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A Year of Contractor Success: Your 5 Favorite Episodes From 2024

• Contractor Success Forum • Season 1 • Episode 197

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Join Wade and Stephen as they share the 5 most popular episodes from 2024 that helped contractors boost profits and improve cash flow. From smart job costing to unconventional tax strategies that work, these proven tips helped hundreds of contractors succeed. Listen now to learn what worked best for your fellow builders!

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Topics Wade and Stephen cover on this episode:

  • 01:26 - Strategic Planning Discussion
  • 04:53 - Preventing Profit Loss
  • 08:55 - Entity Structure Considerations
  • 10:49 - Job Costing Labor
  • 14:15 - Keys to Construction Success
  • 18:19 - Tax Strategy Discussion

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

[00:00:00] Wade Carpenter: This is Wade Carpenter. Welcome to this special episode of the Contractor Success Forum. As we wrap up 2024, on behalf of myself and Stephen Brown, we want to take a moment to thank all of you, our incredible listeners.

 This podcast has been a labor of love. And as we enter our fourth year in 2025, we're also quickly closing in our 200th episode. None of this would have been possible without you and your support, your feedback and your trust in us to bring you the tools and insights you need to succeed in the construction industry. 

Over the past year, we worked hard to make sure this podcast is a resource unlike any other, a place where contractors can find the education and guidance to navigate the unique challenges of this business. 

To celebrate, we put together a compilation of some of our top episodes from 2024. Those episodes that really hit home for you, our listeners. 

Looking ahead to 2025, I'm incredibly excited for what's to come. In May, I'll be launching my book, Profit First for Commercial Construction, which has been a true journey to create. My hope is that it becomes a trusted reference and resource for contractors who want to take control of their cashflow and build a profitable, sustainable business. 

 As we plan for 2025, we want to hear from you. 

Let us know what topics you'd love for us to tackle in the new year. Your input helps us make this podcast even more valuable and relevant to you. Thank you for being part of our community and making this year so special. Sit back, enjoy these highlights and let's look forward to a fantastic 2025 together. 

How to Use Slower Seasons to Create a Strategic Plan for Your Business

[00:01:25] Stephen Brown: Things are slowing down maybe a little bit. It's cold. You can't get as much outdoor work done. You want to develop a strategic plan for your company. It doesn't have to be hard, but you've got to start. And you've got to have a game plan. Lay out a blueprint of what you want your strategic plan to accomplish.

What do you need to think about? Of course, you know what you need to think about better than anyone else. But since you and I work with so many different construction companies, there's a kind of a generic standard that all these companies need to think about.

And we preach it all the time at the Contractor Success Forum because that's just what we do. 

[00:02:06] Wade Carpenter: You're absolutely right. This is a great time of year to be talking about this, and a lot of times it's the first of the year and everybody sets goals for their personal lives or losing weight or whatever it is, and a lot of times the business owners are setting goals for their company for the year.

And, maybe it's something where they want to get their books in order or they want to get better job costing . A lot of times it's just, we want more profit, more cash flow this year.

If you never stop to take a look around you and figure out where you're going, a lot of times you're going to stay on the same path for 20 years and it never really pans out for you.

[00:02:43] Stephen Brown: Clear and concise goals. Your organizational structure, your financial planning. Analyzing your risk.

[00:02:51] Wade Carpenter: A lot of contractors do not understand what a burden we put on our family when something goes wrong. A lot of times we're not thinking about our retirement, or maybe we are thinking about retirement, but we are just so strapped with the day to day that we never really get there. 

And setting it up to be able to continue after you're gone, does it have any worth? Can you sell it? 

Set what those goals are, and then set the performance indicators that you need to get there, and have somebody hold you accountable.

[00:03:22] Stephen Brown: Let your advisors, let your CPA, let your bonding and insurance agent, let your banker and let your attorney know that I am strategically planning for my company and I need your advice. Here's what I was thinking. What do you think? I'd really appreciate your input. 

Wow, that was hard, wasn't it? But it's everything. You've got to ask. It's a good time to spend a little quality time with your key advisors and or board directors if you have one.

[00:03:48] Wade Carpenter: Absolutely. In working with contractors for 30 plus years, a lot of times contractors want people to think they're doing better than they are. I hate to say it, sometimes they're embarrassed or they don't want this stuff shared with somebody.

But hey, this is confidential. And we've seen it a lot of times more than you think. And you think it's just you, but it happens all the time. 

[00:04:11] Stephen Brown: All of the Financial Board of Directors we discussed have to keep your information. We can't talk about your business with other people. We can talk generically. But our job is to give you the best advice we can on what we know. So why not use us?

[00:04:29] Wade Carpenter: A lot of times we might be embarrassed about our finances, or we don't really want to talk about it, or we don't want people thinking that we're not doing better than we really are. And that's half the battle, is getting somebody in your corner that understands what's going on because we all get these blinders on in our life, whether it's personal or business related.

[00:04:49] Stephen Brown: Be strategic. Get going. Start. 

7 Ways to Stop Bleeding Profit

[00:04:53] Wade Carpenter: Many contractors aren't making what they should on their jobs. Even if you've got your bidding down, you may still be bleeding profits. What are the things to look for and what can we do about it?

[00:05:03] Stephen Brown: If you're not aware of these seven items during the course of your construction project, odds are you're bleeding profits. 

[00:05:10] Wade Carpenter: Change Orders. Getting them documented and secured, signed. I see that all the time. A lot of times, well, just do this for me. We'll take care of it later. And I've seen a lot of contractors burned. 

[00:05:23] Stephen Brown: Change orders have costs. Even if there are huge change orders, there's costs associated with those.

And you bid in that cost before you've given the owner the change order. And if you don't get that documented, first of all, signed off on by the owner, it's no good. It's no good. And my thinking is getting it secured by not only having it signed, but by but getting it in your accounting system and accounting for it. 

If you're not doing that, you're going to bleed profit. 

 

[00:05:53] Wade Carpenter: Check and double check the math on your bids. And sometimes just a gut check on hey, did I include everything? You may get that bid because you're the lowest bidder, but you've left out a huge chunk of costs that you didn't consider. I've seen that many times.

[00:06:08] Stephen Brown: Just having a separate set of eyes, the comptroller, the CFO, just going over your numbers. Just making sure they all add up correctly. It's huge.

 

[00:06:20] Wade Carpenter: Get on top of your job costing, and make it as real time as possible. The short answer on this is, if you know where you are and you know you're bleeding, you can do something about it.

Don't wait until you're bled out and you don't know that you had a hole in there. 

 

[00:06:35] Wade Carpenter: I read the book, The E Myth by Michael Gerber, and I may have talked about that multiple times on here. 

But that's one of the biggest things that contractors can do is the systems and processes. And I love what that book teaches. What you find is that for 25 years of documenting processes, a lot of people don't want to take the time to do it. And this AI, chat GPT, stuff like that can easily do it in minutes or at least have you some kind of starting point in minutes, literally. 

 

[00:07:06] Wade Carpenter: Say 

More Unconventional Wisdom for the Construction Industry

[00:07:06] Wade Carpenter: we're at the end of the year and we're trying to look at our income and, I used to do  construction audits, and they would try to hide payables because they think, well, hey, that's going to make my financial statement look worse. 

Think about it, if you take an accounts payable, yes, you're going to increase your expenses, but if those expenses are on a profitable job, that is going to bump up your percent complete, if you're on a percent complete financial statement. Which is what you should be giving GAAP financial statements to Stephen for bonding, to your banker, even though a lot of times they only pay attention to your tax basis.

But If you are looking to dress up your financial statements, don't try to hide those accounts payable. As I used to do these audits, or even a review, you find some invoices that weren't in there. And then you start talking to the contractor, it's like, well, I didn't want to hurt my bottom line. And really, we didn't pay it by the end of the year. As long as it's on a profitable job, Then you're going to increase your bottom line.

And usually that doesn't hurt you unless you're a larger contractor. And the rules with the Tax Cuts and Jobs Act, for tax purposes, is now pushing about 30 million a year for average gross receipts before you get forced to be put on percent complete for tax purposes.

You may be on cash basis or you may be on accrual basis for tax purposes, but most of the time, you're going to be pumping up your financial statement, but not hurting your tax picture.

 

[00:08:35] Wade Carpenter: How can a profitable job bankrupt a company?

One of the most vivid examples I remember was right at 2008, 9, 10. I had a whole lot of heavy equipment guys. And 2008, took a lot of those out of the picture.

But there was one contractor in particular that got a 20 million dollar million grading job, for like a huge Walmart development.

So it was a 20 million grading job that he was going to be doing, and it was going to take a full three years to complete it. And he's well, okay, I got 8 percent in this job of profit. I bid it at 8%. Okay. And so that's 1. 6 million of profit. 

When everybody else in the industry was struggling to find work. And he made a lot of other mistakes because of his misconception here, but what he did was, hey, I've got this great job. And he forgot the fact that he's got a 10 percent retainage clause.

And this 20 million job was way bigger than any of them he had done before, even though in aggregate, he'd done a lot more. But he's put all his eggs in this one basket. All the cashflow comes in normally, 90 percent of the money, he's only making 8 percent on that. So he's negative 2%. .

He didn't realize having this very profitable job, he was going to need to cashflow it somehow. And so he was actually in the negative on the cashflow, just on the job. He wasn't even covering his overhead. 

And this guy, at the time he was doing 50 to 60 million a year, and he had all heavy yellow iron, know, he had notes 100, $100,000 is easy on an excavator or a bulldozer.

 And within six to eight months, he was out of cash and scraping the bottom of the barrel. He lost everything. 

[00:10:25] Stephen Brown: The retainage and your understanding of how that affects not only your cash flow , but the profit that you need to take out of the company is huge.

You hear so many contractors, Wade, say, well, that retainage is just like a bonus for me at the end of the project. That's what they say. But from an accounting standpoint, it's a different animal, especially like you said, this contractor of yours, had a lot of equipment debt and everything just snowballed as the job got started.

 

[00:10:55] Wade Carpenter: An LLC may be the right thing for you. But don't assume it is. It depends on facts and circumstances.

It can depend on the state you're in. It can depend on the type of construction you're doing. But there's a lot of implications, and attorneys, a lot of times, they do not discuss this tax issue with them. They don't understand the tax issue. And assume that the CPA is going to be filing the S Election. And a lot of times it's too late to do an S Election. 

But there are also times where a straight C Corporation can make sense. If you got two partners, a lot of people don't realize you got to do another return for that, but you're also subject to self employment taxes on that.

[00:11:38] Stephen Brown: Understanding the protection that you get by the different entity that you choose to form, it's huge to me as a risk manager handling insurance. 

 

The Challenges of Job Costing Labor

[00:11:49] Wade Carpenter: If you've been here a while, you know we preach job costing and how it can help a contractor be more profitable. One of the challenges of implementing a job costing system is figuring out costing your labor. Where do you start? 

I still believe that one of the best ways for a contractor to know whether they're coming out right is having some good job information, and if something starts going wrong on your job, you know how you're doing, and you start making corrections to fix those kind of things. 

And it's one thing to try to job cost your materials. It's one thing to try to job cost your subcontractors. You can always tell your material suppliers or your subcontractors you've got to put a job number on your invoice, right? 

Or we can do something like a purchase order number and say you gotta have a purchase order and that helps the accounting people like me figure out how to go cost that.

[00:12:42] Stephen Brown: When someone comes to you with a problem with their manual adjustments to the payroll, they have it automated, it may not be set up right. How do you go in and analyze the problem and help them get this straightened out?

[00:12:56] Wade Carpenter: When we start with them, a lot of times we will sit down and have two or three meetings talking through how they do things now, what they would like to get, what level of costing they really need, and they may be starting from nothing.

They would love to have super detailed records, but we have to balance, what do you need, and what are you willing to do to build a system to get you there. We rely on heavily heavily on the technology. And a lot of times some of the things that somebody else would do manually, we built systems to be able to do it very quickly and very efficiently. 

But my goal is to give somebody exactly what I said, a job costing system that they can know where they are at any given time and make some informed decisions about how they're running their business and their jobs.

And if they're choosing the right jobs, if they're pricing properly. 

[00:13:51] Stephen Brown: Garbage in, garbage out, and are not doing anything, no telling where the labor costs are thrown in. They're accounted for somewhere because you have to pay them.

[00:14:02] Wade Carpenter: I hope this helped our listeners at least think about the problem. And if they're truly getting their information in one place, and if they can move that information forward, it can help them run a better business. 

 

7 Secrets to Building a Successful Company

[00:14:15] Wade Carpenter: Have you ever noticed that some people do really well in construction while others really struggle? What do they know that you don't? 

Cashflow is king in construction and having a good financial accounting system, robust, that does good job costing and budgeting can go a long, long way to having a successful company.

And I know contractors out there that start off today and they, they don't like the paperwork. They don't understand maybe some of the nuances of construction accounting, and they don't value it. They say, we know how we're doing by what's in our bank account.

[00:14:52] Stephen Brown: And as always get a construction oriented CPA to help guide you through this maze. You do not have to be an expert in accounting to have this part number one in place. But you do need a good accounting guide, someone that can mentor you. 

 

[00:15:08] Wade Carpenter: Developing a niche market. We talk about the Sweet Spot, we've said it in many different ways, but in that particular case, we had some contractors in that last episode doing things that they weren't used to doing, and that's one thing is mitigating risk when you really know the type of construction you're doing.

But number two, finding that niche market can mean that you can either be a lot more efficient at doing that because you know exactly what to do and you avoid mistakes. If you find the right type of niche, you may be finding something that is a little more profitable. And it could be more profitable because you know how to get in and out or you know the nuances or have the relationships to be able to pull them off where most other people couldn't. 

[00:15:55] Stephen Brown: Absolutely, and if you don't think you can have a niche in your business that brings in some reliable income, you're just not looking hard enough, because it's everywhere. And who knows better what that is than you, the owner of the construction company? 

Looking for opportunities. Using your gut to tell you when is this relationship good and when is it going to pay off? Because remember, what everybody wants from you is a fair price and quick work, and you knowing what you're doing. People are willing to pay for that. Don't ever overlook that.

 

[00:16:28] Wade Carpenter: Effective project management. Just being on top of your jobs and having workflows that regularly check in on your jobs. Part of this also goes back to having a good financial management system that has good job costing so that you know where you are on that job. 

It's not knowing where you are on the job in April when you've talked to your accountant and figuring out how your taxes came out. It's how can we have more real time or as near real time as you can have, knowing what's going on with the costs and if things get off track, how do we get it back on track?

[00:17:04] Stephen Brown: Sure. And let's talk too, about the project manager themselves. Are they having any personal issues? Are they having other things going on in their life that keep them from being focused on the project? Do they have experience in what you're asking them to do? Have they been asking you for help? Have you been giving it to them? Have you been communicating with them regularly?

Your project manager can make or break you. 

[00:17:31] Wade Carpenter: Continuous improvement, innovation, education. Contractors, a lot of them will shy away from the technology, and I'm not just talking about the technology, but there is a lot of things that have come up about with technology , whether it's just software or applications to track, say, your equipment or, there's a lot of different things like time tracking.

[00:17:52] Stephen Brown: There's so many of them that are continuous. Any trade organization you belong to, anybody you respond to by email, asking a question about their services, is going to nuke you with things that they think you need to know. Robotics, AI, all these things. BIM, project Management. Everything that you can do better, more cost effectively, if you're not doing it, it's costing you money. 

 

Unconventional Tax Wisdom for Contractors

[00:18:19] Wade Carpenter: I haven't met a contractor yet who likes to pay taxes. With that said, many contractors take things to the extreme to avoid taxes. And there are definitely some deferral games you can play in construction. Should you be paying no taxes? Should that be your goal?

[00:18:34] Stephen Brown: A good friend of mine that had been a bond underwriter and a bond agent for 40 years made the comment, I've seen a lot of contractors go broke trying to get out of paying taxes.

[00:18:45] Wade Carpenter: Contractors particularly hate paying taxes and a lot of them, the goal is always, I don't want to pay any taxes no matter what. And And that is the expectation of a CPA is you'll get me out of taxes. But there's some long term effects that I think we need to kick around in this episode where, if you're never making profit, you're perpetually digging yourself a deeper hole.

[00:19:07] Stephen Brown: The long term effects of being obsessed with not paying taxes. And this may be an unpopular subject. I don't know, but it's real, and our listeners need to learn about it.

[00:19:18] Wade Carpenter: I agree that, again, taxes are never popular, but a lot of times if we would sort of delay some of the gratification and control our growth as we were talking about before the podcast, and making sure that we have the capital-- those were your words. That goes a long way to getting what you want in life. Right?

[00:19:36] Stephen Brown: That's right. Having cash, having net worth, having working capital gets you bonding, it gets you banking but it's also a measuring stick of you truly understanding how you're performing on the projects.

 

[00:19:51] Wade Carpenter: Profit First wasn't written until 2014. The first it. I wish I had that for contractors back in 2008.

There's been some other downturns over the years, but that one was pretty vivid. And if they had some of these controls in place on cash, you would have figured out pretty quickly that, hey, the cash is not coming in and we're out of money in our OPEX to cover payroll. When that starts happening, you have to borrow from these other things. And it's hey, it hits you right in the face where-- 

​

[00:20:26] Stephen Brown: You recognize your mistake a whole lot faster when you've accounted separately for that. 

After 30 or 40 podcasts, including Mike Michalowicz as a guest and explaining the concept to different bond underwriters, it's a fantastic system. It's a fantastic way of thinking.

[00:20:43] Wade Carpenter: Well,if you wrap your business around it, knowing how to bid and knowing how to mark up your jobs properly so that do have the cash flow. That is huge, and it can stop those ups and downs of borrowing from the next job to pay for the last job. 

Don't lose sight of the fact that you really are in business to make profit. And again, there's the expectation of CPAs, and a lot of prospects will ask me, like, you you know, I want to pay nothing. And I don't mind getting into the gray. But you know, if you can't sleep well at night knowing the IRS could show up at your door, I'd rather sleep well at night knowing you're building wealth. 

Thanks so much for listening to this special episode of the Contractor Success Forum. We're so grateful for your support throughout 2024. And we're excited to bring you even more by you in 2025. 

 If you haven't already please like share and subscribe, it really helps us reach more contractors. Like you. And don't forget to share this episode with somebody who could benefit from it. We can't wait to see what's ahead in 2025. And we're thrilled to have you along for the ride. . Have a great new year and we'll see you next time on the Contractor Success Forum.