Breaking Through Financial Ceilings: The GAPS Framework for Painting Businesses

Welcome to the Profitable Painter Podcast. The mission of this podcast is simple: to help you navigate the financial and tax aspects of starting, running, and scaling a professional painting business. From the brushes and ladders to the spreadsheets and balance sheets, we've got you covered. But before we dive in, a quick word of caution. While we strive to provide accurate and up-to-date financial and tax information, nothing you hear on this podcast should be considered as financial advice specifically for you or your business. We're here to share general knowledge and experiences, not to replace the tailored advice you get from a professional financial advisor or tax consultant. We strongly recommend you seeking individualized advice before making any significant financial decision. Welcome to the Profitable Painter Podcast. I'm your host, Daniel Honan, CPA, former painting business owner, and your guide to mastering the numbers to drive success. And I am here joined today by my lovely co-host, Richard Dunton, enrolled agent. How's it going, Richard?

I'm good, Daniel. I appreciate that introduction. I've never been called lovely before, but I like it. I'm going to hold you to it.

Yeah.

Yeah.

I mean, I think that's— if you look at our reviews, that's what clients are saying about you. I mean, you're just lovely to work with. They just really enjoy your company. And I enjoy your company as well.

Well, that's very kind. Thank you.

So I'm super excited. Today we're going to talk about identifying the bottleneck in your business using a framework that we use with our clients to help them break through to the next level. Because a lot of folks that come to me, come to us, and they're struggling financially in some way, um, and they, they're hitting a ceiling, they're and they want to get to a certain goal, but they're not sure how or what's holding them back. And so there's a framework we're gonna go through today that should help you identify what your constraint is, and then we'll touch on some ways you can address that constraint. And this is actually from a book that I wrote called Profitable Painter. How to Scale Your Painting Business While Avoiding Profit Leaks, Crushing Taxes, and Financial Guesswork. It is releasing on Amazon on September 8th, so you can pick it up there. But if you want to get it for free with a bunch of other cool resources, you can actually join the book launch, which we're doing a book launch on September 9th. And if you want to register for that, you can go to profitablepaintercpa.com/booklaunch. Webinar, profitablepaintercpa.com/webinar. So, uh, definitely, uh, this is kind of just so folks know, we, we recently rebranded from Bookkeeping for Painters to Profitable Painter CPA, and the book is kind of, is coming out in, in congruence with that rebranding. But this is kind of a culmination. This book is like a culmination of what I've learned over the last 9+ years working with over 400 painting businesses From startup to $20 million in revenue. And I try to put the, the frameworks that I've learned to help paint businesses know their numbers and what they mean and save big in tax and scale to whatever level they're trying to scale to. So I'm super excited. So again, if you want to join us on the book launch, you'll get a free copy of this book. That's September 9th. And if you go to profitablepaintercpa.com/webinar, you can You can register, get the book for free, and then a whole bunch of cool special gifts that I'm going to give out during that time. So definitely want to attend. So let's jump into the topic for today, which is identifying your bottleneck and scaling to the next level.

Yeah, I've gotten a chance to read like an early copy of the book. I haven't gotten my paperback one yet because I'm waiting for the release date, but there's definitely a lot of really good information in there. Daniel, I don't think you held anything back when you created this. And I know the first good third of the book is the topic for today, figuring out what your constraints are and learning how to not only identify them, but how are you going to push through that and unleash, you know, the growth that you're looking for. So I'm excited to talk about it.

Yes, sir. Let's, uh, let's dig into it. So we, we use a framework, it's called GAPS. G-A-P-S. It's a backronym, I believe. What's— that's what it's called, a backronym to spell something. Anyway, GAPS, uh, the first constraint is generating customers. That, that's the first constraint. So that one's, I think, kind of understandable. Like, if you some symptoms that you might have is your revenue is stagnant, uh, your, your maybe lead flow is, is down, uh, you have low close rates, uh, so those are some potential things that you might experience if you're having this constraint. So those are some indicators that you might have this constraint. So I think that's, that's a very common— a lot of people think that they have this one, but they actually have another one which we'll talk about later, but This one is, you know, to get into how to solve it. There's kind of one thing that I like to look at before anything else is really looking at the sales process. And there's 3 main numbers out of the sales process that can kind of tell you, is your sales process healthy? That's your set rate, your show rate, and your close rate. And those numbers, you taking a look at those numbers, first you got to track those numbers. And usually it's in your CRM. But making sure that those numbers are healthy, comparing those to benchmarks, which are all in the book. But that's where I like to start when you're, when you're not getting as much customers that you were hoping for, taking a look at that, that sales process first, because maybe you're getting enough leads, but they're just not converting because your sales process needs, needs some work. So I like to start there.

And if a business owner tracks these metrics, the set rate, the show rate, and the close rate, that will give them some good information about where their process is lacking, right? You know, maybe like you said, they're getting enough leads, but they're not able to set those leads on their calendar because they're not responding fast enough to the lead. That would show up on a— if you have a, you know, a low set rate or perhaps, you know, a low close rate would help you understand, hey, you're getting interest, you're going to do proposals, but there's something not quite right with your sales process that allows you to close those proposals into completed work. So I think, like you said, having that CRM will allow you to gather that data, and then you're looking and seeing where the weaknesses are in your process so you can direct your efforts at the things that need attention the most and be the most effective in overcoming your constraint.

Yeah, definitely. I mean, CRM is helpful. Even if you just have a spreadsheet, you could do it. I mean, I've seen painting businesses just do it with a spreadsheet, but just knowing those numbers and where you stand on each of those metrics and then how they compare to the benchmarks. That's the first thing to look at is sales process. The next thing, so let's say assume your sales process is good, you're hitting, you have some general numbers, maybe your close rate is around 40%, your share rate's really high, your set rate, is appropriate for the type of leads that you're getting. Then we go into do, do what has worked historically. So first, check your sales process. Next step is do more of what's worked previously. So whatever you've done in the past that, that's worked, that has gotten you leads, do that more, do that better. So it's not recreating the wheel, whatever you've done in the past, because sometimes I know I'm been at fault here is you'll do a certain marketing thing and it starts working and it's great. And then you get a bunch of work, you kind of get busy and distracted, and then it's work slows down again. And then you forget like the reason why you had all those customers was because you were doing that thing that you stopped doing. Do that thing first, right? If you use something you know that works and it's worked in the past, try to do that, doing that again, do that consistently, maybe do it better. Than what you did before. So just to throw out an example, maybe you get all your work from referral and repeat customers. So, and that's maybe, maybe you do like a monthly email newsletter or direct mail newsletter, or just calling past customers or sending out text messages to past customers. What, or maybe going to trade shows, whatever the thing is that has worked, just do that more. Do that again, do that more, do that consistently and see if that gets you to then, you know, break through that ceiling that you're experiencing with generating customers. Now, once you've, let's say you do that, you reengage those past customers or whatever, you do more of what's worked, but it's still not doing anything. Maybe you even do it better, you try to do more, you know, more reachouts to your, your prior customers, um, or you try to do, you know, uh, more spend on Facebook and it's just not giving— getting you traction to, to get to the next level. Maybe, maybe this is when you want to try to add on another marketing channel. And so, uh, I usually like to choose a marketing channel that has— that supports What I'm currently doing that I know that works. So for example, maybe you get all your clients through door-to-door, like door knocking, and that's been working. And it's— but you kind of hit a ceiling, you feel like, so maybe add in, layer in direct mail on top of that, like, so you do your door-to-door in a neighborhood, then also do every door mailers to to those same houses. So you're hitting them multiple times in a different way. Um, or let's say maybe you have a really strong Facebook, like organic Facebook, um, and you have a lot of folks that find you on your organic posts. Maybe you're in Facebook groups. Maybe if you start adding in Facebook ads on top of that, that will support complement each other. So looking for a marketing channel that kind of complements what you're already doing and maybe makes it more powerful.

But now, as you mentioned, Daniel, these, these new marketing channels, these are complements to what you've already been doing that you know what's work, that, that you know that works. They're not a replacement for what has been working. Just kind of roughly speaking, what would you suggest the percentage of your advertising budget should be? Like, do we, do we continue putting like 80% of our efforts towards the tried and true and 20% towards some experimental new channels? Where do you see that ratio at?

Yeah, so basically in order to kind of for generating customers, you have to spend more money typically. That's the, you know, the more, especially if you're going from repeat referral customers to more people who haven't heard of you before, you're gonna have to spend more money. So usually you're gonna have to increase your, the amount of money you're spending on clients to acquire customers for the most part. And so now if your other metrics that, you know, we've talked about in past episodes, it's in the book, if your other metrics are healthy, then you should be able to support that increase in marketing spend. But the idea would be you would continue to do what you know that works at the same level, whatever that is, but then you're adding on additional marketing on top of what you're already doing. Because again, if this is the bottleneck in your business, if everything else is working and this is the thing that's preventing, preventing you to grow, then you're going to have to do— we've already done done more and better of what's worked. Now we have to add in new, new things that, that will hopefully work to break through that ceiling that we're experiencing.

So don't replace any of the tried and true, keep, keep that as your bread and butter, and then add additional new experimental channels. I like that because it's going to also help you get better feedback, right? If we're continuing to do what we have been doing, we know what our baseline is. And then if we see an improvement in our leads, then we'll know it's from the experimental stuff and we'll know how to quantify the return we get on that. But if we start chopping away at our bread and butter, um, it will be very difficult to know, uh, why our numbers are the way they are. So that makes a lot of sense.

Yeah, yeah, absolutely. So that's a rough framework. There's more details in the book, obviously, and we'll cover in more detail at the book launch on September 9th. So if you want to register for the book launch, we'll go into this more detail. Go to profitablepaintercpa.com/webinar and register for that. You'll get a free copy of the book and a bunch of other really cool resources. So Let's talk about the next constraint, which is A for aligning labor with demand. This is basically, do you have enough people to, to, to meet demand, enough people on your team? And I really like this framework that Tara O'Reilly has from the Academy for Professional Painting Contractors. She was the CEO of Fresh Coat Painters. Where she oversaw 180 painting businesses. And so she's super knowledgeable on all things painting businesses. But she has this framework called the Rule of Three. And I really like it, especially when, when I'm figuring out, do you have a constraint with your current staff that you have? And so the Rule of Three is that you need to be able to respond to leads coming in within 3 minutes. So if a lead comes in, like either calls, signs up on Facebook as a Facebook ad lead, however the leads are coming in, you should be able to get back to that lead if you don't answer initially within 3 minutes. So that's the first rule. And then the next one is once you get that lead in to schedule them for an estimate, an in-home consultation, you should be able to get out there within 3 days. So 3 minutes, you should have somebody probably needs to be dedicated to responding to leads within 3 minutes. Then you need to have a salesperson that can be out at someone's house within 3 days of them requesting an estimate. And then the last one is 3 weeks to produce the work. So once you sign the person up for, for painting services, you need to be able to get a crew out there within 3 weeks to produce the work. And so if you are unable to hit those, that, those, that rule of 3 metrics, 3 minutes, 3 days, 3 weeks, then you might constrained with your labor. So now, this might not be the limiting factor of your growth, because really, again, with, with these three constraints— generating customers, aligning labor with demand, and the policy constraint that we'll talk about here in a second— there's only one of these things that are holding you back. So you might have issues on multiple of them, but there's only one that's holding you back from growing. This is the theory of constraints that Eli Goldratt came up with many years ago that is well accepted. But, you know, there's only one bottleneck. So if you have a lot of demand for your services, maybe leads are coming in, you're closing deals, and you're booked out for 6, 7, 8 weeks, you might be constrained with labor because if you're booked out 8 weeks, that's a long time to close a client and then to produce the work because a lot of things can happen within 8 weeks. You know, client changes their mind. I mean, we had that disaster that happened in North Carolina where the hurricane came through the Appalachian, and, uh, you know, that destroyed a bunch of homes. So there's painting businesses that had booked a bunch of work, and but then all the homes were destroyed in that, you know, and they lost all that work, you know. So there's things that can happen that the further out in the future it is, the less certain it is. So ideally you want to produce the work as, as quick as possible. Now, so using, using the rule of 3 as kind of your guideline to kind of say, okay, do I have, am I have the ability to generate this work within that timeframe? So if you're significantly booked out, or you're not able to respond to lead, maybe you're getting all the leads, but they're, you're just not replying to them within 3 minutes and you get to them the next day. Maybe you don't really have a lead problem or generating customer problem. Maybe it's just you need somebody that be dedicated to answering the phone. So this, this is a, a, a common constraint that, that folks— and it really comes out, how do you solve this? Once you diagnose it and say, okay, this is my constraint, my business, you know, basically you start looking for, you know, either, either your current team needs to cover down, maybe, maybe you have some slack in your, in the system and somebody can cover down on certain tasks, or Maybe you can improve efficiency or capacity some way, but if not, then you'll have to hire somebody to, to give you more capacity to accomplish the rule of 3. 3 minutes to lead, 3 days to an estimate, or 3 weeks to produce.

Yeah, I like that framework. It's easy to remember, and I think it really kind of helps you diagnose where your misalignment is. And it gives you some metrics to work off of. So that's really valuable.

Yes, sir. So the next one is the policy or behavior constraint. So I think the first two are pretty understandable. I think when describing this, people get it pretty quickly. But this third one is actually the most common, even though when I say policy or behavior constraint, you know, I'm sure folks listening are like, what the heck are you talking about? And I get it, but it's, it's actually the most common constraint that we see when we were working with folks for the first time. So, and I'm gonna, we're gonna hit on some of these things, we can't cover it all today in one podcast. But if you want to hear more about the policy constraint, which is the most common constraint that's limiting painting businesses from going, definitely go to profitablepaintercpa.com/webinar and register for the book launch where I'm going to go into this in more detail. Plus, you'll get a free copy of the book and a bunch of other resources I'm excited to, to, to give you that I've been working on for the last several years to, to help painting businesses grow to the next level. So the policy constraint is basically it comes down to either pricing, cash flow management, or compensation. Just kind of like 3 different things that could— and it's basically you, you have some sort of policy in your business or behavior that you're doing in your business that's hurting your business from growing to the next level. So it's kind of like a self-inflicted pain that you're causing for your business. Um, and so the first one is pricing, which I think You know, a lot of people have— there's a lot of talk about pricing, how to price correctly. If you don't get the pricing right, it definitely will hurt your business, especially if you're underpricing, because you're likely— your margins are too low, and that's going to prevent you from really being able to grow. Because if you don't have a lot of profit margin, it usually means you don't have a lot of cash, and you usually— you need money, you need cash to be able to reinvest into the marketing to grow the business. So pricing is a huge, a huge pitfall there. The next one is cash management. Sometimes folks have decent profit margins, but they're just not managing the cash in a way that's, you know, helping them. So for example, taking a deposit, some people don't take a deposit. So if you don't take a deposit, that means you're not getting paid until after the job is done. So you're having to pay for the marketing to close the job, pay the salesperson, pay the team. And, and then you get paid. So it's just like, you're not getting your— it's cash is going out all this time, and then finally you get paid at the end. So it's a recipe for disaster, you got to have some sort of deposit. A lot of the clients we work with take a 50% deposit. And so in the book, I go into a lot more detail on that and how to make it work. But that's a common thing, like not taking a deposit or taking a really low deposit. And then there's also like paying your team, like the timing of paying your team. If you have subcontractors, making sure you get paid before you pay them. And the whole game with cash flow is really to get paid faster and then slow down payments to others. That's the key, is to get paid faster and slow down payments to others. So, you know, take a deposit, collect as soon as you can from your customer, and then delay payments when you can. So for example, putting your, materials on your Sherwin-Williams account, or running payroll every other week instead of every week, or paying your sub after you're paid. Again, we're trying to have a cash positive cycle, get paid faster, slow down payments to others. And then the last category of the pricing— I'm sorry, of the policy or behavior constraint is compensation to your team. So sometimes folks just have compensation plans that are out of whack, like they're overcompensating their team. And so just, just understanding what, what should the salesperson be getting as a commission or as a compensation plan, or what should a production manager get paid, or what should an office person be paid, what should a painter be paid. Um, just understanding those numbers and making sure you're not overcompensating. If you're overcompensating significantly, that can obviously constrain your business because that's going to eat into your margins and again affect your, your cash flow. Um, so in the book, there's a— we give you all the, all the, the numbers and compensation plans, and we'll also go through it on the book launch on September 9th. But that's, that's the, the last, the last constraint, the policy or behavior constraint.

Yeah, I can see why this is one that a lot of people struggle with and can almost be like the most difficult of the constraints to approach because it requires us to really look at ourselves and be self-aware and to say, have decisions I've made been the reason that we have this bottleneck? Do I need to change my thinking on, you know, my relationship with money and how I ask for money from my customers, how I pay out money to my employees? Do I need to maybe, you know, check myself there? Have I, you know, initiated policies that aren't, you know, healthy for the business? And why have I done that? Do I need to maybe kind of think of my mindset So this one could be a little tricky because we have to do some self-reflection and maybe think about why we're making the decisions we're making and are they really in the best interest of our company?

Yes, sir. Yeah, it's usually like when new clients come on board, usually it's the policy or behavior constraint. That's because they'll come, they'll say— this happened just today, actually. I asked, you know, so what do you think is really holding back your, your business from growing? They're like, customers, we need more customers. Like, it's, we, we really just need to get more customers in. Once that, we get more customers in, that will solve everything. But the thing was, they only had a couple thousand dollars of cash in the bank. And they only took 20, they only took a 10% deposit. Down, and they weren't fully— they weren't using their Sherwin-Williams line of credit. Uh, so you can't really— if you only have a couple thousand dollars in the bank, it's kind of hard to grow. Uh, you really need to have some, some funds to invest into marketing. So, you know, we— that was the first thing I brought up with them was the policy behavior constraint. We need to— we need to increase the deposit we need to start using that Sherwin-Williams line of credit so we can get more cash into your bank account. And the other thing we probably need to look at is your pricing. So yeah, it's definitely a big one and the most common. So that's—

if you're—

oh, go ahead.

Oh, I'm sorry. I just kind of wrap up that thought. I was going to say, if your pricing is too low, then more customers does not mean more money. Because you're not making anything off of these customers. More customers is actually going to be a problem for you because you don't have the cash to hire the people and buy the materials. So, so yeah, um, when, when things are getting tight, we always think, well, I need more leads, I need more customers. But if we don't have these policies corrected, then more customers could actually be, uh, not a blessing, but kind of a curse. Until we get these things fixed.

Yes, sir. All right. So that's the GAP of the GAPS framework. The S is scale to the next constraint. So this basically, once you fix one thing in your business, you, you scale to the next thing that breaks, right? So For an example, we just gave about the, the business, you know, if once we fix the policy issues and we get more cash in the bank, then their constraint will probably be customers because then they'll have some cash and then they can— they need more customers. So let's— that's now the constraint. So now we can put more money into marketing or whatever we need to do there, improve the sales process. And get it, start focusing on that. Because the problem is, if you're, if you think your constraint is generating more customers, but you have all these policy issues, then you're focused, you don't have any money in the bank, but you're focused on trying to generate more customers, you, it's kind of like, there's, you're not going to be able to successfully do that. And unless you just take out a bunch of debt, which is not a great way to grow, you know, take a bunch of debt out to finance growth, you want to use your customers' money to finance growth. Which we talk about a lot in the book, Profitable Painter. And we're going to talk about the book launch as well, profitablepaintercpa.com/webinar, if you want to join us for the, the live book launch event, which you will get a free copy of the book and also a bunch of cool resources that I'm going to be giving out for free. So I'm excited about that. Cool. So any, any last thoughts on, on this topic, Richard?

No, I think it's a wonderful framework. You know, one of the biggest things our clients tell us is like, hey, I need help growing my business. And, you know, as accountants, we're really good at looking at the numbers and seeing where the weak spots are on the profit and loss. But these constraints and this framework really help us to kind of see what needs to be done about it. Where's, you know, we see the numbers, the numbers are showing a red flag. Okay, what's causing that? And how do we work through that? So I think this is a great add-on to a lot of what we already do. And I think a lot of people are going to really benefit from this portion of the book.

Yes, I agree. And I know that they do because, you know, that's what we do when we work with folks is use the GAPS framework to identify what their constraint is and help them, help them fix it. So yeah, I'm excited. If you want to join us for the book launch event, in case you missed it, I think I only mentioned it like 10 times on this podcast. September 9th at 9 AM Pacific, 12 PM Eastern, and you can register at profitablepaintercpa.com/webinar. We look forward to seeing you there.

Awesome.