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Profit First for Contractors: Transform Your Construction Business from a Cash-Eating Monster to a Money-Making Machine



Profit First for Contractors: Transform Your Construction Business from a Cash-Eating Monster to a Money-Making Machine PDF

Author: Shawn Van Dyke

Publisher: Independently published

Genres:

Publish Date: December 3, 2018

ISBN-10: 1790264502

Pages: 224

File Type: Epub

Language: English

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Book Preface

Today I paid our quarterly taxes out of the tax account with ease because of Profit First. This was the first quarterly payment that we made without struggling to find the money that we owed to the IRS [and state]. And…there’s money left over in the account. WHAT?!?

00004– Jayme Martin, Beautiful Chaos Renovations – April 10, 2018

 

“If I can’t make this work, then I don’t know what we are going to do.”

Through the phone, I could feel the desperation and stress that my new client, Jayme, was under. He’d left his corporate job as the Global IT manager for a large corporation just a year before. He joined forces with his wife, Sarah, who had built a growing interior design business, and together they were Beautiful Chaos Renovations, a design and remodeling firm in Minneapolis, Minnesota.

By the time Jayme and I started working together, there was more chaos than beauty, and the strain the business was putting on Jayme and his family was reaching the breaking point. Jayme told me he could always go back to his corporate job making good money, but he wouldn’t have a family life. He would have to sacrifice the life he and Sarah wanted for themselves and their children.

Jayme had chosen to prioritize quality of life over a big paycheck, but on this day, in this moment, the construction business was sucking the life out of him just like the corporate world did.

“Something has to change. I can’t continue to live like this,” Jayme said.

 

Jayme was caught in a vicious cycle. I call it the craftsman cycle, a cycle many construction business owners get sucked into. It’s responsible for years of frustration, lost money, and damaged relationships. Construction business owners get so sick and tired of doing the same things, chasing work, working for the wrong clients, and not understanding the numbers, that they throw their hands up in desperation. They don’t know what else to do. In an act of desperation, they sometimes reach out for help and when they reach out to me, they’re drained, pissed off, lonely, and scared.

 

From a coaching perspective, the frustrated and desperate construction business owners like Jayme make the best clients. They are ready to take action. They need results, and they need them quickly.

 

Jayme had tried it his way for so long, but his way was not working. He was ready for change. He, like many other construction business owners, didn’t realize he was trapped in the craftsman cycle. In fact, many construction business owners are not aware of this cycle. They burn out, go bankrupt, or continue to go round and round instead of moving forward. The craftsman cycle is the reason many construction companies never make a profit.

 

Are you stuck in the craftsman cycle? Look for these symptoms:

 

1.You’re busy. You’re booked for several months. You’ve been booked for several months, but you don’t have any money.

 

2.You don’t pay yourself a salary. And no, the sporadic owner’s draws that your CPA told you to take don’t count as a salary.

 

3.You don’t understand the difference between markup and margin.

 

4.You are guessing at what your price should be instead of calculating your value.

 

5.You get most of the work you look at (a high closing rate), and you fear saying “no” to projects.

 

6.You tell yourself you are investing in your company when you can’t pay yourself.

 

7.You don’t know how to read your profit and loss statement.

 

8.You always seem to be behind schedule, and you have to start the next job before you finish the current one because cash is tight.

 

9.You believe there are industry standards for what you can charge, and you provide a lot of free work to your potential customers instead of selling your value.

 

10.Paying your taxes is a mystery and you depend on your CPA to tell you how much you owe.

 

If these symptoms sound familiar, you’ve picked up the right book.

 

Operating a construction business in the craftsman cycle leads to inefficiencies in production, working for free, and never making a sustainable profit.

 

Profit First for Contractors is the profoundly simple way to break the craftsman cycle. This system for managing the cash of your construction business is so effective that once I started teaching my clients Profit First, I had three clients call me in the first year and say practically the same thing: “Shawn, what am I supposed to do now?  My business requires so much less of my time. I am making my margins, working for the right clients, and have the right people in place. What do I do next?”

 

My answer: “Whatever you want.”

 

When you implement Profit First for Contractors, the doors are wide open. You can start another division within your current business. You can start another business or expand into a new location. You can hire the right people to run your business and just own the dang thing. You can even get back on the tools if that’s what you want to do. You have the freedom to do what you want.

Throughout this book you will hear stories about construction business owners just like you, who broke out of the craftsman cycle and started running a business rather than just making a living. They started paying themselves a regular salary for the work they did within the business. They started charging the right price for their work, which produced the cash flow they needed to hire the right people. They stopped working for free and started saying no to the wrong clients. They were able to pay their taxes and make a profit to show for all the hard work they had done.

 

Why I Wrote this Book

I am on a mission to change the way the world views the trades. I believe the best way to accomplish my mission is to help construction business owners make a profit and build world-class companies.

 

I intend to elevate society’s view of construction professionals from the unsophisticated “couldn’t-do-anything-else-so-they-ended-up-in-the-trades” stereotype to what they truly are – business professionals who provide an extraordinary service through devotion to their craft, their customers, and their communities.

 

That’s why when I read Mike Michalowicz’s book, Profit First, I knew I had to bring his philosophy and the Profit First system to the construction industry.

 

But my relationship with Mike started years before I read Profit First. I was introduced to Mike through his first book, The Toilet Paper Entrepreneur. It was then our relationship began, unbeknownst to Mike, of course. Years later, I bumped into Mike again when I read his book, The Pumpkin Plan. After reading that book, I took the relationship up a notch. I considered Mike a mentor, although I had never met the man. Through reading The Pumpkin Plan, I discovered that Mike’s thoughts on business and entrepreneurship mirrored my thoughts on running a successful construction business.

 

You could say that the Toilet Paper Entrepreneur was my introduction to Mike’s business approach. The Pumpkin Plan was my courtship of his business philosophies, and then in the summer of 2017, I became married to his cash management system in Profit First.

 

I remember exactly where I was when I had the epiphany that would ultimately lead to me partnering with Mike and writing Profit First for Contractors (PFC for short). I was sitting poolside in Buffalo, WY while on vacation with my family, listening to the audio version of Profit First. I was about halfway through the book when I turned to my wife and revealed my epiphany, “This book is exactly what I have been teaching my clients, but it’s packaged better. I am going to start teaching Profit First to my clients.”

 

My wife replied, “That’s great. Can you please get in the pool and keep our kids from drowning?”

 

The rest of the evening I couldn’t stop thinking about how simple Profit First was, and the profound impact it would have on my clients’ businesses.

 

As the sun started to go down, and pool time ended for the kids, I wanted to see if I could nab a few rainbow trout from the stream behind the hotel. I love to fly fish, and like any fly fisherman will tell you, we can’t look at any body of water without thinking, “I wonder what they’re biting on?”

 

I had already completed my dad-duty and helped my wife get the kids settled in for the evening, so I was free to grab my rod and net and splash around in the stream for a couple hours.

 

As I stood in the stream waiting for a trout to rise, I found myself thinking about how I could teach contractors the Profit First system in a way that would be specific to them. I wanted to translate Profit First into a language that would speak to contractors. Then it hit me. I was looking at the answer. Better yet, I was looking through the answer.

 

If you have ever been fishing, then you know how important polarized sunglasses can be to your fishing endeavors. Polarized sunglasses help reduce the glare from the sun that reflects off the water and enables you to see things below the surface of the water and in greater detail.

 

PFC is the polarized lens through which you should view the cash for your construction business. Profit First for Contractors, like Profit First, is a cash management system. It does not replace your accounting system. PFC is a filter, or a lens, that brings clarity and focus to your construction business.

 

Another way to put it is Profit First is like getting the right prescription glasses for your business, and PFC is like upgrading to polarized lenses. The PFC system allows you see the specific details of your construction business that are just under the surface, like those sometimes-frustrating rainbows.

 

Can you fly fish without polarized lenses?  Sure. But why would you? It’s easier to catch fish if you can see them and know where they are. The same philosophy applies to your construction business. Can you have a profitable construction business without implementing the Profit First for Contractors system?  Sure. But it’s a whole lot easier to manage your cash when you see where it’s coming from and where it’s going. Not being able to see below the surface of your construction business, beyond the financial reports, and how the money comes in and how it goes out, can put you out of business.

 

Most contractors go out of business in the first five years, and many who stay in business never make enough of a profit to grow a sustainable business. Construction business owners aren’t paying themselves a regular salary because they don’t know how to charge enough for their work. Many contractors believe they’re only allowed to charge a 20% markup on their work, but they don’t really understand how markup works in their businesses. They also confuse margin and markup, and it’s this confusion and these assumptions that keep contractors from making a profit.

 

Profit First for Contractors will show you how to make the numbers work in your construction business and will give you a scalable and repeatable process to guarantee profits and manage your cash flow at the same time. Building upon the cash management methods described in Profit First, Profit First for Contractors will show construction business owners how to apply the general principles of Profit First specifically to a construction business. PFC will provide clarity about where the money is, where it’s going, and how to use your money to build the business you have always dreamed of.

 

I am probably like you. I didn’t go to business school. I have no formal education in business. At first, everything I learned about business came through trial and error. But, like you, I wasn’t willing to give up. I was determined to make the numbers work. I had to. I had suffered through getting a couple of engineering degrees without math being one of my strengths. I knew I could figure it out. I just had to dig in and do the work. The livelihood of my family depended on it.

 

I realized that making money in construction is simple but not easy. In fact, very few things in life are simple and easy.

 

I started applying a numbers-based approach to running my construction business. I was going to let the numbers inform my decisions, and I was going to stop trying to guess my way to profitability and start calculating it. And that’s exactly what I did. I learned the difference between markup and margin and used these two numbers to guide every decision in my construction business. This fact alone created the profit that I needed to sustain my construction business.

 

Years later, I had the opportunity to become the COO of a trim and millwork company. I used these same methods to grow that business. While there, I helped the business grow from eight field employees to twenty and the business went from losing money and being in debt to being out of debt and making a sustainable profit. This took eighteen months. I spent the next two-and-a-half years refining the operational and production systems, and when I left, that trim and millwork company was established as the premier service provider in our area.

 

Since then I have worked with construction business owners all over the world and taught them the same methods I present in this book. You will hear many of their stories and how Profit First for Contractors has transformed their businesses as well.

 

I am passionate about Profit First because it works, and it will transform the way you run your business.

 

When you use the systems outlined in this book, you will learn how to price your work to produce a profit, how to pay yourself for the value of the work you do within your own business, how to eliminate waste, and how to say “no” to clients that aren’t willing to pay your price. You will work less and make more money doing it.

 

Remember Jayme from earlier?  Something had to change and did it ever!  

 

Jayme started implementing Profit First and immediately started to see the deficiencies in his general contracting business. He wasn’t charging enough to make a profit, he was working for the wrong clients, and he wasn’t charging for all the planning and design work he was doing.

 

After just six months of coaching and implementing Profit First for Contractors, Jayme was able to double his sales, pay his quarterly taxes on time, and make a profit for the first time in the history of the business. And as an added bonus, his family was able to go on vacation for a week, something they hadn’t been able to do for a long time.

 

When was the last time you were able to take a vacation and pay for it in cash?

 

Jayme’s results are incredible, but his story of success is not unique. Throughout this book you will meet other construction business owners who have had similar results. You’ll meet business owners like Ken Alger, who owns K. Alger Woodworking and Custom Interiors – a custom millwork company in Rhode Island. Ken implemented Profit First within the first three months of starting his business and now fourteen years later, he attributes his success to the Profit First for Contractors system. No, Profit First didn’t exist fourteen years ago, but the philosophy did. Some portion of every deposit you receive should be set aside, in separate accounts, for the various areas of operations of your business. Your grandparents or great grandparents might have used the envelope system in the same way to pay the bills. This money is for the mortgage. This money is for food, and this money is for fill-in-the-blank. If there isn’t money in the envelope for that designated purpose, then we either have to go make some more or we have to cut back on something.

 

You’ll hear from business owners like Kelly and Janice Stitzer, CIG Construction, from just outside Denver, Colorado. Kelly and Janice are a husband-and-wife team and run a dynamic roofing business. When we started implementing the Profit First for Contractors system, Janice was embarrassed to admit she hadn’t reconciled their bank accounts for six months. Like many roofing contractors, the business is based on volume. But Janice quickly realized that increasing the volume of business didn’t solve their money problems. After implementing Profit First for Contractors, CIG revamped their production systems and started charging properly for their work, identifying ideal clients and saying “no” to jobs and clients that were putting them out of business. Within ten months, they were able to completely transform their business and their bottom line.

 

And I want you to meet Zach Dettmore, a remodeling contractor in New Jersey. Profit First for Contractors ended Zach’s slavery to his own business and transformed not only the way in which he operates his business, but also his mission. Zach explains, “I now see that I am not some sort of missionary trying to serve the greater good. I owe it to my family, my employees and myself to charge a fair price for quality work and my profits need to come first. If profits don’t come first, I cannot do the work that I love.”

 

In the pages of this book, you will discover how to make your construction business permanently profitable. In fact, I promise that if you follow the methods outlined in this book you will make a profit.

 

“C’mon Shawn. How can you make a promise like that?”

 

It’s simple. After you read this book, you’ll understand how this simple formula works:

 

Sales – Profit = Expenses

 

And why this profitless formula doesn’t work:

 

Sales – Expenses = Profit

 

I promise that when you receive the next check from a client and you set the appropriate amount of profit in a separate bank account and you don’t touch it, then at the end of the month, at the end of the quarter, and at the end of the year, that profit will still be there. When you practice this simple method month to month and quarter by quarter, then you will have profits for your business.

 

This is the simple part. But it will not be easy, at least not at first. Good habits are hard to start, and bad habits are hard to break. But the Profit First for Contractors system will simplify the process of making profits by reverse engineering your business operations and building profit into every aspect of your business.

 

Provided you follow the steps I recommend, you will have transformed your business by the end of Chapter 6. Do I want you to read the rest of the book? Absolutely. In fact, I insist on it because your work matters. Society isn’t making carpenters, plumbers, electricians, masons, contractors, and other skilled workers any more. At least not at a rate that is filling the skilled labor gap.

 

Mike writes in Profit First, “Profit is not an event. Profit is a habit.”

 

This book will guide you through how to break the old habit of guessing and hoping you’ll eventually end up with a profitable construction business and transform the way you operate your business so that you can gain clarity about every aspect of your business.

 

Remember, Profit First is the prescription glasses business owners need to see their businesses clearly, and Profit First for Contractors is the polarized lens to see what is going on below the surface of your construction business.

 

I’m guessing you started your construction business because you love to build things and you were looking for some kind of freedom. Maybe you wanted the freedom that comes with making your own schedule or the freedom to produce work that met your high standards?  Let’s not forget about financial freedom. You started your construction business to make your bank account grow. That’s why this book exists: to give you the financial freedom you want by transforming your cash-eating monster of a construction business to a money-making machine.

 

And we are going to do that starting today. There’s no need to wait.

 

But we are going to tackle PFC the right way. Mike explains, “Your profit will start today and will occur permanently. All you need to do is commit to study this and then do it. Don’t skip the doing. Pleeease do not skip the doing. You can’t read this book, think ‘awesome concept,’ and go back to business as usual. You need to get off your butt.”

 

As Jayme did, you need to draw a line in the sand and tell yourself, “I can’t continue on like this. Something has to change.” Profit First for Contractors is that change. Like Ken, you need to develop the discipline of viewing your income as specific stashes of cash that inform you how to operate the different parts of your business. Like the Stitzers, you need to stop focusing on volume and focus on value.

 

I want your construction business to be profitable. I want the profits from your construction business to give you your life back. I want you to spend less time worrying about the bank balance and more time focused on your family and the other things in your life that matter. I want you to show not only your friends and family, but also the world around you that choosing to be in the construction industry is one of the most rewarding and fulfilling careers available to this generation and generations to come.

 

Wow!  I’m fired up. I hope you are. Let’s do this thing. Let’s make your construction business permanently profitable starting today.


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