Contractor Cuts

Part 2 - Pay Yourself Right: Buckets, Pay Types, and Staying Profitable with Profit First

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We lay out a simple, construction-specific system for paying yourself with discipline using a three-account waterfall, then dive into owner pay, distributions, and the rules that keep taxes protected and jobs funding themselves. We share red flags to watch and a weekly cadence to build healthy reserves and reduce stress.

• profit first adapted for construction cash flow
• three core accounts with weekly sweep rhythm
• strict rules for taxes, COGS, and personal pay
• owner wages versus owner distributions clarified
• milestone versus guaranteed distributions compared
• pricing structure that funds labor and profit
• equipment treated as overhead, usage billed on jobs
• red flags on margin, overhead creep, and low reserves
• tight-cash playbook to freeze draws and cut burn
• weekly and monthly finance cadences that compound

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SPEAKER_00:

Welcome to Contractor Cuts, where we cover the good, the bad, and the ugly of growing a successful contracting company. Welcome back to podcasts.

SPEAKER_02:

Welcome back to podcast world.

SPEAKER_00:

I'm Ploop Turner.

SPEAKER_02:

Thanks for joining us. Welcome to Contractor Cuts. I'm Clark. That's James. If you don't know us, that's on you. All right. So this week we are doing our second week of financial management, how to pay yourself. Paying yourself. Uh if you didn't listen to last week, this is one of those that I really don't want you to listen to this week until you listen to last week. Last week we talked through. In fact, he forbids it. I forbid it. You have to pinky promise that you listen to last one before this one. Now, this one is once you get everything organized and you're looking at your numbers, you can see your gross profit percentages, you can see how much your revenue is. You can you have a game plan to pay yourself as an employee of your company and a separate payment as owner of the company. That was last week how to set all that up. This week we're talking about paying yourself the buckets, the the how to pay, the what type of pay. We're gonna dive into how we do it in our companies. And James does it differently than I do it, and there's not a right and wrong. We're gonna talk about each of our styles of distributions and the pros and cons of each one. Um, so I think it'll be a good one. Thanks for joining us. So to the first spot that we're starting at is gonna be the five different uh, and this is this is kind of a book report on the Profit First uh book. Um the main thing about Profit First, uh, if you've read that book, if you haven't, I've I've I should be getting uh commission on it because I push it so much. But it is just a great simplistic way to look at and and really it struck and struck a chord with me when I read it because it was a book that I wish I had in the beginning, because I've always put my profit back into the company. So I never took out a lot. I always took out the minimums and I I I grew the company off of the profits, which was good, but I also didn't have a game, I was too risky in on the first 10 years of this company. It was, and when I say too risky, I didn't plan for the bad times and I didn't put money away for the bad times because hey, if we're doing 100 this month, we should I bet we could do 150 next month. And if I can get us to 150, then we could do two. And so all I got to do is keep putting money back in to grow, because then if I put all this money back in, I'll get double it back out. Right. And so I was a full-time investor in this company, which is a good thing. I I want to be my own investor, but I was risky with those investments, and some of the risk didn't pay off because I was flying too too close to the sun sometimes. Ah, it cares. Yes. And so it it's it's something that if I in retrospect, the what we're about to talk about today, if I would have done this, it would have built in self-control around money as the company owner, which I learned the hard way. Uh, I've been six-figure mistakes and costly, costly things that through today I'm still paying for from bad, bad decisions 10, 15 years ago. Um, that hopefully I'm out of very soon. But that being said, this is a way that I want you guys to set up your companies, your finances, and to view it. Um so I'm gonna cover the five buckets, the five bank accounts that they say to use in profit first. I'm gonna suggest for the smaller companies, if you're under six to eight million, I think three bank accounts is a better way. I'm gonna do a kind of a construction spin on his profit first because it's not so black and white in terms of dollars coming in and out of a company. Um, you know, there's if you're in a marketing company, we create, we invoice along the way, you pay what we're doing, and it's in and out. There's no cost of goods of materials that you're buying. There's not uh big deposits or big final draws or bank draws where I'm getting paid 60 days net terms to where I don't see my money for like there's a lot more moving numbers in construction, which is a bad thing, but it's a it's a the devil you gotta dance with, right? Like you have no choice. It's right here. It's the only way that you can do business. But you want to dance or not. But it really sets you up to fail if you let the numbers run the if you let the dollars coming in and out decide the company. The biggest failure I see in in construction companies that I coach is the pot system, which we've talked about before. All the money comes into pot. I spend the money out of that pot, and I hope that there's money left over. And part of that spending is I take some out and I gotta pay me, I gotta, I gotta pay my bills. And so at the end of the month, oh, this pot is empty and I still owe that sub 10 grand. Hey, buddy, I'm gonna get you next month. I promise doesn't work. That guys can't survive on that. And that and then they're suing you or putting a lien on your client's house, and it just goes downhill from there. And so as soon as you start operating that way, it that's how you have to operate in the front end. Uh, it feels like that guys think it's just, I know, I I invoiced the job, I went out and did it, I got this money. Okay, I gotta go do another job. I spend out of that money, I invoice for the next one. And when you're doing one job at a time in the beginning, it is it is the the system because it's like all the money in my account is for this guy's job, and I spend the money on his job. Then you start doing two, three, four jobs, and all of a sudden my bills are stacking up, and I borrowed money from my uncle because I needed to get this stuff done, and now I got to pay that back, but that's coming out of what I need.

SPEAKER_00:

Or this guy paid you, and this guy you're gonna invoice next week, and you're like, oh, that's great. Then you invoice that guy next week, and he's like, Well, I'm not paying you because X, Y, Z, and you get into a dispute, and that money actually doesn't come, and when it does come, it's$7,000 short. Yep. And now you are literally having to use other people's money to pay for this guy's job.

SPEAKER_02:

Yes, yeah. Well, and uh it it feels like by no fault of your own, right? Like I did everything I was supposed to do. This guy says, Well, I I remember one client early on, I did the work, it was an investor, I did the work on his house. The end of the job, he was like, Cool, awesome. Like he owed me 30K. Like I did, knocked it out real quickly, did everything. It was a flip. Hey, I need to get this on the market. At the end of the job, he's like, Hey, as soon as it's sold, I got you paid. I was like, What? He was like, I don't have the cash. As soon as it sold, I I got you paid. Oh, thanks. Yeah. And so I'm literally like I didn't know I was an investor with the and so I like I I try to pull out my my my big guns. I'm like, well, I'm gonna put a lean on now. She's like, Yeah, please do. We'll pay, we're gonna pay you at closing.

SPEAKER_00:

And I'm like it was yeah, it was it was uh Say his name on the I'm not gonna say his name.

SPEAKER_02:

But and I mean this was even before Jared, it was when I was one man show and uh he was out of state investor. Um and I I mean it was when I was probably making$35,000 a year doing this. And so like he owed me, I mean, I I don't remember the exact number, and it wasn't it was probably 18 to 20. I don't think, but again, that was eight-month salary for me. Yeah, right. And like I I literally had to go to people and borrow money to be able to fund this. Um anyways, all that all that being said is we have to have a plan. And this also ties in, I mean, everything we do ties together. This ties into the way we invoice, right? We talked about this a number of weeks ago, probably a couple months ago now, about how we invoice this week for what's getting done next week. Because if he can't pay that, like if I would have been doing running the company how we do now back then, I would have never started that job. But instead, I trusted him. Yep, all right, get going, I'm gonna get it done. I can knock this out in two weeks, make so much money, um$20,000 job, and just get screwed. But so all of this ties together with that. But if you're invoicing the right way, like we always we always preach, it's gonna allow you to manage your money and not let other people borrow from you unexpectedly like that.

SPEAKER_01:

Yeah.

SPEAKER_00:

So let's go over the can I Yeah, please. At request one thing. Instead of running through all the five, can you give us the two that we're not gonna be talking about first?

SPEAKER_02:

We're gonna be doing all five. I'm just combining. Oh, okay. I'm I'm grouping them. So I'm gonna lay out how you do five, and I'm gonna group a couple of them, and then as you grow bigger, you can separate them out. Okay. So let me I'll just run through them, just name them off, and then I'll talk about what I'm saying. Okay, it'll make more sense. So the five that they they suggest in profit first is an income clearing account. So all the deposits land in that account. You're not spending money out of it, it's just where all the money comes into. That's number one. Number two, a cost of goods account, which is materials and subpay come out of there. Where all of our expenses to cost of goods only comes out of that second account. Account number three is you're operating an overhead account. That's where I'm paying my rent, my vehicles, my admin, my software, my insurance, um, you know, all of all of the non-cost of goods expenses, all of my overhead, my my pay as a project manager, all coming out of that account. Number four is our taxes account, where we're pulling the taxes out of the profits and putting it into that account. That's the untouched, separate bank account. No, what one of my keys to the tax account, no online access. You can put money into it. I can't pull money out without going in person. That way I can't just borrow from it one night at 11 p.m. when I'm stressed. Uh, and then number five is going to be owner pay and retained earnings. So those are the five that they suggest. And in a large-scale company, when you're doing 10 million plus a year, those are really, really good accounts to have set up. Um some guys even, and again, this is if depending on your bank, and if you can do sub accounts within an account, do the income clearing separate it out in sub-accounts by job. Right. If I'm doing if I've got four jobs that are all six figures running, I'm gonna have sub-accounts where I'm gonna deposit that money into the account and move it right into that sub-account every single time. Again, the question is how much extra time do you have for accounting? Once you have an office manager or someone managing your finances day in and day out, this good, this is a lot easier. But as a one-man show, a three-man show, a four-man show, it's very difficult to manage five separate accounts because of the construction industry and the money moving. The way that we do the invoicing really substitutes the need for some of this. And that's why I'm okay with combining some of these. And that's what that's what I'm about to talk about. So when I say combining, I I really combine the first three: the income, the cost of goods, and the operating and overhead. When I'm getting started, the the three accounts are those three combined. And then my second account's gonna be taxes, and my third account's gonna be the owner pay and retained. I really like it that way. Uh, and then that's that's kind of the three accounts separated out. If you start growing, you can separate it into four and separate the incoming uh and the clearing account and your cost of goods. That way, I'm only I'm I'm purposefully spending set moving money from my income account into my cost of goods tied to that job. And we'll talk about that in a second. But the the main reason that I combine those first three, the income clearing, the cost of goods, and the operating overhead, is because of the way we do our invoicing. If I'm invoicing this week and I get payment by Friday, I'm not going to pay myself until next Friday, but I have all of my cost of goods go out immediately over the weekend and early next week for materials. I'm queuing up all my subpay by Tuesday, Wednesday for labor. And then by Friday, whatever's left in the account is pretty much that third account. It's my it's my operating and overhead that I can pull out of. So by the end of the day Friday, we're we're doing incremental weekly uh financials. You know, money in Friday, money out Monday through Friday. And by the end of the day, Friday, it's sitting there of that's pretty much I can move that money into my taxes and my owner pay and retain earning accounts. So that's why I say three accounts when you until you get to a size that we have someone to actually their full-time job is managing the money, managing uh pay. I mean, we got you know, when we got uh Melissa and um eventually uh Emily were doing it, but like we all of the Home Depot accounts and Lowe's accounts, and we need to move this around to that, and if this is going that, this is coming due. We need like all of that stuff is a full-time job for someone. That being said, until you get to that spot, I'm okay with having those three accounts. Having the one main account, the money comes in on Friday, we spend through the week for what just came in, what's going out. And I want that account to have kind of a base number. We keep it at 10 grand. But by the end of the day, Friday, I'm funding the tax account and the owner pay and slash retained earning accounts. And that way it's a one-week cycle on all your cash. It's and it's just kind of into one account, spend out of it, move it out of that account. That makes sense. So again, as you grow, those separate five make sense. I I've I've tried this, I've tried it as a one-man or three-man show. Um, it just was nothing but I ended up abandoning one account because money was coming into one account on Friday, and I had to start buying materials Friday. And so I was literally waiting for the deposit to clear before I could move it over to the second account for my cost of goods account, and then I start spending out of there, but and it's just it became more work than what was necessary because of the way we're doing invoicing. Yeah. Um, now if you are taking a 40% deposit up front, do it this way. Have the separate accounts. You're taking a big draw up front. I want to make sure that that stays in my incoming and I'm controlling what I'm bringing over as my cost of goods. And then what out of that account is profit that I can move into my operating and overhead account. And then it flows from there into my operating overhead account into the taxes and owner, ownership, and retained. Does that make sense? So that's kind of the the waterfall. The way that I listed them is the waterfall. It's everything comes into here, it goes into these other accounts, and this one goes out to the vendors and subs, and the other account goes into our profits and taxes. Cool. Here are some rules around those. Number one, I'm never paying materials or subs out of my owner pay retained. I'm never paying materials and subs. I'm never paying my cost of goods out of the retained and the owner pay. If I need money, it's going to be for operating an overhead that I might have to borrow from our retained earnings. If it's like we've had two bad months and we got payroll coming up, that is something that I'll cheat out of our retained earnings. But if I owe, if I got to go buy a lumber package for a job and I don't have any money anywhere but my retained earnings, that's a problem because that job should be paying for its own materials. So if I don't have the jobs that are depositing money and the income account paying for that overhead and materials, that is my biggest red flag because we are crashing hard at that point. And so that's one of the one of the big rules that you write down. I'm not going to ever pay out of my retained earnings account to man to pay for labor and materials on a job site. Number two, I'm never paying personal from operating. I don't want my, I don't want income clearing, people depositing money, and I say, hey, I need a paycheck, I'm going to pull money out of there. Because that money has got to feed labor and materials and then overhead before it gets to me. And it has to go down that flow. Because if I'm like, well, I need to get paid$12,000 this month, like that's what I take. Well, you you're taking more than you deserve and have earned. If you if it doesn't flow down those other accounts and land in your own or pay account, you don't have the money to pay yourself that. You're not earning that as a company. I'm sorry. It's it you it's not there for you to take. It's not your money. You're literally stealing to take that money out of that account and put it into your own personal um uh personal pocket. Are you following me? I feel like I'm in. I'm in. I um good. Um next, another rule. I'm gonna fund taxes before anything else. Now, I the odd part is I say that's taxes are the fourth out of out of fifth account down the waterfall. But if you think about it, everything before taxes is tax deductible. So if I invoice 100 grand this month and my cost of goods and overhead are 90 grand a month, I'm only gonna pay taxes on 10. And so before I pay myself or get retained earnings or anything else, I want to pull those taxes out into the tax account. And then that last amount of money can go. So I pull$2,500 in the tax account,$8,500 goes into the retained earnings and owner pay account. Last rule, I'm gonna build uh my goal is I'm gonna build a retained account of one times my monthly revenue. So if I'm averaging a$100,000 a month, but I'm looking by the end of this year to get to$150 a month on average, I'm gonna go, my goal is to get$150K in that in the retained earnings account. Not in my income clearing, because I want that to be a password. I want that to come in and feed out. So when I invoice a job for$50, that's in that account, and I spend out of it until it's time to invoice again and I refill it. Um, but I uh what I want to do is build that retained earnings. Now, I I mentioned this last week. My retained earnings account, I want to average my monthly uh revenue, but I I'm okay, and again, this is cheating a little bit, but I'm okay. My monthly revenue needs to at equal my retained earnings plus my accounts receivable. An accounts receivable account, if you don't know what accounts receivable is, that is money owed to me that I've spent on. So those are those 30-day net pay. This client owes me 50K. So that 50K that that client owes me, I've spent all my money on their job side. I'm waiting for that check to clear from that commercial contractor that's coming in in three weeks from now. That 50K plus my 50K in my retained earnings equals 100K, which is my monthly. So that that's safe for me. Um now you got to be really good, and when that money comes in, it goes straight, passes everything, goes straight into the back to make sure it lands in retained earnings. But I want my retained earnings plus my accounts receivable to equal my monthly revenue. Okay? About to move on. Does all that make sense? I feel like that was a lot of technical talk. Um No, I th I think I'm I'm with you. What's your do you have any feedback on that, on your experience, on what you like, what you don't like, on that?

SPEAKER_00:

Uh the one you mentioned where uh your invoiced plus your retained earnings. No, your invoices are accounts receivable. Your accounts receivable plus your retained? Is it retained or was it the income?

SPEAKER_02:

No.

SPEAKER_00:

Retained.

SPEAKER_02:

Retained earnings, just profits that are sitting in the company plus the money owed to you.

SPEAKER_00:

So that one, the money owed to you, that's the one we mentioned it earlier, that can get a little dicey in construction because if it hasn't been paid, there's always that possibility that the client's gonna say, yeah, I'm really not happy with how this turned out. You might either either have to spend more money to fix XYZ or in some cases uh not charge the full amount and you're gonna walk away five thousand less than what the actual invoice was. Yeah. And so that's one that's like if I'm cutting five thousand dollars off of this invoice, that's profit. That's just pure profit that I'm having to consider cutting off. Yeah. And so that can kind of depending on the size of company you are, that could be pretty problematic, or at least like, man, that's like my whole paycheck.$5,000 is a lot of work to now just kind of freely give up.

SPEAKER_02:

Yeah. Well, I think two things on that. Number one, where guys miss on that is when I'm building an estimate and we cut$5,000 out of it, I'm cutting$4,000 of labor on that. When I'm trying to get your price from your our our estimates at$105 and you can't spend over a hundred. Well, what are we gonna not do out here? So I cut it down to a hundred because we're we're not we're lowering from high-end fancy countertops to some basic granates, right? And so we cut the the price down five grand. Well, that's all that's only a thousand bucks out of my pocket. On the back end, hey, I I need a five thousand dollar discount on this. Well, that's five grand out of my pocket, which I'm making 30%. So that's$15,000 of the total work we did because I've I've managed$10,000 worth of work to get that five grand profit. Right. And so it feels the same because it's five grand on the front end, five grand on the back end. World of difference. It's three times as much. And so guys like, yeah, just they're so desperate to get paid. Just pay me that. That's fine. Keep your five grand. Well, you literally lost a ton, right? It you didn't lose, you didn't do five grand less of work, you lost 15 grand of work that was that you did for free. Um, secondly, what what you just said, why this is so good with this with the with the waterfall of accounts is I've got that money owed to me and they need me to come back and fix some stuff. I'm gonna pay that out of my income clearing and my cost of goods account, even though I've already they owe me the money. And so that's less money that will waterfall down into my profit account. But when they finally pay me, that fills up the profit account. So I'm not stealing from my profits to pay for that job. I'm trying to just pay myself less profits from that bank account that had all my money, the the the incoming and the cost of goods account. Does that make sense? So it's it's like, yes. Again, it's it's some of it is like you're saying this, and it's kind of the same thing. Um but it's it's the mindset of where that money's coming from. Uh, and and the value of five grand is a lot different at different points of the job. Yeah. All right. So let's move on from those buckets and let's talk about kind of what to do with those and and and define some stuff. Number two, let's talk about owner pay. So we've got you as a project manager running your company. And then we've got owner pay as your second paycheck that you're gonna get. Um now you don't have to cut yourself two checks. It's fine. We need to separate out in QuickBooks as two different two different categories that the monies go into your check. All that being said, and this is a great setup because you know, a little behind the curtain for James and I, James is the general manager of our company, he gets a paycheck for being a GM of our Austin branch. Um, I don't get a paycheck for working in that company, but then we have distributions that we both get out of that company. So as partnerships go, this is super important. When you're a one-man show, it's very important to do as well. But partnerships force it this way. Uh, and this uh if you're if you do a partnership, uh, this is in my coaching, this is how I set it up of like you need to get define your role. And James can get fired as GM if he does a bad job of his role. He's still getting his owner draws because he's still the owner of the company, right? And so James gets paid a certain amount for GMing the company, and that's part of our overhead. That's James. If if James quits tomorrow, we're gonna hire someone with that paycheck that James is getting to run the company. And then the owner distributions, me and James meet uh every other week uh as owners, looking at our company. Um, and we do, and we do distributions a certain way, which we're about to talk about. But that is, hey, we've got in that distributions the owner pay in the retained earnings account, right? Like I said earlier, or I said, I guess it was the last podcast, we've got$10,000 that falls into that account. I'm okay with distributing five to owners, and five stays in is retained earnings. Because that we need that account to keep building because we want that to equal our monthly revenue and we want our monthly revenue to grow, right? And by next year, I want to double in revenue. Well, that account has a double in size, right? So all this being said is oh, hold on, we got a phone. But all that being said is what we want to do is set is James, and it's great because we're kind of set up this way, even if we're both working in the company, James and I are getting paid out of the overhead account as employees if we're partners running this together. Later, we're gonna assess the owner pay in the retained earnings account, and we're gonna start dividing that up. Now, one thing I don't want to want you to do, not to get caught in the weeds, is keep dividing the retained earnings. What I mean by that is we've got a hundred grand in the retained earnings account. I'm gonna distribute 50 to 25 to me, 25 to him, and there's a 50 left in that account. Then we get another 50 grand built up and there's 100 grand. I don't want to distribute the 100 grand and leave 50 in there and distribute 50 out. What I want to do is say, okay, that retained earnings of 50 stays. We made 50 more, so we could split that. We could distribute 25 of that, but now in the retained earnings, we got 75, right? So don't keep cutting your retained earnings in half. Uh make sure that that stays separate when you're tracking it. All that being said, is we there's there's really three types of ways to distribute money out of this owner's pay account, the owner pay and retained earnings account. Number one, guaranteed payments, a weekly, every other week draw that just happens. Uh, we're gonna take 1,500 uh uh a week for owners. Number two, quarterly distributions, uh, or really milestone distributions is really how we do it. Um, which is like, hey, uh every quarter or after this milestone, or once we get to this amount of money in that account, triggers, right? As soon as we hit this X amount of dollars, that triggers a distribution. That distribution, whether it's monthly, quarterly, milestone, no matter what it is, that is a hundred percent the decision of the general manager. So in those decisions, I don't have a say, I have an opinion, and James will listen to my opinion, but he's running the company. And we set this up in writing in your in your agreement because the hands-off owner of the company should not dictate how much of the legs of the company get knocked out from underneath it. What we want to do is distribute only enough that whatever's in the account it can keep continue our growth and doesn't harm our growth, right? And so what I've seen is owners who are hands-off say, hey, I need 10 grand. Uh let's distribute. And the guy running the company who might not have as much profitability in it, uh, I think you, I don't know if you know the company I'm talking about that did this really, really poorly and ended up going under. Um, the guy running the company is like, well, I need that money. Like, we need cash flow. I got this big job coming up. And like, well, I need that, I we need to distribute. We're distributing. And the owners voted to distribute, they distribute the money, and then they started borrowing from Peter Paul, Robin Peter, PayPal. And it just goes that way. So you have to have the general manager running the company who's in charge of growth be the final decision on how much gets distributed. Now we want to do a 50-50. Sometimes we can only do 10% of that because we got some big stuff coming in. I mean, I remember when we've talked distribution before, you're like, I've got three big jobs that we're in the middle of. Let's wait to distribute for about a month and a half because I want all three of these to get the final check before we distribute. All right, cool, do that. Again, if we're living off the salaries that were that's coming out, those distributions are where we pay for vacations, where we get our savings, where we start savings for the kids and our retirement. The kids' retirement, the kid, you know, like weddings, like all like I want to set the company up where those distributions are my icing on the cake. I'm not living off those. Because if I if I need that to come in and we have two bad months, I'm like, James, I need that distribution, I need I need a distribution. It he's in rock in a hard place. Like, Clark, I can't do it. You can't pay your mortgage, I guess, right? And so what we want to do is have if I'm operating in the company, I get a paycheck for that. And then the distributions come above and beyond that. The last type of owner pay is what we call an annual tune-up, where at the end of the year we assess and say, hey, you know what, we got so much money in here, let's distribute it. Or, hey, you know what? End of the year, let's change how we pay. And for the next 12 months, let's distribute five grand for ownership every single month. That's kind of, we like to look at that our annual retreat if you're if you're in a partnership. Um, but yeah, that's that's kind of the owner pay distributions and and how we do that. The rule don't raise guaranteed pay until you have hit your target margins plus reserves for three straight months. And what reserves are is my overhead. I need at least. My overhead for three months in that account for if things go sideways, I can use that money for the overhead. Now I'm not using that for a cost of goods because that flows down that way, but we're gonna be able to not have to fire people if we missed if we had one bad month. All right, that was section two. That was a lot. Any questions about that? No. Let's talk about this. So James and I have two different views on what we how we like to distribute ownership pay. James likes to do let me build the account up, and when I feel in a comfortable spot and we've got good money, I'm gonna drop a ton of money in your bank account. I am like, well, I'd rather do five grand a month all year long and at the end of the year get get extra if we have it. Because then it's like, hey, it's consistent. I know it's coming in. I can, you know, that that sort of thing. I think there's pros and cons of it. Tell me why you like the way that you the the the milestone way.

SPEAKER_00:

Um I like the milestone way because I'm a squirrel by nature. Yeah. And I once you send the money out, once the distribution is made, if something were to happen that it's like, hey, we're starting, we didn't land these two jobs that I thought we were gonna land. We're going into the winter months, and we just did a distribution of$20,000 uh which represents allowing us to keep running for a month or two. Uh once you're in that position, getting that money back is a whole hell of a lot harder. Rivers don't flow upstream. Yeah. So I really like having uh j just building this chunk and then saying we're good, we're good. That's great. Let's keep growing that. Let's start thinking about a distribution, let's forecast down the road and see what does income look like in three, four, five months down the road. And is it a good time to do a distribution? Also, on top of that, I like the chunks because in just your personal finances, it's a lot easier to say, okay, here's the money. And I can make much I can make much more sound financial decisions when I have this chunk, and I'm like, okay, great, let's put this here, let's put that there, and let's put this here, and then we can splurge a little bit with this. So when it's coming in like you know,$1,500 a month or$2,000 a month, it's almost it's it's not enough to move the needle, say, okay, stop. What do we do with this money? Yeah.$2,000 goes into your account and just gets used like everything else. You got to dinner a couple more times than you normally would. You might buy that thing that you wanted to buy that's you know a couple hundred bucks. When it's a when it's a chunk of money, like this is valuable. Yeah. And you can use it more, I think, efficiently.

SPEAKER_02:

I I I think I mean when I'm looking at pros and cons, the pro of doing it that way is that when it's coming in monthly, people all of a sudden their outgoing expenses start rising because they've got the cash monthly. So maybe I end up getting that nicer truck. Maybe I go get that$120,000 vehicle when I should be getting the$60,000 vehicle. But I got this income. I got five grand a month coming in. That's part of my income. I'm making this much, like I got it. Uh, I want I really want that RV. I really want to do this. I really like, and so their monthly outgoing starts going up to equal the monthly incoming. And then all of a sudden, James says, hey, we got to pause distributions for three months and and lick our wounds. We had some issues. Uh, we can't pause. I need that money, man. Yeah. I need it. You can't pause on that. I need my money, man. Yeah. Where's my buddy, Brian? Where's my buddy? But well, that so that's that I think is the is the really good part of that. Um there the negative for me of doing it that way is twofold. Number one, you gotta be a squirrel like James mindset, or it doesn't work because it then becomes a piggy bank. I've seen it become a piggy bank for guys where it's like, oh, I really want this cool. Uh, I'm gonna get a jet ski. All right, I'm gonna distribute. I'm gonna I need that. Oh, I really want, and so instead of seeing it, and and as a partner, it helps out because you got some accountability on it. As a one-man show doing milestones, it turns into this like, ooh, we want to go on a trip. Let's let's distribute. Well, no, no, no. We distribute because we're we work backwards into the distribution distribution because we know how much money's in the count. And it's not like, hey, I want to take my family to the beach for the for spring break. I need eight grand. I I don't care what you need, what can you distribute? What's in the count? Let's look at what is actually distributable and let's not harm the company because you want to go on a beach trip.

SPEAKER_00:

And even if you're gonna use it, let's say you're a one-man show and but you do have a company and you've got people that are dependent on you, and you've got uh$90,000 in the retained funds or whatever. Uh or wherever it's gonna be used. You you're like, well, you know what, invest investment properties. I'm gonna take forty thousand dollars of that, we're gonna do an investment property, we're gonna flip it as the company. But you're you're going below the threshold that you set for yourself. And even though the idea is, well, we're gonna we're gonna make good money on this, and it's gonna be a positive thing, you are going beyond your threshold, and now you are you you're beholden to the market. Yep. And that is not that's not the if you're trying to build something, that's not the bet to make. Correct.

SPEAKER_02:

And it it's it's my old saying of true entrepreneurship is not chasing every opportunity, but a ruthless elimination of opportunities to where I'm only going after the best and brightest, and which is I don't want you flipping houses. I want you training a new project manager, right? And so distribute the money and on the side, nights and weekends, do that. Do that. Don't justify the time that I'm paying you to be a GM here, that we are paying you to be a GM, that you need to be investing in these guys and justify it to chase a hobby. A really good opportunity, but it's not a great opportunity. We need to eliminate those, right? And so that that's number one on why the the downside of doing large distributions is you start viewing it as what do I need, not what's best for the company. Number two, the flip side of that. Because I used to do that, that's how I ran in the beginning. But what I said earlier is I kept saying instead of distributing the profit first way and getting my money, I leave it in the company. Let's make another hire. Let's leave it. I'm gonna reinvest. And I felt like I'm a great entrepreneur because I'm reinvesting my money into the company. But at the end of the day, I had zero savings. Like, like I talked to guys who are like, hey, so like what's your do you invest? Like, what's your savings? What's your portfolio? All that I'm like, oh, I just hope this company works or I'm screwed. Like that, because that's where I was. Like I didn't have a savings account. It was just like, just leave it in. I'm only taking out what I need and everything else, let's all in. Let's keep it here and let's grow this thing. Let's build a software, let's do that. And and everything was about that. And I didn't have a healthy balance of safety, security. I need to put this money away for this. I need to start saving for this. I need to go on a freaking vacation with my family that I didn't do for like three years straight because it was like, I don't have the money for it. I'm investing in growth, right? And so it's the other side of the of the coin in terms of like you're never distributing because you're letting the company eat all of your cash. And so the the milestone ones, it's like, well, once we get to a hundred grand, I'm gonna distribute 50. Well, as soon as we get to 80, I'm like, what if we got a fleet of trucks? Uh that 80 went down, right? What if we do this? What if we started this division? What and so I would entrepreneur myself into no money because I would never distribute money until, I mean, the only times I ended up distributing when you were an employee like you know, a while ago, was at the end of the year when I missed my tax mark because I was going so hard in the paint on on investing. It was like, oh crap, I need 30 grand for my taxes because I didn't pull any money out. I was literally just quote unquote reinvesting in the company. And then I need, I'd pop into the office and be like, hey, I need 30 grand to pay our taxes. Like, what? We don't, oh, okay. Right. And so then it uh it all goes sideways on that of pulling that money out that we needed for the other thing. So there's two sides of it. There's I spend too much out of it and I distribute too early because I just want something, or I never distribute because I don't hit the milestone that I'm saying. So I would, I would almost say look in the mirror, have have a coach or accountability or a spouse that's that that that is might be more financially minded than you, be a second set of deciding on you. Like some guys, their spouses will be like, hey, let's distribute everything. And some people, some spouses are on the other side of like, keep it all in the company. If you have a uh an accountability partner, really a coach that says, you gotta let me approve your distributions and let's set a goal. And even if you want to reinvest in the company, we got to distribute and reinvest out of your retained earnings and start having those type of conversations. I think that's that's what makes the milestone checks a lot safer. Um, the other way, the guaranteed payments kind of stops you against those out. But but again, if you do the guaranteed payments, the downside is and the risky side is I'm gonna increase my outgoing monthly. And now I it's not a guaranteed payment. Now that's part of my salary. I got to get paid that. So that being said, if you're doing the the monthly guaranteed payments or the bi-monthly, whatever it is, you can get raises as a PM in your company. Raise that up and spend out of that. And hey, you know what, we're doing pretty good. I'm gonna bump myself as the general manager here and now maybe, maybe I'll make 95 now and I'm gonna get that going a little higher. And that means I won't distribute as much into guaranteed payments, but all of my cash flow makes sense. Right. And so I if I need to increase my my outgoing expenses, I want a little bit nicer of a house, and my daughter is almost 16, I got to get her a car. Let's look at you getting paid more as your project manager GM role in the company, not let's spend that out of guaranteed payments. All right. That's I think that's that's the one of the biggest points I really want to hit in is you need to understand yourself financially and where you're strong and where you're weak. You know, if James wasn't a squirrel the way that he does it, I would not like the the way that we're doing the distributions. But I'll tell you, when I get a text from James every single time I get that little like, you know, the the birds in your in your stomach, oh, is is he gonna distribute something? Like, is there is there money coming my way? So yeah, it it's I like it. I've I've liked it more since we've been doing it that way. Cool. I was against it in the beginning. I know. Um but it was also my baggage of I always try to do it that way, and I never distributed. And and so I, you know, it's it's working well. So good job. Um, all right, pricing that funds your pay. We talked about this last week, but I want to hit it one more time. Every line item, you need to have your labor rate plus your profit margin, and you can pay yourself that profit margin. If you're swinging the hammer, if you're not, if you're not uh like a full GC, but you're also doing your labor, pay yourself the the market rate for the labor that you're doing and have a markup that goes into your retained earnings that flows down into our overhead and lands in retained. We really need to separate those two things out. Also, the this this is probably a full podcast that we can talk about. So I'm gonna hit it real quick. But equipment, trucks, backhoes, that anything that you're buying that you're utilizing in the company, I see guys spend those because they really want that cool toy. They want they want that excavator that's owned and that's theirs. But you're justifying it by being cost of goods. That I like to put that in my overhead. And if I bill for those cost of goods, which you should bill every time you use your equipment on a job site, that's just free money. That's bonus money. But I need to cover in my overhead cost, that monthly payment on that backhoe. I need to cover in my monthly overhead cost because next month I might not use it. And so it really is just an expensive overhead that I've got sitting there. So again, equipment, if you're buying that, I am strong against not buying that. But if you're in a HVAC company, if you're a plumbing company, if you're in a law, you have to have some of that equipment, and that's okay to buy, and that's part of those, those, those setups. But I want to be able to cover that in my overhead so I don't have to get a job that uses that particular piece of equipment to pay for it this month. All right. Um finally, let's watch for some red flags. Here, here's some three red flags that you know, uh, when I'm coaching, I'm kind of keeping it in the back of my head when we're talking about stuff. Your margin is lower than 25% for more than one month. You're gonna have a bad month. Everyone does. Two, three, by the third month, if our margin is below 25%, we have to fire people, we have to cut bait, we have to sell us some equipment, we have to move out of the office. We need to figure out why you're below 25% month over month. But that that's where it goes from a one-off bad month to a permanent um, this is this is we're we're crashing right now. Number two, overhead creep. Again, if we start making more money, all of a sudden overhead starts going out more and more. And so instead of making more money in the profits and the retained earnings for the company, I'm just spending more because I'm making more. Right. So I'm getting more toys, I'm upgrading trucks, I'm now gonna move into an office I can't afford. But, you know, the money thing looks like I can afford it, but I can't. Right? Like, let's let's not create, let's make financial spending and overhead decisions at the end of the year with a third party, with your coach. Like, hey, I'm thinking about an office. Tell me why I should or shouldn't. Let me let outside, I've got no emotional investment. I don't care about your ego wanting to have an office for people to go to. What I care about is you making as much money as possible and protecting your company. Um, so overhead creep happens all the time. I we started making more money four months in a row. I'm making 10 grand a month on average more than normal. I'm gonna go and get that truck, and then winter hits, and now I'm turning the keys back in because I can't afford it. Uh and then final, final big red flag for me is big revenue and tiny retain. When I when a company comes into coaching, I'm looking at the revenue and they're doing six figures plus, and I look at their bank account, they got eight grand in the bank. Uh, that's a big red flag. Like, where is all your money going? Let's if you have larger and larger revenue and your retained earnings, your bank account total in the background, when you look at your balance sheet, which is a whole other conversation, but you're looking at your balance sheet and it's not going up, what's going on? What's happening? You're you're mismanaging, you're not handling as well. So big big revenue, tiny retained is gonna be probably my biggest red flag uh in the company. All right, so when cash gets tight, what do we do? We freeze distributions, right? We're living off the minimum we can pay ourselves as the general manager, project manager of our company. Um, and we're gonna live within our means on that. If things get tight, that distribution, maybe we're not going to the beach, maybe we're gonna uh have a fun week at the pool during spring break because those distributions aren't coming. Um next, we're gonna protect taxes and cost of goods at uh at all uh all levels. Uh uh when things are tight, do I don't know how hard to hit this. I can't hit any harder than this. Do not touch your tax account. If you put money in there, you it's gone. It's do not touch. I said earlier, do not have online access to your tax account. You can drop money into it from your bank. To pull money out, you got to go in person. You got to get a uh cashier's check from them to pull money out of it. If it's that hard to get to the money, you're not gonna accidentally, oh, I need a thousand bucks to float for this month. I'll put it back next month. Okay, I'm gonna steal a thousand. That never gets back in. It just doesn't, it doesn't happen. Because you have bigger issues if you're having to steal from that, that account. Uh when cash gets tight, we got to start trimming overhead immediately. A lot of times, this was, I think, one of our biggest issues in in growing our company in Atlanta was I would not fire people when we should. I loved them. I had some sort of thought that I could rehab somebody and work them through it. And I think I mean, I remember the the one time on the retreat where we added up 55 or 60 people that we had fired and looking at them like six months too long, eight months too long, six months too long, four months too long. And it's like we had probably$500,000 of extra pay that we should have fired people over. Um, you know, it it's it's hard to fire. It's very hard to fire because they're friends, you know, you you feel responsible for them. Um it's hard to sell your truck and get a crappy truck. It's hard to do these things, but it's even harder to file bankruptcy. And so you gotta you gotta understand we gotta cut overhead early and as much as possible. Get out of what you can. I'm I remember one company that I I'm coaching, if they're listening, they'll they'll know it's them, because they were in uh they had a rent of about$12,000 a month. And I looked at them, I was like, guys, why? Well, we need this, and we got that, and we need this. I'm like, your your numbers, when I'm looking at percentages of what your rent should be, you should be paying no more than three grand a month of rent. Uh and they're like, well, we're we're in for another two years with this landlord. I was like, you go to the landlord and let's show them your QuickBooks and say, either you find me another, because their landlord had a bunch of either you find me another place and I'll lower my rent and still rent from you, or I'm going under. Like I can't continue this. Like I can't pay you either way. So do you want me to pay you three grand a month instead of twelve? And they're like, he's not gonna go for it. They went, he was like, Yeah, don't worry. I actually want to sell this building, so that's perfect for me. Why don't we do X, Y, and Z? Then literally the next month they were in their new office.

SPEAKER_00:

Bingo.

SPEAKER_02:

And and again, it's like, well, that's they just picked up eight grand overnight, right? Because they asked and they thought about it and tried to do it and sacrificed because they didn't have the big warehouse space and they didn't have this, but the company's doing better, right? So we're cutting overhead quickly. Um I think one thing guys are afraid to do is rate price raise prices. I think you don't need, you're not raising prices and overcharging people. You're actually charging them the actual value of what you're giving them and and changing the mindset of scarcity, mindset of I gotta, I let me just charge this much because I need the cash, I need the job. You've got to say, I gotta pay myself labor, I gotta pay for the profit, and this is my price take it or leave it because we're not gonna work for free and we're not gonna pay someone to let us come work for them. Uh, and then you're gonna re-sequence draws into milestones. If those draws monthly are draining you, let's go to a milestone. Let's just don't draw. Let's look at it at the end of the year. I'll help you with that. Let's look at quarterly, let's figure out what milestones we got to hit to start draws again. But we're we need to make sure that you can live off your me, live within your means on what you're getting paid for the labor you're doing for your company, whether it's project managing, general managing, swinging a hammer, whatever labor you're doing gets paid, draws are separate. All right. I've got a checklist of what you need to do today, listening to this, and then we're done with the podcast. I feel like I've been just verbal vomiting. Hey, we're here for it. All right, number one, open your separate bank accounts. Talk to your banker, figure out how to do that. They're gonna try to charge you monthly per account, whatever. Figure it out how to do it. I need your three base ones. I need your tax account, I need your draws and uh retained account, and then I need your operating account. I need minimum those three accounts. If you are a little larger size of a company, you probably have some of those already set up. Um let's let's break it into potentially four, maybe five accounts if we've got a lot of cash flow going through the company. Um that fourth, that third account, the retained earnings owner, is usually a savings account that we set up. And the tax account is usually a you've got to force them to turn it off on your online banking. I don't want my tax account online. I want to be able to drop money in, transfer money one way on that, and they can set it up. Most banks can set that up for you to where and they're like, why do you want to do this? Well, because I don't trust myself. I this is this is how I want to manage my money. Um number two, minimum weekly financial meetings with yourself, 20 minutes. It's gonna take it's gonna take a couple hours, day one. But I want you to get your QuickBooks set up. I want your ProStruck software set up, and I want you paying your labor through the software and managing your materials expenses in QuickBooks. I will show you how to do it. It's not hard, it's not difficult, it's just some hard work. And then once you get doing it, it's 20 minutes a week. You're I mean, you how much do you spend a week on tying materials to jobs?

SPEAKER_00:

Um It's probably like 30, 45 minutes.

SPEAKER_02:

Yeah. And it's a decent sized company, and you're that's all you're doing weekly on it. And that gives us really tight numbers that we can run what's going on with that, what happened with this job. We get the red flags ahead of time instead of behind you know, two months later. Um, so get in minimum 20 minutes so we know your revenue, your gross profit percentage, your overhead, and job costing is so, so important. Um, and then set monthly meetings first week of the month, repeating the first Tuesday of every month on your Google Calendar. You can set that up repeating. I'm going to look at my owner pay and my retained earnings. I'm gonna make that transfer. I'm gonna manage this money as tight as I can. That's the day I make my transfer over into my savings account. Uh, and at the same time, I might also distribute to me from that account. I want it all over there. I want this distributions to come and flow out of that account. I don't want you to bypass it and just pay yourself. Uh, and then finally, I want bids today. Uh oh, bid today's estimates at your target margin. You need to know the numbers you're trying to hit, not just what what so many guys start coaching. I'm like, well, you know, how do you build your pricing? Well, I just charge people what I can. What does that mean? You know, we need to know your margins, we need to know your your target that you're going for. We need to have a game plan on building the estimates from the money aspect of how we're gonna manage that money and what we need to make for this job to make sense for us to say yes on. Oh, that was a lot. Any any any thoughts, comments that you have?

SPEAKER_00:

Um, I no, there's there's a lot of need here.

SPEAKER_02:

Yeah, yeah. It's that's why we broke it up into two, and it's still a lot. It might be a uh listen through it twice. Uh one thing is your salary lives or dies by margin discipline. I wrote that down just as a note at the bottom. Like your salary, the money that you're gonna make, the money that's going to fund fun stuff that's gonna pay for your kids, school, whatever it is, is all decided by your discipline on your margins and managing this money. You can be, you can work your butt off, you know, 60 hours a week. And if you don't aren't disciplined and know this stuff, you're doing it for nothing. Like you're you're not in maybe you got cash at the end of the end of the year. That's great. You're not gonna know if you do or not, and you're gonna pull money out and you're gonna have no control or discipline over that. So I learned that the hard way. I was not disciplined for forever on the financial side. I'm not naturally that way. I know numbers, I'm great with math, but I'm just like, yeah, we'll figure it out. Let's let's just go, let's invest in that. Yeah, let's buy that, let's do that. So you're your margin discipline, disciplined on making the margin above and beyond, where you're running your company like it's Amazon. You're serious about it, you're looking at every dollar, every penny. We know where it's going, where it's coming from. And finally, let's build that reserve. One month of revenue is what we're going to. That's going to give you freedom to breathe and scale. If we can have one month of revenue that keep grows with our revenue in the background, you are going to be able to go to sleep at night. You're going to be able to breathe. You're going to be able to get that scale that you want to do to grow into next year. So if you want to work on any of this, if this some of this stuff didn't make sense or you disagree with it, go to ProShark360.com and go to contact us and set up a call with me. If you want to come on a retreat, I'm going to do this part with you over the next three months. My goal for everyone coming to the retreat is that they know their numbers when they show up. We're going, I've got a worksheet that we're going to go through. I'm going to do three coaching sessions if you sign up now. Uh, might end up being two if you wait to sign up, depending on how close we are to the retreat. But we're going to, I'm going to run you through this and then we're going to meet again and look at it. I'm going to assess what you did. So when you show up at the retreat, we know all of your numbers and you have it all filled out to where we're not spending three hours trying to figure out your numbers. Last year it kind of got got crazy with people trying to find their numbers and do that. So we're going to do that all pre-retreat so we can hit the ground running and really get the retreat going. On this retreat, we're going to look at your numbers. We're going to look at your efficiencies. We're going to make a game plan. And then we're going to plan out 12 months of your company. We got a planner that's coming that you're going to take home with you, that you fill out month over month goals, kind of our anchor goals of what we're going to be doing each month. And then we're going to have a plan on how to execute this one bite at a time for 2026. And so if you're in the coaching program, this is what we're going to go through all year. So you got to come on the retreat from the coaching program. If you're not, you just come on the retreat, take it, learn from it, launch it, grow your company off of it. Uh, and hopefully we can be part of that process at some point. So thanks so much. Go to contractrequest.com to sign up for the 30-minute call. I want to hear about your company before you sign up for the retreat. You it's an invite-only type thing. You you will be invited. This is an exclusive, but it really is something I want to talk to you about before you come. It's a small group of guys that come and girls, women and men that are there, but it's a very tight-knit group that um you we want to make sure that you're ready for something like this before signing up for it. Um and so we'll I'll do a little assessment with you and make sure and hear a little bit about your company. But love to talk to you. Contractorcuts.com. Let's set up a call and we'll we'll see you guys next week. Bye. Bye.

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Clark Turner

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