4 Ways to Grow Your Construction Company (That Actually Work!)

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ℹ ABOUT THIS EPISODE

Tired of working harder but seeing less profit? You're pulling the wrong levers. Wade and Stephen break down the four proven ways to grow your construction business that actually move the needle on your bottom line. 

Learn why 'doing more work' isn't the answer and discover the mathematical drivers that can increase your business value by 85%. Plus exciting announcements as we kick off year six of the Contractor Success Forum!

⌚️ Key moments in this episode:

• 00:00 Working Hard Not Rich
• 00:22 Podcast Milestone Intro
• 01:35 Four Growth Levers
• 02:34 Win Better Jobs
• 04:16 Raise Contract Value
• 05:24 Boost Gross Margin
• 10:19 Control Overhead
• 11:54 Pricing Math Reality
• 12:47 Build Exit Value
• 14:56 Year Six Reflections
• 17:25 Audiobook Announcement
• 19:32 Community Coaching Launch
• 21:39 Subscribe And Wrap Up

The Contractor Profit Blueprint is a complete guide that breaks down exactly how to identify where your money's going and start keeping more of it. This isn't theory. It's the same framework I use with contractors I work with every single day.

Head to profitfirstconstruction.com/blueprint to download your free copy. 

Stop working for free. Let's get you keeping what you've earned.

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

Transcript

[00:00:00] 

Wade Carpenter: You're working your butt off and busy enough to be exhausted, but somehow your bank account isn't getting the memo. If that sounds familiar, you're not broken. You're just pulling the wrong levers.

Today we're showing you the four drivers that actually move the needle. And trust me, you'll wanna stick around because we got some great announcements as we're going to be starting year six of this podcast.

This is the Contractor Success Forum. I'm Wade Carpenter with Carpenter & Company CPAs alongside Stephen Brown with McDaniel Whitley Bonding and Insurance. And Stephen, as we start our last episode of year five and move into year six, I just wanted to start off by saying it has been an absolute honor to do this podcast with you over the last five years. 

Stephen Brown: Thank you, Wade. I feel the same way.

Wade Carpenter: Today I think we were just gonna talk about some of the concepts we've talked about before, but in a slightly different way. The four different ways to grow a construction company, because construction companies are a little different. But you got any thoughts to kick us off? 

Stephen Brown: Yeah. I [00:01:00] love today's broadcast idea because just like you, you use an extra long lever to get leverage when you're trying to move something. The longer it is, the more effective you can move it. All these principles of levers I was thinking about how interest can be compounded.

All the little things that you tweak that seem so simple, but that our listeners don't know about, it's amazing what they do to your bottom line. 

Wade Carpenter: We've done some other episodes where we've talked about segmenting your jobs and throughput and all this stuff. But this takes it a lot higher level. And from the top level, I just wanna talk about some of that today, because if you're looking to grow your company, there are four ways to do it.

We'll get into it, but most people think that the only way to do, it's like, let me just do more work. Let me get bigger projects. Those kind of things.

Let me just start off by showing this model a little bit because there are different things.

Let's just say we've got a $3 million contractor kicking off and [00:02:00] they net $600,000 of profit a year. The business is starting off like, they could sell it for say, $1.8 million.

So if we're trying to move the needle, as an oversimplification, we can do one of four different things.

And obviously, we could just do more work. Just work harder. And that's what so many people start thinking, if we added 20 more jobs and we doubled the number of jobs, in this case it would be a 1.53 million dollar increase in the business value multiple, like an 85%. I'm playing with numbers here.

The first way that I want to talk about was like winning better jobs. And winning better jobs, I mean, I don't know what that means to you. Do you have any thoughts on what winning better jobs means? 

Stephen Brown: Well, it means right here doing the project that's gonna not only make you the most profit, but bring you and your workers the most pleasure.

Wade Carpenter: Yeah. And sometimes we're doing more and I've had two or three different conversations in the [00:03:00] last week of talking to people. It just seems like we're doing more work, but taking home less and working harder, longer hours.

Winning better jobs can turn them faster and we've done episodes on the throughput and things like that.

But as we said, winning better jobs, maybe we could do some that are just, maybe not even working on the price, but working on better jobs that maybe we could upsell or change orders or whatever, but turning more of it.

Eight more jobs, that translates to an additional top line revenue and the bottom line revenue, assuming our gross profit doesn't change, would be 44% increase. That's sort of moving some of the levers too together.

But, you know, what is a better job? And it's not always let's do more higher price jobs, because we've also seen these higher price jobs, they may be covering some overhead but we're making less margin, and I've seen contractors spiraling and [00:04:00] not understanding why. You ever see that?

Stephen Brown: I sure do. And it's so frustrating. Because first of all, you were already committed to it and it's bigger, and then it's taking up all your resources and it's just not playing out quite the way you expected it.

Wade Carpenter: Yeah. Well, like I said, if we just reset the thing, and obviously this is what I was talking about. We can increase the price of the contract value, and assuming our gross margin does not change. That total revenue, I know I keep playing with numbers here, but if we increase the average value of our contract, it does increase the bottom line. But we also have to think about what does it do to our overhead.

If we can just pull that one lever and increase that and our margin doesn't change, and we can still do same number of contracts, then it does translate.

So in this example I've got here, and again, we're just playing with numbers, but it's just math.

Adding $15,000 to the average contract value in this case, it's a [00:05:00] 20% increase. That again translates to a bottom line increase of 34%.

That's 200,000 more on the bottom line. 

Stephen Brown: Right. 

Wade Carpenter: I know I use the analogy in my book from the movie Jaws like everybody wants a bigger boat. It's not always about the bigger boat. What is it that we can do to also increase the bottom line?

As we said, we can improve our margin, and there are ways we can do that. Obviously that's what people are chasing. Let's keep the costs down and really tracking our job costing. I'm sure you've got some opinions about getting good job costing. I don't know if you wanted to chime in on that part of it.

Stephen Brown: You know your job costing affects all these numbers. I was just thinking as you were showing me your latest teaching engine, I guess we should call it.

It's interactive. All the job costs have to be tracked perfectly. Everything ties in when you slide that number of contracts and average contract value [00:06:00] over, and you see how the numbers explode, in real time, are you calculating all the other things that go with that growth? Your job cost systems in place and also number extra employees you have to hire, the degree of sophistication of employees you need to hire. Not to mention the equipment you'll need, the materials, the resources and are you really calculating your overhead right as your business grows?

As a percentage, can you take whatever percentage it is now and double your sales and double your overhead and expect that to be accurate? 

Wade Carpenter: Yeah. We're gonna get into overhead a little bit too because that's a major headache for a lot of contractors and they don't know how to figure it.

If we're just working on improving the margin here, if we can just top line say, okay, well we can improve the margin by 2, 3%, in this case that doesn't change the top line. But as you can see, that's a $90,000 increase in the bottom line by just [00:07:00] adding 3% increase in the gross profitability.

We can obviously play with that number and let's just say we increase it 7%. I mean, that's a big jump. But how do we get there?

We talk about being efficient and all that stuff, but if we are just thinking about how can I move the needle on the margin? Well, it's not always cut and dry, and you really have to dig into some of the major drivers of that.

Most people pick up more profit on their own in-house labor. Sometimes they don't also think about like, okay, I'm keeping extra people on, especially during the slow season, Would we make more money by subcontracting that out? Obviously you lose some control. But where I'm going with this is there are different ways, different types of contracts. You may be doing one that's, I don't know, a retail center versus doing churches versus a commercial build out.

They've got different mixes of what goes into that. Some of them may have more in the [00:08:00] equipment, some of them may have more on the, I mean, we did that recent episode on buy-in versus leasing the equipment. So, hopefully this is making sense. 

Stephen Brown: It is. At first I didn't realize you had a dropdown menu, of course you did, that differentiated everything. But I love it, because you could take every element of this business engine that you created and you can plug it in.

You can look at, for example, say you're figuring out lumber. You can look at how much lumber you're gonna need to do the project and what the prices are currently and what they're projected to be.

You can get those economic numbers and plug that factor in and be pretty accurate. I love how you can tweak all these numbers and we can look at the bottom line.

You remember in one podcast, you were just tweaking a number on cashflow, just talking about days collecting your money. And you were increasing it by three days and just showing the difference in the bottom line. That got my attention. 

Wade Carpenter: Yeah. [00:09:00] And those are different drivers of, yes, you can work on the top line here. But that goes into the mix of the jobs too because you may have some that on paper are more profitable.

They may be more profitable, but they still take 75 days to pay you. And you know, a retainage clause that you don't, you're not gonna get for a year and a half.

Sometimes you have to take those things into account, and this is more high level today, but that's some great points there, Stephen.

 So we can see different mixes of the materials or whatever. And depending on what drivers, I did another episode where we were talking about segmenting your jobs.

Just from a top level today, I just want to talk about if you're working on your margin. We've improved our margin by, say 7% here, by tweaking little things here to get to that 7%.

We talked about the equipment and are we doing it in house and they don't think about the insurance costs and the cost of the mechanic and the [00:10:00] fuel. I mean you got the fuel either way I guess, but maintaining it and what happens if it breaks down versus, okay, we can go pick another one off the rental yard and we don't have to worry about the cash flow effect of that in the slow season.

So again, we're just high level today. We're just talking about the mix on the margin. The next one is what you were talking about. Let me just sort of strength this up a little bit so everybody can see.

You were talking about the overhead, and the thing about overhead that comes out is if you save a dollar of overhead, that's a dollar that translates to the bottom line, right?

A 5% reduction in our overhead would be $21,000 in this case. It translates to a $21,000 decrease in overhead. Actually I went the wrong way with that, but if we were decreasing our overhead by $29,000, that's direct

Stephen Brown: Net income. 

Wade Carpenter: net income, right?

But it didn't do anything to our revenue, but it really didn't do anything to our gross profitability either.

One of the hidden killers of a lot of contractors is not [00:11:00] taming that overhead. And as we grow that percentage of overhead tends to grow at a faster rate and I've said that a thousand times on this podcast.

That's where something like Profit First really makes a lot of sense, where we can put some guardrails around that overhead and know what it is, what it's costing in cash.

So the fourth driver again, as we said, is working on the operating efficiency and that where we're working on just things like the overhead.

With that said, to improve your business, sometimes it's not all about, you know, we can't just magically wave our magic wand and everything fall into place, but we can make some small improvements.

That's where it gets powerful, when we can actually start doing small things to combine it. And let's just say we got a few more contracts a year. We worked on our lead pipeline, we bidding the right jobs. And the contract value went up. That's not always the right way to do it.

You remember when we also had that episode, we talked about raising prices and lowering prices? Some [00:12:00] revelations--

Stephen Brown: It was amazing what happened with the logic of lowering prices to increase revenue to your bottom line, that was sobering. 

Wade Carpenter: As long as you're looking at top level, I mean you're at a 70% gross margin and you reduce your prices across the board by 10%, it would take 50% more customers to actually make the same level of profitability. That's sobering.

Versus, in the example I gave in that episode, that was 30% gross margin. If you added 10%, everybody says, I'm not gonna get another contract. I'm gonna lose all my customers. It's math. It doesn't matter if it's a 3 million or $300,000 contractor.

You could afford to lose a quarter of your customers and still make the same amount of money, work less hard.

So this is part of what I want to talk about, and then the business value multiple. If we can get all these things tweaked up. I know we got a special episode coming out tomorrow being our fifth year anniversary with Rob [00:13:00] Williams and he's talking about exiting your business and getting that value up.

When we can dial these things in, maybe we've got our systems in place, maybe we can work on that value multiple. And so we can raise the selling price of your business.

Stephen Brown: I love your business valuation at the end there, because every contractor starts off saying, okay, I've gotta sacrifice to build something. I've gotta sacrifice to build my company, sacrifice everything. My time, my energy, my family, everything to grow that business is everything. And then the business will take care of me forever.

And the right mindset is plan ahead the right way. You don't have to give away everything to have a successful business. Think about how to run it more efficiently, how to work smarter, not harder. And think about the value of your business. Because you're not just making a business to give you an income to support you and your family, but also you're using that business to give you income in [00:14:00] your retirement as well. And to grow something that's easy to pass on to others. That's really rewarding, isn't it? 

Wade Carpenter: Yeah, and we're all looking to grow in one way or another. Especially if you're looking to exit, and ultimately we're all trying to build security for ourselves and our family.

I know this is sort of high level today. I don't know if you had any takeaways from that, but.

Stephen Brown: No I love it, Wade. And I love these teaching tools that you have. Look at how one area affects all the other areas. And you plug that in, then your decision making process is logical and it makes sense and the risk is minimized. Just go out and just decide this is what I'm gonna do, or this is what someone else told me I needed to do, without knowing exactly why you need to do it and how you're gonna need to do it. That just causes you stress and it almost never works out the way you wanted it to. 

Wade Carpenter: Yeah. Well as we're coming to closing our [00:15:00] fifth year and starting year six, I think it's actually was fitting yesterday, I had my client that went back with my dad, he was 90 years old. He was in my office yesterday and my father is also 90 years old. So I had him come over and see him, and he hadn't seen him in years and years.

And it's like, I'm hoping that me and you can say keep going through the next I don't know if we got 90 more years, but the next five years and 10 years, and I don't know how long we're gonna be able to do this, but I truly enjoy doing this with you.

Stephen Brown: I have too, Wade. My first thought is you'd have to be a masochist to wanna listen to us when we're 90 years old. But who knows what we'll have learned by then and maybe we'll have gotten better at communicating to our listeners, our new listeners, our existing subscribers these points that are so universal, they keep coming back over and over again, and how to run your construction company the right way.

I hope that our podcast is a blessing to our [00:16:00] listeners as it is been to me these past five years, going on six. And just talking to Rob about how he's evolved and what he's doing now in his business practices, and also what our listeners don't know about Wade and I sharing existing customers and going through the trials and tribulations of getting them where they need to be.

It's just been a lot of fun and it's great when everybody's pulling with the same set of oars. And I don't know if I told you Wade, but I was thinking about getting a Tesla, so I'm just doing a deep dive into that in every possible way. And talking to people I really respect that have them.

The people I know that are not gonna approve of the idea, I'm just not really consulting about it at all because they don't know anything about it. But I'm thinking to myself I'm gonna be pushing the edge of the envelope in technology for driving. I'm gonna be pushing the edge of the envelope and tools we talk about AI, we talk about [00:17:00] every new software program, everything that our listeners need to know about. That's just the way we are.

And I guess that's why we're also friends, Wade, because when we dive into something, we just go to such a geeky level, and I'm sure that's gonna drive our listeners crazy, but I hope they get something good out of it.

And most contractors are kinda like us. They do the same thing, so who knows? Maybe that works.

Wade Carpenter: Well again, this has been a fun ride. There were some announcements I wanted to make too.

My book came out last year and it's been a journey, but we've got the audio book in final production. I was hoping to be able to actually give a release date from Amazon today, but the final post-production and getting it through Amazon.

I always said that contractors wanna listen to it in their truck. And with the different characters and all that stuff, we've actually got it recorded. It's being edited right now. And hopefully within the next 30 days, I'll [00:18:00] definitely be able to announce a real date for that. 

Stephen Brown: Do you have real Hollywood actress and actresses reading the parts or AI actresses and actress? 

Wade Carpenter: You have me. Actually Mike Michalowicz voiced his own foreword. And he wrote the foreword for me and then he recorded that whole thing. And so I really appreciate him doing that. 

Stephen Brown: But do you change your voices when you do the characters? 

Wade Carpenter: No, we got different voices. I didn't do the other voices.

Stephen Brown: I knew you didn't. I'm just messing with you. That's fun. I can't wait to hear it. And what a great way, you're driving around in between jobs. You're heading out in the morning to get this book that you should be reading that nobody likes to read anymore and listen to it.

I love it. Sometimes I'll get a book and it's so good and I delve into it so deeply that it takes me too long to read it, and then it's on my nightstand with the page marked to where I left off. And a lot of times I'll say, well, I really need this information and I'll get the audio book too. I'll get all [00:19:00] the key concepts while I'm driving and then I go back and read the book again.

It sinks in so much more. And your book, Wade is entertaining. It's got a great plot. Okay, so I can't wait to hear it. 

Wade Carpenter: Well, thank you for that. I actually got somebody reached out because we were still giving away the first two chapters of it. So if you want to go ProfitFirstconstruction.com, but he read the first two chapters and reached out to me and said he's just now becoming a client and I think he's gonna be a great client.

But there are some things I did wanna also throw in there too. We've had the Profit First Construction community, we kicked off for free. And we actually are moving that into a paid platform because with the book, I've had people asking me, can you just do consulting for me if you're not my CFO?

And so I've developed a whole coaching platform around that and the group coaching. So we are spinning that kind of stuff up as well as the big thing that I wanted to announce with that is part [00:20:00] of the community is going to include these calculators that I'm building as well as, I've built 200 more of these calculators that are more geared towards different ways to look at construction and great things like how to calculate the concrete needed on a driveway pour and stuff like that. I've got over 200 of those already built.

It is not about calculators, it's more about like let's create a community that can, number one, benefit from it, but also learn the Profit First principles, apply them to their business, and have a community of people with like minds that want to improve their business. So that's my goal with it.

Stephen Brown: I think that's great. And if you are also helping with the books you can prove to them that the calculators are working, right?

Wade Carpenter: Yeah. There are some things that we show in the book that make the whole calculators as well as some of the offers that we're gonna be throwing in there to help people implement this. I truly believe in the system. I've seen it work, and I do it in my own business. [00:21:00] And it is game changing for me. I didn't mean to devolve too much, but--

Stephen Brown: I'm glad you did. And how do our listeners start?

Wade Carpenter: Well, we're gonna have some offers up there at ProfitFirstconstruction.com and we'll put some stuff in the show notes as well. I'm not trying to do a commercial or anything here, I'm just really excited about what we're, and we've had so many people that just, I need help with this.

And so I finally caved in and said, okay, we can definitely do this. And I think some of the ways that I'm doing this are pretty innovative in teaching this, even adapting from even what I wrote the book about a year ago.

With all that, I know I'm sort of getting long on this episode. If you've been listening to us for five years, we'd really appreciate it if you haven't subscribed, if you do so, if you like it and share it with other people, we truly appreciate it.

Stephen, I think both of our goals and it's like, let's get some great educational content out there. And I think we're bringing it to them. I hope they feel that the same way.

Stephen Brown: I do too. [00:22:00] And listeners, subscribers if we're not, if we're missing the mark, we love your feedback. But it's not, hurt our feelings. We wanna just be more effective in how we get our points across and also that we're bringing what you're interested in hearing and need to hear sometimes.

So we don't care whether you're interested or not. We are and we know you need to hear it, so we're gonna put it out there.

Thank you listeners and thank you Wade for everything you're doing. Just getting on your website. Sharing your email address so at least you can communicate back to them what's going on and what you're offering to do. 

Wade Carpenter: Yeah. Well, again thank you for five years. Looking forward to another five and then some. Appreciate all of our listeners. I know there's some of them that I know have listened to us all five years, and it's really rewarding to get some of that feedback. And so we hope you're one of them. And if you haven't we'd love for you to reach out as we wrap up this one.

We haven't missed a week in five full [00:23:00] years, and we're not gonna miss next week either. So look forward to seeing you on the next show.