should have some sort of a
16:13
late payment process. Typically this is something
16:17
where you will break the, Let's say they owe you $50,000 you
16:23
then you know, they can't pay for whatever reason.
16:25
Maybe they extended all their credit cards and they're just
16:27
like they got some medical bills or whatever.
16:29
Millie wanted excuses, right? Say OK, no problem.
16:33
How will we pay 10,000 over the next, you know, 5 weeks or maybe
16:37
we do 10,000 or 20,000 a month for three months or whatever
16:42
rate. Break it into a simple couple
16:43
payments. If they get on a payment plan
16:46
and they can't complete it, you know, obviously you want to be
16:50
lenient with them, but there's going to be a time and a place
16:52
and you should have this documented of at what point in
16:55
time, how long until you actually have some sort of a,
16:59
you know, collections letter or, or send this to some sort of
17:02
collections agency in order to, you know, put a lien on the
17:05
House or whatever you may need to do in order to get paid.
17:08
But it's important that they paid obviously all right, counts
17:13
payable. So that's the money coming in
17:15
for counts receivable, accounts payable is the money going out.
17:18
I like to have a biweekly cadence with this.
17:21
So every 15th and 30th or 15th and maybe the 1st of the month
17:27
and 15th, whatever, you know, twice per month essentially is a
17:30
good cadence and you go through the payable, any subcontractors,
17:34
materials, get paid, whatever it is.
17:36
And again, you said all these expectations, everyone should
17:39
know exactly when they're getting paid or when they need
17:42
to pay and all that stuff. So have a document with that
17:45
expectation with anybody new that you're working with.
17:48
And then essentially make sure that you are doing that
17:54
bimonthly, sending out payments. If a subcontractor sends an
17:58
invoice in, you know, let them know they get paid the next pay
18:01
period or whatever it is. So if they send it on the 14th,
18:04
they're not getting paid on the 15th, they're going to get paid
18:06
on the 1st. Or if you have 30 days, you
18:08
know, net 30 days, it would maybe be two pay periods
18:12
depending on, on what the cadence is for you.
18:16
Um, so sellers and Subs, as I mentioned, and then have some
18:19
sort of approval process, especially if you got general or
18:23
project managers. Project managers should be
18:26
approving payments for Subs as well as materials and you should
18:30
have a process in place for this.
18:32
So if XYZ electric is sent you an invoice, that invoice should
18:38
then get in front of the project manager and they should say,
18:41
yes, XYZ electrical has completed this work and you can
18:46
go ahead and pay that invoice, right?
18:48
The project manager is going to be the one that's going to know
18:51
closest, you know, to the front line here as far as are they
18:55
completed or are they done? Maybe there's like leftover
18:58
stuff that they couldn't complete or they're waiting on
19:00
some sort of material or whatever would have you
19:03
depending on big of a deal it is.
19:05
Maybe they, you know, don't approve it or this often
19:08
happens, I would say often, but this does happen and you know,
19:10
caught it before where they have invoiced or something in the
19:13
pricing is wrong compared to what they estimated or the the
19:16
proposal that they sent to you, right?
19:18
So typically it's an honest mistake, just, you know, some
19:22
numbers got mixed up or whatever, but little things like
19:25
that where you could be paying extra, you know, thousands of
19:27
dollars just for a minor mistake and it got paid because no one
19:32
was actually, you know, checking the payment amounts before they
19:35
went, went out. So have an approval process.
19:37
And if you are the bottleneck where you need to approve every
19:42
invoice, every payment that goes out, you need to get this into a
19:47
process and then get your people to handle this for you.
19:51
If you don't have a project manager or site Superintendent,
19:54
then you will probably still need to be able to do this, but
19:59
it should be a very easy like checks and balances thing for
20:02
you. Not a.
20:03
You need to look into all those, all the small details kind of
20:06
thing. Money needs to flow and you need
20:10
a process to make sure it flows in and out of your business.
20:12
And it's all that it's doing that often and and correctly at
20:17
the end of the day. Alright, making sense.
20:19
So manage that's like the systems in and out process.
20:23
That's the foundation, if you will, of your financial system.
20:28
Now we're going to move on to allocate.
20:29
This one is very, very simple, which is why I love it so much.
20:34
And it's a concept that I learned from Mike Michalowicz
20:38
from Profit First. If you're not familiar with
20:41
Mike, he wrote a book called Profit First.
20:44
I would suggest put that book on your reading list and it that
20:47
book will go into like a lot more story in detail of like
20:50
exactly how this whole system kind of works.
20:53
But the concept is very easy and the implementation is also quite
20:57
easy to get into place. So essentially the way the
21:02
allocate works, that allocate system is that you're going to
21:06
have one main business account. This is your income account.
21:10
So all income into the business, all the sales, any money that
21:14
that comes into the business goes into that one bank account.
21:19
From that bank account, nothing goes out except except to the
21:24
other bank account. So you don't pay expenses from
21:26
that account. Nothing else happens from that
21:27
account, but from that income account you then allocate money
21:33
to your other bank accounts. So you're probably going to, at
21:36
the end of the day, have at least five bank accounts.
21:39
You may even have more depending on the size of your business and
21:42
and how things are structured. But for now, just keep things
21:45
simple. Four to five bank accounts is is
21:48
what you need. The first bank account you're
21:51
going to need is a profit bank account.
21:53
So profit first means you need to know and be allocating how
21:58
much of this money that comes in.
21:59
So let's say you got $100,000 in your bank, your income account
22:04
what percentage of that is going to be profit while 5% that's
22:07
going to be $5000 that goes into your profit account.
22:11
Then you're going to have your owners compensation.
22:13
So this is your salary as an owner.
22:15
And if you are collecting salary and on payroll, then this owners
22:21
comp account, you may not need this necessarily because it'll
22:24
you'll probably just take that from business expenses.
22:26
But if you have a separate like especially if you got a few
22:30
directors or co-founder kind of thing, then you may want to be
22:33
putting, you know, allocating money to the owners comps.
22:36
You know how much you're you're paying.
22:38
You know, all the directors or owners of the business taxes
22:42
super important. The big one of the biggest pains
22:47
in the world is getting to the end of the year, start of the
22:50
new year and realizing you got a big tax bill, you got to pay,
22:54
right. So and, and not having money in
22:57
the bank to pay it. So the taxes account is for
23:00
this, you know that you're going to pay.
23:01
You know, it could be sales tax, could be, you know, your
23:05
business taxes, whatever sort of taxes you are responsible for
23:09
paying, you need a percentage of your revenue that goes into a
23:13
taxes bank account so that whenever that happens, whether
23:17
it's quarterly, you know, semi or annual, whatever it may be,
23:21
you can take that money and pay your taxes and it's super easy.
23:26
This will also help the, the beauty of this allocation
23:28
account is it helps you to not have the temptation to spend all
23:33
the money in your account. If you just have one bank
23:35
account or two bank accounts and you don't know where money
23:39
should be, you're just going to spend money, right?
23:42
If there's $40,000 in the in the account and it's like, I need a
23:45
new truck, you can, you can go buy a new truck, right?
23:47
But with this system, your money is going to be allocated.
23:51
So you're going to know exactly what is what.
23:54
And then the final account that you're going to have is your
23:56
expenses. So this would be for your new
23:58
truck or whatever this, this is like all the wages for the
24:03
company, any labour. This is Subs, materials,
24:07
overhead expenses, all whatever expenses the company has besides
24:12
those first three accounts which are, you know, separate, that's
24:15
going to be expensive. And these percentages, they're
24:18
just general, like just general percentages.
24:25
They're not, they're not specific.
24:27
Your business will function differently.
24:29
If you are really struggling now, maybe profit is like 1 or
24:32
2% because you, you got to pay off debts or, or whatever.
24:36
And then over time you ratchet it up.
24:38
So maybe you know, 3-4 or 5%, ideally you, you get up to like
24:41
10% profit, right? Same with owners comp.
24:46
If you are a very small business owners comp, maybe 2030%,
24:51
especially if you're still just kind of like a one man show.
24:54
Whereas if you, if you're running like, you know, $10
24:56
million business, the owners caught, maybe you know, 5% or,
25:00
or something smaller, depending on again, how you want to
25:03
structure the business. But essentially this is what
25:06
you're doing. And I've got a business
25:08
allocation sheet. So I in the chat, go check out
25:11
the chat. I have a link in there to click
25:13
through to the business allocation sheet and that'll
25:17
show you specifically it's a spreadsheet where you can use it
25:22
has to adjust your allocations and quickly put in your number
25:28
and it'll tell you how much money to put in your other bank
25:30
accounts. So I'll go over to kind of at
25:33
the end of the training today to give you a little visual
25:36
overview of it a little bit later, but check out the chat.
25:39
You can go download that anybody live can can download that right
25:42
now. So gonna do a little trivia
25:46
here. Still with me.
25:48
I know finances maybe are a little dry sometimes, but hey,
25:52
money is fun and having money in the bank is definitely a good
25:55
thing that you want more of. And this is a way to get there.
25:59
But unfortunately a lot of construction is notoriously not
26:03
very profitable. There's, there is a lot of money
26:07
in construction, but a lot of businesses really struggle with
26:11
the profitability and often it's just not having a good system
26:14
and not knowing their numbers. So I was checking out some stats
26:18
the other day and going to pose this question to you.
26:21
How many new contractors are still in business after three
26:25
years? I think there's a study done,
26:27
there's a little while like 2015 or 2020, something like that.
26:31
And they, they did a statistics on new construction contractors
26:38
that are starting up. And what they found is that
26:40
after three years, which one do you think, 4656 or 66%?
26:45
After three years, how many are still in business?
26:48
It was only 56%, which is atrocious.
26:53
And a lot of that I'm sure is to do with not being profitable and
26:58
not understanding financials. I know this was a big struggle
27:01
for me when I started my business and something I didn't
27:05
get was especially once I when I was still just like kind of on
27:09
the tools and I started off with subcontractor is pretty easy to
27:12
make money because I'm on site, I'm working and I worked hard,
27:15
right. And you're kind of more or less
27:18
self-employed and, and just generating your own income
27:21
through labour. More or less.
27:24
Once I became a general contractor, then the game
27:27
changed. I, you know, I had managers, I
27:29
had employees, had different sites, different crews, things
27:32
like that. And it's very easy for the
27:36
finances to get away from you, especially when you're like
27:39
growing and you're getting paid more, you're doing larger
27:42
projects and you just feels like you have a lot of money.
27:46
But if you're not watching your, your statements and your
27:49
finances and have a good system in place, it's very easy for
27:52
that money to dissipate. And you're there like scratching
27:55
your head at the end of the project wondering like, where
27:57
did all the money goes? I just did, you know, like
27:59
$1,000,000 in business and I've got nothing to show for it.
28:03
You know, what the hell happened, right?
28:04
So very important average profit margin as well as 2 to 5%, which
28:11
again is is very atrocious. I would say a good healthy
28:16
contracting position definitely be in the 10% range for profit
28:21
margins where you want to get to.
28:22
It takes time, but you can definitely get there and I've
28:26
helped a lot of clients do that as well.
28:29
All right. So we've done the manage, we've
28:33
done the allocate now at the top Gold Nagar is profit and that's
28:38
all. That's what we want, right.
28:39
We want to be proponent of the day.
28:41
We do not want to be losing money going through all those
28:43
headaches that I mentioned earlier.
28:45
So in order to know if you're profitable, there's a number of
28:49
things you you need to do, but one of them is get clarity on
28:53
your financial statements. And I'm sure you know, raise
28:57
your hand here if you have seen a profit loss before.
29:01
I'm really hoping you you've been able to run a profit and
29:03
loss report. Remember one of my early mentors
29:08
when I was running my my general contracting company, he, we met
29:12
in person and we were looking through my books and he sat down
29:17
and he asked me, you know, what's, what's your cost of
29:20
goods sold? And I had this blank look on my
29:24
face and he's just kind of stared at me and I stared at him
29:27
and I was like, well, what He's like, yeah, you're, you're
29:31
costing goods, right? These are, you know, you're
29:33
direct expenses, so you didn't say he told me, OK, this is what
29:39
you need to do. So we, we changed the accounts
29:42
in, in the, in my bookkeeping software using QuickBooks and
29:47
he's like, I'm going to go grab some coffee.
29:48
I got a few calls to make you sit here and organize the
29:51
accounts and, and we need to figure out your cost of goods
29:53
sold so we can figure out your overhead and whatever else,
29:56
right. So anyways, I sat down,
29:58
organized it and after that I then discovered and realized how
30:03
important this is and why I don't know why this is such a
30:08
common thing for a lot of contractors.
30:10
Like even a lot of clients of mine when I start with them do
30:14
not have a proper cost of goods structure in their accounts and
30:20
there's things in their operating expenses or their
30:22
operands that should be in cost of goods sold and and vice
30:25
versa. So really getting this straight
30:29
is very important because later we're going to use this in your
30:32
estimating to make sure you're starting your estimates
30:34
profitably before it ever shows up in your books later that
30:36
you're not all right. So cost of goods sold, these are
30:39
direct expenses, things like labour, Subs, materials.
30:42
So anything that you can directly tie to a project,
30:46
materials for a project, whatever, you know, any sub
30:50
trades that I worked on, the project, labour, your guys, all
30:53
that kind of stuff needs to be in the cost of goods sold.
30:55
And as you can see from this, you know, this is just an
30:58
example spreadsheet, very simple.
31:00
We've got you know, $1,000,000 in sales, cost of goods is
31:03
$600,000. So gross profits are $400,000.
31:07
So this is obviously fictitious. This would be a really well run
31:14
company for construction company.
31:16
Not that you couldn't, you couldn't be there, but but
31:19
anyways those are cost of goods sold at the very top there and
31:23
then everything below that is going to be your, your operating
31:28
expenses, what they have here. But really it's your overhead
31:30
expenses. So overhead is indirect
31:34
expenses. These are all all the things you
31:36
cannot tie directly to production.
31:39
Dried cannot go directly towards a job.
31:44
One of the common things that gets mixed up between the two is
31:48
wages. So cost of goods sold.
31:51
If you have project managers even like an estimator, they
31:56
should be allocating their time to specific projects and that
32:00
should go into labour as a direct expense because without
32:05
them, the projects not getting done and they need to, you know,
32:10
that expense goes into the project and should be in your
32:13
estimate as well. Now obviously they're going to
32:17
do some things that are not always, you know, they're not
32:20
going to be 100% allocated to projects all the time because
32:22
you're gonna probably have management meetings or there's
32:25
going to be things outside that they need to go for training or
32:27
whatever else that aren't specific for a job.
32:30
But generally speaking, 89% of their time will be towards
32:34
working on their job. Overhead expenses, things like
32:37
your administration, your own salary, unless you're actively
32:41
managing projects, your own salary is the business owner
32:44
means that you are an overhead expense essentially, right?
32:51
Vehicles, typically vehicles are an overhead expense as well
32:54
because the vehicle is not tied to any specific project.
32:59
If you have equipment that sits on site and is allocated to a
33:02
project, then the equipment would be a cost of goods.
33:05
But typically speaking, your vehicle is a drive around.
33:08
I wouldn't be as well as, you know, utilities, office space,
33:10
rent, all those kind of things going overhead.
33:13
So why is this important? Why do we need to to know the
33:16
difference here? The first thing is knowing your
33:22
overhead as a as a margin and then also knowing the difference
33:27
between margin markup to get to your estimating, because without
33:32
knowing your numbers here, it's hard to estimate accurately and
33:36
profitably. A lot of contractors will just
33:39
kind of pick up a markup that they think makes sense for
33:43
competition. You know, markups are 15% or 20%
33:46
or 30%, you know, whatever it may be.
33:50
And they and then you, you kind of price your projects
33:53
competitively with the market. This is a bad way to do business
33:57
because you are not the other businesses.
34:01
You may have less overhead, you may have more overhead and you
34:04
should, you should price your projects according to how you're
34:09
going to be profitably in business.
34:10
And if you cannot price projects that you can sell and, and be
34:15
profitable on, then your business is not viable and you
34:19
should be not be selling those jobs to begin with.
34:21
So don't be buying projects by lowering your prices and then
34:25
being unprofitable. It's not helping anybody need to
34:27
let that go and you need to price profitably.
34:30
And if you can't sell projects, you need to work on your
34:32
marketing and your sales and maybe your ideal client or
34:35
something else needs to change in the business in order to get
34:38
profitable. But you know, take off the Rose
34:40
coloured glasses and look at your profitability and what's
34:43
actually happening here. So the two steps to this is
34:48
figure out your your overhead. So whatever your full overhead
34:52
is here this one, the operating expenses that shows $223,000 is
34:58
their operating expense. So you take that divided by the
35:01
revenue, which is AK sales divided by a million and that
35:06
would give you 22.3% overhead. So this company that you know,
35:11
in the spreadsheet here, ABC Limited, is running at a 22.3%
35:18
overhead margin. Now, if they're estimating and
35:23
marking their estimates up by 25%, they're losing money
35:30
because a margin is different than a markup.
35:32
And that's why this is so important to know.
35:36
I have. I have work with businesses and
35:40
it's one of the one like first or second conversation that we
35:44
have like coaching call is we look at their books and we
35:48
determine what is your overhead. And very often I find out that
35:53
commonly overhead for contractors is anywhere from 10
35:56
to 20%. I've had clients who are even
35:58
higher, but they they're super profitable even though they have
36:01
higher margins because their pricing accurately and the
36:04
projects that they're doing facilitate that anyways.
36:09
But I have this the other day with with a client.
36:12
They were running roughly I believe around a 10% margin for
36:19
there overhead, but they were marking up their their estimates
36:25
by 15%. Well, the 15% markup I believe
36:30
is about a 13% margin or somewhere in there 12 point
36:33
something percent margin. So that means there only have a
36:38
potential of making 2 to 3% profit from what they're
36:44
estimating and that's if they've estimated accurately and nothing
36:47
goes wrong in the project, right.
36:49
So, so this is very evident once you do that calculation, why you
36:55
may not be making any money if you don't know these numbers.
36:57
So if you have, you know, 10, let's say you're running a 10%
37:02
overhead and you've got you need to mark up by 25% in order to
37:10
get a 20% margin. The difference between markup
37:12
and margin is markup goes on top.
37:14
So if I had $1,000,000 project that I'm estimating I mark it up
37:20
by 25%, that's $1.25 million project where and that is equal
37:27
to 20% margin. Now if my overhead is 10% and I
37:32
want to make, you know, 5% profit, that leaves about a 5%
37:36
spread for, you know, overages whatever things going wrong and
37:43
and inaccuracies in the, in the estimating.
37:46
If I'm running a 15% overhead, then then I would be, and I want
37:55
5% profit. It's not going to happen, right?
37:57
Because almost never there's a project complete, you know,
38:01
exactly on budget. Typically there's always some
38:03
sort of overages, something takes longer or goes wrong.
38:06
So is this making sense? I know I'm like dialing into the
38:09
numbers, but that's why it's so important to understand your
38:11
financial statements. And obviously there's a lot more
38:14
that you can really get into the nitty gritty here.
38:16
But I just want to nail this concept home that you need to
38:20
know your overhead percentage as a margin.
38:22
And you need to know then how much markup you need to apply on
38:26
an estimate to be profitable and still leave at least a 5% gap
38:31
for contingency overages, whatever it may be, unless you
38:34
have an additional 5% contingency already with the
38:38
client or something like that. But Even so, really important
38:41
super like buy the books here. And This is why you may not be
38:46
profitable even if it looks like you are making sense here.
38:50
All right, good stuff. So as you can see these three
38:54
concepts that I've provided here, you know your money, this
38:57
is your money map. Some manage, make sure you got
38:59
money in the bank, allocate your expenses are covered, you know,
39:03
specifically without having to like go through a big budget.
39:05
You already know if you're running out of money in your
39:08
expense account, you need to allocate more, make more money
39:11
or something needs to change, right.
39:12
So that's where those allocations come in super
39:15
important because it's very easy at a glance of your your bank
39:18
statements. Oh, you know something's off
39:21
here. I need to change my allocations.
39:23
The business is not operating the way that I would like it to.
39:26
So getting intentional with your your allocations, then finally
39:29
profit. So knowing your numbers so that
39:32
you can clearly make decisions and you are really aware of
39:38
what's going on from a financial standpoint of your business.
39:41
So making sense for everybody. Right on.
39:46
All right, So appreciate you joining the training today.
39:49
I'm going to be going over that allocation sheet like I
39:51
mentioned, give you a quick overview of how that works in a
39:54
second here. I want to invite you to the
39:56
contractor growth system. So this is a program that we put
39:59
together it's help. It's specifically for
40:02
contractors, general contractors who want to systemize to scale
40:06
their business. And this is the program we want
40:08
to build. We want to get those systems in
40:10
place that enables you to scale and grow your business without
40:13
all the stress, with all the financial burden and, you know,
40:16
hard times that I've been through and I don't want you to
40:18
go through and I see so many other contractors struggling
40:22
with so. Some of the areas we're going
40:24
to, we're going to we're going to you're going to get in the
40:27
program here. It's it's a seven week program.
40:29
Every week is a different training as well as, you know,
40:34
different set of documentation and plug and play systems that
40:38
you get for your business. So we're going to work on the
40:41
the first four weeks are kind of all in the money side.
40:43
So lead Gen. sales, profitable estimating like I mentioned, so
40:47
getting the right templates and make sure that your estimates
40:49
are at a really high level. And then financial systems.
40:52
We've I've given you kind of the big overview today and a few
40:55
very key concepts to help you really manage well and get that
40:58
money map in place. But of course, there's a big
41:00
depth and the actual process of like how do you do the
41:03
invoicing, the SOP for it, the how to manage the finances, all
41:07
that kind of stuff we provide for you in the program.
41:11
And then the, the main remaining three weeks, we go over project
41:14
management, mainly schedules and quality control are the big
41:19
ones, firefighting elimination. So this is how to get your team
41:23
on board, how to hire the right team.
41:25
So you're not having guys that constantly need, you know, you
41:28
need to babysit them or that just show up in our warm bodies.
41:31
So they're not coming to you all the time for decisions.
41:34
And you know, you're putting out fires nonstop for, for your
41:37
people. And then scalable planning.
41:39
So once we have all these systems in place and we provide
41:41
them to you and you implement them now, what's the plan moving
41:45
forward? How do you scale?
41:46
How do you, how do you use these systems to grow profitably and
41:50
unsuccessfully over the next month, three months, one year, 2
41:54
years out and through, excuse me there, through the entire
42:00
program, you are going to get support and feedback from
42:03
myself. So if you want feedback on your
42:05
marketing, your systems issues, problems that are coming up,
42:09
we're going to support you. You're going to get feedback on
42:12
your specific business and help you implement all of this stuff.
42:16
This is really like an amazing program.
42:21
It's specifically for general contractors.
42:23
So this is only for general contractors.
42:25
You are going to be in a group of contractors that's going to
42:28
go through the program together. What who I'm looking for is
42:31
growth minded. So you need to be growth minded,
42:33
positive people, people that want to change and make a
42:37
difference. If you're tired of working, you
42:39
know, too much and making too little.
42:41
I had someone comment on one of my videos the other day that
42:43
they're giving up on the general contracting after 10 years
42:47
because they were tired, stressed, not making any money
42:50
and they were done with their right.
42:53
I know lots of very successful contractors that have amazing
42:56
businesses and make a lot of good money and have good systems
42:59
and processes and people in place.
43:01
You can get there, but it is not easy and that's why I've created
43:04
this system to help you and this program to get you there.
43:07
So if you're tired of working too much for too little, this is
43:10
for you. And if you're ready for real
43:12
change, not some patchwork, not some Band-Aid, not some bunch
43:17
of, you know, nice sounding things you want to actually put
43:20
your head down, get some stuff in place and change how you run
43:24
your business to get the real results and get you where you
43:27
want to go And the reason you started your business the 1st
43:30
place that freedom and the financial ability to do what you
43:34
want. This is for you.
43:36
Why this program? So why did I create this
43:38
program? Why should you know, care about
43:41
it or want to join it? I created this program because
43:44
like my coaching company, I was, you know, I've been through the
43:48
heart, the, the hurdles, the heartache downtimes, the, the
43:53
$0.00 in the bank accounts, all of that really stressful stuff.
43:58
And I've seen how important systems and processes and just
44:02
the knowledge and mentorship is so important to the construction
44:06
industry. I want you to be successful and
44:09
I've got the tools and the templates and the knowledge to
44:12
get you there. So I've created this program
44:14
specifically for you to get you there.
44:17
Why you should care about this program or why now?
44:20
The longer you wait, the longer it's going to take.
44:23
Essentially, you can maybe get there on your own, but instead
44:26
of spending the next 10 years trying to figure this out, why
44:29
not rely on the systems and processes and documentation, the
44:33
knowledge that I've accumulated and created in my company?
44:36
We've done this with dozens of contractors.
44:38
We've taken the best of the best, streamlined it all and
44:41
provided a really, it's gonna be intense.
44:44
It's seven weeks. This is normally like probably a
44:47
six month process and we're condensing into seven weeks.
44:50
And that's why we're doing that, that plan with you to help you
44:54
get this in your business implemented.
44:57
I've taken the top 20% of the most impactful results, focused,
45:01
easiest to implement systems and provided them for you on a
45:04
silver platter. So you can take this, run with
45:06
it and finally get really quick results in your business and
45:09
build those systems that you so desperately need if you're going
45:12
to grow and especially if you're going to scale.
45:15
So what's actually included? Like what is the program look
45:17
like? It's 7 weekly classes walk, you
45:21
know, walking through systems. I'm going to help walk you
45:23
through this and guide you the whole way.
45:25
You can hear recordings of all the lessons.
45:27
So you can, like I said, there's going to be a lot of
45:29
information, a lot of like implementation, but we're going
45:32
to be moving together as a group.
45:34
And in between those those weeks, we're going to be moving
45:37
the goal posts along to get you to that touchdown at the end and
45:41
make sure that you're successful.
45:42
You will get recordings of all the lessons.
45:44
You can always refer back to it and go back and, and you know,
45:47
take away from it whatever you need.
45:50
On top of all of that, you're also going to get access to the
45:53
RC university foundations. So this is a number of online
45:57
courses and templates, bunch of different stuff you're going to
46:01
get access to to do kind of on your own as well outside the
46:05
program that you you'll have lifetime access to and you can
46:09
continue to utilize to grow your business.
46:13
If you've ever taken any of our courses or even our, you know,
46:17
our our events like this, you know, I'm always providing
46:20
templates, worksheets, checklist.
46:22
That's OP's. I put the resources in your
46:26
hands so you can modify it, use it, customize it, run with it,
46:29
plug and play in your business. You don't have to build all this
46:32
from scratch. We've already done that.
46:34
We've got franchise grade documentation systems to build
46:37
our general contracting companies is how we systemize
46:39
businesses so quickly is because we built all this stuff out and
46:43
we know how to implement it. And we're going to give that all
46:46
to you and all those different areas that I mentioned before.
46:49
And then to top it all off, you're going to go through this
46:53
program and then we're going to give you a 1 to 1 strategy
46:56
coaching call. So you're going to get a
46:57
coaching call with myself, specifically you and me, one to
47:01
one and work through any gaps in knowledge going.
47:04
I'm going to review your, your implementation plan, make sure
47:07
everything is sound, makes sense, and give you specific
47:12
coaching and mentorship for any challenges, problems, whatever
47:17
it may be happening in your business.
47:19
So you can get that value on that alone is, you know,
47:22
thousands of dollars. So this is not a learning
47:25
program, does not involve just education or learning a bunch of
47:29
stuff. Yes, you will, but that's not
47:31
the purpose of this. This is an implementation
47:34
program. As you know, there's a lot of
47:37
great sounding professors and smart people out there, but they
47:41
haven't done anything and the results show this is
47:44
implementation. This is for people who want to
47:46
make a difference and get things done.
47:48
Take action, not about just learning a bunch of nice stuff.
47:51
You want to go learn something. There's lots of resources, free
47:54
resources online. Go learn to your hearts content.
47:56
If you want to implement and get something built in your business
47:59
that's an asset and you can, you know, make it make you a
48:02
valuable business you can sell later.
48:04
This is for you. This is a unique opportunity to
48:07
be mentored by myself. But me personally, I work side
48:10
by side. So this is a huge opportunity
48:13
for yourself to work directly. Not everybody who applies will
48:17
join the program. Like I said, I'm looking for
48:19
very specific people and the, the, the size is going to be
48:24
small. This isn't like, you know, 20 or
48:26
30 people sort of large group. This is going to be a very small
48:31
group of general contractors who are going through this together.
48:34
We're making real change in their business.
48:38
So this sounds like something that you know will make a
48:40
difference in your life and I believe if your general
48:42
contractor this is a no brainer. It's going to be huge.
48:45
Join the wait list. We will be opening this for
48:48
enrollment when our next program starts.
48:51
We are going to be running this every quarter.
48:53
So program every quarter and when the doors open you know
48:57
there's only going to be a certain amount of spots
48:58
available. So if you want to be the first
49:01
person to get a spot and to get notified about that, we're open
49:06
for enrollment, scan the QR code here and go and join the wait
49:12
list. We'll also be getting e-mail
49:13
after this with a link. You can go then, but then get on
49:16
the wait list, go and check out the website here and have more
49:21
information. You can get more details if you
49:23
need more details, but this is a phenomenal, phenomenal
49:27
opportunity. So definitely get signed up.
49:29
It's it's an amazing program and I'm very proud of the work that
49:32
we've done. And this is like I said, I've
49:36
put a lot of time and energy into getting to this point and
49:39
I've taken the best of the best, putting this program fastest,
49:43
most rapid way to build systems of specific systems that you're
49:47
going to need early on in your business.
49:49
So we get signed up and I would love to see you join the
49:53
program. Alright, so now I'm gonna jump
49:56
into the business revenue allocation sheet.
49:58
As I mentioned. We'll take some questions a
50:02
little bit, you know, after this and do a bit of Q&A for anybody
50:05
that's your live. So just hold your questions for
50:08
a second here. So business revenue allocation,
50:12
the spreadsheet essentially every, I would do this by by
50:16
monthly. Typically I like to do the 10th
50:18
and the 25th because like I said, your accounts payable,
50:21
you're going to pay materials and Subs maybe on the 15th and
50:24
30th or 5th, you know, 1st and 15th or whatever.
50:27
So you distribute your funds five days before that, at least
50:32
a couple days before that typically.
50:33
So you got money in your different bank accounts, but
50:36
let's say you've got 100,000 sitting in your bank account.
50:39
You can see here is going to tell you exactly how much to put
50:42
in all your other accounts. So 5% go to profit, 10,000 goes
50:47
to owners pay 10,000 to taxes. I also like to have a charity
50:51
and donations for me. You don't need a separate bank
50:54
account necessarily. You could just include this in
50:56
your taxes, kind of like a taxes and donations account and just
51:00
put, you know, 12% into there or whatever.
51:03
You do you. For me, business is about
51:07
purpose and being able to provide for others, whether
51:13
that's charities, organizations, you know, your, your church or
51:17
religious institutions, family that that may be needed or what
51:21
have you is you know, it just it helps elevate the business so
51:24
much when it's not just for yourself, obviously super
51:27
important to be taking care of yourself, but that you're able
51:30
to provide for other people. So that's what that is.
51:34
And then operating expenses is gonna be the bulk of your of the
51:37
money that that gets allocated. So this is the money that go
51:40
into your accounts. And then there's also this
51:43
charity allocations down here. So if you've got, you know, a
51:46
couple different charities that you want to provide money for,
51:49
it's going to take this amount in here from the charities and
51:52
donations and just split it. Let's say you want, you know,
51:55
50% to go to, you know, this organization, 30% to go here and
52:00
then maybe 20% for whatever else, right?
52:03
And you can obviously add more. You can also change all of
52:07
these. So let's say you right now are
52:09
in a ton of, you know, dad or finances are like crazy.
52:12
And it's like, I can't really be putting extra money aside for
52:15
profit right now. Maybe you bumped this down to 2
52:18
and you, you bumped this up to like 76%, right?
52:21
So you can play with these allocations.
52:24
And overtime, this is going to get more dialed in for your
52:27
business. Also, as you know, grow and
52:29
scale, if you're doing like $1,000,000 now, in two or three
52:33
years later, you're doing 2 or $3,000,000, you're out.
52:36
You know, your allocations are going to change and you're going
52:39
to need to adjust this as as you grow when you get started, just
52:43
kind of do your best, you know, whatever you think is best.
52:46
And then from there you can allocate differently, you know,
52:50
depending on how the financial management of your business
52:53
goes. So hopefully this made sense.
52:54
I hope this is really giving you a lot of clarity on your
53:00
financials and you can see how just some very key concepts and
53:03
a little bit of a change of like how you manage your money and
53:06
accounts can really make a huge difference.
53:08
Make sure you're profitable at the end of the day, make sure
53:10
you're estimating accurately and at a high enough markup slash
53:14
margin percentage to really make a difference in your business.
53:18
So thanks for participating in the Contractors Edge.
53:22
We have this every month as the first ones every month and I'll
53:25
see you at the next one next month.
53:28
Take care.