The Five Numbers Contractors Get Wrong (+ Free Tools to Fix Them)

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ℹ ABOUT THIS EPISODE

Stop running your construction business with broken financial tools. 

Wade and Stephen reveal the 5 critical numbers most contractors calculate wrong, then gives you free calculators to fix them. 

Learn your true labor costs, master markup vs margin, track job profitability, calculate real equipment costs, and simulate cash flow timing. 

These aren't theories, they're working tools that can transform your bidding accuracy and bottom line. 

Download all 5 calculators free, no strings attached: https://carpentercpas.com/numbers

⌚️ Key moments in this episode:

• 00:00 Financial Toolbox Intro
• 00:21 Meet the Hosts
• 00:39 Five Free Calculators
• 02:33 Labor Burden Breakdown
• 05:26 Markup Versus Margin
• 06:57 Job Profitability Tracking
• 08:06 True Equipment Costs
• 10:27 Cashflow Timing Simulator
• 12:05 How to Download and Use These Free Tools
• 13:13 Introducing the Permanently Profitable Contractor
• 15:09 Final 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

Wade Carpenter: [00:00:00] You don't run a job site with a pile of random tools you found in the parking lot. Every tool has a job. Every tool works with other tools. You You wouldn't frame a house with whatever happened to be laying around, so why are you running your finances that way?

Today we're handing you five tools that actually belong in your financial toolbox. Free, no strings attached. Let's talk about it.

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

Stephen, if you had to break down the most critical numbers for a contractor to know, what would they be?

Stephen Brown: Well, I mean, first of all, you nailed it. So you're serving me an easy shot here. Labor Burden Calculator, Markup vs. Margin calculator, Job Profitability Tracker, True Equipment Cost Calculator, and Cash Flow Timing Simulator. These are the tools you were talking about.

But think about it, have you calculated your labor burden properly? How do you know you've calculated your [00:01:00] labor burden properly? Well, I just know. Hey, check the calculator.

How do you know that the markup that you have on this job is creating the profit margin that you want? How do you know? Well, the calculator helps you figure that out.

How do you track your job profitability? What elements need to be there? And what does it truly cost to use your equipment on this particular project?

And then what happens when your cash flow is sped up or slowed down? This calculator helps figure that out for you.

Wade, we've talked about this so many times. These are the five key stress areas that keep hitting contractors over and over again. A lot of our listeners may have missed at the beginning, you mentioned free. You're just gonna make these available to all our listeners, just download them and use them. But everybody needs to know what it means and how to use them.

Wade Carpenter: Yeah, and like I said, we'll go through that. I did create these so that you can download them. You don't have to do anything special, just open them up. 

If [00:02:00] you stick with us, we're gonna tell you how you can get them at the end. These are somewhat basic and we have some more sophisticated contractor calculators in our community, but these are five of the most critical ones, and I wanted to have at least some kind of starting tool because a lot of contractors have no idea how to get started with any of this stuff. 

Stephen Brown: What's nice is that you have targeted, really, five key items that can make or break you on a job.

Wade Carpenter: Yeah. We talk about this all the time and I know some of these may be a little hard to see, so I'll try to make sure that we show this as we go.

This is a question I get quite often. It's like, what are my people really costing me? Am I marking up enough on my jobs for my labor? Maybe you're a general and you sub everything out. But, you know, let's just say we are paying $28 an hour. What does that come out to?

This is a pass at it. You've got your social security and Medicare and the payroll taxes that go with it. You have unemployment, the federal and state, depending on how many hours a week they work. But the other thing that the worker's comp, [00:03:00] general liability, that obviously plays into it.

So depending on how you're doing this, most people would not figure out that you're talking about $42 an hour when you start off with a $28 an hour. Maybe they put 10% on it, you know, $2.80. I don't know. That's not enough. 

Stephen Brown: That's not enough. And then do you figure out health insurance and other things that it costs to have an employee? Oh, there you are. Benefits and overhead allocations. Okay. 

Wade Carpenter: Yeah. Basically, if you start throwing in some of these other things, like, okay, your $400 a month for health insurance, and then you've also got your overhead load with your people in the office and having to do payroll, the paid time off, they are costing you money.

If you're giving some kind of vacation or holidays, it's costing you money. If you're giving some kind of match on your retirement. Maybe you give them a phone or tools, per diem, all that stuff plays into it. And again, this is sort of a top level calculator.

The idea is okay, you know, I [00:04:00] bumped this one to, I think I said $28 an hour. But at $28 an hour, it's actually costing you $45.17 an hour to pay for this person.

And most people are floored when they see these kind of things. We see people with the cash flow problems, and I hate to say it, but they're not usually bidding with a high enough factor when they're factoring in labor.

Stephen Brown: And you've gotta mark up labor. That's part of hitting your profit margins, and you have to mark it up properly. 

Wade Carpenter: Yeah.

Stephen Brown: My only question, looking at it would be the overhead allocation, separating that from actual other office overhead. I guess you allocate human resources and payroll directly per employee, right? 

Wade Carpenter: Yeah, I mean you could, and for some people they may not think about all these other things that we talked about up here, the benefits, but the calculator is free that you can download and you can drop in your own numbers, whatever you're doing.

The idea is, okay, [00:05:00] we've got some kind of running number. If you're not capturing it in your labor calculation, your markup on your labor, that overhead's gotta be covered somewhere.

We've also talked about that thing with Profit First, with operating expenses. The way I look at it from a cash standpoint. But in this case, your true cost is 61.3% above your base wage rate. You actually could be leaving a lot of money on the table. 

Stephen Brown: Yeah.

Wade Carpenter: We're only going to hit the high notes on this one. We've talked about this a few times, markup versus margin. We have this all the time.

Let's just put a hundred thousand dollars of job costs. What does that do? The confusion that we've talked about multiple times lately.

Let's just say 20% margin. I wanna make 20%. That bottom line 20% on your P&L is not what you've got to mark it up. You've got to mark it up more than that. So if you're trying to get a 20% margin, you would actually need to be bidding at a 25% markup.

So, [00:06:00] like I said, I did it easy math, a hundred thousand dollars to get 20% of that, that would mean you bid the price at $125,000 and then it costs you $100,000, that's 20%. When you just tack on 20%, that's only a 16.7% margin. And you can see very vividly that, you know, you're probably not getting the right--

Stephen Brown: I love this calculator. It's fantastic. 

Wade Carpenter: The more sophisticated ones are in the community. But this I think is a tool, and it's just a start. If you never thought about that before, if you're struggling and figuring out why, are you using the right markup? We already talked about the overhead, but are we using the markup that we need to be used? 

Stephen Brown: Okay.

Wade Carpenter: If they say I make 20% on every job, 20% of what? Because when they're just tacking 20% on top of it, they're actually only coming to a 16.78% markup. Again, high level stuff here. Right?

Stephen Brown: All right.

Wade Carpenter: Next one I wanted to talk about, the Job [00:07:00] Profitability Tracker. You're welcome to use these as you can, but I'm not gonna spend a whole lot of time on this one.

People, first of all, don't have good job costing. But if they do and we say we budgeted something, but they're not tracking it. You have some kind of like, okay, we can drop it in.

We also have talked about job segmentation. $250,000 contract value, where is that profit coming from and where is that total cost?

We see some of these things and when you start breaking these down you start to notice, well I really missed it on my overhead. Knowing where you are to date, are we getting behind on the job?

So that's the idea between this, you're at 50% job completion, but you've already billed almost 55% of your budget.

Stephen Brown: Mm-hmm. 

Wade Carpenter: You can put in your own numbers here. It's just a high level tool.

We are, building a lot better tools, but this one is free and they can hopefully get some thoughts, and if nothing else, it makes you revisit what you're doing. I [00:08:00] think I've hopefully giving you some value here.

Stephen Brown: I love the fact that it's got a warning on there. Watch it. That's great.

True Equipment Cost Calculator. What does this tell you? 

Wade Carpenter: Well, the labor burden rate calculator. Maybe some people are self performing. A lot of our people with heavy equipment, they're the biggest ones.

If you got a bunch of trucks driving around, how much is that truck costing you? You may need that truck. You may not wanna rent that truck.

Let's just say you had a skid steer. Do you rent it versus own it? And I know this is a simpler one. 

Four or five episodes back, when we did the deep dive on the equipment. But at least it's a top level stuff.

We also talked about in that episode, I still very vividly remember. All of my heavy equipment guys, those are the guys that went out of business after 2008. But they all think, okay, my payment is lower, the equipment dealer says I can get 0% financing, and why would I not do this? Are you actually gonna use it enough to own it?

This is just sort of high level, [00:09:00] but does it make sense to rent or own it? And the lesson from 2008 was, when it's sitting there, can you afford it? If it's not running three months out of the year, you still gotta make those payments when it's in winter, right?

Most people think, owning it is cheaper. It may actually turn out where the rental rate is higher.

Stephen Brown: There's still an insurance cost if you rent it.

Wade Carpenter: Yeah.

Stephen Brown: You can't get around that. Yeah.

Wade Carpenter: There are some things that may not be in there. The insurance, but if you've got a mechanic on duty, that is taking care of it and all that stuff, it may cost you more per hour, but how much is that cashflow costing you?

So again, it's just a top level, you know, where's your break even? How many hours do you need to use it to actually makes sense?

So, the calculator, you may want to throw some other factors into this, but in this scenario, 800 hours per year, you're well above the breakeven point.

Just wanna throw this out there because, especially for the heavy equipment guys, they need [00:10:00] some kind of gauge of what they're charging it out. I've seen contractors bidding this wrong. It's like, okay, well it just costs me my monthly payment. I don't even think about that.

If you really, truly understand what that is doing to your cash flow, then you know, maybe you might make a different choice. Just not get run over by a salesman. 

Stephen Brown: Yeah. What a great tool. Thanks, Wade. I think our listeners are gonna love this one as well.

Wade Carpenter: Okay.

Stephen Brown: So far you're four for four. Here's the fifth one, Cashflow Timing Simulator.

Wade Carpenter: Yeah.

This is a simpler tool, but it's powerful. And, you know, maybe you do this on spreadsheet, but maybe you've never actually thought about it this way before.

 One vivid example from 2010, heavy equipment guy, civil contractor. I think I've told the story, it was a $20 million job, 10% retainage, 8% profit. With that retainage clause, guess what happened to that guy? He's-- so, you know, can you afford to cashflow [00:11:00] this? That's where I was going with this one.

So this is just a quick little tool to say, if I had a half million dollar job and they pay me every 30 days and they're gonna release retention after 60 days, after 10% retainage, what would the total job cost be? What we are doing with this is just, it works out to be a little schedule.

And obviously nothing in construction-- I mean, you may have to say, well, your costs are not gonna be level. We have to work on that, but if you know that you're gonna have this gap every month, or peak times where you're going to have to be funding the job, you see this right here, this point right here, you're really funding the job and you're not really catching up to it.

It's showing what's your cash position on the job versus your money coming in, money going out, and when you're waiting at least 60 days after the job to collect your retainage. That's all we're trying to do with this.

The cash flow is one of the things that we talk about all the time, [00:12:00] and all of these things are recurring themes on this podcast, so that's why I wanted to build these things.

If you want these calculators we will have it in the show notes how to get to it. But all you will have to do is download the file and then open it up in your browser. I've got it here in Chrome. You click on them and t hey will open up just like that. And you can play with them.

Stephen Brown: Yeah. What a tool, Wade. Thank you. Thank you. Our listeners, I think are gonna love this.

Wade Carpenter: Our goal here, we wanna make an impact on this profession. We hit our 90 year reunion. I don't know, we talked about that in our episode. The tools are free and they are real. They're functional. You know, use them.

Stephen Brown: You're a contractor and some of this stuff makes sense, some of it's over your head, but you're like, okay, I know you're passionate about it, Wade. And I know I should be passionate about it. I just don't have time right now.

At least you could download these calculators and just see what elements are at play and say, whoa, you know, I'm losing money today by [00:13:00] not doing this. And I do like the fact that everything that, you do to present every one, you offer advice and support in so many different ways.

So, I think everyone's gonna be very grateful for this. 

Wade Carpenter: Well, I hope so. And here's the thing. These five calculators we just walked through, they each solve a real problem, but they're also a glimpse into something much bigger than I've been building.

You know how a single wrench can tighten one bolt, but what you really need is a fully stocked shop? That's the difference between these free tools and what I've put together called the Profit First Construction Operating System. Or P-F-C-O-S for short.

It's a complete system built specifically for contractors. Right now there are over 215 contractor-specific calculators in it, and we're adding more every week! Tools for job costing, cash flow, overhead markup, you name it. If it affects your bottom line, there's a calculator.

The P-F-C-O-S is the backbone of a [00:14:00] new program I'm launching called the Permanently Profitable Contractor.

Here's what that looks like.

We start with the one-on-one Construction Cash Flow MRI. That's where I personally sit down with you and diagnose exactly where your money is going and why you feel broke, even when you're busy.

Then we go through an eight week group course together where we build the actual system in your business. Not theory, we build real deliverables that you keep. And the whole time you've got access to those 215 plus tools, weekly office hours and group coaching calls.

The investment is $2,500, and I wanna put that in context. One job, just one, where you know your true costs, your real margin, and you price it, right? That pays for this 10 times over.

We're capping the first cohort at 20 companies, so if this is something you've been putting off, now's the time to actually take action.

We'll put the link in the show notes. Head over to ProfitFirstConstruction.com and grab one of those spots.

Stephen Brown: If you [00:15:00] label a contractor a PPC, Permanently Profitable Contractor, and you give me a certificate, that should get them all the bonding they want. Hey, I got a PPC for you. They want to bid this job. Done. 

Speaker: I love that idea, Stephen. Maybe we'll get you to sign those certificates, but seriously, whether the full program is the right fit or not. Those five free calculators from the show, go grab those five free calculators from the show notes right now.

No ai, no tech headaches. Just download the file, open it in Chrome and start running your numbers.

Stephen Brown: Wade, this is fantastic. Thanks for this and thanks for bringing this out. 

Wade Carpenter: If you hung around this long, we genuinely appreciate you. Share this episode with a contractor who needs it. You might just change the trajectory of their business. Subscribe if you haven't already, and we'll see you on the next show.