The top 3 profit killers for builders (And how to avoid them)

Zach Wojtowicz:

What is up everybody? Zach Wojtowicz here.

Charley Burtwistle:

Charley Burtwistle here.

Zach Wojtowicz:

It’s “The Building Code.” Play that music, baby.

Charley Burtwistle:

Yeah, it’s a great intro.

Zach Wojtowicz:

It’s just a banger. It feels good.

Charley Burtwistle:

I wish I had that full song recorded.

Zach Wojtowicz:

That’s like on your running playlist?

Charley Burtwistle:

Yeah, exactly.

Zach Wojtowicz:

Just over and over?

Charley Burtwistle:

Yeah, it’d be great. It’s a great song. Great song for a great podcast for a great co-host, Zach Wojtowicz.

Zach Wojtowicz:

Well, Charley, I’m going to actually put it on you. What do we got today for our listeners?

Charley Burtwistle:

Very exciting episode today. All of our episodes are exciting, but today especially we have Benji Carlson from Breakthrough Academy, great friend of the podcast, great friend of Buildertrend. We’ve had him on before, as well as some of his team members.

We are actually doing a joint Buildertrend University with Breakthrough Academy coming up. So, just thought leaders in the space, love what they do, love the content they produce, and super, super applicable to our customers and types of businesses that we work with. So, super excited to have Benji on today.

Zach Wojtowicz:

Yeah, Benji’s going to talk to us about a hot topic, financial profitability, how do you protect your profits in 2024, or what are the things that we want to avoid so you don’t lose out on your profits? Really important topic to talk about the best practices, what are the best business owners doing?

And he’s even got a little special gift for our listeners that he can share with you, a little tool that you can check out in our show notes. I’ll let Benji tell you a little bit more about it when we’re doing the interview. There’s a lot of great content we’re going to get to. So, without further ado, let’s get Benji in here. Hey Benji, welcome back to “The Building Code.” How have you been since we’ve had you last? It’s been a while.

Benji Carlson:

I’ve been really well, thanks for having me back, Charley and Zach. I am excited to talk to you guys, and I hope you guys in the whole Buildertrend universe as well, too. I know it is.

Charley Burtwistle:

Appreciate that. You are of course part of our exclusive multi guest club. We need to get an official plaque or trophies or something for people that come on multiple times, but very excited to have you back. For those listeners that were unfortunate enough to miss your first episode, would love just a quick little debrief on your role, who you are, how you ended up at Breakthrough Academy.

Benji Carlson:

I was worried there you were going to be like, for those of you who missed the first episode, tell us …

Zach Wojtowicz:

Run it back.

Benji Carlson:

I was going to say …

Zach Wojtowicz:

Recap the whole thing from two years ago, Benji.

Benji Carlson:

So, hey guys, my name is Benji. I am the director of content at Breakthrough Academy. Let’s start with Breakthrough Academy. We systemize contracting businesses for growth. We are the industry leading, I think the industry leading advising and coaching business program for contractors in North America.

We’ve developed a business system for contractors, for trades, for home services that we implement that we call the contractor growth method, that is made up of six parts. One of those six is financial controls, which we’re going to I think dive into a little bit today and talk about some profit killers. So that’s us.

We’ve got a team of about 45. We’re Canadian, and we work with about 600 businesses all over North America. My role as director of content is to basically attempt to produce the highest quality educational and free content available on the internet for this niche.

And so, we’ve got a podcast that we call Contractor Evolution, which releases every Wednesday on every platform. We have really awesome and fun web classes that we do once or twice a month, which if you’re on our list you’ll get invited to them. We write blogs, we make social posts, we do all the fun sort of content, brand related stuff here at BTA. So, that’s a little bit about Breakthrough Academy and that’s a little bit about me.

Zach Wojtowicz:

I love it. Benji, your company is a bit of a celebrity status here at Buildertrend for a few different audiences. I’ve always been a big fan, but my customer success team loves your content. They actually go look at it all the time, which is great.

We’re just stealing all of your great ideas and just trying to teach our builders. But more and more we’re starting to build a great relationship to where we’re having each other on each other’s podcasts. So, I just want you to know, at least at BT, we’re huge fans of you and you’ve even got a free tool that if you’re listening today, you can go download. Do you want to talk a little bit about that?

Benji Carlson:

Very flattered to hear that. Thank you. Yeah, look, so today we’re going to talk about three profit killers and these are broad buckets that I think are going to really resonate with all listeners, but if you want to take this a little bit more seriously and get a little bit more proactive about this, we have a really simple user-friendly budget tool that we’re going to put I think in a link somewhere in the description here on this episode that you can download, you can play around with, you can start to maybe put some numbers in for this year, for next year.

You can see what a healthy gross looks like, see what a healthy net looks like and it’s just a very approachable, simple Excel spreadsheet that even if you’ve never built a budget before, even if you’re not a Buildertrend user, which by the way you should be, but even if you’re not, anyone could just dive into this and get value out of it and start to play around with their numbers.

Charley Burtwistle:

Yeah, I think Zach hit on it, and you did as well, the amount of free content that you guys have out on your website is …

Zach Wojtowicz:

High quality, too.

Charley Burtwistle:

… awesome. Yeah, extremely high quality. Our customer success team uses it, I use it. So, we’ll definitely link not just the budgeting tool that you reference, but also just your website because you guys have a great blog presence and podcasts, which we strategically release ours on Thursday, so we don’t overlap with you guys, so people can get it back-to-back.

Zach Wojtowicz:

We’re going to cannibalize our audience. Yours is probably much larger.

Charley Burtwistle:

But one of the things that you hit on in your intro there is kind of the financial section, and that’s obviously one of the goal that we’re talking about for today. Always very, very important. But what’s your kind of perspective on why it’s potentially more important than ever to talk about profits and cash flow and financials in the business?

Benji Carlson:

So, this is a really important context setting piece at the beginning. I just had a guy named Bob Gavreau who runs the sort of best and highly specialized accounting and legal and tax firm here in Canada, like a team of 100 people, and they’re specialized to work with contractors. There’s a lot of sort of lightweight financial gurus out there.

This guy is very serious and absolutely knows his stuff. I had him on for this episode called Four Financial Health Hacks for Contractors, which anyone can check out on our feed. But I wanted to bring up a point that he made to me very clearly, which was in 2024, I asked him, I was like, “What is the single most important thing that a prudent contractor should be focused on when it comes to their financial picture this year?”

And what he told me, which I’ve now repeated to a lot of people, is above everything else, it’s all about cash reserves this year. And I’ll tell you why. Things are increasingly a little shaky in the marketplace right now. I think you guys are faring a little bit better in the US than we are in Canada, which things are really slowing down quite quickly. Our economic output and performance is quite bleak at the minute, but the same pattern is going on south of the border too.

We know what the reasons are and we understand the zero interest rate policy era in the 2010s and early 2020s that has come to an end. Interest rates have gone up. Yes, maybe they’ve come down a tiny bit and maybe they will continue, I’m not so sure. But this sort of quantitative tightening, this contraction of the money supply is having a very pronounced effect on the demand forces in the market. So, to just put that in layman’s terms, homeowners and businesses alike are pinching pennies a little bit more than they were a year ago and certainly two or three years ago.

Okay, so that’s a fact. With that said, we could be going into a scenario here where it’s just going to be a tighter market to play in. And what generally happens in those instances is you have a lot of the unprepared businesses struggle so much that they decide to sell, retire, or in some instances sadly, they just straight up go bankrupt and usually in a sort of recession slash depression period.

And I’m not saying that we’re 100% in that yet, but we could be, and you’d be naive not to play around with that idea and sort of mentally, financially, emotionally prepare for that reality. We could be headed there. So, in these moments in history, what most really intelligent leaders, really intelligent economists, bankers, anyone that knows anything about this will tell you is about surviving to get to the other side.

What your focus needs to be is just like, hey, let me protect my little business entity, the team that I have, the customer base that I have, let me protect what I’ve built, limit my downside so that on the other side of this, right, because these act in cycles, on the other side of this, I, as they say, have kept some powder dry and I’m able to pounce on the opportunities on the upswing and you need cash to do that.

So, here’s the perfect example. I guarantee you if you’re listening to this, and you are a hustling growing contractor, there will be businesses in the next two years, there might be buildings that come for sale in the next two years that you can pick up at a deep, deep discount because of the market conditions and the businesses that have some cash sitting around are able to do that, the ones that don’t, will not.

And when you multiply that through time, some of these bigger moves that get made in a state of quote-unquote crisis end up being the springboard that takes your business to where it’s destined to be. And you’ll look back on this 10 years from now saying, man, I was so lucky that we were able to acquire this small little competitor and pick up their customer base and pick up their equipment and their team for not very much money or man, I’m so glad that we were able to get into that commercial space and build a bit of an office and a shop and set ourselves up.

We wouldn’t have been able to afford that in kind of a peak time or a frothy time. So, I’m not an economist, so I’ll leave it at that. We don’t need to go deeper, but just in a very broad sense, what I want to say is holding onto cash in 2024 and probably going into 2025 is something that the smartest contractors are doing and they’re placing it above a lot of other priorities that they may have.

Zach Wojtowicz:

Yeah, we’ve tied actually quite a few economists on “The Building Code,” and they’ve had similar …

Benji Carlson:

What do they say?

Zach Wojtowicz:

Very similar. So, shout out to you, all this time spent with contractors, it is like you got the theory people who study it through the quantitative means and then the actual people who are living it, and when those line up, there’s probably a good sense of this is what is actually happening and what people are feeling is going to happen.

I’m always interested in the emotions of the economy, too. It’s like how much of it is created in people’s … on paper or what you’re looking at in terms of the interest rates versus what’s actually happening because there can be disconnects there, but from the businesses I’ve worked with, they all have that same kind of economic anxiety is how I would describe it.

So, what we wanted to get into, if we know the high level theme is cash is king, the companies that have it are going to be the ones that have the opportunity to continue to grow, let’s get into some of those subtopics of, what does that actually look like? How do we take actual steps on some of those ways to move towards more cash positive reserves?

Benji Carlson:

I think the simplest way to talk about this is just to give you three absolutely massively boneheaded and simple and cash killing mistakes that we see a lot of our members make. One other bit of context, we work actively with 600 companies. We have access to their books. We can see exactly their monthly cash flow, we can see their cash position, we can see their gross profit margin.

We can see how that trickles down to their net profit margins. So, when I’m saying these things, this isn’t just whipped up out of thin air. This is over the years with the hundreds and hundreds and hundreds of businesses we’ve had come through Breakthrough Academy, these profit killers if you will, rise to the top. And so, I just want to share what they are and maybe some practical points to avoid them. So, should we just dive right into the first?

Zach Wojtowicz:

Let’s do it.

Benji Carlson:

Okay. So, number one, I’m just going to title as overhead efficiency. The other way to frame this would be, another question to ask yourself would be, do I have a bloated overhead? So, what we’re talking about here fundamentally is the idea of how much revenue you can cram through a set amount of overhead. And maybe I’ll make a really quick distinction.

Your fixed expenses, that’s your overhead versus your variable expenses. Probably everyone knows this already, but just for someone who’s confused and too afraid to ask, gross profit is what you generate off of the job site. So, that is your revenue minus your variable expenses. Your variable expenses are costs associated with the job site.

Okay? So, that is your labor, your subs, if you use them, your materials, your dump fees, your miscellaneous job site expenses, rentals, anything else that you would just sort of categorize as, hey, it happened where the building was built or where the remodel was complete or whatever.

Those are your variable expenses that go up as revenue goes up. Your fixed expenses don’t move as quickly. That’s why they’re called fixed. And these are things like marketing, your managerial salaries, the leases on your vehicles, what you pay your landlord for your office or your building, those types of things.

So, they go up eventually, but they don’t go up as quickly. So, everyone gets the idea, just to make that distinction. What we’re trying to do is cram revenue through our overhead. And what happens when businesses are growing, and contractors are excited, and they’re feeling optimistic about the future is they tend to make this mistake of letting their overhead swell too quickly.

I’ll explain this this way. Let’s say I’m Benji the contractor. I’m growing. I did $500,000 worth of work last year, I’m going to do a million this year, and I’m pretty confident that I could do $1,500,000 or two next year. Things feel like they’re on the upswing. I’m getting that kind of entrepreneurial swagger. I’m feeling excited. I feel like I’m building something, but I’m also really, really busy and at times very overwhelmed.

And so I feel this need actually, I feel this right, like I’m entitled, so I need to hire a production manager because I need one and we’re producing a lot and I don’t want to be doing this stuff. I need to focus on strategy and I need to focus on culture. And it’s like, yes, you do, and yes, you might need a production manager, but what a lot of business owners do is they mistime this and they sort of miscalculate how much overhead they need, how soon.

The reason that’s a problem or where we get into trouble is this, those overhead roles or those overhead expenses, so it might be a production manager, a marketing manager, it might be an administrator, it might be a new truck for the fleet, it might be a bigger office, might be more marketing expenses, whatever, those expenses swell quite quickly, and you end up in a situation where the gross profit that you’re creating off of the revenue is insufficient to not only pay for those but pay for those and then trickle down to a healthy net.

So, there are literally dozens of contractors every year in the Breakthrough Academy universe who come to their coach not in tears, but really disappointed because their revenue has grown, their headcount has grown, and their net profit has shrank not just as a percentage, as an aggregate dollar amount. They made less money this year running a bigger business than they did last year. And it’s because they’re a little bit, they’re miscalculating these overhead roles.

The other thing I want to say about these overhead positions compared to someone, let’s say a carpenter, a foreman, in-house labor, even subcontractors, those variable expenses is it’s a lot harder to calculate the effectiveness of these positions. Put it this way, if you have a crappy carpenter who’s really inefficient, it’s pretty visible. It’s like, how much of the job did you complete today or this week?

It’s very, very obvious if this person is kind of a bit of a lay-about or maybe just incompetent or just not very good at their job, and in many cases, they’ll be fired by the crew before you even have to as the owner. So there’s a tangibility of their work output that makes a revenue producing, a job site role, in other words, a variable expense role quite obvious.

When we’re talking about overhead roles, it’s a little bit more abstract. If you have an office manager, it’s not as obvious, did you manage the office as well this week or did you not? Same thing with the production manager. Same thing with all these positions. So, that’s sort of why this is a problem and what some of the outcomes are.

And I’ll give you maybe just a few practical steps here and then you guys can maybe chime in your thoughts on this. When we’re talking about hiring overhead positions or bringing on overhead expenses, you need to be exceptionally disciplined about calculating the ROI, the return on investment of every one of those overhead staff.

And think about how you would measure that really effectively. So, we’re really big in Breakthrough Academy at writing job descriptions with good quality deliverables. You have a number, a metric, a something that you’re tracking their productivity against to see, hey, yes, you are hitting this or you are not. That could be dollars produced, it could be dollars sold, it could be customer satisfaction.

There’s potentially a hundred of them that you could pick from, but you want to be very disciplined about how you’re tracking performance. You want to have weekly check-ins, weekly management meetings with these people to ensure that week by week they’re hitting the goals. And then the other thing that I would, this is just kind of a pro-tip for builders, you want to move as much of your project manager’s time to billable hours as possible.

So, if you can basically start billing the client for project management, just bake it into your pricing system, that’s another quick way to sort of take some, what would originally be overhead expense and move it to a variable expense and lighten that overhead load. So, I’ll pause there, see if you guys have any questions.

Zach Wojtowicz:

It’s interesting talking about, I think builders think they need those roles in the office in order to keep the lights on and function. And in my experience, a lot of the people who make more money are those in those office roles. Your field laborers, they’re paid hourly whereas the office managers maybe are on salaries. So, it’s difficult to translate that into revenue producing activities like you say.

But one of the benefits, if you shift to billable hours for your production crew, you can have a very tight understanding, but then having fixed salaries or things that are, ultimately, you can forecast around, you can control is pretty beneficial from an operational standpoint. And I think that’s what I’ve experienced with a lot of my customers is that’s why a lot of people wear a lot of hats when they’re smaller to try and make up for some of those losses.

So, when you’re developing job descriptions, do you coach people into having multi-role type job descriptions where they’re doing a lot of different things that touch different parts of production or sales, if you’re doing it? If you have to have that higher salary office administrator who’s doing a lot of things, how do you get the most out of them?

Benji Carlson:

It’s a great question. To your question, do I think that’s a good idea, the general business philosophy and best practice would be to keep people’s roles as simple and as narrow as possible.

Zach Wojtowicz:

Definitely.

Benji Carlson:

Maybe not as narrow. It’s not like everyone just installs one little widget on the factory line, a better word for it would be defined. But the reality is when a business is nascent, and it’s young, and you’re making your first three to five hires, those first three to five people are going to have to wear a lot of hats.

That’s just the reality of it. You’re going to have an office manager who also does some appointment setting. You’re going to have a project manager who also does the occasional estimate. That’s just the nature of the beast. As a business evolves though, you want to create more and more defined lanes for people to stay within wherever possible.

Zach Wojtowicz:

And I assume that ends up making it easier to track, too, right?

Benji Carlson:

Way easier.

Zach Wojtowicz:

Yeah. That question of what value are they’re bringing becomes a lot clearer the more specific you can be.

Benji Carlson:

Way easier. Yeah. My personal opinion is really nobody outside of your really senior leadership team, super competent, well-paid quite senior, people should have more than a couple of things on their plate. You want to keep it simple. People like structure, people like lanes. That’s the case for 90% of the working populace.

Charley Burtwistle:

Well, I think that also just really from a prioritization perspective of if you’re feeling very busy and there’s a lot of things you need to do, but you don’t have a ton of resources, it forces you to be really intentional in what those resources do. And there’s this thought that if you hire more people or more roles, it will allow you to accomplish more problems, which is true, but they may not be as high impact as some of the problems when you were forced to prioritize.

So, your point on being really clearly defined on we’re hiring this role to do this specific thing, not just we’re feeling really busy, there’s a lot of things that we’re not tackling right now, so we’re going to hire someone to offload that because then they just start doing the lesser priority things that originally you wouldn’t have done, but now you have a person that you’re trying to make them feel busy and optimize that time. So, I think from the start defining the role and the responsibilities and how you measure success there eliminates a lot of that potential bubble up.

Benji Carlson:

If people really want to get good at this, I would really recommend, and this guy is like all the rage right now, he’s certainly popping on YouTube and in the content universe, but Dan Martell, who was on our podcast a couple of months ago, has written this book, How to Buy Back Your Time, or it’s just called Buy Back Your Time. He’s got an extremely simple methodology.

I’m not going to get into it today, but in a sentence, basically, most people make the mistake of hiring people to grow their business, I need a production manager because producing so much, whereas his approach is kind of the opposite. He just says, forget about growing your business, just buy back your time. So, he uses the example, most contractors hire a production manager first because like man, we’re producing a lot.

When in reality the thing that’s sucking up their time is updating Buildertrend, getting reports done, making a few phone calls, checking inboxes, and they’d actually have so much more ROI by hiring a part-time administrator, and then they can go and do the production themselves. So, he’s got this whole methodology for doing it that saves people a whole bunch of headaches and a whole bunch of wasted salary. I’d really recommend people go check out, Buy Back Your Time.

Zach Wojtowicz:

Love it.

Charley Burtwistle:

Link in the show notes.

Benji Carlson:

Can we talk about profit killer number two?

Zach Wojtowicz:

Yeah, let’s talk about it.

Benji Carlson:

So, it’s very simple, it is materials, it is whatever …

Zach Wojtowicz:

Construction. Who knew?

Benji Carlson:

Totally. It’s all the stuff that you need to purchase throughout the year to complete the work that you are contracted to do. So, that’s going to vary from contractor to contractor, from building envelope to building envelope, from market to market, but you know what those things are in your business. I want to give you a really simple way to think about this. We are in an increasingly inflationary environment.

Our central bankers are doing their best to make up for the wild incompetence and poor decision-making of our governments over the last four years. It was already bad pre-Covid. And then we wanted to dump, I don’t know, seven trillion, nine trillion, whatever the number is, it’s insane the amount of funny money that got injected into the economy. Most people, and I’m going to sound like a bit of a cynic here, but most people that I talk to about this say, “yeah, we’re raising interest rates to kind of say that we’re doing something, but this is a runaway train.”

Forget it. It’s over. This is going to be a decades-long problem. And I believe that. So, there are two, let’s just say that’s true and you may have a slightly different take on it, whatever, let’s just say that it’s certainly more inflationary than it was a few years ago. In environments like this, this is the simple idea I wanted to share, in environments like this, there are really two kinds of businesses.

There are businesses that are really efficient at passing off their rising costs to their customers. And the second kind of business are the ones that get caught holding the bag. You guys get what I mean by that?

Zach Wojtowicz:

Mm-hmm.

Benji Carlson:

It’s like you need to become exceptionally good at basically moving that increase in price of lumber, of materials, of shingles, of windows, of doors, of whatever to the customer. We have a whole bunch of examples through the last few years. I’ll just maybe give a few that come to mind. We had an electrician who in the year 2022, so this is a couple of years back, but the pattern remains, their overall materials was 9% of their revenue, not just 9% of the jobs they produce, 9% of overall revenue in one expense category in the year.

It’s like, yikes. Now, this is going to fluctuate. It kind of comes up and down and you need to stay on top of supply chains, global events. We’re told that what’s going on over here in this conflict, and what’s going on over there in this conflict and this shipping line is shut down, therefore your lumber’s more expensive.

I think a lot of contractors are kind of going, I don’t know. I think you might just be jacking the prices, but it doesn’t really matter what’s going on. The reality is you go to your lumber yard, your Home Depot, your Dick’s Lumber, your whatever, and not infrequently you’re kind of shocked at how much things are. So, the practical point I want to get to here is just a couple very simple things.

One, this would be a good time to shop your business around, and I would almost do an annual audit of this where I’m just checking in, I’m making phone calls to suppliers, I’m keeping my suppliers’ pencils sharp, right? The same way that you need to shop your trades around sometimes, you’re doing the same thing with your suppliers. I’m sure a lot of our listeners, your guys’ listeners are doing that already.

But if you’re not, that would be an intelligent thing. The other thing I would mention would just be update your estimates to basically hold for a shorter period of time. In other words, if you’re getting callbacks from a project that you quoted 18 months ago and without thinking you’re excited because you just got a job, you basically engage the customer, take a deposit without revising your prices based on the current cost of the materials involved, you will be one of those businesses who is caught holding the bag.

So, a lot of the companies that we’re working through just putting a little clause in saying this quote is good for a month, or this quote is good for two months. It’s going to depend on your business cycle and the kinds of customers that you work with. But I would just make that little update. And then the other thing that a few members have gotten good at is just installing some inventory management systems, keeping track of what they have a little bit more effectively, making sure that there aren’t materials walking off the job site, walking out of the shop, et cetera.

So, I’ll pause there. That’s just perhaps an obvious one, but I wanted to add a little bit of a spin on why that’s so important right now with what’s going on in the world.

Charley Burtwistle:

No, I think that’s great. And I think the obvious ones are oftentimes the ones that need the most attention and thinking through just the way that you’re talking and Zach, and I say this a lot, is this type of commentary and advice is applicable across a ton of different industries, not just construction here.

So, as you were talking, I was thinking through different things that we’re facing here at Buildertrend, and I know our customers are facing too. So, I think it’s important to hear this live kind of high-level commentary and connect it back to how does this directly apply to my business. Yeah, I don’t think I have any questions there other than it’s definitely worth more time.

Benji Carlson:

This is a really profound change for me in my early 20s, I was trying to just get better at personal finance and saving and whatever, and I took this course and this instructor said something, which they had a clever way of saying it, which I’m sure I’ll botch. But the idea was you need to look after your big expenses first.

You want to look for efficiency on your big expenses first because those are the big expenses. So like a lot of us, they he kind of called me out in this course, was like, how many of you are trying to look for cheese at the grocery store on sale? You’re like, okay, I saved $2 on my block of cheddar when my mortgage is 50% more than it needs to be. It’s like, what are we doing? What are we doing with the discount cheese? Look at the big expenses first. So, I think the same principle, obviously, applies to business as well.

Charley Burtwistle:

No, that’s great. I want to make sure that we have enough time to get to your last one here because it may be the most beneficial here, but the cheese could potentially be classified as a shiny object, right? I won’t seal your thunder here, but working with the third one.

Benji Carlson:

Profit killer number three guys is shiny objects. You know the stuff I’m talking about, it’s a new F-150. It’s a new trailer, so your PM can haul a bunch of stuff around.

Zach Wojtowicz:

Benji, why do we work? What do you mean? That’s the fun stuff.

Benji Carlson:

So, look, let me be super clear. I am not saying that your team doesn’t deserve really good quality stuff. They absolutely do. But what I am saying is that there is a really important distinction between a strategically planned and budgeted for capital investment versus more of just like a nice to have, an impulse buy that you make partway through the year because you’re able to justify it technically as a business expense.

So, I want to be clear, you absolutely deserve good stuff. Your team wants nice stuff. I’m all for investing in your business. But a really good rule of thumb that we coach our members on is was I thinking about this purchase three months ago? Was I thinking about this purchase three months ago? Because you can be driving down, and you see the new lineup of F-150, and you have a look at it.

You’re like, “I could afford to finance this. We can just write this off. It’s all good. It’s a business expense.” Or, “Hey, there’s this my rapid, whatever, the equipment store just called me, we could get a whole whack of new equipment and we could afford to do it.” I just would encourage people to be incredibly disciplined about that distinction.

Was this strategically planned for and budgeted, or was this just an impulse buy that I can rationalize? A couple of just closing points on this. You need to understand that every dollar has earning potential and there’s therefore an opportunity cost in buying it. Investing into productive equipment and gear and vehicles and whatever is awesome and it should be done regularly, but there has to be a tangible and really clearly measurable ROI on that purchase to what I was saying earlier about overhead, it’s kind of similar.

It’s like, can I make a business case? This is another good way to think about this. Pretend you have a board of directors who is examining your spend on a quarterly basis. At your quarterly board of directors meetings, again, hypothetical thought exercise, they’re going to ask you, what is the return on this purchase? How is the business better for having this shiny F-150 versus the one you were driving before?

And I’m telling you, saying, “well, it has heated seats and it makes me feel better when I drive around,” that’s not going to work for this hypothetical board of directors at all. So, there needs to be a business case made for those strategically planned for and budgeted purchases. And that’s another just kind of good way to avoid making some of these splashy, fun, exciting purchases that a year later you’re on the hook for, and you’re going to be sitting there with your accountant, come tax time going, “man, I really kind of miss my old truck. This sucks.”

Zach Wojtowicz:

What was I thinking?

Benji Carlson:

What was I thinking? Do an ROI analysis. Ask yourself, was I thinking about this three months ago? And try to have some discipline there because like I said earlier, cash is going to be king, and those are three big ways that people blow through it.

Zach Wojtowicz:

I always use the analogy on the why not, why not? It’s kind of like a diet. If you’re like, “oh, if I just eat cookies every once in a while, why not?” And then eventually it’s your habit to just, why not? Why not? And before you know it, you’ve gained a little weight and you’re like, what happened? And now you’ve got to do a lot more work, or it’s a lot more painful to lose it.

And I always view business budgeting in the same way. It’s like, you need to build that culture of prudence and make it part of the process, not just be kind of overly indulgent, just be overly indulgent. And that there’s a balance for sure. Benji, I think you would say like team outings and culture building activities, and things that help may look like extraneous expenses once a quarter, once a year.

Those are the things that help, even if they don’t move the numbers, they still build a great experience for your employees, and there’s a reason for it versus going and buying a piece of equipment that, ultimately, maybe you don’t need or it’s more of a status symbol or a vanity thing.

Benji Carlson:

Yeah. And I think that’s why the budgeting tool that I mentioned earlier is really powerful. If anyone wants to check that out, they should. It’s not about, “hey, you can’t have nice things.” It’s about you can have nice things if you think about them in advance, are realistic about what they cost and are conservative about the true return that you’re going to get from them.

And I think if those things are done, go nuts. But when they’re not done, that’s where you get in trouble, and you have these, oh, crap conversations with your accountant and then your spouse and then your employees, and it just gets not that fun. And I think at this time in history, this is an especially important time to be disciplined about that stuff. So, yeah, those are my thoughts on that, guys.

Charley Burtwistle:

No, that’s great. I think we’re getting up against time here, but this was a great overview. I love the way you broke it up into these three different distinct buckets. I think that there is going to be a ton of people wanting a deeper dive here. So one, we’re going to have to get you back on another episode, but two, if you don’t want to wait, the Buildertrend Breakthrough Academy joint Buildertrend University should be coming up. I don’t have the dates on me. Do you, Zach? They’re very …

Zach Wojtowicz:

Later in the summer.

Charley Burtwistle:

Later in the summer. Well, this releases in June, so it’ll be very exciting. If you have questions, it’ll be linked in the show notes for sure, but would love to see some people there and take a little deeper dive. Other than that, Benji, thank you so much for the time today. Really appreciate your thoughts and insights here and look forward to having you back on.

Benji Carlson:

Thank you guys. Appreciate it.

Zach Wojtowicz:

We just had Benji Carlson from Breakthrough Academy, breaking down ways to protect profits. Charley’s a numbers guy. Charley, what’d you learn?

Charley Burtwistle:

Well, first of all, you’ve missed an opportunity to say breaking through ways to protect product.

Zach Wojtowicz:

You know I’m not a pun guy.

Charley Burtwistle:

Not a pun guy.

Zach Wojtowicz:

I actually kind of cringe at puns. That’s a little fun fact. My humor is just so much more evolved, obviously.

Charley Burtwistle:

Yeah, just higher dimension than simple little puns.

Zach Wojtowicz:

Any dad jokes out there, I’m not trying to hate, it’s just I don’t seek out puns. That’s not the point of the video or this episode, but for our listeners out there.

Charley Burtwistle:

I’ll remember that. No, great episode. I thought it was a really timely topic, and I liked the way that he framed it up. I think we’ve had some economists on here before. We’ve had a lot of other thought leaders in this space on here before. Everyone knows kind of the uncertain times that we’re in from an economic perspective. And so, I like the way that Benji framed it up of using this as an opportunity.

And the people that make it through this are going to come out the other side and are going to have an opportunity to take advantage of the upswing of this turn. So, how do you not just sit here and think, “oh no, I don’t know what to do, times are scary,” but how do you actually be really intentional about the way that you’re running their business, the way you’re protecting your cash and your profitability, and what can you do right now that’s going to set you up in the future to expand and thrive and scale and success and any other buzzword that you want?

So, I, first of all, just really appreciated the context and the framing of that, but then the individual kind of three things that he listed out, going through those, I thought that those were impactful and important, and I wish that we could have had them on for another two hours to get deeper into the weeds. I thought it was a great kind of level set and overview.

Zach Wojtowicz:

We probably could have done an episode each on one. The overhead efficiency makes a lot of sense. I liked how he pointed out that when you start hiring, it just seems like, “oh, I need to do this to do this.” Not I have a problem specifically I’m trying to solve that I’m having to always do myself. I’m going to specialize someone to handle that problem, right?

Materials, obviously, with building and things that as Covid showed us can quickly escalate. And one thing we didn’t touch on, but the reality is the profits for those material companies are so good in 2020 that they’re looking at their profitability numbers and saying, how do we maintain those prices in order to keep their sales and revenue up? And so, you are going to feel some of that effect. How do you manage that? How do you pass that on to the customer?

How do you or at least insulate the impact a little bit more, so that you don’t get surprises with longer lead times or missed orders, or having a partner that isn’t raising their prices substantially that you can’t overcome because you didn’t bother to go look at other prices? And then of course, just I always make this joke like, Charley, we probably should be a little more prudent with the shiny objects. Do you really need a trip to Italy?

It’s a little extraneous, brother. Come on. What are we doing? No, I think that’s good business advice. I think it’s really attractive when you look at the tax write-off capabilities that go with business. I’ve even joked like, I should just open an LLC and write some of this stuff off. But it’s a privilege and a responsibility to be in business for a long time that you’ve got to have to be aware of those things. So, really sound, concrete advice from Benji.

He’s an absolute expert. He always delivers great content. He’s fantastic at it. Like I said at the beginning, our team eats up everything Breakthrough Academy. If you’re a listener, I would highly recommend you go straight to the source and check them out.

Charley Burtwistle:

Yeah, absolutely. That’s the way I was going to end things, too, is just go out to their website, linked in the show notes, a ton of great free resources. Check out that free budget tool that he alluded to. And if you’re a Buildertrend customer and want to come check them out in Omaha, we have the Buildertrend University Breakthrough Academy joint event coming up.

Zach Wojtowicz:

Yeah, can’t wait for that. Everybody, thank you so much for listening to “The Building Code” where you can find us, all channels.

Charley Burtwistle:

Everywhere.

Zach Wojtowicz:

Everywhere. You can’t escape us, honestly. Feel free to like, comment, subscribe, let us know what you think about “The Building Code.” I’m Zach Wojtowicz.

Charley Burtwistle:

I’m Charley Burtwistle.

Zach Wojtowicz:

We’ll see you next time. Peace.