Chapter 10 - You Hide Stuff From Employees ( Total Business Turnaround Book )

Hey everyone, it's Mike Andes.

And today we're gonna be reading chapter 10 from the total Business Turnaround book. And this, this episode and this podcast is completely free. I want to make sure I get this message out to as many home service business owners as possible. If you could do me a massive favor in exchange for that and just.

Leave a rating on the podcast.

A lot of times in whether you're listening on Apple or Spotify or any other podcast platform, the only way to actually, for us to reach other people is, is to get a lot of ratings. It's kind of how their algorithm works. And so because I gave it to you for free, my only price of admission is that you leave the review. I wanna get this message out to as many home service business owners as possible. And so if you could do that, I would genuinely appreciate it. So without any further delay, let's jump right into chapter 10. Chapter 10. You hide stuff from your employees. Why you don't have a million dollar business. Reason number 10. You hide stuff from employees. Adam and Jody were busy. They ran Southern Landscape Property Management. They also worked 60 to 80 hours a week as firefighters. The business generated almost $2 million a year in annual revenue. Most of that money came from commercial maintenance contracts where they did mowing and grounds management for HOAs and large properties. Jody was the owner and Adam served as the operations manager. They were generating a lot of revenue, but the business was struggling. Jody had recently experienced a bad split with his previous partner in the business. The partnership ended. They split the equipment and debt owed on the business. Southern Landscape property management had 24 field staff. This resulted in major overhead, much of which went to non revenue producing positions. They leased a large office and shop space. While some administrative overhead was of course necessary, their arrangement seemed excessive. One office employee for every three field crew members is not sustainable. This is true if you offer a low margin service like commercial lawn maintenance. They had a full time mechanic and landscape designer. They also had two operations managers, a salesperson and several office employees. For home service businesses dealing with residential customers, this might be acceptable. But commercial clients generally don't need as much office support. Customer communications are not as frequent as they are with residential accounts. A few key contacts, like property managers, need less admin. This contrasted to hundreds of homeowners who call, text and email often. Adam and Jody had $50,000 cash in the bank and $150,000 in debt. Employees had no knowledge of the business's financial status. Most of the staff assumed the bosses were taking home a fortune. Employees see a business adding trucks or hiring new people. They think it means there's a lot of money to go around. This is not always the case. Equipment is expensive. Staffing is expensive. If this information is not shared with the employees, they will naturally look for evidence that the man is living high due to their hard work. Employees don't always link these added truck and equipment assets to higher costs. They don't see the added expenses. In fact, Southern Landscape Property Management was struggling when I arrived. Adam and Jody didn't have enough cash to make payroll for a month on a nearly $2 million revenue business. Having $50,000 in the bank is scary. This is true if you are like them, not profitable and no established line of credit. The main recommendation I gave them during the turnaround was to open up their books to their team. Open book management involves showing all the business's financial information to the staff. I also recommended installing revenue or efficiency targets for each crew. They should get bonuses based on production. This is not a full pay for performance model, but it does encourage efficiency and is a step in the right direction. All performance based pay will push employees to want more data and information. They need it to make more money. I also suggested being more transparent with the business's goals. Put a debt thermometer up in the office. A concrete indicator of where the business stood on paying down its loans. This would dispel the idea that Jody was making a fortune. It would also align everyone's motivations. If they tied a bonus to their debt elimination goals, it would encourage productivity. It could be a party, cash bonus or other incentives. They would rally the crew to pay off the debt and drain the debt thermometer. I also encouraged them to establish a scoreboard, track and publicly display revenue brought in by each crew. This would develop healthy competition and further motivate productivity. They were not going to pay their team P4P pay for performance. So they should at least give employees the success metrics. These metrics will let them measure their contribution to the team. My thoughts were that they could make the same amount of revenue with 30% fewer employees. This would radically reduce their expenses and improve their profitability. Their biggest problem was overhead and non revenue producing team members. We need less management and quality control. This is true if all the frontline team members try to be efficient and are incentivized to reduce waste. They could achieve this by stopping hiding information from their team. Many business owners are reluctant to open up their books. I felt the same way. Starting out, I was worried that my team would think their job was in jeopardy.

They would have been right.

We had so little money that meeting payroll was always a balancing act. Every week I feared that they would leave for more stable employment. If they knew how bad things were, perhaps they would think their paycheck was not secure. I was wrong. The vast majority stayed once they saw how bad the finances were and rallied behind me. Eventually my business began making more money.

I still worried about opening the books.

My new concern was that they would think I didn't deserve all the profit.

Again, they would have been right.

They saw me working much less than them. Some months they would see me for an hour or less at the office. Meanwhile, they were out in the elements eight to 10 hours a day, working very hard. How was it fair that they made a fraction of my income but worked so hard? Profit sharing and giving them a piece of the pie solved this. Work culture suffers when business owners refuse to open up the books Work culture suffers when owners refuse to pay based on performance. Many employers don't want their employees to know what they are earning. They think the staff will demand better compensation or more equipment. This might happen when employees want more money. PVP and profit sharing is the answer. It ties their earning potential to the revenue they create for the business. As mentioned in the last chapter, this accomplishes several things. First, it encourages efficiency. It also keeps your best employees. It lets you grow your business by paying employees better. Given the chance, employees will always want better equipment, trucks and shop space. Employees demands are not bad. Usually they ask for things that would make their jobs easier. When their jobs are easier, their capacity improves. Their job satisfaction goes up. If your staff makes a reasonable request, agree, then put a contingency on it. For example, lets say they want more trucks, better equipment or a larger shop space. Agree with them. I also want more trucks. I also want better equipment.

We can get them if the business.

Generates X amount of revenue and X amount of profit. This approach will make your business more transparent. It will also create a common goal amongst your staff. Effective employee management happens when you and your staff share the same motivation.

In this case, your employees know what.

It will take to get that new truck. They will be able to watch their progress. They have the power to work harder and speed up the timeline to the goal. Instead of hiding or getting defensive, be open and honest. When employees want to see the company numbers, you may worry that someone will challenge your spending choices. Unless you are doing shady stuff like paying people under the table, avoiding taxes or changing timesheets, being open and clear will only increase trust and buy in from your team. When your business does well, reward your team and encourage them to keep the pedal to the floor when your business is struggling, Be open. Help the team understand what it will take to get things back on track. To be clear, when I say open your books, I mean it. This includes your labor rates and markup on materials. It's every expense, every job and invoice total. This includes your profit and loss statements, balance sheets and loan balances. Keep in mind this is information that they very well may come across anyway. Maybe someone left an employee document on a desk. Maybe there's talking between your office and labor staff.

They might see something on your computer.

The customer could tell them the invoice total information has a way of spreading. Why not put it out there yourself? Avoid rumors. Clarify information. Discourage murmuring. Be transparent. I've already outlined the benefits. What are your concerns? Many business owners worry. They fear that their secrets will go to the competition. Maybe your team discusses your situation more openly than you would prefer. Maybe someone leaves for a competitor bringing your pricing strategy with them. Let's play this scenario out. What competitive advantage does this provide? At best, it gives your competitors the opportunity to undercut you. This may lead to a short term influx of customers. It will also lead to them making less money. They are unlikely to build a strong long term business on low priced estimates. They will only take your lowest quality price sensitive customers. Think about the mechanics.

They would need to use your prices.

Against you and steal customers.

But to do this, they would need to cold call all your clients and.

Offer a cheaper price.

Nothing is stopping them from doing that now without having your pricing information. If they could funnel your customers away from you with cold outreach, they'd already be doing it. Someone with the guts to cold call your customers and undercut you has already taken massive action. They have already done cold calling and door knocking and built a big business that generates leads they don't need to steal to win.

This is something you can do to generate growth. No, you don't need to enlist spies.

You you don't need to siphon information about your competitor's pricing structure.

You just need to develop your own cold outreach skills. We have already discussed this. The ability to use the rule of 100 and take massive action via cold.

Outreach is crucial when you are trying to grow.

If your competitor has that skill, they have already deployed it.

They won't wait on your pricing information.

Bottom line, your frontline team members probably.

Aren'T spies to use your information against you.

They need to be very calculated and malicious. You don't hand your staff a spreadsheet.

With all your customers contact info, do you?

To pass that information to the competition, they need to take screenshots. The screenshots will need to capture many things. These include contacts, contracts, estimates, billing info and call notes. They don't want to do this. They'd quickly get caught if they tried. Assuming you have an entry level use of software. Another worry. Your employees may take your pricing strategy and systems. They might use them to start their own business. This is always a valid concern though one that may be applicable even without opening your books. Your employees know a lot about how your business works. They could start their own competing business. They could learn from your playbook. But they could do this even without the numbers and pricing given through open book management. The benefits of opening your books outweigh the risks. On turnarounds, a common issue arises. Fuel crews lack concern for profits. They don't think about the financial health of the business. Owners or managers are the only ones worrying about the financials of the business. Why not share the stress and responsibility with your team? They can help you. Sharing will let them have a meaningful.

Impact on profit and efficiency.

Owners are often discouraged. Their employees are less efficient and forward thinking. They think, man, I could have done that job in half the amount of time it took them. I could have upsold the customer and avoided that callback. Why can't my employees just work like me? If you want your employees to think like an owner, they will need two things. First, they will need to be compensated like an owner. This comes in the form of P4P and profit sharing. Secondly, they will need the information of an owner. This comes in the form of open book management and not hiding things from your team. When I first opened my books, I realized that most team members had never seen a profit and loss statement. They didn't know how to read spreadsheets. They probably hated math. I wanted to make the information easy to understand. At the time, we were doing about 1.1 million in annual revenue. For every $10,000 in revenue, I put a $1 bill on the table. In this case, we had 110 bills. We then printed off the profit and loss statement. It had about 20 expense categories from the previous year. As we went through the financial statement, we handed out the dollar bills for each category. We gave them to individual team members. For example, if there was $40,000 in fuel costs, we would hand $4 to one individual. They then represented the fuel line item on the financial statement. This example made our expenses more tangible. By the end, there were only a few bills left on the table. This helped them understand how thin our profit margins were. They understood the situation better. They saw the money disappear firsthand. They could visualize the impacts of earning and spending the money in the business. At the end of the meeting, I told them to think about their expense category. At the next meeting, I wanted them to pitch me ideas. How could we get more money from their expense category back into the profit pile? In other words, how could we be more efficient? Everyone came to the next meeting with one to two ideas. Lots of things came up. One person suggested paying teenagers to clean the trucks on the weekends. This would allow us to save money on paying overtime. The person assigned to the labor expense category made this suggestion. Labor at the time accounted for almost half our expenses. The person assigned tools and equipment expenses suggested ways to sharpen the mower blades faster. Another idea was to include bottles and rags in the truck. Have team members take a minute each day to wipe down the interior of the work trucks. This would end the need for the overtime caused by someone working on the weekend. Not all the ideas were actionable, but all team members actively participated. It opened them up to thinking about efficiency and profitability. We then voted on the best idea. In this case, it was that the estimator didn't need an F250 pickup truck. Instead, they could drive a cheaper, more fuel efficient car. Because I was the estimator, it meant that I no longer drove a truck. As my personal vehicle, they relegated me to a Honda Civic. It wasn't flashy, but it was fuel efficient.

I was thrilled.

My team was thinking about ways to make the business more profitable. At the end of the meeting, I handed the $110 from the example to the person who came up with the idea. It was a simple way to drive the lesson home. The year I opened up my books changed everything. Before our profit margin was in the low single digits, I was spending 80 hours a week working in the business. A couple years later, I had a general manager and spent only one hour a week thinking about the business. That year, I took home $280,000 in owner's distributions. Many business owners make excuses for why they can't open their books. What's the worst that can happen if you are struggling? Showing your numbers makes your team feel like underdogs. There is nothing more powerful than a common enemy. In this case, the enemy is waste and inefficiency. Your team will rally around you if you are open and honest. Don't hide any numbers it's very easy for team members to misread the signs. They know new trucks are expensive. They assume that when you buy them, it is a sign you are making money and hand over fist. If that's not true, prove it. Trust is a key ingredient for establishing.

A positive work culture.

How do you erode trust fast? Hide things from someone. The other reason business owners don't want to show their numbers because they actually are crushing it and making a lot of money. If that's you, Share your profits via a profit sharing program. Offer career development. Give them a clear path to earn more money inside the business or to build their own. We offer podcasts and audiobooks. They are designed to help them manage their personal finances. We also offer meetings. These meetings cover topics such as credit scores and creating a side hustle. They also cover making money online, buying a new car and getting a home loan. We discuss career advancement even if it means taking a job somewhere else. At Augusta, we have the 3F program. Franchise fee Forgiveness. Anyone who works in the field for two years can join as a franchisee with zero initial fees. This saves them $25,000 plus. It also fosters a culture in which they can learn and grow. At Augusta for two years before becoming an owner, they learn the systems. They also learn the business skills required and needed to make the high profits their owner is making. Openbook management allows them to see those profits. Hopefully the profits are high enough to motivate them to take self improvement seriously. As your business grows, it is valuable to learn how to go from being a talent magnet to a talent developer. Turning an average employee into a great one is more repeatable than finding a motivated, efficient one in a million person. Open book management is crucial. It helps employees think and act like owners in the business. I recommend introducing profit sharing once you are profitable on a consistent basis. This doesn't mean offering profit sharing to anyone. I recommend that the employee have been with your company at least 1/4. In that way they contribute to the profits right? Rather than only receiving training. They should also have to have good attendance to be eligible for the profit sharing program. Every quarter we give 10% of our profits to the frontline team. To be eligible, they need to have never been late to work. They also need to have never called out at the last minute. If they do this once in the quarter, they lose half their profit sharing.

If they do it twice, they lose it all.

Profit sharing for managers is more weighted. I share 10 to 35% of profits with my general managers. I share another 5 to 10% with my regional managers. The percentage for managers fluctuates based on my level of involvement. I am never at the business and act as an absentee owner. The profit sharing is higher. I want them to be more incentivized to think like an owner. Managers profit sharing is also influenced by the size of the business when they started their role. Profit sharing tends to be thin for newer locations as they focus on growth. I am willing to share a larger cut of the profits, but only if a manager starts their job in the early stages of growth. If the business is already established and profitable, the profit sharing percentage is lower. This is because the owners were growing the business and reinvesting most of the profits. When a manager is willing to start at square one with me, I'm willing to give a higher percentage of the profit. In businesses where I am involved, I don't offer more than 10% to my managers. If I'm coming to the office, hiring employees or managing the marketing, the manager gets a smaller cut. Managers who handle everything get a much larger cut.

This could be over 30%.

If you hide stuff from your employees, you are sketchy. If you are sketchy, your employees will notice.

They will like you less.

If they like you less, they will not work as hard. They will also think more about how they can tear down the business.

If they don't like you, they will.

Look for ways to slack off.

They will clock extra paid time before.

Or after their shift. Or they'll siphon off gas for personal use. If your employees like you, they will work harder. They will care more for the business and your equipment. They will care more about your customers and your bottom line. How do you get employees to like you? Don't hide stuff. Don't lie. Share in the purest way possible by opening up your books. When employees like you, they want your company to succeed. This makes building a million dollar business easier. You will have the whole team rooting for your success. And instead of planning your downfall, Southern Landscaping could make up to an extra $180,000 revenue by getting more out of its existing team. No more hiring required. How could they do this? By giving team members all the information they can help the team grow and improve. You expect efficiency from your labors, but you don't share the business numbers. This is like driving a car without a speedometer, gas gauge or roadside signs. It will end in confusion and wrecked expectations. We as owners are always thinking about preventing waste and seeking new customers. If you're the only one thinking about this, you will burn out with a low profit business. You don't want a bunch of individuals pursuing their own interests. You want a united team. Shared motivation strengthens them. This will help the business make more money. Make it clear to employees how they will make more money. If the business does, then share the metrics for them to measure their success.