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Watch Fergus founder, Dan Pollard, share his story of how his 19 person plumbing business got through the 2011 recession by developing new...
Watch this short video with Dan, Founder of Fergus as he shares how business owners can use the 3 levers to grow their trades business
Hi all. I'm Dan Pollard, founder of Google software and long term trading. Hopefully you've watched a 5 minute video that explains the business performance dashboard. This is the longer video that explains how to take those high level concepts in tune with the day to day actions to really try and improve the key areas of your business, to improve your net profit. So in a few seconds I'm going to turn on the presentation mode. And I'll be Swarns right hand corner. It's broken into sort of four logical parts and a summary so that you can stop at each point and then come back to it. And this could be quite long, preferably up to about an hour. I do hope that you can get some value out of it. OK so let's talk about using Labor's in no trade or serious business. Before I start, then I've got just a disclaimer. So we are not trusted financial advisors. Please contact your trusted financial advisor before implementing any of this advice. So it's going to be broken into these multiple sections. first one is going to be gross profit. What is it as a business model that forms the foundation of fergus? If you can understand gross profit that the figures will make a lot of sense when it comes to quoting and invoicing and it will move into the levers, which is how can we pull this levers to maximize our gross profit? Right so the objectives from this is understanding why gross margin is so important. Right? and then how we can pull the levers. And then once you understand the levers, then it comes down to operational diligence. And that's just being day in, day out, day in, day out, just doing the same stuff really well. Right so these are the so we think about a business. We've got these big levers, a lever, something big we can pull. Right? there's not small things around the edges, but really make a trace. Business is quite simple, right? We really only have these three big levers which make sense, right? We've got the hours we work, we've got materials we buy and we've got our overheads like that. We have to maintain they're running, really. So those are our big levers. So we think about the hours we really want to be thinking, how can we maximize our time work in maximizing the hours that we build? Same with materials. How can we maximize our margin and minimize what we buy in time for overhead? Can we just always minimize our overheads? Right so this kind of what we talking about, all the tips and tricks to get into those sort of things. Right so if we think about our business, our business is in the bucket below. And this is what I call. So we're going to just talk today about on the bottom half and the top half. So in the bottom half of the screen is $1. And if you think about it, your business can only make profit when it can fill up faster than it can drain out. So therefore, we have to find ways to I call minimize the holes in our buckets. So the thinking overflows more. So that's the concept we're trying to get is because the labor materials and maybe into what you've got a lot of control over this that's really in your area of control above the line is collecting cash. And that's I talk a lot about that in other videos, but I also call that low control that we'll talk about in another video, how you get control of that. But for the next sort of element, talk about labor, which was overhead, right? How they train our market. So how can we make it as small as possible so it can fill up faster and over flight? And so it's like this, right? It's like $1. So how can we plug them? And you'll be surprised as the bigger the bucket, the bigger the holes. It gets worse. There's a lot more places for to leak out. So if you can't run a small business, you can't run a big business. So therefore, we have to learn to be really effective as a small business. And as we grow, we keep trying to be as effective as we can with controlling our business. So we think about our labor, right? So, you know, it's always your bucket in terms of, you know, it's how you earn money. But we're talking about the operational side, especially financial side. So because you got to pay your wages. But how much have you got left over after you've paid and how much have you charged out after you've paid them? So if you think about the ways that don't fill your bucket fast enough to be more accurate, it's because we're not very efficient with the hours that they're actually working because it's charging. So right. So they're working so 18 hours a day for, you know, actually charging six hours to clients because of, you know, travel time, clipping materials, meetings, who knows? The other way you don't earn enough money is part time staff because it's so you got to tradesperson working three days a week doing 24 hours a week. They're not doing enough hours in your business versus the overheads they're taking out, taking a van for three days a week, just taking all this time. They're not really generating enough income for the effort it takes to have them on board and labor not charge. We touch on the same with materials, right? The second big thing that was causing us to leak. Now, I mean, it's a very long time self self-employed 25 years talk to thousands of trainees and one of the biggest concepts I see the trainees understand is. You lose a lot of money from over buying materials, because I in theory you've got those materials. In theory they're in a van or a job or worked or somewhere. But in reality, that stuff just goes missing or gets damaged or gets used or get stolen and it's just disappear. So the big thing you have to get used to in business if you really want to grow it. And make it more profitable, is you have to minimize what you buy. And that's good just in time. Stock management and in the third level, which is the easiest to get control of, is overheads unconstrained. What I mean by that is there's just no limit on what you could spend on marketing or digital advertising, or you just want stuff. You go buy it, right? Health and safety equipment you it's just unconstrained unknowns. But had those with someone breaks into a retaining wall to then damage the vein and the retaining wall. Oh, sorry. That was unplanned, unknown. No, no, no. Also the same thing, just obviously not everybody got a handle on. So we need to find ways to get control of all these areas in our business. And those are that line is what fills our pocket. And it's invoicing. And the biggest one I see going wrong of businesses is the frequency of invoicing. They don't invoice every day. And if they do invoicing, they're often not checking the correct margin on the invoices. And then there's the collections, right? And so having a process to follow up with invoices that exceed and getting paid within the due date with minimal bad debts. So that's how we fill a flow, fill $1 no business or talk about that another day. Because we don't want to have to else. Right so what we're trying to do is trying to maximize our labor utilization invoicing frequency in our collections. Right makes sense. We're trying to minimize our materials and our overheads and the results. The profit and cash. Right and those are the two elements that make a business pleasurable. And with being in business for right profit and cash flow, you get those two ingredients in a business and business becomes enjoyable. And the phrase down below is really key to it is operational excellence leads to financial excellence. So if you want to achieve profit and cash flow, you need to have your business really running really, really well, making it as close as we can to make a McDonald's operation. Right it's just to keep the thing just runs smooth as can be. Right so now we come to gross profit. What do I mean by that? What is what is gross profit as a business model? And we'll start at the very beginning just to make sure everyone's on the same page. So this is just terminology. Sales income can often be called revenue, but it's just I like to call sales income because it's money derived from billing the customer. That's why I like to call it cost of sales as a direct cost and 0. I like cost of sales because it really is the name what it is, it's what was the cost required to get that income. And so it's the labor and materials that you've charged to the customer. Now when you minus your cost of sales from your sales income, it gives you a gross profit. Right this is very important to spend right now. So their gross profit is then what you use to pay your overheads. Right and after you pay your overheads you get a net profit 14% Now is a business fundamental for a service based business? The foundation is you should be making 10% cent profit. Otherwise, what's the point of being in business? What's the point of working for 2% or 3% or 4% net profit? Not worth it. If you're a builder, you high volume, you'll have a lower net profit when you have such huge turnover. If you're a petrol station or a supermarket, they're all about volume, different business models, but it's trading with service space, right? So it means we're selling our labor per hour. So as a rule of thumb, what is it like a business model? You want to have 10% net profit for the grief. And then we're going to work backwards a bit here. And what you say is you say, OK, what we're going to do is we're going to limit our overheads to 30% of what we do and right. So if you take 10% plus 30%, that gives you 40% gross margin. And now this that's becoming really interesting because once you have that in mind. That means every time you do a quote or an invoice, you make sure it goes around at 40% margin. And then when you get a handle of your business with your business advisory accounts, you start learning how to control your overheads to 30% of turnover. And hopefully if I explain to the penny will start to drop. If you always guarantee that your quotes and invoices go out at 40%, you bring them on time, on budget and you control your rates of 30%, you will make a profit. Now that means you need to know what your habits are going to be in your accountants and 0. Do that really, really well. But as soon as that penny drops in your mind, you'll go, oh, my gosh. Right however, for me, when I was about I know, 28, 29, 30, it was like I that's what I've been doing wrong my entire life is actually one of the things that led me to build Fergus, which was of, I don't know, my gross margin at all times. I can never make good profit because I need to make sure my invoices are hitting that gross margin target of 40% because I could work out, I could control my obesity 30%, but I needed to know what my invoices were going out it. I needed to make sure they had that gross margin of 40% So I could make 10% net profit. And that's critical. So this part of the 43 team, I've got a couple more slides that explain what's important. So if we look at this, this is a research that get really interesting, right? So the high performance report is built on these principles. So we're looking at company two right here, mainly noise turnover, which is, you know, nobody calls a cell 626 what they paid for labor and materials and wages. So they had a 38% gross profit. Zwischen that's not bad. Not too bad. 30 to 40. The overheads were high, but a little bit higher to be, say, full. But the net profit is only 4% And so what you get to see is how these tiny little difference in percentages actually have a really big impact. So the next slide would be the same thing. So this is that same example, right? So the company one and company two. So we look at only two on the right hand side, same figures, million. The reason the cost of sales is a bit less is because we just have been more efficient with the around getting more effective on the labor because they charge more for it. So it seemed like they got less for it's hard to explain, but just trust me. So what we have, though, is they were discretely gross margins of 42% in drop the IP into the 27. And they got 15% net profit. Right but look at the difference in the bottom line, the dollar value. Right so just these small little differences on percentages over the course of a year have this measure of impact on the actual net profit amount that you drag off. And so the aim of what we trying to do in a business is go, OK, well, how can I always make sure I keep my jobs at 42% and drive ABC to 27%? That's where we want. We want to be getting our businesses to this. The big point. So if you're not quite sure what are what the difference is between course itself is over here. So our cost of sale is that you can charge the customer for. Right so that's all the labour, all materials, rubbish, rubbish removal contractors, everything that you bought for that job, you can charge overheads, uniforms, marketing, advertising, all those things, all those sort of intangible. That's an overhead. And if it's unfamiliar to you, then it can be very helpful to get your accountants to go into Xero and code, your chart of account code so they end up correct for you. Right we had our first Labor topic, which is going to be labor. So I mean, I see a lot of data and I see a lot of businesses struggle to really make a profit. Now, if you're a sole trader or working from home, you only profit can often be 15% to 20% because your, your home is masking your true IP components, subsidizing your business for you. But if you've got a business premises and you've got some office staff getting over 10% net profit can be very difficult. Very difficult. And so why is that? So why is it most traders struggle to make 10% in profit and here's one half of the problem. So if you think about this 10% profit, 40 hour week, you're only making money in the last four hours of the week. Right so all your money is made between 12 PM and 4 PM on a Friday or the last half hour every day. It's kind of it's quite if you think about that, all last hours. Right it can get quite tough if you think of it like that. But that is the reality of it. And so if you knock off early during the week on Fridays, you can see how you can really eat into your net profits and why it's hard to get above the 3 to five costing you profit because you have to do these full 40 hour weeks. Every single person is one of the reasons why part time staff really drag down your profit, your profit, the profitability. And so, you know, I had 25 staff and now it's possible to get them up to 92% over a long term charge outright. And this is why it's important to look at the figures. He was just with three staff. We can see the difference in profitability in one week over three guys between. You know, working 42 hours and charging 76% That's a pretty common rate that I see. But we can see if we can consistently do 40 hours chargeable at 90 to the scenes, we end up at a good gross profit. And that's what we're aiming for in our business, is how can we consistently get our guys to do this 40 hours a week, plus lunch breaks at 90 to the scenes. I'll be doing 50 hour weeks doing stuff out, and it's not encouraged long term to retain stuff. So 40 hours a week, plus lunch breaks and plus the travel time. Those are 50 hour weeks for the guys. So what are we thinking? OK, all those 40 hours, how can I make sure 92% of them are charged onto the jobs? And that's where we have to get the business to, to be on this way, to making good profit, to get good gross margins. So why is it so hard to get it right? We need to know how long it's going to take. This not as easy as ends, but actually what it comes down to is you need to manage the job to make sure it is within the Dallas. And so this is how could a jobs go wrong all time? I see this. Why did this. We're all guilty of this, right? And it's probably these are the key things that go wrong. Right it's picking up materials on the way to the job rather than getting out of race. Knocking off a bit early, getting called up to another job is a big issue, especially on creative work, right? Call them off to go and just do that on the way home. We've got different traders coming in and off the job over days. Gosh, how often does that happen? And another big one is they're not told how many hours they have with a 3 point the first week, so they just got Willy nilly. They've got no idea if there's a timeline or a deadline. So those are all the big things. But the next one is going to it should be interesting for you. The next graph. So here we have on the table left hand side. We've got the organized team, which is, you know, when your business is running well, this where you want to get to is that old thing. If you're on site and working before 7:30 or 11:00, you've really got work done for the date. It's like magic time. Right so you want them on site materials delivered, you turn up with the apprentice and whatever. Pick out who you need for the job and you keep them working on site all day. Right the right hand side is what most of us do. Pretty common. Right the worst thing in the morning is when you're picking up material that the merchant you lose 45 minutes at the merchant easy signs that we'll get coffee and in a second rush hour traffic signals and take you an hour and a half, two hours to get to work. Right and then you call them off. In the afternoons to do the rental. And we dealt with this problem down the bottom, which is 915 team is 9 hours effective. The disorganized team is 4 one half hours effective. Right and then it turns into this. So on 100 hours quoted. The organized team got it done in 11 days. The thing took 18 days and that's what happened. So even though they're also on site working and on the job, they just weren't efficient or well utilized. And so the organized team, that job by money, right, came in on budget and they're often other jobs making money, whereas the disorganized team, that job didn't make money and you weren't earning money on other jobs. And I know this is the truth because once, once, like Ross, this was one of those like what goes on? Oh, my gosh. This is why my quarter jobs never came in on budget. And so this it's those key steps that you have to do is you have to keep them on site all day. You have to get materials delivered. You can't call them offsite. That's just the deal. And so this is the expectation that you have to manage to make that happen, right. So you Skeet shooting, you used to make sure the guys go straight to the jobs, right? Not come to the office, not go to the suppliers. The other one is specialization, right? Why? I myself in the first fix going, I like doing the pre pipe and the drainage. I don't like I don't like doing that or maintenance. So making sure that you get the guys who like to work to do the work they like. Right because I'll be much more motivated to do a good job and knock it out. And in my quote job and not right to finish the jobs pay them over time whatever if that's what it takes to make them work late and finish the job well then pay it. You better off to keep them on the job knocking off of being finished. So we can minimize that repeat trips and try and attract to the culture. Do not leave site. I pay for the delivery fee on the Uber Eats. Encourage them to cool the office to get the deliveries. Make sure you tune up in the morning with materials, the apprentice and the heavy power tools run by 7:30 so they can do a solid nine hours on site working, make sure those jobs come in on time, on budget. You have a big on this. So trying to make the guys stay on site, right. For materials or to get their lunch. We cover this off tills making sure to lay the right tool. That's always the big one. Right is the big one. Right so we got the officers to do stuff right. And so the officers in charge of billing. And so their job is to make sure every hour is charged or minimized. And it's coded correctly for reporting purposes. So it's your trader's job to make sure they put the timesheet in the app so it gets on the jobs where you get of those people to call them and put it in for them like I long ago gave up Sweden calling the trades, trying to get them to put their hours in the office would just call them every day and put their hours in if it wasn't then. But the big one is getting the hours on the job. So you've got the, the accurate costing. The other thing of Labor's scheduling right, is you've got to be efficient and frame with your scheduling and resist the temptation to shuffle. So what I mean by that is if you've got, you know, Johnny lives out waste, try and make sure he stays out West and does the job well least you don't see them all the way down south, right. Spending an hour in traffic. You don't see the guy in South North often, do we do that. So resist the temptation to shuffle that ski, to keep the customer happy. More often than not, the customer can wait a day, a day or so, but just try and keep those guys on site all day and keep them local. And once you start getting the hang of it, the office thing has to start getting out of ordering materials in advance. Right don't try and outsource it to you. Try these. They don't. They don't like it. They weren't employed to do that. They just employed basically to tune up and, you know, drill holes and steel pipe and cable. That's what they want to do. And so if the others want to get organized and efficient, it's up to them to be organized, efficient and start ordering materials ahead to deliver the site. And in reporting. This is the next big one I see is Ferguson. Great reports around your labor efficiencies and the jobs have great reports and you actually need to look at these reports to see how is my labor actually tracking. And if you don't look at those every week. You're not going to be able to really get on top of your business to see where it's set. Now, we had management meetings every week for probably a year or two. And then once the business got into flow, we're able to drop those meetings down to 2. Once a fortnight. But especially for that first year, you need to meet every week to find out what is going on in my business that these numbers aren't improving. And we sit and talk about it. Can you think of the strategies and tips and tricks to try and go, oh, right, this keeps happening. We keep pulling these guys off because this customer, what can we do around sitting? Just having one guy, just call it Bob. We always say, this is Ray white, right? An easy guy. And sometimes we can't go every day. Right and that's just the deal. We have to find ways to when you guys are on the credit shows like kardashians, like all the materials has turned up. It's just one of those key disciplines you have to be on top of. Right to the summary. This will be sent out. I think we don't make it as a PDF for you guys to get to. So this is just summarized up. OK OK. So we have to go into section 3 materials. So there's lots of ways materials can go wrong. But it was like touch at the start. The single biggest thing I see over and over and over and over again is what I call over buying. And I like to use the example of a horse locked up in the stable. It is the same that when you buy something, when you buy materials, you have a debt to pay. So you get the supplies, you buy stuff. You have a debt to pay. So the less we buy, the less we have to pay. It's like it's like the analogy of the horse in the stable that he's locked up. It's all great that he's out and bowling down the road. You still have to chase it. And so it's the same with your materials. If you've ever bought stuff, you have a date. But it's gone. You have no control of it and you're busy, always rushing out after it, trying to find it, trying to get that horse back in the stable. So all the while you're doing work, right? You're either doing work, chasing the rules. What are you doing? We're keeping a locked up. If you do the work, keep you locked up, you actually have control over it. And so once you get your head around being that proactive rather than reactive, you go, oh, I'm still doing work, but now I don't have a debt to pay. And so it's a much better place to be, is controlling what you buy. And I like that saying working is like magic. We buy stuff and improve. It just disappears. So where does it go? So in the table. We've got some the primary losses, which is overbite. There's a tune called shrinkage, which is theft, which is your stuff taking for homeless if you think your staff aren't taking care homeless. And I have to say, we need to think again Now. A lot of you materials will go out the door in shrinkage. Forgive the forgetting to charge carriers. If you guys can just sort of buy what they want. The stuff in the van, the busy rushing of cool stuff is just going to come from the bank on the job. And of course, when you're working all day, it's hard to record every single thing you took out of the van. Not getting treated like stuff flies in the van or lives in the workshop, whatever. Just rolls around stock. It's left on site, right? So this those are the main areas where stuff just gets you, materials get lost. And this just pure money dumped down the drain. Your secondary ones are your secondary losses, damage materials. You know, you left the shell mixer or the valve to the bench along there or scuffed the look out. You can't use them again restocking fees. You know, you didn't check that you had the right infinity or whatever. And you got to see back in the merchant charge your restocking fee a bulk buying this is when you try and buy like a creative pipe or drums, a cable and it sits in the workshop. And it gets taken and no one quite knows where it goes. So that's another feint, money saving technique consignment. This is more when you buy lots of, you know, a big job, you buy lots of stuff. Well, sort of on hold. I got delusional stock control. I say delusional because this way people cannot once every six months or 12 months, and I think there's still control. And I say, well, all that means is, you know what you've lost, but you've got no idea where a winter doesn't really count. And so nearly all of that can be solved by that one process of just controlling what you buy. It's not really because I've heard about some sort of pioneer that you'd even use. It is because just in time, stock management control. Anyway, let's look at this example. I think this is a great example. So what do we look at as just in the total profit, right. Which is in sort of an ivory pink color and call it. And so this is what happens, right? When you did the quote, you quote a 23 PowerPoint or Levante or whatever it was. Right but when you did it quite should quite well the individual parts and it all adds up to a total. Now, when you buy stuff from the suppliers, the merchants will sell stuff and box as a team. And so as a trader, you walk in there in the morning and you grab you guys from the three blocks as a team. So you get to duty PowerPoints or 10 wing backs or whatever it is you grab. But this is the issue that happens when you do this. It's in your profit line, right? When you created it, you had a lot of gross profit of $59 for those PowerPoints. If you bought 23 because you bought 30, you've now made a loss of 3.20. You say you. But I see the PowerPoint through my band. I use some on another job and I might really. The reality is those PowerPoints will get use on a job and not be charged. Some will get taken for private job, some in the workshop, some will be damaged. And then there's also that magic rabbit tricks. They just disappear. And what it means is because they've, you know, pretty much every single skill on that quote, they've overbought. That means that job has lost money or materials before you've even started. And so if you're not controlling the materials at the start is no hope. And how are you going to get the materials back by the end of the job? Plus you're also paying the guys all that time to pick materials. So you're paying them to be in the merchant in the van, not on the floor installing. So you've lost money on labor and you've lost money on materials. And this is where your quotes don't come in on time, on budget. So what should happen? So what should actually happen when you start getting control of your business and start being organized? Is everything. You boys should be charged to a job, right? So that his implication, which is that means you need to start running things quite a lot tighter. And so here's how it works in reality. So when you guys say so it would just talk about charge right now because credit we're trying to get the reviews to site. Right so what do We what have we quoted we boy. Well, let's say we're not doing charger, right. So we got some encouraging your customers to do, the property owners to do is to send in a couple of photos of the job. Right or whether it's the switchboard at the end of the tap, whatever. That guy is on the job. So in the morning when the tragedy is that the supplies he looks at as jobs and he looks at the photos and he sort of lights up what he needs, what he thinks he's going to need for those jobs. Right because so hot will assume the legal switchboard where you need a few things. Right so here's what we do. This is great. So when you're at the suppliers, you buy the parts through job, right? You make sure. So it's job. One, two, one, I. You buy what you need and maybe some extra so you don't run out of stuff, right? You make sure that delivery docket or packing slip goes in the bag, looks the parts. You make sure it goes in that bag, and you might load up on three or four jobs at the start of the day. That's fine. I see all these materials. That kind of goes into your brain. Now when you're on the job, you take that back into of the job and hopefully you've got all the bits in the bag then use what you need. Right that bag now goes back into the vein, or the box, whatever. It's still got the delivery docket and the parts you haven't used in it. When you are next. Back at the merchants, it might be that same day, next night or back at the office. You take out all the bags and boxes of all the stuff you haven't used and you put it on the outwards counter or at the merchants beach. The agent that will then pick up those parts from your office or off the counter, and they'll created all those items of that stuff. Now, if you're on Fergus in Africa, this works. You know that those invoices and those credit nights will come through onto the job and they cancel each other out. Now what that means is for your trainee is your trainee hasn't had to do any other input for materials he's used. Apart from stock on hand in the main, which should be not should be minor. Right but at the moment, he's not doing data entry. He's not having to copy stuff, the input stuff that is used or created. The system will take care of it and it's accurate. But what it also means is everything that has been bought has been charged to a job. Everything and so what that is, is that just takes all the stress of anyone having to do paperwork. It just lowers it all down. And that means everything you buy is charged and you don't have to worry about the inevitable shrinking wood damaging stuff because it's all been charged. And once you get that process down pat, your business will start to transform and you're going, oh, my gosh, how simple is this? What my business is starting to run, sort of running on budget, starting to come on, and you'll notice that the stock levels in your veins start to also drop and become much more so much more manageable. And so and that also fixes that those problems. Right forgetting to charge carriers because everything you've bought has been charged fixes shrinkage because it's all charged and they know that customers are now checking. Right because someone's sort of cheating. The bills out to massive and to fix the damage because stuff has been created to delay it. So there's a bit more nuance, a few million nonsense about this video to go on forever, but. Hopefully you start getting the gist of that. And you can go, Oh my gosh, I'm starting to make sense. Because I also believe in this theory, since the total value right is not the sum of the parts. So when you go to the dentist. He doesn't charge you $187 and 35 seats. They charge you for $50, $850, 1,200 dollars, because they charge you for the total value, not just the body blue, the biggest mean, whatever. And it's the same for all the work we're doing. I'm not that concerned. You know, if they might be charged for a couple of more bits that they didn't use. Right not so concerned about that. We're not ripping anyone off because I'm also aware that the guys might have used some stuff from the band that they didn't charge for. So as long as the bill is roughly about right, I'm OK. A few more materials get sneak in on the bill by accident because it's better that I'm profitable and not stressed. Then I'm running my business. So leaning towards with any storms. So trying to run a lean and honest, but not being too overly concerned about every number, about total values, not some of the parts. So if you think about it, always just wait, wait, wait. I'm sorry. These notes go out before each in relation to. So when she looks at him, Alice, you want to start giving your target, your office, some sort of kpis, OK? As OK as our objectives and key results. So I mean, when we started this, you know, we probably would have had 5% deliveries in over the course of about six months. We were consistently able to get us to about 50 busy deliveries. Right we're primarily a maintenance business, so it was impossible for us to be 100% deliverables, but we were able to get our deliveries up a lot. And so ultimately you want to start giving your office people in charge of ordering. I've done some figures actually how you know, if you're paying some of the 30 bucks now, they don't have to save enough for parts to pay for your salary. They might be getting some and taking over ordering slaves that business so much money. What you do is you give the business a target of a percentage of how many invoices have to be deliveries. And the suppliers all have reporting on your orders versus deliveries. And you just ask them to come to every month with a printout of all the stuff you bought, your key items, the invoices and deliveries in the key times. Right? just so you can start checking some data to see which time your staff is spending at the merchants and how can we cut that and to minimize it? And you also make the office responsible for keeping the eyes of the guys on site in the taiga as well. And that's the big deal that they start knowing, oh, it's my job to keep them on site. And you start checking that as well. Now, the other big thing I also recommend is making an agreement with a major supplier to give them sort of 80% of your turnover. And so what you do, you say is in return for I've seen my turnover, I'm going, you know, what do I want for that? Is deliveries, right. And crediting and no complaints. And so that means I'm going to give you as much as I can in return. I want a good price. But as deliveries, I want I want priority deliveries and priority on my creative thinking. I'll give you as much turnover as I can. And that way, the supplies will start looking after you and don't mind you deliveries. And that's a key measure as it's a key relationship to allow you to be profitable. Right so something this up. If you think about chairs, you got these sort of four things you can do over Bowling. That's the big one, right? Work out how I can only buy what I need. Charge a rethink. Right that's the solution. Or the of the parts. I've created in the habit of creating every day everything just always in the office to get up to 50% deliveries on site to keep the guys working on site. Right negotiations are a bit shorter. This one, this is an easy one. So there's three types of overheads. So these are fixed overheads expected and allowed for maximum write rate insurance power, fixed amounts you committed to like telephones or they leases, whatever they are. So that's fixed every month for the next 12 months. You know, they are so real I bet I call them are expected but won't be variable such as health and safety equipment. And you could spend it either on health and safety, right. Vehicle maintenance, marketing uniforms. But your job, though, is to sort of go, OK, you can say, OK, over the course of the year, we're going to spend two grand a month on health and safety. And so, you know, some months you might spend four grand, but that means the next month you get to be nothing. And so you start working towards a budget for your overhead. So the variable bias or the kind of expected, right, if you think about it, especially if you do what's called year on year compare. So you look at last year overheads and go, well, well why would it go down or why would I spend more? But you can expect to have these. And the other one I call is the budget, which is predictable but not thought about. So accidents, repairs, maintenance, whatever. And once again, if you look at your last year's figures, you should be able to say, Oh. No, that's kind of annoying, but kind of predictable. And this means you can start sort of budgeting on these things. But what we're trying to do is from this target over here, you need really to put your financial advisor on this, that you're not comfortable as you start going, oh, OK. If I average out all these ideas over a year because they're all kind of about right, I've got 10 grand a month worth of these overheads that are never going away. Your So therefore I need to make 10 grand a month gross profit just to pay these overheads. And once you start getting into that way of thinking, you start going, huh? I've got it now. And so. This is what's really important. If you can talk to your accountant or business advisor to help you to go through these things, to get an understanding of what these overheats, what your commitments are every month because you some annoying things like. If you think about your holiday pay, if you sort of pay the most of it at Christmas time, even though you need to sort of say for a little bit every month. And it has to be the same with your ITC ITC bills as is often due in January or February, but you're accruing it all year and so you need to know what those bills are going to be so you can start earning that money and saving a bit every month and putting it to one side. And so once you start knowing what your overheads are, you start knowing which gross profit used to make every month. So you can pay those overheads as they fall due. So how much should you be spending? Right and so. You wanting to limit these ideas to or turnover is as if you are starting a business. Right and so it is also a funny thing that happens with your overheads. Which I'm not sure if you've picked up. But let's say you look at your figures and let's say you overheats. 40% of your tuna would be like, whoa. But if you were to look at your gross margin on materials. If you say that was 32%, if you increase that gross margin and some of your labor, if you got more effective and charged out more, you will get more turnover, which means your base will come down dramatically. And so speed works ways that most businesses don't have excessive overheads that most businesses control over its pretty well. But what they don't have is an effective ways to actually increase their profitability and revenue by just being more efficient at charging the labor and controlling what they buy. And often those two steps combined are enough to bring the overheads down to the correct ratio of turnover. So as you. Sort of get into it and business, you'll start becoming a gross profit business model. And then once you start growing through that, you start can be becoming budget based. And then once we're starting to think about our budget base, right insights, you start going, oh, I know this month I've got these bills coming up. I know when it was happening, you'll be what we want to get you into is delaying and deferring spendings to staying within budget. And that's sort of when you start to really get to be in business, right? Because you've got a handle on your gross margin, gross profit, and you know, you now know how to get your businesses to hit these margin targets now. There's another couple of things I want to touch on before we wrap it up. Which is I'm always in favor of not spending money on overheads but offset expenditures to bring in more revenue than I encourage spending. So for example, if you're going to spend more money on Edwards or on rolling your van or putting a sign outside the office, it's very rare that money on marketing doesn't work. So if you haven't got enough work and you're a bit late, need to get more revenue. Spending money on marketing is normally a good, really good option, especially if it's done in conjunction with a marketing team that knows what they're doing right. That's a really good way. That's a good thing to do and always to be encouraged. Now, right? So when we think about also gross profit, we need to sort of separate this in 2 to two bits as well. If we can here. I mean, I talk about the need for see gross profit as a business concept and that's about right. Whereas in the market, if few competing says like quote, a new house and quite a bathroom, you might find area that 40% is too expensive and you might have to be down around 34% gross margin, 52% gross margin to win their job. Now, if this one takes to win the job and you want to do that work, that's fine. You can work for those sort of margins because what you can do is in your maintenance work, you can increase your gross margin to 47 or 50% Right so as long as you end up with of an effective rate of 40, 42% gross margin, it doesn't really matter how you get there as long as you know that you've constraining your ability to 30% Because the big thing you should think about is if you create that bathroom with at 34% and you're always at 34%, you've done that job for nothing. You've just literally got to know the kid because busy. What's the point? What's the point of that? So but if you really like new, you know, new housing. And we're going to keep something busy, you don't mind then? Fine do the quarter work. At least imagine. But just make sure your residential maintenance workers at a high margin. Right so this is just an exit from that first section, right? Is 40%, right. It's the pay, the overheads. Right the obvious is what you can't judge the customer for. And then the 10% is the free cash. Now that free cash is what you can use to pay off assets or pay dividends to the shareholders. Right and so that's how it works. So now. It says. Another thing to consider is when you are creating a work or trade business is actually had the same material ancillary costs to company you think in the market you're paying trades at the same sort of rate, whatever it is. Right and let's say you're doing a switchboard or a hot water sauna. You'll be Sparky's problem. It comes up to it. They're going to look at it. Guys can take about four hours, 5 hours, 6 hours, whatever. You're going to eat the same sort of materials, give or take in the supplies or charging at roughly the same. It's all. You know, if you break down on the plumber. So let's put in a hot water cylinder, right? So it's six hours labor. The difference between tradesmen is $5 now between a bottom guy and a top guy. The difference in cost is going to be 30 bucks. The difference of materials between high and low would also be 5% So it might be 100 bucks. So the difference in. What it will cost businesses to do the same work is on a two grand job is going to be about 130 bucks. That's nothing. But where it makes the difference is the efficiency of your tradespeople. And so this is where you can really wooden and lose work by how efficient you are at getting your team to do the work. Because if we think about that. It's if you know. If you're competing with a guy who seems is going straight to site and gets the materials delivered on site, that guy can quite five hours for the sun and he gets it delivered to site. The guy goes on site first thing and thinks that the job is if you're still running a business model where the guy has to go to the suppliers in the morning, pick up some of the driving in traffic, get to the job, you call six hours because you're going to take 7 and 1/2 hours because that's just the way it goes. And so, therefore, the thing that's going to constrain your winning the jobs and bring them in to create margin is how efficient you are at managing would try to be able to spend more time on site. And so that's worth you thinking about, especially your question of work to think, huh, how can I win more quotes and still bring the jobs in on time, on budget? So I made this movie The easiest to get, on top of which you got a hint of it. But then, obviously, reviewing it is necessary in case, you're paying for cell phone plans or insurance plans you don't need to. And then start working on becoming budget based. So it's sort of just starting to work up from gross profit to budget based and you know, and start using Uber over. So let's say I was a 34% And you want 10% profit margin. So you add those to get this 44% and you make sure that every invoice goes into that create margin. And that way, you know, your business will make 10% net profit. So the areas of our control are like, no, you overheads, right. Them and cut and reduce as is expected and becoming budget based. Right so just learning to limit your spending to match the budget I like to rent amongst health and safety, whatever it is. Quoting what? Once you know what those I mean, it's not making sure you're not stealing the quotes or invoices out, at least in that margin. Right and then reporting. So looking at all your jobs that are completed and looking at the margin and looking at why. You know, why did those jobs not come in on budget, on time? Right so if you pull them apart, you go, well, was it because we just didn't quite enough? Or was it because we did things wrong? Or if they picked up materials, we called them offside. We see different guys. To cause it quite work not to comment on time, on budget. The summary. All right so gross margin as a business model is what I would call a foundation, just becoming a really good business owner. Now I know it took me many years to get the handle, but I know it also takes many other trades to get the handle of how to become gross profit based as a business model. What I've seen is if you get business mentoring and business coaching, you can shorten this time down to six to nine months. I encourage everyone to get business coaching from a mentor and will get out and vote your business heavily and you will shrink and the time to learn this knowledge. But it's been my experience that it takes one to three years for the whole business to become organized. You run gross margin. I mean, that means fixing up your deliveries, fixing up how to purchase materials and creating properly. Getting your labor processes, your scheduling, getting your expectations with the trades and the customers will sit correctly. That takes, you know, 1 to three years, depending on how motivated the businesses. But once you get the handle of that, you can then quite quickly move to being budget based. And so this is when you start leading, start working your finances because you've got cash flow. Now you start going, OK, we're going to restart controlling. It's much tighter to even now our cash flow and make sure there's a good profit coming into the business. That's right. And that's actually good year to year to get a handle of. Once you've got the hang of a budget base, you start moving into forecasting. And so this is where you start looking at a lot of the database of last year's forecasting, what revenue you can get and you start looking at what work you want to do and what's the sort of work and the right mix and what tradespeople and you start going after the work you want because you can forecast and start planning what work is profitable for you to go into. And that's a really good what you do when you're in forecasting. You're in a really solid place to run your business. Right to summarize it all up, if you can remember these things, which is what this report is, is built, built on. Now, it's not exactly a tool to run your business on, but what it is, it's really a tool to generate discussion for you to think about when to start looking into your business, digging deeper and maybe getting a business mentor, a consultant, someone to come in and really help you to understand why these numbers are the way they are. And so, you know, the ultimate aim is to get to 92%, charge it right. For your staff with good effective work on site. Right always able to bring good jobs on it at a good margin. Constrain your average down to 2017, 15% net profit. So if you've got a business premises and office stop and surfing the senior profit, you're doing amazing. Right there, the three levers in your business. I wish you all the best in your business, and I hope this was of use. And I'm sure we've got some tools coming that you can download on this. All the best to get away.
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