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Blubrry08, 2021
EPISODE 25 – Profit for Tradies
Hi and welcome to another episode of Builders Business Success Podcast!
This podcast is specifically designed for the established builder, the problems and challenges that the established builder experiences, whether it be financial, whether it be time management, whether it be quality of customers, all of that stuff.
We are endeavoring to give you ideas, solutions, tools and techniques to be able to overcome those really common ugly bits that most builders experience running a building business, particularly if you’ve been around for a little while and I’ve got a team happening.
So in this particular episode where we’re speaking to our special guest, Katie Crismale and she has written a book called Profit First For Tradies.
So you may well be aware of Profit First, Mike Michalowicz. This is a spinoff of that. Mike has done the foreword to this particular book. Katie is a profit first professional.
I asked her to come on the podcast and share what the differences are with implementing the standard profit first straight out of Mike’s book into a trade based business because there are some challenges.
The Profit First was originally written for the American market, the American tax system and for general businesses, general small businesses. And there’s a few differences with buildings such as the big ebbs and flows with the cash coming in with progress, payments and so on.
So I’m gonna ask Katie all about how we need to modify profit first so it works great for a trades based business.
We’re also going to be doing another excerpt from our conversations. We have a daily conversation with our Builders Business Blackbelt members, the daily momentum call, where we share wins, share lessons, ask questions and it really ramps up the speed of progress for the guys that participate in that, and in every show often I have something that’s worth repeating, and we’re going to throw one of those little gems hopefully, into the conversation today.
We’re gonna answer a very commonly asked question in our Q&A section. So, it’s a pretty action packed episode. Hi and welcome to another episode of Builders Business Success Podcast!
This podcast is specifically designed for the established builder, the problems and challenges that the established builder experiences, whether it be financial, whether it be time management, whether it be quality of customers, all of that stuff.
We are endeavoring to give you ideas, solutions, tools and techniques to be able to overcome those really common ugly bits that most builders experience running a building business, particularly if you’ve been around for a little while and I’ve got a team happening.
So in this particular episode where we’re speaking to our special guest, Katie Crismale and she has written a book called Profit First For Tradies.
So you may well be aware of Profit First, Mike Michalowicz. This is a spinoff of that. Mike has done the foreword to this particular book. Katie is a profit first professional.
I asked her to come on the podcast and share what the differences are with implementing the standard profit first straight out of Mike’s book into a trade based business because there are some challenges.
The Profit First was originally written for the American market, the American tax system and for general businesses, general small businesses. And there’s a few differences with buildings such as the big ebbs and flows with the cash coming in with progress, payments and so on.
So I’m gonna ask Katie all about how we need to modify profit first so it works great for a trades based business.
We’re also going to be doing another excerpt from our conversations. We have a daily conversation with our Builders Business Blackbelt members, the daily momentum call, where we share wins, share lessons, ask questions and it really ramps up the speed of progress for the guys that participate in that, and in every show often I have something that’s worth repeating, and we’re going to throw one of those little gems hopefully, into the conversation today.
We’re gonna answer a very commonly asked question in our Q&A section. So, it’s a pretty action packed episode.
*Transcription of the show*
Hear my conversation with Katie Crismale!
So when I spoke to Katie, one of the first things I wanted to get to was, how did she get started? Like how did you get an interest in this sort of thing?
– So I first come across the Profit First book that Mike wrote in 2014, when he wrote it. Recommended by my business coach at the time, read it, loved it, then put it down and didn’t do anything with it. Read it again sometime after, didn’t do anything with it again. Read it a third time and finally, at that point in time I was really hating my business. I was just hating everything about it. So it was kind of, I had to do something different and I didn’t know what I didn’t like about my business. And I re-read Profit First and realized what I didn’t like was that. So for my clients at the time I had a bookkeeping business but it wasn’t doing enough for them, for what I wanted. That’s when I came back to Profit First. Started implementing in my business myself. I would like to say I implemented it once and everything was perfect from then on in, it wasn’t. Like any good business owner we stop and start things. Somewhere along the line again, I stopped doing, at first. No surprises, still hated my business. So when I finally came back to it again and stuck to it, that’s when I really, you know, my business absolutely transformed, not only financially but the fun side of it came back and I really, really enjoyed my business again. As anyone who’s self-employed we know, comes a period of time after we’ve been self-employed that we could never be an employee again. And I was at that point and it was like, what’s my options. I was not going to work for somebody else, I had to make it work. Profit first allowed me to find that fun in my business again.
– Yeah. All of the things I’ve noticed encouraging our Builders Business Blackbelt and our blueprint members to implement profit first is to get them to follow it 100%. My belief is if you don’t follow it 100% it’s almost not worth following at all. So I asked Katie, how does she get her members and her clients to follow the process 100%.
– We always wanna try and find the shortcut or find the more efficient way to do it. And what I tell my clients is, you can do that after you’ve implemented it as per the book.
– Yeah.
– And once you’ve got that in place, running smoothly and you have changed the way you think about your profit, then you can start making adjustments to suit your business. You’ve gotta start with that foundation and get that right first.
– Absolutely. As I mentioned in the intro, the Profit First is written primarily for an American tax system and general small business. So I wanted to ask Katie, what were the modifications and why did profit first need to be modified for a trade space business.
– So I’ve worked with tradies my entire business. I’m surrounded by tradies in my family and so on. So I had a good insight to how they think and how they work. I knew even with my own book, Profit First For Tradies, I know tradies are not necessarily gonna read the whole thing. And I didn’t write it to be read from cover to cover. I wrote it so they could just do, you know, one chapter and then implement that or, you know, just a little bit at a time. And what I found with Mike’s book, it’s amazing but it is American based. And I find sometimes tradies, if they can find a way out or an excuse to not do something, they will take it. So, Mike obviously doesn’t cover things like GST and, you know, our taxes are a little bit different. And those sorts of things, talk about progress payments. So I found that people would say, it’s great but it doesn’t work for our business. And I just wanted to make it really simple so that we could actually make changes for our tradies. I know it works. I know that framework works. So I just wanted to make something that was useful for them and give them the opportunity to see what it can do for their business. As you say, you know, GST is not accounted for, our taxes are different, staffing sometimes is a little different. Over there they have different state taxes and federal taxes and all those sorts of things. So I found that our tradies, it was just too much information for them to try and decipher.
– It’s such a common thing when BAS rolls around or a bill comes around, we tend to, if we’ve got a profit account, if we’ve put money away or we’ve got money stashed away for tax, PST, PAYG, super or whatever it might be, we might pilfer that money in order to pay a bill. So I asked her what needs to happen for the stealing to stop?
– Yeah, so the biggest thing I find is the areas where people get caught out, I guess is not paying their GST in their tax bill and also not paying their superannuation. So what we do from a profit first for trainees point of view, when your income comes into your income account, we suggest transferring 10% straightaway over to your GST account. Now we all know that it’s not gonna be exactly 10%, will be slightly less because we’re not taking into consideration. But what that does, it’s a simple, 10% is an easy calculation but then it’s also building up a buffer for you over there to start paying back debts and so on. So that’s just an easy, simple step. With regards to attacks, obviously, every tax structure is different but what I really, really encourage is to have the tax planning conversations with your accountant. Which I find is not always, it’s not very common in many tradies that I deal with for a number of reasons. So we go through and we show them what questions you need to ask your accountant. Obviously, they’re the only people who can give you tax advice but we can certainly arm you with a number of questions to be able to get the answers we need to then be able to work out. Okay, we’re gonna aim to put 13% aside if you want company tax, for example. So in Mike’s book, he says 15% across each of the, it doesn’t matter where you sit whereas here it is a little bit different. And again, it’s just building that relationship with your tax accountant. And I would probably say 90% of clients I see, don’t have a great relationship with their accountant. They just have a very transactional, they do my interview tax, here’s my paperwork, thanks very much. So we help them ask the right questions so they can build that relationship to help them. And then as we said, for things like superannuation which is the other big debt I see, when you’ve started to build that buffer in your GST account, you can start to catch up on your super. We always suggest that you pay your super with your payroll. So yes, we’re not required to pay it until the each quarter. It’s not your money, it’s their money. Just pay it and don’t be tempted by it. And there’s just those few small changes that can make such big difference to each and every business before we even get into, you know, all the other areas that are gonna make.
– Yeah.
– Make that change.
– As we’ve already talked about, when BAS comes around it can be a really tough time. It shouldn’t come as a surprise but it does tend to come as a surprise for many builders. It’s like, “Oh, how are we gonna pay that?” It’s not as if you didn’t know that BAS was coming around. It comes around every 90 days. It’s as regular as. I asked Katie for some suggestions to overcome the BAS blues.
– As you say, it’s so common. And when I’m talking to my clients I often get the, “Ah, you know, but my mate who’s a builder or my mate, who’s a landscaper that’s how they do it.” And my answer to that is always, it doesn’t make it right. You don’t have to be robbing Peter to pay Paul every quarter. Like we have to change that. So initially for myself, when I started profit first I would pay my, and I still do. I pay my GST straight to the ATO. And I pay my PAYG for my team members straight to the ATO. I don’t hold it in a holding account now. I would like to think I’m pretty disciplined about that type of thing but I’m not just gonna leave it to chance. I’m not gonna leave it to a period of time where things might be a bit tough or whatever in my business. Because once you break that habit, you can slip back into those old ways. So anything you can pay directly, your super, your PAYG, anything that you can make those payments out of your bank accounts, I highly suggest that. Particularly if you are in a little bit of a financial mess, get it out of the way. And then we hear all the excuses, all the reasons I should say, you know, but I’m not gonna be able to pay this bill or that bill and so on, it’s like, that’s okay, you need to pay the tax office and then we’ll get creative and we’ll start working on ways to be able to pay your suppliers and so on. But I guarantee you by borrowing your GST money or your super money, it’s not gonna solve the problem. It’s just hiding it and making you feel like you’ve got it under control when you don’t.
– Sometimes you’re implementing something new, just getting started is the hardest bit, taking that first step. So I ask Katie, what would somebody expect when they’re beginning to implement profit first?
– Absolutely. So your profit account is your money to benefit you as being the business owner. As taking the risk that we all take to be the business owner and absolutely shouldn’t be borrowed to pay any of those bills. And like you say, we have to get into that habit. You know, I find most people, the thought of them ringing a supplier and saying, “Hey, I actually don’t have the money yet, can I have a week or two or part payments?” And so on. People freak out about that. They’re like, no, like, they’ll never allow it and all these reasons why they can’t do it. I always say to my clients, unless you’ve tried it, like try it and then come back to me. And the amount of times they come back and say, “Oh, yeah, they said pay it in a month, that’s cool.” Pay X here and the rest of there, no worries. And I say this time and time again, we have to stop assuming that people are gonna be cranky if we can’t pay them money. People are annoyed at us when we don’t communicate to them that we’re not paying them the money. You can’t just not pay it.
– Yeah.
– You have to ring them before the due date and not the day off or the day before, couple of days before and say, “Hey, I’m not gonna have this money but I will have X for you at this point and Y for you then.” Give them something, an explanation as to, a plan for what you’re going to do. In my experience with my clients, I’d say probably 99% of people who do that with their suppliers, get a positive response. Of course, you then have to make those payments on those dates, but it absolutely works. And coming back to what you said about training yourself, those conversations are really difficult and we tend to not become really comfortable with them, which is great because then we become more likely to do something differently to make sure that we have the money there to pay those suppliers next time. So we might call that potential client up and follow up on a job with them more than we would’ve. Or we may decide to take on particular jobs or not even take on particular jobs that potentially could be losing us money or losing us time. So, yeah, very, very important, we can’t borrow from any accounts, whether it’s GST.
– Where we’re quite willing to work hard, but for whatever reason, we find it really difficult to reward ourselves in a proper and meaningful way. So I asked Katie, how important it is to make sure that you reward yourself properly in relation to maintaining the profit first processes?
– I always say to them, it gets much harder before it gets easier.
– Yeah.
– Because it doesn’t matter what we’re doing, we’re changing our habits. So whether we are going from somebody who doesn’t exercise to exercise, bad eating to healthy eating, whatever it may be, there’s always that hard period and it’s no different. But there comes a time where all of a sudden it just feels really easy again. And what I find is that a lot of people have a really hard time with that profit distribution and taking that money for themselves. I did myself. It probably took me almost, probably by my fourth public distribution that I realize, right, that’s mine and I’m going to spend it on me. I really, really struggled with it. And I find people do because we are so used to taking money from here to pay over there and so on and so forth. So when it’s yours to spend on you and that’s the requirement, can’t be put back into your business, something can be purchased for your business, has to be spent on you. People really, really struggle with that. And the amount of phone calls I get, you know, we are about to finish another quarter. Guarantee I’ll have emails in my inbox in January saying, “I’m just gonna leave it there for just in case.” No, that’s not the point. As you say, it’s really those habits and those anchors to know that it’s our benefit of being the business owner. But that is a really, really big one that I struggled with and probably 90% of the traders I worked with really struggled with that to start with. But again, all of a sudden, once they get past it, you know, by beginning of December, they’re like, “Right, I’ve got this, this, and this, how much do I need extra my profit account?” “‘Cause I’ve got this to spend it on.” And yeah, it’s just those habits changing.
– Yeah. And to me it’s like so critical, and I use this pretty horrible analogy, maybe I should find a better one. But to me, if you don’t do that, if you don’t spend on yourself, what’s actually happening is that you’re putting this effort in and you’re rewarding yourself with something that’s not all that rewarding. And the analogy I use is like, you throw the stick for the dog and the dog happily goes and gets it, it complies with the process, comes and drops it at your feet and you pick the stick up and kick the dog in the head. And it’s like, you know, the dog will probably go, “Oh, that wasn’t what I was expecting but I’ll go and get the stick again.” They might do that two or three times, maybe four times but at some stage the dog’s gonna go, “Not gonna chase the stick anymore, I’m not digging these kicks in the head.” And so you stop doing it. And if you keep implementing the discipline that’s required for profit first, without that reward it remains a discipline. Whereas if you reward, reward, reward, it no longer becomes a discipline. It becomes that automatic response.
– Absolutely, for me in my business, I have to be having fun. Otherwise I’ve got a job with a whole lot more stress. Which is what many, many business owners have. And my parents were self employed, pretty much entire childhood. I just knew I didn’t wanna be like most business owners. I didn’t want to have a job that made me work heaps of hours and all this extra stress without that reward. It all just kind of falls into place and becomes super, it just becomes a habit. And what I find is, like you were talking about the TV before interest free. The amount of times I see clients who have got, you know, more vehicles than they do staff members, it is up there. Because somebody has to have a new ute. Sorry.
– Hey, time’s up. Okay, that’s the end of the interview.
– Sorry to editor. Yeah, the amount of times I see more vehicles than staff members, because it’s so easy to just have that instant gratification, there’s a new ute or a new equipment or whatever it may be. And for me the exciting part is when I have those conversations with those clients who say, “Oh, you know, my lease is coming up, but I’m not gonna get a new car because I’m planning to use the money on this instead.” Or I wanna make sure that I’ve got enough money. I can increase my own profit because we wanna do this as a family or, you know, whatever it may be. And that transformation, absolutely happens. I see it all the time and that’s the fun part for me. When people can start making those decisions proactively rather than reactively.
– Yeah. And that’s just one of the things that we look forward to or we used to before COVID anyway. There’s an amount of money, you wanna go on an overseas holiday. I think most people go, “We need a holiday.” So they go and they put it on the credit card or whatever and then you’ve gotta pay for it when you get back. Versus, there’s a X amount of dollars sitting there, our only decision is, where do you wanna go?
– Absolutely.
– And it’s all paid for, and you don’t need to worry about things, and you got spending money. And you can do that two, three, four times a year.
– And the holiday you have when you’ve got the money already for it.
– Yeah.
– As opposed to the holiday that you have when you’ve gotta put it on your car, it’s a completely different experience.
– Totally.
– And it becomes a little bit addictive and in a good way.
– Yeah.
– Because you don’t want the holiday up the coast for a week. All of a sudden you want a holiday overseas or you want a holiday to a different state and it just makes it, for me, I find it just makes business so much more interesting and a bit. You know exactly what you need. We want X amount of dollars for a holiday. Okay, well then we need to do these things in our business to be able to get money. And it makes it really clear.
– Yeah. Yeah, Perfect. The two most important questions of this whole conversation is where do we go to get the book and where do we find you? I’m sure that there’s people that are watching and listening to this podcast that wanna reach out to you and and start to consume your information and ask you questions and perhaps engage your expertise. Where do we get the book, how do we find you?
– Okay, so the book you can get from all the usual online stores, Amazon, Booktopia, Barnes and Noble, all those places. Obviously it’s available on Audible as well if you prefer to listen. And if you wanna reach out to myself, profitfirstwithtradies.com.au. Or you can search my Facebook group, Profit First For Tradies and we can have you in there.
What’d I Say?
The best way of doing that is just listening to your prospects, because if you sort of start pulling it off a document like that even if it did exist, because your customers are gonna be a little bit different to wine and lees and to poles.
And the secret is to listen to the specific language your prospects. Particularly the prospects that you really like so that they obviously become your customers. Listen to the specific language that they use.
So, one of the things that I’m always encouraging everyone to do, part of the deliver plus, so it’s the plus all the way through, like even starting at the treehouse, call through the initial meeting, through conversations at the beginning of the project is to be making mental notes of their concerns.
Anything that shows up as a fear, frustration, want or aspiration. And it doesn’t have to have anything to do with the project.
It can be just about what aspirations they might have personally or what passions or interests that they might have personally, because that then plays into the plus that we talk about and deliver plus to be able to, you know give them an article on this or, you know, something that’s relevant to them personally that it has nothing to do with the build.
If you challenge yourself to be that super sleuth, to be paying attention to those sorts of things and keeping a little note pad on you at all times, obviously you’re not writing it while they’re talking, but you’re listening. And the first available opportunity you add to it and that then goes into their file.
You can start to have a swipe file of language. For whatever reason, builders aren’t interested in profit. I’ve used that, in the languaging of our promotional, you know, content over the years and it just gets crickets. Getting more quite high quality leads seems to be far more attractive than becoming more profitable.
The trouble is also that you guys know too much, you know too much about the building process and so you assume that they know this, or they think this, or you know really what delivers awesome value to your prospects but they have no clue about that.
So what we think represents value nine times out of 10, I’ll actually say 10 times out of 10 is wrong.
And so we’ve got to be this master listener and start to pay attention to what they prioritize but also the words that they use to communicate to you what’s important to them.
That would be what I would be suggesting.
Q & A
So when I’m talking to builders, one of the biggest questions, or most frequent questions I get asked is, “Do you really need all of these bank accounts?” When you’re implementing profit first effectively you need an income account, you need a profit account, you need a tax account, you need an owner’s compensation account, and you need an operating expense account.
And sometimes if you’re really doing it properly you need a materials and subcontractor account.
So there’s six bank accounts. And I remember the first time I said we were going to implement it my accountant said to me, “You don’t need all of those accounts, you can use your accounting software.” That just isn’t the case. And he was kind of saying, you know, why go to the expense of having these bank accounts?
Fortunately in this day and age, you can get some accounts that are either no or low fee for a start. But my point is, the bank accounts or if you can recall your grandma using envelopes or jam jars under the kitchen sink to put different amounts of money for housekeeping, for groceries, for holidays and so forth, the bank accounts represent the jam jars or the envelopes and they’re extremely important.
And the bottom line is, if you aren’t using or aren’t managing your finances effectively as you would like now, it kind of stands to reason that your current system isn’t working and you’ve got an accounting software. And you can put things in different columns and so forth.
That is very, very different to having accounts that you can just look into and see amounts of money because the profit and loss sheet and the balance sheet, if you’re honest about it, very few people understand them properly.
And even if you do understand them, I still find that they don’t affect you emotionally and profit first is an emotional management process.
It’s not an accounting process. It doesn’t replace your accounting process, your accounting software, or your accountant by any stretch of the imagination. All it’s simply there to do is influence you emotionally and cause you to make better decisions, And bank balance accounting is a very effective way to get you to make better decisions.
So having these bank accounts is absolutely essential. Do not listen to your accountant. And I say, you can do that through your accounting software, because as Dr. Phil says, “How’s that working for you?” It’s not working too terribly well.
So you do need the bank accounts. You do need to use them properly. And the cost and the slight extra little bit of administration of having these bank accounts is totally worth the outcome.
So the answer to the question is, yep, you do need those bank accounts.
Takeaway & Summary
So what’s the takeaway from this episode of the podcast. In my view, it really is that money stress is the worst stress. It’s the worst problem.
Because what tends to happen when you’ve got money problems is it amplifies the consequences of every other problem you’ve got, whether it be personal or professional.
It’s funny how a whole raft of problems and stress disappears when you don’t have money stress. When you’ve got the money to pay for things. When you’ve got an abundance of cash and you can start buying some solutions for some of your problems. A whole lot of other problems tend to disappear.
So doing whatever you can to eliminate the money stress from your business should be an absolute priority. And the cool thing is that the money problems in a business are totally preventable. When you’re implementing things like profit first, when you’re educating yourself on systems like profit first, when you’re disciplining yourself to use the processes in profit first, you can eliminate those money issues.
So I would say just to you that the takeaway from this episode, is do whatever you need to do, reach out, whatever you need to do to get some assistance, some support, some guidance to be able to eliminate the money hassles from your business because business is significantly more enjoyable once those are eliminated.
Okay, I’d love you to jump on a call with us at Builders Business Blackbelt to help you eliminate those money issues. As an example, what just came into my mind then was, one of our members in Builders Business Blackbelt, only just previously went through the blueprint program, was telling us that being in the business for 30 years, had his own business for 10 years and was fairly close to checking it all in after that last 10 years of, sort of boom and bust, and there was just this constant struggle.
And we showed them how to implement the profit first. We showed them how to implement the quality client pathway and a couple of other little things.
Long story short, some months later, or in about 20 weeks later, that particular builder had an additional $25,000 net profit in the bank account. Had eight additional jobs that they wouldn’t have got from the number of quotes that they traditionally did. And when you think about that additional $25,000, that all came from being paid for doing quotes.
So no additional work whatsoever, we’re still doing the same amount of quotes but because they were being paid and they put that money directly into their profit account because it was net profit.
If you think about how much work you have to do to be able to get $25,000 net profit in your bank account, it’s massive. If you had a 10% net profit, you would need to be doing $250,000 worth of work. But think about this, you would have had to have done the work, you would have had to have had a 10% net profit.
Most builders don’t have anywhere near that. And don’t confuse your builder’s margin with net profit. This money is left over, it’s not earmarked for anything other than rewarding you for your risk and your sacrifice. It’s not an entry on a profit and loss sheet, it actually exists in a bank account and it’s just for you.
That’s what profit is. You would have to have a 10% net profit in a project or a series of projects, have had done $250,000 worth of work to get that. In this case, no extra work was done and that $25,000 net profit was put in the bank account.
So if that sounds like it could be interesting to you, if you wanna do the same thing or something similar for you building business, it all just starts with a call.
So all you need to do is just jump on a call. You can navigate to buildersbusinessblackbelt.com.au. If you’re listening to the audio only version, go to the website, there’s a scheduler call button there.
It’ll take you to a form, tells us a little bit about your business and then it can schedule just a real short call to see firstly, if we can help. So that’s the first bridge we’ve gotta get across. What we do is that gonna be appropriate for you?
Jump on the call and find that out. If you’re watching this live on. If you’re watching it on our blog post, if you’re watching video, if you can see me waving my hands right now, underneath is a button, just hit the button and go through that same process.
I hope this episode has been valuable. I find it is perhaps one of the more boring topics but it can be one of the most profoundly powerful topics when you get it right, and get out from underneath all of that unnecessary stress and those money problems. So, love to talk to you, jump on a call and start helping with that process.
I’m Mick Hawes, Builders Business Blackbelt, that is it for this episode of Builders Business Success Podcast, we’ll be seeing you again. Bye for now.