Latest / Contractor Business Builder Podcast / Construction Bookkeeping System That Will Make You Rich

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Construction Bookkeeping System That Will Make You Rich · Contractor Business Builder Podcast

0:00
Most contractors think with the got money in the bank they're
0:03
doing fine, but here's the truth, if you don't have a good
0:06
and proper bookkeeping system in place, you're probably bleeding
0:09
cash and don't even realize it. I've seen contractors doing
0:13
millions of dollars in sales and still struggling to pay
0:16
themselves and wondering where the money go.
0:19
So in this video I'm going to be walking you through the exact
0:21
systems that we use to help you fix that fast.
0:25
Alright, so as we get started here, I'm talking about benefits
0:29
and pitfalls and then we'll be moving into how to set up the
0:32
system. Just overhaul your whole
0:34
financial processing system to make sure you're making good
0:37
money and you're aware of the numbers, you know your numbers.
0:40
The big benefit or the big pitfall depending on which way
0:43
you want to look at it, is if you don't have a good system in
0:46
place, you're not watching your numbers, you are sailing blind.
0:49
You don't know what's happening in your business.
0:51
You don't know where the numbers are at.
0:53
You can't make proper decisions of should I hire someone?
0:57
Should we invest in a consultant or coach or marketer or some new
1:03
website, whatever it may be? So if you don't have, if you're
1:06
just looking at your bank account and making decisions on
1:09
the fly, that is not a way to manage the business.
1:11
And that's going to get you into troubled waters and your sailing
1:14
blind essentially because you have no idea how the financial
1:17
landscape looks for your business and projecting to make
1:20
proper decisions, having good bookkeeping in place as well is
1:24
going to save you money. So just by being able to look at
1:27
the numbers, review them regularly, you're going to
1:29
notice things in your overhead, in your subscriptions that
1:31
you're doing in certain jobs and types of projects.
1:34
Once you have the right tracking in place, you're going to be
1:37
able to have a just like that, that matrix, you know, Neil,
1:40
looking through the matrix of like, OK, this is what we're
1:43
spending too much here, or this can be tightened up.
1:45
You know, maybe we need to invest here because we don't
1:47
have any, any budget in place. It'll give you this perception,
1:51
this ability to manage a business much better and you'll
1:53
save you a lot of money in the long run.
1:55
One thing other people that don't have a good system in
1:58
place often don't realize is that the client perception is
2:02
affected as well. When you have a good financial
2:05
system, you have this kind of error about you that your books
2:09
are in order. You've got a process and clients
2:12
are gonna gonna realize that. You know your invoicing
2:15
regularly. There's just going to give you a
2:18
professional feel with the client and there's actually no
2:21
client benefit to this as well beyond just you and your
2:25
internal business. Then finally, it's going to help
2:27
get you rich. How many really wealthy,
2:30
successful people do you feel do not know their numbers?
2:34
If you've ever watched Shark Tank, something like that,
2:37
they're going to dive into the numbers right away.
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They want to know any business they're going to invest with
2:41
because they're very successful. What are the numbers?
2:45
You know what's happening in the business because numbers don't
2:49
lie. And if a business owner doesn't
2:52
have that level of acumen and just wherewithal of what's
2:56
happening, they're going to fall apart.
2:58
The business is going to be crazy.
2:59
You're probably maybe experiencing this already with
3:02
just not being able to manage your numbers.
3:04
So that is the benefits and pitfalls moving on to #2 here.
3:08
So point #2 is automation, feel like me, I don't want to do
3:12
anything if I don't have to. So if I could automate it, if I
3:15
could delegate it, all the better.
3:18
You may have thought this before, depending where you are,
3:20
you are in your journey. Go ahead.
3:22
If you're still doing your own bookkeeping or if you're
3:24
starting out, get a bookkeeper as soon as possible.
3:28
And if you've got a bookkeeper who's maybe just not that great,
3:31
look for a different 1. You need a bookkeeper that knows
3:34
what they're doing beyond just being able to manage the books.
3:38
They should have an ability to know how the numbers influencing
3:42
and, and maybe not be like a financial advisor, but they
3:45
should be able to advise you to some degree or at least pinpoint
3:48
areas in the business that look a little bit out of place.
3:51
So you definitely want to hire a bookkeeper and get this off your
3:53
plate as soon as possible. And then you're going to have an
3:56
admin person who's probably going to be handling a lot of
3:59
this system as well, because the admin person will probably do
4:02
the cost coding and, and some of that tracking, they may be
4:05
putting information for new clients in or invoicing.
4:09
So there's, there's certain things that the bookkeeper is
4:11
going to do and then you're probably going to need it
4:13
maternal admin person because they're going to be more closely
4:16
in tune with the business, the customers, the projects and
4:19
what's going on. So that's gonna be kind of the
4:21
team that's gonna manage the, the bookkeeping financial side
4:24
of the business. You should be connecting all
4:26
your bank accounts with your like your bookkeeping software.
4:31
I like to use QuickBooks. Majority of my clients use
4:33
QuickBooks. I've had some who have been on 0
4:36
or Sage. So all of them kinda do the same
4:39
thing. Only QuickBooks is just sort of
4:41
the gold standard. Everyone sort of familiar with
4:43
it, but any of them, you can connect your your bank accounts,
4:45
your credit cards, any kind of financial data that you can
4:49
integrate into the software. Do that right away.
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You should not be pulling anything manually or exporting
4:56
PDFs and importing them here. It should all be linked and
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connected and there's lots of ways to do that nowadays.
5:01
Receipts is another one that can be automated where you will
5:05
still need someone to manually, you know, put in the receipt or
5:08
snap a picture and things like that.
5:09
But as far as the information going from the person to the
5:14
software, that should all be automated.
5:16
And most project management type softwares out there have this
5:19
ability. Any kind of bookkeeping software
5:22
has this ability. Take a picture, categorize it,
5:25
send it off. I'll be going over the exact
5:28
sort of flow of the financial information a little bit later.
5:31
But there's ways to do this with your e-mail too.
5:33
You know, if you've got a subscription or a vendor,
5:36
they're going to send you a bill, invoice, receipt, whatever
5:39
it may be to your inbox into your e-mail.
5:42
You can set up a filter and an automation with inside Gmail.
5:45
Probably you know any of these other emails if you're using
5:48
something different that will automatically recognize the word
5:51
receipt or will recognize the word payment, whatever it may
5:54
be, and it'll automatically send that off to your bookkeeping
5:59
software so that it goes into the software automatically.
6:02
So there's lots of good ways to do this, lots of automations
6:04
nowadays to set this up. No reason to be doing this
6:07
manually and wasting time. You want to streamline this,
6:09
it'll save you money, save your time.
6:11
So definitely want to get that set up.
6:13
The other thing that you can start to do with automation,
6:16
it's not like it's 100% automated, but you can now do
6:20
time tracking very easily and conveniently with most project
6:24
management software. There's also certain kind of
6:27
construction apps that will geofence.
6:29
So guys will automatically get clocked in to a job or at the
6:33
very least they can have the app on their phone.
6:35
They put in their hours and it goes directly into the software
6:38
for your bookkeeping. So all the expenses, all the
6:41
time, everything's getting tracked and funneled into the,
6:44
the bookkeeping software. And then you got your bookkeeper
6:46
and your admin to process and handle that concept is easy.
6:50
Application not so much. So this is where we're going to
6:53
move into the next section here of like, how do we actually set
6:55
this up and what, what does it look like?
6:57
Alright, I'm moving on to point #3 here.
6:59
Financial flow. So with pretty much every type
7:02
of business system, you're going to have some sort of flow of
7:05
information, flow of process steps 1234.
7:08
This is the way that I found works best for clients.
7:12
There's maybe some other ways to do it, but essentially you want
7:15
to get an e-mail address that is specifically for your
7:18
accounting. So if your XYZ contracting, you
7:23
want an accounting at xyzcontracting.com and any sort
7:27
of financial data gets sent to this e-mail address.
7:31
So any receipts, payments, any kind of emails coming into your
7:35
inbox or project managers inbox, your admins inbox, those there
7:39
should be filters that automatically send them to the
7:41
accounting@yourcompany.com e-mail so that all the financial
7:46
data is going there. Also, your guys on site, if
7:49
you've got Carpenter on site, he's worked 8 hours today at
7:53
Miss Smiths project. He did framing.
7:55
He should be writing an e-mail and sorry if he gets a if he
8:01
purchases something for that project, we'll get the payroll
8:05
in second. But if these first steps for
8:06
that project, he's off to Home Depot Rd. or whatever and you
8:10
can take a picture of the receipt, it can then get sent to
8:13
that e-mail address. And in the subject line he will
8:15
put Miss Smith project framing lumber or you know, framing
8:19
materials or something like that.
8:20
So now you know which project is for, you know which Costco it is
8:23
for very easily. You don't have to go hunting
8:25
through the receipt that gets sent to the accounting e-mail.
8:27
And now your admin person is gonna be monitoring that e-mail.
8:33
Depending how many transactions you get a day, that you could be
8:35
every day, twice a day, maybe twice a week, whatever makes
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sense. They're gonna be processing
8:40
those emails that come into that inbox and most of them will get
8:44
automatically forwarded to your bookkeeping software so that now
8:49
everything is flowing to the e-mail and then through to the
8:52
software. Some of the is suppliers like
8:56
like Home Depot and stuff like that, you won't be able to get
8:58
electronic receipts as well. So that can all be automated
9:01
with all your guys even needing to take a picture.
9:03
But either way works from there. The financial information.
9:07
So that's how you get it into the software.
9:09
From there, it now needs to be tagged to a job and to a cost
9:13
code. Now this is where things get
9:15
super confusing and a lot of it breaks down because people
9:18
aren't doing it effectively because it's sort of an all or
9:21
nothing. If you can't do all of your,
9:24
your transactions in this way, then your job costing is not
9:29
going to be effective and you won't know your numbers for John
9:32
Glosson. Because if 80% of the financial
9:35
purchases for a project get categorized properly and the
9:38
other 20% don't, don't you're going to run a report, it's
9:41
going to look like you're super profitable because 20% of your,
9:44
your expenses are missing, right?
9:46
So it has to kind of be an all or nothing.
9:48
That shouldn't scare you from trying to do this or getting
9:51
started. Reach out to us.
9:52
You know, this is what we do. We help build out these systems
9:54
for our clients. We've got this template and and
9:57
dialed in and and we can just get this into a business really
10:00
fast. But if you're going to tempt us
10:02
on your own, my suggestion is at at the beginning, just
10:05
categorize my project. So instead of trying to worry
10:08
about how much we spend on framing, how much do we spend on
10:11
plumbing or electrical or finishing or whatever, and
10:14
trying to categorize all your different expenses, typically
10:16
different cost codes and all of that.
10:18
Just try to do for per project first.
10:20
So let's just try to get all the expenses for Miss project,
10:23
labour hours, subcontractors, materials, that's about it.
10:28
So if you can just get to that level, at least at the end of
10:31
the day, you know, OK, we charged Miss Smith 200 grand for
10:35
her remodel. We spent 120,000 on, you know,
10:41
cost of goods or, or, or what have you sold.
10:43
So that's the beginning step. If you're already there, then
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the next step is is the cost codes and expense tracking so
10:50
that you know to the dollar pretty much exactly what you
10:54
spent for framing materials. And then you could do actuals,
10:58
you know, actuals to estimated of what do we estimate?
11:01
What was the actuals, What's the difference?
11:03
Are we accurate? Can we adjust?
11:05
Can we do this or that? So you can get really bogged
11:08
down in here, get started on the projects, move forward with that
11:11
from there. There the other part of like the
11:14
financial flow. So that kind of gets your
11:16
expenses. Now we need the invoicing,
11:18
right? So the other side of this is
11:20
that's the money we're spending. We need to be tracking that and
11:23
getting that into the system properly.
11:24
Now what about the money coming in?
11:26
So for invoicing, you should always increase the frequency
11:30
typically to one to two weeks. I, I would not want to see
11:35
invoicing go more than two weeks without invoicing a client.
11:38
Now this is more on the residential side.
11:40
I know commercial projects are a little bit more stipulated by
11:43
the, you know, the prime contractor or the developer
11:46
potentially depending on on how the contracts are signed up.
11:49
But even in that case, you should be kind of fighting for
11:52
more frequency in invoicing because cash flow as as I'm sure
11:57
you've seen, you get a big payment, yeah, like, I don't
11:59
know, $200,000 payment for draw on a project.
12:02
And it's like, yeah, good. And then you spend a bunch of
12:04
money, you gotta pay off whatever you need to send money
12:07
everywhere. And now a month goes by and
12:09
you're still like a month or two till the next draw and you gotta
12:13
scrape by. You've gotta get into debt.
12:15
You gotta, you know, try to manage 0 cash flow until the,
12:18
you know, the next big milestone comes up.
12:20
So try to make those milestones closer together and percentages
12:25
of like completion together. Instead of maybe doing like at
12:28
2550 in 75 and then, you know, 5% after completion or something
12:33
like that. Try to do like we wanna invoice
12:35
every 10% of the project so that you've got more times invoice
12:39
once you've got, you know, your frequency set up in the
12:41
expectation set with the client with the invoicing.
12:44
Now it's just figuring out that process.
12:46
So the big thing is you want to take whatever's on the estimate
12:50
and put that into the invoice. This looks really professional
12:53
when instead of just doing like invoicing for 50% of completion,
12:57
right? It's like what's really
12:59
happening here, if you can take line items from a project and
13:03
even if you don't show the client like per line item, what
13:06
the costs are, but if you can like invoicing for, you know,
13:09
50,000 and that's framing and, and demo or concrete, whatever
13:15
it may be, right? So whatever, whatever it says in
13:17
the estimate, pull that through, copy it into the actual invoice
13:21
and then send that to the client.
13:23
Then it's very clear what they're paying for and what
13:26
they're getting. I'm not going to get into
13:27
deposits here because that's like outside of the bookkeeping
13:30
go to say, but you should be collecting deposits of money up
13:33
front. Can you know, whatever it may be
13:35
early on? And that is that's pretty much
13:39
the the financial flow is in and out of the system.
13:42
And with all of this getting the system set up, start small, pick
13:47
an area. What's the most pain point for
13:49
us? Is it like we don't know where
13:50
expenses are? We're not doing any tracking?
13:52
Is it we need to get the software set up properly?
13:55
Is it we need this LP in place? So figure out what the what's
13:58
the small thing that you can do? Get that dialed in kind of move
14:01
onto the next one. So talking about moving on to
14:03
the next one, number four here is payroll tracking.
14:07
So the biggest expense of a construction company is
14:10
typically payroll and you know, materials are big, but typically
14:14
materials are a lot easier to estimate and don't go over as
14:18
much as payroll. It's very easy to go over by 20,
14:22
thirty, 40% on the amount of hours that guys are spending
14:25
that you're paying for than it is to go over, you know, 30% on
14:29
materials. That's very unlikely materials,
14:31
maybe you go over 510% as long as you're estimating is decent
14:35
payroll, it's very easy to have guys go over.
14:38
So payroll tracking super important.
14:40
And like I mentioned earlier, you can get an app, you can get
14:43
project management software. There's a whole bunch out there,
14:45
different ones. Pretty much all the project
14:47
management software out there, CRM, some people might call
14:49
them, will have some sort of module where you can track hours
14:53
and assign them to projects. And it's quite, quite easy once
14:57
it's set up and you just got to get your guys on board.
14:59
But essentially they're putting their hours in per job and then
15:03
per cost code. This is pretty easy because the
15:05
guys on site will be know what they're working on.
15:07
You know, was I working on demo today or framing or finished
15:11
carpentry. They can easily put that into
15:14
their hours. When they put it in all gets
15:16
pulled into the system automatically and you can then
15:19
run payroll from there. So one thing I like to do as far
15:23
as implementation of the system, because it's one thing to get
15:25
this set up and there's another thing for it to work properly.
15:28
So often if you're just getting your guys used to doing like
15:31
using an app to put in their hours and stuff like that, what
15:34
I like to do is send them a text message, could be a group
15:38
message or just individually, depending on how many people you
15:40
got. And just remind everybody, hey,
15:44
we're going to run, you know, we need to run payroll by Monday or
15:47
Tuesday. Can you please, like on a
15:50
Friday, please make sure that you take an extra 510 minutes
15:53
today, go through your hours for the last two weeks or last week
15:56
and ensure that everything is correct.
15:58
Everything is tagged per job, everything's tagged per cost
16:01
code. And just this simple thing of
16:03
reminding people at the end of the week to make sure their
16:05
hours are correct, we'll make your payroll process just that
16:09
much easier. You don't have to call guys and
16:11
like, hey, you know, you've only put 4 hours for this day.
16:14
What's up? Did you leave early?
16:15
Have you forgot to put in your time to do this other day?
16:18
Forgot, you know, you haven't filled in anything this whole
16:20
week, so I can't really pay you. So instead of, you know, be
16:23
proactive and send them, send them a heads up ahead of time.
16:26
Once you know you've got that dialed in, now you're going to
16:29
do approval. So you're going to approve the
16:31
hours. This could be an admin, doesn't
16:33
have to be. You could be a project manager
16:35
if you've got, you know, certain project managers for certain
16:38
people when it would have you, but there's some sort of
16:39
approval process to make sure people are correct with their
16:42
hours, not missing any or exaggerating, you know how much
16:45
they worked and things like that.
16:47
From there, after approvals, you want to make sure you have
16:49
direct deposit set up. If you're still paying guys
16:52
checks, you know, that's just a waste of time, money and paper
16:55
and nobody wants to go to the bank to cash check.
16:58
I mean, you've got your phone, you can put in your phone, but
16:59
still direct deposit, send it to them directly through their bank
17:03
account and just make it easy for everybody.
17:05
And then finally is time off. So time off request is another
17:09
thing that people often don't know you can do through your,
17:13
your bookkeeping software and the guys can use the app to
17:16
request time off and, and then you can approve it and then it's
17:20
in there and it's automatic within the system.
17:23
They've asked for this time off, you've approved it.
17:26
They shouldn't have any hours during that time.
17:27
You know, everything is tracked and, and just very easy once
17:31
people understand how to do this.
17:33
So making sense here. There's a lot that goes into
17:35
financial management and we're getting to the good stuff here
17:38
is how do we actually use all this once the system set up to
17:42
know what we're doing, right? So I'm going to be talking about
17:44
#5 here, this is key financials and this is something that has
17:51
an experienced business owner. If you want to be a savvy
17:54
business owner, you need to spend more time in your
17:57
financials. And it's very easy to brush over
17:59
this little profit loss and you know this and that and numbers.
18:03
I've got money in the bank. Maybe I don't have money in the
18:05
bank. You know it, it's very easy to
18:06
brush over it and not really pay attention to what's important.
18:10
When I was running my contracting business, this is
18:13
something where I was doing bookkeeping.
18:15
I knew my numbers, I understood like I could see what was there,
18:19
but I didn't understand how things related and how to use
18:22
that information to make decisions and what those numbers
18:25
should look like. So I'm going to be walking you
18:27
through that right now. First big important statement
18:30
for the key financials that your profit and loss statements.
18:33
I'm sure you're familiar with these.
18:35
You've got your top line sales, you've got your cost of goods,
18:38
you've got overhead, and then you've got your profit at the
18:41
bottom. If yours doesn't look like that,
18:43
you need to talk with your account or bookkeeper, most
18:46
likely your bookkeeper to set up the books properly.
18:48
Because I see this time and time again, again, contractors doing
18:52
millions in sales and their books aren't even like their
18:55
accounts aren't even set up correctly in their books.
18:57
They, they've got labour in their expense categories, like
19:02
the where the overhead should be and they don't have labour in
19:05
the cost of goods sold. You need to differentiate your
19:08
labour between, you know, direct and indirect.
19:10
So top line sales, very easy. How much income do we make?
19:14
Million, 2,000,010 million, 100 million, whatever it is, that's
19:17
a talk right? Under that you're gonna have
19:18
cost of goods sold. Cost of goods sold is
19:20
subcontractors that you paid, materials that you paid and
19:24
hours labour, internal labour that you pay for employees, but
19:28
employees who are working on the job site.
19:30
So this would be project managers, this would be your
19:34
carpenters, anybody who's working directly on on the site,
19:38
your admin staff, if you have a marketer yourself as a salary,
19:43
that should be in the overhead, which is like the expenses
19:47
that's below that top, that top portion there.
19:50
If you're confused about this job comment, let me know.
19:52
I'll try to explain it better or paint a picture here.
19:56
But that is very important because you need to know what
19:59
your overhead is. I'm going to get into that in a
20:01
second. But your overhead then is all
20:04
the expenses below that. These are all the indirect costs
20:07
that are not associated with the project your insurances.
20:11
Your office staff, cell phone bills, whatever, right?
20:16
So that all goes in there. Now you can then take that,
20:20
those expenses that you have and those expenses are your overhead
20:26
and you can figure out that as a percentage of your sales.
20:28
So if you spend, I don't know, we'll just make numbers really
20:31
easy here, but you spent 100,000 on overhead, that includes maybe
20:35
your salary or whatever else. You made $1,000,000 in your
20:39
business. Well, you're overhead is 10%.
20:41
10% of the money that comes into your business is spent as
20:46
overhead. Now the problem with this that a
20:49
lot of people run into is if you are marking up projects by 20%,
20:55
you may think that my overhead is 10%, my markup is 20%, that
21:01
means I've got a 10% profit. That is not the case.
21:05
That's not how the math works. Unfortunately.
21:07
You've, you've confused markup on top of sales with overhead,
21:11
which is a margin of sales. So the margin of overhead is
21:17
10%, but a markup is not a margin and there's a difference.
21:20
I've got another video explaining this in, in detail
21:23
exactly how to think about this. But essentially a 25% markup, if
21:27
you mark up your project 25%, that's only 20% margin.
21:31
So if your overhead is running at 15%, that's only leaving you
21:34
5% margin, never mind contingency if anything goes
21:38
wrong or you've estimated improperly.
21:40
And this is where a lot of contractors can get to an end of
21:43
project and like where the money go, right?
21:46
I thought I was going to make 200 grand on this project.
21:49
My bank accounts looking slim. We've completed the project.
21:51
I've gotta go now, bust my ass to to get a new project and
21:54
bring in a deposit because I got all these people to pay and
21:56
things like that, right? So understanding this very
21:58
important to your overall success.
22:01
Alright, so that's the profit and loss markup margins, that
22:04
kind of stuff. Now we're going to move into the
22:07
balance sheet. So the balance sheet pretty
22:08
simple in concept. It's essentially the balance of
22:11
your business. So your liabilities, which are
22:15
things that you will need to pay for, you know, debt, things like
22:19
that. And then you've got your your
22:20
equity and forget what the other one is that I thought my head,
22:24
but essentially it's the balance your business.
22:26
And this is the the, the snapshot of what your business
22:29
is, you know, worth. It's not what it be worth on the
22:32
market, but what are the assets, you know, are, are you in a plus
22:36
or minus situation as far as overall assets to liabilities in
22:39
your business? And this is something just the
22:43
way you need to look at this is like 1 snapshot.
22:46
You can get some information from it, but you need to be
22:48
seeing how it changes over time. So how's our balance sheet
22:51
changed in the last six months, in the last year?
22:53
Are we, you know, are we growing the, the, the value of the
22:56
business or, or is it shrinking? And this will alert you to that.
23:00
Alright, so, so with me, the last few things for key
23:04
financials is cash flow and you know, work in progress.
23:07
So cash flow, I think most people understand that it's how
23:10
much cash do we have right now to facilitate what's going on,
23:15
how's the cash flow going? And that's why it's saying the
23:18
frequency of your invoicing needs to get shortened so that
23:21
your cash flow is more regular. You know, you're still getting
23:23
paid the same, but instead of having these big increments or
23:25
these big payments, you're getting smaller payments that
23:28
are more consistent. And it's easier to run the
23:30
business that way. With work in progress.
23:33
And this is something that if you're not doing, you should be
23:36
looking at it because it'll do a number of things.
23:39
Work in progress will help alert you to maybe dips in production
23:44
that will happen because if you've got a lot of work in
23:46
progress that's sort of nearing the end of a project, those
23:49
projects may be closing out. If you don't have new projects
23:52
coming up, you're going to have a drop off dip.
23:55
But work in progress also lets you sort of know where you are
23:58
financially better than just bookkeeping because bookkeeping
24:01
is always sort of looking in the past.
24:02
That transaction happened whether it's yesterday or a
24:04
month ago, you're always kind of looking back with bookkeeping
24:08
and and the financials that are there with work in progress.
24:11
You have like a pretty clear indication of like what's
24:13
happening, what's there's things that today and what's going to
24:17
be in the future. If you've got work in progress
24:19
and a bunch of projects that are just sort of getting going, you
24:22
may be low on cash, your financials don't look great, but
24:24
you've got all this work lined up and you're maybe at you know,
24:29
whatever percentage completed the project, you're going to be
24:31
getting paid soon. So you can see that they're, you
24:33
know, things are actually going well.
24:36
On the inverse side, you may have a pile of cash because you
24:38
just completed a project or just starts a project to go leave
24:41
deposits and different things like that.
24:43
But you work in progress may tell a different story because
24:46
you've just recently invoiced a whole bunch, but now you've got
24:49
all this work that you're on the books for that you need to
24:51
complete. So work in progress helps you
24:53
understand that picture and kind of look behind behind the wall
24:58
of, you know, just your bookkeeping.
25:00
All right, so those are key financials.
25:02
That is like the big system and now these are the flask do
25:05
things that are gonna make you rich and make you wealthy.
25:08
This is so important and so easy.
25:11
Next time we talk about is the banking.
25:13
So how do you actually set up your bank accounts and do your
25:16
banking? And then the 7th point I'm going
25:18
to get later on is you outside of your business and how you
25:22
become wealthy even if your business doesn't do well.
25:26
All right, so number six here is the banking.
25:29
The the banking system that I've had the most success with with
25:33
myself and, and other clients is the profit first banking system.
25:38
It's a book by Mike McCall Lowitz and the essentially the
25:41
beauty of it is it's very easy. You have very powerful and
25:45
impactful. Essentially what you want to be
25:48
doing is you have an income account.
25:50
So all the money from your business goes into your income
25:53
account. So you got, you know, checks
25:56
from whoever you're getting payments, that's all Just get it
25:58
going into your, your one bank account.
26:00
That's for income. All the money goes into there
26:01
from there, it's then going to get allocated to your other bank
26:05
accounts. You're going to have at least 4,
26:06
you should have more other bank accounts and the the four other
26:10
bank accounts you need is your profit account, profit first.
26:13
So you're generally going to allocate maybe 2-3, four, 5% of
26:18
all the money that comes in to that account.
26:20
You'll just do a simple calculation.
26:22
We've got spreadsheets and ways to organize all this.
26:24
If you need help with this, definitely reach out to us.
26:27
There are links in the description below to get free
26:29
courses on how to systemize your business, how to implement all
26:31
this stuff because you know, the systems, one thing implementing
26:34
it and getting all the different systems and the whole process of
26:38
the business working together whole another ball game, whole
26:40
another story. That's where we come in and
26:41
help. So you got a profit account.
26:43
The next one you're gonna have is your operating expenses.
26:46
So this is your, you know, whatever you pay for your
26:50
business, Subs, salary, hours, materials, everything you know,
26:55
goes out of the operating expense account.
26:56
So this is going to be your highest allocation could be 60%,
27:00
maybe even up to 70% of money that comes into your business
27:03
goes into your operating expense account.
27:05
The the other one is going to be an owner's count.
27:09
So this is where you would typically pay either the
27:12
partners in your organization if you've got other people or
27:17
shareholders, but most likely you're paying yourself from that
27:19
account. Now if you are salary and you
27:22
pay yourself through payroll, then that would typically come
27:27
through the operating expense account and the owners draw
27:29
account may not be necessary, but depends on how you pay
27:33
yourself. The 4th account and final
27:35
account, probably the most one of the most important accounts
27:38
is your tax account. So if you pay like income tax,
27:41
sales tax, whatever kind of government taxes you may pay,
27:45
you need to be putting a percentage of your revenue into
27:48
that account. That way when you get to the end
27:50
of the year, you're not like, I've got this tax bill, you
27:53
know, 50 grand that I've got to come up with.
27:54
I don't have that. I've got like 20 grand in my
27:56
bank account. Now I've got to somehow figure
27:59
out how to run my business and, and come up with 30 grand to pay
28:02
the government or whatever, right?
28:03
So put a percentage could be 510% of of your revenue goes
28:08
into your tax account. You're going to have to figure
28:10
out, you know, for yourself and your location and size of your
28:12
business and all that stuff, but you're gonna be taking a
28:14
percentage of revenue and putting it away for taxes and
28:17
that we've always got money to pay taxes.
28:19
And now you've got your money distributed across these
28:21
accounts. If you start to run low in one
28:24
account, you know that something, you know, your
28:27
allocations are out, something's not running properly in your
28:30
business. And this is a way of kind of
28:31
budgeting your money without having to run an actual budget.
28:35
And it'll help alert you to deficiencies in your business
28:38
and make sure you're using money in the way that it's intended
28:41
and not using money for one part of your business that you don't
28:44
have and then not having money for another part of your
28:46
business. So does that making sense?
28:48
The other thing I'm going to mention about banking that's
28:51
super important is you should have six months of overhead and
28:55
salary as like a contingency. So you may have even another
29:00
bank account that's could be the owners draw account or like a
29:03
contingency account. But after a while, after you've
29:06
been in business like me, like I've been doing this for, for
29:10
over 15 years in business and in 20 years owning some sort of
29:13
company, the you start to see these cycles.
29:16
And no matter how good you are or how great your business is or
29:20
how long it's been around, there always comes times when there's
29:23
a recession, something comes up. Maybe keep, keep person you
29:27
know, quits or moneys just tight or you make a mistake somewhere,
29:32
some sort of legal thing comes up.
29:34
Have a contingency of at least six months of your overhead.
29:37
So if your overhead is 10,000 per month, you should have a
29:40
bank account with at least 60, $1000 in it to cover your
29:44
overhead. If things get slow, if something
29:47
happens, if you know for whatever reason.
29:49
And then also your own salary, your own salary would be if you
29:52
pay yourself 10,000 per month, then you have another 60,000.
29:55
So it's 120,000 set aside for contingency.
29:59
So that no matter what happens in your business, you've got
30:01
this pool of cash that you can rely on to help get you through
30:04
those, those those tough times or those issues or mistakes that
30:08
come up that are just inevitable.
30:10
And they happen in every business.
30:11
And this is where a lot of people well, bankrupt because
30:15
they don't have any contingency, they don't have any rainy day
30:18
savings. The business starts to slow down
30:21
or they had a really bad job or bad, bad client or something
30:25
happens. And because you're running on
30:27
red line so much, you are just in a really weak financial state
30:32
of your business. And now you've got to start
30:34
looking at, you know, selling things or taking on a bunch of
30:38
stupid debt and all this stuff and it can go sideways really
30:41
quick. So that's, those are the big
30:43
things as far as the banking side of the business goes.
30:46
Now moving on to #7 So this is how you get rich.
30:48
This is how you get wealthy. And this is all about you
30:52
personally. So your business, we've set that
30:54
up. We've got the bookkeeping
30:55
system, we've got the financial system in place.
30:58
Now you yourself need to be a like a business and you yourself
31:03
need to set up your own finances and budgeting and wealth
31:07
building in a way that makes sure that even if the business
31:09
goes South or something happens with the business or you need to
31:13
walk away or take a step back or whatever that you are covered
31:16
and you're in a good place. So with your personal budgeting
31:20
and wealth building, you should be taking profits out of the
31:23
business and putting them in long term investments.
31:25
What those are is up to you. Could be stocks, could be real
31:28
estate, whenever it is something ideally safe with a fairly high
31:32
return that's going to compound over time.
31:35
You should also be doing personal bookkeeping.
31:37
So this is something that opened my eyes when I started doing it.
31:40
I, I was doing bookkeeping for my company for a long time, but
31:44
I had someone doing bookkeeping for me.
31:47
I knew the financials there, but I didn't do my own, you know,
31:50
bookkeeping I with my personal stuff.
31:52
But once you start doing that, you start to see how much you
31:54
spend every month you can much better kind of again, what gets
31:58
tracked gets improved. So I would suggest get your
32:01
personal bookkeeping. That's a lot easier than the
32:03
business and it'll help you realize how much you're spending
32:06
every month and help you live within your means.
32:09
It's very easy to get wealthy. The, the concept anyways is you
32:14
just you, you make more than you spend, right?
32:18
And if you can, if you can keep 20% of your income and put it
32:23
into investments, you're going to be wealthy.
32:25
It's just, it's inevitable. The problem is so few people are
32:29
able to manage that and have the habit and the, the determination
32:33
or discipline to not overspend or to go buy that new truck by
32:37
the new house, go on vacation, all this stuff which you should
32:41
be doing definitely, but you should be making sure that your,
32:45
your income is always higher by at least 15 to 20% over what
32:51
you, your expenses are monthly. As you know, your personal
32:54
expenses for you, your family, whatever.
32:56
So make it sense. This is the way that you can set
32:59
up your entire financial system and it'll give you this like
33:02
breath of fresh air when you know you're covered, you're in a
33:05
good place. No matter what happens, money's
33:08
flowing, you can see it and it's going into your bank account.
33:11
I'll see you on the next video.