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Why Most Contractors Work Hard but Stay Broke (And How to Fix It)
110 Plays1 month ago
In this episode, Brent breaks down why so many contractors stay broke even while working harder than ever. From weak collections to poor margins, Brent shows you the exact fixes you need to stop chasing jobs and start chasing profit. With action steps like auditing crews, tracking every cost, and adopting a profit-first mindset, this episode gives you the blueprint to finally put more money in your pocket.
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Transcript
Introduction and overview of the Giraffe tool
00:00:00
Speaker
Welcome back to another edition of the Better Contractor. If you're on YouTube joining today, you'll see I'm on job site. I'm on a piece of equipment. You're probably wondering what in the world is this piece of equipment. You can see part of the name here.
00:00:11
Speaker
This is giraffe. This is telescoping tree trimmer. welcome back to another edition of the better contractor if you're on youtube joining us today you'll see i'm on a job site i'm on a piece of equipment you're probably wondering what the world is it piece of equipment you can see part of the name here this is a giraffe this is a telescoping tree trimmer that is often used in utility and pipeline work for trimming back to the edges of the easement, which is primarily what we do at Lander Corp is we maintain vegetation management for this industry, for solar fields and stuff like that. So that's what I'm doing. Thought we'd do something little different outside of the normal podcast space.
Why contractors stay broke despite hard work
00:00:46
Speaker
So what is the topic today? So today we're gonna look at profit leaks. Why most contractors work hard, but stay broke. I hear this all the time. I've never been busier, but I'm still struggling to make money.
00:00:58
Speaker
If that's you, Today I'm going to break down the hidden profit leaks that are draining your business dry and exactly how to fix them so you can keep more of what you earn. The fixes are often simple tweaks that you can implement quickly that will change your bottom line.
00:01:12
Speaker
So let's dig in. Let's first look at the problem. Number one, most contractors think more job equals more money. That is not true if you have bad margins. Number two, let's look at some common traps.
00:01:24
Speaker
Underbidding just to win work. Stop racing to the bottom. That is a lose-lose, and that's the reason most contractors fail. Who cares what the customer wants to pay? You have to price the job correctly.
00:01:36
Speaker
Hidden overhead that no one is tracking. So many contractors have no idea all their overhead and the cost, and they price the jobs wrong. I see this all the time. Number three, doing favors for clients that never get billed.
The impact of misbidding and scope creep
00:01:50
Speaker
You have a scope of work for a reason. So guys, what is the pain point that we're talking about here? You're working harder than ever, but your bank account is not moving. You and i both know that you cannot do that for long.
00:02:02
Speaker
I have a short story here to tell you guys. So several years ago, we did a project that our estimator simply bid wrong. It was a new industry. We were excited. It was about a $700,000 job that ended up costing us about 1.3 million to complete.
00:02:17
Speaker
So guess what? We weren't excited for very long. What was our problem? We misbid. When we dug into the Y, we found out there was scope creep, inaccuracies in the scope, and miscalculations on production.
00:02:29
Speaker
We didn't know our inputs well enough. So I want to compare that job to a job we recently did in Michigan.
Identifying and fixing profit leaks
00:02:35
Speaker
So in Michigan, we had a job where we sent an estimator up, the scope of work was super clean had a project manager on site and because of all the details we had on that job the estimating the scope of work all of those things being super super detailed on that job we absolutely did the opposite and we killed it so two very different jobs so let's look at the big five profit leaks leak number one under bidding jobs Low bid thinking kills you.
00:03:01
Speaker
You must only price jobs based upon historical data that you've tracked. You must know your numbers in your overhead and you must price it accordingly. Play the numbers game. If you went 10% of bids this way, then you need to bid lots of jobs and do your marketing to the clientele that can pay that reasonable wage.
00:03:17
Speaker
Stop dicking around with customers that only want cheap. They do not understand business or why quality work is important. So I ask you guys a question. Do you know how to calculate true costs with overhead factored in?
00:03:28
Speaker
I can't answer this question for you, but I can say if you don't, you need to get a good software and accounting system that pulls all of your information into one place so you can run financials, you can run KPIs, production, and job tracking.
00:03:41
Speaker
Get one for your industry that's tailored to you, that is all-encompassing, that can do this, or check out something like NetSuite or Odoo where you can customize it. But gather this data and then use it.
Solutions for cost tracking and management
00:03:53
Speaker
Leak number two, scope creep and free work. Crews or customers asking for extras, this adds up big time. You have to stop doing that. The solution for this is contracts, change orders, and very, very clear scopes.
00:04:07
Speaker
Scope creep is way too common. Leak number three, poor job costing. Tracking revenue, but not cost per job. You need to be tracking these numbers daily or weekly, not only at the end of the project.
00:04:20
Speaker
Again, we go back to software and systems. This way you can see the change in real time and then you have to course correct it.
Addressing inefficiencies and improving collections
00:04:28
Speaker
Leap number four, inefficiency in scheduling and equipment.
00:04:31
Speaker
Guys, downtime equals wasted dollars. It's simple. Let's look at example. You have two guys waiting on a machine that costs $100 an hour at idle wages or all crews taking 30 minutes to leave in the morning.
00:04:44
Speaker
Fast math. Let's say you have 15 employees, 30 minutes a day of wasted time, $25 hour, that is just shy of $1,000 a week or $50,000 a year. That's just one small example. That's just 30 minutes a day.
00:04:56
Speaker
You have to audit your crews. There is stuff like this everywhere inside your company. Leak number five, weak collections. So I see contractors who finish a job, but they fail to invoice quickly, keep up with collections, or they chase payments for months.
00:05:11
Speaker
The solution here is to have a clear payment schedule In deposits, in enforced terms, ask for a structured payment plan. You don't need to get all the money at the end.
00:05:22
Speaker
Offer financing for large jobs. Ask for deposits. Have a contract in place with very clear payment structure at different times for your cash flow. So guys, what are the action steps we have here? Guys, you have to track everything.
00:05:36
Speaker
Labor hours, equipment time, materials, overhead. Get the systems and processes in place to track data and then use that data to bid jobs accurately. Second, stop, scope, creep.
00:05:48
Speaker
Have robust, detailed contracts. Do change orders and not favors. Three, know your costs. Get the system software apps in place now. you're wondering when to do that, the answer's now.
00:06:01
Speaker
Four, cash flow discipline. Build out a payment structure, collect the deposits. Your goal is to keep cash flowing and remove the risk of non and late payers. You have to have a structured payment plan for cash flow.
00:06:13
Speaker
Four, profit first mentality. You have to build profit into every bid instead of hoping that is what is left at the end and stop underbidding. Stop playing that game. So guys, to recap, these profit leaks do not happen overnight. They drip away job by job until you wonder why you're broke.
00:06:31
Speaker
If you can just plug just two to three of these leaks, you'll instantly feel the difference. And remember, 15 employees, 30 minutes a day, 25 an hour is $50,000 a year. That is just one very small example.
00:06:42
Speaker
So want to give you guys a challenge this
Auditing jobs for profitability
00:06:44
Speaker
week. This week, pick one job, run your real numbers. Are you actually making money or are you just staying busy? Why did you not build enough profit in? Was it a mistake, a lack of knowing your overhead, or were you just chasing jobs versus profits?
00:06:58
Speaker
Be real with yourself. Find the issue this week and correct it. Guys, these are simple little things that you can do. Hopefully, you can take two or three of these things and make a big difference.
00:07:08
Speaker
I can think back in our past where we've made little tweaks, like the 30 minutes was actually an example that we had from several years ago. We did some stuff with lunchtimes, just a bunch of little changes. And honestly, if I go back, I can tell you a story back whatever year that the Affordable Care Act was put into place.
Learning from past adjustments
00:07:27
Speaker
That was kind of thrown on us because the law changed back and forth. Anyway, we realized we have to do it. And at that point, we had already had most of our contracts bid with our customers. So when the prices were set for that upcoming year.
00:07:40
Speaker
So we had to figure out a way to pay for the Affordable Care Act, which at that time I think was going to cost us around $100,000. So this is exactly what we did. We looked for leaks. We fixed those leaks.
00:07:51
Speaker
And then that paid actually for that Affordable Care Act was actually out without passing on directly to our customers. So guys, kind of an action-packed, short, simple episode, but hopefully a lot of good content.
Community support and networking for contractors
00:08:03
Speaker
If you enjoyed it, again, we've been ending several podcasts lately with a call out for our Facebook group. If you're enjoying it, jump in that Facebook group. There's about 1,700 people in there right now, other contractors.
00:08:15
Speaker
And the goal of that group is basically for you guys to network, to help each other. Like I've said on past episodes, most likely when you have 1,700 contractors in there, entrepreneurs, someone has dealt with a problem that you're dealing with that maybe you don't know how to get through, ask that question, have people help you.
00:08:32
Speaker
Or maybe you're that person. Maybe you're the one that has walked through something and someone else needs your advice. Jump in that group, help each other out. The goal here is to elevate the entire contracting community so that we can all make more money and make these businesses scale.
00:08:46
Speaker
My goal with the contractor community as a whole is I see way too many who are just doing this because that's what they know to do. They're not building an actual business, which lowers the standard for all.
00:08:57
Speaker
And I want everyone to build a a legitimate business that is making them really, really good money. And when that happens, we all elevate the standard. And hopefully the underbidding low bid game stops or goes away almost.
00:09:12
Speaker
And that is the goal. But guys, you like this podcast, please do share it. Love you guys. Catch you next time.