Become a Creator today!Start creating today - Share your story with the world!
Start for free
00:00:00
00:00:01
Why Most Contractors Will Never Get Rich (And How to Be the Exception)
100 Plays1 month ago
In this episode, Brent Oberlink focuses on the 5 things entrepreneurs must do in order to increase their net income. From profit margins, to cash flow, to SOPs - Brent breaks down exactly what you need to do to turn your contracting business into a profitable business.
#Entrepreneur #BusinessOwner #Scale #BusinessGrowth #Contractor #TheBetterContractorPodcast #ContractorPodcast #BlueCollarBusiness #BusinessTips #IncomeGrowth #Scalable #ScalingStrategies
Recommended
Transcript
Introduction and Purpose
00:00:00
Speaker
welcome back to another edition of the better contractor today is a solo podcast hopefully one that you will find beneficial it'll be a little bit fast-paced and hopefully uh one that is
00:00:13
Speaker
fros welcome back to another edition of the better contractor today is a solo podcast but hopefully one that you will find beneficial it'll be a little bit fast paceced and hopefully one that is something you can take some nuggets of wisdom from and execute immediately in your business, which is the type of podcast I like to listen to.
00:00:31
Speaker
So guys, let's get straight to the point.
Why Don't Contractors Get Rich?
00:00:34
Speaker
Today, we're going to talk about why most contractors will never get rich. And then the important part of that is how to be the exception.
00:00:43
Speaker
So guys, the sad reality is most contractors do not get rich. They'll grind 60 hours a week. They'll take a bunch of risk and they'll still retire with barely enough to scrape by. And it isn't because You don't work hard, we don't work hard, we all do, it's because you're building your business the wrong way.
00:01:01
Speaker
Today I wanna break down the exact reasons that most contractors fail to build real wealth and the steps that you can take to be the exception. So let's talk about the harsh reality.
00:01:12
Speaker
So number one, contractors mistake revenue for profit and those are not one and the same. I'll give you an example, a $2 million dollars contracting business with 5% is poorer and a guy running a $400,000 long business at 30% net.
00:01:28
Speaker
In the past, I've talked about, you know, people getting big contracts, let's say a million dollar contract. Well, if that million dollar contract cost you 1.1 to complete it, you'd have been better off to have never showed up and done anything at all.
00:01:41
Speaker
And sad reality is most of us have probably been there at some point. If we have been in business long enough, you've probably misbid something. But if you have, you truly get that point. So do not mistake revenue for profit. It is not the same thing.
Missteps in Business Growth
00:01:54
Speaker
Number two, they stay on the tools for too long. So what do I mean by that? I mean, you're good at what you do and you basically stay there. and You do not branch out and actually start running your business. You do not hire a crew. You do not step away. You do not build the systems, the processes, is everything it takes to build that business. You do not set that up and hire the right people so that you can focus on the business and not be daily in the business.
00:02:18
Speaker
Number three, they undercharge and they undervalue their work. Guys, contracting is notorious for low bid deals. The thing is, there will always be that.
00:02:29
Speaker
But what I want to challenge all of you to do, there's two types of people that do low bids. Number one, typically it should be a brand new contractor where you have nothing really new to offer yet because you're brand new.
00:02:40
Speaker
You don't have any experience. You're brand new the game. You don't have a work history, whatever it is. That is your main selling point immediately is price. However, I still don't necessarily so want you to go out there and just be cheap only. I don't.
00:02:53
Speaker
But that's typically who that is for and that's all it should be for. You guys have been in the game for five, 10, 15 years. You really shouldn't be chasing these low bid models anymore. The second type of person that is for is for a homeowner or someone you're doing work for.
00:03:06
Speaker
that really doesn't get the big picture. They may not have the core values, the best practices in their business. They are someone that just wants something cheap. You can equate this to like cars. The contracting world is notorious at allowing customers to dictate what you charge.
00:03:21
Speaker
And that honestly pisses me off. And the reason being, let's say, well, I don't want to name brands, but think of a really high-end brand, a sports car brand that is $300,000, $400,000, $500,000 car. there you nobody thinks about walking in there and saying, hey, I'd like to buy that car for $50,000. You just don't do it. It's dumb.
00:03:41
Speaker
Everybody knows it's dumb. You don't do it. The contractor world has to fix that. little bit of a tangent there, but guys, stop undercharging, under undervaluing yourselves.
Building Wealth vs. Income
00:03:50
Speaker
Number four, they do not understand wealth building. So guys, you probably know, but take-home income does not necessarily equal wealth.
00:03:57
Speaker
Wealth is something that is built through assets, through systems, through scalable profits. And what I mean by the last two is you have built a business That is a system. It's a machine. And with that machine, you're turning out a profit.
00:04:11
Speaker
When you have that machine, it allows you to take a vacation. It may allow you to step back and simply just focus on the big picture, the vision of running and owning that business. And when you get closer to retirement, you're going to want that business to be that machine.
00:04:25
Speaker
But if you're daily in the business and not ever setting up those systems to processes, it owns you and you cannot step away and it is not making you money. what Well, it will only make you money while you're there.
00:04:36
Speaker
So if you step away from it, then you're not making money. The idea is you can step away from a day or focus on something else in the business and it is still making you money. That is a machine. Some examples of that would be, you know, I know someone owns a tree company.
00:04:51
Speaker
They had a crew. They went and bought a like a feller buncher, one of the really, really nice ones. And that has sped up their processes. It will eventually allow him once he has people trained to step away a little bit from being on the crew every single day, that one machine will replace some people, but it also speed up the job sites. it allow him to do more jobs, but the investment in that machine, which is also an asset and it's a unique enough machine that it won't depreciate like crazy, but that is an asset that will make him money.
00:05:21
Speaker
Systems. You think about software, you think about apps. The more and more you have those systems in place where you can go to a dashboard on your screen and see your KPIs, see what your business is doing. The more you can do stuff like that and set stuff like that up, the more that is a machine that you can then look back and say, hey, I can change this KPI. I can change this on my financials.
00:05:43
Speaker
That equates to $100,000 extra here. That is the goal of this. And that is where wealth will come from. So the next part of this, guys, I think is you have to look at the root causes.
Strategies for Overcoming Challenges
00:05:53
Speaker
So the issues that we just defined that we just talked about, what causes those?
00:05:57
Speaker
And what I've seen in contracting law is number one, you may have an ah identity trap. Common thought is I'm just a contractor. I'm not a CEO. I originally started this business. I'm just doing this because I know how to do roofing. I know how to do this. And that's great.
00:06:11
Speaker
And if that's all you want to do, You're probably not listening to this podcast, but if it is, I would challenge you to think outside that box and to think about this as a business that can make you more money. Because the fact of the matter is, if you're in some of these construction trades, you know it's hard on your body.
00:06:26
Speaker
You're probably not going to do this much past the age of forty s and 50s. And at some point, this is what you love to do. And at some point, you're going to want to be able to step back a little, let this business still run and still make you an income.
00:06:39
Speaker
Number two, there's a fear of delegation. This is common in contracting, but it's the fear that basically no one will do it to my standard. And I get that one, but that is one you will have to overcome because you cannot ever become a business.
00:06:55
Speaker
You're just going to sole proprietor that's doing the work themselves. But if you want to actually have a business, you have to let that go. And to me, best way to do that is through hiring the right people, which means you actually got to really put forth effort in hiring.
00:07:09
Speaker
And what that may mean you have to pay a little bit better to meet standard that you have. Number two, it means you need to have a training and onboarding system in place. A lot of people do not want to take the time to do that.
00:07:19
Speaker
Maybe that's because they have high turnover. They think, ah, I need someone today for this job. This person has experience. i'm just going to shove them in the in the job. The issue with that is by not ever having and doing the training and onboarding, you are setting yourself up for future failure. You're setting yourself up that employee ends up leaving.
00:07:37
Speaker
You just repeat that cycle over and over and have to train people it' to meet the standard that you set, to meet the culture of your company, and you have to hire that way. If you're not doing that, yeah, you're probably going to be disappointed in some of the employees that you have.
00:07:52
Speaker
You have to get over the fear of delegation, but you have to set the processes to be able to bring those people to you. Three, poor financial literacy. What that means is basically, I feel like I can swing a hamper a hammer, but I have no idea what a P&L is.
00:08:08
Speaker
So guys, it's 2025. There are YouTube videos go lower. Hire you an accountant, have them do your actual books. It's not really that expensive. There's multiple softwares out there. QuickBooks is a common one.
00:08:21
Speaker
Your accountant and you can have two different logins. They enter stuff for you. It will spit out reports. YouTube, there's so many different options. You have to learn those P&Ls. You have to learn those KPIs so that you can step back and actually understand My business is making me money.
00:08:39
Speaker
This is a financial statement that my bank would want to have. And all that is searchable online. We can provide some stuff to help you with that. If you want to DM us, I can give you some of the very, very basics of that.
00:08:52
Speaker
But you can look at those on a dashboard, instantly know we're going in the right direction, we're going in the wrong direction. You can course correct immediately, hopefully, and get yourself back on track.
Contractor Financial Success Playbook
00:09:03
Speaker
But you have to understand the very, very basics. It is doable. Yeah, you'll need an account to actually create all that stuff. But again, you should have that in place already. The last point there is they're chasing volume and not a margin.
00:09:17
Speaker
We talked a little bit earlier about Or margins being super important. I see so many people focus solely on, hey, I landed a half million dollar job. I landed this $200,000 job.
00:09:28
Speaker
It sounds great. It feels great to say that you landed a million dollars. The issue is you did not land $1 million. dollars You landed the margin. And that margin is what is, that is the only thing that's important.
00:09:40
Speaker
Like I said earlier, you may have a project that was a $400,000 total, but if you had a 30% margin, what is that? That's 120 grand. But if you had a $2 million dollars project, but you did a 10% margin, you're at $200,000. So you can see how that margin matters so much or a million dollar project is only a hundred thousand.
00:10:01
Speaker
You would have been better off to have landed the 40% or the at that matters.
00:10:06
Speaker
that is all that matters And that is a number that you need to be paying attention to because that is the number that will correlate to your cashflow. That'll correlate to all of your different financials. So when you go to lend money from a bank, you go to purchase some equipment or whatever it is, or maybe even get purchased as a company sometime, then they're going to look at your EBITDA. They're going to say, Hey, this company is earning this amount before a taxed depreciation that you multiply by a factor of, let's say seven is a kind of a common one in contracting world.
00:10:38
Speaker
so that's changing even that number drastically. So if you're even on the fence about maybe selling your business one day, that all matters a lot. So guys, how can you be the exception?
00:10:49
Speaker
So let's call this our playbook. Let's look at this and dive into this guys. Number one, you need to price for profit first and volume second. So again, going back to those net margins, it is all that really matters on a job.
00:11:03
Speaker
Your, your, um, Gross doesn't really matter. Everybody wants to about gross income. Hey, we did $10 million dollars last year. Hey, we're an eight figure company. Sounds great. But if you lost money doing it, it simply does not matter.
00:11:17
Speaker
So you need to get into your books. You need to know each job. You need to know that net margin and walk away from those bad RFPs and walk away from those low bid scenarios. Hopefully, if you're listening to this podcast, you are good enough to not be chasing low bids only.
00:11:32
Speaker
Number two. Step out of the field and into the office. So every hour, let's just say you're a contractor and you're building houses and you're swinging a hammer.
00:11:44
Speaker
That's probably a $25, $30 an hour job depending on where you live in the United States. However, every hour that you're building the systems, you're probably working at $250 an hour. You need to realize there are jobs that can be delegated.
00:11:58
Speaker
There are things that I can hire an accountant, an attorney or whatever to do. maybe a software company to come in and create some custom software. But those are things I need to be focusing my time on as the owner.
00:12:10
Speaker
These things here, I can hire someone to do. Depending on the size of your company, you may have to step in once in a while if someone abruptly quits to keep a customer happy. I get that. That's normal for all of us. But your goal needs to be to get in the office, focus on the big picture, and make this a money-producing machine.
00:12:28
Speaker
Number three, You need to build repeatable processes and hire the right people. You will hear this in podcast after podcast from me because I think it matters that much. If you do not have the systems and processes in place, I truly do not see how you can scale a business successfully that makes you money.
00:12:47
Speaker
You got to have those processes, the software, the apps, the training, the checklist. That is what makes a business scalable, period, is being able to just plug something in, It runs its course, you spit out an end product, you have money.
00:13:02
Speaker
But just as important as that is you got to hire the right people. You got to train them and build them to do the job without you. And hopefully as good as you is the goal. So a lot of people, for whatever reason, when comes to labor, like I said earlier,
00:13:14
Speaker
They don't want to take the try time to onboard and train. And when you don't do that, you are simply sacrificing future productivity, future earnings. Your turnover will no doubt be higher with your employees and your culture is going to suffer every time you turn an employee over.
00:13:31
Speaker
So I think that is hugely important. And when you find those right people, and you have to pay them. But in order to pay and do all that, what do you got to have? got to have a net margin. You got to have a high enough profit margin to be able to do that.
00:13:45
Speaker
So that's why this is all so intertwined. Number four, need to control cash flow and reinvest wisely. So again, you need to go back to tracking each individual job. If you have a job or a niche that you're in that is not making you money and you don't really foresee a better way to to make money in that industry because maybe there are so many people doing a low bid, exit that one and find something different that's a higher profit margin.
00:14:12
Speaker
If you do not have systems and software or any of that stuff set up and set it up. The idea is if you are a small company and let's say, let's say you're a company of four people, you're the foreman, you have three of other people working with you.
00:14:26
Speaker
I would challenge you to go through whatever you do every single day and basically document it, create a system around each one of those points. And then that is what you're going to use as training, or you can buy training through a company like the better contractor or dozens of others.
00:14:41
Speaker
that will give you those basics so that crew knows what to expect. You have a standard set when they go into the field, but then you got track stuff. Like we've had, when we started doing a lot more tracking, probably we've been in business 15 years.
00:14:56
Speaker
I'm going to guess 12, 11, 12 years ago is when we really started to crack down on at least tracking. Back then it was in spreadsheets, but tracking what was done in the field. And we had a specific customer where we had, I think four crews on at that time.
00:15:12
Speaker
And we basically tracked the cost per square foot scope of work was the same for all four crews. We started tracking the cost per square foot. And this is no joke. One crew would do an average of literally five cents a square foot on this specific project.
00:15:26
Speaker
Another crew literally was doing almost 35 cents per square foot. Obviously. That immediately told me there's an issue with that fourth crew. If they're doing it for 35% and this crew can do it for five and is doing a good job and doing it safely, and the average of all four crews is around 12, that is an outlier that needs to be addressed.
00:15:48
Speaker
That is the purpose of these things is to correct that type of stuff. So that's what we did. But you have to know it or you cannot correct it. And I was suspicious of it before we put the system and process in place.
00:16:00
Speaker
Once I had the data, then I was able to say, you know what? This is the weak link. That one's not making us money. You need to find out why and fix it and then move on. So these KPIs, you need to know your ROIs.
00:16:13
Speaker
You know your key financials. We're actually building out a software right now, a custom one. We're switching from, had a few different ones that were all linked together. So now we're switching to one that is one and all.
00:16:25
Speaker
And one of the things I'm setting up right now is my dashboard. So you can customize the dashboard to see whatever you want. So when I first log in it'll show me those things. I am going to set it up to show me those KPIs.
00:16:38
Speaker
I'm going to set it up to show me the P and L, the key performance indicators on my financials. And I'm going to see that every single day when I log in and I want to compare that. I could put it in a chart, have it put it in a chart.
00:16:50
Speaker
And with that, I can see, Hey, this is how it compares to exactly one year ago or whatever I want to be. But then that will show me I'm making the right movement or I'm making the wrong movement. And i need to course correct.
00:17:01
Speaker
But if you don't have those systems in place, you will not know that until it's too late. Don't just book yourself. Again, this is not just volume or gross income. It is profit margin. So what I would challenge you there is to go through your different books, your different jobs.
00:17:17
Speaker
lot of contractors may do three or four key service offerings. Likely, I'm willing to bet you probably have two that are making you good money and you probably have at least one that is probably not even worth it anymore.
00:17:30
Speaker
I would challenge you to go through your books as a whole and then find the ones that don't really have a future and aren't making that much money and getting rid of those and putting all of your effort and time into two, three, whatever it is that are really, really good.
Viewing Business as an Asset
00:17:43
Speaker
A lot of business owners will do that with time. You'll see a lot of companies do that over time as well where they'll ditch a service offering they've had for a while. And it's simply because the profit margin wasn't there. And if the profit margin isn't there, you need to refocus your time and your energy and your team's energy on the ones that are.
00:17:58
Speaker
and Number five, You need to think like an investor, not an operator. So again, going back to the point earlier, you were building an asset actually with your business. Your business is and should be looked at as an asset.
00:18:11
Speaker
So the best way, and I think I've said on a different podcast, i don't remember what number, but the idea behind it is you should be building your business to be sold at all times. And the reason I say that is the key financials that you're going to look at when you're selling a business, that means your business is doing well because the only reason anyone would ever want to buy it is either you're struggling, they think it's a buy, and they think it easily is turned around, or two, they've seen a consistent stream of steady income in your business.
00:18:39
Speaker
Again, a money producing machine. They see that and they're like you know what? This is a business I want to buy because it is producing a steady income year after year after year at a decent profit margin.
00:18:50
Speaker
I would encourage most of you, I know some contractors who work for five to 10%, To me, you should be in that 20 to 30% ish. Again, it all depends on the industry specifically you're in.
00:19:01
Speaker
There are some that's more than that. It should be more than that. And there's some that are less than that. But to me, for most businesses, you should at least be in the 20% range. So if you're not, you need to fix that.
00:19:13
Speaker
So you can fix that obviously by reducing expenses or increasing income or both. But again, it goes back to increasing that percent margin.
00:19:24
Speaker
And one of the easy ways to do that is to ditch jobs, segments of your business that are simply not profitable.
Job vs. Wealth Creation
00:19:31
Speaker
So the idea is to producing long-term wealth is that this is a machine guys.
00:19:35
Speaker
So if that is not what your business is, is an income producing machine, then I would challenge you to think back, look through all the points in this podcast and challenge yourself to say, Hey, where are my weak links?
00:19:47
Speaker
What is my profit margin? How am I pricing myself? Do I even know my expenses? Do I know my profit and loss statement? Do I know the areas where we are losing the areas where we're losing money?
00:19:59
Speaker
Is there any potential cost savings? If you're not doing any of that, then you're just going through the motions, guys. And the business is not going to be successful long-term if you're just going through motions. So to kind of summarize this,
00:20:11
Speaker
Most contractors will grind forever and they will never get rich doing that. But the ones who think like business owners, focus on margins, on systems and leadership, that's who's going to win. And that choice, guys, it's yours.
00:20:24
Speaker
You can either have a job or you can have long-term wealth in your business.
Community Support Invitation
00:20:27
Speaker
So if this episode hits you hard, please share it with other people. If you like this, guys get in our Facebook group. We have a private Facebook group for contractors.
00:20:37
Speaker
I think we're at 1,600, 1,700 members now. We started this earlier this year. We're trying to build that. And the idea behind it is we'll share these podcasts.
00:20:48
Speaker
We'll share different topics. Someone will jump in there and say, hey, I'm dealing with this in my business. And you know what? I don't know how to get through this. Well, most likely in a group of a few thousand contractors, it's only contractors in it.
00:21:01
Speaker
Somebody has probably walked in your shoes before. The idea is help them. And if you have something or if you can provide help, by all means do so. But guys, super valuable group. Again, people have been in your shoes at some point. You're not suffering alone.
00:21:15
Speaker
The answer is in that group. You just got to ask. So jump in that Facebook group. if you haven't done so already, share this podcast. You guys enjoyed it. Otherwise, hope this was helpful. Love y'all. we'll catch you next time.