Episode Transcript
[00:00:09] Speaker A: It's not just sloppy, it's risky for your business. So stay tuned and I'll tell you more. This episode is brought to you by Performance margin software. I'm T2. I'm here with Tommy P. And we are going to tell you. Tommy, actually, I have a first. My first question for you.
Kind of a fun one. If a forensic accountant were to walk into most small businesses, what would they say about how labor is tracked?
[00:00:40] Speaker B: The Snickers commercial comes to mind. Not going anywhere.
[00:00:46] Speaker A: You're going to be here for a while.
[00:00:48] Speaker B: Exactly. Get comfortable.
Yeah, no, it's. It's a great, great analogy because it's, it's truly one of the biggest costs in a business. And if you don't have it right, I always compare it to the math problems we had in school where you had to get one right to get four right, and if you got one wrong, you get four wrong kind of thing. So all your numbers need to be in sync to get your right answer. So.
[00:01:14] Speaker A: Well, so break down labor for me. We've got payroll taxes. We've got unemployment. We've got, like, what else kind of goes into labor, benefits, training, pto, all those liabilities.
[00:01:27] Speaker B: Your work comp. Work comp is a. Is a dollar per hundred hours.
Your general liability is a dollar per 1000 hours of work. So the numbers are. They can be kind of unique, but we all break those out within the software and those numbers are calculated properly and those our burden rates against your hourly rate that you're already paying your employees. So again, the common mistake we talk about in our podcast is what you pay somebody isn't what they cost you.
[00:02:02] Speaker A: So to that point, if you're bidding labor at $30 an hour, but it's costing you $47 an hour, that's not an oversight usually.
I mean, it is an oversight usually.
And. And it's a major profit leak.
[00:02:18] Speaker B: Well, it's a burst.
[00:02:19] Speaker A: Yeah.
[00:02:21] Speaker B: Beyond leaking. So, yeah, it's a burst.
[00:02:26] Speaker A: The second issue is undefined cost codes.
So if materials, freight, subs, change orders, if those things are all lumped together either on your spreadsheet or in your head or however you're managing your finance, you have zero clarity, Right? You're just kind of lumping all that stuff together. So what's the fix?
[00:02:49] Speaker B: The word other is not your friend.
It's the easy button, but it's not your friend.
There's ways to create these accounts and work with. If you have a bookkeeper or an accountant or total profit management to help you get a category so you have those visuals to troubleshoot because it really comes down to what went wrong. Going back, reversing the equation to see where your breakdown was,
[00:03:19] Speaker A: let's talk about the lack of year over year consistency. Okay. If your chart of accounts is changing every year, you can't measure performance trends.
[00:03:31] Speaker B: Right?
[00:03:32] Speaker A: You can't measure those trends accurately. So guessing isn't just wrong, it's really dangerous for your business.
And so that's what I mean when I say it's not just sloppy, it's risky.
[00:03:43] Speaker B: Exactly. Like we've going back to some of our prior podcasts, the additions to your overhead without budget is creep.
And if you don't know where these creeps are coming in, if they're creeping on your cost of goods or creeping in on your overhead, they're two different outcomes.
If they creep in your own in your overhead, that's taking away not only from your gross, but your net margins and profits.
So it's finding those, those leaks we call them, and making sure we're tightening them up and we account for them.
[00:04:20] Speaker A: So let's define what knowing looks like.
[00:04:22] Speaker B: Okay.
[00:04:22] Speaker A: Okay.
A defined burden rate per labor type. A defined burden rate, Fully loaded labor burden rate per labor type. Very clean. Cost codes help you with that consistent chart of accounts year over year over year.
Margin enforcement rules. What kind of systems do you have in place in your business to enforce the margins that you want for your business? You know, as a business owner, how much profit you want to make, what are you doing to make sure that that stays enforced across your whole, your whole squad.
And then dashboard visibility.
So having that, you know, having an accountant is fantastic. They help you with your taxes. Having a bookkeeper is great. They help you with the, you know, the day to day transactions.
But most small to medium sized businesses don't have a finance team. A CPA and accountant don't necessarily make up a finance team. Where you're budgeting, where you are forecasting, where you are looking at things by job type, by, you know, different labor rates and you know, all your different cost codes. And so.
And a finance team is also going to help you enforce those margins. So let us help you with that.
That's what knowing feels like.
[00:05:46] Speaker B: Yep. And one other thing we can squeeze in there is the form and view that we have that you're checking your estimating versus your actuals.
So your team, whether it's you or a project manager or an estimator, is proposing this number to a client.
How is your field team executing this work? Do they match? Do those two teams communicate. So these are all things we blend into the process to make sure you are checking your numbers consistently. And you mentioned bookkeepers and accountants. They don't know your business. They know what you're buying and what you're ending up with to claim on your taxes. But they're not familiar with the in between. And there's a lot in between that can skew those that information budget Discipline is leadership. Discipline 100%.
[00:06:41] Speaker A: 100%. And discipline is going to beat hustle every time.
[00:06:45] Speaker B: Why wouldn't you?
It's better to work smarter than harder.
[00:06:49] Speaker A: It's better to work smarter than harder.
[00:06:52] Speaker B: So, yeah, here we come again.
Take her. Cool. Everything's going to be fine. It's all going to work out.
[00:06:59] Speaker A: It's all going to be fine.
