EPISODE 54

EPISODE 54

By mick | July 22, 2021

EPISODE 54 | How to get REAL Profit

Hey folks and welcome to another episode of Builders Business Success Podcast!

If you’ve never, ever participated in one of these podcasts before it’s purpose is to help builders. Particularly established builders. We’re always endeavoring to address the common and often costly problems that keep showing up in pretty much most building businesses.

In particular, this episode, I’m gonna be talking about “Profit First”. Mike Michalowicz is the guy’s name who wrote the book “Profit First” and it’s been an absolute game changer. And I know that that phrase gets used and potentially overused. Life-changing transformation, game changer, all of that sort of thing.

But I think that stress from money is the worst kind of stress. It’s the worst kind of problem to have in a business from the perspective that it seems to amplify everything else. If you’ve got other problems, if you’ve got, you know, team problems, or workflow problems, or even problems outside of work.

If you’ve got money problems as well, it tends to amplify the intensity of all of those other problems. And if you can get that under control, if you can get rid of the money stress, it can tend to eliminate a whole raft of other problems, or at least reduce the intensity of them. If that makes sense.

So today, this podcast might be a little different. We normally do a Q and A and we have an idea of the week and all of that, but I don’t want to go over time and I don’t want to cut short the value you can get from understanding “Profit First”.

So to me “Profit First” can and if implemented properly will eliminate your money stress. And that just means that you’ll be able to complain about other things. Then you’ll have other problems, but at least this one will go away and it can go away depending on, on how committed you are.

*Transcription of the show*

So “Profit First”, I’ve got the book here. So if you’re listening to it, you won’t see it, but if you’re watching “Profit First” Mike Michalowicz. So I had a photo over there of me and Mike, because I’ve become good friends with Mike.

I interviewed him many, many years ago on a previous podcast called “Small Business Smart Solutions”. He had a book out at the time called “The Pumpkin Plan”. Highly, highly recommend it. He’s got about six books out at last count.

But I interviewed him about “The Pumpkin Plan” and then he called me some weeks later and said, I’m just launching another book it’s called “Profit First”. Can I come back on the podcast? And I said, of course, absolutely. Like, he’s a terrific guy.

He’s very, very funny, incredibly knowledgeable. And so being a good podcast host that I thought I was, I got a copy of the book and read it.

So I’d be prepared for the conversation. At the time folks… And I’m kind of bearing my soul a little bit here. At the time Builders Business Blackbelt didn’t exist. Our coaching company, we were still a business coaching organization. But we kind of helped all sorts of businesses.

All sorts of different small businesses. And it… Back then it was called Uncover Hidden Profits. And I only tell you that to tell you that I was doing the podcast in and I was sitting at my desk reading this book. This “Profit First” book under a massive backdrop.

There was a backdrop from where I used to record the podcast and videos. And in about two foot letters, it was called Uncover Hidden Profits. And I’m reading this book and it turned out, I didn’t even know what a profit was. It was gut wrenching.

I read this book. I went through a thing called the instant assessment. Which is just a little spreadsheet, I guess. And I felt physically ill when I realized the waste my mismanagement of our own personal and business finances, what a dog’s breakfast it had been.

So, it was a pretty embarrassing, horrible experience getting that dose of reality, but it was absolutely worth it because had I not had that sense of disgust, I wouldn’t have stuck to the principles. So ardently that I’d learned through this book and through Mike’s help and it has changed everything.

Our situation is incredibly different now, sort of about seven years down the track, since we first read this book, thereabouts. So I highly recommend it. Now there’s another book. This is an Australian book. And this one here is “Profit First For Tradies”.

So, which books should you read? Well, both but if you’re only gonna read one, sorry Mike, I’m gonna recommend for builders read this one here, which is Katie Crismale-Marshall. She’s also been on the show.

If you have a look at the start of the show where the countdown and all of that sort of stuff before the intro, you’ll see both Mike and Katie at different parts of being on the show. Now Katie’s done a tremendous job of getting the principles that have been taught in “Profit First” and put them in a format that really works for trades based businesses in Australia.

Because “Profit First” is an American book. Mike’s American. The tech system over there is very different. So and it does have a little impact on how you implement. So, I would go for Katie’s book, if you’re only gonna read one.

But I’d suggest you read both. I’d read “Profit First”, first and then I’d read Katie’s book to really understand the nuances. And I say that because the one thing that I’ve learned with “Profit First” over the time is, don’t even bother with it if you’re just dick around with it, because it’ll just be frustrating.

You’ll think that you should be getting the result and you should be eliminating financial stress and all that sort of stuff and not much happens. ‘Cause if you don’t implement it a hundred percent, if you don’t commit to it a hundred percent and you change it around because it doesn’t suit the way you do things or it’s a bit hard, well it won’t work.

The reason that it’s hard is because you’ve got to change things. So, you know, you need to step up and address the things that you’ve been doing wrong. Take responsibility for it and do it a different way and it will change. And I’m not gonna the coat it. It’s bloody hard.

I think some of the biggest hits that you take implementing “Profit First” are hits to the ego because you can’t have some of the things you’ve currently got that you’re paying for that are holding you back financially.

So we’ll address those things as we go along. So my preference to… I listened to the books. I normally listen to books. With “Profit First” though, I found that I needed to get the written book. Particularly to work out the instant assessment.

Because listening to Mike explain it, it just did my head in. So I had to read it and figure out where I was financially. So that’s one difference that I’ve made with “Profit First” I tend… I listened to it, but when implementing it and particularly implementing the instant assessment part of it…

And that’s basically telling you where you are right now. It’s telling you the truth about your financial situation and then working out the targets for profit and expenses and your own pay and things like that need to get really clear on what that is. And that brings me to my next couple of points.

The first point is what is profit? Right? And I was sitting under a big sign saying, “Uncover Hidden Profits”, didn’t know what they were. And I was meant to be a business coach teaching people how to run better businesses, but I didn’t really know what a profit was. And I think the easiest way to explain that is understanding what a profit isn’t.

And before I go on, I haven’t mentioned if you’re watching this live and we’re going out on all sorts of different platforms now. We’re going out on three different Facebook platforms, a couple of YouTube platforms, maybe LinkedIn, I’m not sure LinkedIn are a bit weird and they might not have approved this shit.

So we might not be going live on LinkedIn. But if you’re watching us on any of the Facebook platforms or YouTube, I’d love you to put a comment in hashtag. Put the hashtag in. #Live if you’re watching live, or if you’re watching the replay, please put #Replay. There’s also another little link that I’ve put in before we got started. And it’s the platform that we’re using. It’s called Restream. If you click on that link, it gives us permission to see who you are. So if you make a comment, we’ll be able to see who you are and I’ll be able to say, hey. Give you a shout out and all that sort of stuff.

So click that link and give us permission to see who you are and then put in #Live or #Replay. And if you’ve got any questions you can jump in and we can answer them. Let me just close that there because… There we go. A couple of people have done that.

Stevie O’Keith is here with us live all the way at the start of The Great Ocean Road and his neighbor, Matt is with us. So both of those guys are at The Great Ocean Road So great to have you guys with us. So, as I was saying, what a profit isn’t is that number that is on your profit and loss sheet, that your accountant shows you.

This is how much profit you’ve made this year. That is bullshit. That is smoke and mirrors. It gives you the wrong impression. Who here has ever gone to the accountant, and the accountant said you’ve made 50 grand profit this year. And dropped a wad of hundreds in your hand and said, there you go. That’s all yours to spend and enjoy. It’s never happened.

That profit is just a number on a sheet that is being put there to comply with the Australian tax office requirements. What real profit is, is it’s a bank account that is… Has got cash in it and that cash is there for just you. It’s there to reward you for your risk, your sacrifice, your efforts.

That’s what it’s there for. It’s not some smoke and mirrors number on a profit and loss sheet. So, this system is an emotional system, right? Your zero or whatever accounting system that you’re using, that’s a logical system. And unfortunately folks, we don’t change our decisions and our actions aren’t motivated through logic.

You can argue the toss as much as you want, but the bottom line is our decisions and our actions are dictated by our emotions. And so the profit and loss for most of us… The big majority of us, even some of you who understand them. And just be honest with yourself, you don’t know understand your profit and loss.

You don’t understand your balance sheet. Many business owners don’t understand that stuff. But even if you do understand it, it’s not motivational. The “Profit First” system is motivational. It’s motivation because it moves you towards something that you want. Moves you towards pleasure and it propels you away from pain.

That’s why you’ve got to use the system in it 100% and use the instant assessment that Mike will take you through to understand your true position. Because you will want to move away from that position. You can see it clearly that this isn’t right and I need to get to there. And it’s a really simple the spreadsheet.

In fact it’s just a static sheet in “Profit First”. I created a little spreadsheet that when you put your figures in and it changes the targets and what have you. And I was talking to Mike one day and Mike said, “That’s a good idea. Can I have that?”

So now Mike is sharing a spreadsheet around the world that I created and I’m not a big spreadsheet dude. But if you want a copy of that, let us know in the comments. We can get you a copy, or you can send me through an email. Make it, buildsbusinessblackbelt.com.au.

I’ll send you through a copy of it. It’s just real simple but man, it’s like the dashboard of your car. Imagine, you know, driving around with your… All of your gauges blacked out, you know. You don’t know how much fuel you got.

You don’t know how fast you’re going. You don’t know what the heat of the engineers is. How much oil you’ve got, all of that sort of stuff. It can cause a lot of problems if you don’t now what’s going on and this can be like the dashboard… Financial dashboard of your car. So the big message in “Profit First” is that Mike says, and I absolutely believe that generally accepted account practices or GAAP, G-A-A-P don’t create profit. They just don’t. Because of the way that it’s measured and because of the way that we interpret that information. So you need something that really speaks to you and gets you to change your decisions.

That whole thing that we talk about a lot, what gets measured, gets managed. So having something that measures the reality of the situation instead of this fiction, which is your spreadsheets… Sorry, your profit and loss and so forth. The balance sheet, it just doesn’t do the job.

So we’ve got to measure it and we’ve got to have targets. We’ve got to have targets for our profit. We’ve got to have targets for our owners compensation. We’ve to have targets for our expenses that we run the business with.

And you know, we’ve got to have those in front of our face on a regular basis. So we’re making different decisions that will help us financially.

One of the things that happens when you implement “Profit First” is when you do the incident assessment, I’ll guarantee you, your expenses are too high. I haven’t met anybody myself.

Like my expenses were meant to be something like 35% of what’s called the real revenue. And again, you’ll need go through the book to find out what real revenue is because it’s different than revenue. And there was something like 74%.

So I had a lot of work to do. No wonder we are under so much financial stress constantly and couldn’t get out from underneath it. Because I just thought expenses were expenses. There was nothing I could do about it.

Well bullshit. There was heaps I could do about it. I just needed to know the reality. And I’ll guarantee you, when you know your reality, you will start to make different decisions. You start to take different actions, you will get different results.

My accountant had put up with me, the poor bastard for something like 18 years saying, we’ve got to reduce this and you shouldn’t be spending that. And in my mind, we had to. We just had to. We had to you know, get that on asset purchase and we needed this and we needed that.

I was brilliant at rationalizing why we needed things to the point where he’d go, yeah okay. And away we’d go. Then I went to him some years ago and said, I found this thing, “Profit First” I’m gonna do this. I’m not gonna do this anymore. I’m not gonna do that anymore.

And we’ll be following this system. And he was just sitting there shaking his head. And you know, he’d had 18 years of me not doing the right thing. ‘Cause he understands all of the profit and loss and balance sheets and all that sort of stuff and was directing me in the right way. But I couldn’t see it.

So it didn’t affect me. It didn’t affect my decision. So I just wondered what I wanted and I influenced him to just, you know, give up and let me do what I wanted to. But it kept us in a really average, stressful situation constantly with money.

Since we’ve changed that everything has changed, you know. And he’s constantly in disbelief, we’re in the best financial position we’ve ever been. And then we’ll have another meeting six months later, we’re in the best financial position we’ve ever been because of this “Profit First”. And so I just encourage you to do it.

One of the reasons that it works is outlined in another one of Mike Michalowicz’s book. His first book. And in fact, it’s called “The Toilet Paper Entrepreneur”. I’m not gonna go into detail. Get yourself a copy of the audio book. Don’t read it, listen to it ’cause it’s hilarious. And he opens up the book about telling you about, you know, imagine you’re in a public toilet.

Sitting on the toilet doing your thing and you’re finished and you’ve gotta clean up. I’m not gonna go any further than that but it’s a really, really funny story about how we are very creative and can come up with solutions to problems when our back’s against the wall.

And the whole point of it is when we have a bucket of money, which is our bank account and all of the best money is in there, right? The PAYG money’s in there. The super money is in there. The GST is in there. Subcontractors money is in there. It gives us a false sense of security of how much money we’ve got to run the business with.

But when you start to get that money out of your operating expense account and you’ve got to start to run your business on really and truly all of that is left to run your business with I’ll guarantee you, your bloody attitude will change. Your decisions will change. You won’t spend the money that you currently spend.

You won’t put up with the expenses that you’ve currently got. You will be looking for all sorts of ways to reduce your expenses. I remember when I first did it and I found out a way to save $90 a month on our toaster bill. The telephone bill.

I couldn’t believe how excited I was at reducing our expenses by $90 a month. Previous to “Profit First” I just wouldn’t have bothered. Like why would you bother for 90 bucks a month? But that plus that plus that plus this and that and it all adds up to massive amounts of money.

And we just don’t realize it because we don’t have a system that accurately tells us where we should be versus where we are. So, the whole profit and loss loss and balance sheet that doesn’t tell you where you should be.

It kind of gives you a weird idea of where you are but not really. This system tells you exactly where you are and where you should be. And if you don’t get pissed off and angry and disgusted with your performance, you’re either bullshitting to yourself or you haven’t gone through the process.

You haven’t looked at the “Profit First” ’cause you will. But the cool thing is, is you start to get excited not long after that Like, you’ll go through the disgust and disappointment, but then you’ll get excited because you see the pathway forward. And then as you start to implement, you’ll see the results really quickly.

And there’ll only be little in the beginning, but they will improve as you go along. So, I would also encourage you to listen to “The Toilet Paper Entrepreneur” ’cause it’s a great message.

It helps you to understand that you’ve got to run your business lean. When you start to really look at how to implement “Profit First” you’ll be motivated by trying to increase the profit percentage that you’re putting away.

The only way you can increase the profit percentage is to increase the amount of profit in the prices you charge or reduce your expenses. They’re the only two things that are going to affect and allow you to increase your profit percentage. But, when you see it happening, you’ll start to get motivated to do that.

That’s one of the reasons why our Builders Business Blackbelt members are so on fire about our quality client pathway and the qualified process and getting better quality clients and educating them and charging for quotes. Because that adds to the profit.

It adds to the profitability of the business. And so it gives them motivation to learn how to do those things. Some of the things that you run up against in your own mind with this is that you’ll get to a point…

And there’s a bit in the “Profit First” book that explains this perfectly. And it’s a bit where Mike Michalowicz was explaining to one of his mates, the “Profit First” system.

And his mate basically came back to Mike and said, Mike, that’s all very well and good but, if I was to implement your system, I wouldn’t be able to pay the rent for this office, right? And that was me. That was… I was that guy back then.

I can’t do anything about this expense so I need to have this car or this machine or whatever it might have been. But Mike’s reply I think was spot on. I dunno whether the guy took any notice of it, but he basically said, that’s right.

You can’t afford the rent for this office. And the advice that Mike gave his mate was, what you need to do is get out of that rent, that lease and go run your business from your garage or wherever you can afford to run it from and then learn how to do things properly.

So you build up the level of revenue and profit and income so you can afford those things. But don’t start buying them and signing up for them before your business can afford them. And we can rationalize. And as I said, I was an absolute master at it.

We can rationalize all day long. I can come up with great stories as to why we need this and need that. But what I do now is I look at the “Profit First” figures. I follow the “Profit First”. Still to this day, 100% with 100% commitment and discipline and “Profit First” says that we can afford this or we can’t afford that.

One of the best bits about “Profit First”… Because how “Profit First” works is, it’s kind of like your grandma’s old envelope system. You know, how she’d put some money in the envelope for clothes, some for housekeeping, for a holiday, for the electric light bill, whatever.

It’s just that system. It’s a little more sophisticated. It’s a little more thought out and it’s focused on running a business, but fundamentally that’s what it is. You’re putting money in various bank accounts for things. So one of the first things you…

The four bank accounts you should start with are your profit account. You absolutely need a profit account. You need a tax account. You need an owner’s compensation account that could be your own personal bank account. And you need an operating expense account. Sorry and you need a fifth one is an income account.

So, all of the money goes into the income account and then every so often based on you know, how often your progress payments come in and what have you. You’ll do a distribution to these other accounts.

So a couple of times a month, you’ll empty that income account with appropriate percentages into these other bank accounts. And the whole idea of it is that you’re getting the money for bass and super and all of that sort of stuff out of the revenue and putting a fence around it and guarding it until you pay it to the ATO.

And that’s some of the greatest feedback we get helping people implement this system is it’s such a good feeling to have more than enough money set aside to pay the best when it’s due. So many people struggle with paying the best though you know, where am I gonna get the money to pay for that?

Well you had the money, it’s just that you spent it on other stuff that you shouldn’t have spent it on. You apply the same to profit. You always put your profit away first, right? That’s the name of the system. It’s the name of the book. “Profit First”.

You put the profit away first, not second. And you definitely don’t… Profit isn’t something that if we’re lucky enough at the end of a project, there’s a little bit left, we call that profit. No, that’s why no builders are profitable. We put blackbelt members when they join blackbelt, we pay out of our own money. ‘Cause it’s so important.

We pay for them to go and have a financial health check with a profit first professional. And not one builder since we’ve being doing this has been making profits according to what profit is with the “Profit First” system.

So, we don’t start off with lots of profit we start off with a minimum of 1%. So when that money comes in, you’ll grab 1% of it and you’ll put it into your profit account. And when you start to do that…

The other really cool thing about this… And this is why I say that it’s an emotional system is even if you’re putting this small 1% away, it starts to build up to be a little bit of money after a little while. But the whole idea is that you need to treat yourself.

And so, part of the system is that you do a distribution out of your profit account every 90 days to yourself. And the only purpose of it is to put a big shit eating grin on your face. That’s the only purpose of this distribution. So you get a chunk… A small chunk of the profit and you spend it on yourself.

A year or two ago for whatever reason, I don’t know why. I just thought having an electric skateboard would be a good idea. Guess what? It came profit distribution time and I spent two grand on a bloody electric skateboard. My wife thought I was crazy.

Other people thought I was crazy, but I had lots of fun on it. And it put a big shit eating grin on my face and people would go, well, that’s a waste of money. You know, a so-called mature person. But that’s the whole idea.

Because if you don’t do things that make you happy by applying this process, you won’t apply it. It’s like, you know, throwing the stick for the dog and then when it brings the stick back, you smack it in the head. Like after a while, the dog will stop chasing the stick.

And that’s what we do to ourselves. We discipline ourselves to do these things, but we then don’t reward ourselves. So, this is a really smart system. It’s a really simple system. And it absolutely works because it is designed to take account of how we make decisions. And we make decisions emotionally.

So it’s generally accepted accounting practices are logic and they do not motivate. But this system, if you follow it, if you follow the system, if you commit to it, it will make a difference.

I just want to want to sort of wrap this up because I can see we’re pretty much out of time by just reiterating start small with just 1%, be absolutely truthful to yourself. Do the instant assessment and follow up 100%. Now, over the years, we’ve created a program called Blueprint to Blackbelt.

So it’s not Builders Business Blackbelt. It’s a 12 week course. And my coach… Yes, business coaches have business coaches. So I’ve got a business coach who coaches business coaches. And I went to him with this course that I created. And he said that shit it’s too long and it’s got too much in it.

And he asked me the question, what would be the three things, if you could only ever teach those three things, your clients, your members would be successful for the longterm? And I went away and thought and thought and thought and I came up with this Blueprint to Blackbelt. And we just talk about three things.

One of them is “Profit First”. So in this Blueprint to Blackbelt program, six week… 12 week program, we absolutely cover and support and help you to implement “Profit First”. So if this is something that you want to do, go ahead and get the books.

But if you want help to implement it for a building business, we are here to help. And all you need to do is book a call.

You can just navigate to buildersbusinessblackbelt.com.au. Or if you’re watching it on Facebook, I’ve put a link in the comments there. You can just click that and jump on a conversation with us so we can have a…

Find out where you are, where you want to go and point you in the right direction. And it might be this Blueprint program, or it might be something else. It might be completely free. And just the whole point you towards a whole bunch of free resources.

We’re not here to sell you anything, we’re here to help you. And this is super powerful. This is super transformational for a business this “Profit First” thing. And yes, it’s part of our Blueprint program so that would be a smart option to look at. Because it…

That Blueprint program will teach you “Profit First”, but it’ll also teach you the full quality client pathway. How to get rid of the wasters, the tire kickers and how to get paid for your proposals, which increases the profitability of your business.

Which makes it easier to implement the “Profit First” stuff. And then the step before that is how you think and your personal effectiveness. So everything is done in a really smart sequence that gets you thinking a lot differently, doing a lot differently and getting a much different result financially and emotionally.

Somebody in the comments has said that they’ve given us three okay signs and said, they’re up to 5% profit now. That is awesome. I think… I absolutely believe and there are some of our members that are really getting close to it, that you can get to a 20% net profit.

You think about that. Look at your turnover and think if I was able to keep 20% of that for myself, would that be a good thing? It’s totally possible. You can absolutely move towards that. We’d love to help you do it. All you need to do is jump on a call.

So, I’ve got to wrap this up, ’cause we’ve gone way over time. Love to help you. Please hit the button underneath this video if that’s where you’re looking at it, or click the link in the comment section. Let’s get on a conversation so we can help you implement this stuff into your building business and get rid of the unnecessary stress of you know, financial and cash flow pressure.

So I hope this was worthwhile. I hope it’s inspired you. Love to be talking to you in person real soon. That is it for this episode of “Builders Business Success Podcast”

I’m Mick Hawes from Builders Business Blackbelt. Bye for now.

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