37. Getting Results For Your Building Company With Andy Skarda

We're all born ignorant. It takes hard work though, to stay stupid. You wouldn't just arrive on an empty block of land without a set of plans and kind of go, okay, let's put some bricks over there and start building and then make it up as you go. If you're not making genuine net profit after paying yourself a market related salary, you have a job, you don't have a business. There's no way that you would build a house without a plan. You'd need a set of drawings to build a house. Why would your business be any different? Getting to know which numbers are important and what story they tell you. That's probably the one thing that'll make the difference between success and failure.

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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. I'm joined today by head coach Andy Scarver for the association of Professional Builders. Andy, it's been a hot minute since we last spoke. How are you been doing?

It has been a while, Bosco. I've been doing really well, thank you. Nice and busy preparing for a strategic retreat with some of our mentoring group, but really well. Have you been.

Yeah, it's been great too. It's been great to see the progress of our podcast. We've got listeners from all over the world and I'm loving meeting all the different builders and some of the builders are students, so if you're coaching. So we're actually really excited for this season because there's a lot of Andy students that have a lot of insights. But we want to chat today about getting results for a building company. And so my first question off the bat today is why is the framework for results so necessary for builders today and why should they be prioritizing it?

Well, Bosco, as you know, I'm never obtuse but. Or sarcastic. But the short answer is it isn't. And I think this is an area where people have got to make the mindset switch from being a builder to being a business owner. So a results framework probably for a builder is fairly simple. The Build happens in almost a linear kind of sequence. Most builders build in, pretty much start at the bottom, build their way to the top, and then fit it out. But here we're talking about running a business rather than building per se. So I'm being a little bit pedantic, but the reason I'm doing that is to lay the foundation of the fact that the primary purpose of a business owner is to make quality decisions. Okay. He's the guy that's got to come up with a strategy and then glue it together to use his team to execute that strategy into the future. That means he's got to be creative, he's got to be able to ride with the punches. And in this industry at the moment, they're coming thick and fast. And that means he's got to have quality data that he can trust that he's able to use to make decisions. And that's why he having the results framework. Measuring KPIs watching specific numbers is so critically important in the current environment.

And no pun intended. When you said laying the foundations.

Of course not. I would never do that.

I picked up what you were putting down. I picked it up. So tell me a little bit about the coaches and what they have to do at APB to help steer builders into this result oriented mindset and framework. What goes behind the preparation for that?

All right. Well, the good news is that Russ, over the years in particular, and then obviously once I came on board and sky on an ongoing basis, we are constantly revising and reviewing the sort of result package that we look at to make sure that it stays relevant, it stays practical. So really what happens with coaching is that we kind of have to get clients to understand how important it is. And it's the old story with mindset, carrot is better than stick. So what we do is we literally try and show them the real benefits they'll get from adopting a more results focused and data focused mindset. We tend to do that. You and I have discussed the work in progress accounting adjustment in a previous episode because that is such a critical element in every builder's business around the world. That's kind of where we start. That's the first step in this chain. And when you say to a builder, there are three things we want you to get out of this. The primary thing is we want your profitability numbers to be accurate. The second thing is we want to make sure that you have money in the bank to be able to pay your suppliers and subcontractors. And the third thing is we want to make sure that you don't pay too much tax. Now, the first time they hear that, they don't hear the first one. So what we've got to do is massage that process in. The primary reason for this and all of the other things that we're doing is to get you focused on accurate data that you can use to make decisions. Most of our guys, in the first six months, you say to them, why are we doing a work in progress accounting adjustment? They'll tell you, so that they know how much money they can use of what's in the bank and so they don't pay too much tax. It just takes a while of adjusting that mindset and kind of working with them to keep showing them how the data enables them to make better quality decisions.

All the results that you look at, are they easy to measure or do they get easier over time?

Well, because of the way we've put things like our key performance indicator workbook together and I mean, obviously that's a tool that every mentoring client gets. At our membership level. There are individual tools that we do as part of our action plan library. Those have been pre populated with all of the necessary formula to do whatever that tool is designed to do. So it's really as simple as kind of plug and play. As long as the builder can get accurate numbers from either their bookkeeping system or their bookkeeper or their production stroke construction management guys, they can plug those in and then the tool will do the work for them to kind of give us the end results.

Now it sounds like the tools that we provide are really strong reporting framework tools. Do you require the builders to then manage this month to month or is it one of those tools that sort of you set and forget and only look at it once in a while?

I mean, different tools have different frequencies simply because of what they designed to measure. We generally would get them to measure the front end of the business. So marketing and sales on a weekly basis, because particularly with marketing, it's something as you will definitely know, you want it to be an investment, not a cost. Which means if we're investing $500 this week, we want to see those results next week or we want to stop what we did last week. So those kind of things need a more regular, disciplined approach. In terms of a weekly thing, most of the balance of them would be on a monthly basis. And we have found over time that because of the way a building business works, the ebb and flow of the work and those kind of things, we generally take most of the major financial Things like your P and L and your balance sheet. And we look at those quarterly. We do look at them every month, but usually in that sort of interim, two months, we predicting the trends and then once the quarter's done, that gives us enough time to really get a good picture of what's going on in the business.

Now with your illustrious career, I'm sure there's something that's your go to when it looks at results and you're looking at reporting what's your go to? Because we all have that gut feeling when you put in 10, 15, 20 years, some certain things that we look at. I look at websites all day long and I can look at a website and look at the homepage and know within 15 seconds my gut will tell me before I even look at the data analytics what's happening behaviorally, where do you go to look for, you know, that behavior and what are you looking for in those results? Maybe even the P and L statements. What do you look for typically?

Yeah, look, that's exactly where we go. At the end of the day, there's no point in being in business unless you're making genuine net profit. You know, anything else is a fallacy. If you're not making genuine net profit after paying yourself a market related salary, you have a job, you don't have a business. All right? So kind of the progression that we want people to get through is you start basically self employed with a job. It's a guaranteed kind of working for yourself kind of job, but it's just you doing everything. Then you progress to being a business owner where you now have a team of people that are assisting you to run the business. But the end game has got to be at some point exiting the business on your terms and setting yourself up financially for the rest of your life, whatever that means. Warren Buffett is famously quoted as saying, there is no point in starting a business other than to sell it. So really the mindset that's got to change is we are doing this on the basis that in five years, 10 years, 20 years, whatever, this must have value. And that value must translate into a payout for me that sets me and the people that are important to me up for the rest of our lives. So net profit is where we start. And essentially what I try and get builders to understand is that when we look at the targets tab, when we look at the financial results exactly as you said with that website, within 15 seconds, I can tell you where the problems are in the business just by looking at those numbers. And that's not because I'm clever, it's just because I'm old. I've done it a lot.

Well, I think the older we get, the more memory we have. Because I remember specifically in one of my episodes with you where you had mentioned that that's sort of the DNA tracking that you look at financially, forensically, to identify where the pain points are. So maybe we are getting old, my friend. Maybe that's why we've got the memory on. So tell me a little bit about this. So when you, you know, you mentioned an interesting entity about the exit plan. You mentioned about knowing where you want to end up.

Yeah.

Do a lot of builders know that when they start working with app, or is that something that you have to extract out of them when you start working with them?

Yeah, look, I think in my very nearly five years in this seat, I think I've had one who's kind of been able to give me their plan. And the reason for that, as I think you and I have discussed a couple of times, is a lot of builders don't ever even plan to be business owners. They want to be builders. They want to build stuff. That's why they got into this industry. They love creating those beautiful homes. They almost become business owners by accident, by mistake. And as we've discussed, and it's part of why we run this podcast, these things are not natural to them. And therefore, it's a question of education that's got to come in to make the difference. So, you know, it's. It's really a situation most of the time where the first process that we work through is to get the business systemized and profitable. And once it's got to that point and a builder can actually see, wait a minute, this could actually make me some real money at some point in time, then they're in a position to be able to start thinking about what that end game looks like. So, I mean, that's a long way of answering you. Very, very few builders come into this environment with any idea of an exit strategy. And in fact, most of the data that we've looked at says very few building companies are sold because they are not set up correctly to be sold, and they can't demonstrate the kind of value that will attract somebody to come in and buy them. And that's why I said the two pillars are systemization and profitability. Those two things are there. You've got something you can sell.

How soon can a building company start to see results when they start working with you? Take me through that journey of what that looks like and is every journey similar or do you happen to have people that vary and get to the same place? But it takes some time.

Look, the only thing that really affects the speed at which data becomes relevant and accurate is probably the size of the financial or administrative team that the builder has in the business. If he's doing everything himself, it's going to take longer because literally he's handling the entire bookkeeping function at night after he's done everything else, the kids have gone to sleep, he's there crunching numbers, etc. Etc. That's going to take longer than somebody that can delegate that function to a qualified bookkeeper who will very quickly understand what the answers are that he needs and be able to provide those to him in reporting formats that we make very easy for them. But your question was really, how soon will they start to see results? Working with something as fundamental as the work in progress accounting adjustment month one. Now, we accept that often with our clients those numbers are not 100% accurate, but 80% accurate is better than where they were the month before. And then we'll work with them to take that to 90% in month two. And we would expect by month three that those work in progress accounting adjustment figures are spot on. While that's happening, we are working on one year and three year targets. Once we got those targets set up properly and we can predict a revenue flow, then we're able to go back and started looking at things like gross profit margin. And then once that's in place, we'll start looking at things like fixed expenses and the ratios of the overheads of the business to the revenue. So it's probably a first month. You see the beginnings of it. Most of them have their light bulb moment at the end of the first quarter that we measure accurately because all of a sudden their lives become proactive and predictable. Whether that's good or bad, sometimes it reveals. In fact, I think you've spoken to Ryan Stannard from Stannard Family Homes. He hated us when we started this process because we turned what he thought was a profitable business into a loss, literally in the first month. But he's been incredible in terms of, as I said, adjusting the mindset, realizing that's the reality and then building a business that is, I think, really a testimony to what a professional building business should look like. So it's an iterative process, but I would say one to three months would be kind of the, the time span.

We'Re looking at and these expectations are sort of aligned Correct me if I'm wrong, but they're also aligned with the levels of mentorship and training. Because I believe when I was speaking to sky, she mentioned that if, if a builder can successfully have a work in progress calculator for three months in a row, they basically bump up their levels of what to do next and what to learn next as well. So that's. There's some sort of alignment there too.

Yeah, I mean, it's not just for the mentoring group, but across all of our membership we have a 10, let's call it a 10 tier level of professionalism. And the first tier is actually that work in progress accounting adjustment, which moves them from a level zero to a level one and then they're on the journey and from, from there on it becomes a. And those tiers are actually built to encourage the development of the kind of, you know, reporting and data management framework that we found is successful for most builders.

So can you tell us a builder that has transformed their business using, you know, these result oriented framework and mindset? I'm sure you've got a few, but if you look back, you know, does, does anyone come to mind?

Well, I mean, I've, I've mentioned Ryan already. He's kind of, from my perspective, as in the people that I've worked with, he's probably the poster child. But I mean, the reality is there are a few I can think of. I think you spoke to Toby and Elizabeth Searle from High Water Homes. I mean, Toby's KPI workbook, it is the gold standard. I mean, he has understood this concept and the benefit of tracking his numbers and making sure they're accurate and that's made a huge difference in their lives. Jeremy and sue from Gaia Construction in Melbourne. Sherbrooke Construction probably also up. Not probably. They are definitely up there in the top five in terms of a business that five years ago was reasonably successful, but is now in a place that has real value and the ability for the owners to predict exactly what the year is going to look like. And here's the other thing, in fact, thinking of Sherbrooke specifically, the ability to predict when things have started to wobble, knowing straight away, oh, we've got a problem, we need to address it, and knowing where in the business to go to address that problem, because they often don't manifest in the same place. You know, it's a little bit of that whack a mole game if you're not watching what's happening on the marketing side. Well, the first time you're going to realize there's a problem is when you've got a hole in your construction schedule six months later, then you've got to play catch up for three months to get that lead generation going again. And what you find is that hole turns from six months into 12 months. And that can be a really difficult thing for people to do. It's probably unfair. I think I'd have to go back and take the diplomatic answer to your question and say certainly everybody that puts in the work in the mentoring program is busy transforming their business. But those guys that I mentioned are really standout examples of guys that have done it successfully.

What are some of the key considerations that builders need to be aware of when it comes to getting results? You talked a little bit about Toby and being really aware of his numbers and the gold standard. There is a lot of this sort of mindset driven and also discipline driven. It sounds like you've got to be on top of your numbers quite frequently from what you're saying.

Well, absolutely. And it comes back to focus and prioritization. I think I've mentioned to you before that one of my pet peeves is the words time management. Because it's an impossibility. You can't manage time. So what does that mean? It means that you've got to allocate the right amount of time to the right activities to get the right outcome. And as we've spoken about earlier, a builder coming into the APB and starting with us already had a 90 hour week. Now we say to him, oh, on top of everything else you've been doing, now you need to start measuring your numbers. And now he looks at this and goes, I got to go from 90 to 120 hours a week. Well, no, because what we'll also do with him is say to him, let's take a chunk of your business, either eliminate it, automate it, or delegate it and get some people in to get you back. And that's probably the key, is they've got to give up something in order to replace it with this new thing that is more important. And I'm simplifying the process. But largely what we'll look for is what is the one thing in their lives that is taking up the most time that they hate doing and they're terrible at. And if we get that off their plate and free up 10 hours in a month, that then gives them the capacity to now start working through this new thing, which ultimately what most of them, particularly the guys we mentioned earlier, will say to you Today, when they look back, they realize it was the missing component. Nobody that comes to us is a bad builder. They all are fantastic builders. They all build incredible homes, but they don't have the skills that they need to really run a business efficiently. And this is probably the fundamental thing that needs to change for them to get to that place.

Now, you talked a little bit about the work in progress, account adjustment side of things for the first few months and everything else. What are some of the benchmarks that builders should aim to expect in their first year or second year working with apb and is there a roadmap that you direct them to when it comes to those results?

Yeah, it's difficult to give you a one size fits all. It depends on, you know, which are they building custom homes, are they, are they doing renovations or remodeling? But we focus very much on getting the business profitable as quickly as possible. So that's the first thing that we kind of focus on. But there's a lot of moving parts in making that happen. And it's kind of dealing with both sides of that scale. As in we want consistent lead generation happening. We want to start looking at the quality of the leads that are coming in. We want to make sure that the work that we already have is being done professionally and efficiently and we're maximizing whatever margin we've got in it. And we find in most cases that builders that come to us in the early days are probably selling themselves short financially. They're cutting margins to get work or they just don't realize what sort of margins they need. And when we start to work on that side of things where with their sales process they start demonstrating value that allows them to start bumping the margins up. That's really what we're looking to see is kind of a year on year improvement in margins. But that's only going to happen if we start to get marketing systemized, a sales process that's professional and organized and then that flowing through to a better quality job that is managed and executed better and that then results in a better bottom line result for them.

You talked about mindset playing a really big role here. You mentioned Ryan not liking the coach.

He butted heads with us for months over it.

So tell me a little bit about the common barriers that builders must overcome to have this result oriented mindset. What are some of the barriers that your coaches are dealing on the front lines? Is it shock? Is it just a stubbornness? Is it all kinds of emotions hitting them?

Yeah, it's again, as I'VE got to reiterate, this is not an industry for sissies. The guys are working extremely hard, long hours under trying circumstances, and then we lump something on top of all of that. So in the early stages, it's a very, very careful process of managing the amount of additional pressure that gets put on them. But it is absolutely that it's making that shift. You know, we have a lot of people that don't get on board with the apb. In fact, one of the comments that I heard yesterday was, we don't want to put our focus in the spreadsheet stuff because then our focus is in the wrong place. Well, that attitude is going to land you in administration quite quickly because if you. There's no way that you would build a house without a plan. You'd need a set of drawings to build a house. Why would your business be any different? And effectively, that's what we're saying here is that you need to apply the same logic. You wouldn't just arrive on an empty block of land without a set of plans and kind of go, okay, let's put some bricks over there and start building, and then make it up as you go. So it's kind of getting them into that place of understanding that in the transition from being a builder to becoming a business owner, and particularly a professional business owner, there are new things that you need to learn and do that you don't need to learn and do. If you are just a builder, as they understand and want to make that transition, we find that the process becomes a lot easier.

You mentioned this builder that basically was saying, we don't want to focus on the financials, we want to put our focus elsewhere. Would that be classified as a blind spot? And if so, what are some of the more common blind spots that builders have that you have to sort of open their eyes to when they start working with you?

Yeah, I'm wanting to be maybe a little more gentle than a blind spot, but that's a. That's a fair way of describing. And I remind everybody that we're all born ignorant. It takes hard work, though, to stay stupid. You've got to walk around with blinkers on and fingers in your ears. The reality here is most people certainly that it's more a lack of understanding of why results and measuring results and tracking data is important. Most builders, if I take it back to their personal finances, they start to understand, I mean, they measure their own finances. They know how much money they've got in the bank, they know what they're spending on, you know, vehicles and their kids schooling and groceries and et cetera, et cetera. Well, if you're doing that in your personal life, why wouldn't you be doing that in your business? I don't know if it's so much a blind spot as just because most of them come into this by accident, it's not something that they were even necessarily aware, existed, or if they know about it, they tend to look at it from the perspective of, well, that's not something that I need to do. That's for other people. It's kind of getting them to realize, no. If you want to be building a business that has value, is profitable, is systemized, you're going to have to track this kind of data on an ongoing basis.

Now, take me through the coaching side of things. Obviously, one of the biggest gifts a coach can do is hold someone accountable when they're working with them. How do you and all the other coaches at APB hold builders accountable to make sure that they stay true to the cause and to keep them aligned with the goal of getting those results?

Well, the beauty is they set their own targets. The coach will guide them. Obviously, we have a very clear understanding of what the minimum levels should be, but we don't force anything down anybody's throat. In fact, the opposite. We expect people in the mentoring program to stand on their own two feet, behave like adults, and put in the time and the effort that is required. So the two words you said come up often in a coaching scenario where things haven't been done. And that goes down in some cases to fundamental things like helping a builder restructure their ideal week so actually allocate specific time in their calendar every week, every month, every quarter, to dedicate themselves to getting those results in place. And as I said to you, it's an iterative process so all of the coaches understand the most important number and then the second most and the third most. And we literally will guide every single one of our clients through that process at their own speed. But we constantly bringing them back to that mirror that says, this is the target you set. You said you were going to do 5 million this year. Now let's look at what needs to be done in order to achieve that. And most importantly, in the context of what we're discussing today, let's see how far you've progressed towards achieving that target that you set. And if it isn't far enough for the amount of time that we've invested, then let's see if we can find what's getting in the way, so we can help you overcome those, whatever the obstacles happen to be.

So the world's changing and it's sometimes changing a lot quicker than we want it to. What should builders be focusing on? Or what's the unspoken dialogue right now that you're seeing from a trends perspective that really will impact those results and really impact where the building company is going and where should they put their energy towards?

Well, we started off kind of talking about the fact that the primary purpose of any business is to generate net profit. I was talking to a group of builders last night, in fact, about the necessity that exists in the current environment to really look after your subcontractors, because they're also in a difficult situation because of the market. You can only do that if you have reserves. You can only have reserves if you've got enough margin, if you've got the profitability. You're only going to have that if you're invoicing on time. You're only going to be able to do that if you're building on time. So it really is this process of making sure that we are on time, on budget, keeping the clients happy and making sure that right at the outset, we're building in enough margin to give us the reserves. And I have a client desperately hoping that it stops raining in Queensland in Australia at the moment, because he has, I think he said, six projects that are sitting at the moment, literally one dry day away from progress payments. But he can't get enough of a dry day to get that progress done so that he can submit the claim and get paid. But, of course, the bills keep coming, don't they? Now he's essentially got to fund that gap over which he has no control. He can't stop the rain. In fact, there's a song that just popped into my head. Who will stop the rain? Sorry, bad side issue. The point I'm trying to make the flexibility, building and holding onto reserves so that you have options. That is the key in the current environment, being able to ride the storms that exist in this industry at the moment. And what does that say? Make sure that from the word go, you're not signing contracts that are going to hurt you in the long run. Make sure that the margin is there, make sure that you can execute quicker than what you thought you could, et cetera, et cetera.

So with those cash reserves comes a lot of forecasting as well, and a lot of financial awareness to build those emergency reserve funds too, right?

Yeah, absolutely. And to manage them. I don't know why I've got all of these songs running in my head. You've got to know when to hold them and know when to fold them.

I'm a big fan of Kenny Rogers, so I'll go with that.

It's really knowing when it's time to release some of those reserves because it's necessary. And even that helping builders understand that often the reserves that we get them to create are not an investment, they're an insurance policy. They're actually there that when you end up with six weeks of rain and those invoices that were supposed to be bringing you revenue aren't, you can actually self fund. Rather than going to the bank and getting yourself into debt and paying interest on money to take you through that time, you become your own bank. But again, I come back to that drum that we just keep beating today. If you don't get the margin, if you're not building on time, if you don't have those profit reserves, none of that is an option for you. And that's when you end up in the bank borrowing money, talking to your family and friends to keep the lights on until you can get those jobs finished and, and the money in.

And you touched on a climatic sort of scenario. But let's be honest, there's supply, there's scarcity, there's availability of goods, there's the price hikes. There's so many different scenarios.

There's a war in Ukraine. If anybody said to me six months ago, there'll be a war in Ukraine that's going to affect the building industry and the rest of the world, I'd have said you're mad. But we've realized that there's a lot of Russian pineapple that gets imported to countries all over the world and is used in the building industry that has dried up. It's not happening anymore.

Interesting.

So, you know, all of a sudden, forget the rain. Now I've got builders negatively affected by something that Russia did eight weeks ago. It's a really, really fluid world out there for builders at the moment.

Well, I could talk to you about this for ages. I feel like I talk to you about any topic for ages, but I think we might have to save that for a gin hour sometime. My final question for you is coaches are all about best practices. I've learned this through my time, you know, working with some of the best out there. What is the one best practice that every builder should activate in their daily life to help them achieve better results? What can you part with them that.

They could take away prioritize accurate data. Literally be in a place that at any point in time, you have a dashboard of the important numbers. So what does that mean? You've got to know what the important numbers are. And then the second piece of that is know what story those numbers are telling you. I think I shared with you at some point that my. My introduction to the world of accounting and bookkeeping when I was at school was not great. In my equivalent of. Of my graduation year, I scored a very, very round F for fantastic for accountancy. But what's happened over the time that I've been involved in businesses, I've come to understand in English the story that numbers tell you. And that's really what. And again, let's go back to where we started this. You said what framework was necessary for builders. I said there isn't one necessary for builders. But for business owners getting to know which numbers are important and what story they tell you, that's probably the one thing that'll make the difference between success and failure.

So find the dashboard that could tell the proper narratives to give you the better financial awareness of your business.

And I mean, certainly for everybody that's a part of the apb. Those tools are part of the membership package that they get. And then obviously, once they decide to move into the mentoring group where we are coaching them, we take that to an even more sophisticated, deeper level. There's nothing to stop you developing your own tools. I've seen some builders come into the program where they've worked things out for themselves and come up with very effective and efficient spreadsheets to measure. There's obviously software out there that will, that'll do some of this as well. But the real key, and I think it comes back to the word dashboard. When you look at the dashboard of your vehicle, it's showing you the most important things. And it's measuring 100 things in the engine and in the suspension that you don't even see to give you one little red light or a gauge on your dashboard. That's where this has got to be. Most building business owners don't have the time to get into the detail. So what we really want is that data summarized and presented in a way that they can access it quickly, they can trust it, and based on that, they can then make decisions very, very quickly and accurately.

Well, Andy, it's another episode of wisdom and insights from you. Appreciate you taking the time out of your busy day to spend some time with us to share some of your experiences around getting results for building companies out there. There.

Very welcome. It's always a pleasure.

Thanks, my man.

Alrighty, See you soon. Bye.

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