How to get 20% profit in your home service business

In your home service business using a simple five number formula without being a numbers person. My name is Phil Risher and this is Paul Maskill. Thanks so much for joining us today live. If you could hit the chat real quick while people are coming in, we'll give them a couple minutes. Where are you calling in from? What's your business? Give us some information about your business. It helps us a lot as we're talking to make sure that we craft the messages and also throughout the conversation, if you have questions, I know probably when you registered for this, you can ask questions, but if you have questions specifically when it comes to profitability, put it in the chat. Cool. While people are coming in, Paul, do you mind sharing a little bit about you, how you, you know, know how to get 20 profit and like how you got to this point?

Yeah. Thanks Phil. Excited for the conversation. Like Phil said, if you guys have any questions, post them in the chat. We want this as conversational as possible. But my background, so I grew up around the trades. My dad owned his own hardwood floor business. I grew up in Michigan. Him and everybody he worked with said, don't do this, don't go into the trades, go work for somebody else. Go get a good college degree so you don't have to use your, you know, body the entire time. And. And he was a one man band, so. And all the people that he, you know, worked on job sites with were one man band. So they were kind of miserable, burned out. So I got a finance degree. I moved to Chicago 2007. I watched 2008 happen and I worked at a big bank and I watched all these people lose their job. At the time they were like these really old people that were like 40 and 50 years old, which is me now. But I was like, you know, everyone said that was so secure and I realized it wasn't secure at all. Just because you're really running your own business and you have one client, if that client fires you, you're out of business. And I saw that happen to thousands of people in Chicag after 2008. So I made the decision. I was going to quit my job. Similar to you, Phil, I traveled around for a little bit. So I backpacked through South America for a couple months in 2010 and then I ended up in Raleigh, North Carolina. I've been here since then. So I've been here for almost 16 years. I have owned and sold four different businesses since then. I made the vow to myself, I'm not going to work for somebody else. I rather do Something I enjoy and make less money than sit in a cubicle and be miserable working at a big corporation. So. So most recently I spent like the last six or seven years in the trades. I was a partner in a landscaping business and then after that I was a partner in electrical service company. I was the business operations finance person. My partner was the electrician. He had the license. We scaled that up. He ended up buying me out about two years ago. And what I realized at the time was every business that we scaled and sold, I was the CFO for. I just didn't realize it. I was just using numbers to guide these companies. And, you know, the further I got into it and really just talking to so many home service business owners that this is a massive problem, that we're really good at delivering service, we're really good at hiring people, really good at getting five star reviews and doing all this stuff. But most people in the trades are business in general because most people don't start their business because they're good at numbers. They started because they have a skill, they have a trade, they're. They have a craft that they're really good at and it turns into a business before you know it. So that's what I do. So I've been doing the last two years helping, you know, helping home service business owners build a, you know, financially healthy company, helping them create consistent, positive cash flow so that way they can achieve the goals they set when they started their business.

Awesome. Yeah. The one thing that I really appreciate about you is that you also worked at a home service business. You know, part owner in a home service business and same thing with me. So we can come at it from both angles, which is really nice to have those purview. Cool. So I want to hit on this real quick. Something has come up and I won't be able to stay on live. Any chance there'll be a recording? Yes, Taylor, there will be a recording of this that will be sent out. No worries at all. All right, so we just finished out 20, 25 people. Probably got their P and L, hopefully from their bookkeeper. And it said that they made all this profit, but they have no money in their bank account. What does that mean?

Yeah, well, it means a lot of things. I mean, one, sometimes the bookkeepers aren't doing everything they're supposed to either. So I tell everybody, you need a. You need three really good accounting finance professionals. You need a really good bookkeeper who understands the trade so that you have good data to make good decisions. You need a really Good CPA to help you with your taxes. And then you need a really good cfo, fractional CFO to help guide the company. But a lot, I mean, not to get too, too far into the weeds, but there's a lot of money leaving companies that doesn't hit the P L. Or maybe you're owed a lot of money through accounts receivable. It's showing that you made money in your P L, but it's, you know, you're basically lending money for free to somebody else, I. E. Your customer. And you didn't get in the business to be a bank. So there's a lot of, like I was looking at a company Today, they have 15 vehicles for like five people in the field. So when you're making payments on those vehicles, the all of the principal pay down on those 15 vehicles is not hitting your P L. Right. So that's hitting your balance sheet. So I don't want to get like too far into the weeds on that. But there's so many things that happen. How long does it take to get paid? Are you taking owner's draws? A lot of times, depending on your tax advice, you're going to be taking draws instead of a salary or both. An owner's draw isn't going to hit your P L either. So there's just a lot of different things that go on. What we try to do is simplify financials as much as possible to really empower our owners, our clients, that, you know, even though you didn't start this business because you love numbers and you don't love numbers, at the end of the day, you own the business. And most of our clients, most home service business owners in general, almost all of their wealth is tied up in their business. So if that's the case, we should probably be a little bit better at staying on top of these things and making sure that we are actually building wealth and achieving our future goals.

Yeah, I think that there's one thing to see profit on your QuickBooks, but there's another thing to see it in your bank account. And we want you to see it in your bank account and feel like you're actually making a profit. So can you break down? We told people there's going to be these five core drivers of profit, and I want to dig into each one. But can you give us at a glance the five core drivers of profit? Maybe we can go one by one and break them down. However you think would be the best way to, to share those with people.

Yeah, good question, Phil. So, yes, I mean that's what everyone's here for today is how do we get 20% net profit. And like I said, we try to simplify our, our financials for our clients as much as possible. They get a simple one page PDF scoreboard. It's red if it's bad, it's yellow if it's okay, it's green if it's good. And then we look at these drivers of profit and then we also look at drivers of cash flow. And then when we figure out there's an issue, then we dig into that further, similar to what you guys do if you figure out there's an issue. So, you know, starting at the top, this isn't one of the five drivers, but the thing we need to track is revenue. So what is our, what is the makeup of our revenue and what is our average ticket? How many tickets are we doing? So you know, obviously the, the money starts, you think of it as a funnel. The money starts at the top. All this revenue gets dumped in and then it's going to go, in our opinion, five bigger buckets. Because if you look at your P L, what I see happen a lot, there's so many lines, it's hard to determine what's going bad, what's going good, what's working, what's not working. So the first thing we look at is cost of goods sold. So this is number one. Cost of goods sold is exactly what it says is what does it cost to deliver the things that we are selling? In the home service world, we're mainly selling labor and materials. So we're sending people out, we're sending technicians out to people people's homes. They are selling their time and then they're also sending this, selling the supplies and material that they're putting into the customer's home. So where I see a lot of home service business owners not even have this correct fill is going back to the bookkeeper conversation. If you go set up a new set of a chart of accounts in QuickBooks, it's not going to put any sort of labor in cost of goods sold. And the reason for that is historically in other businesses other than home service, the only thing we're selling are tangible things. So if we own an e commerce store or a retail store, we're selling a tangible physical good. So most home service companies, unfortunately when I look at their P and L initially they have all their material and supplies up there, but they don't have any labor up there. So we want to make sure our labor is part of cost. Of goods sold. And what do I mean by labor is all the people in the field, not the people in the office, but the people in the field, not only their labor, but their payroll tax. If you're giving them a 401k, if you're giving them health insurance. I also recommend putting workers compensation up there because that is part of that is a cost of employing somebody out in the field in order to, in order to deliver what we're selling. So that's number one cost of goods sold. So we can, we can stop there if you like.

Yeah. So we did a webinar last about how to build a profitable price book. And we figured out what is a good labor rate for you to actually do for based off your technicians pay. And I believe that you can use that burden rate to figure out what a good labor rate is for this.

Yeah. So. Yeah. So if you guys watch the replay or if you need the replay. I know Phil had the new flat rate folks on Matt and Danielle last month. They had a super simple one page Google, you know, Google sheets document that you can literally just put in everything and it'll tell you this is what you need to charge per hour if you're sending a technician or you're sending two technicians or an installer and an apprentice, whatever it might be. What I. And we do the same thing with our clients.

Yeah.

What I, what I see more often than not is people like, oh my God, I didn't realize. It's gonna. Realize it's gonna cost us that much.

Yes.

So. So yeah, use that document. So, you know, what do we need to charge for labor? Because if you're paying somebody $40 an hour, the cost you send them out is going to be hundreds of dollars, not $40.

Got it. Okay. So I own a remodeling company and it's like you got your materials, you know, for your siding or roofing, but then you also have the labor of actually doing the stuff. And that is your cost of goods sold.

Yep. Yeah, that's the, that's the main parts of it. There's other like ancillary things in there. Like if you have to pull permits with a municipality in order to do the job, if you're renting equipment, you know, but the main two that are driving almost all the cost of goods sold is the cost to send people out there or subcontractors. Like you said, if you're on a remodel company, a lot of times they use subcontractors. That's going to be in there. And then all the material and supplies.

Is there a benchmark percentage of someone should have that in relation to their revenue.

So it depends on the industry. It depends on, you know, the mix of work that they're doing. We shoot normally cost of goods sold between 40 and 50%. So if you think about the net, the next number is then what's our gross profit, which is revenue minus cost of goods sold equals gross profit. People probably hear all the time, you got to be at X amount gross profit, you got to be at 60, you got to be at 50%. Every industry is a little bit different. The more like construction heavy you get where it's more like you've got, you're doing more bid work, you're subbing stuff out. The, and the ticket can be higher and higher. The gross profit's usually a little bit lower. But if you think about like an H Vac company, we usually shoot for like our H Vac companies, their service side because there isn't a lot of materials and you're selling very high end knowledge that not a lot of people have. You know, having a good service tech that can do diagnostic work and all that. We're shooting between like 60 and 65 gross profit, which means the inverse of that would be your cost of goods sold 35 to 40%. So the more you get into like install work, most of our, you know, using like H vac, they're usually targeting between like 50 and 55% gross profit on install work. Just because you are selling a lot more material and you can only mark it up so much. Yeah, you know, just, just based on, you know, the local market that you're in as well.

Okay, got it. So revenue comes in, you have your cost of goods sold, that gives you your gross profit. And what was the target that you said for gross profit?

So between, we usually share between 50 and 60%.

Okay, it's the inverse of that. That's right, that's what you said.

Yeah. And then the cost of goods will be 40 to 50%.

Got it. So get your cost of goods dialed in. That's going to essentially give you your gross profit. So that way you'll know that number and then what's the next one after that?

So yeah, so then you, you guys probably hear sometimes people say like what happens below the line? So when you look at a P and L, you've got your revenue, we've got our cost of goods sold, that equals gross profit. And then everything below the line is really like expenses. You're going to have to pay. Even if no revenue came into the business, if nothing happened today, you're still going to be paying. And we can break these down then individually, but I like to break, break this down into like three categories. One is your marketing. So what are we spending in marketing and advertising? The next one is what are we spending on office payroll. So office payroll is all the people in your office that are not delivering service. Even if the phone doesn't ring today, we're still paying them to show up. And then the other bucket, the third bucket is all of our other overhead. So rent, utilities, vehicles, software, subscriptions, office supplies, everything that we're just paying on a day to day basis to keep the business running. So that those are kind of the three other buckets. So if you think about, you know, talking about the five things that we need to know, Revenue, cost of goods sold. Those are kind of the, you know, what's driving revenue, what's driving cost to get sold. And then below the line is our marketing, our office payroll and our overhead.

Okay, so if I'm hearing you right, if someone wanted 20% profit, then they could essentially work backwards and set a marketing budget of 10%, an office payroll of 10%, an overhead of 10%, that's 30%. And then go back up the cost of goods and then work back to the 100% revenue.

100%. That's exactly, you know, that's exactly what we do with our clients. And thinking back to our, the first part of the conversation, just to give it a little bit of clarity and context for people, if you're running more of like a construction heavy business, usually they have higher tickets and you have less people in the office. So you're going to have a lower gross profit because you might only need to spend 10% on office payroll or 8% on office payroll or 5%. You know, you have less people to deliver more revenue versus if you're running a service heavy business, you've got technicians going all over the place, you're going to need dispatchers, you're going to need more CSRs. So it really depends on where you're at. But yeah, like just super simple. If you think of if we have 50% left over after cost of goods sold, we have our marketing, we have our payroll or overhead. The ranges we usually shoot for our clients is marketing is usually between. If they really want to scale 8 to 12%. With that being said, I see 8 to $10 million companies that are really good at branding, they're really good at engaging a lot of the stuff you guys do at Flash, right. They're re engaging with their customers. They're sending emails, they're sending text messages, they're doing yard signs. And they've built a huge just goodwill within the community. They might be doing $10 million at 4% marketing, 3% marketing office payroll, 10 to 12%. Companies that are scaling, it's usually on the higher end because you got to hire people before you need them full time. And then overhead, 10 to 15%. Ideally, as we scale, we get that lower and lower and maximize the revenue based on what our overhead actually is.

Yeah, I love it. I can feel people, because me included, trying to figure out how to get those numbers in my QuickBooks and, like, make it all make sense. That's probably why you said you need to have a good bookkeeper that gets it. That's in alignment with this, I would imagine. So that way it's like, this is clean.

Yeah, 100%. And we don't do bookkeeping, so we just do the. The CFO work. But we have some good bookkeepers that we do recommend because it is so important. And usually it's at no fault of the business owner. When someone start, especially if it's a technician started business, they left their company because they wanted to go do it better. They knew they could start their own company. Before you know it, things are happening and they realize, I got to do taxes. I need someone to do my books. And while they're doing the books, they can also answer the phone and they can send out invoices. So usually we, like, hire somebody initially to, like, do a little bit of everything. Right? So when we start with a foundation, that's not great and we never change it. We might be running a $5 million company, but our accounting and bookkeeping still as a $500,000 company, or maybe we just outsourced it to somebody we met at a chamber event or we outsourced it to a general bookkeeper. My recommendation is find a bookkeeper that really understood, understands the trades, understands your industry and can get it done accurately, you know, and on time and all that. So, yeah, it is so important to have a good bookkeeper. Unfortunately, most business owners, not just in the trades, but it's like, usually their re. Their reason for their bookkeeper is like, I don't know, because I need one. Well, why and why did you choose that cpa? I don't know, because I need one to do my taxes. So, like, yes, we need them, but it for the clients we work with, usually in the three, to call it 10 to $12 million range in revenue. It's really important to have a really good bookkeeper that understands your business, understands the industry. So that way you have really good data.

Yeah. And a team that all works together. So it's not just you fighting on one end, them fighting in a different way and doesn't understand this. And I think the overarching theme is you got to have goals that people are sticking to or some type of a budget opposed to. Just, I see money in my bank account. Let's just go spend it. Because I can do that.

Yeah. And. Yeah. And that's really, you know, one of the biggest issues I see, Phil. So we did. When we're working with a potential client, we do a. We do a financial assessment just to get a similar. Probably what you guys do at Flash, have an initial conversation, learn about the business, but then it's like, all right, let's get under the hood and let's see what's actually going on based on the books. And most business owners, they're going to make their decisions on, you know, how much money is in their checking account. At this point in time, it's 10, 18. Oh, I've got $50,000 to make. Cool. I can go and make that purchase. But we don't know if that money is actually ours or if it's due to our suppliers, our vendors, our credit card or whatnot. Out of the last 70 companies, and I posted this on social media last week, out of the last 70 companies that we did financial assessments in, they have less than one month of expenses in the bank. That's not a good place to be. So not only do we need a good bookkeeper, but then we actually need to be able to take that data to an. And actually make decisions, because we can fall in love with data. And this looks great and it's pretty. And we know what's going. But if we're not actually using it to make decisions, usually most business owners are then just using their emotion or their ego or an excuse of why they did what they did. And that's usually not a great place to be when you're doing millions of dollars and you've got, you know, 10 to 20 employees that are relying on you to run this business for more than the next month.

Yeah, yeah. It's really. That. That's crazy. I didn't. I didn't see that's that. But that is something that man it. And I think that's like going into shoulder season for a lot of people, just in general is like, okay, maybe I'll float it on a line of credit or something. But I think what you're saying overarching is you need a budget to generate profit, to build retained earnings, to be able to take that money and do whatever you want to reinvest back in the business. But when you're just fighting day to day based off of the money that you see in your bank account, it's very hard to scale a business when you don't know your numbers and don't have structure.

Yeah, no, you're 100, right? So I mean every business there is seasonality to it, some more than others. But I mean, we see it a lot that, you know, going into shoulder season and in shoulder season, oh, we got to dip into our line of credit or our bank. You know, if you go, if you go in a whole one month, if you're negative for one month, it's going to take you several good months just to get out of that. And you start to get in this vicious cycle. Unfortunately, most business owners think they can sell their way out of it. It's like, oh, if we just do more revenue, we're going to solve this problem. But if the process is broken right now and today, more revenue is not going to solve that problem. So you'll never be able to sell your way out of it. If you bring in more money, you're just gonna have more problems. So there's rap song talks about more money, more problems is a hundred percent true. Because if you're not profitable today, if you think about, I know you're a Dave Ramsey guy, Phil. If you think about giving a kid money, right? If they can't or at all, if they can't budget a hundred dollars, what makes you think that if you give them a thousand dollars, they're gonna be able to budget it? If you can't, if you can't buy in a business, if you can't run a profitable one million dollar business, who, how are they going to run a profitable 3 million dollar business? And if you're at 5 million right now and you're like, man, we just got to get to seven, I'm here to tell you, if you ever get to seven, you're still gonna be in the same position if you don't do start doing things differently. So I see that all the time where it's just like, you know, companies doing 4, 5, 6, $7 million and not profitable, they want to get to 10. It's like, well, let's do 5 million really profitable before we actually even think about going anywhere else?

Yeah, it's so good. I was at a 3 million dollar business and they were running 10 profit which is not bad. But when we started to actually dial in the numbers, they went to 30, 20, 27 profits and they were doing $4 million, $5 million. And it's like this is a scalable thing. And guess what? Private equity was all over them because they're like, give me that money. And I, I think there's a big opportunity for a lot of people to, if you, if you want to exit your business, get the stuff clean now.

Yeah, no, because also if you do want to exit your business, they're going to look back two or three years and if you're a mess for the last five years and only this year you're profitable, if they are going to buy your business, they're going to buy it at a deep discount because they don't believe that this is sustainable. They're going to think something happened. When someone goes to look to buy a business, their belief is how you do anything is how you do everything. And if they look at your financials and either they're a mess or, or they don't make sense, or there's a lot of anomalies, a lot of red flags, a lot of add backs, things that all of a sudden look rosy, they're going to be very suspicious and then they're also going to make due diligence a lot harder because they're going to want everything. At the end of the day, the numbers don't lie. The numbers tell a story if you know how to read them. And when we can finally remove our emotion and our ego and our excuses and let our numbers, you know, really drive the company and figure out that's let the numbers dictate what we need to do next, it makes it a lot easier. And like you said, if you're doing $4 million at 27%, you're clearing over $1 million a year. That's way better than being at 10, you know, being at $10 million at 3%. So in all the financial assessments we did the last 70, the average net profit in the home service company and the average revenue, just to kind of give you guys context of the companies, the average revenue is $4 million. The average net profit was 3.33%. So no private equity is going to want to buy that. They're going to want to see that you can do this. You know, it's repeatable, it doesn't need the owner. It doesn't need, you know, things moving around and that net profit, that's before, like you said, that's before things that happen on the balance sheet, whether it's owner's draws, whether it's, you know, paying, paying vehicle notes, stuff like that. So it's, it's, it tells me that most people are really good at what they do. You can't get to $4 million by being terrible at delivering H vac service or terrible at being elect. You know, you've got to have good Google reviews, you've got to have longevity, you're doing a lot of good things, you got to have people in the field. But if you're not able to achieve your fine, your personal financial goals and our belief is we need to build this business so that you can have the life that you desired and dreamed of. That you, when you started your business, everybody listening to this, when they started their business, they had these dreams, goals, aspirations of I want to be making this amount of money, I want to travel this much, I want to spend this much time with my family, I want to buy real estate and build wealth. And then before we know it, we're just like, you know, we're stuck in the, the rat race and putting out fires every single day.

Yeah, I agree. So for someone here with us or listening, what should they do out of these five numbers? Like to get the ball rolling? Like what's like an action item that they could take away from this?

Yeah, that, that's a great question. So the first thing I would do for anybody is like really look at your financial statement. Like look at your P L. Especially your P L and then that's going to flow in your balance sheet. Balance sheet is probably even more important. But if you don't understand your P and L, you're not going to really understand your balance sheet. So first really just making sure what we just talked about looking at your cost of goods sold and making sure your labor is in there. All the costs associated with your labor, all of your supplies and materials are in there. From there, you can then figure out the rest once you have that and see where you're at. So, you know, like I said, the average company that reaches out to us, they're at 3.3% net profit. So call it 3% if we start to look at what's causing those issues. If the person listening today can even just build a basic dashboard of what was our, what, what's our cost of goods sold, what's our gross profit, what's our marketing spend, what's our office payroll, and what's our overhead. And then start to put together a model of what does it need to be to eventually get to where we want to go. Now, if you're at 3% net profit, you will not get to 20% net profit in one year, and that's okay. But if we can go from three to seven in 2026, and then maybe next year we get to 12, and then maybe we get to 15, you. So it's. It's crazy how quickly you then can do it and how much clarity you have, how much confidence you have when you actually have money in the bank. So if we can just start to make those baby steps and track them when you're doing that, how can we approve office payroll? How can we improve our gross profit? How can we improve our overhead? How can we improve our revenue? Right? Like, maybe. Maybe we're really. This is. And you guys talk about it all the time. Phil. But our office payroll might be high because we're really bad at answering the phone, and we're really bad at closing jobs. So, like, maybe our call booking rate's 50%. If it went to 80%, all of a sudden, your office payroll is going to go way down because your office is busy all day. But if you're only booking at 50%, it's like they're busy just churning calls and turning work, but not actually turning revenue. So start to then see what's actually causing the issues of this to start to make. You know, the saying is, you get 1% better every day. You're 37 times better at the end of the year. And that's really. It's just like creating those habits. I think the last thing I'll say on that is Mike Michalowicz. I. I'm a big fan of profit. First big fan of Mike Michalowitz. Profit is a habit. It's not an event. It's not like, oh, I was profitable. No, it's. I am profitable. And it's. It's a habit that we do every single day. Just like Dave Ramsey talks about in personal finance, Whether you like him or not, he's got a process. His people follow it, and they can, you know, they can achieve their financial goals because they just get a little bit better every single day. Day.

Yeah, I completely agree. Mike was on the PO on this podcast on my podcast, and it's like, it. Profit is. You're supposed to generate profit. It's not a dirty word. It's the point of being in business and when you can deliver great service to your clients and still make a profit as a business and have great team members, then everyone's winning. And that's what, that's what you're trying to build for. One of the questions that came up, someone submitted this is, I'm interested in incentivizing projects for my team. This is, it looks like a remodeling type company. I'm interested, I'm interested in incentivizing projects for my team, giving them goals and bonuses and bringing them in to understand and track the numbers with management. I think the main premise is when you look at your cost of goods sold and your labor, how do you build in bonuses and maybe just have to figure out what your burden rate is and then add bonuses on top. But do you have any best practices on that?

Yeah. So if you're on a remodeling company, it really depends on who's getting incentivized. So you can go, you'll. There's really two different models. One is a subcontractor model, right? So subcontractors, they're going to say, hey, we're paying, we're going to pay you to do, to go do this roof. We're going to pay you X amount of dollars. I don't care how long it takes. Right now there's a project manager in charge of that project to make sure there are no change orders. If they are, we all. The billing happens accordingly. If there is a change in material, how did we miss it? And then the other part of that, the other flip side of that is if you're doing it in house. So maybe a remodeling company and all of your, you know, using an example, all your roofers are in house labor and you're paying them on an hourly basis. So you have to start to dig into who are we incentivizing. So if we're incentivizing, we'll call the project manager. If we're going to incentivize the project manager, they have to know what success looks like. Most of the time they have no clue what success looks like because the owner has no clue what success looks like. Or they're too afraid to share the numbers because they're going to think, oh man, Paul's making millions of dollars and I don't want to work for him anymore. We know that's not true. If you are 100 transparent on the entire cost, entire revenue of a project or of a company, it's Going to make your life a lot easier. So it really comes down to how much are we willing to share with them? Because you can't get frustrated in someone's performance if you're not willing to show them what it is and what it should be. And then how do we actually get there? So if you have a project manager and he's managing projects, his number one job should be make sure every project is completed based on the gross profit target, based on how it was priced. So if it was priced at 50% gross profit and we came in at 40%, where did we drop the ball? Was there a change order that we okayed, but we never told the customer and all of a sudden the customer's like, no, I'm not going to pay for that. Or was there a change order from the subs? And the subs gave us, hey, you actually owe us $500 more. And we're like, okay, cool. Or maybe, you know, when we estimated we thought the material was going to be two grand and they were four grand. So figure out, then they're like, where is this thing getting broken? And then what should it be? Right, so different models. Some people have their project manager and estimator being the same person. So I estimate the job and then I manage the job and then I, I can control the entire process. Some people have a sales slash estimator who sells it and then a project manager is going to manage it. So if a project manager is managing a project that he didn't sell, there has to be a really good team culture that Phil sold this at 50%, but Phil's full of because he thought we could get this done in two days just to sell the job. And it took us four days. So now we've got to work together. That estimators now has to have an incentive. The project manager still has to have an incentive. Right? So as you guys kind of start to work together, but at the end of the day, if we know what our goals are, like I said gross profit 50, we have to sell everything at 50 gross profit, then we have to job cost. So after the fact, kind of post mortem, what actually happened? Why did we not hit 50%? What do we need to do to fix it? But if, if we have our goal and the guy knows what the goal is, or the gal, whoever the project manager is, they should be incentivized to, then what happens if I hit that goal now, it doesn't mean, hey, they're making a hundred thousand now how do I give them a Bonus, it's. We might have to redo their pay structure too. Of if a really good project manager is going to make $150,000 a year, how much of that is base compensation and then how much of that is performance pay? Because we know, say using that example, we know if we pay him 150,000, he's going to deliver this much revenue. We're going to hit all our targets and he needs to know that as well. Hey, you're going to make 80,000 base. You have the ability to make 70,000 on $2 million of revenue that you oversee. This is how it's going to work. We're going to have regular. You're going to actually have a scorecard. So this is a, this is a step most people miss. If you don't have. They don't have a scorecard and they don't know what success looks like where they're at. They're going to be really frustrated. And I would be frustrated too because it's like, Phil, you're telling me I need to get better, but I don't know what to do and I don't know what better looks like. Then you need to review that on a regular basis, every 30 days. However, whatever your cadence is and when things aren't right, then you need to collaborate with that person to figure out what went wrong, why did we not hit our goal or if we did hit our goal, what did we do that was great that we need to continue to do so? It's a big picture. But yes, you need to price it in part of their compensation has to be performance pay base. So that way you're not getting, you know, all of a sudden your P. L. Is out of whack because this person's doing really doing really well. We didn't budget for it either.

Yeah. I think what I'm hearing from you is those numbers that you outline holistically on the business you need to job cost. Specifically remodeling. Like you got big projects so it all lines up together and then everyone has a line incentives. Because if you get the details right, it's going to be much easier on a bigger scale. Like it all lines up specifically in remodeling. For sure.

It sounds like for sure. Yeah. And to your point, like it start. It's going to go all the way down to the person swinging the hammer.

Yeah.

Right. So say you are doing these remodel jobs in house and you've got an in house crew. They need to have incentives, they need to have performance Paid to get the job done based on how it was estimated. Now if they don't think it's possible, now that's where you have to solve the problem between the estimator and the guy swinging the hammer. Right. So it's like if the guy swing the hammer has incentives to get this deck done in two days, and they do get it done in two days, they should be compensated as well. So part of their compensation should be, hey, you're going to get a base and then you're going to get performance pay or you're just going to get a flat performance pay. So where I see most companies get stuck with this is like they have the theory, they kind of have the outline and then hits the fan with the project and they're like, they throw all that out the wind. They're like, just get it done so we can get a check from the customer and move on. And then it's like they're playing this, this vicious cycle, not only with their business and their numbers, but then with the expectations of their team that they're like, well, once it goes sideways, we just need to hurry up, get this thing done and get a check even if we lose money. And it's just like all of a sudden there it's this vicious cycle that it's onto the next one, onto the next one. And you're slowly, you know, it's death by a thousand cuts.

Yeah. And even worse, you get into the roller coaster of like selling the next job to pay for the last job or.

Yeah.

And then that's.

It takes the deposit. It's. It's a whole. It's a whole thing.

Yeah. I do want to ask you this because you have a little bit of a contrarian take on this and we have a unique experience together because I used to work in flee management for home service businesses. And at the end of the year we said, hey, take your tax deduction and buy some trucks with it. And I know every year you're beating the drum of like, let's go out and buy some trucks. Sounds like a great idea. I know every single person here has had this encounter where they talk to their bookkeeper and they say, looks like we got some profit here. We need to be tax efficient and spend this money and take this deduction. Okay, can you like explain that and then explain why that's not smart and like what that even means? Because I think there's still this big gray area out there for people.

Yeah, there is a big gray area. So if I have to Write it. I do not like writing a check to the government, but if I write a check to the government, it means I actually made money. My statistics show that most people don't actually make money. So if you are having a good year and, and if you're using profit.

First, if you're generating 20, you're going to have profit, right?

Yeah. If you're a $5 million company, going back to your example, $5 million company, 20% net profit. Profit. You got a million dollars in profit. Maybe you send a government a couple hundred thousand bucks, but you got 800 left over. Now, if you have a good CPA, and we'll get back to the original question, but if you have a good proactive tax strategist cpa, there are other ways to take to lower your tax bill and also build wealth at the same time. If you have a good proactive, proactive CPA that understands the tax code and why the government writes it, there's plenty of other ways that you can actually build wealth and pay less taxes instead of buying a vehicle. Now, why buying a vehicle is bad is because if you're going to go out at the end of the year because your, your CPA said you had a great year and you can go buy a big truck for $100,000 and we can write it off that just like that amount doesn't come off of your tax bill. It's not like you would have owed 100,000, but you bought $100,000 truck and now you don't owe money in taxes. Now I'm not a cpa. So again, this is a tax advice. Talk to your CPA as a CFO that kills your cash flow slowly. Again, death by a thousand cuts. Because January 1st comes you probably and I have the exact numbers, I could pull it up. I actually did a presentation last year for some business owners on this of what the math is. But that truck is now costing you probably seventeen hundred dollars a month just in a payment. And your tax savings, I think it was like after 10 months, I think the tax savings on it was like 10 months worth of truck payments. But you're paying that truck payment for like 72 months or 84 months or 60 months. Buy a vehicle when you actually need it to produce cash because then it's an asset that's producing cash. If you buy it today and you're not going to use it tomorrow, you don't need it tomorrow, it becomes a liability that sits there and you just pay it over and over and over. And I forget what exactly what the numbers were. But you know, it's over $100,000 that you're spending to save like $20,000 in taxes. So it's really just kicking the tax can down the road. It's financing your taxes in a very bad way. Because the other part of that, which they won't tell you is the way depreciation works is the reason you can do that is they call it like accelerated depreciation. So you're going to write off a good portion of the vehicle. You year one, you're going to accelerate the depreciation, the life of a vehicle. Based on the irs, depending on the type of vehicle, I think it's like between like five and seven years. So they're assuming you're going to use that vehicle for seven years, but if you go sell it in two years, you then have to, quote, unquote, pay back that accelerated depreciation.

Yes.

Like if you turn it in, because I don't need it, I'm going to go get another new vehicle. Well, you're going to undo the accelerated depreciation that you just took advantage of two years ago because the government's assuming you're going to use that vehicle for five or seven years and you used it for two. So from a CFO cash flow standpoint, ignoring all the taxes, it's a terrible idea to have vehicles sitting around doing nothing because that is a slow way. And again, not all the payments hit your P and L either. So you're like, where'd all my money go? Well, you have 15 vehicles. You only got five, five of them actually driving on the road. You've got your own vehicle, your wife's got their own vehicle. Maybe your kids got their own vehicle. You bought your service manager vehicle, your warehouse guy's got a vehicle. If your vehicle is not producing cash, profit, revenue, all the things, you should not buy it. Now, if you're an owner and you drive your vehicle until it's got a hundred thousand miles and you go buy one, yes, your company should pay for your vehicle. However, don't be buying a brand new truck every year just to save money in taxes. If you have a good year, you follow something like a profit first and you have a strategy, you can build a lot more wealth and have a lot less trucks sitting around in your parking lot.

Yeah, I love it. I think that's a great explanation for it. I, I think the question that people that you would want to ask is, you got 20 profit? Yes. How can I limit my taxes? But the simple answer is, we'll go spend the money so then you don't have to pay the taxes, but don't spend the money on things that's not going to actually help you grow your business.

Yeah, and the same thing, like, I see a lot of people buy all their material at the end of the year, like, oh, we're going to stop up and lower it. Tax bill. Well, when you, when you look what you're doing, you're just moving profit from one year to the other. Because If I buy $100,000 worth of material in December to use for January and February, well, then January and February, I'm not buying any material because I bought it all in December. So now those two months are super profitable. And you're going to do the same thing over and over and over. Like, the tax man's always going to get his money. You can only kick the can down the road so much. You're either going to have a cash flow problem or a tax problem. I rather have a tax problem because that means I have money to pay them and I still have cash left over. If you have a cash flow problem, you don't have any cash. So that sucks.

Mic drop. I love that. I got some more questions for you. But the people that are with us, if you have questions, drop them in the chat here. I mean, we've been talking about a lot of stuff. You have specific things to you. I wanna, I wanna talk a little bit about forecasting because I think in our space there's like, goals, you know, revenue, but. But actual, like, forecasting for, like, taxes and also profit. Do you have any best practices? Because we're in the beginning of the year, like, for people that say, I'm at 3 million, I want to go to 4 million. Like, okay, well, you need to know these numbers. But is there anything else that goes deeper than that?

Yeah, I would first ask them why, if you're at 3 million, you're not profitable? Why do you want to go to four and be not profitable? You're just going to have more techs, more trucks, more headaches, and not any more money in the bank. So that'd be my first thing. But what I see happen most, it's January 13th. At the time we're having this conversation, by the end of this month, everybody that had created, like, a budget.

Yeah.

They've already forgotten about it because usually their budget is like, what they want to do. It's like their goals like, oh, I'm going to do $4 million. I'm going to hit this gross profit, I'm going to hit this net profit. And I'm going to do all these things by end of January, similar to New Year's resolutions, like out the window, into survival mode, you know, putting out fires, doing all those things. So my number one recommendation is you're going to set a budget, but then you're going to actually look at it every week and measure where you're at in comparison to where you want to be. So if you want to do, you know, $3 million this year, how much is that per month? And then what do you want the profit to be per month? And like, again, those five areas, like, just look at it super basic. So like, if you think about keeping, like I equated I a lot of things I do, I equate to sports. And we need to know if we're winning or losing. We don't need to know, like the tiny mini minute details. Right. We don't need the box score of like, how many targets do they have? How many deflections do they have? Like, first we just need to know who won the game. Most business owners don't know if they're winning or losing other than how much money is in their bank account.

Yeah.

So let's create a scoreboard. That's exactly what we do for clients. So y' all can do this. What's our cost of goods sold? What's our gross revenue? Cost of goods sold equals gross profit, marketing office, payroll overhead. Create a scoreboard like that. Track it on a monthly basis once your books are closed, and then you'll be able to see are we trending in the right direction. And if you don't, if you've never done forecasting, projecting, just assume all 12 months are equal. I know no 12 months will ever be equal. But if you do $200,000 in January, assume you're on pace to do $2.4 million. I talk to companies all the time. Like, historically, they've done $5 million the last three years. Like, yeah, but we're going to do eight this year. Like, okay, what's going to change? How are you going to go from 5, 5, 5, 5, 8? Like, if you don't have a plan, you don't have a strategy. It's like, oh, you know, we're changing marketing companies or we're going to spend more money on go. Like we don't have any money to spend on all that stuff. So like, unless you have a strategy to really get into the nitty gritty, it's not going to happen. So build a, build out a basic scoreboard. Revenue, cost of goods sold, gross profit, marketing office, payroll, overhead. If you don't want to do this, I would reach out to your bookkeeper, be like, hey, once my books are closed every month, can you just send me what these numbers are? They can do that very quickly. And then you'll at least know if we're winning or losing. And then from there, if you're losing in certain areas, start to look into what do we actually need to do. Where most business owners get stuck is one, they don't do this on a regular basis, but then two, they always have an excuse of why it's going, why it's not the way it should be, and why it's going to change. Oh yeah, yeah, we had, we had a bad month because this happened, this happened. But you know, this one's going to be different or oh yeah, yeah, we changed this process and now it's going to be different. But it. At the end of the day, I tell everybody you're. I had this above my desk on my old, at the old company was. Your excuses only sound good to you? Because we can convince ourselves every reason why we're not winning, but at the end of the day, the score doesn't lie. Whoever wins a Super bowl this year, whoever loses it, like there's going to be a reason why they won and they lost and when they can, you know, get rid of the emotion and the ego and the excuses of like, this is exactly why we screwed up. If we can do that with our business and be humble enough and not worry about how many vans we have and what does our stuff look like on social media? If you look on social media, everybody that's telling you how great they are, don't pay attention to them. Don't chase the bridge, any objects. There's so many basic blocking and tackling things. We need to do that. If you do them, you will get to 20%.

Yeah. I think one of the big unlocks for me at my home service business was looking at year over year data opposed to just. We want to go from 3 to 4 million. Why, what, how it was looking at. Okay, last January, we did this much revenue this January. If we want to grow at 25%, then we need to do this much revenue and it gives us okay, this month. Right now we got to do 25 more. So that means we need 25 more. This, this, this and this.

Yep.

So how are we going to get that? How are we going to do that. We could increase this thing. We could do that. And it breaks it down very tactically than just throwing pie in the sky, numbers out for people and something that we focus on a lot in our business, which is like leads year over year, estimate, count year over year, estimates close year over year revenue. All those things play into the holistic picture of how you're going to grow the business.

Yeah. And like using that example, if you want to grow 25 this January compared to last January, what did you do in December last month, December 2025, did you grow 25 from December 2024? If not, you're not gonna. Yeah, odds are you're not gonna grow 25 this month if you didn't do it last month, year over year. So, yeah, the year over year is a very easy way. You just over, you know, put two things on top. And hey, the last six months we've grown 18 compared to the year before month, you know, year over year by month. Well, now, if we keep doing what we're doing, we will. But to your point, once we start to realize what's broken, then we dig into the next layer of things of, you know, how many calls do we have last year to this year? How many web forms we have last year to this year? How many of those do we actually book? What was our closing rate out on the field between service and between install? How many cancellations do we have Once you can use the numbers? I hate to say it, but it's really simple. Like when you can just use these basic numbers, it's going to be hard to change. Not because it's physically difficult, but it's going to be mentally difficult because you're going to have to do things differently than you've done in the past. You're going to have to have difficulty. You still there?

Yeah. Have some difficult conversations.

Yeah. So if you have an office payroll that's 20%, you can't sell your way out of that. So.

That's right.

You know, you're gonna have to right size your office because most people are like, well, we need all those people. Once we get to 10 million, it's like, yeah, but you're only at 6, so it's going to take you this many years to get to 10, and you'll never get there because you're going to run out of money before then. So. Yeah. So, yeah, you're 100 right on that.

Yeah. Well, thanks, Paul, so much, man. Where should people go to get in touch with you, learn more about your business and see if you might be able to help them.

Yeah, easiest way would just be go to our website. If you go to the blue collaradvisors.com go there and there is a pricing calculator. You can book a call, you can check out content and whatnot to get everyone close to where we want to be so they have a financially healthy business and they're creating consistent positive cash flow.

Awesome. Well, thanks so much man. It's a really great conversation and look forward to continue the relationship.

Likewise. Thanks Phil. Yeah man.