The ServiceLegend Podcast – Episode #27 – FINANCIAL REPORTING AND FORECASTING FOR SMB – W/ Chris Scoggin



Well, happy Friday, everybody. And welcome back to another episode of the Service Legend Podcast. Today, we have a special treat for you guys. This is actually going to be a webinar style here in the group. And I see a couple of people live here. Welcome. I hope you guys are having a great start to your New year. Today, we’re going to be going over the financial reporting and forecasting for small businesses. And I have an amazing guest for you guys, my accountant, personal accountant businesses, and an amazing leader in the accounting industry. Chris Goggin, welcome to the webinar in the podcast.

Hey, well, thank you. I’m glad to be here.

So good to have you, man. And obviously, you do a plethora of things, whether it’s whether it’s accounting, whether it’s, you know, it could be bookkeeping. You guys have all types of different services. Before we dive into the webinar and the material and things like that, if you could just give everybody a quick kind of intro to yourself what you guys do in your background.

Absolutely. So I am the world’s biggest fan of the entrepreneur and that’s what I do. Ultimately, when it gets down to it is I support our clients, I support entrepreneurs, and I love I love these people that step out and take this huge risk. And and one of the things that I do, I think the most important thing that I do is I reduce their risk. I help them to understand what’s going on in the business. You know, your clients may understand how to how to apply a concrete coding or many other services that they provide. But do they understand the numbers? Do they understand what the numbers are telling them? It’s so much more than just, you know, how much cash do I have in my bank? How much cash am I going to have in the bank next week or next month? We can help use the numbers to tell them where their business is going and to give them the tools to change that trajectory if it’s not a positive trajectory. So a little bit about me. I’ve been a CPA for 30 years. Again, I specialize in small business. I am now lucky enough to run a firm where we help out a few hundred small businesses in various parts of their financial world, from accounting to taxation to dealing with government agencies. All of those things that business owners do not do very well and they do not do it every day. And we take that off their plate. So that’s that’s me and that’s our group. Cc, CPA Group. We’re ready to get started.

Love it, love it, love it. And so for those of you that are here live or on the replay, if you could just comment in the you know, in the comments, hashtag live if you’re live with us live and then comment, hashtag replay if you are on the replay. I love to know who’s live, who’s on the replay. If you could also maybe put in like your company name and things like that in the comments, that would be awesome. Also, if you have questions. So after we do the webinar, we can do like a live Q&A here for a couple of minutes after the webinar. If you have any specific questions, we’d love to answer that for you. And obviously more important, Chris would answer those for you, whether it’s financial or things like that. So also, guys, you know, this is going to be pretty in depth, so make sure that you have time set aside for this. You take notes on this and we’d love to hear your feedback on on the material. Also, I want to just highlight real quick, I think in the in the Home Service industry before we go in here, a lot of companies and a lot of people are just talking about top line revenue. Hey, I did $100 million last year or I did 10 million or I did 1 million or whatever it is. And we’re we’re always talking about top line revenue. You know, we’re always talking about sales and all these different things. And I think it’s really you know, it’s not talked about enough, Chris, where, you know, net profit and cash flow and all these things. Do you find that common as well, like in most small home service companies where, you know, it’s all about top line revenue? You know, what’s the saying on top line revenue is vanity, net profit, insanity or something like that, correct?

Absolutely correct. You know, I have dealt with business owners that are chasing that revenue growth and doing it at the expense of the profitability of the business. I can tell you about one business owner that I helped grow from $3 Million a year to $38 Million a year. The funny thing was he was more profitable at $10 million of revenue than he was at $38 Million. He was buying business and we’re going to go into that and how to realize when that is happening because we all chase business, we all chase that next client, Sometimes that doesn’t make sense.

Love it, love it, love it. So without further ado, I know we have a couple of things to go over today, and I’ll let you kind of take the reins from here. And again, guys, after this, we’re going to do a live Q&A. So make sure you put your comments and your questions in in the comments here or sorry, just put your questions in the comments here for us so we can we can answer those as we as we finish up here. So, Chris, without further ado, go ahead.

Okay, guys. So everybody that’s watching this understand that I’m starting out as if you walked into me and said, Hey, I’m thinking about starting a business. We’ll get through the basics. And I know many of you on this first slide are past that. So give me just a moment to to help the people that are just starting out. I have a lot of people come in to me and then say, Hey, I’m thinking about starting this business. What do I need to focus on first? The first thing you need to do is open up a business bank account, make sure that you’ve got your business financials separate from your personal financials. I see that all the time where they’re co-mingling money. And I get it. When you start off, there’s you will have so much pressure that this is something that you don’t think about. Very simple thing. Set up your business finances separately. At the very least, we can use that business bank account as a pseudo cash basis. Financial statement. As you progress. The next question I get is, Hey, when, when do I need to go out? When do I need to go and sign on for QuickBooks? Everybody wants to sign on for QuickBooks. Love, hate relationship for me. I get it. They’re the industry leader. They’re the one that that everybody knows. My answer to that is when you start to invoice and collect from your clients, when you whether those are homeowners or businesses, when you’ve got to issue invoices to them and you’ve got to start to track when those invoices are getting paid, whether they’re getting paid on the spot or if you’ve got a customer that has terms 15 day or 30 day terms before you do that, get set up with an accounting system.

There are a bunch of accounting systems. Quickbooks has the easiest integrations. Quickbooks is designed to work for business owners. I get it. It’s not the most flexible. It is also not the most insightful accounting program out there. There’s another one that is in the same price point as QuickBooks called zero zero. This is the, frankly, the easiest to use. This one doesn’t have quite as many integrations with QuickBooks. You’re going to be able to tie in your bank accounts. You’re going to be able to tie in your credit cards with your general ledger system. So all of that information gets pulled down. However, if you’re not paying too attention to how that information is coming in, it’s really, really easy for that automation to start to create false financial security for you. What I mean by that is there are certain transactions that you need to look at and you need to properly classify. And QuickBooks is going to make some assumptions for you that normally, frankly, about 50% of the time they’re not correct. So with Xero, it’s got a better user interface. Again, it’s at about the same price point. And even though it’s not going to necessarily integrate as easily with your bank accounts and with your credit cards, I want everybody to be looking at that interface and realizing those transactions that are going by and take the time to know what those transactions mean. Let me just give you a quick example on this. A lot of times.

Also, too, if you’re using QuickBooks, if you could post in comments, just just type in hashtag QuickBooks, let us know if you’re using QuickBooks or Xero or what accounting software you’re using. I think Kris and I would be would be interested in and kind of seeing what what you guys are currently using.

Yeah, absolutely. An example of a transaction that QuickBooks is going to mishandle. Let’s say that you’ve got to go out and get a van to to service your clients and you get financing on that van. Well, when that payment when you make that payment on that van, QuickBooks is going to take that as a a automobile expense. Now, that’s not necessarily true. You’ve got a principal portion and an interest portion on that payment. I’m sorry. Of course, my cell phone rings right when we’re in the middle of this. There’s a principal portion and an interest portion of the payment. You need to know that. So you need to be looking at that loan statement when you book that transaction. Now the best when it comes to reporting. And this is admittedly a little bit more expensive. Sage intact. Sage intact is a cloud based system, but completely flexible in how you do the reports and very easily to assemble. Very easy to assemble these reports. So take a look at that. Don’t just sign up for QuickBooks. If you’re signed up for QuickBooks, that’s fine. Wait until the first of the year, which I know is just six days ago, to make a jump over to another accounting system. The next thing that drives your business is your time and expense reporting system or your time and expense tracking system.

There’s so many out there that it’s tough for me to recommend one. Quickbooks has one that’s built in zero interfaces with just about every time and expense tracking system out there. The same goes for intact. This is a critical part in building your data infrastructure. You have to know what your people are doing. When you bring on that employee, you’ve got to track how productive that employee is. And the only way you’re going to be able to do that is to have them at a high level. Tell me what job you are working on on Tuesday. Tell me what job you’re working on on Wednesday. How long did that take you? What did you get done? So your time and expense tracking system is going to be important for you to build out the financial information that you need to make your business as profitable as possible and as successful as possible. So again, just to cover this first one and I apologize, I know many of you are well beyond this stage, but if you are sitting down with me saying you’re starting a business tomorrow, this is what I do. Start your business bank account. When you get ready to invoice your first clients, select and implement an accounting system. And then when you hire your first employees, get that time and tracking system in place.

I think the time in tracking is is is huge. I know you know our fractional CFO that we have at the at the at the marketing company here told us I mean, we were leaving tens of thousands of dollars on the table due to labor inefficiencies due to team member inefficiencies or employee like employee churn. But also more importantly, it’s like there’s, you know, we have employees doing certain tasks or responsibilities. Well, how long does it take to do that task? How come this person does it in 2 hours and this person does it in 5 hours? Like, well, you know, so you have like inconsistencies with with fulfillment, customer experiences. And I know we have more to cover here, but man, that was a huge one for me is I like eye opener for me to realize that, you know, you have a C players, B players and a players, you know, and the C like the C and B players, man. They can they can crush you and they can crush your financials.

You’re absolutely right. And that’s exactly the information that it tells you. Why does one employee get this done in 2 hours when it takes another employee 5 hours? Is it a training issue? Is it is it that they don’t have not don’t have that same amount of experience? You’ll be able to make those determinations, but you’re not going to know those differences until you put that time and tracking system in place. All right. So moving on to creating effective financial reports. This this takes some time. And don’t brush past this. Don’t just accept the reports that are going to come out of QuickBooks and say, oh, here’s my financial statements. You need to think about your business and you have two types of costs in your business. You have variable and fixed costs. Your variable costs are, Hey, when I go out to do a job, I know that I’m going to use a certain amount of supplies. I know that I’m going to use a certain amount of labor again, 2 hours or 5 hours, but it’s a certain amount of labor that’s going to go into this job. Each job that I do causes me to have more supplies used in it, to have more materials used in it, to have more labor used in it. So and that can include fuel and mileage, wear and tear on your company vehicles.

So this is where you need to take some time and sit down and say, what is job specific? What when I’m doing what I do for my clients, what causes me more expense? And then you think about, well, what are my costs of running the business? And these are these are the fixed expenses. Yes, I get it. You can have a bookkeeper that is as as Ryan is using a fractional CFO. And when he gets big enough and has to hire a full time CFO, yes, his costs go up. But that’s still a fixed cost. This is the cost of running the business. What is what is my rent for the shop again? For my vehicle. What? What is my financing costs for the vehicle? These are things that stay fixed until you make a jump, until you decide I’m going to add I need a bigger shop or I need a second vehicle. Those will still be fixed costs because they don’t change on a job by job basis. But this determination of understanding what your your variable costs are and what your fixed costs are will drive ultimately drive the understanding for the business. Then, whether it’s in QuickBooks or any of the other programs, you need to put all of these variable costs under your cost of goods sold. And the way a financial statement works is it starts off with your top line revenue.

Then below that we have any discounts that you give or any refunds that you give. So that needs to be taken off of your revenue. Below that number is the net revenue. The next section in your financial statement is your cost of goods sold and you need to align all of those variable costs into your cost of goods sold. To get to the next number, which is the most important number on your financial statements, gross margin. And we’re going to spend some time talking about gross margin because gross margin is telling you how healthy your business is. There are a lot of financial statistics out there, and I’m not saying ignore the other ones, but coming up with an accurate gross margin is the one that really is the most important financial statistic in your business. Then below gross margin, you’re going to have your fixed costs. Ultimately, you need to get down to what your net income is because net income equals cash and you’ve got to pay your fixed cost. You’ve got to pay your van payments. You’ve got to pay your rent for your shop. You’ve got to pay your fractional CFO. But once you get down there, ultimately, that’s the money you’re making. But let’s let’s take some time in focus on that. That the gross margin.

Yeah, the gross margin to I’ll say one of my mentors, Tommy Mello, obviously owns a one massive company, Tommy’s Tommy Guns as as as as they call him. And he talks about like I think their first pencil and hopefully none of his customers see this. But his first pencil was like, you know, it’s like 80% gross margins, you know, and I think it goes down to maybe 50 or 60% sometimes. But it’s incredible. Their gross margin is so high. And then obviously that trickles down to if you can keep that COGS in a good place, then obviously your net profit is going to be good. So I’m curious about this because I think a lot of my coaching calls, Chris, with our clients and with prospective clients, they have no clue about gross margin. So I’m excited to jump into this forum.

Cool. Excellent. Now we have the principle and when you have financial statements, yeah, looking at one month’s worth of financial statements is interesting, you know. Sure. It tells you how much money you made that month. But looking at financial statements, month over month over month line, those financial statements up next to each other, Heck, I’ve got clients that, you know, their business cycle is more weekly than monthly. And so they’ll line up their financial statements week over week, over week. For most most of you, that’s going to be overkill. Look at it once a month. But when you line those up, they’re going to tell you something and specifically look at your gross margin and your gross margin percent. So gross margin dollars is just your revenue minus your discounts, minus your variable costs is your gross margin dollars. Your gross margin percent is what your gross margin dollars are divided by your total revenue minus discounts. So gross margin percent is gross margin, profit divided by gross revenue. So just wanted to define that. Now, what does this tell you is you look at this month, over month, if you line up, let’s just take the fourth quarter of 2022. You line up October, November and December. And you see from October to November to December your gross margin dollars, your net net gross margin is increasing. And then you look at that gross margin percent and let’s say that your gross margin percent is going from 50% to 52% to 54%.

So not only is your top line, your revenue increasing, but you’re getting better at what you do. Your profits are going up. This is a huge green flag and you’re in the absolute upper right hand quadrant here. Increasing gross margin dollars. Increasing gross margin percent. Buddy, go out there and knock it out. You know, you’ve got you’ve got the green flag here. As long as you can continue to do that, as long as you for every job you add, you’re getting more profitable, you’re finding more efficiencies. In other words, you’re able to buy your supplies and maybe bigger lots, and that’s driving your cost down. Keep going. So the first upper right hand quadrant, increasing gross margin and increasing gross margin percent green flag. Okay, let’s line up those three months again and you can see over time, hey, my my dollars are going up, my gross margin dollars are growing up. So I feel like my business is running well. But then I look at my percentage and my percentages are decreasing over those months. You know, and you kind of have this thing in the pit of your stomach saying, yes, my dollars are going up, but man, I have been working my butt off to grow my top line.

Well, what this is telling you is that you’re losing efficiency, that you are more efficient. Back in October, when when let’s say that you did 100,000 of business, then you are in December when you did 120,000 of business. So your gross margin percentage is decreasing. And what you need to find out is now you need to look at is that labor is because my top line is growing and I’ve been adding more new employees. Are my new employees getting less efficient? Uh, is it, you know, travel expense between jobs because you’ve been casting a wider net in your metropolitan area. Am I driving more to go get that next job? Do I need to be pricing those jobs more, more accurately because they are further out? Or another prime indicator, probably the most prime indicator. Am I discounting my work to capture more revenue dollars? That example I gave you when we started out, that’s exactly what he was doing, is he kept cutting his his his prices so that he would get that next job. And you need to understand what that means to you. You know, absolutely. We want to grow our top line. We want to grow our business. We want to grow our bottom line. But are you starting to work X amount harder for each additional job because you’re discounting your prices? Now let’s flip that that scenario, 180 degrees.

You go back and you look at the last three months and you can see that your gross margin dollars are dropping. So if you went from 50,000 in October to 48,000 in November to 46,000 in December. But your gross margin percentages are staying equal or increasing. So I do want to say, I know on the slide it says increase in gross margin percent, but if your gross margin percentages are staying flat or getting better, you’ve got a marketing problem. What you are is you’ve got a pretty good control over how you are doing your job. You’ve got good control over in good consistency in what you’re doing. You’re just not bringing in enough jobs so that decreasing gross margin dollars, but increasing or or equal gross margin percent, you’ve got a marketing issue. You need to go out and find better lead sources. You need to find better advertising campaigns. You need to focus on the marketing side of your business and continuing to bring in those jobs that are going to allow you to maintain your profitability. And then the last quadrant, the lower left hand quadrant. Right. Decreasing dollars and decreasing gross margin. This is something where, boy, you need to pause. You definitely need to take a moment and figure out what you’ve got going on. If you look at this over three months, you’ve got decrease in gross margin dollars and decrease in gross margin percent.

Hold on. Take a moment, take a weekend, take a week to figure out what is changing in your business. Why is this going on? This is something where you’ve got to take action and you’ve got to take action sooner rather than later. So figure out what you’ve got going on. Is it that your supplier is is has increased their prices and these price increases are becoming cumulative and you haven’t been increasing your prices as fast as your as your cost of goods sold, as your supplies and materials have been increasing. Is it your labor expense? We all know how challenging it is to go out and find good people. And so we’ve been granting increases or the people that we do have has been earning a lot of overtime. We’ve got to figure that out. Now, that could be temporary. I’m not saying if you have decrease in gross margin dollars and decrease in gross margin percent, that you need to just close your business down and walk away. But you need to understand that and you need to get that figured out. And then you need to come up with a plan on how do we get around this this barrier to to get back to increasing gross margin dollars and increasing gross margin percent.

I’d love to hear too, like from the people that are alive, if you know exactly what your gross margin is like, if you are confident, you know exactly what your what your team is. If you could put in comments, just just something you don’t have to put the exact number in, if you know, obviously the public here, But if you know exactly what your gross margin is and you’re confident with that, if you can just let us know in the comments, maybe hashtag confident or just put a one like number one in the comments, let us know. Obviously, this is this is massively important. So we’re just kind of curious to see who who actually knows this. Also, to what I’ve realized, Chris, and I’m I’m sure you have, as well as most small business owners are usually afraid of these things. Right. Or afraid of the finances. If you can speak to that just real quick before you go on, why do you feel like most small business owners, especially in home service, are afraid or are fearful of diving into this type of stuff?

I think, number one, they don’t have confidence in their own numbers. That they don’t have the right processes set up necessarily. For example, if you’re operating on a cash basis, you know, a lot of times for a lot of service providers, you know, they’re collecting payment at the time of service and that’s perfect. I love that. But ultimately we get that client that says, Hey, you know, I want you to go out and do this work for me. You know, let’s say that somebody that owns 20 or 30 rental homes or something like that, I want you to get out there and and provide these services for me and then just send me a bill and I’ll I’ll get you paid at the end of the month.


If you’re not confident in your numbers, it’s around process. In thinking about that, how are we going to ensure that that we’re collecting for our services? And then on the flip side, how are we going to ensure that we’re properly accounting for our expenses? That’s what I see most often. And in in a lot of businesses that frankly are not as well managed. You know, they’re putting their financial financials together when they’ve got to go out and pay for this expense and they’re trying to delay this. And so that you see these huge fluctuations in their financials month over month because they don’t have good financial and accounting processes in place. Good process is when you incur expense, recognize it when you have revenue, recognize it. So it’s about being timely in recording this stuff. And I get it. It’s paperwork. It’s not stuff that, you know, your customers are yelling at you about. I understand that. But to the extent that you can get more current on all of your your documentation on all that back ass back office paperwork, you’re going to have better financials.

Yeah, I love that. Okay. So let’s keep it rolling here on what’s next year. We have financial indicators.

Sure. Other key financial indicators. And every business is different. The person to design their key financial indicators is the business owner. And with this. Put these statistics in place. And then see, does this drive my business? I’m a firm believer and do not produce financial information, do not produce financial reports unless it drives change. And what I mean by that is if you’ve got a number that you’re putting out there and you’re calculating it and say, Hey, I went to a seminar or I saw that Chris Goggin guy on on Ryan’s seminars and he said that I should be tracking this, but you put that number together and it doesn’t mean anything to you. Stop. Don’t do it. You’re just wasting your time. However, here are some some ones that for a lot of service companies that we work with that do drive decision making. First of all, it’s it’s job profitability. We just got we just took way too much time to talk about gross margin. Job profitability is simply gross margin at the job level. So when I went out to the Jones household, here’s what I did for them. I charge them $3,000. My cost of materials were $750, my labor was $500. So my profitability on that Jones job was 1750. My profitability percentage there was 58%. And then I went up to the Smith job and I charge them 2500. But my materials there were $800 in, my labor was $600.

So I only had six excuse me, I only had if I’m doing my math right, 1300 dollars of profitability there. Look at that. What was different between Smith and Jones? Why did that change? Knowing from job to job what that means? And it can be the type of job that you’re doing. It could be the crew that you’ve got working on that job. So understand that and understand your job profitability from job to job and why that varies. Another key statistic that you’ve got to track is your employee utilization. You know, in general, if you can have your employees working on billable work, 75 to 80% of the time, it’s kind of an industry standard. There’s always going to be that 20% of the time where they’re traveling in between jobs when they’re kind of pulling their materials out of the warehouse or whatever that they need to be doing. But track that employee utilization because it will help you to understand from employee to employee who’s more efficient, who’s out there working their tail off. So employee utilization is literally when they’re on the job generating income for you, when they’re working on that Smith job or when they’re working on that Jones job, tracking that time versus the time that they’re traveling to the job versus the time they’re sitting back in the shop.

That’s a big one, guys. Like, honestly, like this is a big one. I got to pause here a little bit because in home service, we have all these employees, right? You have technicians, you have an office manager, you have all these different people, maybe your production manager or a GM or whatever it is for you guys. You have painters, you have whatever it is. And a lot of times what I what I see with our clients and I’m sure you see as well with with yours, Chris, is employees are not being maximized, you know, and it’s not a bad thing. I think I think there’s a negative connotation to making your employees work. Right. Or like you’re cracking the whip on them or whatever. That’s not the case. We have to make sure that we provide an atmosphere and a culture where our our team members, our employees, the people that work for us are productive, they’re efficient. And what I’ve seen, too, after kind of doing these these exercises and kind of cracking the whip, if you will, is that the team members actually get more fulfillment when they’re busy, when they’re working, when they know what to do, how to do it, when to do it, all these different things. So I think it’s our duty as business owners to create an atmosphere where our team members are productive, you know, as as as much as possible.

Absolutely. I couldn’t agree more. Ryan in my experience, and I’ve been doing this for a long time, a busy employee is a happy employee. A employee that is underutilized tends to become disgruntled, frankly. So, hey, the next one’s job pipeline and this is just creating a report of how much work do you have? This is looking at your sales cycle and how long does it take you to go from a lead to assigned job? And then how long does it take you to go from assigned job or contracted job to providing and fulfilling that job and completing that job? So what I’m talking about is from the time that a client or homeowner or whoever agrees to take you on your services to the time that you’re finished provisioning and providing that service to them, you need to be tracking that. You need to have a good report of of how many jobs you have in the pipeline. Again, you want to keep that pipeline full. So job pipeline, it just having that out there is a big statistic to track. And then the last one that really helps out, you know what what money are you spending on callbacks? You know, if you’ve got people that are going back to to fix something or you fail an inspection and you’ve got to go back and finish that track that separately, you’ve got to track those dollars, you’ve got to track that that number of jobs that you’re going back on separately, because that is the biggest waste in business is going back to do a job.

You know, we’ve all heard it. We all heard it from our our moms and our dads, Hey, you know, do it right the first time I get it. Easier said than done. But that is the biggest waste in business is is doing something the wrong way or doing something halfway or doing something 95% of the way. Make sure because tracking those callback dollars and those callback percentages, if you have the right feedback loop, that’s going to drive you on the front end to say, Hey, make sure that we take care of this situation. Make sure we take care of that issue before we leave that job for the first time.

Yeah, and that’s a culture thing too, Like in the business. I mean, Kardinal had this issue and I’ve had it really on the marketing side as well, where, you know, and it goes back to that culture, the atmosphere and being productive. But getting practical is, you know, if you have a concrete coding company, I would say your go back percentage should be like 10% or less. So if you do 50 jobs in the month, you should have five go backs or less that month. So 10% or less. And really on the painting side, like early home Service company, if you can keep your go back percentage 10% or less per crew or just over encompassing on the company, it’s going to be fruitful because obviously you can’t I mean, there’s human error, there’s there’s a missed expectation, There’s all types of things going on. But. It’s a lot less expensive. Whether it’s financially or just mental real estate to do it right the first time. Alex Mosey talks about this concept of if it’s if there’s something worth doing, it’s worth doing well. So if you’re going to do these jobs and Chris, I see a lot of times with our clients, the most go backs happen when they first start. So there’s like a new company, maybe an installer started their own company or there’s a painting company that added a concrete coding division or a garage door company, added a coding division and all the callbacks, all the, all the, all the issues are like really early on and I think it’s lack of training, all these different things. But if you can speak to that just for a second, how big is go back with all your guys as clients there. How how big of an issue is go back or having to do things over and over again on a single account? Is that like a big issue that you see?

If you’re referring I know that you’re talking to your clients out there. Yeah. The most efficient companies that I see have the least amount of go backs or callbacks. They’re the ones that literally they get it right the first time. They also have the greatest client satisfaction. I mean, it’s a really easy straight line to draw between the number of go backs that you’ve got and your client satisfaction. There’s nothing. So even in my business, you know, I’d like to think that we are doing everything right the first time. But ultimately, there’s some times when we miss a number on a tax return. You know, frankly, it’s embarrassing when we do that because people expect us to get it right. We’re not perfect, though. We’re humans. I hate that. It for me as a business owner, there’s nothing more crushing than having a client come back and say, Hey, this isn’t right. And so we even in in the financial services industry, in my industry, we put controls in place and we constantly update those controls. Okay. Hey, we’re going to now switch. Everything that we have been talking about up to this point is measuring what has already happened. And I want us to get out of the mindset that that financial analysis is only about measuring what has happened in the past. That’s a big part of it, because you have to understand that to be able to project what’s going to happen in the future.

But ultimately that’s why we track this stuff is to allow us to make better projections. So now you’ve got those financial reports in place. I strongly encourage you and I know we actually intended to get this this presentation out in December and know schedules did not permit. But even right now, to the extent that you can take some time to step away, and I want you thinking, you know, in creating an annual and a three year operating plan. Some people would call this a budget. Yes. And a budget is an output. But what this is really about is thinking through your business and putting using your historical financial data and your historical operational data to make some predictions about your business. And you do need to be making these predictions about your business. So the way that you do that is you put the numbers down on paper because now you can measure your actual results against the numbers you put down on paper. You know, we all can sit there and say, Hey, I want to make $1,000,000 or I want to make $10 million next year. Well, if you don’t have a down on paper, if you don’t know the steps to get there, you’re never going to it’s never going to happen. And so as you build this, this operating plan, you break it down to the smallest piece and then you multiply that up to build out your operating plan.

And so what what I mean by that is look at a single job. Take your most common type of job. You know, what do you charge for that job? What have you been able to charge for that over the last year? That’s your top line revenue. Now, how much labor and how much material does it take you to to fulfill that job? What does that mean? So so you’re going to take your average job and say, okay, I do this now, I’m going to do this average job three times a week or three times a month. So then say, okay, this times three. What does that mean for me on a weekly basis? What does that mean for me on a monthly basis? Now, I know that business is not this simple. I know you have lots of types of work that you do, so you’re going to say, Hey, you know, I’ve got this type of job and I’ve got this type of job times three and I’ve got this type of job times ten. We’ll create three different types of jobs and say, you know, for the small jobs, I’m going to do that three times a week for the medium job. I’m going to do that once a week and for the big job, I’m going to do that once a month.

This is how you build your operating plan. It’s just that simple is take that. The small job times three times a week or 13 times a month, the medium job four times a week or 4.3 times per month. And the big job once per month. What does that mean for you? That’s going to build out your top line revenue. That’s also going to build out your cost of goods sold section of the operating plan because you’re going to know what your labor is going to be. You’re going to know what your materials expense is going to be. You’re going to know all of the other job supplies that go into that. You also are going to have some waste. Remember what we’re talking about in utilization in the 75 to 80%. If you know that it takes somebody 4 hours to do a job, the small job, but they take some 30 minutes of travel to get there and 30 minutes of travel to get back. And they’re going to be in the shop for an hour. Well, it’s not really 4 hours, is it? It’s 6 hours. So put that utilization in there for your labor expense. Understand that it’s going to take them 6 hours to do 4 hours worth of work. So build that into there. So you’ve got a reasonable utilization percentage.

Also, too. Like what I noticed too, Chris, is like when technicians get to your your your shop or your office in the morning, have a process for that. I know for Cardinal, our guys will get there in the morning and it’d be like literally an hour and a half from entering the like the door, like the shop and then getting out and they were just kind of chatting, hanging out, doing this, doing that. And I’m like, okay, times that by five days a week, times 50 weeks a year, I’m like, I mean, we’re paying thousands, tens of thousands of dollars for them to just hang out, right? And so what we did is you’ve got to create processes and systems and really a culture of productivity, but more importantly, the processes. So when they get to the shop, when they’re when their hand touches that door to get into your shop, what do they do next? Right. And obviously you don’t want to create robots, but you want to have a process to where, hey, you know what? You get this product, you do this, you do this, it takes 25 minutes and boom, Right. And that’s going to really kind of help with these types of things because you can’t just rely on your team to figure out every single little thing on their own. You have to as a business owner, it’s our duty to provide an atmosphere of productivity and efficiency, which, Chris, to your point, really involves systems and processes. They’re going to help you really plan for this year.

Exactly. And by getting that down on paper, you know, sometimes when we look at at what our utilization percentages are, Ryan, to your exact point, we identify these areas of waste. So when you build out your operating plan, you say, I am going to and this creates the actual action for you to do. I know that for a four hour job, they’re spending 6 hours to get that done. I’ve got to reduce that. So how do we reduce that? Maybe it’s creating more efficient scheduling. Maybe it’s setting up a process for them to get in and out of the shop in the morning. So you put that into your operating plan to say, okay, we’re going to reduce 4 hours worth of work, taking 6 hours worth of time down to 4 hours worth of work, taking 5 hours of time. You have now made a prediction. You have now put down on paper what your goals are and you’re going to be able to now track that. So that’s that’s how you build the job, build the operating plan up. Now it’s real easy to to map out the next month or the next three months. All of our industries change and they are constantly changing. So to map out a year, you’re a little less sure about that, to map out the next year and the year after that, you have less confidence in them, but go ahead and do it anyway. Put those numbers out there because I guarantee you in three months or in a year or in three years, you’ll look back and say, This is my understanding of my business and my industry at this time in January of 2023, this is my understanding.

How did my understanding change in April of 2023? How did my understanding change in January of 2024? How has my understanding changed by January of 2026? This is a thought map. This is psychology in the form of numbers. By creating this initial estimate, you’re going to be able to say, measure. How is my thinking changing? How is my my ability to run this business profitably changing over time? I’ve kind of gotten a little bit ahead of myself. Let me finish out the process of building the the operating plan. After you get down, you’ve got you’ve got your revenue per job times the number of jobs. You’ve got, your costs per job, times the number of jobs, and having several different types of jobs in there. Then what you want to do is you want to say you want to think about your business. For my shop right now, I know my rent on my shop is 3000 a month. Boy, if I grow this to where I need to be, we’re already busting out here. I’m going to have to go find some new space, you know, Is my is my rent going to go to $4,500 next next January? Am I going to need to go out and bring on that full time bookkeeper or that full time scheduler instead of outsourcing that? This is where I’m building out the fixed cost portion of it.

You’re really looking at that and again, putting your thoughts down on paper. And so build that out. I mean, create a compensation schedule where you’re looking at all of your administrative staff. What am I paying them? What sort of raises am I giving them, you know, on a quarterly or annual basis? And let’s let’s build that in. It’s not as complex as that as it seems to. I know it’s a very daunting task to build a set of financials from the ground up. Right now we’re just talking about building the profit and loss statement. In a later date. Ryan, if you want to have me back, we can talk about the rest of the financial reports. But just just get that down on paper. That then tells you what you can expect for your profitability. The most important thing is not necessarily meeting every number you’ve got in your budget. It’s about measuring and looking at your actual results compared to what you projected back at the beginning of the year. I recommend you update this on a quarterly basis. Your accountant, your CPA, can help you create these spreadsheets where it’s real easy to drop in your new assumptions. But update this on a quarterly basis and just keep that that that discipline going. And this is about discipline. And I get it. You’re spending time that is not serving your clients.

You’re spending time that is not generating revenue. But this is the most important thing that I have seen for people to grow their business and to achieve success. Now that you have. This roadmap for you. You can make these comparisons. You can then when you put the actuals next to your your budget or your operating plan. Take the time to explain the variances. I like to say if something is off. Up or down by more than 10% of what you projected. Take the time to understand why that is. Let’s Ryan for four cardinal. Let’s take that. You know, I know that in forgive me I don’t know exactly your process, but I know that you are you’ve got coding material that you are putting down. I believe that’s epoxy. But correct me if I’m if I’m mistaken. If you know that you’re going to go out and do a 400 square foot job and that 400 square foot job in your prediction took five gallons or ten gallons of material, let’s say ten gallons of material. And you get down to the end of the corridor and you’ve done 400,000, 400,000 square feet of work. But you have instead of ten gallons per 400 square feet, which would be 10,000 gallons. You’ve used 12,000 gallons. Will understand why that is. Are you putting more material in per job? Are you having that much waste? So stop when you see a variation of more than 10%.

There’s a lot of waste. There’s a lot of ways, I’ll tell you. What I realize with all the all the. All the cruise is. And not until we built, like, a culture of, like the like, productive, all that, like, all things like we’re talking about. They were I mean, there were so much waste. It was incredible. I mean, it was all over the trailer. I mean, it was incredible. Customers, driveways, like it was incredible. So the waste you guys that are here live or on the replay is something to really take serious is like whether it’s painting, garage doors, HVAC, concrete coatings, the waste in the business, whether it’s liquid or other materials, it’s massive in addition to the labor waste, Right. Like we’re talking about earlier, Chris. But the material waste, I mean, it is. It is. I mean, it can sneak up on you to like because if you’re not paying attention. It will bite you in the butt, that’s for sure.

In a former life, I was and I still am big and Lean Six Sigma, which is an engineering philosophy, but that you identify laced, you’ve got labor waste, you’ve got materials waste and those are the things that kill company profitability. So this is where we are putting these numbers down so that again, you’re making assumptions and you can start to identify that waste. And once you identify it, take action, make you sit down and as you identify the reasons for you not achieving the numbers that you thought or maybe you’re exceeding the numbers that you thought. Just as important to understand why that is and is it within your control. If you’re facing price increases that might not be in your control, but you may be able to pass those price increases on to your customer, or if you have waste that is absolutely within your control, take action and this is where you’re going to start to identify that and you’re going to start to get much more efficient in what you are doing and you’re going to grow your gross margin. So I am up against the time limit. I could keep going for hours on these topics, but I want to be respectful of everybody’s time, so I’m willing to answer any questions that might come over on the chat. But other than that, Ryan, I appreciate the opportunity to be part of this broadcast and be willing to answer any questions you have either now or if you’re if your clients would like to just get on a phone call or chat with me, I’d be happy to do that.

Man I love it. Man. Well, thank you so much for being here, for sharing. Obviously, you you charge money for your knowledge a lot of times. So I appreciate you sharing your knowledge for free, if you will, today. If you guys don’t have an accountant, you don’t have a CPA, you don’t have a bookkeeping process in place. I just encourage you and challenge you to really like this year as you go into this year. On our coaching call, Chris yesterday and on Tuesday with our clients every Tuesday and Thursday we have an exclusive coaching call with all of our clients, talking about sales operations, you name it. And one of the big things that we’re talking about is planning this year, and it was all financial, right? It was like top line, it was these things. But if you boil it down, if you can get really crystal clear on your numbers, your financials and and build a plan, you can accomplish your goals. And like what you were talking about earlier, Chris, in terms of like reverse engineering. So let’s say I want to do 5 million this year, reverse engineer that. What’s my gross margin per job, job cost, the projects, things like that. If you have any questions about those things, I just encourage you guys go to what’s the website Chris there.

See us CPA group dot com so just what you see on the screen put a dot com behind it and you can find us. I’m in the office all the time, and we’re here to serve clients. We specialize in small businesses. We specialize in home service businesses. So would love to have a conversation and be part of that. There’s a lot that we can do beyond what we’ve talked about to help you be more successful and more profitable in your business.

And we’re going to be uploading this to the Service Legend Academy. So all of the clients that are listening live on the replay, this will be uploaded to the Academy exclusively in our master class session or a section on the online there, but also to just reach out. If you have any questions, we’re going to be putting together some more material in terms of our vendor village. That way we have some more access. There’s going to be exclusive discounts to work with Chris and things like that. So if you’re not confident, you’re not massively confident that you are crushing your financial goals this year, like what Chris said earlier, take that time, whether it’s a week in or a week to really exclusively yourself and your and your in your leadership team or or your partners to dig into the details. Because there’s a saying it goes, you know what what gets shine what what what gets what’s the word or the phrase what has gets achieved. Yes. There you go.

So what gets measured gets.

Achieve, what gets measured always improves. So if you’re scared of your numbers like I was when I first started in business, I just encourage you and challenge you to not be scared to reach out to Chris. Reach out to me, DM me on Facebook. If you have any questions, we’ll, we’ll end the webinar here. But if you have any questions, if you can post them in the chat right now, obviously we’re not on a on a live zoom, but if you have live questions, we’d love to answer them right now. Also, if you have questions after the fact, I’m sure I can get those questions over to Chris, whether it’s in Facebook comments or an email or in a Facebook message or in a text message, whatever it is, I can get those to Chris. But guys, is there any questions that you guys might have right now for Chris? Post it in the comment so we can see any questions you guys might have. Somebody said tracking go backs is not easy. What cannot be tracked can be measured. Chris, real quick, is there a proven way to track, go back like documented? Like is it an Excel sheet, Is it Google sheet or what?

You so you can do that? I mean, literally it can be a manual process, but just understand and measure on. Go back and I get it. A lot of times you got your your best technician or your best crew and you say, hey, on your way out to this job, we’ve got to stop by and fix this problem. Track that time separately and ask them, put down how much did it take, what and what caused the go back as well. Start to track the reasons for go back. We do that internally again. We pride ourselves on not making mistakes, but we are human. We track the reasons and we track the issues that we may not have gotten right because track that and you can train to. To have your teams not do that again.

Love it. Love it. Okay, So I don’t see any more questions. If you guys are on here live or on the replay and you have questions, put them in the comments on in the Facebook group, I will get those back over to Chris so he can answer those for you guys and and he’ll get back to you guys outside of that. Happy New Year. And Chris, thank you so much again for for being here, for sharing your knowledge so freely. And guys, we’ll see you next Friday. Outside of that, guys have an amazing weekend and we’ll talk to you guys soon. See you guys later.






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