How to Scale Your Construction Company (WITHOUT more work!)

Want to scale your construction company without burning out? Learn proven systems to grow beyond the one-person operation, from managing cash flow to building repeatable processes that let your business run smoothly without you. Watch for practical tips from construction industry experts.

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#ConstructionBusiness #ContractorGrowth #ScalingUp

Topics we cover in this episode:

• 02:02 - The E-Myth Book Example
• 04:19 - Construction Industry Complexities
• 06:13 - Business Growth Hierarchy
• 08:38 - Growth Stage Challenges
• 10:40 - Back Office Systems
• 12:42 - CFO Services Discussion
• 14:40 - Finding the Right Advisors
• 16:38 - Systems Implementation Importance

LINKS

Visit the episode page at https://carpentercpas.com/leverage for more details and a transcript of the show.

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Wade Carpenter, CPA, CGMA | CarpenterCPAs.com
Stephen Brown, Bonding Expert | SuretyAnswers.com

Chapters

• 0:00 192 Leverage: Practical Advice for Scaling a Construction Company
• 2:08 The E-Myth Revisited

Transcript

[00:00:00] Wade Carpenter: Are you finding it harder to keep up with all the demands of running construction business as you grow? Wondering how to move from survival mode to sustainable growth without burning out?

Today we're diving into the steps and systems that contractors need to scale up successfully. Moving beyond the one man band approach to create a business that runs smoothly without you.

 Welcome to the Contractor Success Forum. I'm Wade Carpenter with the Carpenter Company CPAs, joined by Stephen Brown with McDaniel Whitley, Bonding Insurance.

Stephen, any takeaways from that episode we did with Ross Loveland, Fix This Next, where we talked about business hierarchy of needs and trying to get beyond that first level?

[00:00:35] Stephen Brown: This is a great topic and I don't think we can talk enough about it. I want to just point out for our listeners that are feeling like they can't see the forest for the trees. They're getting stress from their family. They're spending more time away from their family. Their family's not happy.

\ It's impossible for you to make everybody happy. And it just seems to you there's more and more on your plate that you have to handle yourself. And that , you have to do what you have to do, and no one seems to appreciate you, but you, right? 

I can just tell you, we do. We appreciate you, and we know how hard the construction industry is. And it is extremely difficult. And what you do is very meaningful. And in your situation right now, whoever's listening to this podcast, you have certain stresses in your business. And that's what this topic's about. Those stresses and what you can do systematically to get through it and save your sanity.

[00:01:24] Wade Carpenter: Absolutely. And I think this episode is probably a conglomeration of not only that Fix This Next, but you did the one on the stages of growth that we got some good feedback on. We've done some follow up episodes on.

As well as I was going back to the book, the E Myth by Michael Gerber, which talks about building the systems. And I guess just a couple of contractors I'm working with right now are struggling to get past that survival trap. I'm the one man band, I'm trying to do everything myself. And just scaling up. 

I built my own firm, went through some of the same things. Obviously there are different challenges with construction. Just getting to that next level. How do you do that? How do you leverage what you're doing so that you can get to that next level?

That's what I'm trying to talk about today.

[00:02:02] Stephen Brown: I think this is a great point. And you can take that kind of on a macro level or a micro level, right, Wade?

The E-Myth Revisited

[00:02:08] Wade Carpenter: Yeah. I don't know that we've actually ever done one on the E-Myth. It was one of the things in reading that book that made me want to go out on my own. I was like this is something I can do and help people with, and it's something that I've had to figure out for myself before I could help others.

 It's something that you never stop learning at. Are you familiar with the book, The E-Myth Revisited? 

[00:02:26] Stephen Brown: No, tell me about it.

[00:02:26] Wade Carpenter: There's different books like The E-Myth Contractor, but the original story is about somebody that opens a bakery. And the owner does everything herself.

She starts off in business, all her money is put into this business, and she gets up crack of dawn and has the place squeaky clean and cooks all the stuff herself, ordered all the stuff herself, does the books herself, and, she's struggling to survive. 

At some point, you start running yourself ragged, and then you start to hire somebody. And then you think, okay, you may go through several people that you're hiring and they're the wrong fit. But then you find this one person that is the exact right fit, and you become so dependent on that person that, they're doing all these things and that person leaves. And then you're starting over from square one. That's one part of the story. The idea is about systematizing your business. And that struggle is one of the ones that contractors face all the time.

[00:03:14] Stephen Brown: The first thing that pops into my head for this woman starting the bakery on her own is how many units of baked goods does she have to sell to break even right now? 

And as you hire people and as things change, your costs go up. So the numbers of what you have to produce in order to make income go up. 

But in the construction industry, things can be different. you may be able to find a perfect job with the perfect amount of profit on it. And you need to have all your systems in place to prove it, right? Cause you're being held back by your bonding company or your bank or some other situation.

[00:03:43] Wade Carpenter: Absolutely, and, there's a lot of things that entails. The owner probably wants it done their way. And, nobody can really do it as well as they can.

Too many owners their system is okay, I told you how to do it. And if somebody gets it and leaves, you're starting all over. We've talked about all this many times about documenting these systems and, having a common way of doing things.

But from my own experience, software will change, technology changes, you could have different equipment changes or whatever it is.

In construction, there's so many moving parts. And problem with documented is, next thing you know, things have changed. or maybe you hire that next person, they're not following the system. 

It's not all about systems today, but that's one of the challenges. How do we get past this. It's just me. And we did the one on the six thinking hats as well. You're trying to wear all these different hats and you're driving yourself nuts and you're working yourself to death.

[00:04:29] Stephen Brown: Yeah. And then you're in a Catch 22 situation where you're like, in order to hire the best project managers and superintendents, I've got to be certain size of growth and reputation and I'm not there yet, but I need that person. Sometimes a partnership with someone can help get that done. So many things go through your mind, Wade, when we speak about this topic. 

Whatever situation you're in, you might say, I need to grow my revenues. Or work is slim pickins right now. You just have to take what you can get. And you might have an owner that's a notorious jerk and you're forced to do business with them, and you're like I'll just protect myself by having a better contract with them or something. Go ahead and assume that contract will go to court and you'll have legal expenses too.

All these scenarios that play out when you make a decision as a contractor, like you said, the moving parts. You would think that there'd be more moving parts in a manufacturing company to break down and analyze in order to make a profit. And I would argue, because in the construction industry, there's more human resources related issues of moving parts.

And there's the weather, Wade. There's time, there's cash flow. There's having the workers to do the job, there's having the back office support to be able to keep the cash flow going, to be able to help you manage and track whether you're making profit or not.

[00:05:36] Wade Carpenter: I've said it before, that manufacturing is one thing, but you've got a repeatable process. Construction is even harder. I don't care if you do same type of store all over the country. You've still got different moving parts for every construction contract, and most of them are not like that. They have their unique considerations.

Construction is even tougher, but having some kind of system, rather than saying, okay, we got a bookkeeper that did it this way. And then that person leaves. And then somebody else is like, okay this is the right way to do it. And pretty soon you see people with two or three different systems, and they haven't been consistent with any of it. So that's part of where I was going with this. 

The other part of this is again, all these sort of have hit at the same time. And thinking of the Fix This Next, if you remember what Ross was talking about. That bottom level is you got to get sales. You've got to have that air to breathe. And getting past that level of, if you're constantly chasing sales, the next level up is this profitability section. And if you're constantly doing the work, it is tough to stop and focus on finding that profitability. We gotta take anything that comes in the door, and we're not smart about taking what--

But then the level up from that is the systemization. And part of this is, how do we get from that point to where we can start having the profit and the systemization, and then moving on to the higher levels where you can start to enjoy it? 

[00:06:48] Stephen Brown: That's the crux of the whole podcast here. How do you do that? What do you do? This is a situation that every contractor that's been in business for three or four years or more is facing. No doubt about it. 

[00:06:58] Wade Carpenter: I don't have all the answers here. All I know is what I've done, and, part of what Stephen and I talked about before this episode was our podcast is all about educating contractors. So this is our way of giving back some of those things and giving you some education that you're not paying a CPA, hopefully listeners are getting some good education and thoughts out of this. 

 We talked about me writing the book, Profit First for Commercial Construction, and it's actually coming along very well, and we're about to move into the next phase of publishing it.

But, as I've been writing this, my whole thought with this is for a lot of these contractors to be able to have some doable system. Too many people from the original book or the derivative book that another person wrote, they get stuck on that assessment or whatever they don't implement.

And I always go back to the thought of, if Mike Michalowicz had written that book before 2008 and contractors had this in their business, would they still be around today? 

I mean, we're getting, what, 16 years past, 2008, 2009, 10.

So that is my thought with, how can I help the smaller contractors? Obviously we can't help everybody.

So beyond that, my thought was, how can I start packaging these so that you can take some of these systems and plug them into your business? For many years, it's like, there's no two contractors alike. Everybody likes to do things their own way. And they try to reinvent their cost code structure or whatever.

And I still say, I'm glad to customize a system for somebody, their unique needs. And that's what we do at the growth level that I'll talk about in a minute. 

But where people have trouble is they don't have a template to follow. We talked about that puzzle. A thousand piece puzzle with a picture that's turned upside down and you're trying to piece it together and you don't know what it's supposed to look like when it's finally done. 

That's part of what I'm trying to put together along with the book to go along with not just the cash flow side, but some of these other systems that contractors need to be putting into place. And there are some commonalities. 

I used to say we're going to customize everything. But when people are coming to me, they want best practices. And I think I've been doing this long enough to say maybe we got to do, one or two different ways. We can do a third way, but it's probably not the best way. 

Just having a system to start with. Buying into, hey, this is a template is well worth you spending hours and hours trying to develop your own. 

[00:09:06] Stephen Brown: What you're proposing and what we're talking about is a great way to help contractors move forward to the next level. It's like technology in every way, shape, or form. You start off in the building trades as a framer with a hammer, and now you've got air guns to drive the nails for you.

You're going through all sorts of pain while you're learning your trade. You go through all sorts of pain when you are trying to get these systems in place to get you in the next growth mode, the next level that is going to take place, whether you want it to or not.

It's like your kids growing up. They're going to grow up and leave home and you'll have done your job, right? I think what you're trying to do to help every contractor and our listeners by helping to get these systems in place is saying in my experience, this works and this doesn't work and here's why.

As always, what I like, Wade, is you are always open to talk to anybody. They can ask you, why is it you feel this way? Why is this important? And you can answer them. So thank you, Wade. I think this is a great topic. What do you think's next for our listeners right now that are in that mode? What should they do? 

[00:10:05] Wade Carpenter: Well, again, all these tie in together. So we talked about the stages of growth. It's hard to generalize because a general contractor would have different profitability from a plumbing contractor.

But, typically you say start up to $250,000, you really are gasping for air. The $250,000 to $500, 000 in revenue, you're starting to get a little traction, but you're still trying to do everything yourself and it's tough to grow through.

Half million to a million, you get more challenges. We have some that are very big. But then where we shine, I think is the one to ten million, where people get into this growth stage. And this is where we typically do in the back office. Especially 1 million and up, but 2 to 5 million is a tough area to grow through cash flow wise, as well as operationally wise. 

And so that's where we have built our own system. This is, back in 2016, I stopped doing audits and reviews and that kind of stuff and shifted to this model. And we just find it over and over, it's this is the toughest area to grow through. 

At that level you can afford to get some help, but you also can't afford to waste your money on help.  What our typical working with contractors is we're bringing in the system along with our services. As in, you could hire a bookkeeper that may have said they've done a little bit of bookkeeping and may have worked at a contractor, but doesn't know anything more than accounts payable. But, our system where we're doing the true back office, I'm bringing the team where we have specialists that do the accounts receivable and payable and keeping up the cash and all that stuff, as well as doing WIP reports when they're needed and those kinds of things.

But we're also plugging in the systems and the templates together. It sounds self serving, but, that's where I don't see people in the market, is that they try to say we're specialists in contractors, but we also do retail and wholesale and all kinds of other things.

But what we do is typically, we will adapt it to the system, but we've got our few different ways of doing things that we know we can streamline, say the accounts payable process so that you can get it job costed. We can get the information from you. We can get it paid very quickly, but the job cost is the main driver of you being able to get that bill out the door and having all the costs.

and Accurate Costs to be able to get and bill properly. Having solid books that are always up to date are the main drivers of knowing where your overhead is and bidding properly. 

[00:12:13] Stephen Brown: Wade, you are passionate about getting folks set up right, get their system set up right. The best accountants, in my opinion, are the best advisors. Give you the information, everything you need to know to do it yourself.

As a bond agent, I want you to know every part of what I do and what you can do to help me be more successful. It's the same with you as an accountant. It's like my job is to do this for you and make it as effortless as possible. And to explain to you how to do it yourself someday.

And when do you need help when you do not need help? And how do you find that help? That's kind of an eternal question, isn't it?

[00:12:45] Wade Carpenter: I'll be honest, it is tough to find one person to be able to do all those things. And typically what the other people in the space do are, okay, we're going to assign one person, and if that person's out sick on vacation or they leave, you're starting over. And so that's where we've built this model where we usually tie in the taxes and the tax planning and it's all easy to do because we're keeping it always up to date. And we can advise you as part of a CFO package if you want that.

But from my perspective, for somebody that goes and hires a. 100000 plus CFO. They're going to need some help doing all this stuff. And we're doing it at a fraction of most of those are doing it for, plus giving a lot better results and bringing the systems.

And so that's our typical sweet spot is the one to 10. We have several that are lot higher than that, but, for the smaller contractor, this is all about like, how can we help? 

Okay, this is what we normally do, but how can we start developing systems, to where this is a great way to set up your job costing system. This is how to do things as simple as booking retainage and those kinds of things that contractors don't know, and it's not common knowledge.

That's where we're trying to build out some systems that we can allow people to do it themselves.

[00:13:53] Stephen Brown: I think that's great, Wade. This evolutionary process that everyone goes through, these stages of growth that facilitate this particular need, we see it all the time. I'll never forget, Wade, and I may have told you the story, but about 25 years ago I sat in on a proposal that a surety company had, and it was a guy with a company called Rent-A-CFO.

His job was to be your CFO if your sales were from 3 million to 10 million. is that important? Because that's a huge growth mode. Also, from the Rent-A-CFO's perspective, you're not making enough money to hire a full time chief financial officer. Or you probably aren't, but you're making enough that you can pay him to do it part time. So they're filling a need, right? 

And I think that this growth stage is the most stressful and challenging. It's pushing you as a construction owner to the max. And there's an easier, less stressful way to deal with this. And Wade, I think your systems are great. I can't wait for your book to come out and I can't wait to get copies for all my customers, because your insight into what works and doesn't work is so invaluable from your perspective, and I appreciate that. 

[00:14:57] Wade Carpenter: Well, 

I'm actually glad you brought up that Rent-A-CFO level, because quite frankly, everybody's doing it now. And since construction is all we do, I'm going to have an opinion here, because as we said, you can hire somebody that's a Rent-A-CFO, but they may be doing manufacturing. They may be doing retail and all kind of stuff.

As well as you can rent a CFO all day long. But if you don't have the back end systems to be able to accumulate the data, Rent-A-CFO is not going to be worth spending the money on if they don't have good information. 

[00:15:23] Stephen Brown: They're going to be spending all their time trying to implement the systems that you should already have in place. You don't need to hire a CFO to put these systems in place. But think about it, wade, as you grow, you can hire a better CFO if those systems are already working, and efficient. And the best CFOs are always challenged by the next level, right?

So I guess you get what you pay for. And again, get what you pay for in advice. I have this with attorneys, accountants, everyone. You want to pay for good advice. It may cost more. But do you want to pay for bad advice? 

You remember, one of my favorite movies Moonstruck, where, Cosmo is scraping the pipe and he said, I use copper. It costs more because it saves you more. And then his girlfriend says, God, you know, you have such a brain for knowing. While he's telling her this story. He is speaking the truth, okay? It was a sales pitch, it sounded like it was totally self serving.

You can't do that, Wade, as an advisor in accounting. You can't toot your own horn, but I've seen so many people you've helped. And you graciously say the same thing about me and the folks that I work with. But right now, while you're trying to find the right advice, I would suggest to get a copy of your book and see what you have to say about it.

And then, also talk to your friends and peers about things that have worked for them. 

[00:16:33] Wade Carpenter: Again, you struck a nerve here because, honestly, can go out there and say, I'm a rent a CFO, and that's just a sore spot for me. take

[00:16:40] Stephen Brown: I'm sorry I brought it up,

[00:16:41] Wade Carpenter: No, honestly, though, they don't know. I've seen people paid six figures, and they don't have a clue as to how to put these systems in place. 

[00:16:49] Stephen Brown: I've seen it so much. Someone comes in a CFO role and they talk a big game and they don't know what they're doing. I hate to say it, but I've seen it over and over again. 

[00:16:58] Wade Carpenter: I have too, and I've seen it ruin relationships. They put trust in somebody and then six months later, they realize that person doesn't have the experience to back it up. 

[00:17:06] Stephen Brown: The nice thing about contractors is they're used to firing people when there's no need, better than any other industry, you would think. But when you've got a Chief Financial Officer that are dealing with systems that you don't know about, it's hey, that's what I pay you for, right? So I don't have to deal with it. 

Then you're less likely to fire that person if they're not doing their job, because you're more dependent on them. It's a Catch 22, isn't it? Catch 22 means, you stuck yourself in a system where you can't win.

[00:17:31] Wade Carpenter: That also goes back to that whole story with the E-myth. They became so dependent on that person and then they left. And they think I can't fire this person, but that person is causing me all kinds of issues. I can tell you it's a tough thing to do. Sometimes you got to take the shot in the foot and move on. 

But I guess to bring this back to where I was going with this, it just, it all comes together. But the point of this is, whether you're in the startup phase or, to this growth stage that a lot of the contractors , find themselves in you got to multiply yourself one way or another.

Getting templates, getting systems in place is the way to do it. Finding the capacity to do it. Part of that is finding profit. So that's where the whole Profit First comes into play as well as, we got to have the to support the cash.

I really want this to be doable for contractors. They need to understand, and I am approaching it very differently from way Mike Michalowicz does it. Because I've actually been testing and actually probably will be putting out here sometime soon, we wanted to see if there's any guinea pigs that might want to go to a beta test on some of this stuff.

We've done a lot of work as well as my work over the last six years of implementing Profit First in the contractors. There's things that contractors get hung up on and cashflow is such an important thing for their survival. 

Well, with that said, if you've got any thoughts or feedback on today's discussion, we would always be happy to answer any questions, hear your thoughts, drop 'em in the comments below. Thank you for listening to the Contractor Success Forum. If you enjoyed this episode, we'd appreciate it if you'd like, share and subscribe. Follow us every week and we will see you on the next show.