Contractor Cuts
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Contractor Cuts
How to Grow a Contracting Company: 500K to 2 Million
Clark Turner and James McConnell explore the crucial transition phase when growing a contracting business from $500K to $2M in annual revenue, identifying key system changes and mindset shifts required for sustainable growth.
• First major transition: creating documented systems and processes to duplicate yourself
• Basic understanding of QuickBooks and proper financial categorization becomes essential at this stage
• Your product shifts from physical work to the customer experience and project management
• Marketing should only be accelerated after you've built efficient systems that can convert leads
• Weekly one-on-one meetings with employees create space for process improvement suggestions
• First hires typically include a project manager and part-time bookkeeping help ($200-300/month)
• Most contractors try to spend on marketing before having systems in place to handle new business
• Process documentation is crucial before making your first hire to ensure consistency
Check out prostruct360.com and hit "contact us" if you'd like to talk about growing your contracting business. Next week's episode: what makes a good PM versus a great PM.
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Welcome to Contractor Cuts, where we cover the good, the bad and the ugly of growing a successful contracting company.
Speaker 2:Welcome to Contractor Cuts. My name is Clark Turner and I'm James McConnell. Thanks for joining us again. Backed by popular demand, james decided to join us this week, so welcome back.
Speaker 1:It's good to have you. Yeah, thanks, I do what I can. It's good. It's good to have you. Yeah, thanks, I do what I can.
Speaker 2:It's good. It's good. Everyone, I think, does what they can. It's great.
Speaker 1:I hope people do what they can.
Speaker 2:All right. So today we're talking about growing a company. Last week, emery and I talked about going from startup to the first 500K of revenue, where a lot of guys kind of get stuck in that spot at the 500K mark because they're doing the work themselves, they're swinging their own hammer and they're trying to get out of the truck and grow beyond that. So once, if you didn't listen to last week and you're kind of in the startup early stages or the sub 500K of annual annual revenue stage, go back and listen to last week. This week we're talking about growing from 500k to 2 million. Uh, we, we well, inside of pros, uh, the, the whole pro struct system, we kind of have four different levels. It's the, it's a zero to 500, the 500 to about 1.2, I'm sorry, 1.5, 1.5 to 3 and then over 3 million. And the reason is those stages your hats are changing as to what you're doing, what you're responsible for in each of those stages. So it's almost a whole new job that you're running in each of those stages. So today we're talking about the second one, which is 500 to 2 million, 500 to 1.5, somewhere in that range.
Speaker 2:One thing to note before we jump into it too level two is what this is. Level two usually has, from our research, a 17% net profit as a company, and so we're looking at that as the number. When you're under that it's a lot higher. Once you get over about 2 million you're dropping down to about 10% net profit and this kind of when we do intros and front-end trainings with new coaching clients, we kind of walk through this. As to the percentage of markup doesn't matter as much in the beginning and most guys are too low on that because they're making their money from the labor and the profit and so the profit doesn't. It could be at 10, 15%, that's fine. But as you grow the company, you have a lot more overhead that starts increasing. Your insurance goes up, you have truck, you have an office. Eventually you have a bunch of things that start costing you money employees obviously and so with that coming in, your profitability and your net profits start dropping, and that's okay, that's natural, that's normal.
Speaker 2:I'd rather be doing 10% net profit at 5 million a year than 20% net profit at 1 million a year. Right, mathematically it makes sense. So for the record, I would too. Well, you would. That's great, that's amazing. Thanks for putting it on the record. So on level two you were entering it in at 500 K and when you're coming into that level you are really no hires yet you know you don't have an office. You don't have that. During this phase the 500 K to 2 million we are making our first hire, our first project manager is being hired in this phase. We're usually getting a small office towards the end of this phase and we're trying not to buy vehicles and we'll probably eventually get some sort of part-time help in back office accounting something, uh, whether it's outsourcing your quick books where we're starting to offset some of the office work by the end of this phase.
Speaker 1:Um, which is more uh, affordable than I think most people might think. Yes, yeah, Well, and like two 300 bucks a month can get you somebody to do your books, not like you're doing your books, but like on a monthly basis.
Speaker 2:Check in look at it, take get an extra set of eyes on it, coach you a little bit on the quick book side of why don't you categorize stuff this way and help get that organized. And that's part of what we're going to be talking about today is how do we, in this phase, what are we changing? And I think you're hitting the nail on the head in terms of most of the time, we're not paying attention to that. When you're just getting started, you're not paying attention to the numbers, you're not categorizing expenses, you're not tying materials to jobs. And so in this phase I think this is the hardest phase of a company going from the 500 to a million, 500 million and a half, because you're going from strictly project manager, slash handyman, slash painter onsite, to a whole new set of skills which is organization processes and procedures, which is organization processes and procedures, understanding accounting, which most people don't have. A natural. If you're in construction, often you're not mathematically minded. Some guys are, some guys aren't. More geometry, more geometry.
Speaker 1:You're a geometry mind.
Speaker 2:Understanding QuickBooks takes a certain skill, and even if you don't have it, you can still learn how to do it, even if you're not good with it.
Speaker 1:Here's what's annoying about QuickBooks and accounting is you'll look at one report and a positive number means negative, yeah, and vice versa. You go to look at another report and the same number, like what's up with that?
Speaker 2:Yeah you can click cash or accrual and it will change your numbers by six figures and it just doesn't. There's so many different things that that, if you don't understand how it works or if you're not doing it right, you're miscategorizing things, putting stuff in the wrong section. You're putting labor, let's say your cost of goods, labor. You're putting down your expenses and so all of your numbers are off because it looks like I have no idea what your gross profit is.
Speaker 2:Yes, and so it affects everything. So, all that being said, guys often will, when they're doing, when they're under sub 500 K, are just kind of doing the minimum and throwing stuff in there because no one's getting audited at that level. Once you start growing, you've got this ball of yarn that you've based the company that you're trying to grow on top of. So one of the things in the coaching side that we do often is how do we unwind that ball of yarn to where it's not knotted up and difficult to understand but it's very open and you can see everything? So, that being said, if you're going into this phase, if you're trying to grow to the next level, having a basic understanding of QuickBooks, having a basic understanding of how to run QuickBooks, how to utilize the software, to where we're sending all the stuff to QuickBooks that needs to be done and keeping everything organized, has to start as soon as possible.
Speaker 2:One of the big things, too, is is wearing two different hats, right? So the way that you've been running a company at 500 K is one hat that you still have to wear. The next hat that you're you you're putting on, that you haven't worn before, is this organizational side. It's duplicating yourself to where other people can start being hired in to do the stuff that you are doing. And you can't do that unless there's processes and procedures of exactly how you do your job, because the way you run QuickBooks when you're off on your own versus the way I run QuickBooks might be two different ways. I can't train you on QuickBooks unless we have the same vernacular and the same categorization, and you understand how I want it. Unless we have the same vernacular and the same categorization and you understand how I want it. So if you're coming in to do QuickBooks for me, we can read reports together the same way. Does that make sense?
Speaker 1:Yeah, because if not, you end up with a bunch of new line items in your P&L that are satisfied by old line items. You're just misunderstood in the trade-off of okay, now you're doing this, and all these new things add up and then you look at your P&L and you're like where the hell did all this come from? Yep.
Speaker 2:Yep. So I think one of the. I've got three main hats that I wrote down that you're wearing, that you weren't wearing before. The first one is duplicating yourself, which is systems and processes refining. We're writing down how I do things. We've been focusing on QuickBooks, but how do I run estimates? How do I run? What's my process for getting someone an estimate quickly, efficiently, without spending 10 hours on one estimate for free? How does that work?
Speaker 2:And when I'm running at a 500K a year size company, I can spend a little more time on estimates, cause I just need to land one or two this month, right, and and so I can I. My time is less valuable at that stage and the the inefficiencies don't add up when you're that small of a company. Once you spend two extra hours on an estimate, if you're doing two to three in a month, uh, that's not a big deal. If I'm losing three hours per estimate and I'm doing two million a year at that level, I'm doing 10, 20 a month, and so at that point you know maybe not 20, but you know what I'm saying. When I'm doing that much more and I have I have to get way more efficient with my time or I'm going to lose it. And so how do I land a job with spending less time on an estimate to where previously I was spending way more time not landing jobs right? How do we get efficient with estimating and those types of processes, software?
Speaker 1:line items duplicating jobs.
Speaker 2:I think that's right. I was a new guy coming into coaching literally two days ago. We were on a Zoom and he kind of understood our our job templates. He was like, oh, this is how I'm going to save time. Cause he was looking at it, cause he was like how long I was showing him one of the estimates that I'd written up and he was like how long did it take to write? I was like 20 minutes. He was like no way, no way, that's a that's an hour long to write that. And I was like no, let.
Speaker 2:We went and looked at the line items that we'd built, the job templates that we built, and it's duplicating the work that you've already done, as opposed to redoing an estimate the same way every single time from scratch. So there's a lot of efficiencies that you can learn that we help with on the coaching side if you're in coaching. But even if you're not in coaching, even if you're not with ProStruck, how are you doing things to where we can duplicate it, make it more efficient and also save time and increase our product? Right? This big transition is transitioning from my product is me putting paint on your walls to my product. Is the customer service and how I'm giving you the paint on the walls Right. So understanding that process transition is I am not selling a renovation.
Speaker 2:I am not selling a new construction. I'm not selling an addition. I'm selling you the experience of me being your representative and getting this done right and switching it from hey do you need a new kitchen? To hey. Let me help you understand and experience a kitchen renovation that's enjoyable, that that is efficient, that is ran well, that is as least headache as possible. See, well, we don't really need to do marketing.
Speaker 1:We're all word of mouth and this kind of goes to like your time, the value of your time. Yeah, where it's like you need to, when you, when you're trying to grow, you need stuff coming in more often. Yeah, um, it seems like it's one of those sneaky things that catches up to you where it's like where's the work? Where's the work? Well, I'm gonna reach out to all my people. You, you should have a system in place where you don't have to reach out to all of your people. There should be nets out there. There should be lines in the water. How does that look when you're coaching people? Like, how often people don't have any of that.
Speaker 2:You're. You're jumping ahead on my notes. That's exactly what we're talking about next. Lightning has just struck my brain, so again, that that's that's the next hat to wear is. Last week we talked about three different circles of of customer. You've got the people you know, your family, your friends, the trees you shake when you got to get something, sending out a blast email to the people. I know my men's group from church, my uh, you know that sort of place where you're going to find Uncle Pete.
Speaker 1:You need your house painted again.
Speaker 2:Yep, that small circle. When you're, when you're in the 500 K and below category of a company, that's who you're constantly getting work from and that's enough. Usually, if you have any sort of friend group and expanded family around, you're going to get enough work to survive. The kids call that a community. A community that's a. That's a great name for it. I think we should coin that. So that's the inner circle.
Speaker 1:It's like a group of people TM.
Speaker 2:The next circle out is friends of friends. Hey, do you know anybody? Hey, your neighbor's looking to get a renovation. I'm referring them to you because my neighbor, that sort of thing To where I'm trying to reach friends of friends, I'm trying to reach the one step removed from that community. And then the third group is the general public, is stranger danger, stranger danger, and that is the part that you're not reaching at 500k. That's where the marketing comes in. That's where the faucets that we always talk about is how do I get a faucet that I can turn on and off? How do I get Google ads and how do I do the meta ads and that sort of thing that need to happen to get that? Because what we're doing is we're trying to find lead sources, and creating your own lead source through marketing is a huge, is a necessity We've.
Speaker 2:I think one of the things we did wrong in growing the company in Atlanta was we had leases that were specific companies that were sending us work and that was great. I mean, we had some large companies that were sending us a million dollars each per year of renovations to do for them. That's great. Those were our faucets, where we can literally send an email and get three more properties and renovate. Those were our faucets, where we can literally send an email and get three more properties and renovate. The problem was one went out of business, one went internal with their crews, and the third one literally just squeezed us to death, to where we were losing money. That being said, we had zero control over that faucet.
Speaker 1:Someone else was holding the faucet, holding the hose, watering us, and they had the full control, they had the kink, they had the hose on the kink and you're like it won't turn on. Yeah, exactly that was it.
Speaker 2:That was it, and so we thought we had these lead sources coming in and then COVID hit and literally our company got cut in half in revenue because all of those either stopped buying houses to renovate or went out of business. And so we I mean we lost I think it was like $300,000 a month in revenue overnight because all of our leads were coming from these sources that we didn't control the faucet Right, and so I think that was one of our flaws in building that company in Atlanta was we didn't have the marketing side built. We had a false faucet coming in. Now I'm not saying don't say yes to those faucets right.
Speaker 2:Like if you can find a remediation, if you're a renovator and you find a remediation company that comes in and dries out a basement and someone has to do the putback, that's a great lead source for you, right? They're going to send you business or two or three K loans or VA loans to where that's kind of more of a a lead source niche that you're servicing. And that's one of the things I have on my notes is expanding your offerings to stuff like that, uh, to where we're doing a little bit more of the same stuff but in kind of finding other avenues of people that we can service? Yeah, but at the end of the day, the two hats that I want you to start wearing is hat number one how do I duplicate myself and my processes and systems? Hat number two how do I do marketing and find new lead sources to go beyond my first two circles?
Speaker 1:Yeah, one thing and I feel like we talked about this in a previous podcast the two-fers Like when you're, it seems like you're eating an elephant, or what's the term Eating an elephant one bite at a time? One bite at a time? Yeah, when you sit down to do one of your processes, like, it might work to just like write down what are the things I'm doing throughout the day of the week and then which of these are processes that I'm continually doing. You might not consider it a process, but guess what, it's a process. And you sit down to do that one day and you take an extra hour and then you write it out. You, you're on a Google doc, you, you link stuff so that you know exactly this is the process. And then you have that and you can refine that over time, but it's as simple as that is putting down what the heck are you doing to execute this task. That's your process, yep, and then you can make that better, but you have one, it's just a matter of putting it down.
Speaker 2:When you start coaching with ProStruct, I give you a 10-step project management process from first contact through final invoice. But what I want you to do with that is don't just take our process, take it and refine it through your ways of doing things. So I want you to take notes, I want you to write down how you do things. I want you to start building out your specific, because everyone's different, every company is different, every city is different, every individual working inside of a company processes things differently, and that's OK. There's not one way to do it. There's thousands of ways to do an estimate what's the way that you do it and what's most efficient? That's the coaching side of what if you did it this way, the coaching side of what's what if you did it this way. You know we've tried it that way. That doesn't really work because you're losing out on this, and so it's refining those processes together specifically for you and your company and how you run.
Speaker 2:So then the next guy coming in and this is one of the biggest things that for guys like us that are running companies that have kind of naturally done it and or and have just kind of grown up doing it a certain way what you think is common sense. The next guy you're hiring doesn't know that common sense, and so you end up calling him that guy's an idiot, he's a moron. Why would you even do it that way? Because if he knew how to do it perfectly, he'd be running his own company right. And so let's lay out those processes to train them.
Speaker 2:To say I'm not going to be responsible for your idiotic decision because I've got an exact way that I want you to do it, and so now all I've got to do is hold you accountable to our process that we've agreed upon, as opposed to answering every single question you have throughout the week where you're picking my brain constantly, because my brain is the only way that knows how we're doing things in this company. So building those processes is absolutely number one, and what you said is the best way to do it Writing it down, refining it, having a note in your iPhone where you just kind of start jotting that stuff down in the different processes that you have. It's a great way to do it.
Speaker 1:And let me give just like a little nugget for those that are starting hiring and trying to create these processes. The right hire is going to probably have questions about some of your processes, or at least some of the pieces of your process. And hearing, hearing, those is good. But for me, a lot of the times I'd get to a place where I'm in the middle of something it might be a season or a week or what and it's like, hey, I'm really, this doesn't, I don't like this or this doesn't seem to work, yeah, and I'm like I don't have the space right now to dig into this process with you. I know that this works. It might not be perfect. So my nugget is, if you're in that position, you've made a hire and you have some conflict because they're pushing against some of your built-in processes. Something I've said to multiple guys is write that down and send me that in an email because I want to look at that. I don't have the space right now. Let's run the process the way it is.
Speaker 2:You're probably right.
Speaker 1:I'm sure there's tweaks that we can make for now, let's do it the way that I've put it. And if that, if that fails, that's on me. That's on me, but I don't have the space right now to do that instead of just follow the process Yep on me. Yep, but I don't have the space right now to do that Instead of just follow the process.
Speaker 2:Yep, crab, yep. Well, and I think it's this is one of the most important things when you're making a hire is to have a weekly meeting with them, one-on-one, where they could bring you that stuff to, where, instead of death by paper, cut five days a week, where they're asking 17 questions a day or trying to give input or trying to change how we do things, and you're just like man, I'm, I'm, I feel like I'm playing tug of war here you say, listen, we're going to follow these processes and we're going to make a defined decision to change it when we, when we think through all the aspects of it. Right, so write that down. Friday, when we meet for our pal meeting, let's sit down and kind of cover that. At that time I've got space for you there. But having space for that person to bring it to you is as important as what you just talked about, because I think a lot of guys in our position who have employees that's a great idea Write it down and send it to me in an email.
Speaker 2:It's gone and I'm never going to approach it again and for me, I forgot about it. For the guy that sent me that email, I was like he just ignored me. He just doesn't care about what I have to say, right, and there's this whole tension all of a sudden because I don't care about them and I don't value their input. But instead they've got a spot on Friday to sit down and let's talk through it and I'll say I'll shoot holes as to why what you're saying doesn't work and why I don't want to do it that way. And maybe we can get there once we have more cash flow.
Speaker 2:Maybe what you want to do works, but we don't have that type of cash. I mean, I remember my HVAC company. He wanted to spend, like I think, $50,000 to $60,000 on just Hats. Hats, yeah, true, but like to stock, right, we just want to have a stock to get super efficient to where we can have this inventory system. That's a great idea and we will do that. I don't got 60K sitting around just to spend on stock and so stuff like that, doodads and whatchamacallit. So, that being said, yeah, I think having that space to start refining that and being open to refining your processes and being able to hear that, feedback is good, yeah, don't have the posh.
Speaker 1:open to refining your processes and being able to hear that feedback is good, yeah, Don't don't have the posh, you just need to check yourself. Like I think this is a spot where you've got the gumption. You're like all right, let's do this. And you do need to check in with yourself periodically, cause you can't do it on your own, like you need help around you. That's why a lot of people get stuck in. This spot is like you're yes, you're driving the ship, but you need you need sailors with you. You might be the captain, but you're not gonna. You know, I don't know enough nautical terms. This is a terrible analogy to get into. I don't know anything. It's like flying a spaceship boom jibs and starbirds.
Speaker 2:But you can do a small sailboat on your own and run around and do all those different jobs that need to happen. If you want a bigger boat, you got to have a crew and the crew has to have a way of how do I do my job, how do I execute that?
Speaker 1:But you need to check in with yourself when you're having your employees push back on you on certain things, and it's so that it's not a conversation of, yeah, let's sit down and hash that out and let me tell you why you're wrong. Yeah, like, be open to the possibility that this person might have a fracture, an understanding of something that you don't. Yeah, or a perspective that's really valuable, that you might not even be able to understand. Like, just be really curious.
Speaker 2:A great example of this. I remember one of our PMs once, who is not an outside the box thinker sat, sat me down and really wanted to run a sale. That was 5% discount and we could build it into the invoice or the estimates and like had this whole plan? It was, it was one-on-one level marketing, which for him it was the first time he was stretching those muscles. And so instead of like, yeah, we've, we're beyond that, thank you. Instead of shutting that down, it's like tell me more, how would you do that? Let's, let's talk about what that looks like, what if we? And really, even though in my head it was like this is kind of basic, basic, elementary level, what he's talking about Pumpkin spice latte. But I want to like nurture his thinking and I want him to keep bringing stuff and building this company because, instead of me being the main guy, because I own the company and so everything has to be done through me, there's only so much capacity I have and so, no matter how you know, if you don't have an ego, it's saying hey, great, you're good at this, why don't you start running that? Hey, let me nurture this in you so you can start understanding that and help building the team around you to get to where you need to go. So I think that's that's a little tangenty, but I think it's good stuff.
Speaker 2:The the question that you asked about marketing how many guys come into coaching I wrote this out how many guys come into market, into coaching not knowing that? I think it's the reverse. I think most guys come into coaching saying I need to spend money on marketing, I want to spend. I'm running ads. I put it, I placed something in the paper. You know, I had a guy that was spending a couple hundred dollars a week on a Google AdWords and they know that they need to be doing something. They don't know how or why or what.
Speaker 2:Right, and so one of the most important things that I say to when they're coming into coaching at this level, I'm saying we're pausing on that spend. We're not going to be running after spending money to fill the top of the funnel until the rest of the funnel feeds those clients to say yes, I want a 70 to 80% close rate on my current clients or any client that comes in. I want a product that I could sell them. I want processes to how the estimates go to, where I can just then pour gas on that fire, and that gas is the marketing, and so most guys are trying to pour gas on a fire that's not lit yet and it's like you're just wasting your money. You're going to blow yourself up, you're going to blow.
Speaker 2:Literally, you've got a leaky bucket of money just falling out Because you're literally paying to promote something that isn't a product. Yet you don't have a product built. Yes, you can go paint a house and, yes, if someone clicks on your ad and calls you, you might get an estimate out of it. But if you have a 30% close ratio or your pricing's wrong and you're too cheap and you're not actually making profit in the company, or you're super inefficient with your time, all you're doing is pouring gas on problems and making problems bigger, problems that are going to really hurt you in the long run. So day one, I say no marketing. I want to build a product. I want your processes written out. I want to know exactly what we're selling and how we're selling it and why we're selling it. I want to know when someone goes to your website, how are you going to land that customer, from step one to step 10, every single step along the way of landing that customer and having a process of how we call them back. When our office hours, how are you time blocking to do your estimates? How are you doing your desk estimates? How are we setting up? All of that stuff has to be laid out and then once we have a product that we can sell that is duplicatable, then we pour gas on it, right. And so it's kind of reverse that Most guys come in wanting to spend and I'm like, stop, we're not spending on marketing. Marketing doesn't solve anything. It just pours gas on stuff and if you've got a fire that's out of control, gas doesn't help. So that that's kind of the marketing side is we need that product, we need to be able to duplicate you, we need to be able to have something that our product that we're selling is the customer's experience, not a renovation. Once we have that defined and how those processes work, let's start testing some ads out and we do marketing.
Speaker 2:We do marketing for companies ProStruck does, and it's a whole different product that we're offering to, where we help them kind of set some of that stuff up, do websites, do other things like that. But there's also like in the coaching, we'll do some free stuff and part of the coaching is looking over that stuff, kind of sharing what we've done that works and doesn't work. But again that part, I want to slow people down on spending on marketing until they've got everything in place to sell right the product that they want to sell. So that's about it, that I've got right Understanding, when you're growing to this level, the different hats you have to wear, and understanding I'm going to build time to work on my company not just in my company and so starting to get to a spot to where we're laying out hires, our hiring process, how we do hires, all of that, job descriptions, laying all of that stuff out before we get to when we need that hire, cause most guys, when it's time to hire, they just great, let's hire someone Right. And they just go off and hire the most accessible person that can run a, a tape measure. That guy's going to be it and he's going to come in and he's going to mess things up and now we're back to square one because I'm losing clients, losing money, and I'm now doing double the amount of work that I was doing.
Speaker 2:So, speaking of, we're going to talk about that next week. Next week we're talking about a good PM versus a great PM, when you're making a hire for a project manager, what's good and what's great. So tune in next week to that. If you want to talk to me or anyone else here, please reach out to us. Go to pro struck three 60.com. Uh, hit the, contact us. I'd love to talk to you about growing your company. If you're interested in any of this stuff, I'd love to have a free call with you. Uh, go there, sign up. Love to talk with you All.
Speaker 1:Right, you can check me out on my Zanga. It's James dot Zanga at HTML. Yep, uh, my space, my space.
Speaker 2:Great, we're good, all of it. Woof Aim, all right, thanks for listening. We'll talk to you next week. Bye, bye, bye, bye, bye, bye, bye, bye.
