It doesn't mean anything... - Episode 054

The amount of work required to get inertia in business cannot be understated and most people will never get through it.

Good morning. Well, evening, afternoon, whatever we're recording in the morning. And I'll also say happy March, Happy Spring.

You're going to release it?

Yes, yes. Yeah. Happy March. We are going into spring. So we're excited.

We're off our political agenda from the last.

We're off the political agenda? Yes. Connor Hutchinson, you don't like politics. I get it. Yeah. Off the political stuff, you know, we'll see. All right, well, I had some questions for you. We'll just jump right in. You have been releasing kind of little mini educational videos, if you will, on your secondary channel, which is, what is it called now?

Home Service Millionaire Home Service.

That's a good rebrand. I know. That's why I didn't say it. I was like, good rebrand Home Service Millionaire. So this is the new channel that you are posting content on and we can get into the rebranding and all that later if we want to. But you did a recent little mini 10 minute video that I thought was very interesting and you said like, this is the scorecard you need for your business. Now obviously we have a scorecard internal for Augusta and like the owners know what to expect. You know, if they hop on a coaching call with myself or one of our coaches that there will be certain numbers we are going to want to go over or certain numbers that we feel they should know as the business owner. So I'll quickly list the ones that you mentioned and I'll have kind of specific questions. I'll list what you mentioned and then tell me like the brief of why you rank those higher than other KPIs you could track. Okay. So you said tracking your distributable cash amounts, tracking your close ratio, percentage of revenue going to labor, percentage of revenue going to office labor. So field versus office labor, hourly labor rate and then the debt to income ratio. So why did you choose those over, you know, various other numbers and KPIs that can be tracked in a business?

Yeah. Like ultimately you're the goal of running a business is make it profitable. Right. It's a matter of like how you define profit too. And so instead of getting this long debate about defining profit, it's like how much money can you take out of the business? And that's distributable cash. So like that's why I think the number one metric of a business really, because even if you have some debt and you have other obligations or whatever. If you just can. If this, if this business is like, you're able to siphon cash out of it, that's a good thing. That's a profitable business. And so distributable cash is so important. And really, you could take that one and just all the other ones are gone. Because if you have a lot of good distributable cash and like, that percentage is healthy, like 15 to 20%, for example, it's very, very likely that all those other, other ones are just fine. And if that one's really bad, like, you're not taking any distributions, there's other things that are problematic in the business. But then, so then that's why I do the other ones, so I can drill into stuff. Because it's like, oh, there's not much distributable cash. Why, okay, here's these other five metrics. And by the way, you're spending 55% of your revenue on direct labor out in the field. You're never going to make money, and that's why it's inefficient or you need to raise prices. Right. So, yeah, the scorecard I gave that conference, and then I just, I made the quick video. It's a very summarized version of it, just so that people. I just remember starting out and having no benchmarks whatsoever, like, what's good, what's bad? And some people, like, I get to name five owners in Augusta Nation that are one way, like, and there's like, they're like, how do you know that that was good or bad? Right. And then I have other. I can list five or ten in my brain right now. Like, they want to know, is this good and is this bad? And they will send me number and be like, tell me good or bad. Don't give me any gray answer. Just tell me good or bad. Yeah, I lean more in that direction. So when I got started, I didn't have any sort of like, is this good profit margin? Is this, like, am I spending too much on labor? Is that efficient? So I just wanted to give some sort of ranges. And yes, the ranges, it's depending a lot on, like, what type of services. And if you have materials, it's going to skew off your revenue and stuff like that. But it was like, generic enough, hopefully to give someone some definition on those.

Yeah. And I think as a, you know, home service business coach, if you will, and I get to coach a lot of the owners. I, I try to zoom out, too, when I'm doing coaching calls is like, well, what are your goals? Because I can also give the objective. Is it good or bad? Yes or no, based on these metrics and the size of the business. But the element that comes into play that when you own a business you have the freedom to decide is what are your goals? Right. And some owners in Augusta and just in general business will take the smallest amount of money out to pay themselves and live on you and beans. And then others are like, you know, hey, I have responsibilities. Like, I don't want to live on rice and beans. I want to enjoy the fruits of my labor. That's fine. You're probably going to have very different profit margins if you look at it from that objective perspective. Which is why I like distributable cash. It's kind of like cash in, cash out. How much cash is acquired in the bank account and how much can I take out in terms of the percentage of labor in the field versus percentage of, or excuse me, percentage of revenue going to labor in the field versus percentage of revenue going to the office. Why did you feel the need to break those apart?

Because a lot of times people will just do labor versus revenue and then it'll hide a fundamental problem as they have too many office staff.

Gotcha.

I see that a lot of times happening when people get to like 800,000 to 2 to 3 million is they have like way too many office staff. Because there's a point where you actually need like a lot of office after a spring rush. But then they hire them for the whole year and now their overhead structure gets messed up, Especially if they're salaried or just even in general. Really. Okay. A lot of times people just keep them even if they're hourly throughout the winter time.

Yeah.

And so even like the place we went to a couple weeks ago on the turnaround show Attaboy. Like there's the estimator, two people in the office and their general manager and the owner. Like that's a lot of people on a million dollar business to be non revenue producing, all the highest skilled and probably highest paid. And so if you have five people there and only 10 people out in the field or 1 to 2 ratio in lawn care is not great. I've seen H vac companies, garage door companies do like some of them 1 to 1 or 1 to 1.2 or 1.3 in terms of people in the field to the people in the office. But in most home services where you're charging under $150 an hour, you can't have a one to two or less ratio. And so that's like just kind of a benchmark, I'd say.

Okay, gotcha. No, that makes sense.

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All right, tell hourly labor. Hourly labor rate. I think that's pretty self explanatory. Don't feel like we need to go into that debt to income ratio now. I think this one is very subjective to some people because it comes down to risk tolerance.

And I changed this one.

Okay.

So if you look at how I define it in the scorecards, different. It's payments versus income.

Okay.

It's not how much total debt do you have?

Okay.

Because I'm looking at from a cash flow like survivability and it's not a matter how much, how much debt you have. It's what does your cash flow look like. So this is more of a cash flow thing.

Okay.

It's not what typically it's debt to income ratio is like how much debt do you have? What's your total annual income? Like that's what like you.

So you're saying how does that debt affect the cash flow? That is what is the term and what are the monthly payments?

I'm looking at, will they drown in debt payments during the off season?

Right.

And if, if you have $90,000 of debt, but you're paying $1,000 a month, that's not bad. But if you have $90,000 of Debt but you're paying $6,000 a month, there's a good likelihood that you're going to lose three to four grand a month in like, like you're going to burn money during the off season and that's like a recipe for disaster and why a lot of home service businesses fail.

Gotcha. Okay, good. So the one I wanted to dive deep on. And then there's close ratio, which we kind of skipped over. Pretty straightforward, I think. You know, if you're in growth mode, higher close ratio, we tell Augusta 60, 70% if you're in profit mode, you know, somewhere around like 40%. That's kind of the safe zone though. 40 to 70 we feel like is pretty standard and then should fluctuate based on demand curve and the goals of.

The business and the capacity.

And the capacity. Yep, exactly. Yeah. Asset or labor capacity. Cool. So what I Wanted to dive in most deeply to is the distributable cash. You already kind of briefly explained it, but for those who maybe don't know what it is or how it should function properly, do you want to kind of explain, like, just the math behind it, like, and feel free to go a little bit longer. I know in those educational videos you're pretty snappy, but in this case, like, assume I know nothing about distributable cash. Explain to me how to run it.

Yeah, yeah. I'll just say real quick because. Because as we talk about a lot of this stuff, like, this is the stuff that's going in the book. And so, yeah, the book is going to be super repetitive, I think, for a lot of the owners of Augusta Nation. And people, like, watch this because it's going to be a compilation of, like, everything I've ever talked about, but in a much more recipe kind of style. And it's like, what's it called? Where your book, you read part of it and then go to another part.

Your own adventure.

Yeah. Choose your event. It's kind of that style. And it's like, okay, so you, you have no money in the bank.

Okay.

All your employees have left. You start here. Right. And so it's not gonna be anything new. Yeah, but like, even what we just talked about there, like, I, I, I give guidelines. 40 to 70%. Okay. Now, are you at capacity? If yes, go here. If no, like, so if anyone's like, looking forward to the book, it's probably not gonna be like, anything new for you. But what it will do, like, this is like, when I talk to Dr. Cash, I'm like, he's like, why do you wanna write the book? I'm like, I don't really care about, like, the, the current business owners that watch me getting this book. I care about the person that has no idea how to fix their business. And they're like, they're really, they need a turnaround. Yeah. And they're afraid to come have me come video them. I would like that. Just.

Yeah, totally.

I, I don't know how people do it. Like, they need, they need to know what to do when they read this book.

Yeah. So, so, like, for, yeah, just said, I guess add on to that or kind of throw my opinion out would be for the people that have followed you for a long time, the, the hope is that they are implementing what you're talking about. They are already using these strategies. They're already using these frameworks. This is kind of a term I like to Define it. But for the people that don't or they don't want to have the turnaround or they just don't know where to start, it should be like an unlock for them. Is that what you're going for?

Simplify the things that I've talked about for a long time and like, the owners in Augusta, they've heard me started to get like more refined with like, for example, during the spring rush, you should, you should be scheduling recurring and time sensitive jobs. Yes. During the off season, I either eight, nine months of the year, you should be scheduling one time projects and time insensitive jobs and like, that's it.

Yeah.

Like, and in the past I would have been like, well, you should be keeping consideration the fact that there's gonna be one time mo's or initial mo's. You should keep some time, you know, a little bit alleviated during the spring rush. Not as many budget hours to accommodate those. Like, and I would have gotten the weeds when just like it's really simple. And so that's why I'm thankful I have Dr. Kashi. And then like, that's what the book is for. Yeah. Is it like, so when someone hits a problem, it's not like, oh man, like I have all these variables. Like, no, like very white. Like black and white.

Yeah.

And like every, like that's the. For example, that that chapter is called Mismanaging the Spring Rush.

Cool.

And then there's another one, like mismanaging the off season. And that ties into what we just talked about. And that is like the fact that your overhead structure doesn't facilitate you allowing to know you're burning money throughout the winter. And the that fact.