.jpg)
Contractor Success Forum
Tips and advice to run a successful construction business from two long-term industry professionals: Wade Carpenter, a construction CPA, and Stephen Brown, a construction bond agent. Each host has unique, but complementary views and advice from each of their 30+ years in the contracting industry. Their goal is to promote healthy, thought-provoking discussions and tips for running a better, more profitable, and successful company. Subscribe for new insights and discussion every week. Visit ContractorSuccessForum.com to view all episodes and find out more.
Contractor Success Forum
From Debt to Profit: A Success Story for Contractors
🔗 LINKS
Join the group coaching program and Master Construction Cash Flow with Profit First
Visit the episode page at for more details and a transcript of the show.
Get Profit First for Commercial Construction--OUT NOW!
ℹ ABOUT THIS EPISODE
Join Wade and Stephen as they delve into the intricate world of risk management in construction. Discover practical strategies for assessing and mitigating potential hazards in your projects with a simple one to five rating system. They discuss real-life examples, the importance of safety measures, and the role of proper contracting in managing risk.
Tune in to learn how to protect your construction business from financial losses, injuries, and reputation damage through systematic risk assessment and management.
The book is available now on Amazon!
Subscribe to get notified as soon as new episodes go live.
⌚️ In this episode:
- 00:44 Understanding Risk Factors in Construction
- 01:48 The Importance of Systematic Risk Assessment
- 03:43 Weather and Contractual Risks
- 05:02 Common Pitfalls and Risk Mitigation
- 06:18 The Role of Risk Managers and Advisors
- 16:02 Safety Measures and Toolbox Talks
Join the Profit First for Construction community!
Find all episodes and related links at ContractorSuccessForum.com.
Join the conversation on our LinkedIn page: https://www.linkedin.com/company/CarpenterCPAs
FIND US ONLINE
Wade Carpenter, CPA, CGMA | CarpenterCPAs.com
Stephen Brown, Bonding Expert | SuretyAnswers.com
Wade Carpenter: [00:00:00] He sat alone in his truck, engine off, thumb hovering over the banking app on his phone. The numbers didn't lie. Payroll was due Friday, again, and he wasn't sure how he was gonna cover it. Today we're unpacking the story of a Profit first case I had. This is the Contractor Success Forum.
I'm Wade Carpenter with Carpenter Company, CPAs. Alongside Stephen Brown with McDaniel Whitley Bonding and Insurance. Stephen, I thought we could go through a Profit First case study today in hopes that our listeners might get a little value out of hearing how some of the others might have done it.
Stephen Brown: Yeah, I think it's a great idea, Wade. Your book is being greatly received, and hearing a case study of someone who embraced the system and has succeeded as a result of it, I think is great for our listeners to hear.
Wade Carpenter: Well if it's okay, I'll just sort of dive into it. I'm trying to leave the names out of it. I may make up some names, I don't know as we go, but basically this guy, he'd already been late twice and he knew his best guy, that one that actually made things happen, made [00:01:00] things run smoothly for him on site, he was ready to walk on him. And his wife had told him to go find a job working for someone else more than once. And this is kinda word it gets around.
To make matters worse, he'd taken out another one of those pay by the week loans. Those are the kinds that dig the hole deeper.
Every time you think you're climbing out, you kind of get sucked back in. But as he was sitting in his truck, came a call from his wife. The power company had left a shutoff notice on the door.
I don't know if you ever heard contractors talk like that. I know they may not share those kind of things with you. But I've heard those things.
Stephen Brown: Yeah, they do, contractors as a rule, it does take a while to get to know anybody.
Wade Carpenter: Yeah.
Stephen Brown: But going through nightmares, going through tough situations, you see it over and over again. You've been there, you know what they're going through, and you see them and you wanna reach out to them. So what happened?
Wade Carpenter: Well, again, I don't know if it is something that you see all the time. I didn't really see a lot of that as the auditor. But as I started working with Profit First, I'm hearing these [00:02:00] stories and this particular guy, lemme just sort of give you some of the backstory on this .
He wasn't really new to the game. He was a small general contractor, had about a seven man crew, had a pretty decent reputation and just a lot of our contractors, he was willing to take on almost anything to keep the cash flow churning. And, he did a little light commercial, residential remodels too. But just took whatever it paid.
His jobs ranged from maybe 50,000 to, his biggest job was about 400,000. But, no matter what he did, he kept chasing, like we've talked about on this podcast many times, chasing more revenue and just doing more and thinking it's just going to get there one day. But that cashflow never matched the volume that he kept reaching for.
But this guy, he hadn't really taken a real paycheck in years. He draws when it was there and this guy, they were living off his wife's salary. She was a junior high school teacher. And basically they stayed afloat with either borrowed money, living off her paycheck. They had several years of unpaid tax bills and basically looking at blind hope. He was just [00:03:00] thinking one day all this is gonna fall into place. Behind on not just his taxes, but behind on his sleep, working all day and night, weekends too, and barely holding that business together, as well as his marriage. It was sort of grinding on the relationship.
Stephen Brown: Yeah. And, it's natural. A lot of people were raised, especially me, my father grew up in the depression era. And you always worked your way out of trouble. That's it. if you're having financial trouble, it's your fault. You're not working hard enough. And a lot of people think that way, and it's so important to work smarter. Not just harder.
Wade Carpenter: I do think that's a problem for a lot of our contractors and too often we don't realize how much the financial strain puts on a relationship or, I've said it before on here, when we are tight on money, we don't know how we're gonna eat. We're not sure how we're gonna put food on the table. It can make you very insecure. That insecurity really can rip your soul basically.
Stephen Brown: Mm-hmm.
Wade Carpenter: He later told me this whole [00:04:00] story. Let me tell you how we got there. He got this shut off notice from his wife, and he's just gotta do something different. He tried everything, he called one of his buddies.
A lot of the contractors I know, they'll loan money back and forth. And this guy had loaned him some money before, but he didn't have it this time. And, he actually was one of my newer clients. He knew exactly what he was talking about or going through. He had been in the same boat, and he just started working with me.
So, he did read the original Profit First book by Mike Michalowicz. And, I was introduced to this other guy. But he was telling the guy I'm talking about here, I'll call him Robert just for sake of the story. Robert tells him that, you gotta do some things different. And he was really pretty early in starting his Profit First journey. But, he was already seeing a little bit of flickers of light at the end of the tunnel for himself. So he was like very, all gung ho about it. And so, Robert told him about Profit First and how it forced him to treat Profit like a bill, not something that's left over.
I know you made the comment at [00:05:00] one time, especially when you read the book, it wasn't magic. It's not a get rich scheme, but he was finally seeing something working for him.
Stephen Brown: I think when your eyes open to hope, you have no hope, I can't imagine what the guy's wife was going through on top of trying to keep things together. The stress that this guy had and was going through. And then just seeing a light, seeing something that makes sense that you can work your way through that will work you out of these problems.
To me, that's the whole interesting thing about your book. Like I said before, it's not a get rich quick scheme. If you get rich, Wade, it'll be because your books sell $20 a piece for millions and millions of people, which is what I hope happens.
But beside that, there's nothing else you need to do to implement the system. And you know how many times we talk about in this case study you were talking about that the hopeless situation, they got a cutoff notice. They're gonna lose the power to their house, he wasn't paying himself, they were living off of his wife teacher salary. So he was introduced to you and to Profit First, and [00:06:00] then what happened, Wade?
Wade Carpenter: Well, he gave him my phone number and apparently he didn't call me for a week. He struggled and managed to hold onto his person, he paid his crew late that week. After about a week, even though he wasn't convinced, he did pick up the phone and call me.
Going back to what you said, this isn't about selling books. This is about contractors finding a new path. And so, this guy was at the point where what have I gotta lose? So he picked up the phone and just like I do with all my contractors, I'm meeting with, I'm not gonna charge you for that kind of thing.
I just listened. I told him a little bit about Profit First and the main parts of the system. But I told him if you're gonna continue the way you're going, just the old saying, if nothing changes, nothing's going to change. like the old Wayne Gretzky quote, I guess is like you miss a hundred percent of the shots you'd never take.
Anyway, I told him basically the system and what he would need to do to set up the system. So, this was actually on the following Friday . But he did think on it overnight.
Stephen Brown: He's put it off for a while and he really don't have time to think about it. The more he thinks about [00:07:00] it, he says, I gotta try something, anything. Something's got to change. I get that. It is amazing to me how many times you just try to dig yourself out of a hole when you're a contractor, is to get more work, right? And then as you get more work, you're busier, and as you're busier, you're not able to see the problem in front of you. You know that expression, you can't see the forest through the trees. You are so slammed with trying to work your way out of the problem, and the last thing you wanna do is explore a new business system. What did it take for him to start buying into the system and what ended up happening for him?
Wade Carpenter: Well, he told me a lot of this later, but he lost a lot of sleep that Friday night. Saturday morning, just a lot of our contractors, he's one of those first to get up. He got dressed and went to the bank. He stood in line at the bank on a Saturday when everybody else is in there.
He opened the multiple accounts. Not because he wanted to, not because he really felt like this was his system, he's needed to map out his money where it was going. The job expenses account that we talked about in the book [00:08:00] to cover the expenses that we've got for the job, because we got a job. We have the operating expense accounts, he set up one for that to cover essentially his overhead and his things like his truck payments and those kind of cash flow. And then he set up these other buckets, the tax account to cover the taxes. He was trying to get outta this cycle where he was years behind on his taxes.
He set up owner's pay account so that he could finally start taking a regular paycheck and then a Profit account to where he would put money aside so that there was money. And then as I told him on the call before, you need to repurpose your income account that you've already got. ' Cause he told me he had one of these third party softwares that I won't name, had his credit cards and all tied coming through there. We felt like that was the best thing to repurpose that income account. And that is a key thing that we need to point out is that income account needs to stay alone.
We don't pay bills outta there, we just accumulate it and then we're gonna split it up. But again, his books were a mess. His wife had tried to do it on the side. She hated doing it.
Stephen Brown: Yeah, he [00:09:00] was supporting seven other people. He had seven other employees. He must have had pretty good volume.
Wade Carpenter: Well he did, but it never seemed to translate to where he had any cash to take home. And again, the books and all this stuff, they thought about money constantly, he and his wife. I don't really need another reconciliation headache. But he did need to reset.
And so he finally, he went there on a Saturday. And basically after all the pushback and all, he didn't really tell his wife why he did it or what he was doing. He had this overwhelming sense of he'd already gone too far and what did he have to lose?
So again, we started working together. He actually came into the office and I helped him work up his initial allocation percentages, he started trying to do it. We gave him percentages and he ran short in his job expenses, twice in the first two weeks.
He basically had to pull from every other account, the tax, the profit that he had put aside. He did it anyway. And it's not uncommon for that to happen [00:10:00] for a contractor. You're forced into situations where you've been doing it a certain way and everybody else has their hand out. And you have to change the cycle to where you become more proactive and not feeding the cycle. I'm not saying not paying your bills, I'm saying you need to control it.
Stephen Brown: That's a real good point. And you made that in the book as well, and people make mistakes. The system is sound business principles, but also it's human related. It's adaptable to whatever situation you're in and you see those things happen.
I just applaud the fact, his accounting system was a mess, his books were a mess. He really didn't know what he owed. He probably had an idea if he was billing his customer properly 'cause he was so desperate for cash. He was constantly thinking about that.
For example, if you wanna lose weight, one of the hardest things to do is just to stand on those scales the first time and see where you are, so you can see where you wanna be. And your books are a mess. [00:11:00] You think that's the hardest thing to get started.
But Wade, that's one thing I liked about the book. It's very clear in how you can get started in the most fundamental way. And like you were saying, there was just a cycle of dysfunction around how he was running this business, and when that happens, nothing good's gonna happen for you.
Wade Carpenter: Yeah. This was three or four years ago. I hadn't changed the system like I have now. But this guy, it's not uncommon for somebody to start, two or three months, month after month it felt like he was treading water. He kept slipping back into these old patterns. And then, there was another missed paycheck and he came home one Thursday night and his wife wasn't there. And she had packed up the kids and went to her mother's house that was about four hours away without telling him. And he was sat there again and thinking he's gonna lose not only his company but his family. So, that's when he came back and talked to me and we had a lot harder conversation. He called me that Friday [00:12:00] morning and we talked for almost two hours.
This time we dug into h is true overhead. He was fooling himself, not really using the operating percent it really took. I taught him not to just look at your P&L 'cause your P&L is not the real cash going out. It's not including notes payable, the truck payments, the mini excavator he couldn't afford. All this equipment he just had to have that was gonna pay off one day.
But, this time, he listened to me. He was running through a lot of people and he felt like he couldn't lose anybody. He cut loose two employees that weren't pulling their weight. He sold off a couple of piece of equipment that he wasn't using.
And more important, he recommitted to the system. We went through, this is what your job expenses are really costing and this is what you need to be bidding with this operating expense.
He stopped chasing every job and he started bidding with margin in mind, not desperation.
Stephen Brown: That's just one of the most key points, Wade, of the whole system. Are you bidding the job properly? Are you bidding it? Do you know what your true costs are? How you [00:13:00] implement Profit First System and how you buy into it. You have to understand the fundamentals of it before you understand the importance of calculating and understanding what your true costs are and what you should be bidding for work. And if you don't do that, you're just constantly bidding over and over again in a situation with the wrong numbers and it's just getting harder and harder, isn't it?
Wade Carpenter: Yeah, I think this guy was at a point where he finally understood that just chasing cash, taking unprofitable jobs just to get cash flow. But I, I get it. We hear that all the time. Just gotta have a job just to keep things going. But, after he did this, change didn't come overnight.
He wrecked the system again one more time. I'm being completely honest here. He had one month where he paid every Friday and he basically budgeted for the month. But he had five payrolls, and so he ended up having to skip his allocations and almost dipped into his tax account again.
But this time he sort of stopped himself and later told me, it's funny, but he was scared to admit to me he [00:14:00] didn't wanna disappoint me.
That's one of the things that I find about this is like the accountability piece. You can read the concepts, but having somebody to keep from blowing it again, in this case I thought it was sort of poetic. But, eventually he started taking that steady paycheck. He only really missed that one week, and then he made it up the following week.
So, his wife did come back after a couple weeks. It was in the summer anyway so she was not teaching in school. But within about four months things started evening out. And by month nine he had cut his debt almost in half.
Stephen Brown: Wow.
Wade Carpenter: And that's what I feel like was so incredible about this whole thing. It did take some doing, but it actually took him almost two years to get him to where I wanted him to be with the target allocation percentages.
Stephen Brown: Mm-hmm.
Wade Carpenter: But now three and a half years later, his income taxes are all current, his debt's almost gone, and, he's put down a sizable down payment on a brand new house in the last [00:15:00] two weeks. This guy has finally found his path, and that's what the goal of it is here. Can you find your path to finding profitability? Sometimes these contractors are at saying there's no other path and I have to bid this.
But one of the big points here is if you don't know that's cost you in cash, you're probably spinning your wheels.
Stephen Brown: Mm-hmm. It just amazes me when you hear that story, the stress is incredible and you want your problem to be over overnight. And that's an impossibility. You think about how long it took him to run himself into this much trouble. How many years versus two years to virtually get out of this horrible cycle he was in and start bidding jobs profitably. Not to mention enjoying the work that he's doing again. Being able to enjoy the time he is able to spend with his family as well by not just constantly being like a hamster, running on a wheel, just chasing work as hard as you can. And then saying, I'm doing everything I can for this family. [00:16:00] I'm doing everything I can. I'm killing myself over it. So you need to appreciate that and understand that. But at the same time, it wasn't until he hit absolute rock bottom that he realized that this change had to occur.
Isn't that always the case? With a lot of folks, I know it is with me.
Wade Carpenter: Yeah. And it didn't take two years to really get to there. Within four to six months he was taking a steady paycheck and things improved. But what I'm saying is, you know where he wanted to be and all that stuff. He finally is at the point where he's got a business he can be proud of.
Every contractor goes to the trade organizations or whatever, and nobody wants to admit how much debt they've got or what, you know they're not really taking home a regular paycheck. But the moral of the story, I don't know, this guy did not win the lottery. He didn't double his revenue. He just stopped pretending growth would save him and started managing the work he already had.
Stephen Brown: Mm-hmm.
Wade Carpenter: And so like a good building, you know, a, a solid foundation, a clear blueprint, [00:17:00] sometimes you may have to fix some things along the way. Again I've seen to more often than not, people try to do this on their own and do their own little way. I guess the point is paying attention to the book, what I've said in the book, getting some accountability, that really can go a long way to getting these things straight and getting some advice to shortcut this process if you can. That's my thought.
Stephen Brown: That's a great point, Wade. It's a great story and it's a great system. Maybe instead of profit, like we were talking about the title might lead you to believe that there's some element of magically getting rich with this business system.
And maybe ought to, instead of get rich quick scheme, ought to be get out of debt quick scheme. Because you truly become a slave of things that you don't understand and situations hurt you. Certain debt that can be managed and can be used for growth and making more money is certainly reasonable. That's not the issue. The issue is what's [00:18:00] controlling your expenses to get your work done, and are you taking money out of your company to support your family? And if you're not, why aren't you working for someone else? Why? That's it. Well, because you felt like you could do things better, right?
And you could probably make more money on your own, doing your own thing. And you can. But this is something you have to pay attention to and consider. I think the book's 20 bucks on Amazon, and think most people can afford that. Read it and think for yourself, does this make sense? Is this something that maybe ought to do and get started on?
Wade, that's a great story and it's always, you like a happy ending, that his wife came back to him, he's reduced his debt and he's looking to a bright new future for himself and for his family and for the people that work for him. And for doing good work for his customers and regaining his reputation. Touchdown. This is great.
Wade Carpenter: Okay, well again, thank you for that and the shameless plug for the book, but it's not really about the book. Construction can be very lucrative and it can [00:19:00] provide a great life for you. But if you're not getting where you're wanna be, you're not alone. That's one of the things I would say.
But if you're hearing your own story and all this, reach out to me. I mean, don't wait for that shutoff notice or tax levy or something like that, or one of these family fights. Take some steps to move forward. Let's talk. I, believe it or not, I guess one thing I should probably talk about is we're setting up some group coaching around this so that people can get a little cheaper way of getting some accountability.
So I am putting together a coaching group. You can find it at profitfirstconstruction.com and, sign up on the wait list. We're starting probably late July. But it's only $495. Get coached in a group setting and get some real help to getting this moving forward.
Stephen Brown: Mm-hmm.
Wade Carpenter: I know this has been a little different podcast for us telling a story like this, but we hope you enjoyed it.
Stephen Brown: So if someone gets the book and wants to be part of your test group, what do they need to do?
Wade Carpenter: [00:20:00] Just go to profitfirstconstruction.com. I think we had something like 13 slots left last time I looked out of 20, so you know, this was $495, it's a one time only kind of deal because we're sort of trying to polish this up. Sort of beta group. Again, this is accumulation of years of working with contractors and having stories like some of these things don't go immediately, right.
Sometimes people don't follow the system, but when they follow the system and they finally get there, I've seen some tremendous turnarounds, as well as in my own business.
So I appreciate you letting me explore this today. I don't know what our listeners think about the story concept, but I had fun telling it.
With that said, I'd love your comments, thoughts, put them in the comments below. We appreciate it if you'd share, subscribe, it always helps us out. We do this every week, so we'll see you on the next show.