29. Understanding Construction Financials With Andy Skarda

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Hello and welcome to the Professional Builder Secrets podcast, a podcast by the association of Professional Builders for building company owners, general managers, VPs and emerging leaders. Here we discuss all things running a professional building company from sales, processes, financials, operations and marketing. Thank you for being here, Andy, today.

It's good to be here, Bosco. Always good to see you in Chet.

Well, Andy, let's get right into it. We've had so much learnings in the last few seasons with the podcast and we've learned quite a bit of bit about some of the types of reporting over the past few episodes. I really want to dig in deep on the financials, specifically in the construction space. What do you feel are some of those overarching financial principles when it comes to the residential home builder space?

I think there's a fundamental fear of numbers. I think we've discussed in previous episodes that a lot of builders become businessmen almost by accident. They love construction, they love building, and I think most of them come into the industry from the perspective of I want to build houses. And there's this almost naivete about, well, that's all I have to do. If I build good houses, everything will be fine. But the reality is that they very quickly get to a place where they realize I'm working really hard, I'm not making a lot of money. This isn't quite working the way that I thought it would. So it's one of those things where understanding numbers and being comfortable with them is a fundamental reality of running a professional building business. And, you know, we kind of gloss over the fact that we are the association of Professional Builders, and that's kind of the thing that differentiates us and our members from other people, is that we are working with people that want to be professional. They want to offer a professional service. They want clients to have a great experience, and obviously they want to make enough money to achieve their financial and personal goals. Both of those things, as in giving people a great experience when they build, and the builder making enough money that he can do the things that he wants to for himself and his family. Both of those tie back directly to the fact that a building business, like every other business, must be profitable for that to happen.

So this goes beyond just having a passion, really, because at the end of the day, what you're talking about is really upgrading the purpose that you have getting into the construction industry to actually start to articulate where you are today and where you want to go. Really?

Yeah. And I think for a lot of young builders, it's not necessarily something they don't come into the industry thinking, I want to retire at 55. They're 25 years old, they're bulletproof. You know, it's. It's just great to be doing something they love doing. But every person that we talk to eventually gets to the point of going, this isn't going to take me far enough. This isn't going to get me to where I really want to end up, you know, so at some point in every builder's evolution, they get to a place of going, I need to learn some more stuff. And this particular subject that we're talking today, you know, numbers. A lot of people, generally in business, but very specifically within the building industry, people are nervous. You know, they kind of look at the fact that there's an accountant and he's generally somebody with a limited sense of humor and a tie, and they kind of look at that and go, well, that's not me. And if that's what you have to be to understand numbers, then I'm never going to be able to understand numbers. The reality is you don't need to understand every number in a business. There are certain very specific numbers that are important. And if you get your head around the story that those numbers tell you, you can run a very, very efficient, profitable, professional building business with the numbers.

Is the concept of knowing your numbers part of that success mindset? Is that a myth or is there really something about that financial awareness that plays a part in success?

It's absolutely not a myth. It's a little bit like you're driving your vehicle and your dashboard goes dead. Now, what I often in our coaching sessions, in the early coaching sessions with our private mentoring clients, I'll talk about the fact that if you don't know your numbers, you are a pilot flying a jet airliner in the dark, in a storm, in a cloud, upside down, with no instruments. And I don't think anybody would get onto an aircraft. If I told you we were flying into a storm, we would eventually be inverted and the instrument panel would go dead. Nobody would get on that aircraft. And yet so many builders all over the world are quite happy to strap themselves into that cockpit every morning.

Right. So do you have a financial framework that builders can apply to their business. You know, what does it look like typically when you're working with those builders to sort of create that financial framework?

Yeah. What we've done is we've kind of distilled it down to its fundamentals. We are not trying to turn builders into accountants. I often say to people when we have these kind of discussions, most builders have a sense of humor and therefore they wouldn't make. And I'm bashing the accountants a little bit. I'm saying that tongue in cheek. Some of my best friends are. No, one of my best friends is an accountant. Let's not give them more kudos than they deserve. No, but in all seriousness, as I said earlier, we don't expect them or need. They don't need to understand every number in the business. But there are certain key numbers that are critical. And what we've done is we've distilled the process back to those key numbers. And then in all of our training and development, we give them the tools to first of all understand what those numbers are, understand the story that they tell about the business, and then we give them the necessary spreadsheets, worksheets, calculators, to be able to keep a handle on those numbers very easily.

So let's get into the coaching aspect because again, part of all of this is part of that coaching journey that you take them on as well. So how do you empower those home builders through the coaching to set those realistic annual financial goals? And, you know, how does the framework come to life, I guess?

Well, we basically don't start with numbers at all. I always start those conversations with, so, what do you want to do this year? What do you want to do in the next three years? What do you want to do in the next five years? And the reality is that in all of our personal lives, if I was to get sight of your bank statement, I would see exactly what you do. Because our entire lives eventually distill back into how we use our money. It's a resource. So essentially, what we're trying to do is often reverse engineer. It's. We'll work with them on the outcomes that they're looking for. And once we've pegged the outcome, we know what it is they want to achieve, then we work backwards through the practical realities of their capacity, their market, their level of skill, et cetera, et cetera, until we eventually get to an agreed scenario that is achievable. And because we all know that as human beings, we are much more comfortable. I mean, we talk about our comfort zone, our goal with our builders is to stretch them slightly, just to kind of ease them gently out of that 5 out of 10 space into a 6 or a 7 out of 10. Because if they're going to be growing, it's going to be slightly uncomfortable. If it's comfortable, we're not growing. So we want to just push it a little bit. And the fundamental mentality behind that is, if you want to do a million dollars this year, let's aim for 1.3. And if we aim for 1.3 and we don't hit it, we only hit 1.1, we still ended up better off than where you wanted to end up. It's that kind of mentality. So it eventually becomes, what financial goal do we need to achieve in order to get to the outcome that you are after? But the starting point is not how much money do you want to make, it's much more holistic than that.

So you mentioned that you're reviewing bank statements as well. Are you referencing the annual profit and loss statements?

All the time. And we always do it kind of in two fundamental phases in the planning, in that we look backwards. So we want to start with something that's real. Virtually every builder we work with in the previous 12 months has had to submit a tax return. Now, again, because we know that nobody from the IRS or the ATO would ever listen to one of these podcasts, we can quite openly acknowledge that accountants are going to present the best picture possible in order to work to the builder's advantage. So there's going to be some, let's call it creative accounting maybe in those numbers, but they are going to be fundamentally a picture of what the business looked like at the last time it was officially measured. So we'll start there. What did your previous 12 month or previous financial year look like? So that we've got some fundamentals and, you know, let's go to a simple scenario. In every single business, for it to be a business, it must exceed its break even point. So the first thing we want to determine is what is the break even point? And that's going to be tied in the building industry primarily to fixed expenses and overheads. Because the reality is if I'm building a home and the profit I'm making is not covering those things, then although I'm making a gross profit on that build, I'm not making sufficient profit to run my business. So step one is we must break even. And once we've worked the financial plan to the place that we know this level will help us to break even, then we can take it to the next level, which is going to be okay. On top of that, how much profit do we want to be making? And the fundamental thing that we must anchor right here is that when I talk about profitability in a building business, I'm talking about net profit. And net profit only exists when every single expense in the business has been taken care of. And, and that must include a market related salary package for the owner. The number of builders that come to me, that when we dig into them, their financials, we find that they are paying themselves 65 to $70,000 a year and they paying their project manager 160. And what they saying is I made a profit last year. Actually, the profit was what they took out the business. They actually made no profit because at the end of the day, if they could make more money working for another builder, why take all the stress and the real headache and the risk of running a building business and earn less money than you could working as a project manager? It doesn't make sense.

So you're really combing through this like a fine tooth comb through all different expenditures and the income because as well you're looking at the percentages of how the revenue is being allocated, you're also then looking at the ratios between expenditure and revenue to make sure you hit that break even point. So is it fair to say that that financial coaching and analysis is sort of a graduating step where let's get to that break even point and then let's move on to the next step and then the next step. It seems like it's not just a one size fits all concept.

Well, I think the concept is probably one size fits all in that we want to make sure that every one of our members is making at least 10% net profit all the time. That's the minimum level that we aim for. But what we certainly do in the private mentoring program and in the elite mentoring program is we tailor that to their particular place of evolution, size, market growth, et cetera, et cetera. So we would certainly want to be in a place where every builder as early in the calendar year as possible knows exactly what his targets are in the revenue area, the gross profit or gross margin area, and the fixed expense, overhead, net profit. Those four numbers, we want those very clear very early. And then essentially what we're doing there is setting targets for the year. And what I really want to do here is just differentiate very quickly between a target and a budget. A lot of people get confused between those two. Things, our differentiation goes like this. Budgets are usually, what do I want to achieve in the next 12 months? And then I divide that into 12 equal pieces. Now, what we've seen in most building, building businesses is that a month is often not long enough to really see the trend. So we tend to break the year down into four quarters. And the way I can always tell that a builder has done a budget is they present me with these four beautifully round number, all zeros in every quarter, and they're all equal. And it's one of the reasons why we get them to look at their previous year's actuals, because as soon as they look at their previous year's actuals, there are no zeros, there are no round numbers, and every quarter is different. So what we want in a target is we want it to be realistic. We want it to be aspirational and motivational. If I give you a target that is impossible for you to achieve, it's not a target, it's maybe a wish, it's definitely not even a dream. But as soon as we get to a place where I show you that if you build this many houses at that schedule, you will be able to generate that amount of money, that revenue becomes a target. It becomes a measuring stick by which you can measure not just your financial outcome. And I think this is another important principle. Revenue is a reflection of the construction work you have completed and invoiced. That's all it is. People paying you. Money is a certificate of appreciation for the work that you've done. So let's demystify revenue. All that revenue is showing you is how many invoices have I sent out? And I cannot send an invoice until I finish that amount of building.

Right?

So there you go. So really, what we're saying is as soon as we set the revenue target, we've also set the construction target, and then we can break that construction target down into the three months of that quarter, and then we can break each month down into the weeks of that month, and then we can actually break it down to what do we need to build per day, per job in order to be able to put through the necessary invoices that will then get us to that revenue figure. Now it's a target. Now I can turn it into something tangible that says I need to build that much house in order to be able to invoice that much revenue.

How quickly do you get into pricing? I'm scared to ask this question because I've had the pleasure of distinguishing with you the differences between markup and margins. So at what point in the game do you start to go, let's reevaluate your pricing and understand your margin and markup?

It's critical from the word go, quite simply, because most builders that come to us are not pricing for profit. A lot of them are pricing to get the work. And that's dangerous because essentially what are we saying? If I go to 10 builders with exactly the same set of plans and I get them to cost the job, they are going to come up with pretty much the same number because they're buying their materials from the same suppliers. They are getting their labor and their sub trades from the same pool. So if a house is going to cost $500,000 to build, if that's the budget, it's going to cost $500,000. That's not really negotiable or flexible. So the only piece of the price to the client that is, is the amount that the builder makes out of doing the job. And the problem is, when you start to get into that competitive arena of undercutting other people, you eventually undercut yourself completely out of business, because you can't run your business on the skinny margins that you are adding in order to get the work. And to be totally honest, you can't deliver the level of service that you've promised the client if you don't have the margin to support the rest of the infrastructure that you need to build around that. So we look at pricing. We've spoken primarily so far about revenue target, but to be totally honest, revenue target is a step towards gross profit, because gross profit is going to be revenue minus the cost of the build. Or as we call it in financial terms, your cost of sales, revenue minus cost of sales equals gross profit. So what we now doing is we're saying we don't just want to build a million dollars worth of revenue, we want to build a million dollars worth of revenue at no more than $750,000 cost. So there's the next thing that the builder needs to be measuring while he is building that particular house. He needs to be making sure that at every stage, his cost to build that stage was not more than 75% of what he's able to invoice. Now we're at a point of making sure that he's getting a 25% margin. Let's dig into that for a second. There's a lot of confusion around the difference between markup and margin. The simplest way to work out what the difference is is that markup is the profit expressed as a percentage of the cost to build, and margin is the profit expressed as a percentage of the cost to the client. So let's try and make a simple example for people to understand the difference. When I calculate the cost to build the home, it's $400,000. I'm going to tell the client the cost for them is 500,000. So I've got 400,000 in cost plus 100,000 in profit gives us 500,000 as a cost to the client. The profit will always be $100,000. That'll never change. But if I express that $100,000 as a percentage of 400,000, it's 25%. If I express it as a percentage of 500,000, it's 20%. So 100 of 400 is a quarter, 100 of 500 is a fifth. And where a lot of builders get into trouble is that they don't understand that difference. When we talk about a 25% margin, we mean 25% of the selling price to the client, which actually means you need to be marking up by 33 and a third percent in order to get back to a 25% margin. And then just while we've kind of gone quite deep technically now, but let me just run this through for anybody that's listening so that it makes sense. The reason we've ended up at 25 is that as we've analyzed building businesses that have grown, the guys we've worked with over the last nearly decade, we've seen that a building business that is growing needs at least 15% in their overhead budget in order to be able to grow successfully and safely. As I said earlier, our goal is always for all of our members to be achieving at least a 10% net profit. Now we're back to simple arithmetic. If I want 10% left after I've spent 15% on my overheads, I need to start with 25. So if we come down the financial reporting structure, I've got revenue delivering 25%. After I've covered my cost of sales out of that 25%, I spend 15% to run my business, and then I have 10% left over as genuine net profit. So there we go. We probably went a bit deeper technically than we intended to, but hopefully that has kind of brought all of that together.

Yeah, no, it totally makes sense. And I learned about the margin markup concept and blew my mind, because you could tell the difference very quickly. You know, before I get into goals and KPIs, I've just got a. I've got a curiosity. What is the general reaction when you do these analysis and your coaches do this analysis with the clients, you know, the builders, because they go to their accountants and they have the safety net. Oh, you know, our taxes are filed, everything's great. And then you go into the unpackaging and you're like, hang on a minute, there's an issue here, there's an issue here, there's an issue here. All of a sudden that feeling of safety just vanishes because now they're sitting there and seeing the big picture and going, oh, we need to be charging more or we're not actually making the profit or we're underpaying ourselves. What is that reaction that comes through?

It varies from disbelief, it varies from ostrich syndrome. Stick my head in the sand, pretend it's not that way. We've got clients that I've worked with for the last three or four years who in the early stages we had what bordered on stand up fights over what was actually going on in their business versus what they thought was going on in their business. And the danger in the building industry, which you and I have discussed a number of times, is turnover. Cash flow is not the same as profit. And unfortunately, if you remember where we started this discussion, most builders are not financially adept. They aren't trained to understand the numbers. And therefore, in most cases, where do they go? They look at their bank account. If the bank account looks healthy, they believe everything is fine. And the danger in the building industry is that that's a hamster wheel. That as long as you keep that hamster wheel turning, you'll be okay. But the second that hamster wheel stops turning and the cash flow stops coming in, you're in deep trouble. And part of our concern at the moment in the current environment in the construction industry is at the moment with things like Covid and the interruptions to the material supply chain that will happen at a moment's notice and you have no control over it. So if you are not running your business in a way where you are making a genuine profit, that you do have some reserves that allow you to make it through two or three weeks without revenue coming in. If you're not in that position, I wouldn't be sleeping very well at the moment. I would be very concerned. So to get back to your question, disbelief, anger, fear, and eventually the light comes on. Really what we've got to look at this is if you are ill and you don't know you are ill, you can't do anything to get a cure. But if you actually rip the band aid off and realize that wound is not healing, it actually needs additional attention. Although it's going to be painful ripping the band aid off, first of all. And secondly, whatever that attention is may be more painful than the wound. The net result, short bit of discomfort and pain, net result is we don't need to amputate your leg, we can actually save it. And that what we try and do as coaches is to get them to the place where they can see that outcome as quickly as possible. Because the beauty of the kind of problem we're sketching here is that it's relatively simple to fix. And I'm careful with my choice of words there, it's not easy to fix, but it's relatively simple to fix. If you are not putting through enough markup to generate the margin you need, the way to fix it is increased your markup build more efficiently.

So I was reading an interesting fact on the association of Professional Builders website and it was around a statistic from the Chartered Management Institute that said that they came to the conclusion that 74% of businesses that monitor key performance indicators end up hitting all of their growth targets. So I've got two questions. The first one obviously is what are some of these KPIs that you review through the coaching program with your residential home builders? But the other curious part would be wants to know what happened to the other 26% that aren't hitting their goals and why are they not hitting their goals as well? So there's two sides to this question here.

Okay, So I think we've probably touched on some of it in the discussion about the difference between a budget and a target. As soon as you get to KPIs, you're into the target space, you're out of the budget space, you're in the targeting space because you essentially that target is a performance indicator. And as I said to you, what we've done is we've distilled and simplified the list of potential numbers down to basically the five that we've covered. So revenue, cost of sales, gross profit, fixed expenses, net profit, net margin. Those are the five numbers that we focus in on. And we then amongst those numbers are constantly going to be reviewing ratios like a fixed expense, cost as an expense of revenue as a percentage of revenue. It's a little bit like you and I decide we're going to do a road trip. We don't get in our car, drive to the first traffic light, then look at each other and Say, should we go left or right? We know we are going to Townsville from Brisbane. Luckily, these days we say hey Siri or hey Alexa. And you know, I don't know whether you heard that, but on a podcast you shouldn't actually say, hey Siri. Your watch will answer you, strangely enough. But the reality is if we know where we are going, we can work out the route or route depending on which side of the equator you're in to get there. And really that's the thing here. When we talk about people that monitor KPIs, they can't be monitoring the KPI unless they set it. They can't set it unless they have a target. If they have a target, they know exactly what they need to do to get there. They can work out a plan to get them from A to B. So the people that are monitoring those, and we monitor them as a cascade. You aren't going to make the gross margin that you're after if you're not first invoicing enough revenue. So the focus starts at the beginning. What's the foundation? The foundation is, are we building enough to be able to invoice enough to be able to earn the revenue we need? Next stage is going to be are we building efficiently enough to generate the 25% profit that we need? The margin that we need. Now we've got our 25%. Okay, are we now able to run our business for 15% or less of our revenue number? So it's a sequential cascade of efficiencies that we will zero in on. Now anybody listening to this that's been in business for longer than 10 minutes is going to sit down and say, well, okay, but you starting in the middle of the equation because where does that. You can't get that revenue unless you've got contracts signed. So guess what? Our process works like this. Once we know what the revenue is that we're after, we can then set sales targets. Once we've set sales targets, we know how many leads we need in order to hit that number of contracts. Now we can set marketing targets. So all of a sudden out of this exercise that whatever it was 26 minutes ago, we started talking about looking at break even point. By doing that exercise correctly, we can now set up KPIs for every single discipline in our business. So it's, it's foundational. In the private mentoring program, the foundational thing we do is targets. And we start with profit and loss targets. So the revenue, cost of sales, etc. Etc. And once we've got Those bedded down. Then we move to sales targets and from sales targets into marketing targets, and then the rest of the year is spent measuring them. Peter Drucker is regarded as the father of modern management, and he said, if you can measure it, you can manage it. And essentially that's what the rest of the year becomes. We've spent the time at the beginning of the year making the plan, now execute that plan. And the beauty is, because we do that on at least a monthly basis, we have 12 points in time on which to check are we on track or aren't we? And I'm pretty certain most of our mentoring clients know this, but we're a lot harder on them in the beginning of the year in terms of being very, very detailed in that analysis. Because if we can get on the front end of the process, it's much easier than chasing it. So we really put a lot of emphasis on making sure that we're hitting the marks in that first quarter and into the second quarter. And generally we find that if that happens, if people are on track at the end of the second quarter, the year is going to take care of itself. The first six months is the hard work.

I was just curious because, you know, you talk about this amazing coaching program where, you know, you've got these touch points throughout the month, and so that way it's not like a wake up call at the end of the year like going to your accountant's office. Right. So I'm just curious, take me through the actual framework in the coaching. Do they come with their shoeboxes and their receipts and all this other stuff that comes through, or do you guys actually have documentation or dashboard where all that data lives in the coaching program? You know, what does that look like in a coaching program?

Well, in both levels of the apb, whether people are members or whether they're in the private mentoring program, we give them the training and the tools to monitor everything we've spoken about today. So they don't need to come into the private mentoring program to get the fundamentals. But obviously we've taken it to another level in the private mentoring program. So we give everybody the training and the necessary calculators to be able to calculate and then monitor and manage those things. The primary difference between the two would probably be that in the membership area, it's a lot more manual and separate. Whereas when people come into the mentoring program, we've built a far more sophisticated workbook that allows all of those tools to interact with each other automatically. And therefore, by entering information in one place, we can see its ripple effect through five or six other things as well. Generally, the document that we would look at most in the beginning stages is the P and L. So not a lot of shoeboxes full of credit card receipts get to us. Those tend to go to the bookkeeper or the accountant. And then once the P and L has been created, obviously we take that as being an accurate reflection of the business and we start from that point. What we find often though, is that it's not accurate. The point here being, again, the only way that you can actually work that out is to be measuring what you think it's going to be against what it actually is. So to go back to your stat, the piece that we haven't covered yet in this discussion is after we've done the plan, we literally measure actual against target every month, every quarter, throughout the year. And again, we are very, very specific in the early days to make sure that the information we started with is accurate.

Do you feel that the reason why the financials around a building company so different from a lot of the other businesses is you have that ability to micro analyze those P and L statements? Because most businesses they go to an accountant at the end of the year, most of them do it once a year or file their BAS statements quarterly and then they end up doing away with it. But it sounds like in this particular case, you're holding them accountable through that entire process all throughout the year as well. Is that the biggest difference you feel or other elements too that contribute to it?

There are certainly things in the building industry that are unique. And let me just balance my earlier accountant bashing picture. Most accountants are not trained to run a building business's books. And unfortunately, if you try and run a building business's books the same way as most other businesses, you are always going to be presenting or coming up with a picture that is not accurate. And we'll leave that for another podcast to go into why that is. But the truth is there are some unique elements in the building industry that if you don't take those into account, you're going to end up with a problem. But that's not because accountants are wicked, evil people that are deliberately trying to mislead their clients, similar to the builder, they don't know and you can't hold them accountable for something that they don't know.

So I found that out very quickly when we unpackaged the work in progress calculator. And I remember asking you questions about what happens when you have work through a new Fiscal year. And, yeah, I learned that very quickly.

And we often end up in a place where two or three months into working with a new coaching client, they will say, my accountant says, you're talking rubbish. And I say, well, then let's get your accountant on our next coaching session and let's talk about it. And what happens is we have two types of accountants that come to those meetings. One are aggressive and defensive, and the other are coming in saying, well, maybe there's something here I can learn. And I've never been in one of those conversations that there hasn't been a light bulb aha moment for the accountant. Now, what I love doing is teaching the principles to our builders in such a way that they can teach their accountant. Because what that does is gives them an immense amount of confidence and puts them in a place where instead of them almost under a level of intimidation, just believe whatever their accountant tells them. They're actually able now to have a genuine understanding and grasp of their numbers. And that puts them in a much better position as a professional.

Where do you think builders fail when it comes to the holistic viewpoint of their financials? Is it based on the. The false narrative that they're living on? Is it an entity of putting their head in the sand and just kind of going with the flow before they come working with you? Obviously, there's a lot of accountability that you're pushing on them, but where do you think is that viewpoint from them where perhaps they have a blind spot?

So if you can live with the image which will now be implanted in your brain for the rest of today. But I was thinking about exactly this question in the shower this morning. It's kind of the difference between a weekend golfer and a professional golfer. A weekend golfer goes out there and does the best he can, and if you're anything like me, you get your money's worth. Because these guys that only get 72 hits, I get 140 usually. So I get double the value on a golf game that they do. And I get to see the whole course and everything around it. The left side of the fairway, the right side of the fairway, see all the water holes, whereas all of these guys that go around perfectly on the short green stuff, they only hit the ball 72 times, and they're always only on the fairway. They miss out on so much. But in all seriousness, the difference is the professional is measuring every part of his game. And what is he trying to do? He's trying to come up with the most efficient process and and then repeat that over and over and over. So he addresses the ball the same way. He sets up his stance, he uses the same club. He's constantly analyzing and measuring data. The problem for most builders is they are very, very good at building because they are builders. I have not yet met a builder that was in any way unable to understand the concepts when they were properly explained to them. So it's not a question of they don't want to know. It's a question of they don't know what they don't know. And as soon as somebody teaches them, bang, the lights come on and all of a sudden they're into a completely different world.

How does a builder take progressive action through the insights that come up from this financial analysis? Obviously, you mentioned that there's two types. There's that manual process, which is the membership side, and then you've got the coaching process. But when they're going through these elements and there's so much information coming at them, you know, sometimes it can be overwhelming. So how do they hold themselves accountable and then take those progressive actions? Do you find that they have to actually take a step back and then reflect and then act on it?

What works, what we try and get them to do, is to make sure that they're running a profitable business first. I mean, as in whether we talk building business or business in general, that is the purpose of a business, is to make a profit. Okay, so let's start with that fundamental. Are you actually making a profit? And that revolves around two things. One, your markup and margin. Are you pricing jobs correctly and accurately, and are you putting through enough markup to achieve that 25% margin as a minimum? If that is correct, then we want to go and analyze your reporting structure on your profit, which is the work in progress. Accounting, adjustment. Our member success coaches are trained to help builders sequence what needs to be done in the correct order. And it's that old analogy, how do you eat an elephant? One bite at a time. The difference in this case, though, and it's probably the primary difference between the private mentoring program and our membership level, is in the mentoring program, the coaches help the builder to identify where the first bite needs to happen. And then they work with them to make sure that that bite happens correctly, sequentially, in the right order so that they get the biggest bang for their buck. What we obviously don't want our members to do is to arrive at our training Portal and See 47, or whatever it is, action plans, and go, ah, I don't know where to Start. So I'll freeze and do nothing. You know, if anybody ends up in that place, the right thing to do is get hold of your membership success coach and say to him, where do I start? And they'll work you through a process to help you understand this is where I get going. It is progressive. The fact that you use that word, I think is spot on. But we start with the fundamentals, get those right, and then build on those as we go. And I mean, if I think about the guys that I work within the elite mentoring program, some of whom I've worked with for the last four years, their level of knowledge and understanding today compared to where they were four years ago is chalk and cheese. They are businessmen. They build. That is the thing they do in their business. And they all love building and that's never going to change. But they've now got this added dimension in their lives where they understand exactly how to do that in such a way that it creates the financial outcomes that they are looking for.

My final question for you, and this has been really insightful, Andy, as always, my final question for you is around trends. Is there any trends in the industry right now, obviously outside of the current times, but are there any trends that are forcing builders to act a certain way when it comes to their financial analysis? What are you seeing on the front lines?

The biggest problem at the moment that every builder is facing worldwide is supply chain and availability of subcontractors and good team members. And what that's doing, unfortunately, is as the market hots up and we don't have trained people coming in to fill those spots, people are having to take on other people that are not as skilled. And therefore, because they're not as skilled, things take longer. And the reality in the building industry is you've got to be having a consistent flow of cash through the business or you end up in trouble. And to go back to part of what we discussed earlier on, even with all of the targeting and everything that we have been doing with our builders, a lot of them have ended up in a place where because they couldn't get materials or subcontractors didn't arrive on site on the day they were supposed to, that pushes out the completion of that stage, which pushes out their ability to invoice, which now means the money that they were expecting to cover the overheads of their business in this month doesn't arrive until next month. And now we're back to what I said to you earlier. The danger for so many builders out there who are not in touch with their numbers is when that cash flow hamster wheel stops spinning for even a week, two weeks, literally, their business can be upside down that quickly. So the trend at the moment that we've got everybody focused on is being very agile in your construction schedule and applying your manpower and your material resources as they are available. We're unfortunately not in a place where you can necessarily decide at the beginning of every week, this is what I'm going to build this week. You've now got to look on Friday at what have I got to build with next week and how do I convert that into as much progress towards my next payment as I can. It's that kind of agility and flexibility that the guys need to develop.

For the listeners who aren't members or coaching program members, any final advice for them? I know there's amazing articles on the website around the financials, but what advice do you have for the new builders that are not part of the APB framework?

Well, obviously, and thank you for the opportunity. I'm going to say join the apb, but look, it's not for everybody. We don't pretend that it is. You've got to be at the right place mentally, psychologically and in some cases, point of desperation. But there's a ton of stuff on our website. I mean, the quality of the blog articles that Russ puts out is world class. So I would start there, I'd start reading those things. There's a lot of stuff that we give away for free. There are a lot of tools and calculators that we, I mean, we are genuinely committed to improving this industry. So, you know, I know that that's kind of the buzzword, but. But the truth is we absolutely want this industry to be better for both the consumer and the builder. So there's a lot of stuff on there that they can get for free. And generally what will happen is that will put them into a place where they start getting more targeted content from us. I would start that way and test it, taste and see whether it's of value to you. And if it is, then obviously consider becoming a member, which I think at the price is an absolute steal. And then once you're in and you can actually see behind the curtain a little bit more and you can see the depth of what we've got available in the training resources. If at that point you decide it's time to really step into the professional realm, obviously our private mentoring program would then be the next place to go. But we're not salesy, we're not pushy. We invite people into that journey, we don't force them into it. It's entirely up to them.

Yeah, you seem to have a format for all different levels of the builders and that's been a really comforting thing to see. As I've spent the last few months working with you guys and seeing where the information and content hub is. You could see that you're generally trying to put the right information to all consumers, regardless of what the big thing.

If you haven't done it yet, buy Russ and Sky's book. Russ and sky have written a book called Professional Builder Secrets, which is it's the manual. It is the high level executive summary of everything we teach. So if somebody wanted a what's one thing I can do that could turn my building business around tomorrow? I think it's 160 pages. So you know, it's, I mean, given the right kind of morning, if it's raining outside, you could literally get through it in a day kind of thing. But it is chock a block full of absolute gold. It really, really is. So that might be the other way for somebody to start.

Well, Andy, another insightful interview. Thank you so much for your time today and the information. As always, truly appreciate the wisdom.

It's always a pleasure working with you, Bosco. Have a great day.

Take care.

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