Ep 7. Daniel Honan: How To MAKE MORE MONEY In Your Painting Business

you look at your labor because that's the biggest cash outflow for most everybody is your labor. So if you're using employees, you have a little bit of flexibility here. So, um, you, you can decide on how often you're paying your painters. You know, you can pay them weekly, you can pay them biweekly, you can pay them monthly. And so that does matter. Obviously it matters to the painters themselves, like they want to get paid as frequently as possible. Ideally, they'd probably say every day, but you're obviously not going to do that. And for the business owner, the ideal situation is to pay them as less frequently as possible because the longer you get to hold on to your cash, the better. So this is the whole struggle here. You're trying to get cash quickly and then hold on to your cash as long as you can. So, you know, a lot of folks, especially starting out, are asking how frequently should I run payroll? Always err towards the side of less frequent, especially when you're starting out.

Welcome to the Painter Growth Podcast, where we help you scale your painting company in record time. Join us as we explore sales, marketing, hiring, finances, leadership, and more. Everything that you need to know to scale and grow your painting business. I hope you enjoy and subscribe. What's up everybody? Thanks for tuning in to the Painter Growth Podcast. I have a guest I'm very excited about today, uh, Mr. Daniel Honan, founder and CEO of Bookkeeping for Painters. But they don't just do bookkeeping, right? That's— they do a lot of other financial support for painting businesses. So, uh, Daniel, stoked to have you.

Hey, thanks for having me, Mike. I really appreciate it. Excited to, uh, to discuss improving painting businesses.

Absolutely. So, I mean, let's, let's start out, um, with a little bit, a little bit about you. How did you get into the painting industry?

So I started out working for my dad on the job site when I was 15. So I was just a painter and I worked during the summers throughout high school, then went to college. I did the College Works painting internship where during my freshman year I ran a— had a few crews, did the sales and the marketing. And the production management and did, you know, $50K during basically a summer and did that for CollegeWorks Painting. And then after high school, I'm sorry, after college, I got a degree in accounting and I did some military stuff. I was in military intelligence, did some deployments, and then At some point a little bit later, I ended up starting another painting business with a buddy of mine who was a former veteran that was coming out of the National Guard. And so I helped him basically set up the business and I kind of ran— I owned it and he ran it. So he was like the production and salesperson and I just kind of provided the systems and the guidance for him to kind of to run the business. I started Booking for Painters back in 2016. I kind of wanted to start a, you know, accounting, a bookkeeping and tax business that would support, you know, folks that I could actually provide some real value to. So just reflecting on my experiences, like, well, I've, you know, I've had some experience with the painting industry, so I figured I could help out in that capacity. So that's That's where that started.

Very cool. And, uh, it's, it's interesting now that you work really behind the scenes with painting contractors, so you see the painting business and people's businesses in a very different light to what the average person looking in towards a painting business or any business would see. Um, and with this, you know, chat today, I want to really focus on like the lessons that, that we can help people learn and, and hopefully some actionable things that they can do to improve their businesses. But if you could, I know this might be a hard question, but like if you could just like break down, excuse me, if you could like break down, you know, the top lessons that you've learned now working with, you know, hundreds of painting contractors looking at their books, like what are some of the lessons that you've learned and things that you've noticed along the way?

It's a good question. Also, it's a hard one. So I would say you could probably break it down into the type of painting business owner and where they are in the stage of their painting business. So starting with the folks that are between zero and let's just say $500K, they have a certain set of problems that is different than someone that's between $500K and $1 million and $1 million and above, et cetera. So I'd say, let's, if we just start with $0 to $500, it's usually from a financial perspective, just kind of the basics, knowing your compliance for taxes, just knowing kind of the basics, how, what do you need to do to make sure you're, you're not going to get in trouble with the IRS. And then to just kind of the basic numbers of what should you be making in your painting business? Painting business based off of the roles you play in it. So what, what should you kind of expect, um, in terms of compensation to yourself, uh, so that you can evaluate whether you're doing well or not? Um, so, and then on the processes side, when you're starting out, probably just having your bookkeeping system set up and making sure you're compliant, but also getting data out of your bookkeeping so that you can actually make decisions instead of, you know, just kind of looking at your bank account to see if you have enough money to, to make the next purchase. So that's, that's what I would say for, for the folks starting out. And then it, as, as they grow, those, those problems change, and, and, uh, we can definitely talk about that.

But yeah, yeah, I think we should have a little section today where we talk about the $0 to $500, the $500 to $1 million, and the million plus, and the various problems problems and challenges that they have. Let's start on that first one, the $0 to $500K. Now you said something interesting. It's not just about having the data and having the information, but it's about looking at it, analyzing it, and making decisions based off of it. So for a business doing, you know, $0 to $500K, which is, what is that, up to $40,000, $50,000 a month or so? Um, how much should they be making in gross profit? How much should they be making in net profit?

Yeah, so the kind of industry standard or the average, if you, if you go pull benchmark data on the painting industry, and this is also shown in our internal benchmarking, it's pretty much 40% gross profit is the average. So that's a good just— and just to define gross profit is basically what you're charging your customer, customer minus whatever your, whatever it costs you to deliver the, the service. So that would be labor. Yeah, paint and labor, exactly. And then what's left over is your gross profit. And then as a percentage, you just divide that by your whatever you charge a customer. So 40% is the kind of industry or the, uh, the average that we see, uh, for all revenue levels really. But it also applies to $0 to $500K.

Now the caveat here, just to clarify, so a $10,000 job you should make a gross profit $4,000, and then that $4,000 will then be— will then now start going towards your overhead, like your gasoline and your insurance and your equipment purchases and, and owner salary.

Exactly. And that's average. So hopefully you're trying to be better than average, but that's average. Now the kind of the caveat with the folks that are in this revenue level, $0 to $500K, is that they're prob— a lot of them, if they're just starting out, they might be actually working on the job site. So they need to consider that if they're working on the job site, those costs should be captured and allocated, not ignored, because if you're still working on the job site, that's your time, um, being spent there. So, so 40% gross profit is the average. Probably should be shooting for 50%, should, or, or higher. I would recommend as, as the, the target. And then in terms of what your net profit or what the bottom line should be, what should you be taking home as the, the owner-operator in this revenue group, $0 to $500,000, it comes down to what are you doing in the business. Is what I always ask when folks ask me this question is, what are you doing in the business? Now most folks at this level are doing— they're the business owner, number one, they're the salesperson, and they're also the production manager. They're at least those 3 things. They also might be on the job site as well, but let's just assume that it's those 3 things. So for the business owner, they should be making 15% of revenue coming to them as available cash flow to them. So if they're completely passive in the business, 15% should go to them. The next one would be sales. They should be making about 10% of revenue should go to them, approximately 10%. And then for production, somewhere around, you know, 7.5% or so. So if we add those 3 things up, 15% plus 10% is 25% plus, you know, 7.5% was that 32, 33%.

Yeah.

So So somewhere around 30%, I would say, if you're, if you're doing those 3 things, and, uh, your net profit should be around 30%.

Okay, so just to go raw numbers for someone, if someone is producing $30,000 per month and they're doing all of it, they're the owner, obviously they're doing all of their own sales, and they're their own production manager, uh, 32.5% is $9,700, so $10,000. So you're saying that if a bit— if a business is doing $30,000 a month, all else being equal, and the owner's doing all 3 of those things, they should be making about $10,000 a month, right? Okay. What if they're not? Like, they're at the situation but they're just not making that much money. What do you think they could do to figure out where the money's going?

The first step would be to look at your gross profit. That's usually a big lever to increase your overall profitability, is, is to improve your gross profit. So if you're not hitting 40% gross profit, at least that would be the first thing to focus on, is evaluate your— and there's two ways to increase gross profit. You can either increase your prices, or you can become more efficient on the job site, or have your crews be more efficient on the job site. So increasing your pricing, you would need to look at your— how you're charging your customers. Production rates are used— or the industry standard, you look at using production rates to generate your, your price for your customers. And then the other thing that you look at is your efficiency on the job site. So are your crews— if you're using employees, let's say— are your crews efficiently knocking out these jobs and completing the jobs within the budgeted hours that you give them and being efficient with, with the materials and the labor.

So increasing prices in terms of charge rate and your hourly production rate or decreasing costs, right? Either being more efficient with the paint or helping your painters be more productive and complete the jobs faster or move to like a fixed piece rate system with your painters or subs.

Right, exactly.

Okay. Um, so that's, that's one way to, to work towards that net profit. What if they're— I mean, how do they, how do they, how should someone track their, um, their gross profit on each job? How do— like, say you finish the month and, you know, we got all this money coming in, we got all this money coming out.

How do we actually—

what do we do, you know, action— what actions can we take to figure out what our gross margins are, right?

So the first, the first basic way would just be to track it on the overall picture. Your revenue minus your direct costs equals your gross profit, just overall, having your— which is on your profit and loss report. So you could look at it overall, uh, which might be enough if you're doing well above 40%, that might be enough. If, if it's not the case, then you might need to do some job costing where you're looking at each individual job and saying, okay, how much did the customer pay me? How much did I pay for labor? How much did I pay for materials? What was the gross profit on this particular job?

Is this something they can do themselves, or should they be— does it have to be done by like a bookkeeper or an accountant?

Oh yeah, you could do it yourself or you could have someone else do it. Absolutely. Either way, there's obviously more— there's different— either way, from my perspective, whatever way gets you the information that's accurate and timely. And so you could do your job costing that way. There's CRMs that can help you do this, or you can do it in QuickBooks Online. So there's, there's a million different ways to, you know, slice it that way.

Yeah.

Okay.

So you can use a tool like QuickBooks Online, you can use spreadsheets. So now let's go one step forward. So the painter who is having a 40 to 50% gross margin, but they still feel like they're not making any money. Do you ever run into that?

Yeah, absolutely. So first, you— so if your profit's not where it is, look at your gross profit. That's step 1. Step 2, if your gross profit is good, you know, if it's over 40%, 50%, then you want to look at your overhead costs. So how much are you paying for your marketing, insurance, all the other things that aren't associated directly with the job? So Generally, you would want to, you know, develop a budget for these types of costs. How much money? And you basically ask yourself, how— what do I need to run my business? What are the bare essentials of what I need? I need insurance, I need to pay for marketing to get jobs. That— and then the marketing should generally be between 5% and 10% of total revenue, just kind of as a guideline. You should be getting around 10x ROI. Okay, so that's, that's a variable cost. But, uh, so that's just something to know that will be in your overhead cost, but it's a variable cost. And then, but the other things like insurance, how much you're paying for your accounting, bookkeeping services, the, uh, um, you know, auto expenses, all those other things, you can pretty much, you know, budget those out.

And yeah, they shouldn't change much if you do $50,000 a month or $100,000 per month, unless you're adding more crews. Like, you should be more or less the same amount of gasoline, but more or less the same amount of insurance, right?

Those, those—

and that's why they call them fixed costs, right?

Yeah, your CRM, your software costs, all those things, there's pretty much— so you should be able to develop a budget and say, okay, I need— this is how much money I have to spend on these types of overhead costs, and you should be able to pretty much lock those in. So if, if your gross profit is high, um, but you're still not making as much as you think you should, take a look at your overhead costs and, and do, do some budgeting. If you're still not seeing an increase in cash, or as much cash, because usually folks are looking at how much cash can they take out of the business, um, if you're still not seeing as much cash as you think you would be, I would look at your, your collection process because maybe— and this depends on how you're tracking your, your income, your top line income— but some folks, you know, they'll invoice their customer, uh, and send an invoice to them, say, hey, we finished your project, you owe me $5,000. But the, the customer, you know, might not pay it right away. They might wait a few weeks, or maybe that they don't pay it. So that would be the next thing I'd look at is like, are you actually collecting on the work that you're completing? Because that's going to significantly impact your cash flow. So collecting as quick as you can from customers. And so this might be when you complete the job, but also going back to when you close the job, you want to make sure you're collecting the deposit and also abiding by your state law. California's a little a little strict on this, but most states you can pretty much charge whatever you want for your deposit. And we see folks charging deposits between 20% and 50%. So getting that, that money down will help cover your, your labor costs and, um, and maybe even help you pay for your next— for your marketing costs to get your next customer. So if your profit margins are looking good on your profit and loss, but you feel like you still don't have a lot of cash in the bank, I look at your collection process and then how often are you collecting money from your customers? Are you doing it, taking a deposit? Are you doing a progress payment maybe for larger projects? And then are you quickly collecting after the job is done and, you know, not letting it just just sit around.

So there's two concepts that you mentioned there, and I just want to call out the technical names of each of the concepts because people might see them floating around and not really know what they mean. But one is accounts receivable. How much money are you owed and are you actually collecting on that? And the other one's cash flow cycle. Because if you have a lot of accounts receivable, a lot of people owe you money, and then a long cash flow cycle, or a slow cash flow cycle, I'm not sure the way that you would say that, long or slow or whatever, both, it's going to feel like you're broke all the time. Like I have a client who was doing $150,000 a month in commercial work, but he's just dead broke. His line of credits were maxed, his credit cards were maxed because he was waiting 30, 60, 90 days sometimes to get paid. And some of the contractors he was working with, it would like maybe not even pay him the last check or he'd have to like really chase and chase and chase them. But what people don't understand is, like, especially on commercial projects, every single check that comes in will immediately go out until the last one. The last check is the one that you get to keep. So if you don't collect 100%, if you only collect 80%, well, you didn't make any money on that job. That's really hard to keep operating.

Yes. Yeah, it's definitely a challenge with, with folks doing commercial or new construction. Is managing cash flow, getting paid as quickly as possible and managing your cash flow. So you start having to pull out some of the cash flow tricks like making sure you're putting your materials on your credit account with Sherwin-Williams or Benjamin Moore, whoever you're buying your paint from, making sure you're— if you have projects that are longer-term projects, like that, you want to make sure you're leveraging your credit, um, and you want to start with the cheapest credit that you have available, which is usually Sherwin-Williams, your vendors.

By cheapest, I mean lowest interest rate, right?

Exactly. And, and so you, you put it on credit, and those terms are pretty favorable. You can go 30, 60 days without paying interest on those in a lot of cases. So you want to leverage those. And then if you have folks that aren't paying you for 60, 90 days after you complete the work or whatever, then you might even need to add in another layer of cash flow management, which is using a credit card to pay down your materials to extend the interest-free for another 30 days. Because usually credit cards, you don't pay interest for the first 30 days. Use your vendors for, for the first 60 days, then you take your credit card, pay off the vendor balance to extend another 30 days. So that gives you 90 days between when you use the materials and actually had to pay cash out. So you can, you'll start having to, to pull out those types of tricks for cash flow management when you have those longer-term projects that, that are really hard on cash flow because you're waiting for that customer check to come in.

I mean, that's definitely nice to do on materials, but I don't know about you, but my painters would not wait 60 days to get paid.

Yeah, yeah, that's the biggest thing is labor. So that's why I was saying, well, first you want to try to get a deposit as much as you can to cover the labor.

In your experience, you see If we just focus on commercial right now, like obviously residential, most places except California, you can do a deposit, but in California you can also do a progress payment the day that you start from as much as you want. You can do a 50% progress payment on day one. But for commercial jobs, are you seeing most contractors who do commercial work get deposits?

It's kind of, you know, some, some can't, some can, you know, depends on what, what type of business or whoever you're working with, uh, or if you're working with a general contractor, you're usually— you can't, uh, but it just depends on the situation. So, you know, if you have the opportunity to get a deposit, definitely take that opportunity. If you're, if you're not able to, you have to, you know, look at obviously lines of credit. But before we get to that your— you look at your labor because that's the biggest cash outflow for most everybody is your labor. So if you're using employees, you have a little bit of flexibility here. So, um, you, you can decide on how often you're paying your painters. You know, you can pay them weekly, you can pay them biweekly, you can pay them monthly. And so that does matter. Obviously it matters to the painters themselves, like, they want to get paid as frequently as possible. Uh, ideally they'd probably say every day, but, um, you're obviously not going to do that. And for the business owner, the ideal situation is to pay them as less frequently as possible, because the longer you get to hold on to your cash, the better. So this is the whole struggle here. You're trying to get cash quickly and then hold on to your cash as long as you can. So, you know, a lot of folks, especially starting out, are asking how frequently should I run payroll. Always err towards the side of less frequent, especially when you're starting out, because you can always make it more frequent. Your employees are not going to get upset with you for paying them more frequently. It's harder to make it less frequent. So, but sometimes you'll have to make that decision. You know, I was working with a painting business owner recently that this is a new construction and having this, these cash flow issues. He was paying his employees every week, so we had to change the, change that up and do it every other week because the cash flow was so, so strained. And the bottom line, the way you pitch it to your, your employees is like, hey, if you want to have a job, we're going to have to change the way we're paying you and just make it every other week instead of every week, just to make sure that we can, you know, stay alive.

Yeah, I've heard of some, some of our clients, you know, they use, you know, day laborers who have day rates, and so they demand to be paid every single day. And I just respond by saying I would have never entered a working relationship with anyone who needed daily payments. There's no incentive to show up the next day. And that's why there's so many people who complain about unreliable subs or painters. Like, if you're paying them every day they have no reason to show up the next day. So, um, especially on residential for projects like that, I would recommend just, you know, they get paid when you get paid. All right, a little bit different on commercial when it's, you know, multi-weeks or multi-months, you can't quite do that. But yeah, I definitely agree, you want to push it as long as you can, like biweekly at the minimum. I mean, actually, I think biweekly is probably the ideal. Um, but then yeah, for residential, I would always push the painters to finish before the cutoff date a project before the cutoff date. And then if they'd miss that cutoff date, they wouldn't get paid for that project until the next pay period, which was always a motivation to work some late nights.

Yeah, that's good. Yeah.

So how about the next— so the next, um, size up. Now we'll look at businesses from $500,000 a year to $1 million a year. Now the first question I wanna ask actually is, um, What are the biggest challenges that you see painters experience when they make that leap? So you bring on a painter, you see them grow, they're in that $500K-ish area, and then they grow to that million-ish area. What are the biggest challenges or pitfalls that they should be avoiding when making that leap?

So it's usually people related. Getting to a million, you have to trust other folks to run parts of your business. And obviously the first trust you put in is hiring your crews. So you have to trust someone else to do the work. You're not actually doing the work. You have to trust someone to do the work. And then once you get to about $500K, you might be starting to look for a production manager. Usually between $500K and $1 million is when folks start looking for a production manager because you're trying to sell and market your business. And it's a little bit much to do that and also manage the job sites as well. So folks have a tough time kind of releasing of the production management or finding someone that can help them with that successfully. So that's kind of a key hire is finding that person so that can free you up to continue to grow the business while they focus on the production. And I think the things that comes down to is one, you need to have some sort of process that they can do, they can follow and, and, and, and meet your intent. And then two is you need to make sure you're looking for the right person, the right type of person that, that, that you can trust, uh, and vet them well, obviously. And, uh, so that, that's usually a pretty big challenge is to get beyond a million. Your folks get stuck in that, it's $500,000 to $1 million, where they can't find that other person to help them get beyond that range. And some folks, you know, they occasionally, I see they look for a salesperson first, you know, instead of a production manager. But usually it's they keep the sales and then they give the production manager you know, get somebody else to do that.

That's what I always recommend getting rid of first out of the two, sales versus production. Production is so much more time intensive and a lot lower, you know, dollar per hour responsibility. So ideally you find someone to run your production before you outsource sales.

Right. Because also you're usually better at it than anybody else. So for your business.

Yeah, fair enough.

Yeah.

So you said making sure that you have the right person, making sure you have the systems and processes in place. So you said earlier that it'd be about 7.5% of your revenue should be directed towards the production manager. What type of compensation plans have you seen, if you're privy to that information, that seem to work with production managers?

Yeah, so 7.5%, and that's kind of, it depends on the specific situation, but just a ballpark number. 5 to 7.5%, like a base plus production commission type of situation, or a full, uh, full salary. I, I see multiple different things, but, you know, it could be a base salary plus bonuses for hitting certain production levels. This is definitely something that I've seen. I've seen just, just a salary. I think the first one, which is base, a low base salary with production levels, is probably a good— it's harder to keep track administratively, but it probably more properly aligns the production manager with what you want them to do, you know, which is produce work. Yeah. Yeah, those are kind of the things that I see in that arena.

So at that 7.5%, you know, doing $50,000 a month, it barely makes it worth it to have a production manager. Like, I don't think it would be a full-time production manager at $50,000 a month, 'cause 7.5% of that's $3,700 a month and you can't get a good person for $3,700 a month.

Right. Yeah.

—so they'll have to probably like paint part-time as well and earn some more money painting.

Right. And, you know, if you are using crew leads, if you have an employee model and, you know, some people do source their production manager from their best crew lead, you know, so it might be something where they are doing production management and they're also your crew lead. That could maybe work. Or you might just have to wait till you hit a higher revenue level and just kind of work with it until then, or start someone off slowly and hopefully you're ramping into the higher revenue level, you know, as you pass things off to them. Yeah, and get them trained up.

But yeah, one way that I've seen it is to, to give your foreman just a little bigger of a bonus or pay raise and delegate a lot of those production management tasks to them, right? Like picking up paint, moving around ladders, maybe they drive your truck. Talking to the customer, picking up the check, doing the walk around. Like a lot of those things can be delegated to the foreman or job site manager or whatever you want to call it and take those responsibilities off of the owner without having a production manager. And that can be a couple bucks an hour.

Yeah, that makes sense.

Yeah. So how about since we're here talking about financials, what are some, you know, that we're talking about personnel a little bit. But when it comes to a $500K to $1 million per year painting business, what are some of the financial implications that you see when moving to that level?

So I would say on the tax side of things, your tax entity, your tax status would need to be looked at at this point, or maybe even a little bit earlier. But for sure, at this point, you know, making— because this is where you're, you're making some money, hopefully. Yeah, hopefully you're making some money. You're making money at this point. You know, when you're just starting out, my taxes are not such a big issue. Maybe just making sure you're compliant with filing your taxes and that sort of thing. But, you know, the actual amount of taxes you're paying is probably not too significant. But once you get to this area of $500K to $1 million, you're definitely probably having to pay a good chunk in taxes. So just looking at your— doing some basic tax planning, you know, looking at how you're being taxed. And this, this is more for— I'm— I know US taxes, I don't know Canadian taxes, but if you're a US painting company, you know, are you taxed as an S corp or are you taxed on your personal tax return? If you are taxed on your personal tax return, then you're probably paying a lot of extra taxes that you don't need to be paying. So just having someone look over that side of your business is, you know, could save you tens of thousands of dollars pretty easily.

So the, the difference is the ability to use retained earnings in your corporate structure and not have to declare all of your profit every single year and push yourself into the higher tax bracket, right?

You don't in the US, you you, as a sole proprietor or as an LLC, disregarded entity, which is basically if you're being taxed on your personal tax return, is a way to think about it, you're having to pay 15.3% on every dollar you're making. So that's okay in the beginning, but once you start getting more profit, it's, it's a huge amount of taxes that are going out the door. So you want to change it up so that you can distinguish basically say I'm an employee in my business and I get paid a salary, and then the, the, the business earnings don't get taxed at that 15.3%, and, um, I can just take distributions, take money out and pay myself the tax-free distributions on that.

And so to get specific, is that an— that's an LLC that does that?

So if we're in the US, it's LLC taxed as an S corp, because an LLC is, is not a tax status, it's just an entity. Um, so as an LLC, you can have a different— you can have be taxed on your personal tax return, or you can be taxed as an S corp. So you just basically want that S corp status in most cases. It doesn't apply for everybody. In certain states, it, you know, it doesn't make sense to, um, do this, but vast majority of states, electing for S corp status, tax status, is, is, uh, makes a lot of sense once you start making more than $60,000 in profit. In your business per year?

Per year, yes. Okay. Um, and so you should— I mean, it's— you said it's different in every state, so like, how can, how can someone figure out what type of entity they should be?

Uh, so it's not as straight. So basically, knowing your state laws, uh, state tax laws, most states they allow for you to create an LLC. That makes the most sense in most states. And for most states, it makes sense to be taxed as an S corporation. There's a couple states where they don't recognize S corp status, so, um, it wouldn't make sense to do it in those states. Uh, and there's just a few of them, a few handful that, that do that, but most pretty much. So I would just reach out to a tax professional, just verify, like, does this make sense? Um, And, and they'll, they'll be able to tell you whether it does or not. Okay.

So business starts growing, start cracking the, you know, $50,000, $60,000, maybe $100,000 per month. They're going from $500K to, you know, a million per year. When you start thinking about taxes that we're paying, what type of financial setup should a business in this bracket have? So what's like the software stack? What are like the kind of workflows they should have? What's the team they should have around them? Like, how should they be thinking about the financial side of the business? Sure.

So at this point, you should have hopefully a bookkeeping system. So QuickBooks Online is pretty much what everyone's using for the most part, and it, it's good because it does integrate with the different CRMs, most of them. You know, so if you're using a CRM, most CRMs nowadays integrate with QuickBooks Online, so we'll be able to push in your customers and your invoices and that sort of thing just to reduce the amount of data entry that you'll need to do. And so that's a piece, having a cloud-based CRM, having a cloud-based bookkeeping system, and then you'll just need to make sure you're setting up for tracking purposes, because, you know, we had talked about before, your financial information should be giving you information to help you make decisions. So at this point, you might— we talked about job costing, you know, understanding how much you're making on each individual job. So that gets in with making sure your CRM is, is linked in with your QuickBooks Online appropriately so that the customers are being broke out and the revenue and costs are associated with the job specifically. You also have time trackers. If you're using employees, you want to have a time tracker that ideally integrates with QuickBooks Online and also your payroll software. So ClockShark and QuickBooks Time are two common ones that folks are using that integrate with QuickBooks Online and common payroll software like Gusto or QuickBooks Online payroll. So you have your CRM, your QuickBooks Online, your time tracker if you have employees, and then you'll also want to consider how are you tracking the— your marketing costs, because you'll want to evaluate the return on investment for marketing. You can do that on a high level by looking at your profit and loss, by looking at, okay, I paid for— I paid $10,000 in marketing costs and I got $100,000 in revenue. But maybe you're running multiple campaigns, different types of marketing campaigns within that $100,000. Maybe you ran Facebook ads and you also did direct mail campaigns. So ideally you'd want to track those individual— those individually so you get a good return on investment. Understanding of what's giving you the best return on investment so you can put your cash where things are working and take your cash away from things that are not working.

Yeah, so this is like, this is like lead flow attribution, which is a long fancy word for basically figuring out where your jobs are coming from.

Yeah, exactly. So this starts making sense, you know, it probably doesn't really matter too much in the beginning, but once you start getting to you're using multiple marketing campaigns and you're around getting close to a million or above a million, that starts to make sense to, to track that and actually evaluate what's my marketing ROI for each individual marketing campaign, direct mail, Facebook ads, etc. So job costing, your app stack we talked about, and then marketing return on investment. The other thing that you could look at is if you're running different service lines in your painting business, like you're doing exterior, you're doing interior, you're doing cabinets, it might be helpful to track those different service lines separately so you know the income from each of those service lines, but you also know the gross profit on each of the service lines.

So job costing and categorizing each job based on like interior, exterior, cabinets, or whatever other, you know, sub services you're providing, right?

And then that just helps you identify which service lines are making you more money. And maybe if, if a particular service line is really profitable, you can just change your marketing to, you know, to push that more, and then maybe phase out the one that's— if you have one that really sucks, don't do that, don't do that one anymore.

Yeah, that's very— that's actually funny. I was talking to a client just, uh, earlier this week And, uh, he's like, I'm pretty much completely out of painting except when we do cabinets. I'm the only one that I trust doing cabinets. I'm like, why don't you just stop doing cabinets then? Like, let's just get— let's do the jobs that your team can do so that you can focus on growing the business instead of, you know, buying a sprayer. Yeah, exactly. Okay, so, um, that kind of outlines the, the software stack. So we should be doing job costing, Absolutely. You know, we talked about that earlier. That becomes even more important when you're doing more revenue and you're getting more profit and doing more jobs. You also can look at crew by crew, right? Which crew is more profitable than others and is there differences over time? Actually, I had another, that one client I told you about who was doing commercial before, he was looking crew by crew at job costing and noticed that one crew had like a 20-25% cost of paint. On each job site on these commercial projects. And he started to look into it and he inquired and he like dug into that a little bit and he found that on this one site paint was growing legs and walking away. Yikes, right? But if he hadn't been job costing, he would have never found that and those, those guys would have kept stealing paint and, uh, he would have kept losing money because he was ultimately paying for it.

Yeah, that's a good point.

Um, and then, uh As you continue to grow, you hit the— when you're in business, you don't really feel like you hit tiers. Like maybe you have some better months where you're, you know, you're six figures and then you go drop down, back down to $50,000 a month for a little while. You know, you have ups and downs, busy times, slow times. But as you grow on average, you know, you hit that next tier, million dollars plus. Um, which for those of you who have been there, you know, before you get there, you feel like the million dollars plus mark is like such a huge threshold to hit, but then once you hit it, you're like, oh, that wasn't that crazy. Yeah. What's next kind of thing. But how should you be looking at your business differently once you hit that million-dollar run rate and above?

So it kind of depends on the type of person here, but for a lot of folks, they've got a production manager hired. Not necessarily all the time. Sometimes folks are just really burning the candle at both ends and doing sales and production still, and sales and production management, or they just have really solid crew leads that production management isn't really needed as badly or something like that. But most folks have a production manager at this point, and then they're doing the sales still, at least close to 1 million. And so Here is where if you're still, you know, if you still want to grow to $2 million and above, then it might make sense to start looking for a salesperson. So having a process, a repeatable process for estimating, hopefully you've already done this at this point, but sometimes it's not the case. Having, you know, a repeatable process for how you're going to do a sales presentation, close the job. And generate the price for the customer, you know, using some sort of software, usually like Pain Scout or something like that. So that's kind of the next step is, you know, getting, getting a salesperson in there so you can then step back from both the sales and the production management and you're just kind of making sure everything's else working together properly. And being more of the CEO instead of, you know, one of the folks in your business. So that again, people is the challenge, finding the right person to be your salesperson and hand that off and having processes in place so that they can actually follow your sales process and generate the right prices, you know, that are priced for profitability. So that's usually the next challenge.

So basically what you're saying is like continuing to find all the different things that you're doing as the owner operating in the business and creating really strong and specific processes and systems around them and then delegating them and hiring the team to execute on those.

Right. And, and looking to keep making sure the margins are, are staying intact. So hiring a salesperson usually gets paid a little bit more than a production manager. You know, we said 5 to 7.5% for a production manager. So a salesperson is like usually between 5% and 10% of whatever they sell. And usually this is commission, either fully commission or like a very low base salary with commission. So that's usually how they're paid. And then it's just making sure your margins are And so this— since your, your roles are changing at this level, what you should be taking out as a, as cash flow to yourself should change as well. So you're still the business owner, uh, so you should still be getting that 15% of revenue should be going to you as a business owner because you're still the business owner. But you're, you're not doing production management anymore, you're not doing sales anymore, so you're maybe not doing 30% in profitability because you have to pay those folks, but you're still running the business. So you're usually a CEO role is somewhere around 5%. So maybe your target could be about 20%, you know, the 15% of as a business owner, then 5% as the CEO to kind of make sure things are working. So you should still be getting a cash flow owner of around 20% of, of revenue.

I mean, if you think about that, even at $100,000 a month, that's $20,000 in net profit. That's pretty good. Yeah, if you can, if you can set up the systems like that. Um, one, one thing that I've heard is that a, a, uh, I can't remember exactly how it goes, but it's something like, uh, a good employee can't use a bad system. Like, it's more important to have a good system, like a, like an A+ system, than an A+ employee, because you can plug a B player into an A+ system and then that person will become an A, right? But if you plug an A person into a C system, like, you're going to bring that person down. So talk about, um, creating those systems and the processes. How should someone go about— I know you're, you're not, you know, the systems and processes guy, but I still would love to hear your input on, um, how you would recommend going about creating those processes and systems so that people can delegate like I said, an A+ system to a team member.

Yeah, absolutely. We, like you said, we, we don't do, um, we do a little bit of this, um, when we help folks streamline and automate parts of their process. But basically, you take a look at a particular process in your business, maybe it's the sales process or your, your customer onboarding process, And then identify, okay, what are the big picture things that are supposed to happen? You know, the big picture step, like what's your sales process? Just to see, easy to visualize here. So your sales process might be kicked off with the leads schedules an appointment. So the point at which they become a prospect, right? They schedule an estimate. So that kicks off your sales process. And so what are the things that are happening before the estimate? And then you're doing hopefully some nurturing and reminding for that. And then the estimate occurs, and then everything that happens after the estimate— what are you doing to follow up and hopefully close the deal if you didn't on the spot? And then the end of the sales process is, you know, them signing the contract. So you have the That's basically the sales process, right? Like big picture. Now that obviously needs to be communicated to your teammate, but what they'll need is the how-to guides that fill in each step of that process. So, you know, what does your salesperson need to do before the estimate? So there should be a how-to guide, like how to prepare for an estimate. And what communications should be sent from them, you know, what pre-work do they need to do before that estimate. And then, so there's like a how-to guide that supports that step of the process. Then the next step is, you know, doing the estimate, going to the sales or going to the customer's house and doing that sales presentation. So there should be a how-to guide on how to, you know, generate the price and, and present the estimate to the customer or the prospect, I should say. And so there's a how-to guide for that. And the how-to guide is literally just, maybe it's a Google Doc with written instructions and maybe a video in there explaining it, whatever it is, maybe it's a checklist included. So video, written instructions, checklist, are usually good things to include, like the how-to guide. Yeah, so, so you just— so big, the big picture is the process, my sales process. It consists of, you know, 4 steps, you know, before the estimate, during the estimate, after the estimate, and then handoff to the production or something like that. So those 4 steps, within each 4 of those steps, you have what, how do you accomplish each of those steps? What is the actual nuts and bolts of how do I click, you know, click the CRM, or what kind of email do I send, and that kind of—

Yeah, like as granular as possible, right? Yeah. So one of the things that you're passionate about is helping painting contractors make more money in their businesses. How do you do that?

So we basically get them set up on a system that gives them information to make better decisions. So we kind of talked about a lot of those things already. Uh, so we, we set up a system that allows them to make those, those better decisions, whether it be increasing their prices, um, being more efficient on the job site, allocating their, their money to the right marketing sources that's giving them a return on investment. You know, all those things. So all those things that we talked about, you helped them set that up? Right, help them set up those systems so that they can get that information to hopefully make better decisions in their business. And then once they're profitable and making a lot of money, then we help them save on taxes by doing tax planning with them, sitting down with them, looking at their, their personal situation, their, their full tax situation from a holistic perspective, and, and coming up with a plan with them that's tailored to their specific situation to see, okay, what can we do to lower their taxes as low as possible? Based off their situation. And so we'll, we'll go through that with them and either sometimes we can actually do the strategy for them, sometimes they have to do it, sometimes we'll help them do it depending on what it is, what the tax strategy is. So set them up on the bookkeeping system to help them make decisions, help them understand what their taxes are going to be and what can they do to lower their taxes. And then the last thing we do is we do help streamline and automate their different processes in their business so that they can save time and admin time on those things.

Okay, so a couple of things I heard. Number 1 is helping them understand their numbers so that they can make better decisions operationally, whether it's job costing or marketing expenditures. Number 2 would be helping them understand like maybe like how to save or defer on taxes. So, so tax planning and tax strategy. And then number 3 would be just like generally helping analyze, not just like getting the numbers together, but like helping analyze and helping make those decisions based on the numbers. Yeah, absolutely. Okay. And I mean, how does, how can someone, how can someone tell or know if they're a good fit for for getting your help or if you can even help them?

Yeah, so if you go to bookkeepingforpainters.com, there's a Contact Us button. You can schedule a free consultation where we'll sit down and basically see what challenges you're facing and what might be useful to implement different strategies to help you make more money, save in tax.

And it is Bookkeeping for Painters, but you're not just bookkeeping.

Right, yeah, uh, bookkeeping, taxes, payroll automation. So we do a lot of different things. We started out doing just bookkeeping and the name's kind of stuck, so we're sticking with it for now. But yeah, we're doing a little bit more than that now.

Yeah, I mean, I totally understand the concept of making your domain name memorable. That was my whole concept here with paintergrowth.com. So it's definitely a catchy name, it gets right to the point, tells you what you do. But yeah, definitely feels a little pigeonhole-y, but it is not. I mean, because you, you guys do so much more than just bookkeeping. Yeah, right. It's like full-service financial, uh, support. Yes. That's awesome. So if we finish out, what it would be— I'm going to give you a really broad question, no, no wrong answers here. Um, what can a painter do today to be more profitable tomorrow?

That's a good one. I mean, like, the straightforward one would just be raise your, you know, increase the prices on everybody, and then you'll make more money tomorrow. But maybe more to what you think you're asking is, from my perspective, is knowing your business better, what's working, what's not working. Knowing your numbers and what they mean so that you can, you know, make the changes you need to make to get yourself to the next level. So that might be more than a 2-day process, but, you know, it could be done over definitely a couple weeks or a few weeks of getting, if, you know, depending on where you're starting, getting a grasp on what your numbers are, understanding where you stand now, and then what improvements can you make to get to the next level.

Yeah, so understanding your numbers first, knowing where your bottlenecks are, and when in doubt, just raise your prices. Yeah, sweet. Well, thanks again, Daniel. For everyone listening, that's bookkeepingforpainters.com. I believe you do free consultation calls to see if customers are a good fit, see how much money you can save them either in taxes or just on operations. And so definitely go there, do your free call. See if he can help you. And, uh, yeah, thanks again, Daniel. That was, uh, very informative, and I hope that the listeners got something out of it. I know I did.

Awesome. I really appreciate it, Mike.

Okay, thanks, man. See ya. All right, bye. Thanks for listening to the Painter Growth Podcast. If you want to grow your painting business, go to www.paintergrowth.com or click on the top link in the description. Talk soon.