DripJobs Partner Spotlight: Daniel Honan, Founder of The Profitable Painter

And there we are, we're live. Awesome. All right, okay guys, well hey, uh, guys, welcome to, uh, another episode of our Partner Spotlight over here with Drip Jobs. And, um, welcome back if you're returning, and, uh, you know, welcome if you've never, never watched one before. But today we have, uh, you know, Mr. Daniel, Daniel Honan, uh, the founder of Profitable Painter CPA. Um, I've known Daniel for a while now. Um, you know, we've been at many events together and many industry events together, and And, you know, you probably recognize him from any one of our events, virtual events that we've had and had him on. So, you know, Daniel, welcome. Thanks for— thanks for joining me for a little while today, man.

Glad to be here. Good to see you, Eli. I'm excited to jump into things.

Yeah, man. Heck yeah. Heck yeah. Awesome. Well, guys, if you've listened to this before, you kind of know my format. You know, I, you know, I like to kick it off a little bit about, you know, my guest, my guest's story and journey and kind of how they came to be into, you know, the, the industry, the painting industry, and, or the home services industry, whatever it may be. So, um, Daniel, I'm gonna kind of kick it over to you at that, at, uh, with that. And man, how, how did Profitable Painter come to be, right? How far back, you know, does your history go in the industry? Like, what does that journey look like?

Yeah, absolutely. Uh, so I got started with my dad. My dad actually had a painting business Okay. And, um, you know, I started on the job sites working just as a painter during the summers while I was going to high school. And when I graduated high school, going into college, I wanted to run my own painting business while I was getting my degree for accounting. And, you know, my dad had actually given me a book called Rich Dad Poor Dad.

Yep.

Which kind of really molded the way I was thinking around that time when I was 18. And like a lot of painting business owners, I wanted more than just a job, you know, I wanted to create some real wealth in my life for myself and my family. And that, you know, during college I was running that painting business and I ran into the same wall that a lot of painting businesses run into. Like, you want to, you know, make a good amount of money that you deserve for putting a lot of blood, sweat, and tears into a business. And I kind of hit a wall in terms of like, it was easier on paper, you know, to look at it on paper than to actually do it yourself, like run a business. And I learned a lot. I mean, it was a great experience to do that while going to college. Run those painting businesses. But I have like a ton of like horror stories of just like, uh, one time I was— I had a couple jobs going at the same time, and I— one of my crews quit, or they didn't show up, or something like that. And, and so I had to get a crew last second, or like, that's what I felt like I needed to do last second to, to get this job started, because I had promised the customer like, hey, we're gonna get your job started next week. And so I, uh, like scrambling, just was like, hire— like the first person I interviewed, you know, I was like, okay, they said they could paint. I was like, okay, great. Uh, and they, you know, they had a pulse. Yeah. So I got them over to the job site and I just was like, hey, yeah, we just need to paint this. Here's the paint. Uh, here's, you know, some, some of the tools. Um, I'll be back in a couple hours. I gotta go check on this other job site, make sure it started. And I come back 2 hours later or so, and the guys that I had hired, they're just like, they're just, there's paint everywhere. Like they were resting their rollers up against the brick, like to, it was, it was just a mess. There's like paint drips everywhere on the sidewalk. Yeah, it was a nightmare. And that's still like, I wake up in a cold sweat just remembering that time. Uh, but yeah, so it was, it was a great learning experience. But, you know, I, I, I didn't quite, you know, I made a little bit of money, but it was complete— completely not worth the, the effort I put into it.

I—

however, I did learn a lot. So really, that's what it was doing, is learning a ton about how to run a business and how not to run a business. Um, and then obviously I went to— I was going to college, so I got my degree in accounting. And, uh, you know, later on became— I went into the military for a little bit, uh, but I became a CPA after that and started working closely with painting business owners all over the country. And at first, you know, when I started doing that, you know, working with painting business owners, I expected to find a lot of different problems. But the deeper I went, the more I saw the same patterns over and over again.

Mm-hmm.

You know, some owners thought they had a lead problem when it was actually they didn't have enough of a team to actually produce the work. Others thought they wanted to— they needed to grow revenue, but it wasn't actually that. It was they needed to improve their profitability. And then some folks were making, you know, good money on paper, but they were just paying way too much in taxes because they weren't doing anything throughout the year to kind of prepare for taxes and implementing any tax strategies. And, you know, those first few years of— and this was back in 2016 is when I started, you know, my accounting firm. So the first few years, a lot of learning, you know, working with some really great painting business owners that I still work with today. My first and second client that I started working with in 2016. I still work with them to today, you know, over 10 years later.

That's awesome.

Yeah, but, uh, I've learned a ton, and, you know, those first couple years was a really, uh, a big turning point for me. Um, and, you know, I kind of started to see those same patterns over and over again, kind of had a breakthrough where, uh, I, I formulated a, a framework that we use with all of our painting business owners now. Um, and it's, it's, it's less about providing random advice. Um, it's really a sequence to help painting business owners build wealth in their, in their business and their lives.

Yeah, yeah, solid. So how long— so, okay, so you started Profitable Painter in 2016, right?

Correct.

Right, right. So you're about 10 years in. Um, how do you— how many, how many, um, painting businesses do you think you've helped so, you know, so far at this point?

We've, we've worked with over 500 painting businesses, um, over the last 10 years.

Yeah, yeah, nice, nice, solid, very good. Love it, love it. Okay, how, how big is the— how big is the team now? How much have you guys grown?

Um, so we have 14 employees and, uh, We work with about currently a little over 200, uh, painting businesses, and we do about $3.3 million in revenue.

Let's go! Heck yeah, love it, love it. Awesome, awesome. And, uh, Satori shouting out, uh, just finished your book, so good. Awesome, thanks Satori. Um, I'm sure Daniel appreciates— appreciate that. Daniel, what's your book? Tell us about your book, man. Shout it out.

Yeah, so Profitable Painter, um, that's The wealth sequence I mentioned, you know, the first few years working with painting business owners, I realized like to really build wealth in your business, you kind of have to go through a sequence that I developed. I learned a lot from the painting business owners I worked with. One, also pulling, worked with Alex Formosi one-on-one and his team. To learn a lot about identifying constraints in your business, uh, and also with, um, a, uh, a lawyer, and, um, Mark Kohler. He's a lawyer and a CPA. He's really big into developing really advanced tax planning strategies for small business owners. And so combining, you know, that with the benchmark data, because we work with, you know, like I said, hundreds of painting businesses. So we see the trends and the, the, the margins and what works, what doesn't work in a painting business over and over again, over and over again, and we benchmark that. Uh, so kind of putting that together, um, I was able to kind of put together this well sequence that helps painting business owners identify what the bottleneck is in their business using their numbers, what they need to do to profitably scale using benchmark industry benchmarks that we've put together over the years. And then once they're making that money in that, in their business, uh, you know, what, what, what can they do to actually protect that from nefarious actors and also the IRS, you know, for protecting that wealth that they're building, uh, through tax planning and estate planning. And so that's what the book goes through, those three things: identifying your bottleneck, scaling profitably and protecting your wealth, uh, for you, for yourself and your loved ones.

Heck yeah, man, that's awesome. Here, I'm throwing the— I'm throwing the Amazon link up in the, um, up into the chat so anybody can go check it out if they want. Uh, awesome, man. Okay, so back up there for a second. Um, I think everybody's always curious about this question because I, I'm pretty sure I think I saw your face, um, on, um, when Alex Hormozi was doing his book launch I think I saw your face up on the background. Yeah, was I— yeah, was that correct? Ah, very cool. Um, yeah, yeah, yeah.

I get like— I got blown up, uh, just dozens of, uh, text messages and messages on, uh, Messenger, just like, hey, is that you? I see you. You know, it was, uh— and then, yeah, it was, it was fun.

Yeah, very, very cool. Very cool. So what, what, um, you know, I mean, obviously Alex Hormozy, big personality, right, in, in the space. But what, uh, what was that like working with him personally and his, like, team personally? Was that just, like, mind-blowing? Is the guy operating on a whole nother level?

Yes, it was. So I was able to spend the day with him in a— with, uh, 8 other business owners, and we're just, like, sitting in a room with the, the board, you know, the boardroom where he has, like, a, um, a butcher board, or, like, a, uh— he's just, like, jotting notes down, um, and You've probably seen the videos anyway, so yeah, I've seen it. So that day was crazy. So you just basically went from person to person to kind of strategize. He got a lot of context from his team beforehand, so they like— he knew about who was in my business, where we were, and this was a couple years ago. Yeah, um, where we were in terms of revenue and kind of what we thought our constraint was, what our packages were, all that stuff. Yeah, and so he had a lot of context already. He was well prepared, and then he would just basically ask some clarifying questions and then like pitch ideas. And we did that for 8 hours. We had a 30-minute lunch break where he just had like chicken and rice, but he went to the bathroom once, uh, right after, uh, that 30-minute lunch, but he was going like straight. Like, it was crazy. Did not stop. I went to the bathroom like 8 times. I don't know, like, yeah, but he was just like, hey, wouldn't stop. It was non-stop for 8 hours outside of that one lunch break and bathroom break for him. So it was kind of crazy.

Yeah, man. And you know, he'd probably been up for a long time before that and, and was going to be up for a long time after too. Just, just, just the guy operates in just beast mode at all times. I mean, it's crazy.

Um, Yeah, yeah, I don't know how he does it.

Yeah, that's a very, very cool scenario. I mean, it's a very cool thing to, to get to experience, right? And just to kind of see, see somebody at that level. But awesome, very cool. So, so you mentioned bottlenecks, right? Like, let's talk about that real quick, right? You know, I, um, just to give a little, little snippets of what the book holds and things like that. But, you know, you've been doing this long enough, right? So, you know, what do you see most painters' bottlenecks are, right? I mean, is there kind of one thing that tends to be like this is what the majority of painting business owners, their bottleneck is?

Yes. So in the book, you cover the framework, is called the GAPS framework. The, um, stands for generating customers, uh, aligning labor with demand, and then policy or behavior constraint, and then scale to the next constraint. So basically, the— it goes off— Alex Hormozi talks about this, is based off the theory of constraints. Um, uh, developed by, um, Goldratt, like back in the '70s, I think. Basically, the theory says at any point in time, your business, if it stops growing, if your business stops growing, if you hit a revenue ceiling in your business for a period of months or maybe years, there's something in your business that's holding you back. So it's, it's probably only one thing that's holding you back. And so the idea is if you can just focus on that one thing and solve it, then your business will start growing again. But until you do that, it's going to be stuck. So the framework of GAPS, G-A-P-S, um, there's 3 main things that, that what I've seen that hold back painting businesses. One is that they don't have enough customers, and so that's why they can't grow. Two is that they don't have enough of a team to produce the work that they already have or that's coming in. And then number 3 is that they have a policy or behavior constraint that is preventing them from growing. And the one that comes up most often is actually the last one, which is the least amount understood. 'Cause I think most people understand, oh yeah, I need more customers to grow. I think that makes sense. Or I don't have enough painters to, you know, we're really, booked out really far. So, um, that can be a constraint. That's kind of straightforward. But the, the, the third one is the policy or behavior constraint, which is the less— the, um, it's not as well understood, but it's also the most common. So, and what that means is, you know, people are listening like, what the heck does that even mean? What is a policy or behavior constraint? Um, so what that is, is basically you're— there's some sort of policy that you have in your business, whether it's formal policy or informal, that's holding your business back. And to give a quick example is maybe you have a policy that you never take deposits, like you never take money down for when, uh, um, for when you close a job, you don't take any money down and they just pay at the end of the job. That can work, that can be okay. However, if you are in the situation where you never have any cash in the bank in your business, that might not be a very good policy to have. So you might want to consider taking a deposit. A lot of folks we work with, you know, take 25, 30, 40, 50% deposits, or even sometimes 100% down, um, to, to basically get cash as quickly as possible into your business bank account so that you can, you can, you can grow. Because it's hard to grow without cash. You need cash to, you know, put, put in for marketing. You need cash to pay your team. So, uh, you know, so that's an example of a policy that might be holding you back. And then we see that in another one, very— this is actually the most common, is pricing. So people aren't pricing appropriately to, to have the right margins to, to get enough cash and to grow to the next level. So that's—

yeah.

That's the most common policy that we see that needs to be tweaked is folks' pricing policy.

The pricing one is an interesting one. I'm glad you said that because I see and hear and read all kinds of stuff about pricing and all the different theories around it and discounts and this and that and this and that. But the pricing is interesting, Ron, because You know, a lot of guys, a lot of people, a lot of business owners will say like, no, you know, like, don't, you know, don't drop pricing. Don't, don't, you know, you know, explain the value and, and, you know, this is why we cost this much. Do you think there's some, there's some element of human psychology also tied to pricing as well? Have you seen that over the years?

Oh yeah, for sure. Yeah, yeah, there's definitely some belief, you know, certain beliefs that people hold about pricing. That kind of limits what they're willing to do because they believe that— one thing we hear all the time is if we recommend, hey, maybe you should increase your markup on your materials because you're not marking up materials at all, or maybe you're only marking up materials 10 or 15%, and so we often make the recommendation, hey, increase some more the markup on your materials, and folks will often say, oh, I'm the highest priced in my area. I so I can't charge anymore, right? And so, you know, so they have this belief that they can't charge anymore because they're the highest priced or one of the highest priced people. So, um, yes, that is usually the, the, uh, the, the first hurdle that we face when we're trying to make recommendations is that folks have this belief about what they're doing, you know, is, um, in regards to pricing. And we kind of have to break that belief to help them realize that, yeah, you— even if it's true that you are the highest price in that area, it doesn't mean you can't raise your prices. Uh, just to give an example, Jason Phillips— I know you know Jason Phillips out of Dallas, Texas. He has a $15 million painting business, and he you know, he's been around for 20 years at this point, over 20 years.

Yeah.

And he has a sales team and he raises his prices all the time. He has a, uh, a 65% gross profit, which is the highest I've ever seen it sustained for, you know, that long. Yeah, yeah, a period of time. So he, he's definitely— he has high prices and he raises them consistently. And the way he gauge on when to raise prices is that he looks at his close rate and he uses his close rate as a signal for when to raise prices. So his sales team, they want to maintain about, um, they want to always try to increase their close rate, but if the close rate goes above 35% close rate for a few weeks, he'll then start increasing prices.

Mm.

Um, and then, you know, typically the close rate goes down a little bit below 35%, and then they'll continue to improve the sales process and, and everything and try to get it again over 35%. And then once it goes over 35%, then they raise prices again. So they're actually using their close rate as a signal for when they can raise prices, and they're always, you know, raising prices throughout Throughout the year.

Dang, man, that is a— that is a golden nugget if I've ever heard a golden nugget before. Uh, that was awesome. Take notes on that. Yeah, absolutely, 100%. Um, love it, man. Yeah, for sure. No, there's definitely— and there's even, even deeper belief, I, I think personally, an even deeper belief that you have to almost break past of like your own self-worth, your own value, you know, things like that, right? Um, You know, but that's, that's like a, you know, we could go deep into a whole, you know, psychology lesson on that.

But yeah, yeah, totally. Like, folks, I think, you know, I think it's a natural tendency, like, when you're, you know, I do it too. But if someone asks you to do something that you're really good at, you kind of devalue it because like, yeah, I can do that in like 30 minutes, under an hour, take me a couple hours to do that. Whereas the person that's asking you to do that is might take them all day or all week because they've never done it before and they don't want to do it. Uh, and so the— you might, you know, charge a really low rate compared to what they were willing to pay, um, and, uh, and kind of devaluing your, your work. So yeah, that's, that's super common too.

Yep. Yeah, 100%. 100%. Um, awesome. All right, well, obviously, um, you know, we're, we're coming out of, you know, tax season, right? So, you know, that, that kind of whole, that, that mad dash is done. But, you know, I personally think, you know, just because you're out of tax season, just because you're kind of done past that hump, doesn't mean that, you know, the preparation stops, right? Uh, you know, kind of thing. So what's something that, you know, a business owner can be doing, or what's something that probably, you know, you recommend, one of the number one things you recommend for, you know, business owners to be doing now right, to save the headache down the road that they could potentially experience, you know? Like, right, I mean, I don't, you know, one major thing, two major things, whatever it is that somebody should be doing or thinking about right now.

Yep. Yeah, I think it was Robert Kiyosaki, author of Rich Dad Poor Dad, he said taxes are your largest single expense as a business owner. So it's, it's worth paying some attention to it, right? If it's going to be the largest expense. Um, so I think the, the first thing you want to do is, is one, pay attention to it. Like, uh, and what I mean by that is having a tax planning meeting with a tax advisor once per quarter. And this is especially true if you're actually making money. Like, yeah, if you're, if you're not making money then don't worry about it. Don't worry about this at this point because you're probably not paying that much in taxes. Yeah, make sure you're doing things right in terms of filing a tax return and doing all the compliance piece of that. But in terms of, uh, trying to save money on taxes, make sure you're profitable first. If you're profitable, definitely, uh, that's when, that's when the tax man wants his cut, right? So that's when you need to start paying attention.

Yeah.

Um, so The first thing would be sitting down with a tax advisor once per quarter and having them do a tax projection, which is basically saying, okay, this is how I'm doing it. You give them your financial statements for so far to this year, to up to this point in the year. Do a projection like if we stay on this path, how much in taxes am I going to have to pay based off of my filing status and the kids I have, other businesses I have. Real estate I have, all those pieces, put it all together and tell me what it— what am I gonna have to pay if I keep down this path? And so they should be able to do that. That's the first step. And then the second part of that is, now that we know, okay, if you stay on this path, you're gonna have to pay $50,000 in taxes, whatever, if you do nothing else. Now you can start working on the the tax strategies to lower that tax liability as close to zero as legally possible. And so there are literally hundreds of tax strategies out there. Uh, there's definitely some ones we see used frequently that, uh, help considerably. So, but this is the important part, um, identifying what tax strategy works for your, your situation and, uh, implementing it so you can you know, save tens of thousands of dollars in taxes. So just to give like an example, a common one we see for folks that are, um, doing net profit or expected to do net profit of at least $60,000 or so, $60,000 in bottom line net profit, like you take home $60,000 in a year, um, to take a look at, or have your tax advisor take a look at doing an S-corp election, which is basically having your LLC taxed as an S-corp instead of on your personal tax return. So that tax strategy can save you, you know, $10,000. In some cases, you know, $10,000 in taxes just from filing a form and then setting, you know, having that LLC taxed as an S-corp. You know, going back to the beginning of the year. Yeah, um, that's a, that's a common one we see for, for folks in that, uh, you know, net profit range. Um, we have a lot of folks that have real estate, uh, you know, they, they have rentals or Airbnb and, or short-term, long-term rentals. And so there's a lot of things you can do with real estate to offset your income in your painting business. And I think a lot of people are kind of familiar with the idea of using real estate to save on taxes because we hear about it in the media and like movies and stuff. Like that's where all the rich people use real estate to save money on taxes, right?

Sure, sure.

And that is true. However, it has to be done in a way because it's not gonna oftentimes won't work out of the box just getting some real estate and then filing your taxes and you'll be fine. Uh, there's— you, you gotta one, make sure the, the real estate losses— because that's the whole game with real estate is that it shows a loss on paper because of all the depreciation— and then you, you want to take those losses and have it offset against your active painting business income. However, you got to make sure that the losses are categorized or classified as non-passive income or active income.

Okay.

And so there's a few ways you can do that, either being a real estate professional. There's also short-term rentals. If you have short-term rentals, there's a loophole there that you can use. So there's different ways you can structure having real estate and then lowering your taxes considerably. So that's a really great one for, for folks that are doing pretty well and, and have some rental properties.

Nice. Yeah, yeah, that's good. Yeah, I didn't— yeah, the— especially the, especially the rental, that like the Airbnb, uh, rental loophole, that's a good one. Yeah, for sure. And that, that's crazy because, you know, the, the example you gave of the $60,000, file the form, you know, taxes and S corp, I mean, that takes very minimal amount of time and pretty much cost nothing, you know, almost. And, um, that's a huge savings, right? I mean, that's, you know, that's, that's for, you know, and for some people that's, that's like a make-or-break year, right? So, um, you know, that's, that's crazy. Yeah, that's a good one. That's a good one. Awesome. So thinking about prepping, thinking about how you kind of file, how you set up your structures and stuff like that, what if somebody is in the situation— what would you suggest here? What if somebody's in the situation, or what have you seen where they're, they're like prepping to sell, right? Or they're, or they're thinking like, you know what, like, I'm gonna try to sell in, you know, a year or two. Um, like, what, what do they do in that case, right? Like, how do you start preparing for that to when that transition happens, when that sale happens, that it's not painful for you, painful for the buyer, you know, there's not, you know, back taxes owed, like all that kind of stuff, right?

Yeah, great question. The Right now there's a lot of private equity that's looking to, to roll up painting businesses and sell for higher multiples. And then there's of course the private, private buyers and sellers as well, which we always see. So we've had a lot of clients sell, uh, in especially in recent years. And, um, so The first thing I would say is, one, know how much your business is worth, which can be done through a business valuation, which we often do for our clients, just to give them an idea like, hey, this is how much your painting business is worth if, you know, they gave you cash down and you walk away with no strings attached. And so a business is valued on, um, you know, how much your, your net profit is, or your EBITDA— you know, use the fancy word— you're basically what the business is taking home, or what you're taking home, uh, how fast you're growing. Do you have recurring or reoccurring revenue? Do you have good margins? Uh, is the business really dependent on you to do everything, or do you have a team? Do you have different marketing channels? And you're diversified there. And then from my perspective, an important one would be, do you have good reporting, good data accessibility? Which comes down to basically, do you have books set up? Do you have reporting so that you can easily understand what your business is and then a buyer can easily understand how your business is doing? So having a good set of books there. So Understanding how much your business is worth, making sure you have, uh, your, your data set up in a way, like your QuickBooks Online or your books set up in a way that it is able to be interpreted on what's going on in your business, um, are two, two big things, uh, you know, going into a sale. And, um, and then I would just also just be prepared for the due diligence process, which can be pretty painful, of actually selling, which, you know, it's, you know, providing all these reporting, providing access to all your processes and all the questions. And it can be a lot of, a lot of time and effort for, for something that may not even happen. The sale might fall through. So it is, uh, quite a process you got to be prepared for. But I would say focus first on making the business more valuable to you, because if it's more valuable to you it's going to be more valuable to someone else. So, um, doing— starting with a business valuation where you can see, you know, how much your business is worth and what are the key value adders, like what's making your business worth more, and then key value subtractors, what are things that are risks in the business that you can maybe mitigate, you know, put fixes in to, to increase the overall value of your business.

Yeah, awesome. Yeah, I would even, I would even add one to that, and correct me if I'm wrong, right, or if you disagree, but I would even add one to that of, you know, thinking through, does your business, you know, is somebody gonna buy an operating business, you know, that's an asset that can, that can run and, and, you know, uh, operate independently, or are they basically buying, buying you to run it, right? Like, you know what I mean? Um, yeah, that's, that's one that I would say add in there. Make, make sure that, that you know, it can set up and run independently and, and you can walk away from it. And, you know, you're selling off an actual asset that's producing revenue versus, you know, because nobody wants to buy you to, to, you know, to run the business, right? I mean, they want to buy a business that runs itself.

Yeah, I mean, that is a good distinction to be made. Yeah, like, uh, you know, depending on the— there's different types of buyers. Sometimes they— the private equity does want you to run it. Uh, sure, sure. But, you know, again, but if you're looking at it from a perspective of how do I make the most out of the exit, oftentimes it does mean building a business that works without you. So that, yeah, um, that will be generally a more valuable business than someone that is a business that's completely dependent on them and they have to always be there, you know, babysitting it constantly.

Yeah. And now there's a lot of multiplier— or there's a lot of elements that go into the multiplier, right? Right? Like, you know, in the, in the crazy world of VCs and private equity and this and that, you know, and depending on what, you know, what's being bought or sold, right? You know, right, we all hear stories of software giants, oh, 10x multiplier, so on and so forth. But, you know, in the trades, you mentioned earlier, the trades are, you know, there's more and more interest from, from private equity, private equity and VCs coming into the trades, especially in the last few years and now. Um, you know, there's a lot of reasons for that, right? But, um, you know, talking about the multiplier, a lot of people are always curious about what that multiplier is, right? Like, if they're thinking— they're even thinking about considering their business, you know, what's like a very simple calculation or a very simple way to think about it? Like, okay, my EBITDA is this, or my net is this. And, you know, right now, because of the nature of the buyers, the home service industry has a 3x multiplier, 4x multiplier. Where are you seeing it at right now in today's environment?

Yeah, so there's— first of all, there's many ways to value a business. Um, yeah, one way, uh, is to, to use the, the EBITDA multiple. Um, oftentimes if you, if you have a painting business that's under $1 million in EBITDA— that's even like bottom line, not top line— under $1 million in, uh, bottom line net income, the, the starting point is 1 as a multiple. However, you know, that if you're growing fast, you may be getting an additional multiplier. If you have good margins, you know, that could be an additional multiplier. So if you're under $1 million in net profit, you're looking at, you know, 1 to 3 as a multiplier depending on, you know, how fast you're growing, what your margin is. And if you have any significant risks like we were talking about, like key man risk or, uh, single channel risk, meaning like do you have market, you know, all your marketing going from, coming from one place, um, and those sort of things. But yeah, 1 to 3, once you, 1 to 3, uh, multiple if you're under $1 million in EBITDA. Now if you're above $1 million in EBITDA, you get to 1 to, $1 to $3 million in EBITDA, then it goes up to 2.5 as a baseline multiple, then add up, add those from there. So you might get, you know, 2.5 to 5 or 6, uh, and then, you know, it can get— it keeps going up. So, and that is why actually why a lot of the private equity wants to buy these smaller painting businesses is because they can buy, uh, you know, a painting business that does, um, $500K in, in net income, uh, buy a bunch of smaller $500K net income, uh, businesses and put them together, like 20 or 30 of them. And now when you add up their, their EBITDA, it's like, you know, $10 million in EBITDA. And, and then that consolidated group has $10 million in EBITDA, which might get a 6, 7, 8, 9, 10, uh, multiple. And so now you could sell that that consolidated group for like $100 million versus individually, you know, they'd get a lot lower of a multiple. Yeah, yeah, yeah.

It's compound effect, man. It just, you know, it takes it through the roof for sure, for sure. So awesome, awesome. Good stuff. All right, well, getting to that point, right, you got to know your numbers, right? So, um, you know, what would you say that— I'm gonna call them core numbers, right? Like, what is a core number that every painter should know in their business, right? Very high level. You ask them, where are you at, at X? And they'll be— they should know it just right off the bat.

Yeah. So I think a great, uh, I like to use ratios because ratios have more than one number. So it's kind of like, uh, you asked me for one number, but I'm gonna give you a ratio, which is a couple numbers combined.

Yeah.

I like the gross profit to customer acquisition cost ratio. Which is a comparison of what your gross profit is, right? Which is what's left over after producing the work, because producing the work is the, the biggest expense of the business, um, outside of tax, as we said earlier. But the biggest expense for operationally is, is producing the work, you know, paying for the labor and materials. What's left over is gross profit. And then comparing gross profit to customer acquisition costs, which is usually the second biggest operational expense, and that is acquiring customers through— because you have to pay for marketing and pay your sales team. So that's your customer acquisition costs. So when you compare those two together, gross profit to customer acquisition costs, that ratio, um, that is a lot of condensed information on how profitable your business is. So we typically look for if you're growing aggressively, like if you're, you're doing a lot of outbound marketing with Facebook, door-to-door, direct mail, um, we want to see you hitting at least a 3-to-1 ratio of gross profit to customer acquisition cost, which basically says if you put a dollar in to acquire a customer into your business, you get $3 back of gross profit. Um, that's the minimum we look for, but, uh, you know, really strong, healthy businesses, they're hitting 4, 5, 6, or sometimes even some cases even higher, 6-to-1 ratios. Of gross profit to customer acquisition cost.

Dang. Yeah, no, that's a good one. I like that one. Yeah. Okay. Heck yeah. That was another golden nugget, uh, right there. So, you know, write that one down, take that one to the bank for sure. Okay, awesome, man. Love it, love it. All right, well, with, with that being said, man, and we're kind of, you know, coming to the end here, um, you know, let's, let's kind of shout out and talk about Profitable Painter, um, real quick. Uh, here, let me throw the link up. But what, uh, in a nutshell, what do you guys, um, you know, what do you guys cover for somebody if they, if they come to you and say, hey, I need, I need help? Um, what, what do you, you know, what are you going to cover with them? How are you going to help them out? What's that, what does that service look like? Sure.

The core of what we do is we help painting business owners. We help them. We only work with painting business owners. We help them know their numbers. And what they mean and save big in tax. We do that through bookkeeping, financial planning and analysis, tax planning, and tax preparation are the core services of what we do. Um, so all the things that we talked about today, which is, um, helping you identify the constraint in your business, analyzing your numbers to make sure you're profitable, uh, understanding your cash flow, Um, understanding what you can do to save in taxes, preparing for a sale of your business. All those things are things that we do for our clients, uh, at Profitable Painter CPA. So if you're looking for help in those domains, we can definitely, uh, help you out if you're a painting business owner.

Yeah, love it, love it, love it. Awesome, man. Awesome. All right, well, Daniel, man, I appreciate you, uh, appreciate you taking the time with me and hopping on for a little bit, especially because it was last minute. You guys don't know this, but it was super super last minute that Daniel, uh, you know, agreed and hopped on with me here. So, um, you know, as always, you know, good, good seeing you, good talking to you, guys. Anybody that was listening, um, or re-watches this, man, have a pen and paper ready because there were some amazing tips in here that you can take to the business and start, you know, start acting on now and start doing now and start preparing for now and, and things like that. But, you know, I put— I, uh, threw up the link to Daniel's book, um, in the, in the chats, and a link to their website in the chats, guys. So, uh, if anybody has any questions, um, you know, reach out to Daniel and his team, uh, reach out to me, I'll help you out, guys. Most of you know where to find me. So Daniel, thank you so much, appreciate you joining me today, and, um, you know, we'll, we'll catch you next time.

Thanks, Eli, I really appreciate it. It was good to see you again as well.

Yeah, man. All right, bye guys.