The Surprising Secret to Scaling Your Construction Business

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ℹ ABOUT THIS EPISODE

Ready to stop being the bottleneck in your own business? In this final episode of our scaling series, Wade and Stephen reveal the 6-step blueprint to transform from owner-operator to CEO. 

Learn how to build your second layer of leadership, stabilize cash flow with Profit First, and delegate decisions without losing control. Stop working IN your business and start working ON it.

⌚️ Key moments in this episode:

• 00:00 Introduction to Financial Blind Spots
• 13:03 Common Misconceptions in Financial Management
• 13:08 Challenges in Tracking Work in Progress (WIP)
• 13:11 Distinguishing Job Expenses from Overhead Expenses
• 13:16 The Profit First Approach
• 13:18 Fear of Growth Due to Cash Risks
• 13:23 The Pitfalls of Cash Flow Management

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Join the conversation on our LinkedIn page: https://www.linkedin.com/company/CarpenterCPAs

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

Transcript

[00:00:00]

Wade Carpenter: There comes a point when you have to stop swinging the hammer and start being the person to design the whole job site. That's how real scaling happens. Today we're talking about how to finally get out of your own way because your business shouldn't require your fingerprints on every single task like an FBI crime scene.

This is the Contractor Success Forum. I'm Wade Carpenter with Carpenter Company CPAs, alongside Stephen Brown with McDaniel Whitley Bonding and Insurance.

Stephen, this is the last in a three-part series on scaling, and today we finally talk about what to do about it. Can you recap for us what we talked about so far and your initial thoughts on what to do about it?

Stephen Brown: Yeah, it's why you as the owner or founder of your company might be the bottleneck. What are the behaviors that are in place that tell you that you're not able to scale up because of those behaviors?

And then this episode, Wade is about, how to break that bottleneck and finally scale up your company [00:01:00] to operate in a more functional way.

When we talk about scaling up, you might say I don't really wanna scale up. But then you find yourself scaling up. So you've gotta think about it either way.

You can also determine what your sweet spot is. We talked about getting out of your own way, and the first thing that popped into my mind is, just all the analogies that are involved with you getting in your own way. You causing your own problems for your organization and for the job.

I think back, this shed that I'm podcasting from here that was built, I was the GC construction manager. But I remember when we were trying to reframe the roof that kept leaking, this was an old shed that was renovated.

The contractor that came to help me sent three guys over here and they just sat for three hours waiting for him to show up. I was like, you guys carpenters? They were nodding their head. Like, we, we gonna fix this roof? Yeah. We're waiting for Matt. And finally he showed up, and when he showed up, he saw that there wasn't a ladder tall enough [00:02:00] to get up on the roof of this thing.

So he grabbed a couple of four by fours I had laying out, and he slapped together his own ladder and then climbed up there. And then after he diagnosed the situation he called them up there to tell them what to do. Then they started framing it out, and they didn't do it the way he wanted them to.

So, the most simple thing, this little bitty shed, the most simple thing. It's just a prime example of how a owner or founder of construction company get in their own way. And you say Brown, that is the absolutely most ridiculous small story compared to how huge my construction company is.

But that's the beauty of this whole thing. Keep it simple. Right? What's the problem? It may be simple, it might be you.

Wade Carpenter: Absolutely. That's a great lead into this one too, because what do you do about it? Some of these steps we're gonna talk about, you may be tempted to do them all at once. Some of them may need to be done before the other ones.

It's just like we get so many ideas, if we try to do them all and we get none of them done that's what I [00:03:00] want you to keep in mind.

But, the first one I wanted to really go into: step number one, I would say we need to build that second layer. You may need to hire some more operations people, estimating or administrative people. Your bookkeeping, those kind of things has it outgrown where you are? Do you have proper project management?

What that looks like in a construction company as you grow has gotta change. This company without a second layer of leadership is just like you were talking about a perfect example.

It's like building with no load bearing walls in it.

Stephen Brown: Yeah. And if you're just hiring laborers and not supervisors or other professionals that can offer you some relief, maybe you're not concentrating on what that second layer is. I guess my question to you, Wade, is how would you determine what that second layer of leadership should be?

Wade Carpenter: What I would look at, and maybe if you're listening to this, you should think about yourself, what role is the first, what I would call capacity multiplier that you need to put in place that would take something off [00:04:00] your plate so that you can have a snowball effect?

Stephen Brown: Capacity multiplier. Give me an example.

Wade Carpenter: If you spend all your time doing project management, maybe you need to hire a project manager. What would free up the most time and resources for you? Would it be an estimator? How can we get that off our plate?

Stephen Brown: That's a great way of looking at it. If you don't even have time to bill your projects and you're having cash flow problems, you're right. That's an easy one right there. That's a soft serve.

I think it's easier for contractors to put more money into something that helps the project get built more efficiently than they are to help build a business that works more efficiently.

Wade Carpenter: I am gonna try not to go off on a tangent because you just hit the nail on the head right there. I don't have the time to bill. I heard this from two contractors this week, and that all leads into the cash flow issues.

Stephen Brown: Yeah. Here we go with another old man analogy, which we are experts on, and that is hitting the nail on the head. For our younger listeners that don't know what a hammer is and use nail guns, [00:05:00] you hit the nail on the head, you have to keep watching the head of the nail in order for it to drive it in.

Yet at the same time, what happens if you put your thumb over the nail head? I guess that's the whole point of this podcast. Building the second layer of leadership. and then what is the next--

Wade Carpenter: Before we do that, if you're listening to this, would you do me a favor? Subscribe, leave a comment, whatever button is close to your thumb right now. It really helps us get this info in front of more contractors and You know, we're out there trying to help build a business with the wrong set of blueprints. That's what we're trying to do with this series.

So with that said, documenting, I would call it like, hey, this is the Carpenter way. This is what I tell my people. This is the way we do it here. And too often I see, we have different ways of doing it. The owner wants it done a certain way, but they don't enforce that.

Do you have procedures written down, standards, these training modules? And I'll be the first to tell you, I read the email book over 25 years ago. [00:06:00] It was one of the things that helped me start my firm. I believe in documenting systems, but I know it takes time. I know it is not immediately productive, you can't see. But with AI now you can just talk through, this is what we do. AI can help you document that stuff so much.

But the point here is, if you can't teach somebody else how to swing the hammer the way you do, you don't have a quality control. And you gotta have all these individual preferences.

A firm I used to work at had six partners that had six different ways of doing things. These systems create independence and lack of these systems creates dependency on you, the owner. Thoughts?

Stephen Brown: Yeah. Documenting these procedures that exist in your mind only. And how good are you at communicating what's in your mind only to others, and on a consistent basis? It's hard, it's very hard to do. As an owner, sometimes it's nearly impossible, just saying to myself, I realize all the time, here's a [00:07:00] young person in my organization that I can feed them lunch and just listen. And then remind them of what we're all about, at McDaniel Whitley. Same thing, the Carpenter way. We have our own way of doing business.

Documenting these procedures sound like such a pain in the butt, Wade, to do. But it's the core of who you are and what you are, and you need to make sure that each subsequent layer of leadership is communicating that to the next layer of leadership.

Wade Carpenter: Yep. And it's gotta come from the top down and be enforced, otherwise it means nothing.

Stephen Brown: The next item you had on the list, I'll introduce, because it's stabilizing your cash flow with Profit First. Okay. You say what are you just hawking a book or something? I see your book in the background there. But it's truly a fundamental part of understanding how you can cure this problem.

It's so universal to say, you have to concentrate on the profit in order to put everything financially in the right buckets. And so what if that system doesn't exist [00:08:00] and you're gonna bring in new leadership, you wanna grow the company? I think the beautiful of the whole Profit First mindset is it can scale up no matter what your business does.

It's a good, sound, fundamental blueprint for how to operate your business.

Wade Carpenter: Thank you for saying that. And I truly believe in that too. Actually just had a wonderful conversation yesterday with somebody that called me up and reached out on LinkedIn. We ended up getting on a Zoom call and he was just thanking me for writing the book.

Number one, because, there's so much problems-- and they had read both the original and the derivative book that was written by another author on contracting. And they said, this is so different and this is exactly what we need. And so, if you've heard or thought about the Profit First system before, I like to think my book is very different in that way.

With that said, we talk about growth, seasonal buffers, those kind of things, but the idea is, in scaling, can we remove [00:09:00] this financial fear so that owners can start to delegate?

Stephen Brown: Stabilizing your cash. You know, what a great way to describe that. Is our situation stable and we need it is it there?

Wade Carpenter: Yeah like I said, Profit First is sort of like a shock absorber. Can they grow without shaking themselves apart?

Stephen Brown: Good point.

Wade Carpenter: Owners don't avoid delegation because of trust issues, they avoid it because of the cash flow fear. And I get it. But you know, trying to move on beyond that was the point there.

Stephen Brown: Yeah, that's a deep thought. They don't delegate because of cash flow fears. I get that. If I give you more responsibility and you're taking on more stress and there's more pay involved, right? There's more that they expect. I don't wanna have to make that decision.

And those aren't the kind of employees you want anyway. You need someone that says, I can't stand being micromanaged, but I also need an operating blueprint. Parameters of my boundaries and what I can do.

Wade Carpenter: That's a perfect [00:10:00] lead into the number four, delegating decision making. You do need to put some guardrails around your decision making. But you gotta say, okay, if it's under $1,500, just do it. Don't even ask me. And I know I've been guilty of the same thing and my team is like, okay, I gotta ask Wade. But if the owner's the only traffic light out there, everything is gonna jam up. And yes, you need to create some guardrails but not create more bottlenecks.

I guess right now, whether it's financial or not, it's just, what's a decision owners should immediately hand off? Think about that. I guess it'd be different for every person, but I don't know. Do you have thoughts on that?

Stephen Brown: Yeah I'm thinking, don't think of yourself as the bottleneck and the hose having a crimp in it and you are not causing it to flow. Think of yourself as maybe a large heavy gauge wire that has the capacity to run any level of wattage. Think of it from an electrical standpoint.

You as [00:11:00] an owner need to be that big wire, that big pipe that allows things to flow, within controls. And that's what we were talking about, delegating decisions and authority. Having those controls in place, really depend on you that whole system of flow.

Wade Carpenter: Yep. I think I told the story about this one contractor that's scaling up right now and just shotgunning everything. And I think it's very dangerous for him doing that, but he thinks he's doing it out of necessity. But that leads into, you really sometimes have to replace yourself in stages.

Obviously you can't, you gotta think about the cash flow and all that stuff, but identify maybe five jobs the owners must quit doing.

Whether you can hire it or sub it out or like what we do, subbing out the accounting or whatever the parts are, elevating the team you know, like, let's bring you up, let's coach them to do some more for us.

 You don't just jump off the ladder in one leap like this one contractor's [00:12:00] doing. You climb down one rung at a time. But that can help replace yourself in stages is the point.

Stephen Brown: I keep thinking about the bigger aspects of all this whole podcast is, are you stressed? Are you happy? Do you know how to relax? Are you having fun? I see more and more construction company owners and operators in their mid forties that are already burning out. They're already thinking about how to sell their company out. They're seeing other people their age retire early.

And I'm thinking is that, are you really having fun there? And also are you being the architect rather than the operator of your organization? Because seriously, the owners that are sitting back and letting other people do things, and letting them run, and watching them grow and seeing their fulfillment in their work and you being a mentor and helping them, that's the payoff right there, Wade.

I didn't mean to hijack the direction we were going, but isn't that the payoff? I guess that's a question that you would have to ask yourself.

Wade Carpenter: [00:13:00] Well, let's just maybe move on to the next one: building a leadership rhythm. What that means is, if you're gonna start delegating, stuff like that, you need to have some controls, and keep that control.

Do you have a weekly operations meeting or project manager scorecard? Financial dashboards, free job, checklists, cycles whatever. These are the string lines of the growing companies, without the whole thing getting completely off kilter.

I had a conversation to, actually, it was yesterday as well. Somebody was implementing EOS, the Entrepreneurial Organization System. The book Traction. And it's a great system, and I had another contractor that spent a whole bunch of money on an implementer and they still never made any progress.

I'm not knocking the system, I think it's-- but you know, one of the things they do is, let's have a meeting and let's organize this. We don't have meetings just to have meetings. We need to have meetings with a purpose. And that's the only way you keep control. Yes. You may [00:14:00] wanna delegate as much as you can, but you fear of missing out on what's going on.

You gotta build these systems and some kinda leadership rhythm to regularly check in on it. Right?

Stephen Brown: Absolutely. And as you were talking about that, I was just thinking about my contractor up in their deer stand that was taking my phone call. And I was thinking, what if he was running things so well that he had a dashboard, like a mobile app on his phone that had gauges that could tell you how everything was operating?

Wade Carpenter: Yeah. That's one of the things that a lot of people are trying to build with AI and some of the systems, but--

Stephen Brown: Back to what we were talking about, rhythm and tools. There is a flow to this. It's a comfortable flow, but any change to getting that flow started takes a little bit of energy and focus. But once it's done and everybody's on board, it's a natural thing. It's occurring naturally and the things that work that are occurring naturally, those are good things.

And so if you are that bottleneck and you're trying to promote change, let it have a rhythm to [00:15:00] it and let it flow. That's a really good point, Wade. I didn't mean to take us off that topic because that's huge.

Wade Carpenter: The last one, becoming the architect and not the carpenter, I guess I would say. Meaning the carpenter that swings a hammer, not-- somebody told me a long time ago, I have the perfect name to be in this construction business. But the idea is let's be the CEO, not the one continuing to swing that hammer.

So that means doing different things. That means designing the business and measuring the business and leading the business.

Something that I've had to learn is that I can't run the business if I don't let go and I can't continue to do the same things.

I fear that okay they're gonna say, I'm doing less work. I've had to do different work to lead the organization. And, if your business needs you every single minute. You don't own a business, you own a very stressful job site with a bunch of payroll attached to it. [00:16:00] Right?

Stephen Brown: Absolutely.

Wade Carpenter: I know that's a hard leap for a lot of people, becoming the CEO versus doing what's always done.

Stephen Brown: It is, you just have to think about it. And just like eating an elephant, you gotta take your first bite.

Here's the thing that our listeners need to know, Wade. I hope we've given you some outline of how to accomplish this next step in your process. And thinking about it, reach out to us, let's talk about it. What are you going through that you need help with? We're here for you at the Contractor Success Forum, and also we wanna make sure that you are operating your business the best way you can.

And believe it or not, there's just no differentiation between your personal life and your business life. There isn't.

The two are so combined that you can't separate the two. Maybe, back in the fifties and sixties you could, but not today. It's all ties together. Look at technology. Here we are, podcasting on a Saturday morning [00:17:00] Wade. And you had to make the decision to leave your wife and come into the office this morning.

You can't separate the two no matter how you look at it. And it's the same thing with your construction business. You cannot separate that. If you don't know how to relax. If you don't know how to spend time with your family, that's the first order of business. Because you can not stop being a bottleneck until you can see the forest of the trees.

Yet another analogy, but it's so true. We talked about that before we even started these three episodes. You can't see the forest of the trees. You're operating on chaos. You were stressed. What's the answer to that? I just hope we helped today. Is there any other type of comments that you want to end this podcast, this three series podcast, and tying it all together?

Wade Carpenter: Actually you sum it up very well. I think I'll sort of leave it at that. The one thing: if you're thinking through this, real scaling happens a day. The owner stops being that bottleneck. That's the point.

So if you made it through all three [00:18:00] parts of this, congratulations, you're officially dangerous now. Now go scale that business and while you're at it, hit subscribe and send this one to one contractor who still thinks delegation is some kind of voodoo magic.

And as Stephen said, shameless plug here, but Profit First for Commercial Construction deals with scaling the money part.

But you do need sometimes outside help. I know Stephen would love to talk to you. I would be glad to talk to you about these kind of things. And it's something that we do all the time because the whole purpose of this channel is to help contractors get to that next level. So we appreciate it and we will see you on the next show.