How to Build a More Profitable Construction Company with Shawn Van Dyke
3 Simple Rules Anyone Can Apply
If you’ve ever felt like you are trapped in the Craftsman Cycle™, or are struggling to grow your business as fast as you wanted… this is for you!
Watch this discussion and Q&A lead by nationally recognized coach in construction and author of Profit First, Shawn Van Dyke, to hear proven strategies for a profitable business based on 20+ years of experience.
- What to budget based on your income
- Ideal margins for good relationships & profit
- How lien rights remove barriers to profit
Alex Dunn: (00:03)
All right. Good afternoon, everybody who is here already. Uh, we’ll give a few more minutes until we get started. Um, how’s it going today, Sean? We’re really excited to have you on,
Shawn VanDyke: (00:14)
Hey man. It’s great. Thanks Alex. Thanks for having me here.
Alex Dunn: (00:17)
Yeah, definitely. Um, it is our pleasure. Uh, we love helping contractors here and you are one of the biggest thought leaders out there as far as really working with a lot of different construction businesses, helping them out a lot. And uh, we love that you make, you make people heroes in their own businesses and in their lives. And, and we love that. So, uh, thanks for all you do. And we can’t wait to chat. Um, we have a great little show put together. It’s going to be a lot of Q and a, um, we’ll wait, we’re going to wait a minute or two just before we get started, make sure everybody finishes up their lunch, um, gets, you know, gets a bathroom break in before we get started. Um, what are you excited to talk about today?
Shawn VanDyke: (00:55)
So I’m just excited that I know that we can make, uh, contractors and construction business owners that are on this webinar here today and the ones that may see the recording, uh, when we get through and we’re just gonna kind of cover some high level stuff. We’ll go deep on a couple of things, but I promise if you, if you do this other, we talk about here, you will see more profits in your construction business, but you gotta do. You gotta do what we say on this webinar today. I don’t know if anybody else has made that claim on your webinars before, but I know that what we’re going to cover here, especially based on the private versus contractor system, I, I can make these contractors permanently profitable from now, from now on, but you gotta do, you gotta follow the rules. We’re going to go over today.
Alex Dunn: (01:38)
Exactly. Right. It’s all about the process measuring stuff and making sure you cross the T’s and dot the I’s. So heard that all right. It’s a one or two. So why don’t we just jump in and get started? Um, as Sean mentioned, this will be recorded. We will send it out to everybody on here. Um, and there’s going to be a big Q and a session at the end. So think about your questions as we go through, get them down, throw them in the chat, throw them in the question box, whatever you want to do. ’em and we’ll get to them at the end, for sure. Um, so without further ado, um, we’ve got Shawn van here. He’s a construction business coach author of a couple of really great books on profit first for contractors, which actually read just a couple months ago and really loved it, got a lot of great information.
Alex Dunn: (02:16)
And myself, Alex done a work on the marketing and content team here work with a lot of our customers around our various products and our content offerings, and, um, love to do these great webinars with thought leaders out there and, and hear what they have to say. Um, and then this is just a quick look at what we’re going to be going through today. We’re going to do a little quick introduction, um, for Sean. So he can talk a little bit about where he comes from. Uh, we’ll look at the three rules for profitability at a glance. We’ll deep dive on these rules. We’ll talk about the one thing you can do to really like start implementing some of these ideas and then we’ll open it up to questions. Uh, sounds good. Shawn, you ready to rock and roll? Let’s do it. It sounds awesome.
Alex Dunn: (02:56)
Awesome. So before I let you take the floor, I’ll do a quick introduction on Levelset and what we do here. We have a model here payment help is here. We are. Everything we do at Levelset is designed to help people manage construction payments all the way from a contract to the final payment or collecting your retainers, your retention. Um, and we do that in a number of ways. We have lien rights management software that helps to track your deadlines and send your paperwork around. Uh, we have tons and tons of data on the payment practices of customers on payment profiles. We have an attorney community that allows you to ask legal questions and get advice from lawyers. Um, and we have several thousand blog posts and resource pages and eBooks and stuff to just help you become better at your job and managing the complexities of construction payment. Um, so that’s enough about us, Sean, tell us a little bit about yourself, um, and, and your story.
Shawn VanDyke: (03:50)
Yeah. So, uh, again, thanks for having me on here and just to let everybody know, I am a former engineer, so I am a nerd for systems and I also like to make fun of engineers. So for construction business owners that have had to deal with engineers, maybe there’s a couple of them on the call. Um, I poke fun at engineers because I used to be one, uh, started, uh, way back when and got a couple of degrees in engineering and civil and structural engineering, uh, did that for several years and then found my myself behind the desk, uh, looking at plans, doing the engineering stuff. And I realized, man, I don’t, I don’t really know how to build anything. I think I want to go learn how to build something. So, uh, got a job as a project manager on for a commercial contractor, did that for a few years while in my way, uh, into working for a real estate real estate developer.
Shawn VanDyke: (04:37)
And, uh, that was great. But then I was on the road, traveling all over the nation, building commercial projects. And my wife was like, uh, you know, we had two kids at the time and she was like, you know, I’m glad you enjoy your job, but it’d be nice to have you around a little bit more. So that’s when I started, my first business was a real estate development and construction management company, then that led to a construction company. And then I became a, uh, chief operating officer for a high-end trim and millwork company. And, uh, then after that, this was about five years ago. Now I left that, uh, that job as a COO and started doing, uh, the coaching and consulting thing that I’m doing now. And last year we launched the, uh, the built to build Academy, which is our online and, uh, coaching programs for construction business owners. So that’s what I do now, uh, is I get to work with contractors all over the world and help them streamline their businesses and make more money. And, uh, and then the, when I’m not, when I’m not doing that, I’m writing books. So, uh, I’ve got another one in the works, hopefully going to get it out later this year.
Alex Dunn: (05:42)
Hmm. That is a, it’s pretty impressive. Sean. It sounds basically like you have dabbled in every part of the construction process to some extent, um, either tangentially or directly, um, in your, in your career. So that’s cool. I, to think like one,
Shawn VanDyke: (05:58)
One of these many years ago I was, uh, when I was changing jobs, uh, was showing my resume to my wife and I was like, Hey, what do you think? And I had all this experience listed down there and all these different jobs in the, in and around the construction industry and engineering and all that kind of stuff. And I was like, yeah, what did you know, what do you think? It looks pretty good. And she just looked at it. She goes to me, it looks like he can’t hold down a job. And I was like, Oh, all right, that’s one way to look at it. But then I realized, you know, part of what that mindset was is, and it’s still weird for me to say it, but now after starting a few businesses and getting them off the ground, I’m like, Oh, this is what an entrepreneur is. That’s what they do. They, they start businesses and, uh, streamline them and get systems in place. And so that’s why I think this is the first bio where it’s ever been listed where I’ve, which is totally truthful as a systems nerd. Right there, there could not be a more perfect description of me right there. Forget all the other stuff. It could just say Shawn van systems nerd, that’s it awesome.
Alex Dunn: (06:53)
Well, we love systems and, um, we’re excited to hear about, uh, this kind of high level system we’re going to talk about today, which are the three rules for profits. So, uh, Sean, tell me a little bit about what we’re looking at here on the, on the slide with the craftsmen cycle.
Shawn VanDyke: (07:07)
Yeah. So this, uh, this concept, this idea, uh, this thing, actually, this thing that exists, the craftsman cycle, this comes straight out of my book, profit first for contractors. And this is really where I developed this and wrote this into the book because this is, this speaks to so many contractors. I know it was what I went through when I had my construction companies. And what happens is it’s all around the numbers part and all the financial stuff. And for most construction business owners, they never start a construction business because they say, I want to do a bunch of paperwork. They do it because they’re really good at building. Or they really like the process of building something for, for other people. And they get a lot of satisfaction out of that. But without the paperwork, without the number crunching, without some of the business stuff in the back end, what happens is they go out and they start pricing work.
Shawn VanDyke: (07:59)
And because they don’t know their numbers and most people have the guts enough to go out and start their own business. They produce really, really high quality work and they’re passionate about it. But when they’re guessing at their numbers and they’re pricing the work, then what it means is they’re probably not priced high enough. So they do really high quality work, but they just don’t know what to charge for it. So what happens after that? So that’s the first step in the craftsman cycles. Business owner starts pricing work and it’s, and it’s not priced high enough to make a profit. Your customers know that. And so what happens is you get a bunch of work and that feels great. You’d be like, man, I’m in business and I’m getting all this work and word of mouth. And this thing that I decided to do is, is working.
Shawn VanDyke: (08:39)
We get really excited. So we go get a bunch of work and then eventually you have to go produce that work. That’s where the money starts flowing out. Like the money starts coming in when you get the work. And that’s exciting. Now we got to go produce the work. We gotta buy materials and, and hire people in labor. And then the money starts flying out and we realize, Holy crap, where’s all this money going. And we start checking the bank account. We ha we don’t know our numbers. We don’t understand the financial side of it. We check the bank account. We say, crap, I don’t have any money. So what do I gotta do? Then I go to the fourth part of the cycle. I got to just go find more work. Now we know that we didn’t price it right the first time, or we maybe we don’t know that.
Shawn VanDyke: (09:18)
And so we kind of act out of desperation. And so when we go find more work, what do we do again? Then we go price it. And then the cycle repeats. And it’s this, it’s this cycle of price work, get work, produce, work, find work, price, work, get work, produced, work, find work. And it’s a trap. And most construction business owners get trapped in that because you see right there at the center of that is you, the business owner, the craftsmen, and you never be because you’re, you’re lost with, or you lose time and you don’t understand the numbers part of it. Then everything revolves around you. You are the center of your business instead of systems being the center of your business. And the only way to break this cycle, as we talk about in the book is to become profitable. And what that made.
Shawn VanDyke: (10:02)
There’s a lot of different, we’re going to dive deeper into some of this stuff, but a lot of what that means at the high level is saying no to the wrong clients. Like those, those types of clients that don’t pay on time, that, uh, that delay payments that don’t fall. You know, they’re always arguing with, you gotta say no to those and say yes to the right ones. And that’s a hard thing for contractors because they’re used to the cycle of like getting the work and staying in this cycle. Uh, so that’s what that’s, what we want to do with profit first for contractors is give you a systematic way to look at the numbers, your financial reports and the operations of your business, so that you can break this cycle. You can get out of it. And so that you can work on your business instead of 100, 120% of your time working in the business. Now people say 120%. Yeah. I mean like nights, weekends, mornings, all of that. Um, and so the crash is real and it’s brutal.
Alex Dunn: (10:55)
Yeah, definitely. I wonder if anyone, anyone watching here is ever felt like they’d been in the craftsmen cycle or there feel like you’re in it right now, let us know in the chat and also, um, you know, tell us how, how you got out of it or let us know, like tell us a little story in the chat. We’d love to hear it. Um, but yeah, so let’s dive in a little deeper here. We have three big profit rules that, that Sean and I are going to weigh in on. I’m going to let Sean really run the show here and talk through his thoughts on how we think about income and how that’s a hundred percent of your budget, how you want to think about percentages, um, and how you can kind of start small and really, you know, just, just start implementing some of these systems to help you grow. And, uh, and then I’ll give my little 2 cents from, from the Levelset perspective, um, on how it goes. Yeah.
Shawn VanDyke: (11:42)
Yeah. So that what you’re seeing here, we call, these are the three rules of the private first for contractor system. And the three rules are part of an overall framework that we teach contractors. And this is the great thing about profit first for contractor system is an order in order to start, you don’t have to do any number crunching your numbers. Don’t have to be in, in order now eventually to grow and to be profitable and sustainable. Long-term, you’ve got to face your financials. You have to understand that, but that’s where a lot of contractors get stuck is they they’ll hear these rules. They understand the concepts and they’ll get really excited about the system. And they’ll say, okay, I’m going to implement the system when I go get everything perfected and that’s the wrong approach. And that’s why we want to show you these through three rules today.
Shawn VanDyke: (12:24)
You don’t have to have your finances in order your books don’t even have to be set up. Now, eventually you need to do that. Don’t get me wrong. But in order to start, starting is way more important than perfection. And so with these three rules, we’re gonna start with rule number one. And that is your income is 100% of your budget. Now I know it sounds, it sounds simple to say, but, but like, that’s it, if you spend more than 100% of the money that comes into your business, you’re going to have problems. You’re going to go into debt, uh, or you’re going to have to find some other way to get that money. And there’s a lot of things that will keep you from staying under your 100%, again, not knowing your numbers correctly, um, estimating things wrong, meaning like, Hey, we have a, I dunno, whatever, a $50,000 job that we’ve priced, that’s based on, I don’t know, what’s it say a thousand man hours or whatever, right?
Shawn VanDyke: (13:18)
And so we expect $50,000 to come in based on our thousand man hours. And then it takes us 1200 man hours. That’s spending more than 100% of your budget. So when you realize this and you’re, and you’re looking at, uh, at your numbers at a percentage base, we just start there and say, Hey, if we’re a million dollar company, we need to understand. And that’s what our budget is based on. If we spend 1.1 million, we got problems. So that’s where we started. Your income is 100% of your budget. And then in the profit first for contractor system, we break that the way that you look at that money coming in into different bank accounts, we’re not going to get into all the details of that, but the way that you look at your bank accounts and the percentage that you set up for those bank accounts, they always equal 100%. And so, as you, as you grow, the dollars dollar amounts may change. We’ll get into that in a minute. The dollar amounts may change, but the percentage always has to equal 100%.
Alex Dunn: (14:13)
Yeah, absolutely. And even though that seems like so fundamental and simple, it actually becomes really complicated because of, um, you know, taking on multiple jobs, not understanding exactly where your costs come from and not even, you know, a lot of times, I think in your book, you mentioned like you, you don’t even account for costs because, you know, as the business owner, you’re just doing them yourselves and you’re, you’re not thinking about like how that, how, um, you know, you’re not really paying yourself to do the things that are creating costs, where it’s more like opportunity costs of not being able to be in the field, doing the work. Um, but the math doesn’t lie. And when you start looking at, um, your income being a hundred percent of your budget and really holding yourself to that accountability, it kind of can be a slap in the face. Yeah.
Shawn VanDyke: (14:57)
And what we discussed in the book here is, is understanding. And this is why the profit first for contractors system is so simple. And let me clarify this, the system is not accounting. See, you have to understand that there’s accounting, what your accountant does and what, so for example, like many people I’m sure on this call have had this conversation with their accountant, or they’ve kind of had this moment where they looked down at the bottom of the profit and loss statement and they see a positive number there. Let’s I don’t know, let’s say it’s, let’s say it’s $80,000. And so on, on paper, based on the accounting principles, there’s $80,000 there. It says you’re profitable. And then you go to your bank account and you look there that number’s never the same. And they’re like, well, wait a minute. I don’t understand if this profit and loss statement, this thing, I don’t really understand says that I’m profitable.
Shawn VanDyke: (15:48)
But I look at my bank account, I got like five grand in the bank account. Where’s the, where’s the money. And that is the key to understanding your profit and loss statement is an accounting financial report. It has its purpose, but not all of the money that comes into your business or flows out of your business is shown there. Well, I should say 100% of the money that comes into your business. That’s your top line. That’s right up there at the top of your profit and loss statement. But you get that, let’s say that $80,000 number at the bottom, that’s called net profit. What that doesn’t account for are things like your taxes and owner’s draws. A lot of construction business owners are paying themselves through owner shot. Now, again, we break that down in the book, nothing necessarily wrong with that, but you have to understand, well, wait a minute, there’s $80,000.
Shawn VanDyke: (16:32)
This is a really high level example. There’s $80,000 at the bottom of the profit loss statement. And it doesn’t account owner’s draws, but the owner pulls a hundred thousand dollars out during that year or whatever your negative $20,000 that that’s breaking rule. Number one, he said, well, wait a minute. My accountant said that I was profitable. Not only, and I’m going to pay some taxes on that profit. And they’re going to send me a bill for telling me that I’m profitable, but yet I’m breaking rule. Number one, because I’ve pulled out more than, than was shown on there. And, and the accounting part is confusing. That’s why private first for contractors, very simple. We say, you got to understand 100% of your, uh, your income is 100% of your budget. That’s it? So all the money that comes in, again, it doesn’t matter. What’s on the profit loss statement.
Shawn VanDyke: (17:22)
You got to follow the rules. That’s how the IRS looks at it. That’s how you got to file it. But you have to understand the profit and loss can be, uh, can be confusing and it can, and it’s open to interpretation. But the one thing that is not open to interpretation is your bank account. You can be confused by your profit loss statement, your profit and loss statement can be wrong. There could be some things that are not shown on there that maybe should, because they’re missed your bank account. That tells the real story. That’s the money that you got. And everybody on this call, I can, I can guarantee this promise this when, when caskets tight and they got to make payroll next week, they don’t call their accountant to run a profit and loss statement to figure out if they got money, they go log into their bank account and they say, I can’t make payroll, or I can make payroll, but there ain’t that much there. Right? That’s the key is like that bank account. And the way we say we set it up is we set up different bank accounts for different aspects of your business, but then all comes back to this rule. Number one, if you spend more than 100% of the money that comes into your business, you’re going to have problems.
Alex Dunn: (18:25)
Absolutely. And in addition to checking that bank account, you might be checking your accounts receivable. It’s saying, who, you know, where is this money? And that kind of brings me to the other side of this coin, which is yes, your income is a hundred percent of your budget. Um, but only if you get paid. Um, and, and it sucks, but it’s the truth. Like a lot of times people don’t get paid or they get slow paid. Um, we’ve run a lot of surveys here at Levelset and, you know, we see how slow payment can be. And we see that only three out of every five contractors are paid in full and on time and every job, um, and that can really, that can be detrimental. Um, there’s things like back charges and deductions and withholdings and, and payment delays. Just the time value of money by itself, like can eat into that a hundred percent that you think you have.
Alex Dunn: (19:11)
Um, and you gotta be very careful to manage the paperwork and those things like back charges, making sure you get your change orders and your pay applications in on time, that kind of like messy paperwork side of things. When you do that, it helps you get paid faster. It helps to get paid in full. Um, and again, like, like you said, Shawn, you know, nobody decided to get into construction because they want to do a bunch of paperwork and accounting and like math. They did it cause I want to build. And this stuff sometimes seems, um, frustrating to do. Um, but it’s important because you want to work with a hundred percent of what, what you on the contract, you signed, you sign a contract for a hundred thousand dollars. You want to get that a hundred thousand dollars. And if you don’t, it eats into that a hundred percent and it can, you know, it can be detrimental.
Shawn VanDyke: (19:55)
Yeah, no, that’s exactly right. That’s a great point to make too is again, let’s go to example, let’s say that your budget is based on a million dollars worth of work. What are we really talking about here? We’re talking about a million dollars of work produced invoiced and collected. Like it does it almost doesn’t matter how much work you produce, if you don’t invoice it and you don’t collect it, it’s never going to show up in the bank account. Now again, this is where the accountants start confusing things and saying, well, if you’ve invoiced it, then it’s work in progress and there’s some way to account for it. And I’m like, yeah, you’re absolutely right. You sh, if you, if you have produced a million dollars worth of work and you’ve got, you’ve only received 750,000 of that by the end of the year, sure.
Shawn VanDyke: (20:39)
The accountant can manipulate the accounting to save you on some taxes, but ain’t that ain’t gonna make payroll when that, that money’s got to hit that bank account. And so that, that gets into that 100%. If it cause we’re looking at, like you said, the, the, the time value of money, right? If our budget is based on a million dollars, but it takes us 14, you know, in a year, but it takes us 14 months to get that million dollars. Guess what? Your budget’s not a million dollars exactly. Less than that. And your business keeps operating. You’ve got those overhead expenses. And so what I tell companies, Hey, if you, if you’ve got to put a system in place to get that money so that you can maintain positive cash flow, and there’s a lot of different ways to do that. One is like, once you get customers and get a better contract that ensures that you keep your cashflow, the other things that we have to put in place for things like what Levelset provides is some, some avenues to make sure pennies on the dollar to make sure you’re getting that money in.
Shawn VanDyke: (21:38)
So you can stay as close to the 100% that you’ve budgeted for. And when you, and I always say like having these expenses, like a Levelset, like a lawyer, like a CPA, a lot of contractors look at these expenses as overhead. And I, again, overheads in accounting term, I get why we use it. But like, I like to say like, forget all of that. Every dollar that you spend in your business should make you money. So for example, every contractor, every construction business owner on this call right now, well they’re, if they’re here, they’ve got a laptop computer. They probably have a cell phone. The reason that they have a cell phone is because the cell phone makes them money because it’s much cheaper to pay a cell phone bill every month than it is to write out a letter and put a stamp on an envelope and send it out. Right? So your cell phone is an overhead expense. You don’t sell cell phones, but you’re using the cell phone to make money. So it’s the same thing. Anything on the expense side, I don’t look at it as a cost. I’m saying, if I spend this much money, how does it drive revenue? Or how does it give me my time back so that I can stay as close to that 100% receiving that income as quickly as possible. So that can maintain cashflow.
Alex Dunn: (22:52)
Absolutely. Let’s get into rule number two on that note, because I think it leads in pretty well. We got to talk about playing the percentages.
Shawn VanDyke: (23:00)
Yeah. So, so playing the percentages. Here’s what, here’s what I mean. So I’m going to try not to do a lot of math on, on, uh, on this call here, because I know people will kind of check out, but just follow me for example, on this. And I’m just doing it, you know, off the top of my head, like I said, I’m a former engineer. So I depend on the calculator to actually do math. I can’t do it that much in my head, but let’s say that you take 10% of a hundred thousand dollars, right? 10% of a hundred thousand dollars is $10,000. Okay. As your business grows, for example, then let’s say that you and we’re talking net profit, your net profit is a hundred thousand dollars, and that is 10% of your total revenue. As your business grows, then you receive 200,000 in net profit, but now because of the size of your business or whatever, that’s only 8%.
Shawn VanDyke: (23:51)
So that’s where I say, you got to play the percentages and not get freaked out too much. Meaning like Edison as a, at a smaller company, it might be easier to make a higher percentage, but that, that percentage 10% of let’s say a million dollars to a hundred thousand dollars as you grow to a $2 million company, then 8% of $2 million is like $160,000 more dollars, but a lower percentages. So you have to understand, and you have to play the percentages in order to predict the profitable growth of your business. And this gets back ties back to rule number one, 100%. So you break those down into your percentages that you need for your business. So we want to set aside a, uh, a percentage for net profit. We want to set aside a percentage for our taxes. We want to set aside a percentage, and this is a percentage of every dollar that comes in to pay the owner salary. And then we need, obviously our operating expenses and other things, all of those percentages are going to change as our business grows. But just because the percentage may be lower a percent, I’ll say it like this, a lower percentage of a much bigger number is more dollars than a bigger percentage of a smaller number. Now, some people are like, what, but, but thinking about
Alex Dunn: (25:11)
What you’re trying to say to some extent is like you could make, uh, your business could make a million dollars this year and, and your profit is some amount of that. You can go and double that you can, your, your business can double the amount of revenue it makes and make the same amount of profit as it did. And you’re just working twice as hard, doing twice as many jobs, making twice as much revenue, but it just isn’t converting to the profit in the same, at the same scale.
Shawn VanDyke: (25:40)
Yeah. I would say, I would say, w would you rather have a $500,000 company making a 10% net profit or a million dollar company making a 5% net profit? I’d take the former. Yeah, yeah. That’s right. The cash is the same, but like you said, double the amount of work, you know, people say, Oh, it’s twice amount of headache. No, no, no. It’s exponential from there. Like I would say it’s quadruple the amount of stress and headaches and that’s what most people are so focused on growth. Right? We got a girl, we gotta grow, we gotta grow. But I’m like growing the bottom line is all that matters. And when you understand how the percentages work, then you can actually get through the percentages to understand what’s underlying that the doll, the dollar figures here, that the other, the other way that the, um, that the plane, the percentage comes into and it can, it ties into margin versus market, for example.
Shawn VanDyke: (26:31)
So a couple of, couple of things there. So if you were to take a look at your profit loss statement, you’ve got a category called cost of goods sold. And I see this all the time when I’m working with construction business owners is we’ll take a look at their profit loss statement, do some analysis, and we’ll say, Oh, your cost of goods sold is for example, 75%. And what does that mean? That percentage of what 75% of every dollar that comes in is spent on your labor materials, subcontractors, and equipment. And I say, okay, 75% is too high. We need to get it down into 70 or 68 or whatever it is we need to reduce your cost of goods sold. So what can you do? And so I’ll ask a contractor, Hey, how can we lower costs? And the first thing that the thing is, well, I could cut back on that, my quality of materials, uh, I could, and I’m like, Hey, yeah, but hold on, wait a minute, you cut back on the quality of things.
Shawn VanDyke: (27:25)
Sure. You’ll reduce the, you’ll reduce the dollar spent on those things, but you won’t be able to sell that as a premium service as a premium quality, right? So they automatically go to cutting the dollars and I’m like the easiest way to reduce your costs. 75%, get it down to 70 is to simply charge more for Sargent now. And that’s how got to play the pur. That’s how you got to play the percentages. And most contractors that I work with when we run the numbers that the, the percentages change and they’re about 20% too low, they’re charging 20% to low. And they say, well, Sean, I can never charge that. No one around here, you know, charges that. And I’m like, Hey, you don’t have to believe me. It’s the math of your business and the math isn’t going to lie. So one last thing I want to say about you playing the percentages is understanding the difference between margin and markup.
Shawn VanDyke: (28:18)
And if, and if you struggle with that, and then you can grab the book and we go into deep detail, but I’m going to say a statement right here. And if you don’t understand what this statement means, then you got to dig into this concept right here of markup versus margin. So, uh, if you Mark up something by 20%, it does not produce a 20% margin, a 20% Mark up yields a 16.7% margin. Now, if you don’t understand that, drop a note in the chat or whatever, and trust me, you’re not alone. Most contractors get that wrong. A, a 25% markup produces a 20% margin. So a lot of people get that wrong. Again, we don’t have time to get into all the details of that, but that’s one of those percentages that you have to understand how it works in your business. And when you can make that change, that simple mathematical change, and you have confidence in your numbers and your percentages, it’s much easier to stand in front of a customer that says, Oh, well, your price is too high. I’m like, no, it’s not because we’re not, we’re not going out of business to work for you. We understand what our numbers, what our numbers are. Yeah,
Alex Dunn: (29:28)
Absolutely. And just for all the listeners out there, like if that is confusing or I wish we could dive deep into this stuff as much as we want to on this call, but Shawn’s book breaks it down in a way that literally anyone can, it’s really great. Um, and I’m gonna kind of pass over this other point really quickly to, to keep things moving along here. Um, but I will say that the complexities and the way the relationships between these percentages also gets stressed by the nature of the construction industry. Um, we showed it on a slide earlier on, you have this crazy, you know, massive arrows where, you know, that kind of explains how payment needs to flow and how documentation flows and kind of it gets at this root cause of the mess that is construction payments and how understanding how cashflow works, understanding that, you know, people will wait to pay you until they are paid, can put even more stresses on these percentages and on your ability to keep your business running smoothly. And like Sean said, like, you don’t want to work with someone. Um, you don’t want to go on a business just to work with someone you want to, you want to find those right prices. You want to be understanding of the time it can take to get paid and the kind of, uh, shell games that happen, um, in construction payment. So
Shawn VanDyke: (30:44)
Yeah, the other thing I’ll say about this robbing Peter to pay Paul sometimes, I mean, this is what the business owner does when they’re, when they’re caught in that cycle, they go find more work because they realize I got to go. And so any money that they’re using, they go find more work. Cause they need that next deposit. They need that deposit to end up paying for the previous, uh, the previous job. But the other thing about getting payments from your, uh, from your vendors, or if you’re a subcontractor working for general contractors, sometimes it’s not intentional, but whatever your payment terms are, you have to understand. It’s just human nature, that when we have a timeline associated with it, that’s usually when people start. So if you’ve got a pay period, that’s 30 days out, 45 days out, I’m not going to say that your, your contractors, that you’re working for intentional about it, some of you would probably argue, Oh yeah, they’re very intentional.
Shawn VanDyke: (31:33)
They always pay us late. But like, thinking about that, if they always pay you late, then you gotta, you gotta start reminding them beforehand. And there are laws and things that you gotta follow, like lane rights and notifications. And sometimes just putting them on, notice that you’re going to do the thing that’s in your contract, brings it to front of mind. They’re like, Oh, I got to pay this person. But we just think like, Oh, they know they owe me money. It’s been 30 days and 30 days is when they start thinking about it and it takes, and you know how long it takes for you to get your paperwork together. And so it takes them time. And so it’s like, wow, why do they always pay two weeks, three weeks late? It’s because you didn’t start two weeks ahead of the time reminding them that this thing was due.
Shawn VanDyke: (32:15)
And that’s one of the simplest things that you can, one of the simplest systems that you can get in place is to say, Hey, we were issuing we’re, we’re doing the work. We’re issuing the invoices and we’re waiting on payment. And then that’s where the that’s where the breakdown comes in. There’s still a system between issuing the invoice and collecting the payment. I’m going to be very active during that time. And it doesn’t have to be conflict confrontational. It actually could be very customer friendly to say, Hey, here’s your invoice. And a couple of days go by just checking in, by the way, here’s some notices that are coming out or whatever that needs to be. And then you stay, you know, it’s the squeaky wheel man. Uh, and you can, you can get that cash flow in when you need it.
Alex Dunn: (32:55)
That’s, that’s definitely true. And even like, squeaky wheel seems a little, like, it’s like a little aggressive to some extent, because like, it w we’d like to think of it here, level seven Wars, like communication and collaboration. Whereas a lot of people are out on the job. They’re working with each other. They see each other, the people that are exchanging the invoices and the pay apps, don’t all the time. And one of the best things you can do. And, and we’ve seen customers say, Oh, we don’t want to send these notices. Like we’ve been working with them for a long time. Uh, we don’t know. And then they start doing it and their customers are like, Oh, this is great. Like perfect. I know exactly where to send the check. I know exactly how much it’s for. I have all the information I need. It’s this idea of creating visibility, creating, uh, this open line of communication to deal with stuff that typically is kind of behind closed doors.
Shawn VanDyke: (33:41)
Yeah. Mo most people think that it’s like, it’s going to be confrontational, but it’s actually the opposite because you’re helping the other business run a better business by notifying them and remind them. And it like, like you said, it gives this sense of collaboration. Like, man, I don’t have to worry about, you know, Smith builders or whatever, because they always keep me up. You know, up-to-date exactly where I am. It’s not confrontational. It’s collaborative, but just like exactly. Right.
Alex Dunn: (34:07)
Cool. So let’s rock into point number three or rule number three, not a point. This is a rule you got to follow that everybody has to remember to follow the rules.
Shawn VanDyke: (34:15)
Yeah. Yeah. Now this is, this is the part though. I said, okay, we’re gonna, I’m gonna make everybody here permanently profitable. And some people are rolling their eyes. I can guarantee if you do this one simple step, not only is this going to make you permanently profitable, this is also the key to starting this cash management system. And remember what I said before, private first for contractors is not accounting. It is cash management. This cash management is profit. First system sits on top of your accounting and it’s a filter at which you view your money. So think about it like that. But here’s, here’s the key. You want to start small at 1%. So what you want to do is set aside, go and do this today, go to your bank or log into your bank and create a profit account. And I don’t care what the balance is in your bank account right now.
Shawn VanDyke: (35:00)
I want you to move 1% over to your profit account, whether it’s a, you know, if it’s a thousand dollars, you’re going to move $10 over. You can operate your business on the $990 that’s left. I don’t know if it’s a hundred thousand dollars, you’re going to go move $1,000 into this profit account and don’t touch it. That’s the, that’s the system. And then going forward, every check that you get, every time you get a deposit, you, someone pays an invoice. You’re going to take 1% and go transfer it and move it into that profit account and don’t touch it. And it will be there at the end of the quarter. And at the end of the year. And for some of you that are on this call, that’s probably going to be the first time you’ve ever been profitable. And here’s the magic about 1%.
Shawn VanDyke: (35:45)
It’s so small. You’re not going to miss it. I promise you if you don’t do it, you’re just going to end up spending it. Um, but when you do this and you create this habit with your cash, with your money, then after a few months, you can bump it up to 2%. Again, get used to this habit of 1% and then go to 2% and then continue that habit and then bump it up to 3%. And you’ll see these small little changes over time will start to add up. And then for the first time, it doesn’t matter what your accountant says. It doesn’t matter how confusing your profit and loss statement is. If you spent six or seven months pulling out 3%, 1% at a time and gradually build that up, you’re going to end up with some kind of money in that account. And you’ll say, I know exactly how much profit I have cause I have it designated for that.
Shawn VanDyke: (36:34)
And here’s the key. Now, if any of you have ever struggled to pay your taxes, just do the same thing with your tax account. You can go because when you make a profit, then you will have to pay taxes. It’s inevitable, right? So you can do the same thing with your tax account is 1% going to be enough to pay your taxes this year? No, probably not, but it’s going to be something more than you than you already have. And then you bump it up to two and three and four. And eventually here’s what happens. You end up with four, five, 6%. And we’re talking about total revenue that comes in five, six, 7% of every dollar that comes in. Then you have a conversation with your CPA and they’re going to say, Hey Justin, Hey Alex, this is when, this is how much money you owe this quarter, $10,000 or whatever.
Shawn VanDyke: (37:19)
And, and they’re going to say that was based on a 35% tax bracket based on your adjusted gross, blah, blah, all of this kind of accounting crap. And you’re going to go like $10,000. Cool. Yep. I look at my bank account. I got $11,000 in the bank account. I’m good. And he’s like, well, wait a minute. How’d you do that? Well, I set, I set aside 5% of every check that comes in and be like, well, that’s not in your account. We’ll say something stupid like this. That’s not how you calculate your taxes. And you’re like, Oh yeah, man. That’s why I’m paying you to calculate my taxes. I’m just setting money aside to run my business. And it’s very simple. And that right there is going to reduce this. It takes the mystery out of paying your taxes. So we start small with 1% and you can we say, do that in the profit account, then do it again in a tax account.
Shawn VanDyke: (38:04)
Start that again for your owner’s compensation, the money that you’re pulling out of your business to pay yourself. And it’s just a repeatable system and it’s not complicated. Now, some people are going to hear this and they’re going to get really, really excited. And like, we’ve already got a question that we’re going to jump. We’ll get to at the Q and a like, well, what should my percentage be? That’s I love that question, right? What, what should my percentage be? And people hear the system and then I’ll say, Hey, go stick this percentage. You know, it should be this percentage. They will run out to their bank today and try to transfer 10%, 12%, whatever it is. But if you’ve never 10 or 12% profit, the money’s not going to be there. That’s why we say start with 1%, 10%. Hey, that’s that may be the goal. Get there one month, one quarter, one chunk of period at a time establishing a good habit. And you’ll, you’ll realize that you’ll get there much faster and you won’t end up spending that money.
Alex Dunn: (38:55)
Yeah, definitely. It’s like the classic, you know, financial advice that everyone gives you. It’s not, it’s not about what you make. It’s about what you keep. And if you don’t take a little bit, just that little bit, 1%, it’s like, so little you, like you said, Sean, you’re not going to miss it. I’m just putting it on the side. Just throw, throw the little safety rope down into the craftsman cycle to so that you can start pulling yourself out a little bit by a little bit, a few people chatted in saying, they’re feeling like they’re in the craftsmen cycle right now. I’m sure other people have, you know, pulled themselves out. And probably, you know, this resonates with them. Just, just peeling off that little bit. That 1% is a, it’s a great way to start. Um, one quick thing that we always, you know, promote Levelset, um, around getting paid and, and staying profitable is, and getting paid faster is the idea of just this one document you can send it.
Alex Dunn: (39:45)
It’s so simple. It’s called a preliminary notice. Uh, you might know it by another name. If you’re in Florida, it’s a, you know, a 20 day notice or a California, it’s a 20 day notice. Some people call them pre-lease which we don’t like, because it kind of sounds scary and related to liens. Um, but it’s, it’s a great document. It, it just lets people know you’re on the job. If you’re, you know, if you look at this little graphic we have up here, I don’t know if my mouse is visible. Um, but if you’re a sub subcontractor or a supplier, even a sub you’re, you’re further removed from the people with the money and sending that preliminary notice less than know, you’re there, let them know that you need to be paid. And like you said earlier, Sean, it helps them run their business better.
Alex Dunn: (40:24)
They know that they have to make this payment. Um, we’ve seen it in States where it’s not even a required document. It’s not even part of the lean off statutes, um, to just send this document and it moves your invoice to the top of the pile. It gets you paid, you know, if you’re waiting 60 days to get paid, you’re going to start getting paid in 50 or 40 or 30, or, you know, it just continues to go down. You lower that DSO. When you get paid faster, you have less of those question marks. When you look at your P and L statement, you have less of those question marks when you’re, you’re sitting there at the end of the month, wondering if you can pay your guys and gals on your team. And, uh, it just kind of like that, that, uh, a little bit of faster payment, it gets rid of a lot of stress.
Shawn VanDyke: (41:05)
Yeah, absolutely. Absolutely. And like you said, those preliminary notices, like you said, the preliminary lien or whatever, like that sounds, the terminology sounds bad. Same thing. And in, uh, when we start talking financial stuff, it’s like, Oh man, this accounting stuff, it sounds bad. Profit loss statement, balance sheet owner’s draws and all that. And you just simplified to say, Hey, it’s just a system. It’s just a system of communication. So we’re going to send this thing out. And it just, it brings, it just makes stand out as a professional. And when you stand out as a professional, you’re doing something, uh, something different, different is better. Uh, then there’s more value there when your, uh, your contractors or your other people on your team that you work with, come back to you because they know you got your ducks in a row, man. Like there, this company is not going to let us fall through the cracks and we won’t have this battle at the end.
Shawn VanDyke: (41:57)
Um, and so it’s, yeah, it’s a, it’s a great way. Like again, you to protect, like what we’re saying here, that protect a healthy cashflow is first of all, understand where the money is going and then anything, any barriers that are gonna stand in that way of that cashflow. I gotta go put a system or something on that to keep that. I mean, sometimes barriers pop up. Like we all saw this past year when material price increase in all of that, all of that kinda stuff. There was a lot of chaos around it. There’s some things, some things are just out of our control, but everything else, I’m going to focus on what I can control and make sure that those barriers are always reduced.
Alex Dunn: (42:37)
Awesome. I love that. Quite a way to end it with fireworks. We’re going to open it up to questions here. We’ve got a few questions in the chat already, which I love. So throw some more questions in there. Anyone who has any questions for Sean or myself will let us have it. And, uh, before we answer any of them, I just want to give Sean one more chance to talk a little bit about how you can learn more from him and from the resources that he’s created.
Shawn VanDyke: (43:00)
Yeah. So you can go, you can search on Google or whatever for profit. First for contractors, it’s available on Amazon got a Kindle version. Uh, we got the, uh, audible version and it’s also on iTunes as well. So you can grab it. And any of those places, you can go to profit first contractor.com and get some additional resources, all of the table tables and the figures from the books. Because like I said, you will eventually need to crunch some numbers and we’re going to help walk you through, uh, how to just get started, like with nothing else to start with the 1%. But some people are going to be fired up about this and they want to know like, what’s the next, you know, what’s the next step I get the 1%, I want to know how to get to the next level. All of that email@example.com.
Shawn VanDyke: (43:42)
And if you want to learn some details about how to set up the bank accounts, like we were like, we were talking about, I’ve got a free video training firstname.lastname@example.org. Now we put the number four here, but if you forget that and you type in four core principles, it’ll still take you to the same place. So go to four core principles.com, sign up for a free video training series. And I’m going to send you an email. I’m gonna send you a video every day for the next five or six days and walk you through the bank account. Step-by-step uh, and then you can also go check out. As we mentioned before, our, um, our business training Academy for construction business owners and managers, that’s at, uh, go to built to build academy.com and you can see all the information about our different programs, sign up to join our wait list.
Shawn VanDyke: (44:23)
And we’re going to send you again, I’m always about providing value first. So go to built, to build academy.com, sign up for our wait list. We’re going to give you some more free resources, give you kind of, uh, uh, show you what’s in the Academy and what to expect. We’re going to give you a free training course on time management and some, some other things to follow up on some sales trainings and some other things. And then when it’s time to enroll, jump into the Academy and we’d love to have you there. Um, and with that, you know, if you want me to want me to knock out Greg’s question, I certainly can. Yeah,
Alex Dunn: (44:52)
That would be great. And I will just add to, uh, you know, Sean’s, uh, you know, recommendations of where to go next. If you couldn’t tell from this, uh, awesome webinars, Sean has a great reading voice. He actually reads the audible. I highly recommend, you know, your cruising cruise around to job site, to job site, get the audible version. You can, you know, bust through the book and just a week or two of driving around and, uh, you know, doing dishes or whatever you’re doing at at night. Um, but yeah, definitely check it out. So it’s enjoyable to listen to as well. So
Shawn VanDyke: (45:22)
Yeah, if you don’t mind a little bit of a Southern twine, but
Alex Dunn: (45:25)
I think it really, I think it adds to it, to be honest.
Shawn VanDyke: (45:28)
Yeah. All right. So let me, uh, Greg popped a question in here. Thanks for asking the question, Greg. Uh, what is an ideal cost of goods sold percentage of revenue for a $2 million revenue business? All right. So this is what we say in, uh, in the book, we, a lot of construction business owners get stuck on this thing called industry standards. And you’ve probably heard it before, like a contractor can’t charge more than a 20% markup. And like we said before, a 20% markup yields a 16.7% margin. But if your expenses are 20%, guess what? You’re going out of business by 3.3% every year, because you believe that there’s an industry standard. There are no industry standards. There is just the math of your business, but for a $2 million company, here’s what I would look at. What I, what I would say there are some rules of thumb.
Shawn VanDyke: (46:24)
So for example, for a, uh, Greg, and if you want to tell me like what type of business that you’re in, are you a builder remodeler? Are you a service-based contractor? Whatever that that’ll give me a little bit more information while you’re popping that in there. If you’re still here, um, let me give you some of the rules of thumb in general, if you’re a, a, a, a remodeler maybe. Okay. Demolition, uh, and deconstruction subcontract. Okay. So very specialized then. All right. So what I would say for general contractors, and this probably applies to some remodelers as well, but you want it to be four. I’m going to say with net profit, you want it to be somewhere around eight to eight to 10%. Net profit is a good rule of thumb. Now, depending on your market, your area, the size of your company, if you’re a $20 million company, you might be able to survive on a 9% net profit because 9% of $20 million is a whole heck of a lot of money.
Shawn VanDyke: (47:14)
That’s what you got to play the percentages. But those are kind of where I look at as like, Hey, are we somewhere around 10% now for a demolition contractor specialty contractor? Uh, I would say roofers, uh, plumbers, electricians, HVHC guys, very, they’re very specific in what they do. Um, probably a lot of high volume business. Cause they’re service-based maybe they still do some construction or whatever you’re typically typically going to see anywhere between 12% to maybe even 20%, uh, net profit. Now, the reason that those type of companies service-based companies can do that is because they’re very efficient. They do one thing, we do plumbing, we do electrical. And the more specialized you are, the more potential you have to be, uh, to be profitable. Now that doesn’t doesn’t mean you shouldn’t be a general contractor remodeler. These are just some of the rules of rules of thumb.
Shawn VanDyke: (48:03)
So specifically to what Greg’s looking at, uh, here with his business, I would say if you, if your books are accurate and you have everything accounted for, I’m looking at somewhere around 70 to 70%. So 70% of every dollar that comes into your business is probably spent on your cost of goods sold why 70%, because in general, then that leaves about 20% to be spent on the expenses. So we’ve got 70% of cost of goods sold 20% on my expenses. Remember rule number 100% has to add up to a hundred percent. So, so 70% on cost of goods sold, uh, 20% on my expenses that leaves me with 10% net profit. Now, depending on where you’re located and all of those kind of those things kind of factored in, you might be, uh, you might be at a 68% cost of goods sold. Then that gives you some more room to spend on your expenses. Maybe, maybe that requires a little bit more specialty services on your expenses side, which we still going to land at 10%, or maybe, maybe you could be as low as 60%, 20% on expenses. And you have a 20% net profit, but, but that’s where I’m going to start out with, to specifically answer, where should I be on my cost of goods sold somewhere around 70% or less.
Alex Dunn: (49:22)
Shawn VanDyke: (49:22)
And then, uh, your feet had asked in the, in the chat, uh, she said high 1% of every payment received. Yeah. Now that’s, that’s how the 1% works. Do you like you get a check today, move 1%. You get a check tomorrow 1% tomorrow. No, don’t do that. That’s kind of madness. Well, what you can do, and this, we explained this in the, in the book is we have an income account where all the money comes in and we let that money sit in that income account. And then every two weeks we drop into the income account and then do our allocations, or do our disbursements into our different accounts. But when you’re starting out, like go set up that a profit account and move 1% over of your bank balance today. Then next week drop into your bank account, see how much money’s come, come has come in and then go, go move 1% over a that that’s come in. And I promise you, you’re not going to miss it.
Alex Dunn: (50:16)
Definitely. And then you get a lot of cool stuff as that starts to build up where you can use like money market accounts and stuff like that, to just grow it while it sits there and then disperse it as needed. Um, a lot of cool stuff happens when you just start sliding that 1% off. Any other question? Oh, that’s a good one.
Shawn VanDyke: (50:38)
Yeah. When can you touch the 1% profit account? Well, here’s what we, here’s what we recommend in the book is that you, you keep doing this and then once a quarter, you take 50% of the profit from the profit account and get it out of the business. That’s yours as the owner for owning the business. That’s your reward. Now you, as the owner, you can choose to do whatever you want to with it. But we, we say, Hey, let’s let that thing build up. And it’s the same thing as like, if you’ve, if you’ve ever invested in any company in the stock market, they will pay you quarterly dividends. Your business is the same thing. So build up those profits at the end of the quarter, take 50% out. What do we do with the other 50% that we leave in there? Well, that’s for your emergency.
Shawn VanDyke: (51:20)
Things are going to happen. You need some cash in your business. Now you can, you can set up some, a bank account to deal with an emergency fund. And we have plenty of clients that, that do that. They use the profit account, they pull 50% out and they say, okay, now I’m going to fund this emergency fund. And that emergency fund is going to sit there and I’m never going to do anything with it because something like, Oh, I don’t know, a pandemic might pop up and we might need to survive for three or four months with being shut down. Right. And I have a lot of clients that luckily, fortunately, they, they were doing profit first before the pandemic hit. And that’s exactly what they use it for. But we recommend dropping into your profit account once a quarter, because that’s also when you’re going to have to pay some taxes too. So drop into your profit account and pull it out of the business or make a decision about what you want to do with the profit. And then you’re also going to have to take some money out for taxes, probably to pay your quarterly.
Alex Dunn: (52:13)
Nice. Let’s see. My question is,
Shawn VanDyke: (52:15)
Yeah. Mike asked, how do you factor in previous debt into your job allocation? Do you take it out of new profit or do you allocate that to your overhead? Okay. So here’s how we deal with, here’s how we deal with debt. First of all, we stop, we stop new debt. We have to stop new debt. And the only way, the only way to get out of debt is to make a profit. So what we recommend a profit for, and it depends on how much debt that you have is you start running a profitable business. And then what we say in the book is once a quarter, like we said, instead of taking that, that, that profit out, if you’re in debt, you take 99% of your profit and you put it towards your debt. And people say, well, why Sean? Why 99% you take that other 1% and you go celebrate because you just did something really, really hard.
Shawn VanDyke: (53:07)
And at first that 1% is going to be a cup of coffee. It’s not going to be much. And then a quarter from now, it’s going to be, you’re gonna take your, you can take that 1% as you’re working your way out of that. And then you’re going to take your family out to dinner. And then a year from now, 18 months from now that 1%, when you’re out of debt, it’s going to be a vacation that you’ve never taken before, paid in cash. For the thing that you said, you wanted to create freedom, which is starting this business. So what we recommend is if you’re in debt, stop going further into debt, sell some things off, get really, really, uh, adamant about getting out of debt. And you just have to make more money than you spend. I know it sounds simplistic, but that’s it.
Shawn VanDyke: (53:48)
You will never borrow your way to prosperity. You have to stop it. When you run a profitable business. When we create a profit, then we go eliminate the debt with most of it. And then when that debt is eliminated and you’ve, and I’ve seen this before with companies, they have hundreds of thousands of dollars in debt, and then they start working it. They use the profits to go pay off the debt. Then when the debt is cleaned up, they’ve got this habit of generating hundreds of thousands of dollars over a period of time. Guess what? With no debt generate a hundred thousand dollars in every, all the other bills are paid. You’re no longer going into debt. Then you’ve got the system become profitable. So it does take time. Uh, but that’s, that’s how we deal with the debt.
Alex Dunn: (54:30)
Yeah. Awesome. Well, we are getting close to time here. I wanted to let you do one more shot and I’m going to answer this other quick question from Jessie. They asked if little set works with American com uh, just American companies or if they work outside, um, especially in Canada. So yes, we do have a couple of customers up in, uh, with our neighbors to the North and we are able to help people outside the U S of a so definitely reach out to us of me or a VR website. You can schedule demo and, you know, chat with them if you’d like. But yeah. There’s another good question here from Dylan for you, Sean. Yeah.
Shawn VanDyke: (55:01)
Yeah. So it sound like Dylan. So you shouldn’t pay yourself your salary from your OSI account. Um, I’m assuming that means what we call the opera, uh, operating. Yeah. Well, Dylan, do you mean the opera? We call it the owner’s comp account. So I don’t, I’m not, I’m not really clear there what, what you’re intending, but what it does, let me say like this, depending on what the business entity is for your business, you may not be like if you’re a sole proprietor or LLC, depending on the structure or whatever, you might not be able to pay yourself a salary, meaning on payroll. Now, if you’re incorporated or something like that, then you can be on salary as an employee in the business because the business entity is paying taxes on the profits of the business. And then you, as the owner take owner’s draws for LLC or sole prop, everything is an owner straw.
Shawn VanDyke: (55:49)
What, what matters back to rule? Number one is 100%. Are you paying yourself on payroll to compensate for the value that you’re doing? Uh, the value of the work that you do in the business. And are you taking owner’s draws, owner’s draws, don’t show up on the profit and loss statement. Uh, the, the payroll does. So you gotta make sure you need to speak with your accountant about how your business entity is set up. And then you need to take a look and say, Hey, I want to pay myself a hundred thousand dollars. I don’t care where it comes from. It could be $50,000 of salary and $50,000 of, uh, uh, owner’s distributions, but let’s not kid ourselves. It’s a hundred thousand dollars, right? If you had, if you didn’t work in the business and you just owned it and you wanted to still take that $50,000 owner’s draw. But the value of the work that you’re doing is a hundred thousand dollars. You’ve got to hire somebody at a hundred thousand dollars to come in and do what you do. You’re going to have to raise your prices or do more work. So w however you pay yourself, that’s really accountant a question for your accountant, but you can understand the math. It still has to come out of that 100%.
Alex Dunn: (56:55)
Heck yeah. The rules are coming back and forth on our question and answer here. Um, if there are any more questions, you’re welcome. Throw them in there. We have three more minutes. And, um, Hey, if y’all think of another question that didn’t come up, um, during today, we do have the expert center over, sorry, I guess what’s the community now at Levelset dot com slash payment dash help. Um, you can ask any question that comes to mind. We’ll get Shawn in there to answer some questions. We have lawyers in there answering questions. We have credit professionals, HR professionals, accounting professionals. We have all sorts of people from around the construction industry, specifically answering these questions. Um, so toss them in there. Um, and we’ll definitely get to answer them at a later date, but today, uh, what was that one more question that kind of just disappeared.
Shawn VanDyke: (57:43)
Oh, I think that was Mike’s question again about the, about the debt.
Speaker 3: (57:47)
Shawn VanDyke: (57:50)
Yeah. Just to be clear, he was asking you, um, um, do you put it in, where does it come out of, and I’d say, Hey, it comes out of the profit. Like if you, if you try to work, your debt costs into your job costs and what you charge it for. Like, if you and I run the same business, you’ve got debt, I don’t, and you’ve, you know, that’s a, that’s a cost in, into your job cost or whatever. Um, then you’re going to be higher priced. You’re going to lose out because like, you don’t want to put your debt on your owners. Now, the reason you may have gone into debt is because you weren’t charging enough. So you may need to raise your prices, but I’m looking at I’m raising the prices because the value of the work that we do, I’m not raising my prices because I got a bunch of debt. It might raising your price is going to solve both things, but you gotta be really clear on, on what it, what it is, what the price is. And that’s where the math comes in. The math is not going to lie.
Alex Dunn: (58:45)
Awesome. Well, thank you so much, Sean, for coming. I really got a lot out of this. Hopefully a crowd who joined us good as well. And like I said, anyone has other questions, just head over to Levelset dot com, click the ASCA button, or ask a question button at the top of the page and, and let us know if y’all have any questions. And, uh, you know, Sean as has his info up here, and I there’ll be a version of this thing ready for you to watch if you want to watch it again tomorrow. Awesome. All right, everyone have a good day. And, uh, Sean, we will talk to
Shawn VanDyke: (59:17)
You soon. All right. Thanks guys.
Speaker 3: (59:20)