EPISODE 34 – Building Business Basics For Money Hacks
Hey folks and welcome to another episode of Builders Business Success Podcast!
Now, if you haven’t been on a podcast before if you haven’t heard the podcast before the purpose for the podcast is to really look at the common and often costly issues that we find all over the building game. I spoke to a lot of builders.
We talk about their issues, talk about the problems in running a building business and a very common and they can be very costly.
The cool thing is that the majority of them are created by the standard processes that most builders use and copy from each other because it’s been around for ages and this is how we think we should do things. And so if you change how you do things if you change how you think, if you change what you believe about what can and can’t be done or should or shouldn’t be done in a building business, you can change your building business, significantly and quickly.
And the purpose of this show is to talk about those issues and give you solutions and directions, to be able to fix them.
This episode is the second in a series of, master the basics episodes that we are doing.
It’s super important, I believe to really master the basics.
We’re also gonna do our Q and A.
And this particular question was a bit interesting headed a couple of times.
And in fact, just spoke to one of our builders business black belt members about this very thing.
And that is, those home type shows good for lead generation where you show up. And you’ve got a booth and all of the people around looking at all of the different bits and bulbs in relation to building are they good lead generation opportunities?
And of course, we’re gonna have a personal productivity hack
*Transcription of the show*
As we said, last time, this whole series of potentially more than two podcasts about mastering the basics really comes from the old saying that amateurs practice until they get it right and perfect professionals practice until they can’t get it wrong.
And I know in black belt, we’re always talking about this and constantly going back to the basics, personal management basics, communication basics, how to manage leads and client basics, how to manage and support the staff basics, how to manage finances, a whole everything to do with the major chunks of a business. We unpack it right down to the basics.
What are the fundamentals, the big lever things that make the biggest difference. And so that’s what this series of episodes is really focused on. In this particular episode, we’re going to talk about the, managing the financial management basics. Last time we talked about how to manage prospects and clients.
So if you wanna learn about that all you need to do is go back to the previous episode of Builder’s Business Success Podcast. And there’s a whole bunch of ideas about what represent basics in that space. But in this episode we’re gonna be talking about what represents basics in financial management, for a successful building business.
So, yeah, let’s talk about the mistakes first, the common mistakes that are made just about everywhere here is a biggie, it is massive. It is this not knowing your numbers.
I can’t tell you how many builders I’ve spoken to over the years and we’re talking about the performance of their business because really, I’m trying to get to where they wanna end up.
And in both cases, I say like, how, what would make you happy from the financial performance of your business? And they give me motherhood statements, you know, we’d like to have enough money to not worry and, you know, we’d like enough money to support our lifestyle. I don’t know how much money that is you need to have a very clear and specific goal to be able to hit it.
So you need to know that number but the other part of that equation is where you are now. Like, it’s just basic navigation folks don’t know how much you know about navigation but to plot a course, set a goal, same sort of thing to plot a course.
What are the two things you need to know? Yep, you need to know where you want to end up. That’s pretty important to be able to plot a course in navigation. The other part of that is you need to know where you are. You need to know those two things to plot the course from here to there, and the amount of builders, that do not know their numbers, they do not eat.
Some of them don’t even know what their turnover is. Now you’ve got to know your numbers. It doesn’t matter which business, you’re talking about. Any type of business, the gurus in business, the very successful business owners, entrepreneurs, will all in one voice tell you that the most important thing in relation to financial management is knowing your numbers.
Otherwise you’re living in La La land. So you’ve absolutely got to know your numbers. So that’s one mistake. If you donno your numbers, better get to know your numbers. We can talk about what kind of numbers, a little way down the track. Another mistake I see a lot is thinking that mark-up is margin.
And I know the semantics and they are words but more often than you would believe I see builders pricing a project, and basically they’ll go, it’s this amount for materials. It’s this amount for labor.
I will put my mark-up on it which is my profit and blow me down. They haven’t even considered all of their fixed costs. And you might be thinking, well, that’s not me. It might not be, but it is so many builders.
So if there are so many builders still making this mistake, there is a fair chance that it would be you listening to this.
You need to understand your fixed costs are, what the costs of keeping your doors open are, down to the day, you need to figure out what it costs you to keep your doors open, every day, is that a number you know or is that where we’re sort of falling into that other mistake?
You know, not knowing your numbers you’ve gotta know what that is. And so if the days, if the project is gonna be a hundred working days long, you need to ensure that cost is in that project.
But that hundred days for your fixed costs for the materials, for the labor and you’ve gotta then add your profit margin on top of that, so that’s the profit that pays you, not the business that pays you for all of your effort and sacrifice that needs to be guaranteed to be left over at the end.
We’ll talk about that guarantee as well. Another mistake is thinking turnover is key. Turnover is for vanity. People think that they have these, you know, two, three, $5 million businesses but the real measurement is net profit.
It keeps the stuff how much your turnover is if you’re working like an idiot and the best you’re doing is having a wage leftover. I’m gonna talk about a measurement that you really need to look at in relation to that in just a moment but the purpose and the focus of your financial management needs to be a net profit.
And I’m gonna suggest that you read the, “Profit First Book,” Mike Michalowicz, “Profit First,” also Katie Crismale-Marshall has written an Australian version and it’s called, “Profit First The Trades.” We’ve interviewed Katie on the podcast a number of weeks ago.
So you can search back through the podcast and find our conversation with her, terrific approach to managing finances because the profit first is an absolute life changer, game changer.
The only thing is it’s an American system, American tax system, and all that sort of stuff. The principles are the same but it just needs to be mashed arched and tweaked a little bit for the Australian tax situation.
And obviously for builders as well, because you’re not you don’t have this regular income. It’s all comes in fits and starts. So you need to learn how to manage that. And Katie has done an amazing job of massaging the profit first system.
So it works excellent for any sort of trade based “Business Builders,” included. So get yourself a copy of perhaps both of those books and read them 16 times. So that’s my prescription, a minimum of 16 times.
That’s what Zig Ziglar told me 30 years ago, that if you really wanna get the information out of a book you’ve gotta read it 16 times.
So there you go, passing that bit of gold on to you. Another mistake is thinking that profit is what’s left over, if you’re lucky at the end of a project, that’s the profit is the whole thing. The profit is the purpose.
So why would it be left to a hope strategy? Why would it be the thing that’s left over?
If you’re lucky that needs to be the thing that’s focused on decided upon and then you manage the project to make sure that that profit is protected. So what do we need to know? There are some of the mistakes, there’s more mistakes but they are the biggies.
One of the things you need to know is both the current performance financially. So how much cash is coming in and then, and how much cash is going out and then the targets for those things.
So you need current performance but you also need to be very, very clear on the target.
So you go, well, this is the target that I’m trying to hit and this is the current performance, it’s below it. We need to get our act or we’re hitting it or we’re exceeding it, you know, happy days but you need to know both. You can’t just say that it is what it is. We’ve gotta have an intention.
We’ve got to have a goal. We’ve gotta have an objective, and we’ve gotta keep moving things around and refining things and improving things to be able to get to it. Whatever is measured gets managed. And that’s what we need to do.
You need to know those numbers both the current performance and the targets for them.
And you need to look off, and there’s no point talking about it with your accountant every 12 months. If you’re only having a meeting and looking at it with your account in every 12 months, the accountant can’t be anything other than a historian and help you clean up the shitfight that you’ve just created that year.
What you need to be looking at is the performance week by week at very worst month by month. But the more you look at it, the more intimate you understand it and the more opportunity you have for jumping in and fixing things and changing things and refining things before it’s too late.
So look at these targets and current performance indicators often you’ve gotta decide on a profit and you’ve gotta protect it and you protect it with timely measurement and constant efficiency improvements.
But you’ve gotta decide on what the profit is and then protect it.
We’ve gotta move away from this thinking that profit is what’s left over. If we’re lucky, you got to decide on what the profit is and then have a process to be taking that profit out of the project as the pilot’s coming and the progress payments coming.
You need to know how much profit needs to be taking out of that progress payment and with a building business.
If you’re smart about it, it’s not the same percentage all of the time, because there are times in a in a building project where there is a lower amount of income coming in from a progress payment but the outgoings are significant and high.
And then there are other times when the outgoings aren’t quite so high and the progress payment is a little larger. So you need to know what all of that is prior. And then you need to guard that profit. And as Mike Michalowicz says is take the profit first.
That’s what the books called, “Profit First.” That’s the first thing that we put away and we got it with those targets. Oh, sorry to continue on with that.
Take your profit first. Not only should you take your profit first it should be put away in a separate bank account somewhere where you can access it with the interwebs.
And if you choose to have a tax account as well, which I highly recommend, it’s all part of the profit first practice is the next thing that you must commit to is no stealing no thievery.
When money goes into the tax account it can’t be quote unquote borrowed. When money goes into the profit account it can’t be borrowed. It’s not borrowing folks it’s stealing. Don’t do it, what the whole idea of the “Profit First” philosophy is that you’ve gotta learn how to run your business with what’s in the operating expense account.
And if you can’t, if your expenses are too high to run it what is in the operating expense account after you’ve taken the profit out of it after you’ve taken all of the taxes, the GST, the PAYG, the Super, all of those commitments out.
If you can’t pay your expenses, if you can’t pay some of those bills with what’s in the OPEX account, you’ve got too many bills. You’ve gotta start cutting costs and missing out going without. You’ve gotta learn how to run your business.
A really great book is another book by Mike Michalowicz and it’s called “The Toilet Paper Entrepreneur” get a copy of that and listen to it. It is funny as all get out anyway but it is a brilliant book. And the fundamental principle of the book is when our backs are against the wall.
When we haven’t got a lot of resources to fix a problem we figure out how to, and so overall idea of this reducing the operating expense account as per the profit first process is so we have to take advantage of our ability to be able to figure things out when our backs are against the wall.
So you’re creating that situation for yourself. It’s very powerful, so no stealing from the profit or the texts super important, regularly reset your targets for both profit. I could go up, so if it’s 3%, but we need to do to make it 4%, 5%, owners pay or owners compensation what do you need to do to make that go up? And then operating expenses always be setting targets, lower targets.
So you you’re always looking for ways to reduce those operating expense. Now, the last thing I’m going to share with you in relation to this is a thing I wish I could remember who I learned it off, and I feel terrible that I can’t give them the kudos for sharing this with me Australian guy, it’ll come to me maybe before I finish.
If not, I’ll tell you next time, but he talked about this thing called an effective hourly rate. And if you wanna get really clear on what you’re earning from your business, figure it out, this affective hourly rate and how you simply do it is let’s say let’s take 90 days.
As a period, you can take a whole year, you can do it a month, but 90 days is a good period to do this, how much money, does the business pay you over that 90 days if you’re using the profit first system it will be both the owner’s compensation or your wage plus any profit dividend in that 90 day period from the profit account which you’re meant to do, you’re meant to do a distribution, from the profit account to the owner.
And so you add that profit to your wages that’s all of the money.
And if the business pays you any benefits you know, friends benefits, stuff like a car and that sort of thing, add that to it as well, so what is the financial package that you get from your business in a 90 day period, then have a best guest domestic that you possibly can as to the hours that you put in that 90 days.
So, you know, what time do you get started in the mornings? What time do you finish at night?
Do you go into the office later in the night and do quotes and do this and do that and anything on the weekends or whatever, and add all of that up and what are what is the total hours that you would work in 90 day period divide that total hours into the amount of money that the business pays you while our effective, hourly rate.
I suspect if you’re like most it’s people that have done this myself included, you’ll have a bit of it cry, you know, have a bit of a tear when you first do your effective, hourly rate.
But the cool thing about this measurement is that you can improve your effective hourly rate in a number of ways, you can either increase the amount of pay that the business is giving you or you can reduce the amount of hours that you’re putting into the business by becoming more effective and more efficient or you can do a combination of both, but either way what we’re trying to do do is improve that effective early, right?
Q & A
Q and a time, so just talking to a black belt member about this plastic. It was asked a few days ago as well, was, are things like those home shows, you know, where you get a booth and people are walking past and all that sort of stuff.
And they’re all around to see the latest numbers brightest in the building game and that sort of thing. Are they good for lead generation? Here is the definitive answer. Yes and no, I hope that clears things up for you.
So what it depends on, it could be a yes or it could be no but it depends on many things something that you need to consider as who’s going to be there. Are they in your target market?
So that’s something else that we would need to talk about in another episode is mastering the basics of knowing who exactly is your target market and where they would hang out. Would they be at a place like this?
So that’s one question you’ve got to ask yourself. And as I said, you know, knowing that, you would know, what do you consider a good lead, okay. Where is the person in the buying cycle their buying process, and are they the right type of person? Another thing to make it successful.
If you’re going to do something like this to make it successful, you need to know what your specific purpose is at something like that at some sort of expo or whatever where you’re talking to people.
My suggestion is have a process where your number one priority and the number one purpose is getting leads to nurture. And what that means is you’re capturing their information. You’re putting it in the, customer relationship management software. They’re starting to receive emails and communication from you that that’s really beneficial, really helpful information to help them along their journey.
It’s not salesy, it is helpful. It’s supportive, it’s understanding their fears, frustrations wants and aspirations and delivering solutions to those four things. I hear often, not just with builders but lots of businesses that go to these types of expos.
You know, if you get one project that’s worth it, consider that project. If you’re looking for, getting awarded a project or getting a job out of it as being the decisive reason as to whether it’s successful or not.
And I suggest that shouldn’t be, if you do it right that can be a side benefit. But I think more often than not, you’re gonna be a little disappointed.
If you know, you’ve done your day or three days or however long the expo is, and you haven’t got a job out of it, you can go, well, that was a waste of time. It takes time to nurture leads and nurture people.
You know, they move from being suspect to a prospect to a client, to a part of your marketing team that refer other people that should be the process or the pathway for them, but the last thing that you need to do to make it a success, three things, actually, the first one is preparation.
The second one is preparation. And the third one is preparation. You need to know what you’re talking about.
You need to know what the purpose is. You need to rehearse your schools and rehearse the conversation. So it’s very consistent and it gets you the outcome that you want.
So I hope that answers your question.
Personal Productivity Hack
Personal productivity hack time. I know that because that slides there a great personal productivity hack, one of the most profound personal productivity hacks I think I’ve ever come up across, is time-blocking first need to dispel a myth. And the myth is that multi tasking is a great way to get a lot of stuff done.
Fact is multitasking is the best way to waste lots of time and be very inefficient and ineffective. So what we need to do is focus on one thing at a time for certain chunks, create the right environment and you’ll get a lot better results.
So the first thing we need to do with time blocking is identify things that fix productivity problems permanently. Okay?
So that 10 times really fast. So what we need to do is identify things that fix productivity problems permanently. That’s the first thing we need to do. The next thing with time-blocking is schedule time blocks. So little chunks of time to work on these things every single day, here are the prerequisites for a quality time block.
You’ve gotta have a start time and you’ve got to trick that start time like it’s a plane taking off like it’s a meeting with the most important person on the planet, which it is, which is you. And you’ve gotta treat it that way. You can’t let things go over time and get to it when you get to it, you’ve got to treat it like an appointment, get prepared for it, when the gun goes, you are in that time block.
You’ve gotta, before you start the time block you’ve gotta decide the duration of the time block. And so you can have a few short ones. I would suggest that could be as quick as five minutes but no longer than 50 minutes.
Like we just can’t concentrate for that amount of time, it seems so we need breaks. We need rewards, so have a start time, have a duration. Environment is super important. You’ve gotta be in a quiet place.
This place is somewhere with no visual distractions, not unless you need the computer to be doing this, you know, have it out of your sight, the least distractions the better, turn your phone off, turn email off, turn all of the beings and sirens and whistles and all of that sort of stuff.
Turn it off, so you can get this power of focus going and you’ll find you’ll get so much more done in far less time. If you use this time blocking thing. So environment is absolutely essential. Final thing is you must have a reward.
So if you do a 50 minute time block then set your timer for another 10 minutes and do something that puts a big shit eating grin on your face, it just has to make you happy, make you feel good, don’t care. What it is, don’t do work. Unless this particular work makes you feel really good then go for it.
But the bottom line is the reward has to make you feel good because what we’re doing is we’ve just done a time block and we’re gonna create what’s called a neuro association or an anchor, a connection between time blocks and feeling good, time blocks and feeling good, time blocks, feeling good.
So every time you do a time block you’ve gotta do something that gives you a reward. If funny, cat videos are your thing, knock yourself out, watch a heap of them for your 10 minutes, your five minutes, however long, the reward is the reward length needs to be kind of based on how long the time-blocking is, so you don’t do a five minute time block and a 10 minute reward.
It’s 50 minute time block, 10 minute rewards. So you can work out the math, but the reward, the environment, the duration, the start time, absolutely critical, but this personal productivity hack.
Takeaway & Jump On A Call
So what’s the takeaway from this episode. I think it’s summed up in the old Chestnut that, you know, small hinges swing big doors.
When we talk about the finances are short but frequent care of your finances and its performance can bring big rewards.
So, you know, those little chunks of time looking at the finances, figuring out what the figures are and making sure that we’re on track or getting ourselves back on track, little bits of effort like that can bring you big rewards.
Same with the time blocks, you know, short but frequent time blocks can absolutely revolutionize your day, your week and your business.
So think about that, it’s those small things that can make a big difference.
So that’s it for this episode of Builder’s Business Success Podcast if any of it made sense, and you wanna implement this in your business, if there’s something you wanna talk to us about on how to improve your business, fix a problem, take advantage of an opportunity. We are here for you.
All you need to do is press the button under the video. Yeah, that will take you to a form. Tell us a little bit about your business and then it’ll take you to a calendar, so you can schedule the call.
You can go to our website to do the same thing. If you’re listening to the audio, only version of that our website is, buildersbusinessblackbelt.com.au.
You’ll end up there on the interwebs and you’ll see a bunch of yellow buttons on the website. We’ll schedule a call, hit the button and the same deal happens. So anything you wanna talk to us about. Anything you need help with all you need to reach out is that’s what we’re here for.
So I hope this has been valuable, I hope it made sense. I hope we get to talk to you in person in the, not too distant future on my course Builders Business Black Belt. That is it, so yeah, bye for now.