EP273: Cash Flow Mastery | How Contractors Ensure Financial Stability

Because financial success in construction isn't about making more money. It's about controlling the money you already make. So we're talking about in this episode, five simple things that you can change now that will help your financial situation as a contractor. So let's dig into it right now. All right, here we go. Number one, we want to talk about separate bank accounts. Why does that matter? Well, it matters because it's hard to know where your money is going. Like, how do you know, you know, if I put this $10,000 deposit in there, how do I get to it? Well, I mean, where did it go? Where is that money being used for? Is it you put it into a normal account where you pay all your bills out of it? You have one simple account that is all about your money. No, we don't want to do that, right? We want to make sure that we have all of our money spoken for in different accounts. And the way we do that is by setting up separate bank accounts. Now, one of the most, this is fundamentally, if you only do one thing, this is fundamentally the most important thing I ever did in my business for myself to help keep my sanity. And that is you need to have a separate bank account. for customer deposits. Because here's exactly what happens. You get a deposit from a customer. Let's say it's $20,000 for a big job. What do you do with that money? You go deposit into your one bank account that you have to run your entire business out of. So you put that $20,000 in there. Maybe you have $30,000 from other jobs, or you've collected invoices or whatever it might be. So now you have like $50,000 in your bank account. and it looks like you have a lot of money in there. Well, you know, like, well, some of this is for jobs, you know, it's for deposits. So I can't go spend that money right now. And so, but you don't really know how much of that money is for deposits. You have $30,000 in there already, but 20,000 of that is for bills that haven't even been invoiced to you yet. You're getting your Lowe's bill or your local lumberyard bill 30 days later, or you still haven't gotten your subcontractor bill from two weeks ago. This money is already spoken for. So really, if you take all of the money that is spoken for and only what's left in that account of that $50,000, maybe $7,000 of that is, let's call it profit. But then you have to pay all your expenses. Now you got to pay your electricity bill, your cell phone bill, your internet bill, your gas, right? So really the $7,000 left over, now you only have maybe $2,000 or $3,000 left over. That's actually pure profit for you. It's too hard to run a business out of one bank account. Now there are softwares and things you can do that basically virtually create separate accounts, but you still have to have the discipline. When you have a virtual software that says, here's five bank accounts, here's the money that's in each account, allocated for different things, but then you go to your bank account and it's just one lump sum. It's very easy to be tempted to go take money out of there to go buy a tool or maybe pay yourself a little bonus or whatever it might be. So the way you avoid that is by having separate bank accounts. Does that mean you have to go to the bank and open up separate accounts? Yes. I don't care if they're checking accounts or savings accounts. It really doesn't matter. But yes, you're going to have multiple bank accounts. Now, if you're at a bank where they charge you money for each account, well, you can either pay that money if it's not very much, or you can go to a different bank, right? Like, well, Brett, you know, I've been at this bank for 20 years. Listen to yourself talk for a second. If there's something you can do to make your business better, more profitable, easier to run, But you're caught on this idea of like, well, I've been here for 20 years. I don't want to change. That's just stupidity, guys. You do the things you need to do in your business in order to be successful. Not the things that you want to do or like to do. The things you need to do. So if your bank's charging you $50 a month for every account, well, you can either pay $250 a month or you can go to a different bank. Now, for me, I would probably go to a different bank, right? If that was the case. So maybe you can have split accounts. You can keep your other bank. for your personal and stuff, but then get one for your business. Whatever's going to be easiest for you. We get these soundtracks in our heads stuck where we have to do it this way. The thought of doing something different is just, it's just too much to think about, Brad. I got to do it the way I've always done it. Well, if you keep doing things the way you've always done it, you're going to keep getting the same results you've always gotten. So if you want a different result, I don't know, maybe try something different. It's just an idea. Okay. Why do you, I don't know why you guys get me so fired up on these. I don't know. Maybe I'm too passionate. Maybe I care too much. I don't know what it is. So listen, separate bank accounts, right? Most contractors run everything through one account. That creates confusion. It creates emotional spending. Oh, I got $50,000 in that account. Man, I can go buy that new gun I wanted. I can go buy that new boat I wanted, whatever it is. You don't take in consideration all these other things. So you need to have separate bank accounts. You need to have one account for operating expenses. Now, a lot of this is based on the book Profit First. Accounting by Mike Michalowicz. It's a great book. I highly recommend you get it. It's a different type of accounting methodology. At the end of the day, you're still paying bills and all that stuff. It doesn't really change your actual accounting. It just changes the way you go about how you move your money around. One of the best concepts of that is you pay yourself first. You know, most companies are like, I get $200,000, I got to pay, you know, $150,000 worth of expenses. That leaves $50,000 left for me. Well, profit first is I want to pay myself $100,000. I only have $250,000, but I have, you know, another $100,000 worth of bills, or I'm sorry, $150,000 worth of bills. I pay myself first the $100,000, and then I have to figure out how to pay the rest of the bills, whether that's through reducing, you know, expenses or overhead. or making more money per job, right? Like I have to solve to pay my bills problem. I don't solve by not paying myself enough problem, which is what most 99% of us do. I didn't make enough money this month, so I can't pay myself. That's the wrong mentality. You pay yourself first, and then it forces you to have to run a business that's actually profitable. It's too easy to do. It's like, ah, we had a bad month. I'm not going to pay myself. That's too easy. It lets you off the hook too easy. If you're forced to have to figure out how to pay bills, you'll start getting a little bit smarter with your money, right? How you run your business, I mean. So here's the accounts you're going to have. You're going to have an operating expenses account. That's what you pay your bills out of. You're going to have a payroll account to pay all your employees or yourself. You're going to have a customer deposit account to put the money into. You're going to have a taxes account where you set aside money to pay your taxes. It can be payroll taxes or it can be corporate taxes, whatever, but just taxes. And then you can have additional accounts for whatever. One can be owner pay separately, or it could be owner bonuses. You can also have accounts set up to pay for future expenses. You know, if I know I got to buy a new vehicle in the next two years, I might start putting a percentage of that in that account each month so that within two years, you know, I have 20,30, $40,000 saved up to buy that vehicle. So I don't have to go in debt. So you're just like, you know, forecasting expenses and then putting a percentage of that each pay, you know, each time into your account. Now I'm not going to go into the profit first, the entire process, but you basically take all your money. When you have a deposit, you put it into your operating expense. I'm sorry. You should have a separate income account. I didn't mention this. That's what all the money goes into your income account. And then you disperse it across the other accounts. It's based on a percentage of your expenses. Again, I'm not going to get into this. Go read the book profit first. accounting. Do not get the profit first accounting for contractors. I know that sounds counterintuitive, but the original book is where most of the value is. Once you've read that book, then you can go read the contractor version by Sean Van Dyke, a different author. But the one by Mike McAllister is the one you want to read first. Okay. So you set that all up, but the, the, the separate thing that's not in that book is the customer deposit account. So here's how this, why this matters. You get that $20,000 deposit, you put it into the customer deposit account. Why? Because it's not your money. None of that is your money. You're just holding it for someone. You don't get to spend that money for you. The money goes into a separate account. You're not allowed to touch it until you have to buy materials or pay for subcontractors or whatever. Until you have an actual expense that you need to pay for that job, then you go into that account and you take the money you need out of it. transfer it to your OPEX account, and then pay the bill. Okay? Brad, it seems like a lot of work. It is. It's not a lot of work. It's more work. But it keeps everything so clean. Because I would always spend money. You know, you get that $20,000 deposit, you deposit it, you pay some bills, and then you go and you spend $7,000 of that $20,000 that's for that job. And then so you only have $13,000 left of the deposit. Well, then you get $25,000 worth of bills between the vendor and subs and everything. And now you're in the hole, right? You may have money in your account to pay for it, but from a money transaction perspective, you have more money going out for that job than you have money coming in. And what a lot of you guys do is you get your profits on the very last check, your invoice, right? So, and if you're doing like a 50% down,50%. When the job's over, terrible. Stop doing that. The final invoice should never be more than 10% ever. Why? Because 10% should be pure profit, right? It should be 100% profit for you. All of your other bills have been paid. All the vendors, all the subs, everything has been paid by the time you get to your final invoice. And so the last 10% is just profit for you. If you do a 50-50, you're collecting 50% upfront, which is great. It's a great start. But then halfway through the project or two thirds through the project, you have ran out of that $20,000. And now you're funding the money yourself until you get that final check. And if the final check is 30,40,50%, and they're going to start screwing around with you and like, oh, we don't like this. You need to change this. I had one client, I had a nightmare client. They had to redo the kitchen doors and cabinets like five times. And it was never good enough. And this went on for like four months. And the client was holding up like $90,000 worth of money. Right. And, you know, a big portion of that 90,000 was to people that he owed money to. So he's in the hole waiting to solve this problem before he gets paid. It's a terrible place to be in. You want to talk about stress? You've created your own stress by trying to be, quote, nice and, you know, give people a 50% when they're done. And if you hear anyone on the, in the internet or anywhere saying, if you can't pay until the job's over, you don't click the a hundred percent, you shouldn't be in business. They are morons. Okay. Just, I'm just telling you right now, I'll tell them to their face. They are complete morons. Even if you had, you know, half a million dollars cash sitting in the bank and you could do that by no means would you ever, you know, should you do that? It's just stupid business. Why would you want to be a hundred percent leveraged against the client? who on a whim, on an emotional reaction, can just withhold that money. I don't care if you're really good at what you do, if you have the best clients in the world. It's just not very smart. And so the morons out there want to use that as a leverage. Some of them use it in marketing to their clients, whatever. It's a marketing gimmick. But you should never fund the entire cost of the project yourself. If you do it right and you have your payment schedule set up correctly, you will never be in a negative balance. In other words, you're always collecting money up front and then paying out from that money you collected. You collect a $20,000 deposit. You pay out $15,000 worth of expenses. You get to the next milestone. You collect another, you know, whatever it is, $10,000 payment. And then from that $10,000, you pay out $9,000. And then you get to the next milestone and so on and so on. And so the whole project, the customer is funding your project. You should never be the bank. You should never be funding the project. It's just pure stupidity. If you're doing that, stop. Well, Brad, people don't want to pay it. Yeah, they will. That's just your limiting belief. Hundreds and hundreds of people do this. I did it with hundreds of clients. You may get some pushback. I remember one time I had a job that was like $65,000 or I think it was like $45,000 initially. And I wanted to collect 50% down, which was like, you know, $22,000 or whatever. And the client said, and I've already done work for them before. He's like, I don't know if I feel comfortable paying that much money up front. And I said, yeah, I hear you. Totally hear you. I understand. But here's the thing. I've been in business for, you know,10 years. I've never had a negative review. And if I was, you know, if I was a shady contractor who didn't have integrity. I wouldn't have lasted this long. Right. Basically saying I'm an upstanding person. And the guy said, well, that's a good point. Yeah. Okay. And that's all it took. It was just me saying, Hey, I've been in business this long. I wouldn't have lasted this long. If I was a crook, I wouldn't have, you know,125 reviews if I was a crook. And he's like, okay, I understand. And that was the end of it. That was the only time I ever had someone push back on collecting. 40,50% deposit. Now I collected a 40%. I did a 40,20, sorry,40,30,20,10 is my payment schedule. 10% is the final. It's all profit. If you have a client at the end that gets stupid and doesn't want to pay you or, you know, once all these things fixed, you have the ability to walk away from the job. Yes, you're going to lose the 10%, you know, maybe you may lose the 10%, but that's all profit. There's nothing worse than getting to the end of the job and you have to owe people money and they don't pay you. That's the worst feeling in the world. So you avoid that by setting up your payroll and then having a customer deposit account on the back end. So your payment schedule keeps you from getting behind on your payments. The customer deposit account makes sure you don't spend that money before you need it. So I may have, at any given time, I might have $100,000 sitting in the customer deposit account. I may have two or three jobs going on at different stages. As I need the money, I would take the money out. Now, I got to the point to where I kept so much cash in the account that I wouldn't actually take anything out of the deposit account until the job was done. I would collect payments along the way. I would put them into the deposit account as I went, but then I just wouldn't transfer the money over until the job was done because I had enough cash in the bank to be able to fund that stuff. Although I have the money, I'm just not transferring it. Right now, sometimes I would have to transfer it if money got a little bit low, but I'm just saying like, if you have a cash rich business, you can, you have the money there. You just don't dip into it until the job's over. That's kind of you and what you want to do, but you don't spend the money until you get a bill. Right. I got to order cabinets for this job. Uh, and if I have an account, usually there's 30 day terms, but if I want to pay up front, you know, if I want to pay on a credit card, debit card, cause I don't want to have an account. I go to the cabinet company and I order the cabinets. I say, hey, it's going to be $15,000 for the cabinets. Great. I go to my bank account on my phone, on a desktop, pewter, whatever, and I just transfer $15,000 out of the customer deposit account into the operating account. And then I pay that bill immediately. That's how you do that, right? If you have accounts, which I did, I use the accounts. I'm going to use somebody else's money, not mine. then I would just, again, I would keep that 20K in that account. And then 30 days later, I get the bill for the $15,000 cabinets and I do the same thing. I just go in, transfer it, pay the bill. The only difference is doing it ahead of time versus at the end. But the customer deposit account saved so much headache because it was money that's not mine. That's how I viewed it. It's not my money. Sometimes you collect the deposit and you don't start the job for three to six months. That's definitely not my money. It's easy. If you put that money into the account, a month later, two months later, you've forgotten about it and you spend it all. Then comes three months later, you start the job. You got to pay 15K. Oh, crap. I don't have any money in my account. So if you do the customer deposit account, you don't get to touch that money. There's been times where I had money in that account. Let's say, you know, $10,000 in deposits. And I was low on cash for whatever reason, timing of things, you know, and I had to pay bills, right? Like I had to pay a... say a $5,000 bill and I only had like 4K in my account, but I had 10K sitting in the customer deposit account, I didn't touch that. I don't get to touch that money unless it's for that job because it's not my money. You have to have discipline here. I don't care if you have $0 in your OPEX account and you have $50,000 in your customer deposit account. If you haven't done anything for that job, you don't get to use that money. That's what discipline looks like, by the way. You don't rob Peter to pay Paul. All you're doing is kicking the can down the road. All right. So that's the first tip is the bank accounts. If all your money sits in one pile, eventually you'll spend money that was never meant to be spent. And that's what happens for a ton of you. I know this. You should be shaking your head. Yes, because I know it applies to you. Tip number two, stay lean as long as possible. Okay. Stay lean as long as possible. You don't need to go buy the new lifted truck and wheels and tires because you think you've made it. You sold one big job and you got a big payday. Now you think you've made it and you got to show everybody how awesome you are. Don't do that. Even personally, stay lean. Live below your means. Within your business, live below your means. Only broke people try to impress others by looking like they're rich. Only broke people. Try to impress others by looking like they're rich. Rich people try to look broke because they don't want to be sued, for one, but they know the glitz and the glam and all that stuff doesn't matter. They don't care about that. It's only the people that are broke that want to look rich to go out and spend their money before they should, and then they get stuck with a $1,500 a month truck payment, or they go buy a bunch of equipment before they sell any work. If you're starting a business and you listen to this podcast, you don't need to go out and spend $150,000 on a truck and a skid steer in order to start your landscaping business. That's stupid. You go out and you sell a half a million dollars worth of work and you rent equipment until you start making money consistently and then you can go buy your piece of equipment. You don't go and spend the money and hope that the work comes. You sell the jobs first and then you have money, right? Like if I had to go to a bank to get a loan and I said, hey, banker, I'm going to start a new job. I need $150,000 so I can buy a truck trailer and a skid steer. And the banker's going to be like, okay, what do you have for collateral? I don't have anything. I'm just starting out. Okay, well, unfortunately, we can't really help you. However, if you have $500,000 worth of jobs sold with, you know, part of that money collected, let's say you have $100,000 total for all the jobs sold in the bank in your customer deposit account, and you go to the bank, hey, banker, I want to borrow money so I can do these jobs. What do you have? Well, I have $500,000 in sold contracts, and I have $100,000 in my bank account. They're going to be like, okay, no problem. Here's your loan. Why? Because you have money to back that up. In other words, you have the contracts to back it up, and you have cash to back it up. Right. That's, it's just so much easier guys. Too many people want to go borrow money and think that all this money is going to help them be successful. It's not, it's actually going to enable you to have a, uh, to run a crappier business. It's going to enable you to be, to suck at running your business because you have a large pool that you can, you know, pay, pay for mistakes, but eventually you run out of money and you don't have enough income and then you're screwed. Right? So most companies that start out of a garage with a small dollar amount and then grow their business are more successful than if you start a business with 50K,100K or whatever, because you'll just burn through it. So that's tip number two, stay lean as long as possible. Don't buy trucks. Don't get an office space. You don't need to hire employees and pay for all that crap right now. You don't need a bunch of extra subscriptions just in case. You don't need to over hire, hire a salesperson or hire a project manager. Because you don't really want to do it. If you don't have the workflow, like if you're not working 60 hours a week doing that task, you're not ready per se to hire a project manager. If you just don't like doing sales and you want to hire a salesperson, that's not a good reason. It's not a good reason at all. You shouldn't hire salespeople until you're ready to scale. Not because you don't want to do something. So stuff like that, making stupid decisions to try and... you know, eliminate things that you're doing or don't want to do or trying to impress people or thinking because you sold one job that you're now a hot shot and know how to do it. When you've had like six months of selling, you know, high value, high profit jobs, then you can say maybe you figure something out and you have a history of consistency of making so much money that now you can go out and raise some of your, you know, operating expenses. But one job, one month is not enough. There's no history there. Anybody can get lucky. Anybody can sell a big job and get lucky because their cousin is on the board or whatever. That doesn't mean you're good at what you're doing. You're not going to be able to repeat it. When you have a history of repeatedly being able to generate the revenue and income, then you have a good, valid reason to go and invest in your business. One last thing for number two is also lean businesses survive downturns. So when stuff goes south, it's easier to survive when you're lean than you have an overhead, over bloated overhead. A lot of contractors don't scale profitably. They scale expenses. By the way, I've said this before. Growing is when you scale expenses to increase your size. Scaling is when you increase your profits, not your size. Now, obviously, when you scale, you may hire more people. But you already have the plan and the profit and the financial, you know, money backing, all that in place. Like you have a financial stability. It's what I'm looking for, financial stability. That, you know, for every truck you buy, it's going to generate $200,000 in revenue and, you know, $100,000 in gross profit. Like when you scale, you already have the math figured out. Scaling is not, I'm going to go out and buy a bunch of trucks and hire a bunch of people so that, I can make more money. That's not scaling, guys. Too many of you get this wrong. That's growing. Growing is you're growing your size and your expenses. Scaling is I figured it all out. I have a profitable business where I'm at right now, and now I want to scale the profitability. So I'm now adding vehicles, making an X amount of money. Adding vehicles, making an X amount of money. That's scaling. Buying a bunch of shit is not scaling. Again, that's just stupidity, right? So you're not scaling your business. You're scaling your expenses. And by the way, revenue, just because you scale your expenses and you make more revenue, again, does not make you profitable. Hey, just a quick time out from the show.

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If you add on $200,000 worth of expenses, and then you generate an extra $150,000 worth of revenue, you're losing money. It doesn't matter where you're at. You're losing money at that math. So don't do it. All right. Tip number three. I kind of actually dipped into this. It's collect deposits and stay ahead of the costs. So in number one, I kind of jumped ahead because I got excited. I apologize for getting excited. Number three is collecting deposits to stay ahead, right? So as long as you... Cash flow is super easy, guys. If you're struggling with cash flow, it's because you don't know what you're doing. It's not because cash flow is hard to understand. Cash flow is simple. Charge more than what you cost. Collect money before you need the money. Keep money in savings so that you don't, if you run out of money, you have extras and don't live above your means. Like keep money in reserves, right? Like it's pretty simple. If you do those things, you know, you're going to be fine. One of my most popular TikTok videos was on cashflow, what I call the four C's of cashflow. There's another podcast I did on that. Go look it up. It's a really good podcast on the four C's of cash flow. And if you do exactly that, you'll never have money problems. I promise you, you'll never have money problems. So collect deposits and stay ahead. Deposits protect your cash flow, your material purchases, your scheduling, your labor, all that. Progress payments should stay ahead of expenses. I already said that. And never let receivables pile up. Stay on top of those as well. If I got my... A bill, usually you get a bill and it says it's due within 15 days or due within 30 days. I don't wait until 29 days to pay the bill. I pay it right then. I pay the bill the second I open it up and get it and I pay for it. I get a bill for $10,000 worth of materials. I pay it right then. I don't wait the two weeks of lead time that I have because what's going to change? What's the point of waiting? The only time you would ever do that is if you just don't have the money right this second and you need a couple days until you get an invoice paid. That's the only time you would need to do it. So what's the point of waiting to pay a bill if you have the money today? Just pay it right then. You open up a bill, pay it. Obviously, make sure you have the money. Don't pay it out of money that's going to be paid for the next bill. You got a $10,000 bill, you pay it right then, but you only got $15,000 in the bank. Right. It leaves you with five, but then you got another bill for $10,000 common. Now you're in the hole. So like you got to use a little bit of common sense here, but as soon as you get the bill, pay it. There's no, there's no benefit in waiting unless you don't have the money. Right. So never let the receivables pile up. And, um, you know, contractors get in work when they complete work before collecting money, money, first work, second money, first work, second. If people say, well, my clients won't do that. That's bullshit. They will. You just don't know how to structure your business. You don't know how to be professional. You don't know how to communicate the value. You don't know how to stand up for yourself or you have the wrong client. It's one of those things. It's not, it's never clients don't want to pay this. That's never the answer. It's one of those things. You're doing something wrong or you have the wrong client. All right. Last thing. Oh, and you know, I've said this before, but you're not the bank. Your job is not to be a bank and finance your clients' projects. That's what the bank is for, literally. It's not for you. You're not supposed to be the bank. And if I was ever going to be a bank, I'm charging interest on it. Although I never do it. But if I was going to fund the cost of a project, somehow there's extra money getting applied. I'm getting paid interest on it. They give it like a hard money loan, like super high, crazy 20%,25% interest rates. But again, I would never do that. Because I don't... Money, get paid first, perform second. You do that, you never have a problem. Number four, save money. I know this sounds like really, really simple and easy and basic. It's because it is. Stop spending your freaking money, guys. Like I said before, stop trying to impress people. Keep your money. You should have a minimum of three months of operating expenses saved up. I was talking to a contractor, a new contractor last week or might've been even this week in the profit club. He just came on board and his monthly overhead is 40K. That's what it costs him to stay in business. He's got employees and stuff. So 40K. Well, his minimum cash reserves should be $120,000. That's a healthy reserve. Why? Because you can go three months of not making a single penny and stay in business. You can go three months without making a single penny and stay in business. And most market issues or financial problems that happen, most of them don't last more than a quarter. Some of them do, potentially COVID and stuff like that. But you can't really plan for that. Now, I do know companies that during COVID that had to shut down, they had two years worth of cash reserves. Now, this was a big corporation. This went in construction. But I watched a video one time where they were talking to the CEO and asking him how he survived it. He said, well, it's easy. We had two years of cash reserves in our business, two years of operating. They went an entire year without spending, without making any money, their business. I mean, we're talking like, you know, multi-million dollar business with hundreds of employees. They went through an entire year of not making a single penny profitably, you know, financially making money. But they were able to stay in business because they had two years of cash reserves. That's what I'm talking about. You can withstand any downturn, any bad thing. You go in the hospital for three months, whatever. If you have cash reserves, you can go through it. You can get through it. If you don't, you're screwed. You're either going to go in major debt, right? Or you just go out of business. That's the two options. But if you have cash, no problem. So you need to have a minimum of three months. Now, what you can do is remove the payroll function of that because you should have at least one month of payroll cash reserves, ideally three months. So best case scenario, you have six months of operating expenses, minimum three months. Best case scenario, you have three months of payroll, minimum one month. That's going to keep you from going in trouble most of the time. You know, he's at 40K a month. Obviously, a lot of that is payroll. So I would take out whatever portion of that is payroll. Let's say it's 15,000. You take out the 15,000. Right now, you need 25,000 of hard operating costs. So you need 75K in your bank account. Now, do you get to spend this money? No. It just sits in the bank looking at you. Hey, Brad, I'm, you know. Remember me, I got $75,000 that you can go spend on a new truck or a new boat. Nope. Have discipline, right? Now you can put it in some type of interest bearing account, you know, but it has to be easy access. It can't be like a, you know, some IRA or whatever where you can't access it, but once a month or pay huge penalties on it. You need to, you can put it in like a bond or something where it generates some level of interest because why not? But you need to be able to access that money, you know, within several days. So you can't put it in something that's locked down. But you have that money sitting there. You never get to use it. Unfortunately, you never get to use it. Just sits there looking at you, tempting you every day. But it ensures the future of your business. So you save money, right? Construction is cyclical. There's slow seasons. There's emergencies. There's equipment breaks. There's jobs go sideways and you lose your butt on. Most contractors spend the money as fast as it comes in. You know, there's funny, Joe, and I get it. It's funny, but there's, you know, there's, there's videos and stuff on TikTok of contractors that are like, you know, look at me and they're spreading out like, you know, a hundred thousand dollars in cash. And then the next second, the money's all gone and the contractor's crying. Yeah. We can all relate to that. It's funny. It's relatable, but we don't have to do that. We don't have to just say that's just part of owning the business. No, that's just part of being uneducated and stupid. That's what that is. This isn't like secret stuff that no one ever talks about. It's wide open and easy, but I have to do a podcast on it because too many people go out and make dumb decisions. And I get it. Some people were never taught financial literacy, which is what we're doing here. We're teaching financial literacy. I get it. But there's a little bit of common sense in there of like, I don't know. I have some money. If I go spend all of it, then I have no money. And that gives me no. Like that, that's the level of common sense. Even though I tell my clients all the time, there's no such thing as common sense. But if you're the owner of a business, you have to have more common sense than your employees. I mean, you just do. That's, there's no way you're going to run a business by being dumb. You might get lucky somehow, but financially being literate is one thing. Being dumb in the sense of not knowing how to do everything and hiring professionals. That's a good thing to be dumb. You don't need to be the person that knows how to do designs and knows how to do marketing and knows how to build websites and knows how to work on vehicles. You don't need to be the person knows how to do all that, but you do need to know how to understand money because it's such an important part of your business. You don't need an MBA, but you do need to understand money. So don't spend the money as it comes in. I can tell you right now, financial stress is the number one thing that contractors deal with. And it sucks when you don't have money and you got to pay bills. So why wouldn't you just insulate that by saving some money? If you're a brand new contractor, you're listening to this and you go out and you make a big, it's a couple of home runs and you, you know, you make some money, you got an extra 20,30, $50,000 in there and it's pure profit. You don't go and spend it guys. You go and you take that money and you put it in reserves. And then once you've collected your, you know, one to three months of reserves and then any money on top of that, by all means, go waste it on dumb shit. I don't care. You know, once you've hit that minimum, then you can go buy the dumb boats and the motorcycles and the, you know, tools and crap and all this stuff you want to waste money on. By all means, go do that. But insulate your business first with the first fruits of your labor. And then beyond that, you can use whatever you want to do. That's not what people do. You got 50K, let me go blow it. I'm rich today, I'm broke tomorrow. You know, two weeks later, hey, I'm rich today, I'm broke tomorrow. Why? Because I went and blew it all in stupid crap. Don't do that. Live below your means for one year. Pay yourself the minimum amount of money you can pay yourself and live off of. Stockpile the rest of it. And then after one year, keep that money there and then go do whatever dumb crap you want to do. That will change your life. That lesson alone will change your life. And I tell people, I actually have a training module and I have it in my coaching program. library because it's so important. It's like, don't increase your lifestyle yet. That's the name of the training module. Don't increase your lifestyle yet. Meaning you get to, once you, you know, once you put in the hard work, but you don't get to do it right now because everyone that comes in is going to make more money. They end up making way more money than they're, than they're ever used to. And when you, when you're like financially poor and then you come across a bunch of money, what do you do? You spend it. That's why I don't know the percentages, but the majority of millionaires, I mean, people that win the lottery and become millionaires overnight, within like five years, they're all broke because they don't understand financial discipline. You have to be financially disciplined. Last tip here. Hold on. Here's a little summary. The contractor with cash survives problems that destroy everyone else. There's a lot of people that made it through. the recession in 2008,2009, because they were smart and they had cash. The other ones that didn't left, they went out of business and left. Right? You got to be smart. So here's the last tip, number five. You need to review your financials regularly. And this is one thing that nobody likes doing. I don't like doing it. I hate numbers, guys. I hate looking at numbers. I hate doing math. Absolutely hate it. But I do it every day. I look at my profit and loss every single day. I go in and match my transactions in my accounting software every single day so I can stay on top of things. Some of you don't even look at your bank statement when it comes once a month. But even if you do once a month and you open up your bank statement and it's like, hey, there's five transactions here for like $3,000 that I didn't make. And it was three weeks ago. Uh-oh. Someone stole your card, run up a bunch of fraud charges, but you didn't even know what happened for three weeks because you're not even looking at your money. I look at it every day. I know every single transaction every single day. So if something comes up that doesn't make sense, or I don't know where it came from, the worst case scenario is 24 hours. Like within 24 hours, I can fix or stop whatever that is. Now, too many of you rely on your bank to like be fraud. You know, hey, we've got a fraud alert. Someone's using money. You can't just rely on your bank, guys. You have to be proactive with your money. Don't mess around with your money. You have to know where it's at and what it's doing and how it's working for you. So you need to review your profit and loss monthly. Ideally, weekly. Again, I look at mine daily. Right now, I don't have... As many transactions, large transactions like I did in my contracting business, because I'm not buying materials, I'm not paying subs and all that. I just have normal transactions for my coaching business where it's like paying for software, paying for advertising or whatever. And it's fairly consistent. I don't have these huge transactions, but it's still like you need to be looking at your stuff on a regular basis. So worst case scenario for me would be one month. Best case scenario would be once a week. And then like the premium would be daily, but I realized it's hard for a lot of people. When I log in in the morning, it's the first thing I do. As soon as I can sit at my desk, turn on the computer. The first thing I do is look at my profit and loss or not my profit. I look at my bank account. I go into my bank account, my accounting software. I match all my transactions. And then I go look at my profit and loss and I compare it to previous year. I always do a comparison. By the way, when you look at your profit and loss, you should always compare it to your previous period. And you always look at the difference in percentage change and the difference in dollar change. And QuickBooks makes this super easy. Most accounting softwares, you can click two buttons and it shows you. So it's not just looking at like, oh, what'd I do this month? It's looking at it compared to last year because you can easily see growth, right? If I look at, let's say the first quarter and I'm comparing it to the first quarter of last year and it's showing that I had a 45% increase and I made an extra whatever, whatever it is, a hundred thousand dollars or whatever, then I can, without even like understanding it, I can just look at the two numbers and be like, Oh, I made money, right? I'm doing better than last year. I don't have to do math. I don't have to think about it. I can just look at two numbers and see the result. If I look at it and says, you're, you know, you've, uh, you're 20% lower than last year. And you've, you know, you've made, uh, $20,000 less than last quarter. Now I can look and be like, okay, what's going on? Like, what happened? Why am I making less money? It's very simple, quick, and easy. You have to set this stuff up so it works for you. Too many people are like, I don't have time for that. I don't have time. Where's my voice? Is this my voice? Yeah. I don't have time for this right now. I haven't used that in a long time. If you're new to the podcast, I used to use that all the time. But anyways, you're like, I don't have time. No, spend time. Spend the time you need. It takes like 10 minutes to set this crap up. You act like it's going to take 40 hours to go through and set this. No, it takes 10 minutes. Stop putting off stuff because you're like, I don't have time. The reason why you don't have time is because you never actually do anything. You never actually fix problems in your business. You just go in circles and jump to the next problem, jump to the next problem, jump to the next problem, react, react, react. Be intentional with your money. Figure it out so that you can look at your profit and loss. If your profit and loss is not set up so that you can look at it without doing any math, it's not set up correctly. You shouldn't have to do any math to look at your profit and loss and understand the numbers of your business. If you don't understand it, go online. There's all kinds of classes. You can pay 20 bucks to watch a class on financial literacy and they'll teach you how to use a profit and loss and balance sheet and cashflow forecasting for like 20 bucks and three hours you can learn and be an expert. It's not hard. You just have to actually go do it. So the profit and loss, look at it regularly, compare it to your previous periods, and see where the opportunities for improvement are. You look and see if you, you know, and also compare it to your budget. Now, this is something that typically larger businesses have a budget. Smaller companies don't typically create a budget. Although you can, you can certainly create a budget. So a budget is simply saying, I'm budgeting $300 a month for tools, tool replacement. So at the end of the month, you get your profit and loss out and you look on it and it says you spent $400 on tools and your budget's $300. Now, I know you don't have to be super smart to figure this out, but what does that tell you? It tells you you went over your budget by 100 bucks, right? So if I want to stay within my budget for the whole year, whatever that is, Then if my budget's 300 and I spent 400 this month, what would typically have to happen to get back on the budget? It means the next month I can't spend more than $200. And if I can stay within $200, then guess what? I'm back on budget, right? I'm back on where I need to be. A lot of you guys are like, I need a tool, go buy it. I need a tool, go buy it. Oh, I like this tool. I'm a tool nerd. Let me go buy this tool. I only use one time. It cost me 500 bucks. Why do I know you do that? Because I did the exact same stupid crap. I had tens of thousands of dollars worth of tools used one time or didn't even really work very well. And I didn't use them again. They just sit on a shelf and collect dust and cost money. So you have a budget and the budget is simply saying, what did I anticipate this to be? And a lot of times, if you've been in business for two, three, four, five years, you have a history. You just use that history to forecast. If it's your first year in business, you got to kind of guess. You got to kind of guess on what you're going to spend, but every month that you go on, it gives you more data. So like, you know, beginning of the first month of the business, you have no idea what stuff's going to cost. Now you can go and be like, oh, you know, QuickBooks costs 90 bucks a month. Well, then, you know, you're going to pay 90 bucks a month for QuickBooks or this software I want to get like job trade costs, you know,200,250 bucks a month. Well, that's going to cost that. So stuff that's hard costs, you can plan that out, but things that are tool purchases, You know, equipment, you know, buying new equipment. Those things are hard to like judge and know, right? Buying uniforms, things like that. You're not really going to know, you're going to guess. But after several months, you can go back and look and be like, oh, this month I paid, you know, I paid 50 bucks in uniforms. The next month I spent $300 on uniforms and then I didn't spend any money for three months. And then I had to spend another 200 bucks. Well, you can just take that money and average it out, right? You can just take out those three purchases. 50 bucks,200 bucks,300 bucks. You average it out. It's $550. And then you can average it out over the year. Take it times two because you got to get the rest of the year if you have six months of data. So it's 550 over six months, which means it's probably going to be 1100 over 12 months. And then you just divide it out, right? Whatever that is, $90 or whatever. I don't know. That's how you do your budget. And then you just compare it to your budget every month. So if you have a working budget of say $15,000 in overhead expenses, You get your profit and loss, you look at it, and it says you spent $18,000 in overhead expenses. Well, then you went over your budget by $3,000. So then you go and look, you do your comparison, remember? You do your comparison with your percentages and dollars, and it tells you exactly where you went over. It shows here that you went over on software. You know, your software budget is $500 a month. You're spending $700 a month. Well, okay, well, what happened is I invested in some new software. So now it's going to be $700 going forward. So what do I got to do? I got to go in and adjust my budget for the remaining months. Instead of it being $500, now I got to make it $700. I got to make the math make sense because I can't just add $200 a month in expenses and not have the income to pay for it. So you got to know what your break-even is. If you add a $200 extra cost per month, it's going to change your break-even, right? It's going to change what it costs you per hour, per day, per week, per month to run your business. So you got to go in and recalculate all that. You may have to change your prices to pay for it, or you may just need to know that you're going to make a little bit less money, right? Because this is an investment. So you just got to do the math, guys. You just got to figure it out. Set it up so it's easy to look at. Again, if you have to do math, then it's not set up right and you're not going to follow through with it. Nobody wants to look at a report and then spend the next hour doing math to get the information that's going to be helpful. Your profit and loss should be set up perfectly so you have all the information without even doing a single thing of math. Now, if you want some advanced KPIs, sure, you may have to do some math. But for basic running your business, what's your revenue? What's your gross profit? What's your expenses? What's your net profit? That's all you really need to look at. And then do comparisons. So that's the five tips. Let me review real quick. I know we probably forgot we went a little, I don't know how long we've been going. How long have we been going? Almost an hour. Wow. Number one, separate your bank accounts. Specifically have a customer deposit. Number two, stay lean as long as possible. Number three, collect your deposits and stay ahead of the cost. Your profit should always be ahead of cost. You should always be paying, the customer should always be paying for things, not you. Number four, save money, guys. Stop spending all your freaking money all the time. And number five, review your profit and loss regularly. Now there's other things like your balance sheet, cashflow statements. There's lots of other reports that you should be adding as well. But what I'm giving you here is like the minimum operating, you know, a healthy operating business requirement. Like this is the minimum. There's obviously way more stuff you can do, but these are the minimums you need to implement in order to have a healthy business. So you should be looking at your balance sheet. You should be looking at your... cash flow forecasting, right? You should be looking at a bunch of other stuff, sales performance, closing ratio, you know, all of these things you should be looking at. But from a money making perspective and a money and saving perspective, these are the five things you need to be doing at a minimum in order to have a healthy business. So financial mastery isn't about getting lucky. It's actually proven, intentional, thoughtful actions, right? It's about becoming disciplined. Enough to control the money instead of letting the money control you, letting the temptations of extra money control you, and just reacting to things. Most contractors don't need a bigger business first. They need to have better financial habits first. And the result of healthy financial habits is you will build a more profitable business. You don't build a profitable business by adding and scaling expenses. So if you can't control the money at your current size, where you're at, whether you're one man,15 man,20 man, whether you're doing 100,000 in revenue or 100 million in revenue, if you can't be in control of your money at your current size, then getting bigger doesn't make it easier. It actually makes it worse. And that's just in general. Anytime you add more complexity, it makes things harder. So getting bigger is not going to fix your money problems if you don't even know basic. financial requirements. Getting bigger is only going to screw you. The bigger you get, the more opportunities for failure. So you have to be on point with your financial discipline. I hope you enjoyed this episode. I hope it was useful. If you got anything out of it, anything at all, please like and share it on whatever platform you're listening to. Leave a review. If you have specific podcast requirements or topics you want me to talk about, you can send me a message. Or you can even leave a review about current podcasts. And then within that review, you can even suggest future things. That's okay too. Reviews help. It helps get the word out. It actually motivates me to go do more content, more videos. I think we're on like two, I don't know,276 or something. It's crazy to think we're coming up on 300 episodes, but that's the best thing you can do is share it. If you have the opportunity to share it, like it, leave a review. I would certainly appreciate it. Guys, thanks for hanging out with me. You can always find me on any of the social media platforms. You can search for the Hammer and Grind podcast or go to the show notes to learn more. And remember, until next time, profit is not a dirty word.