Why Builders Leave Profit On The Table with Russ Stephens

Reece sits down with Russ Stephens, co-founder of the Association of Professional Builders, to talk about why so many builders look successful on paper but still miss the profit sitting inside their business. Russ breaks down work in progress, pricing, overhead, owner pay, and the danger of chasing bigger jobs without understanding what they actually cost.

This episode covers how builders can stop guessing at margins, price from true break even, stay focused on the right type of work, and build a company that is worth something beyond the owner’s daily grind.

To get a free business valuation report from Russ Stephens and APB visit:
https://hubs.ly/Q04jQvzl0

Register for the webinar here: https://us06web.zoom.us/webinar/register/2517803406883/WN_i02wixcGTJSDljlo4uCRsQ#/registration

Show Notes:
00:00 Show Intro
01:10 Meet Russ Stephens
04:14 Know Your Numbers
05:42 Revenue Versus Profit
08:08 Profit Starts Early
10:54 Understanding WIP
16:44 Front Loading Jobs
19:33 Pricing For Net
23:40 Net Profit Webinar
25:42 Owner Versus Employer
28:02 Stay In Your Lane
31:20 Remodeling To New Homes
34:56 Business Valuations
39:17 Build Value Now

Find Our Hosts:
Reece Barnes
Matt Calvano

Podcast  Produced By:
Motif Media

Transcript

0:00

They are leaving millions on the table, more to gain than anyone, and all it takes is a few simple changes. Welcome to Builders Budgets and Beers. I'm Reece Barnes, and I started this podcast to have real conversations about money in the building industry, the wins, the mistakes, and everything in between. I believe builders deserve to feel confident about their finances, and that starts by hearing from others who've been through it too. This industry can be slow to change, but the right stories and the right tools can make profitability feel possible. Let's get into it. Alrighty, Russ, mics are hot, we're rolling. Thanks, thanks for jumping on Builders Budgets and Beers. Super excited to have you on. Thanks for thanks for inviting me on. Really looking forward to the chat, of course, of course. Well, let's go ahead and jump in here. So, Russ, if you would go ahead and give the listeners a little intro on yourself, um, what you've built, and honestly, I'd love to hear a little bit about your background as well, and how you, how you got into the thread of associations of professional builders. Sure, so yeah, Russ Stephens, co-founder of the Association of Professional Builders, which is a business coaching company dedicated to helping residential home builders, so new homes and large remodeling projects to generate more quality leads, more sales at higher margins, but also to improve the building experience for their clients as well. Yeah, that's an important component, so delivering a much better experience. So we've been doing this for, well, since 2014 with Build. Okay, so you crossed the 10 year mark. Yeah, that's exciting. That's exciting. That's great. Okay. And what was your background, Russ? How did you, how did you get into this? Yeah, well, crikey, how far do you want to go back? Started, I guess, my business background started in England a few decades ago, where I started selling from the back of a van in London. Kind of learned some sales skills, I'd say. There built.. I gotta ask, I gotta ask, what were you selling the back of a van? Well, this is all toiletries and household cleaning. The reason I got into that is my dad was a retailer. Okay, so I started off working for him, and when he sacked me, I had to, you know, I had to find my own way. Yeah, sure, of course. Okay, so yeah, I started selling from the back of them, built a distribution company over the next 20 odd years. By the time we sold it, we had 40 odd staff working for us. We had distribution all over the UK and sold the company in order to move to Australia. There we go. Okay. And so, what was drawing you to Australia? The weather. The weather, yeah, like most English people, yeah, we came out for the weather. There we go. Okay, and that's like we were just talking earlier. It's 5o'clock in the morning where Russ says, and I had never been to Australia, but I've obviously seen pictures, and that makes sense. England weather, Australia weather, kind of opposite ends of the spectrum. So, I guess, as they don't, they say good on you in Australia. It's funny, because yeah, every day is living in paradise for us. Yeah, Australians always, well, especially in Queensland, where I am, always complain about the weather. They want it cooler, and yeah, you don't know what it's like to not see the sun for three months. Yeah, sure, of course. Okay, so you had a career in sales, and then you built your own distribution company, successfully sold it, successfully scaled it, and now you're in the construction world, which, like, when we think about these small businesses, I'd imagine there's a lot of overlap, even just from, like, the distribution business into the construction business, you know, you're talking about building leads, you know, better client experience, making more money, I guess, like, what is, like, of your, you know, 12 years of experience at APB. What would you say are, like, the most important topics that contractors need to keep top of mind? Let's go primarily when it comes to making money and running financials. Yeah, look, and it is exactly that, it's financials and knowing your numbers. It's, yeah, it's kind of like, might seem like a bit of a boring subject, but it's really where I cut my teeth in business, because my distribution company in the UK was similar to a construction company in a financial sense, because it was high revenue, tiny margins, so every fraction of a percent mattered, and I was obsessed with that, the analysis I did on holding stock, stock days, credit today's debt today is understanding right to very last cent what it was costing, you know, to invest the dollar in stock and then get that dollar into a retailer, so I. Become fanatical about financials, and it's no different for builders. I'd say it's probably tougher for builders, because there's so much grayness. You've really got to be across your numbers, and we see this with the 1000s of builders that we've worked with, the guys that really lean into this and understand their numbers. They're the ones that become successful, totally, totally, I mean, yeah. When you nailed it, when you're saying, like, distribution is like high revenue, low margin, I mean, that is contracting, right? And, like, that's the appealing side of it, is you have you have all these massive zeros floating around, income costs, stuff like that, but it's capturing that sliver, that 10% right, or whatever it is, to really make it worthwhile and worth the risk, right? Yeah, and it's that sliver on the bottom, not after the revenue, the gross. It's the bit that's left over after you've paid yourself and paid all your expenses and reinvested in things like advertising that allow the business to grow, and it's after you've done all that, what's left over. And this is where time and time again we see builders are number one, underpaying themselves, number two, there's not enough net profit, and even it's amazing the bigger the company. What I've noticed over the years is a lot of these companies that get to 50 60 million, they're successful in spite of themselves, we've got operators running building companies of three to 6 million that are way better organized and systemized than companies doing 1020 times the revenue they do, totally. And so, would you chalk that up like the $50 million a year builder that is, you know, successful on paper is less successful from a net standpoint, than a three to $6 million why, why do they chase that revenue? Is it purely ego? Like, why do they do it? I think when they get to that level, they become very complacent, and tone deaf might be a bit harsh, but they don't want to listen. You know, I meet with a lot of builders, like, yeah, with these companies, yeah, they find out what I do, but I can tell they don't listen, they're not interested. Yeah, I'm successful, like, yeah, you're for the smaller guys. And yet, after a quick convo, a quick drill in, I can already see that they're they're only clearing 5% net, so they are leaving millions on the table, totally more to gain than anyone. And all it takes is a few simple changes. I mean, I can analyze very quickly. I mean, I'm probably the most boring person to go out with socially, because I just love talking about business. So, when I find someone in business, it doesn't matter what interest industry they're in. I always love chatting to them about it. And my wife has kind of trained me over the years, don't give people advice, don't tell them what to do, so I, I just try to shut up now, but I, I still ask the questions and try and understand what's going on. But it's amazing how much money these guys leave on the table, and I don't try to give them advice, but I, I kind of, I leave the door open if they want to, and they never do, they're never interested. Okay. Okay. Well, so how do.. how do we could talk about the 50 $60 million guys, but like, just generally, like, how do contractors prevent that from happening, that being leaving money on the table. I tell you, it's.. it's.. I mean, there's a saying that probably doesn't relate to this, but it kind of does in some ways. How you start is how you finish. Okay, this really does. I see this in the age of a builder. The older they get, I mean, the guys my age, they're so close-minded, and yeah, cantankerous, but they don't absorb new information. Now, the guys that are maybe 20 years younger, they've been in the game 1020 years, they, they are more open-minded, but they're more skeptical. So we do get success with these guys, but the ones we get phenomenal success fast are the younger guys, because they, they see APB, they do a bit of research, and they trust, and they say I just want to do things right from the start, and we give them the framework, and they just do it without question, and they get success, and they come back. Okay, what's next? What's next? And they just go so fast, but profitably, they don't chase revenue, they chase profit and revenue. Here, as the older guys, they're not so sure about that, and they do a little bit, and they're a bit skeptical, and they get, oh, that worked, and then, like, what else do I do, or I'm not so sure about that, and they'll tow in the water, so you don't get success, but it's slower, but meanwhile, the younger guys have already overtaken them, and the guys at the top kind of thinking that they're doing, and they are like, let's be fair, they are doing well, but they're not doing as well as they could be, and if you can make an extra two, $3 million a year net profit without doing any more work, like, why it baffles me, why wouldn't you, why would you say no, I'm happy where I'm at, it just makes no sense, but that's me, yeah, of course, well, it's like it's kind of like that car. Tune right, it's like the sales people are like rolling the rock that's carved into a wheel by the cavemen, who are like trying to figure out how to move a heavy, yeah, and the cavemen are like, no, no, we got this, we got, yeah, but no, I mean, I think that's like really what like plagues the industry, right, is, and that doesn't even just say, like, you know, the older guys, younger guys like the generational skepticism, the urgency, the ability to apply, but it's even just like the people that make up this industry, right? Like, they have to do so much to cut their teeth, and it is such a hard profession, right? And it is such a competitive environment, right? Like, if you're a contractor, you're in a market, and it's not like there's no contractors in your market, right? It becomes competitive, so it's, you know, dog eat dog, and they just kind of like build the shell around them. But what are some things that they can look into, or like start to consider as business owners that would open their minds to running healthier businesses? Look, there's a, there's a few things, like knowing your numbers. First of all, you've got to understand your numbers. The only way you can understand your numbers is if you understand the work in progress calculation. Now, I mean, truly understand, not yeah, I know what work in progress is. If you've got that mindset that someone will say something to you like, yeah, I got that, then you're not inquisitive enough, because this is the most misunderstood calculation in the construction industry, and it's what sends builders broke every year. Good builders, you know, that builds good quality work, but because they don't fundamentally understand this, the there's only one thing worse than not knowing the work in progress calculation, and that's thinking you know. Yeah, okay. And with, and the reason I can say this with so much confidence is we run an annual survey of the industry, where we survey 1000s of builders across all aspects of their building company, and then yeah, if anyone's interested in that report, they can download it free from our website, but one of the questions we ask is, Do you understand the work in progress calculation, and about 50% say yes, about 50% say no. You find the exact numbers in the report, but then we ask a second question of the people that say yes and say work in progress is, and you know what, only 20% of the builders answer accurately. Now, interesting, what does that mean? It means 40% of builders think they know, but they don't. Yeah, they're in a worse position than the 50% that openly say, yeah, I don't know. Now, either way, you're in the 90% and if you're in the 90% you do not know your numbers, and you can ask people, like, are you doing financial reports every month, about 60% will say, like, yes, I am. It's like, well, what's the point? They're wrong, they're not telling you right. You might look at your profit and loss report, it goes up one month in terms of profit and down the next. Yeah, no good looking at that, it's wrong. What's wrong? It's because you haven't done the work in progress accounting adjustment. Yes. Okay. So work in progress WIP is just like the conversation, right? And like it's almost kind of like a badge of honor when someone says, like, yeah, I know what WIP is, but then to your point, it's like you really drill in, and it's like, okay, well, is this just like a report that you're using to reconcile and close books, or are you using it to like accurately forecast and depict like what are we going to net and make on these jobs? So, I think for the listeners, like, maybe you go in the formulas, I don't know, but, like, teach us, like, what is WIP? How do, how do the listeners leave this conversation knowing, and I constantly being able to answer the second question on your survey? Yes, I know, and this is what it is. Teacher, yeah, okay, well, I'll tell you what it's not to start off with, because this is what a lot of people believe it is. Yeah, I've got plenty of work in progress. It's not that at all. It's also not what most accountants believe it is, and I'm talking about non-construction generalist accountants. These guys believe work in progress is a very different calculation, and the reason for that is it comes from the manufacturing industry, where they needed a formula to put a value on raw materials going through the manufacturing process, and they called it work in progress, and they calculated what these raw materials were worth as labor was added, and they became more valuable until they got to the finished product, so this is the where the calculation comes from, and it's why non-construction accountants believe that work in progress is an asset, and they, they put it on a builder's balance sheet as an asset. Now, the truth is, it really, we can only blame ourselves for this, because the construction industry has taken a term that means something completely different to accountants and used it for the most important calculation in their accounts, when it means something completely different. And in terms of new construction, it is always a liability. If you're in new construction, your work in progress is an asset, you got way bigger problems after. Sure, experience, so it's a liability now. What does that do? Well, a builder that's in new construction, and yeah, the bigger guys are the bigger problem in this, because if you're doing, say, 6 million a year, your work in progress liability is probably going to be in the region of half a million. Now, if you're showing like a two, $300,000 asset on your balance sheet. The reality is you're 800,000 worse off than you thought you were, and most builders are not ready to hear. They're not ready for that conversation. The arguments we've had over the years were like that, can't be right. My accountant said no, that can't be right, and they don't want to hear, because what we're actually telling them is you're not actually as successful as you thought you were. However, when they can't pay their tax bill for the third year running, then it's a case like, tell me, what am I doing wrong? And once they listen and start doing and take the hit, and it's not a pleasant experience. It really isn't. To see your balance sheet destroyed is not nice, but when you understand what is really going on in your business, what we see is builders get angry. First of all, why didn't anyone tell me this? Why didn't anyone tell me this? Why? Why didn't my accountant know this? They get angry, but then they get really focused and they stop underpricing their jobs, and they go in with a determination and a confidence to the client, that's the price, and they're amazed that they can charge so much more than they become profitable and successful. Okay, okay. So this isn't just as simple as like moving liabilities to assets, assets to liabilities. So, how do.. right, it's like, okay, now I got my whip, it's all taken care of. So, what are like the biggest barriers to tracking WEP appropriately? Look, it's just understanding what it is. Maybe if I give you the explanation, the why it will make a lot more sense. But if you're in new construction, typically most builders, almost every builder, will front load their jobs, either intentionally or not, and there's nothing wrong with that. Creating positive cash flow in business is a good thing. So, if you get 5% deposit, you put the slab down, maybe that's another 15% Now you're up to 20, then you get the framing, yeah, 35% All of a sudden, on a million dollar contract, you've claimed$350,000 from the client, but if you're working on a 33% markup, which is 25% gross profit, which basically is the norm for a professional builder, if you're working on those ratios, then the whole contract is going to gross you a 25% margin, which would be $250,000 So, if we're a third of the way through, what's that 80 odd, 80 odd 1000 gross? Now, your accounts at this point, you've got $350,000 of revenue in your sales, but all your invoices haven't come in, and even if they had, because you're front loading, yeah, maybe there's 100,000 So, what happens is your accounts now tell you in your profit and loss you've made $250,000 You know that's not right, because your profit and loss is jumping all over the place. So, you don't look at it, but you look at your balance in the bank, yeah. And in your calculations, yeah, I've got to pay them, and you think you're doing better than you are, because you've got positive cash flow, but the reality is that you've only made 25% gross on that 350,000 which is what, $85,000 rather than the 250,000 that has actually come in at that point. Now, the difference between the 250 and the 85 is the what we call the work in progress accounting adjustment, and it's a liability, and you have to do a journal in your accounts every month, or your bookkeeper does, you just have to understand why they're doing it, and that will correct your profit and loss, and correct your balance sheet, and now you can look at those figures month on month, and the margins won't move by a lot, and that is when you know you're doing this accurately. Yeah, okay, that's beautiful. That's beautiful. Now I do want to touch on one other piece you mentioned, pricing earlier, right? You mentioned, like, the frustration happens, and then the focus happens, and then they make their adjustments on pricing, and they go into their clients, and they're just like, boldface, this is what it's going to cost, and the client obliges. Tell me a little bit more about that. Like, what are you seeing in terms of the outcomes when someone squares up their web, they understand their balance sheets better, and now they're starting to pursue higher value jobs? Go ahead. Yeah, well, look, most of the industry uses the traditional model, where they'll price a job by looking at the labor and materials, and their cost of sale for the job, and then they'll add a percentage. Someone might have a builder that an older builder might have told them what to add to that in order to make a profit, but generally no one really has a clear idea of what they need to add in their business. So they get this percentage, they add it, and they just hope to make a profit. Now, the beautiful thing that happens when a builder understands the work in progress calculation and they understand profitability is they no longer become fixated with what they're adding to their cost of sales, they get more fixated with what's left at the bottom, the net profit, and that's what we focus on in terms of the builders we work with, the formula we give them to price their jobs, because it's not about adding a percentage to your cost of sales and hoping that you make money at the end of the year in terms of net profit, it's about understanding what your fixed expenses are, and those fixed expenses must include your salary at a market rate, and when I say a market rate, if you're working 60 hours a week, you got to bring in two people at least, maybe even three to work as hard and fast as you do, that's the reality. So, what is that? Typically, it's about 5% of revenue, so if you're running a 600 sorry sorry, a $6 million a year construction business, you should be putting through a$300,000 a year salary. Yeah, normally builders do that, and you don't have to draw the money out as long as you're doing a journal. Now you've got your fixed expenses showing reality, and what we do is we look at the fixed expenses for a year, we'll divide that figure by the number of weeks in the year that the construction business is running, and then we'll divide that figure by the number of jobs they can run concurrently, and then we will divide that figure by five, because there's five days in the week. Now we know how much it costs in fixed expenses to run each job per day, so when we're pricing a job, we don't just look at the cost of sales, sure, we need that figure, but we need to look at the job schedule and see how long's this job going to run for, and we look at the number of days, and we put, obviously, we put some contingencies in there as well for weather, but when we multiply that figure by our fixed expenses per day, now we know what the fixed expenses are going to cost to run that job. So we add that to the cost of sale. Now we got what we call our true break even point, and anything we add to that is effectively net profit. And when builders start thinking about that, this is how they become profitable, and we find, you know, from from experience, builders love this calculator. They start using it generally, they then go back to the traditional method of adding a percentage, but they tell me they always use it as a cross check. Of course, I don't know why you'd go back, to be honest, but this is what the year they tell me they do. You might as well just use the calculator going forward. But what this does is it stops builders underpricing the bigger jobs. So you're doing $6 million a year, you're doing 10 jobs at 600,000 you get a nice big one come in at 2 million or 3 million, and you start looking at the dollar figure that you're adding in profit. A lot of builders like, yeah, they kind of think, "Oh, I'm going to trim that, I really want this job, and they start trimming. It's actually the opposite, you know, when you put it through, when you really understand your numbers, you realize that job's going to run for so much longer, and it's also going to consume so much more supervision time, because now you can no longer run six jobs at a time, you, you can run this job and three jobs, so that factors into your fixed expenses. So, you've got to look at it in a very different way, and that's what this calculator effectively does for you. So, it allows builders to price their jobs correctly, no matter how long they're going to run for or the value of the jump. What's up, everybody. Quick interruption before we get back into it. If you're a contractor who wants to walk away with an extra $20,000 in your pocket for one hour of your time, listen up. On June 30, we are partnering with Paul Atherton and the team at Highspire for a live webinar, and we're calling it exactly what it is. How to increase net profit. This is no fluff, no sales pitch disguised as a webinar. Paul is going to hand you the actual levers overhead you're hemorrhaging right now without knowing it. How gross profit per week tracking can move you from 10% to 15% net margin, and how to stop letting schedule creep quietly kill your projects. Contractors who have implemented this stuff have saved upwards of$300,000 on their bottom line. One guy knocked 46k off his overhead in a single week. So, register now. The link is going to be in the show notes, june 30, 9am Pacific time. Don't miss it. I want to, I want to touch back on the, like, the two to $3 million job controlling or reducing the amount of projects that you can actually take, because I think that's going to be an interesting piece, but really, like, what this, I mean, it's like it's turning your business into a business, right, it's not actually like I just like building. Things, and I can make money at doing it, and I go into this great opportunity in my market, and I can take on all this work, and I can do it, but you don't have the overhead, you don't have the support, you don't have the fundamentals in your business to make that network worth it, and then when you start digging in deeper, you're like, why are these builders going through scale, working 80 hours a week, getting burnt out, trying to hire people that aren't on systems, canning all those people, and then starting back from scratch. It's like, if you do this methodically, and you're looking at what does it actually cost for us to produce this product, and how many of those products can we build. It's when you throw a $2 million project on top of an original $600,000 product, right? It's just a totally different game, it's a different business. Yeah, and we hear this from a lot of guys, they're passionate about what they do, especially, you know, custom homes, they love what they do, and they're not so maybe interested in the business, and they do work long hours, and they do it for not a lot of money. And I always give this advice to guys, I say, go and get a job with someone else. Yeah, you'll work less hours, you'll actually get paid a lot more, you'll be a lot happier. And they will, they will look after you a lot better than you're looking after yourself, you know. While you're doing it the hard way, you're, yeah, you, you're a great employee, you're not a great employer, right? Right, totally someone else. Yeah. Okay. And so I just on that thread, do you think that people can become strong employers if they follow these steps, or do you think, yeah, go ahead. Oh, look, absolutely. Because I think one of the fundamentals of being a good employer, it still comes back to knowing your numbers, because you got to be profitable, so you can attract the best talent and look after them, but culture is a, is a real big thing. This is, you know, it's kind of the stepping stones. Obviously, there's, there's many levels to running a successful building company. Financials is always where we start, and then you need to ramp it up with the marketing, then you need to understand how you can close those leads into sales, but then you got to start looking at culture, because culture will really determine the success you're building company as it grows. You know, you've got to have your core values in place, and when you have a strong culture, you attract the right people, you attract the best people, you retain the best people, and you repel the people that you really don't want in your company. Totally, I feel like we could do an entire episode on Culture Russ, and such an important one. Yeah, totally, totally. Okay, but so let's go back to like the construction starts, okay? And like how contractors actually do view right, they're getting their traction, they're getting, they know their numbers right, they're they know whip, they're pricing things out right, and then they get an opportunity at a two 3x project, right. Talk to me a little bit about how contractors should look at managing that type of growth, how they should be looking at their starts, how they should be preparing for that type of growth once they do know their numbers and all their wealth. Yeah, look, my professional advice would be, stay in your lane, just do the $600,000 jobs, because when you get a system going, that is when you become the most profitable. But most builders don't want to hear that, because they love the idea of doing this project, they fall in love with it, they're passionate about what they do, so it's understandable, but I think every builder understands this, that yeah, if you're going to take on a $3 million job, it's going to take a lot more supervision than a 600,000 which is, you know, quite well streamlined. We all your processes, there's going to be things that are going to come out bite you, there's a lot more decision making, it's going to consume a lot more time of, you know, of a supervisor, so that reduces your capacity, which obviously has an effect on your on your fixed expenses. So, yeah, it's very important to understand that, and I guess one of the most common ones that we see is it took to builders, you know, what do you do? Is it new homes or remodeling? I do a bit of both, yeah, yeah, I do three or four new homes, and then I'll plug the gaps, remove remodeling. Well, that's not as good a strategy as a lot of people might think, because you might think, well, I'm keeping my team busy, therefore I'm being more profitable, but the reality is these are two very different business models, and the way to be profitable is to be streamlined, systemized, follow a repeatable process, and you can't do that if you're doing new homes and remodeling, you're effectively running two companies, and obviously affects your marketing as well, because if you're marketing for new homes and plugging the gaps, well, that's one thing, but you really want to double down on that, and and get it to a stage where you don't need to plug the gaps with other projects, but if you're doing it intentionally in your marketing and new homes remodeling, well, you're actually. Hampering your marketing specialist, yeah. All of a sudden, well, I don't want a new home and a remodel, so I'm not going to go to them, I'm going to go to the person that just does new homes, and you see that new homes, remodeling decks, industrial, commercial. Yeah, you're never going to find someone that wants all of those things, right? But people think they're appealing to people that want one of them, they're not, they're appealing to the person that wants the whole lot done in one go. Yeah, totally. Okay, so your advice, and correct me if I'm misunderstanding, like your advice would be like, if you start out in remodeling, get the remodeling business humming, build the processes, make it repeated on that. Yeah, only take on remodeling jobs, purely stay focused on that. If something comes to you outside your lane, recommend them to someone else. Stay focused on what you do. Be a specialist. Yeah. And then at what point, because you're naturally, I would imagine, is like an entrepreneur, business owner, you're going to have that curiosity, and you're going to see, you know, whether it's a curiosity or it's, you know, it's a, you know, a volume of interest, right? It's like I keep getting these new homes coming through, and I'm listening to Russ, and I'm remodeling away, and this thing is looking good. How do I get into the new home world? Would you suggest, like, completely remove yourself from the remodeling world, get a general manager in there, someone to run it, and then spin up an entirely new entity and go through that process with new construction? Or how do you recommend it? Yeah, look, there's a couple of options here. Generally, what we see is builders, like you say, they do start out doing remodeling, and then they get to a point, you know, two, 3 million, where they want to transition into new homes, and there's a very good reason for that. It is quite difficult to scale a remodeling company beyond 10 million, and that's because of the expertise required on site. There's a lot more decision making, there's a lot of stuff that you just don't know when you begin, and you just can't put inexperienced team members in charge of those decisions. So that hampers a company's ability to grow beyond 10 million. In remodeling can be done, but it's a lot harder. The easier path, if there is an easy path in construction, is new homes, and this is why we see a lot of guys, they want to transition. So, generally, what they do is they do transition, so they do, they start getting these inquiries, they start cutting their teeth on one or two, but you have to make a call at some point. This is what I want to do, and at that point, you've got to refocus all your marketing on new homes. You're still going to pick up the remodeling projects in the background, because you've got a reputation, you're getting recommendations, but your focus now needs to be just new homes. You don't want to do the new homes or remodeling path, because that will hamper both areas of the business. Okay, okay, so just hard, hard and fast, keep it separate, keep it separate. Yeah, but you've got to be intentional. This is where business planning comes in, you know, because this affects everything as well, it affects your company structure. So, really, this is where it's good to speak with an expert. This is where coaches and consultants come into play, because why would you try and figure this stuff out on your own? Yeah, you can talk to someone that's seen it 100 times before, they will give you the exact template, the path to follow, and when you follow a plan, it's like, yeah, you wouldn't build a home without plan and specifications and scope of work, yeah, because you know you can get in there, you can do that job in 26 weeks, you know, when you're falling behind, when you're going off track, you know, why would you try to figure out this stuff in business on your own without a plan, just from someone that was building 2030 years ago, when the industry was very, very different, and a lot of their experience just doesn't apply to modern builders. Yeah, totally. Okay. Well, and on that point is like with the planning, right, and with that is that service that you guys provide over at APB. Yeah, I mean, this is exactly what we do. Business planning, we figure out where the focus needs to be, and then we guide the builder. Accountability as well is a big part of that, because, you know, of course, know what it's like. It's tough in this game, you know, the hours are long, but yeah, if we see a builder there, I had one just the other month, you know, long-term client, but in the numbers came back, he's working 50 hours a week, that has a detrimental effect on the value of his building company, and he kind of knew, but he said he was happy with that, but yeah, when he actually looked at it and realized there was a key position he was missing in the company, and he knows now that if he fills that position, his hours go down to sub 40. Yeah, he's a family man. Why wouldn't you? I mean, it's all very well done, 50 hours if you want to, and you're working on the business, but if you have to, that's a very different feeling. It's a very different thing. Okay. Well, and this is one little piece that we had talked about earlier. Year, you talk about business valuations, right? Tell me a little about what you guys are doing over at APB in terms of business valuations. Yeah, look, there's a - there's always a strong connection between a business valuation and building a better business. Yeah, they are entwined. So, I got quite fascinated with the whole valuation methodology and what we put together was a tool that will analyze all aspects of a building company in order to establish what the likely value of that building company would be, and what we found by doing this, it doesn't really just apply to someone looking to sell, it really applies to anyone in business, because if you can work on your building company with a focus of making it more valuable to someone to buy, first of all, you make that company saleable, which means you no longer feel trapped. Too many builders I speak to, they're trapped because they built the company is worthless, they've got contracts, they can't leave. It's a terrible feeling to be in, leads to a lot of depression and anxiety. But if you've got a company that you know that people would queue up to buy, that gives you a level of freedom. And the beauty is, when you get to that point, you're no longer tied to the business either, because you've got a business that effectively runs without you, so it's understanding what the key levers are, the key positions that you need to have filled, not just with employees, but with management. Yeah, I'm talking about leadership level management. When you understand all these different key metrics that you need to be working on and how they affect evaluation, then you can get focused on fixing those over the next year, so by the time you are ready to sell, you're going to get top dollar, and I can tell you, the, we did a valuation on a, on a building company, a long-term client of ours, actually, when he started with us, he was doing one and a half million, he's now doing 15 million, but I did a valuation on the business, and I know what a $15 million a year building company should be worth, but he only achieved 40% of that value, and it was because there were two fundamental things he was missing, and there was missing one key position, but also the profitability, you know, he was underpaying himself, he was drawing it out a net profit, therefore he was underpriced in his jobs. You've got to get your ratios right, because what buyers are looking for is transfer ability of cash flow and certainty. So they want to know that that business is going to operate without you, and they want to know that what they're buying, which is cash flow, it's net profit, they want to know that what they're paying for is going to continue with as much certainty as they can get, so the more certainty they can get, the higher the ratio they will pay for that cash flow, and when you got low certainty, they're not going to pay very much, which is why most building companies are not worth anything at all. Interesting, I love that. So, how do they, how do they get evaluation from you guys? Well, we hadn't launched this tool yet, but what I can tell you is the business brokers that we've looked at are charging$5,000 or more for this level of reporting and service, but because we haven't launched it yet, what I said I'd be happy to do for the listeners on this show, I'd be happy to provide that report free of charge. So, I think you've got a link that you can welcome to share with your listeners, and what they can do, or you click on that link, and it will ask you a series of questions about your business. Don't worry about trying to fill everything in, if you, if you don't know, fill in as much as you can. If there's any crucial gaps, I'll come back and ask you a few, a few questions. But when I've got enough information, we'll send you through the report completely free of charge. It will be very comprehensive. You'll see exactly what you're doing well, where the gaps are, what the value of your business is, and what it could be with a few small changes, and if you'd like to book in to ask any questions, I'll even throw in, you know, a free consult as well to answer those questions. So, yeah, that's that's my gift to you, as a just as a thank you for having me on the show. I love it, I love it. No, Russ, I appreciate that. Um, we'll get the, we'll get the link in the show notes, um, we'll post it on our content, because I think that, I think that was your, a great point that you had made. It's like a business valuation isn't it's valuable when you're trying to sell a business, obviously, but it's just as if not more important to understand the valuation of your company before you get there, right? It causes a lot of that heartbreak, a lot of the why can't I get out of this business, and you can start evaluating what can I do to stand this asset, this company up to something that someone else would buy. So, I love that. Very generous of you. We'll get all these links in our posts. It's like the analogy of when's the best time to plant a tree, isn't it? Yeah, 10 years ago, but. A yeah, when's the second time, like right now? Well, this is, yeah, the same with business valuation. Yeah, you might not be looking at the sell, but yeah, you got to be thinking about the value your business now, 100% 100% Well, Russ, I appreciate you greatly for jumping on the show. I think this is a great episode, and especially around topics that a lot of contractors, whether they're a million a year or 50 million a year, do struggle with, and you're a wealth of knowledge. So, thanks for jumping on and sharing some of that with us. Ah, look, thanks for having me on. Love talking about this stuff, as you can probably tell, of course. Okay, cool. Well, and for everybody else, this is APB Association of Professional Builders. You can find Russ everywhere. Again, we're going to post all this in the show notes, but again, I appreciate your time, and also enjoy the rest of your day. You're just getting started. Yeah, the sun hasn't even come up yet. There you go, there you go. Well, you'll have plenty of time to get on your patio and enjoy a cup of coffee. I appreciate it. We'll see you, Russ. Cool. Thank you.