How To Profitably Grow Your Home Service Business with Paul Maskill

Welcome back to the show. I'm your host, Phil Risher. And on today's episode, we're going to be discussing how to profitably grow a home service business with Paul Maskill. Thanks so much for joining us today, Paul.

Awesome, Phil, Excited to be here.

Yeah, likewise. So Paul has scaled four companies over the past 13 years. He is the founder of Blue Collar Business Advisors. And we actually used to work together in one of the companies that he exited and we stayed in touch and, and he is a wealth of knowledge. And so I said, hey man, you got to hop on the show so that we can talk about financially, responsibly, growing a home service business. So Paul, with that, can you tell us a little bit how you got into the trades?

Yeah. So growing up, I grew up in Michigan, very blue collar. Pretty much all of my, every single one of my friends, all their families worked for one of the automakers, except my parents were like the only ones that weren't in the auto industry. My dad, since he graduated high school, he always worked in the trades. He was a heart. He ran a hardwood flooring company. He was a one man band. So growing up, I was watching him. He was the best at it, he was great at it. But he was, like I said, the one man band. He was the perfect technician and he could never scale. And all of the people he kind of associated with were all the other contractors on jobs, the plumbers, the electricians, the H Vac people. And every single person there said, don't do what I did. Don't go into the trades, don't start your own business. You're going to work nonstop. You're going to work 24, 7, go to school, get good grades, go to college, and then go work for somebody else. So that's what I did. I listened to their advice. I got a finance degree from the University of Michigan. Shortly after that, 2007, I moved to Chicago to go climb the corporate ladder and work in the finance world until I got that corner office 40 years later. And for anybody that was around in 2007, that was like the beginning of the end. So from 2008 to 2010, I watched a ton of people lose their job, lose their entire life savings, all of the things that they had accumulated because of the recession. And I was looking at this like, this doesn't make any sense. Everyone told me this is the safest thing ever. And I just watched all these people just get wiped out like that. You'd see the HR people walk in, you'd see the security Guards walk in, you'd see the boxes walk in and you knew somebody else was getting laid off that day. So fast forward 2010, I realized I'm out of here. This is silly. I quit that job, moved to North Carolina. And then like the last 13 years, like you said, I've been scaling and selling local businesses here in the Raleigh market. The last two, I was a partner in an electrical company for a little over three years. That's the one I worked on with you guys at Flash, which was awesome. And then before that I was a partner in a landscaping company. So kind of went back to my roots, back to what I saw growing up. And the reason I did is because I saw that there's so much opportunity in the trades if you just do everything else right. And me being a systems finance operations person, I noticed, I watched my dad, my dad was busy. His phone would ring nonstop. He didn't do any advertising. He simply did all the little things that drive all of the other homeowners nuts that when people don't do it. So he answered his phone, he showed up for the estimate, he said he was going to show up. He charged in the price he was going to charge. He showed up to do the work or he said it was going to get done. And then he completed the work when he said it was going to get done. And he did it exactly how they wanted it done. So I was like, this is amazing. Like all we have to do is all these things that are kind of a no brainer and we can systematize it, automate it, put processes in place and make sure numbers are right and scale a business. So that's what I've been doing in the trades the last seven years between the electrical company and the landscape company.

Yeah, very cool. So as far as the financial part of it goes, when you're talking about profitably growing a home service business, I think there's a lot of layers to this. So let's frame it. For people that are maybe a little bit under a million and they want to get over a million or in that like 1 to 3 million dollar range, what are like do, do you recommend like taking your profits and reinvesting it back into the business and, and trying to scale that way, or there are other things that you have to do first before you get to that point or how do you kind of start that process?

Yeah, that's, that's a great question, Phil and I, to be honest, I think that you've got to get a couple things in place before you start saying we're going to reinvest our profits. Because you and I talk to business owners every day and they're like, yeah, we're just not profitable yet. We're just reinvesting everything back in the business. But when I say, well, what are you reinvesting? And they're like, I don't really know. So they really have a plan. They don't have a strategy. And it usually usually comes down to pricing. They just don't have their pricing right. Their pricing was probably from when they were a one man band and they could, this is great, guys. I make $100,000, I can go serve a couple clients, my phone rings a couple times a day. But they've never updated their pricing or actually have a real pricing strategy to be able to afford to scale to 2 million, 3 million, 5 million. So that's where I'd encourage everybody out there listening start. If you're just under a million, that means you're probably off the truck. You probably have somebody answering the phone. You've got a couple people in the field, but you might not be sure, am I charging enough to be able to support the growth that I want to get to? And usually the answer is no. And the answer is no, usually because when I say, well, how do you price jobs? People are like, I don't know. I take the material, multiply it by 1.5, add 10% to labor, then throw in an extra 50 bucks on top. That's not really a strategy. So you really got to know your numbers. And I think where a lot of business owners get stuck is when I talk to them. They're like, well, I got a bookkeeper that handles that and I got an accountant that handles that. And if you ask those business owners they're going to, and I say, hey, well, what are they actually doing for you? I don't know. My bookkeeper does the quickbooks, my, my CPA does my taxes, they give me my quarterly estimates. But that's not really helping you in a proactive forward looking strategy. Bookkeepers and CPAs, very important, you gotta have, you gotta file your taxes, otherwise you're breaking the law and you gotta have clean books. So that way you can then use that information to project forward. So I think that's where a lot of business owners get stuck and it's not any fault of their own. I would guess 99% of the business owners out there listing today started their business because they're really good at the trade and they really enjoy the trade. And they don't want to worry about the numbers. The problem is a lot of times they don't have somebody that is worrying about the numbers because you can't afford to bring on a full time CFO or a full time controller, somebody that's doing all that stuff because you're out in the field every day and you just don't have enough revenue or profit to do it.

Exactly. It's the same for us. You can't hire a full time CMO for your business or something, so you hire a fractional person. I want to go back to figuring out your pricing strategy. How would someone go about even figuring that out? Is it kind of like the work backwards approach to how much should this cost or what should they even do?

Yeah, that's a great question, Phil. So working backwards is always a great thing because we got to know what the goal is. If we don't know what the goal is, we don't know what we need to do tomorrow. And I equate this. I live in Raleigh. There's an interstate, it's called an interstate, but it doesn't cross any state lines. It goes around this, it goes around the city of Raleigh. So it literally goes in a circle. So i440 goes in a complete circle. If you drove on it going east, you would go in a complete circle and drive all day. Most business owners, that's what they do, they get in their vehicle, they close the door, they drive all day, and then when they're done at the end of the day, they're exhausted, wiped out. But they haven't gotten any close to where they want to go because they actually don't know what that target looks like. Versus if I'm in Raleigh and I want to go to Maryland, where you're at, I know where you're at, I know where I'm at. And I can put a plan in place. Even before Google, I could put a plan in place like, all right, these are the checkpoints. From here, I got to get to here, then I got to get to here, then I got to get to there, and eventually I'm at Phil's doorstep. So the same thing has to be true in our businesses. We got to know what that goal looks like. And when it comes to pricing, it is no different. So what is our goal? Anybody listening to this? First, you don't have to be a finance expert, but you do need to know your numbers because it is your business. You can't manage it if you can't measure it. So the thing I like to start with everybody, is what is your gross profit? Now? Gross profit is your revenue. So all the money that comes into your business minus the cost that it takes to deliver the service that you are providing. So you know, if you're a landscaper and you're doing maintenance and you're doing installs, all of your maintenance and install revenue, that's your revenue. Now we need to figure out what is the cost to deliver all that service. So you're going to have, obviously the two main ones are labor and material. But there's a lot more to that labor. A lot of times people like, oh, I pay Phil 25 bucks an hour. So if this is a six hour job, it's $150 in labor and that's the only person I need. We don't want to get too far into the weeds on this show, but Phil isn't working. When Phil, when Phil gets paid for 40 hours a week, he's not actually working and delivering service 40 hours a week. So we got to account for that non billable time, the time he's in the truck, the time he's getting gas, the time he's talking to his supervisor, all of these things have to go into our pricing. So we really need to know what is Phil's actual hourly rate when he's delivering service. So to keep it super simple, say Phil makes $25 an hour, but in a 40 hour week, he's only working on the job 20 hours. So we know Phil is. We really need to double what Phil is making in order to charge the customer that. So we really need to go to the customer. We don't go to the customer. But we're putting together this formula. It's Phil actually cost US$50 every hour he's on the job. So if it's a six hour job, we know it feels actually costing us $300 because half the time this week he's not going to be on the job doing other things. So there's a lot into labor. There's payroll tax, there's workers comp, and then material. You got all of your material. I like to include other things that go into cost of goods sold. So your vehicle maintenance, your vehicle fuel, your vehicle registration, all of those things if it's for vehicles out there delivering service. So if it's your Isuzu box truck that carries all of your equipment, or if it's your Ford F550 dump truck that's, you know, bringing all the material, everything that's out in the Field, we need to recoup that cost. So let's speed it up. We add up everything. We also have our mowers. We have our fuel for mowers, all maintenance, all that. We have this dollar amount. My target as a cfo, as a business advisor for other companies is it's got to be at least 50%. Once we get to 50, we're going to keep working our way probably to 60%. That's our goal as gross profit. So if our all in expense between labor, material, all the other things we talked about is $1,000, now we know we need to go charge the customer at least $2,000. Because once we have that, now we have a formula that we can replicate. Instead of just looking at a job and be like, oh, yeah, that's. I think we could do this for 1200. The customer's like, what about 1100? Like, okay, now you've just. From doing that, you've just taken money out of your business and gifted it to somebody else. You do that enough. A lot of people try to compete on price. I don't know if you know what happens, Phil, but if you compete on price and you win that race, you're the first one out of business. And nobody wants to do that. So that's where we would start, is with pricing, gross profit. From there, we could talk about all the other stuff, overhead, marketing, office payroll and all that, but we got to get our pricing right and got to have a plan, got to have a goal so we know exactly what to do to get to our destination.

Yeah, it makes complete sense. I think confidence in your numbers gives you the ability. When people are like, it's like, well, what makes you feel that way? Because this is how we got to this number. I also really like, yeah, you want to go from 1 to 2 million, right. You want to grow the business, but like, what's the plan? And when you know the numbers, you can put together an actual plan. Like, do we need to increase this transaction value? Do we need to close more deals? Do we need more lead flow? All that kind of stuff goes into playing a part, into the growth that you're saying. So you actually help people, like, figure out those numbers?

We do. And then to. To your point, Phil, So now we know this is what we got to charge, and we can create kind of a, you know, estimating spreadsheet, whatever you want to call it, whatever works for them. Yeah, but then to your point, now we know what we need to charge, and we know what our revenue needs to be now we got to look at all the drivers of that. And to your point, is it the call booking rate? Is it the average ticket? Is it the closing rate? Is it. There's so many factors that go into it. You probably deal with us all the time. A lot of people say, I got a lead problem. I don't know if people have lead problems. I think they have a maximizing the leads that they get problem. Because when we're busy in the last three or four years since COVID everyone's been busy. We have nobody listening to the show has maximized every lead because we've already got in our mind enough. And I can't keep up with the current demand. Now it's starting to change. And everyone's like, whoa, I need more leads. If I had to guess, most people don't need more leads. They just have to do more with those leads to get to that 1 to 2 million. Once we've got our pricing right and we've got all those systems and processes in place.

Yeah, I agree. So this, we have a listener question that I think goes into this. So do you do. Do you recommend how do you balance profit and growth? Some people do, like sprints, like, this year we're going to focus on growth. This year we're going to focus on profit. How does someone come to that decision if you're going to grow a home service business?

Yeah, that's a great question, Phil, because there, I believe in business and in life, there's stages to everything, right? There's stages of we got to build a foundation and then we're going to grow. Then we got to build another foundation and then we got to grow. And building your business is no different. First it's like, I'm going to go do everything. Okay? Now I got to build a foundation to have somebody help me or somebody answer the phone. Okay, we did that. Now we got to build a foundation to get me out of the field. Okay, we did that. Now we're going to go to the next thing. I think the key for anybody is I've been there before. Sweating payroll up at night, stress, never enough money in the bank. It's like, man, how do we keep growing? What I don't want people to do that's listing is growing just for growth's sake. We have to have an actual strategy with the dollars that are coming into our business in order to get to where we want to go. So let's assume call booking. Let's assume all the things are great. Call booking rates, great. You know, close rate's great. Average tickets, great. How often are customers are you reusing us Is great. Let's assume all of that is already great. Just for example, sake. Now we know that. Now let's figure out how many more leads do we actually have to get to get to say, from 1 million to 2 million. And if we know every lead is worth X because we've done the math of what's the call booking rate? Okay, then what's the. What's the closing rate and then what's the average ticket we should know Exactly. Okay, I need a thousand more leads because that's going to lead to X amount of dollars because of that. Now let's figure out. Let's talk to our cmo, let's talk to other. Let's come up with a strategy and figure out how much money do we need in order to make that happen. And then let's look at our P and L and our balance sheet and our cash flow statement to figure out, can we actually do that? And if we can, how quickly can we do it? Because I think where a lot of people go, I'm like, yeah, they run their business off of their checking account in their credit card balance. Yep, we got money. Yep, we got money. Cool, let's do it. Cool, let's do it. But if there's not an actual strategy behind it, eventually all those bills are going to come due and you're going to be like, oh, shoot, now we're really stuck. Now we've built something that's not sustainable because this thing's getting out of hand. So we really need to have a plan in place of. Let's just, for example, say we've done all those things and the last three years we've spent 10% on. On 10% on marketing. So we know the last three years, as we've built this foundation, we've spent 10% on marketing. Let's see. Let's go talk to our CMO. Let's go talk to all the people helping us with marketing and customer acquisition and customer re engagement and all those things and figure out how much money do we have to spend? Can we increase that to 5%? So increase it by 5% to 15%. Can we do that? And what kind of results will we get there? So when we use math and we use numbers, that allows us to make educated decisions instead of emotional decisions. When business owners say, I think that's a really dangerous spot to be in because you actually don't know. Whereas if you have somebody in your Corner that says, I know, Phil, if we spend an extra $5,000 a month on marketing over the next 12 months, we will grow. Assuming we keep everything, everything else the same, then we go do that. The other thing is maybe we need to invest in sales training for all of our technicians out there. What if we send our technicians to a trainer? What if we have an on site with our sales coach? Will we get a return on that investment? The key is knowing that at the very bottom line, say our target is 20% net profit. So we talked about gross profit. Our ideal gross profits at least 50%. If our ideal net profit is 20% and we've been hitting that and we know now, let's take 5% of that and put it into sales and marketing training, execution. Are we cool with 15 net profit in order to scale? If we are, awesome, let's go do it. And we can go do that. We can do it successfully and then we get there and then we probably got to build again and then scale and then build again.

Yeah, it all ties into. If you don't know your numbers, you can't make those educated decisions about. Take a couple percentages off here and stick it over here. Do you use like the profit first model of like chunking things out or what does that look like?

Yeah, I'm a huge fan of profit first. So anybody listening? If you haven't read it by now, you. To be honest, you don't even have to read the book. You just go google profit first. It does. It makes life so much easier because if there's money in our checking account, we are going to spend it whether we're a personal consumer or we are a business owner. So when we can put different things into different buckets and they disappear, it's just like when you and I started working our first job for somebody else. Everyone said, pay yourself first. And how do we do that? We would put money into our 401k or we'd put in our savings or whatever we would do and we wouldn't even see it and we'd live without it. Profit first is no different. I think the best, my personal opinion, the best thing about profit first is when you go to implement it, if it doesn't work, it means your pricing is wrong. Whether your price, it's either your pricing's wrong or you're spending too much money somewhere because there's not enough money left over. What I do in my personal business now is I actually have a growth bucket. So when all the money you do, the transfers Twice a month. So when I go make those transfers, I have a growth bucket, which I'm growing my business right now. Eventually I won't have to invest in growth and I'll have to build systems and then grow and then build more systems. But I just put a certain percentage into that growth bucket. And that growth bucket for me is to investing in additional marketing that I normally don't invest in. Because I got the marketing that I already spend on and I know what that dollar amount is, but I also need to grow. So when I can do that with profit first, I know, okay, we've got an extra fifteen hundred dollars a month right now to spend on growth. What are we going to do with it and how are we going to measure it? So, yeah, profit first is phenomenal. Encourage it for everybody out there. If your bookkeeper accountant says it's too much work, you've got the wrong bookkeeper because it is not too much work. Everything's automated. Your QuickBooks Online is automated. All the transfers line up. But I have heard a lot of people say, well, my bookkeeper doesn't like it. Well, your bookkeeper is not owning your business. You aren't. If it's best for your business, you need a bookkeeper that will support you, your business and your goals.

Yeah, I really like the growth bucket of having things chunked out because then it's not even taking away from profit, theoretically. It's just, oh, we have this money set aside for growth, so let's invest this in growth, which is what it's designed for. You don't feel the pinch of like, oh, this is for this expense or that expense for sure. So one thing that I am curious about, and I don't really actually know much about this, so I'm curious to get your thoughts on it is how do you balance taking on debt or debt in the business and scaling? Is there a threshold that you should take on? Because we're talking about profit in growth. But some people say, well, I'll take out $20,000 and invest in growth. I, I personally do not know much about this. So I'm curious to get your thoughts, especially for the trades.

Yeah, debt. Debt is like any tool. It could be very powerful both ways. So it could help your business grow very significantly and you can leverage that very well. Debt can also put you out of business quickly. So 50% of businesses never make it to the fifth birthday. The only reason that happens, the only reason any business is closed in the history of time is, is because they run out of money. The money's gone. And they close up shop and say, I'm better off going to work for somebody else. So where a lot of business owners get stuck is when you have debt. Those debt payments do not hit your profit and loss statement. A lot of people don't realize that. So when you see your profit is $200,000, say for the last 12 months, that doesn't include all the debt payments you've made to pay off your debt. It also doesn't include the money you as an owner have taken out of the business as an owner's draw. So a of lot, lot of times. What's that?

So, so this is why people would say, well, their CPA says, oh, you made a profit of $200,000. Like, well, where's all the money?

That's exactly why they say that. Where is all the money? And a lot of business owners don't know. And the money went to paying your debt on your vehicles, on your equipment, on consolidation loans, all these things that you've acquired, you've acquired assets, in theory, all that. All the principal payments on any debt you have does not hit your P and L. So that's where a lot of business owners get stuck, to be honest, Phil, is because it's like, oh, that's just X amount of dollars a month. Or, yeah, let's consolidate this debt. Or, oh, yeah, let's go take out a line of credit. Debt is great if you have a plan for it. If you know, hey, I'm going to go buy this piece of equipment. This piece of equipment cost me $1,000 a month, and I normally spend $2,000 a month renting this piece of equipment. Whatever it is, Skid steer, skid steer, dingo. You know, whatever it is, the key is when you do your pricing, you have to still price that in. A lot of times people are like, well, no, I don't have to price in my vehicle because I already bought it. It's like, well, you're still making payments on it. I don't need to price in the chip or I already bought it. No, you still need to price it in because it's an asset that loses value, that has wear and tear, that has maintenance and all that. So you really have to price it in. So, yeah, that's exactly why a lot of business owners say that to their accountant account says, hey, you owe $200,000 or you had $200,000 in profit. This is what you owe in taxes. And the business owner's like, I don't have any Money to pay it. And that's, that's really the reason. So debt is great if we have a plan for it. If we know. In my opinion, every dollar that leaves the business should be an investment where you're getting a return on it. If you're not getting a return on it, that means you're not charging for it. Which means if you're not charging for it, it's probably not something you need in your business. So I would encourage anybody out there that is using debt. Thinking about debt is to really have a strong plan and, or talk to somebody that can help you through that. Because debt is a phenomenal tool to grow. It's also a phenomenal tool to put you out of business.

Yeah, I don't know much about debt. I run debt. I'm debt free. You see my Dave Ramsey in the back, I'm like, I'm like a debt free guy. So I'm always curious about how people make decisions on debt. And I would imagine it's kind of just like, well, we need this. So, like, I'm gonna go buy this. It's like there's not really a plan to spend the money. So that's a tough one. What about showing profit? Like if someone's thinking about selling in a couple years, how do they help kind of like prepare their business for that? Is it, you know, get the profit ready? Is it get hit a revenue number and then show profit. So you hit an EBITDA amount or like how should someone prepare if they're three to five years out from selling their business?

Yeah, I'm a huge fan. I have it on my bookshelf back here. Built to Sell. Probably the most powerful book any business owner can read, in my opinion. Not even if you don't want to sell your business. So the key to having a sellable business means it can run without you. If it can run up, run without you. It's got all the people in place, it's got all the processes in place, and it's got all the profit in place. So there's plenty of business owners and unfortunately, CPAs. That said, you made a lot of money this year and I don't want you to pay taxes. So let's go buy a truck and let's finance it and then let's depreciate it. Write it off so you don't have to pay as much taxes. Well, that's all cool and great, but then come January 2nd, you're stuck with $100,000 truck, $2,000 a month payment that you didn't really need just to save you 30 grand in taxes or whatever. So for everybody out there, I would encourage you to always be building your business to sell, even if you don't want to sell it. The cool thing about that is, and I've sold several businesses, the cool thing about it is you don't know when you're going to sell. You don't know how it's going to go down. But if your business is always sellable, it gives you so much more freedom, flexibility and opportunity. So one of the business I sold, my second ever business, was a dog walking and pet sitting business. So I had bought it, I was scaling it up, I went to London for two weeks on vacation. I had a key employee running it. And I came back, he's like, paul, I had so much fun running this business while you were gone. I want to buy it. I was like, cool. If you want to buy it, it's for sale at the right price, right? Like everything's for sale at the right price. So it also just gives you flexibility as a business owner to be if something happens, like if you have aging parents or something happens to your kid or your spouse and you need to leave the business for a couple weeks, it gives you the peace of mind knowing that I can do that. And when it's profitable, it gives you the peace of mind knowing we can have a couple, you know, we can have a bad year. When you follow profit first and you're profitable, you can have a bad call of lunch, you can have a bad year and still sleep well at night. And a lot of business owners, I do a thing, Phil, where I figure out kind of like how healthy is their business. And one of the things I look at is how much, how much expenses do you have in the bank? Take all the money you have in your bank right now, divide it by your monthly expenses, including all the debt payments. And most businesses that's less than a month, ideally we get that to at least six months. So when you're at that point, it just makes life a lot easier, a lot more enjoyable. And so when you do go to sell your business, like, wow, this is profitable. It's been profitable for a while. So where a lot of people get stuck selling their business is their last 12 months it might have been profitable, but the previous two, three, four years behind that were not. That's an instant red flag of like, okay, what did you change? And I can tell you change it just to sell your business. So maybe now they're not Running expenses through the business because they want to show profit. Or maybe they're actually, you know, from the previous years. Maybe they're doing something with cash. A lot of people like, oh, I got cash. I don't redecord it, like, cool. But you do. That's actually. You're legally required to do it. So a lot. A lot of people get stuck there. So I would always operate a business of, let's make a lot of profit. I think Mike McCallot even talks about. Because when you have that tax fund, it's like, taxes are part of life. You have to do it. So. So when I write a big tax check, that means I made a lot of money. When I made a lot of money, that means I impacted a lot of people. I am giving opportunity to a ton of people. And probably, like, one of the reasons I love the trades is you can tell somebody out of high school, like, look, dude, you don't have to go get a hundred thousand dollars in debt and go get a college degree for nothing. You can be an apprentice here in a couple years, you'll be making $100,000. When we can pay our technicians like that, that means we're profitable. When we're profitable, we have an attractive business that could run without us.

Yeah, so, so true. There was a story of mine. I was a director of business development at a home service business making like $80,000, and the head techs were making over 100. And I'm like, my job's to grow this business. I'm. I'm like, and these guys are making more than me. So you're absolutely right. It's funny. We hit Mike Michalowicz and John Warlow. Both those guys have been on the show. So if you're interested in learning more about them, specifically, we have those episodes. One thing that you just hit on that I want to talk about, because I'm sure business owners are thinking, this is selling a business to an employee. How do you even structure that? That goes about to be advantageous for both parties.