Lynn Wise's Home Service Business Formula vs Traditional Methods

Welcome back to the show. I'm your host, Phil Risher. And on today's episode, we're going to be discussing how to simplify your business's accounting and operations so you can focus on growing your business with Lynn Wise. Lynn, thanks so much for joining us today.

Hey, Phil, thank you so much for having me.

Yeah, yeah, for sure. So, Lynn, you are the founder of Contractor in Charge and the author of Build It, Grow It, Sell it. And you're also certified profit first professional, is that right?

Well, I kind of fell off that wagon because I've kind of revised it. But let me say this. I applied profit first principles in something we call Profit by design. And the reason I did it is because our workflows.

Yeah.

And are in the trades is we have more demands in certain types of allocations than just simply putting money in profit. Yeah, I got you.

So how did you get into the trades?

So let me mention one other thing. We are certified in service titan. So I'll say that. So how did I get in the trades? I was 18 years old and I went to work for a plumbing and heating company. I became a dispatcher.

Oh, wow.

And after 15 years, I was a general manager and an owner in that company. I love that business. Wow. I left it before I was ready to leave it as a young mother. And I left it and I went to work for Corporate America. I worked in yellow pages for eight years and then I worked at IBM for 12.

Wow.

I also, along the way, had several different types of businesses to include a distributor for a handbag and three retail stores. I'm one of those crazy people that have, you know, have this crazy serial entrepreneurial thing going on in the background. So. But trades has always been where my heart's at and always where I wanted to be. And so when I retired from IBM and sold my distributorship, I implemented what's called Contractor in Charge. It was an idea I had in 1989. So here we are, it's 2024 and it's a long time after. But guess what? What was old is still new and what's new is still old. So.

So, yeah, that's awesome. Where we're at, how do you work with contractors with contractor in charge? Like, what's the relationship look like? What do you do?

So we have two key programs, one of those being full service accounting and controller level services. So we do the daily, weekly, monthly tasks associated with accounting and bookkeeping to include. We do the necessary controller level services to accrue and control the books. Our Typical client is between typically 5 to 5 to 10 million on a normal basis. But we have certainly sizes that are all sizes. I typically don't work with a contractor unless they are a million dollars. I want them to feel the pain.

Yep.

So I like for them to feel the pain. But we basically take over the whole responsibility of accounting. So full service on the other side. We are in the call center business and what that means is we do one thing very key for our clients. We qualify and book appointments. When we qualify and book appointments, we're putting it in their software. And we do multiple softwares, but the key ones are Service Titan, Housecall Pro. We've done Java, we've done P3, we've done several different ones. And then we also do funnel management. So leads management, which I know is kind of near and dear to your heart. So we are in the role of setting up the workflows and nurturing leads, digital leads primarily, that come in whether it's a web form from the website or it's a manufacturer lead or Angie's List or Yelp or whatever, whatever those are. And so we set up workflows for our clients and we manage those digital leads. We also do outbound campaign. So think of us being in the leads business and we're in the know your numbers business.

Yeah. So you mentioned there's. You want them to feel the pain a little bit.

Yeah.

What, what are some of those pain? Because every, there's, there's bookkeepers all over the place. But what are some of those pain points? Usually if you're at a million dollars, you're going to get a bookkeeper. Well, hopefully you have a bookkeeper by that point. But what are some of those pain points that you've seen specifically when it comes to the trades that people miss or that they need to resolve.

So a bookkeeper can be an accountant or an accountant can be a bookkeeper. So I want to be very clear. So bookkeeping typically is just in reference to somebody who knows how to put the transactions in or supposedly knows how to put the transactions.

Yeah, yeah.

Okay. And their typical qualification is. I know QuickBooks. Our qualification is we have a degree in accounting, a four year degree in accounting or finance. So we actually know where they're supposed to go and where they're supposed to be accrued and allocated and how to align cost to revenues. Typically a bookkeeper does not have that unless they've been trained or instructed. But the pain point is, is that I don't know my numbers. I have no Idea. My CPA does it, my tax guy does it. I have a bookkeeper who does it. But I still don't get my numbers. I still don't know what's on. And by the way, I don't even know what numbers I'm supposed to know. I don't even know what I'm supposed to know. Right? Yes. So we play that role of helping them get that aligned. But the activity that has to happen is simple. You have to be able to do it and do it right and do it consistently the same way. And our objective is always to do it in such a way that you are building value and you understand where value is in your business.

Yeah. I think if you don't have good data, then you can't make good decisions. And everyone's just saying, oh, well, your. Your profit is this. And it's like, well, where's that money at? So what's going on?

Well, in profit and cash flow are two different things. Right. So again, semantic. But just because you have profit on paper doesn't mean you have money in the bank.

Exactly.

And sometimes that's the hard lesson, right?

Yes. So you mentioned that there were some of these kind of numbers that you should know. What are like three or five of them, that you would say if there's a.

Sure.

Yeah. If you're a contractor, like, hey, you got to know these numbers.

You have to know what your cost of goods sold are to your sales. You have to know that. And in that, you have to know what makes it up. Labor, materials, equipment, and then other cost of goods sold. Some operators like to have burden as part of their cost. I'm not a believer in that. I believe it's an overhead. And at the end of the day, numbers are numbers. And you take 100%, you subtract it. Either it's a cost or it's an expense. You're going to subtract it to come to a net income. I like to have it as an overhead. And I'll give you an example. If you're my employee and you're doing direct work, you're doing service work, and I pay you. Call it 30 hours out of 40 hours a week. I still am always paying your medical insurance. If I've got medical insurance on you, it's around the clock. Even though you don't work, I'm still paying it. It's overhead.

Yep.

If I buy your uniforms, they're on your back, it's overhead. If I put fuel in your gas, it's overhead. If I Make a little vehicle loan. It's overhead. And the payroll liabilities are just a result of having the wage. So those are still overhead. They're payroll expenses that have to be paid regardless. I am a believer that the only thing that goes into cogs is your direct cost. So it's your labor, it's your materials, equipment, it's permits, it's subcontractors. Anything that's direct makes complete sense. Now I've got a clear picture of where you're at. Why I want to know that is because I want to know, are you billing efficiently? So are your direct guys and ladies actually billing 80% of what you pay? Are they only billing 40%? That comes out in the numbers. Is your pricing covering your cost of goods sold so that you can cover your overhead? So that's the. That's the first one you need to know. The other one that I want you to focus on is your advertising slash marketing, because that is a big number in our business. We spend a lot of money on that, and you need to manage it. And the last one I would. I always key in on is your. Your wages that are your administrative wages, your overhead wages.

Yeah, those can get crazy really quick.

Well, we throw people at things instead of processes at things. So we are good at throwing people at the problem, not a process at the problem. So we need to have processes so that people that you're putting in those spots to manage it. Can one, be accountable for the process and two, can be more efficient in what you do?

Yeah, that's so good. The who not how mindset.

Who not how. That's right. Yeah, that's right.

So cost of goods sold to sales as a percentage of some sort, or at least knowing that number, your marketing and advertising spend and then your admin overhead expenses, those are like the three things that they get out of. Out of whack. And people just don't really look at that kind of stuff.

They don't understand the impact on that bottom line. Because those are. Those are the ones that grow fast.

Yes. Yeah.

What.

What percentage would you say is like the marketing budgets if you. Relative to revenue? Typically we see like 3 to 10%. But is there.

No, that's really a great number. I mean, it depends on where you are in your cycle. So if you've got a good brand, you're not spending as much money as somebody who doesn't have a good brand. So you're investing in the early phases of your business, and then that begins to taper off over time. And the Question becomes, are you going to spend money to grow top line revenue? So is it transactional spend or is it more of a I need to keep my existing customers happy. One of the things that I find that real interesting in the trade, especially in plumbing and H vac, is that memberships is a marketing campaign. It's a loyalty program for our existing customer and it can actually bring us probably the greatest return if we focus on it and do it right. Building the right process so that we can nurture those members so that we can have a lower cost of acquisition of work. Right. Or of leads. And so I think that that is probably one of the biggest opportunities that we have as company is to understand how to build loyalty campaigns with our membership and nurture those members, by the way, consistently, daily, weekly, monthly, yearly. It's not just when you're going to go run the tune up.

Yeah. Or whenever you're slow or spring inspections roll around. It's like, no, you need to build relationship and have that snowball going. You add more snow with new customers coming in.

That's correct. And you consistently are offering it and selling it and you're selling the value of that membership and then you have to live up to what that membership is. I mean, one of the best ones that I think throws us out here all the time is Billy Stevens. He's always preaching about this. So if you haven't read his post on like Service Einstein or Service Avengers or whoever, read his post, okay.

And he's giving you, giving you ideas about how to sell memberships.

He's going, look, this is what I do. This is how I do it. He's telling you what he does.

Oh, wow, that's great.

You don't have to go reinvent the wheel. Go listen to Billy Stevens. He's going to tell you how to do it.

Yeah, Very cool. Very cool. One of the other things that really stuck out to me about you was that you help companies prepare to ultimately sell their business to get things in line. We had John Warlow with built to sell on.

Yes.

Yeah.

So I was a certified value builder.

Oh. Because all this stuff that you're saying, I'm like, well, that's a value builder. The reoccurring revenue hub and spoke model. So right.

Is the hub and spoke. That's right.

Yeah. So that's.

In Fact I was 1 in. In one of his first ever value builder, certified consultant.

Oh, very classic.

I didn't follow through with it because I'll be honest with you, I got buried in what I Do.

Yeah.

And I, I, you, I know you're a consultant and I play the role of a consultant, but I don't hang my shingle as being a consultant. Yeah, I'm much more about how to help you do it and doing it for you versus telling you how to do it.

Yeah, exactly. Okay, so yeah, I agree. So what are some of those things when you're looking at like preparing to sell, like what are some of the points that you're looking at from a money perspective? Like you got to have clean books, you know, you have to know your EBITDA number or what exactly are you walking them through this process?

So one of the first things that we typically have to do is just get it reorganized so that we can see what it's telling us. So we talked about cost of goods sold and advertising and admin wages. Our system is to reorganize the chart of accounts so that we can see groupings of expenses. Admin over there's overhead. Admin there's advertising, there's admin, employee related wages, there's building and facility and then there's fuel and fleet. So we like to look at those as a group and there's things that go into those, but we look at those as a group. And then of course the big one is always your cost of goods sold and what's your gross profit margin and what's your relative operational net income. So we want to know that. The second thing we want to do, if you're using a field service management software that is a service titan especially, we want to reconcile that to the financials. So does the revenue in the operational software match the revenue in the books? And there's some mechanics behind that. So we're, we train our clients on how to batch and post properly and do transactions properly. Standard procedure. Process. The other thing that we want to do is make sure that the unpaid bill report that is in service titan is the same as accounts receivable in the balance sheet. 90% of the time. It is not. Wow. And if that is wrong, then your sales are wrong. I'm just going to tell you so that we do the cleanup. The other thing that we want to help you implement is how to get control on your cost of goods sold. So if you have inventory that's running around in your truck or in your back room, we're going to talk about how to get that so that we can account for it on a monthly basis at the end of the month so we actually know what your cost of goods sold are. For that period, we create a schedule of what we call owner discretionary. So we all have owner discretionary spend in our business. Sometimes it's enlightening when you go, yeah, you're going, you're doing too much. And so helping you get control on that and also knowing what you're doing. And then the other thing we want to identify is what we call chargebacks or one time time event. So a lot of companies have done special branding recently. You see this on Facebook. So they, they've wrapped their trucks and changed their brand and come up with new names. Those are one time event. So identifying, identifying those kind of events so that we can schedule those. Why is that all important? Because that really is what is the story. So at the end of the day, if somebody came in and they were a buyer, these are the things they're going to inspect. And then the last one that's probably more important than any is that we make your financials audit ready. Financials, what does that mean? We work with QuickBooks Online advanced for many of these clients. So we departmentalize and we ensure that as many transaction documents that are available, which many are all your bills, your vendors, your vendor bills and your expenses are attached to the transaction. So if you need to inspect it, it's there. Any documents related to loans, it's there, et cetera, et cetera. So we're putting it in a ready position so the buyer can look at it and go, this has integrity. So think of it. We're trying to bring integrity to the financials. Not just know what your numbers are, but also it's financials with integrity. What happens when that happens? A buyer goes, damn, you're organized. I believe you're kind of somebody I'm interested in. You're going to get an offer a lot quicker than the guy who doesn't have organization and doesn't have these things in order.

Yeah, I completely agree with you. And I think for business owners that are listening, if you have a CRM and you have QuickBooks and they're not talking to each other or showing the same things, something's off.

That's a. That's a sign.

Yeah.

Right. So there's your sign. Right. As Jeff Boxworthy would say, there is your sign. Yeah.

And I think the hard thing for trades is that then there's a third part, which is your bank accounts and your QuickBooks and your CRM. Those really. Those three parts that all have to be reconciled and working simultaneously.

Well, their bank accounts in your credit, it's actually your balance sheet. So your bank account is on your balance sheet. And if your bank is right, then that's a real big flag. So I'm just saying. But yeah, that's just part of the standard closing process is to close and reconcile banks and credit cards and all your balance sheet items, whether they're loans or they're assets.

That's right. I think some people don't even reconcile their bank accounts to their QuickBooks.

Well, they don't because they have typically a CPA or a tax advisor who take their bank account and their credit card statements and then they compile a profit and loss. Which is not an accurate view of your business.

Exactly.

It's acceptable when you start and you're trying to figure the world out, but when you, you have work and you, let's say you offer a 30 day receivable on it, the work was done in March, the expenditures were done in March. If you only recognize it when you get paid, which might not, which might be April, guess what? Now your cost and your work are out of line. So you have to always close all sales, whether they're paid or not paid to your financials.

Yep.

So we ensure that that happens. That's one of the key things that we have.

Yeah, I think that's so important. And this is what I talked about with John was like, even if you don't want to sell your business, these are just basic principles that are so important to running a successful business. To get to 5, 10, 20, 30 million. If, if your stuff's not tight at 2 million, what's going to be tight about at 5 million?

That's. Yes. And, and so the way I always say it is, whether you ever sell it or not, it doesn't matter. Build it as if you are. If you build it as if you are and you put in processes and systems that are relative to the way it needs to be for value, then guess what? If you ever want to sell it, it's an easy process.

Yeah, that's right. I have another saying. Not built to sell, but built for freedom. Because a lot of times people, they are stuck in their business and they grow to 5, 10 million and then they're even more stuck. And so, yeah, built to this, built to sell, but it's also built for freedom. So that way when you get to that point, you're not bombarded with all the stuff.

Yeah. And so Phil, just think about what we've just talked about. If you systemize and put the processes in place and you clearly know your numbers and that's a system. That's a system. Knowing your numbers is a system. Then guess what? Freedom becomes a lot easier than not. Yep.

Yeah, you're absolutely right. One other thing while we're talking that I'm curious to get your thoughts on. Is AI in the trades? Because I've heard you speak about this before, but what are your thoughts like with AI and how's it coming for the trades? How can you implement it? Like from a money perspective, from a marketing perspective, People might be familiar with that. But I'm just curious to get your thoughts on what that looks like.

Sure. So little background. I spent 12 years at IBM and that's right, seven or eight of them were in what was all this? Natural language understanding and human language analysis and all of this, which is kind of irony. I didn't realize at the time that I was setting myself up. So I understand it fairly well. And where we are today with AI is that it is a technology that's going to help us humans. And so today I see it where there are systems that we can use that will make us more efficient. And I'm going to give you a good example. So in the call center space, we use AI driven quality assurance for calls. I don't have somebody listening to my calls. AI listens to my call. So we train the AI to listen to the calls and then identify where there are opportunities or challenges to improve somebody's skills. Right. So we've been doing that in the call center space for, I don't know, three, four years. So it's not anything new. I know that they're beginning to do it now in the field and things like that. So you're using that tool to offset the cost of a human doing that. And by the way, you're not only using that tool to offset that cost of the human, you're making the human that should be reviewing it and understanding what to review. Far more efficient. You can do a lot more with less. Right. That's a great place. The other one that I've definitely seen that I think is extremely valuable is using AI to automate processes as well. So I am very familiar with a platform called Buck AI and we have used it with several clients. And it can analyze and assign service work faster, better, quicker than a human. However, it still has to be managed by a person because there's always exceptions that happen in the course of the day. Somebody has a flat tire, a job runs long, somebody cancels and messes up the schedule, we still need to be there to support it. Just makes us more efficient and more effective at doing what we do. Accounting, great example. Accounting's been AI based for a very long time. So QuickBooks uses AI all the time. We have several components that we use in this space to do document management and document review that are all AI based. We've been using it for three or four years. So again, another place that instead of doing manual input, you might want to do AI input. Hello. So there's things of that type that are just there and have been there for a while. Operationally, I think that it's. It's going to be absolutely one of our best tools. I don't like to talk about. It reduces staff. I think it reorganizes staff. It does provide a mechanism to increase the value of that person that is working in those process.

Yes.

So that's how I see it.

Yeah. I mentioned to you offline, I was talking to Brad with zyratalk.

Zyratalk. So zyratalk is with us. We were working with them too. From a development perspective. Yes.

And he mentioned that it's not like, oh, get rid of my csr and I don't have to use that. It's about taking them. They're great on the phones. They know your product customers love them and turn them into an outbound salesperson to rehash or follow up on your stuff. And now you're. You're making money while also saving money at the same time.

We're deploying. We've come up with our own development program with them. And so we're deploying AI agents as part of our process.

Awesome.

In May. So let me tell you the beautiful thing about an AI agent. And especially in their technology, it will take 50 phone calls at the same time.

Yeah, exactly.

Okay. Now the problem you've got, I doubt if you can handle all that. If it were to capture it all, I'm going to ask you, what are you going to do with it?

Yep.

So that means that you got to have a pretty good leads engagement process in order to do that. The other thing that's really cool about it is it will give you a system of accuracy and data that you currently don't have. So it all plays into this. And LSA Local Services recognizes it as a live answer.

Yep.

That's pretty cool.

Yep. If you don't answer your phone, they're not going to show you because they don't make any money. So you got to answer the phone. And this is one way.

So either an AI agent needs to answer the phone and Be able to capture the information so you can call it back. We're working toward a process where AI will do the upfront capture of data, but it will transfer to us to schedule.

Yeah, very cool. Yeah, that, that part, to me, I think, is going to be extreme automation. Like you just hit a button on your phone, you talk to someone, or even just like scheduling right on your unit or something like that. All that is definitely, like in the cards very quickly.

It's in the cards, it's in the. Well, even that, you know, the. A lot of the smart devices that are out there already, you know, provide the alerts. So now you have the alerts. Let's automate it with AI. And I would even say that in the world that we're looking at in the future, these alerts that are going to be part of the process, the notification, those need to be nurtured. So, and so there's a lot of. There's a lot of opportunity to use it and use it appropriately.

Yeah. We were talking about memberships and the value of memberships. Imagine if you could get a membership that was some type of crypto, whatever. You put it into your wallet on your phone and then it syncs up with all your smart devices and it knows that you're a member at this thing. So when this thing breaks, you know, schedule this service. Like, I could see all of this connecting, but it.

So when I went to work with IBM in 1998, I remember one of the first seminars I ever was part of. We had the innovation guy. Right. So he was the guy that walked around and he knew his watch was a smart device, his belt was a smart device, his shirt was a smart device, is whatever. We had what was a whole smart home setup. All of that in 1998 is all real today. So all that you're imagining is coming, it's just who is going to get us there? Right.

Yeah.

So. And there will be a lot of providers that are going to live in this space. It will not be by any means. It'll just be one huge company. There's a lot of small application developers out there that are going to have a vision and enable us to do bigger, better things. For sure.

Yeah. So this is the last question I have for you. What would you say if someone were to come to you and say, hey, I want to grow my business, how would you respond to them? What would you tell them to do? Or how would you evaluate that process with them?

Yeah. So you're going to laugh. First thing I'm Going to say, well, I want to see your numbers. Yeah, I want to understand, you know, what we're working with, what's the equation that we've got. And then the second part of that is that if you want to grow your business, there's several ways to grow it. One is to make, and it depends on what growth means. Do you mean growth top line or do you mean you want to fix the bottom line? So let's just go with top line. Every one of us needs to look at how we have campaigns that run consistently and continuously for existing customers as well as new transactions or expansion of our market, whatever those are. Right. We have to have them all. And it's not one strategy, it's different strategies. And we need to look at those as different strategies and we need to manage them differently. We need to have different systems and processes for these. So it's not one, it's many. And so being in this industry as long as I have been, and I'm going to say this because I'm pretty emphatic about it, is I'm going to talk about the csr because I love the csr, but we have taken that CSR position and made it a black hole for 50 years that I'm aware of. Yeah, that is not true. We need different roles in our business. We need a role that is going to qualify and book appointments. We need a role that is going to be customer care and service. We need a role that's going to manage the field and schedules and we need a role that's inside sales. Those are the four roles that we need and we try to put them all in one and make one person or two people, if you will, do them all. And they don't necessarily do them well. So why not optimize it, get the right person in the right seat. Because they're different skill sets, they're different aptitudes, they're different aspirations from a person perspective. Leverage the proper technology to make those work. Efficiency or efficient, rather. And understand, by the way, just because you have a phone ringing, do you need somebody there all the time? Dancing phone? Probably not. You need it when it rings.

Yes.

Now, if your phone rings all the time, different deal. Right. If you got leads coming in all the time, different deal. But you need to get the right butts and seats and you need to, one, more importantly, be focused on what the customer experience is. So what's the best way to make the customer experience exceptional? Make them raving fans and having one or two or three people do everything is not the optimal way to satisfy the customer experience.

Yeah.

So there's my answer.

Yeah, that part about not having your CSR be the black hole I think everyone falls into, especially when you hit that one to 5 million, they're your office manager, they're posting on your social media account, they're running to the bank, they're all that stuff.

And it's not, it's not the right, it's not the right process. The reality, you probably need people that are part time in those roles. So I.