Episode Transcript
[00:00:00] Speaker A: Foreign.
You've hit your sales goal. So why does it still feel like you can't breathe?
This episode brought to you by Performance Margin Software. I'm here with Tommy P.
And Tommy, let's start out by asking this question. What does a profit aligned budget actually look like?
[00:00:29] Speaker B: Yeah, it's hard to define that if you're not familiar with how your budget should be laid out. So it's, it's again making sure your costing is accurate. Your charts of accounts are in align. We come back and we're going to harp on this till we get it right. But we, we have the tools to help people properly align their, their data so they start knowing what it looks like. So your cost of goods, it goes back to that rule of thumb, a third, a third and a third.
So you have a third of your cost of goods. Third is overhead and the other third is for profit. So it varies per company, but it truly is just a rule of thumb. So if you're, your cost of goods are like at 10%, there's something wrong. That money is somewhere else in your budget.
[00:01:29] Speaker A: And people that talk a lot about revenue, revenue is vanity, right? The amount of revenue that you bring in is, I've had people say to me very proudly, my business makes 800,000 a year.
That's great. How much of that do you keep?
[00:01:44] Speaker B: Exactly right.
[00:01:45] Speaker A: Revenue is vanity. Gross margin is really where the reality is.
And then net margin is your survival.
So revenue is vanity, gross margin is reality and net margin is survival. That is how you're making it. So that job that you bid or that you did, it looked really good until you ran the math, until you do the actual math. So when you blend residential and commercial together or service and install together, you hide a lot of underperformance, you hide a lot of sins.
So how do owners start separating that data in a way that's efficient? Because let's just acknowledge that everybody is busy.
[00:02:30] Speaker B: Exactly right.
[00:02:31] Speaker A: Everybody's busy. Nobody wants to take the time to sit down and crunch numbers. That's not necessarily why you got into this business, was for paperwork. That's no fun, right? So how do people start separating out those things?
[00:02:44] Speaker B: So I was told once you have to slow down to speed up.
So do it right once. Because if you're doing redoing, that's going to cost you time and it's going to be frustrating. You're going to not want to do it. So if you have something that you can set it and forget it, which will steal a line from the, the past Our paths of the, the products that we saw. But it's making sure that your costing is accurate, your cost of goods. Because again, your cost of goods is what you're going to keep after you perform, help you keep what's performing after your work.
So that gives you your gross margin. So if your gross margin has to cover your overhead and give you profit, it's a pretty important number.
And if those numbers are buried in your overhead, you're not going to get that important number you need. So it's this constant fine tuning. It's, it's like adjusting.
Again, it's the boat analogy. You course correct a little at a time instead of a hard left or a hard right.
[00:03:48] Speaker A: Okay, let's talk about something that most people ignore and that is timing.
Timing so you can be profitable on paper and still be cash poor.
But like you said, slow down.
Or maybe you have slow accounts receivables.
Maybe you have upfront material deposits that you owe.
Maybe your payroll cycles are misaligned. So timing is also an important thing in business too. And that cash flow is oxygen to your business. Yes, it is pure oxygen. The margin is where you get a lot of muscle to propel your business forward. You need both of them.
[00:04:26] Speaker B: Yeah, exactly.
[00:04:27] Speaker A: Okay, so if somebody realizes that they're in this trap, what would you say is the first corrective move?
[00:04:38] Speaker B: I would really look at them to see if they can troubleshoot and try to find a problem. If they don't know where to start, they can reach out to us at Total Profit Management and we can help you.
Our first consultation is free.
We scheduled for 15 minutes. If we go 16 to 30 minutes, it's not going to break us. We want to make sure you feel comfortable and we can start our relationship off on the right foot. But we can usually spot something within the first few conversations in that 15 minutes.
[00:05:16] Speaker A: We're going to start out by helping you separate out some of your job costing. Right.
Gross margin review.
So we can kind of see what your revenue is versus your margin.
We'll track your actual cost versus some of those estimated or your budget or you know, your actual variances, that sort of thing. So yeah, we will help you do a lot of that right up front very quickly.
[00:05:45] Speaker B: And it's not diving into your software. We have the tools that we can do all of this in a safe space.
We can move boxes around if you have some, maybe you have interest that you've, you've got on a line of credit. We can move that into another category that still is an expense to your overhead, but it doesn't. It's. It's going to go away at a certain time. So it's a variable, not a fixed. And then move those labors or equipment charges up into your cost of goods. And then we regenerate what a profit and loss statement should look like for you. And again with going back two years in current data, that's a lot of data to tell your story and we can help you troubleshoot from there.
[00:06:32] Speaker A: We sign NDAs, by the way. We sign NDAs all the time.
[00:06:35] Speaker B: So you, you know, your data is your data. We do nothing with it other than keep it to ourselves.
[00:06:41] Speaker A: Right.
Okay. So profit is not really the number on the bottom of your tax return. It's the number that lets you sleep.
[00:06:51] Speaker B: Yes, exactly. That's a great way to put it.
[00:06:53] Speaker A: Where the calm is coming from. Right. And sleep is underrated.
[00:06:57] Speaker B: Well, and it's, you know, what you should expect.
So it's like setting off on a journey without a map. You don't know where you're going to go and you're not sure how you're going to get there. Well, we give you the map to your destination and your destination is profitability.
[00:07:14] Speaker A: Well, and again, most business owners don't get into the business that they're in in order to sit around and shuffle paperwork all day. This is not really what they enjoy. It's not why they started the business.
And so let us help you with that end of it so that you can get back to doing what you really love.
[00:07:31] Speaker B: They want to build stuff. Yeah, that's what they want to do.
[00:07:34] Speaker A: They want to be great and build stuff.
[00:07:36] Speaker B: Exactly. Okay, so as always, take her. Cool. Everything's going to be okay.
[00:07:42] Speaker A: It's going to be fine.
