Adjusting the 6 Financial Dials (ft. Kyle Hunt)

Logan Shinholser
Hey, everyone. Welcome back to the Contractor Growth Network podcast. I’m Logan Shinholser, and today we’re talking all things money and profit. I’ve got Kyle Hunt, who is the founder of Remodelers on the Rise, talking about the six different levers you can pull in your remodeling business to make sure you are making money the way that you should be. Let’s go ahead and jump on in. Today I am joined by the owner, founder, and the person who is in charge of Remodelers on the Rise in one of the probably best Facebook groups for the remodeling industry, Kyle Hunt. Kyle, how was that?

Kyle Hunt
That was solid, people. He asked me how I wanted to be introduced. I said, I run Remodelers on the Rise, and they just say something sweet about me. I also thought it was weird that you were like, three, two, and then you started talking. I was like, aren’t you going to, like, count down all the way?

Logan Shinholser
I just. I get close enough.

Kyle Hunt
Interesting.

Logan Shinholser
So I have Kyle on today, and Kyle is going to be talking all about financial dials in the business to be able to produce more profit. And when were talking about what we wanted to go through, this came from Kyle. Kyle, why is this important in your mind?

Kyle Hunt
You know, you actually kind of reached out to me and said, give me. Give me a topic that you just love talking about. And frankly, there are topics where I’m like, I like talking about fill in the blank, but, you know, it’s all right. But as far as what gets the heart racing in a good way, what gets the mojo flowing is generally when I start speaking about financial topics. In particular, all of my work is with remodelers. A lot of my clients are doing kitchens, baths, that type of work. And I think the reason that it really fires me up is as I step back and look at the ways that my clients have been successful and what I have learned in my almost. I’m kind of rounding it up now.

Kyle Hunt
If I’m at 17 years of coaching, can I round it up to 20?

Logan Shinholser
Yeah, I think you just say two decades.

Kyle Hunt
At that point in my nearly two decades of coaching, there’s a little bit of gray hairs flowing in the beard. There’s been a lot, a lot of conversations. I’ve had thousands of coaching meetings, hundreds of clients, and I know for a fact that when we really dial in our numbers and when you are a remodeling business owner that truly knows their numbers and how it all plays together, it just makes a tremendous impact on the success of the business. And when the business is successful, there’s more money to go around for yourself, for your team. Everybody’s happier. So that’s why I really love this topic.

Logan Shinholser
And when you bring this up to clients, what percentage of them go, oh, I was so excited to talk about financial dials. Let’s get into it.

Kyle Hunt
Oh, yes, they’re just chomping at the bits. I would say a lot of people are reaching out from a little bit more of a standpoint of, I’m so frustrated, why am I working so hard? Why am I doing all of this? And then at the end of the day, I’m confused about where the money’s gone. There’s not as many dollars there as there should be. And, man, I’ve been at this for a while, and why can’t I get this thing figured out? I see this correlation oftentimes where there’s this high level. For people watching the video, you can see my hand. For those of you watching just listening to audio, imagine one of my hands a little bit high and at a higher level.

Kyle Hunt
And what I see often with remodelers and with contractors is when it comes to the skill of doing the work, of delivering a great finished project, of the quality of the work, I see it very high. And then when I look at the business skills, with the financial skills, what I often see is a lower mark where, man, we’re really good on delivering the projects, but as far as knowing how to do that profitably and consistently profitable, that’s a little bit lower. And my job as a business coach in a lot of ways is to bring those business, the financial understanding up at par with your skills of doing the work. And, man, when we get both of those up high and equal to each other, that’s when real success happens.

Logan Shinholser
How often are you coaching somebody that comes from the white collar world? And they just said, you know what? I want to start a business or buy a business. I’m going to come into this with more of a business focus and not like the normal way, which is going from like a craftsman, and then realizing, okay, there’s a whole side of this business thing that I don’t have figured out.

Kyle Hunt
I’d say 95% of the time, we’ve got the skills on the business, on the doing the work side, and maybe 5% I’m coming from, hey, I really understand numbers. Had a conversation with a gentleman a few weeks ago who actually had a really successful white collar career. They offered him a buyout. And he said, you know what? I’m ready for a new chapter, new lease on life. Bought into a remodeling business. And in his case, the number side is still the part that’s really giving him trouble, let alone really learning the skills to deliver the service well. So it is a hard business. There is a lot of moving parts and pieces to really get in sync.

Logan Shinholser
It’s funny, whenever I like. So my wife is an investment banker, so all she does is live in spreadsheets, excel, stuff like that. So whenever I’m listening to, like, a book on tape or, like, I remember the first time I was listening to profit first for contractors, she. She was like, why are you listening to this? I was like, what do you mean? She’s like, this is all just common sense. Like, do you not know this? And I was like, no, but, like, I understand it. I think we all understand on paper, like, how some of that stuff works, but the actual, like, execution of it is a whole different scenario, and there’s a whole level of, like, discipline associated with it that for her, she just, like, doesn’t comprehend or can’t, like, empathize with that.

Logan Shinholser
That mindset of, oh, I’ve got ten grand in the bank account. Let me just, you know, not touch that. Cause that’s got to go towards estimated taxes. Because for her, she’s like, that’s going to go towards estimated taxes. I’m leaving that thing untouched. I’ll figure out how to invest more money into the business another way.

Kyle Hunt
It’s natural for her.

Logan Shinholser
So easy, and she just doesn’t understand why. So, with all that said, we’ve got six different financial dials that we can look at as a remodeling business owner. So let’s go ahead and jump into the first one. Kyle, what is the first financial dial that we want to be looking at?

Kyle Hunt
Well, they’re not in a particular order, and when I. The analog. Was that surprising to you?

Logan Shinholser
Yeah, I thought it was like, hey, you start here, and then you work your way all the way through.

Kyle Hunt
It’s kind of a play. Play as plays. Play as you want. A little. Choose your own destiny a little bit. Nice.

Logan Shinholser
Okay.

Kyle Hunt
I mean, they all mix together. This analogy. This dial analogy came to me a good number of years ago. I was actually on a little seaplane. The one and only time was on a seaplane. My dad and my two sons and I were taking the seaplane from the upper peninsula of Michigan over to Isle Royale, which is the least most visited national park in our beautiful union. And we took this little seaplane now sitting in the front seat, and he’s got all these different dials. And, you know, we’ve seen that in airplanes or ships or wherever you want to go. And I think I was doing a training a couple weeks later. And I kind of likened all of these different financial dials of a remodeling business to what I was looking at on the plane.

Kyle Hunt
And what we see is the six that we’re going to hit on today are kind of the biggest dials, the ones that, you know, are probably the most important to be dialing in. And then, frankly, underneath each of these, there’s all kinds of other little dials that we can adjust. And there’s some remodelers who, hey, we’ve got some major adjustments we need to make to our estimating, to our total revenue dial, to our gross profit dial, to our overhead dial, some major dialing in. Some remodelers have really taken many steps forward, and now they’re just kind of tweaking the dial. Everything’s going, okay, we’re going to tweak this one a little bit. We’re going to turn this one down. We’re going to turn this one up. So that’s kind of this analogy of the dials.

Kyle Hunt
If you were to say, start with one of these, I’ll throw out kind of the total revenue dial first. And what we’re talking about there is that top line of your profit and loss statement, all of the dollars that are going into your business bank account. I think sometimes we look at that and go, all of my challenges with the numbers and the financials in my business, if I just had more revenue coming in, everything would be fine. And in some businesses, that is the case. For other businesses, that is not the case. Just by adding more projects and frankly, sometimes more stress and more workload, that may not be the biggest dial to adjust. When we think of this one, though, what I would say is, what is your total revenue goal for the year?

Kyle Hunt
And probably more importantly, why is that your goal? Here we are kind of two thirds of the way through the year. How are you doing on actually hitting that number? Are you behind? Are you on pace? Are you ahead of schedule? And looking at that just closely of what gets measured, gets improved? Do I have a goal set for that? And why for some of you may need to turn this dial up. You may need to kind of keep it where it’s at. You may need to dial it down. Does that kind of make sense? For the first one.

Logan Shinholser
Yeah. So when it comes to the dials, because I think on paper, if we all said, hey, I want to dial the revenue up, like, everybody wants that. So I guess when you’re thinking about the idea of dialing, you know, revenue or estimating or any of the other dials, like, what. What are you doing? Like, is there, like, a certain activity that you’re doing? You’re just, like, mentally, like, let me dial this bad boy up and then see what comes of it.

Kyle Hunt
Yeah, they all kind of play together. So if we’re looking at your financials, the remodelers financials, and we start to just, let’s first just check in on these dials. Let me, let me kind of go through maybe unveiling more of them would be helpful. If I’m looking at your p and l statement, I’m starting at the top. I’m looking at that total revenue. I want to think about, hey, where has this been the last few years? Where is it this year, and where do you think it’s going to end up? And kind of ask some questions around that. The next thing, as we go down, we look at our cost of goods sold. But one of the other main dials that I like to hit on is your gross profit dial. This, arguably, is kind of my favorite dial to really focus in on.

Kyle Hunt
And that is going to tell a lot of the story. And this is where a lot of the training, a lot of the learning for a lot of people listening may need to happen. If I have my total revenue, and let’s say it is $1.5 million of revenue coming in, and I then subtract all of my cost of goods sold out, get all the cost of goods sold, all my labor, all my materials, etcetera. And let’s say I am left with $300,000 of gross profit, one and a half million dollars coming in, $300,000 of gross profit, it means that 1.2 million is going towards cost of goods sold. That is coming out to a 20% gross profit margin. I didn’t say markup, did I, Logan?

Logan Shinholser
It was close.

Kyle Hunt
It’s close. You thought it might be coming.

Logan Shinholser
Yeah. I was like, oh, am I going to say something?

Kyle Hunt
Oh, what’s going to happen here? In that case, that is a 20% margin, and that equals a 25% markup. Now, if I am just starting to look at that and I say, hey, you said that you just have kind of a full markup across the board. And you said you have a 33% markup across the board. What is your thought on this gross profit we’re looking at that is going to elicit some reactions. They’re going to say, well, it should be higher. 33% markup should be a 25% margin. What happened now? All of a sudden, we’re looking at these dials and going, yeah, what is going on there? We call that slippage. We’re supposed to have 25% of gross profit margin, and we ended up at 20%.

Kyle Hunt
If I take that 1.5 million and I multiply that by 25% margin, I have, I should have gross profit of $375,000. I have $75,000 of slippage. Where did it go? Logan, you shrugged your shoulders.

Logan Shinholser
Cost of goods sold.

Kyle Hunt
It went into cost of goods sold.

Logan Shinholser
It was bad weather, it was labor issues. It was delays that we had to reorder stuff. Could be a lot of things.

Kyle Hunt
Could be a lot of things. If I have a remodeler who can analyze the gross profit dial and give me thought out opinions and facts related to that, I have a remodeler that, to use my business name, is on the rise. We need to understand our gross profit dial. And that tells us so much of the story. You hit on several things there. Maybe I didn’t plan out the project very well. I waited till the last minute to order materials, and things got delayed. Now I’m making multiple trips back. I didn’t plan out the project management very well, and I made another five trips to the lumberyard that I didn’t need to. That’s eating into my gross profit. I was lazy with my estimate. I do not have a really solid template in place for my estimating.

Kyle Hunt
I missed a some things, and I just flat out forgot to put that line item in there related to the dumpsters. And I ate that thousand dollars that I spent on dumpsters. Slippage, slippage. So that gross profit dial. So we’ve touched on total revenue, just to give you a little taste of that. And then I made people do some math right off the bat and looked at that gross profit dial. That gross profit dial is going to tell us a lot. Do we need to dial this up? Do we need to dial this down? Going back to the. Am I going too fast? Are we good?

Logan Shinholser
No, that’s perfect. Yeah.

Kyle Hunt
So if I look at that gross profit dial, and sometimes I look at that and go, hey, you know, we’ve got a lot of slippage here. What ends up happening is we don’t need to increase our total revenue. Our total revenue is not our biggest problem, our big old hole in the boat, our biggest issue. The thing we need to dial in the most is we need to fix that slippage issue. And that points to a lot of times estimating project management. And where is this slippage coming from? If we can start to identify that is putting us on a good path.

Logan Shinholser
So what I’m hearing here, because I think like the easiest thing for anybody to say is, well, I just got to sell more. I’ll make more money and that’ll solve a lot of the problems. But what you’re talking about is more of like the hard stuff that you have more control over because it’s, you know, as a marketing company, like, you know, it’s easy to say, well, we’ll just do a promotion, we’ll sell more and we’re good to go. But the harder thing is actually fixing the underlying issues, like not actually having a process in place, having poor project management, you know, bad suppliers or vendors, things like that. So when you’re talking about like, turning the dial of this, it’s not necessarily from my perspective, not necessarily that you’re saying like, hey, dial it up or dial it down.

Logan Shinholser
It’s almost like, let’s just get an understanding of what actually is happening here, that we’re having slippage happen. Is that right or am I off on that?

Kyle Hunt
That’s, that’s right. And kind of what we’re talking about here is let’s just get a real read on what this is telling us and then let’s ask some questions, or let’s just see what the facts of the matter are before we even talk about turning up, turning down, keeping it the same, adjusting, etcetera, what are the facts showing us? And if you look at that. So a lot of times when I start working with a remodeling company, I start, especially on financials, I start by just going through the profit and loss statement and step by step, what is it? How is it working? And then go through theirs and say, tell me about this. Hey, your cost of goods sold percentage is here. Your gross profit margin is here. Tell me about that.

Kyle Hunt
Oftentimes we have things down in overhead expenses that should be up in cost of goods sold. Just by going through the profit loss statement, it starts to help us understand where things are at. And then the next thing I usually have remodelers work on is show me one job cost report. Show me what you are expecting your cost of all your materials to be and what the actual was for your in house labor and what the actual was. Show me the cost of all of your trade partners and what the actual was. Well, Kyle, I don’t have a great system for that. That’s fine. Hack it together. Grab a little bit out of quickbooks, grab a little bit out of your payroll. Pull up your estimate. That’s a little clunky.

Kyle Hunt
And let’s just battle to see what the expected versus actual cost and gross profit is. And usually by going through that, alarm bells start to go off. We start to see where the biggest issues are and from there we can start to make adjustments and yes, make adjustments on some of these harder things to fix.

Logan Shinholser
Well, with what you’re saying, I mean, it all, as my wife would say, seems like common sense. So is it more that people are not doing it because they don’t feel like they have the time, they don’t know how to do it? Or is it like, you know, ignorance is bliss? If I never look at the gross profit, I never see that it’s bad. So I’m just going to keep on keeping on.

Kyle Hunt
I see it all across the board. I think for a lot of times it’s like this intimidates me. It is confusing to me. Therefore I’m going to bury my head in the sand like an ostrich and not look at it. Did you know ostriches don’t do that?

Logan Shinholser
Logan, is it emus or is it no one?

Kyle Hunt
No, none of them do.

Logan Shinholser
Oh, really?

Kyle Hunt
It’s a false little quirky thing.

Logan Shinholser
Oh, I didn’t. Oh, I just assumed they all did.

Kyle Hunt
Logan, what did you learn from talking to Kyle today? Not much on the financial side. He didn’t really have much good to say. It was, you know, whatever part of before, you know your numbers, know your numbers.

Logan Shinholser
But I did learn.

Kyle Hunt
Yeah, I did learn about this ostrich thing. So sometimes it is. I just, I know it’s a mess and I don’t want to look at it. I think that’s human nature. When we have an issue in our lives, a lot of times we try to shy away from it because it’s more stressful and more anxious for us to dig into it. So there’s some of that at play. A lot of times by the time somebody reaches out to me, they’ve been listening to my podcast, they’ve heard me talk about these things. There is something that’s happened where they finally say, stinking enough, why am I working so hard? And it’s not adding up and I don’t understand my p and L. And I don’t have my job costing dialed in. And my wife’s ticked at me. I’m ticked at myself.

Kyle Hunt
I can’t give a raise out to this employee that I really need to keep. I need to increase my marketing efforts and hire Logan and his team. I don’t got no money for that. I need to fix this. So sometimes it comes to the point where it’s like last straw. I’m going to dig into it. And what I typically see for somebody that is really murky with their numbers is we start with the fundamentals, we start with the basics. And a light bulb goes off. We start with something else, another light bulb goes off. They start with an else and they fix some estimating. They start to realize where the slippage is coming from. They start to get their profit and loss statement organized. It’s piece by piece.

Kyle Hunt
But you look up after three months, four months, five months of paying attention to this, and your knowledge and understanding of the number side can go from 10% understanding it to 80% really fast. And that all of a sudden can really just help a business go from struggling to getting on the right track pretty quickly. But the common sense aspect. Your wife sounds like a wise woman.

Logan Shinholser
Yeah, if she’s listening to it, for.

Kyle Hunt
Sure, even if she wasn’t listening, she’s super.

Logan Shinholser
She’s very, she’s very smart.

Kyle Hunt
How long you been married?

Logan Shinholser
A little over two years.

Kyle Hunt
Yeah, I’m almost coming up on actually next year’s 20. So don’t hesitate. Don’t ask if she’s listening. The answer is yes. Kyle, she’s wise beyond your ears. I can’t imagine ever being that wise. You want to try it again?

Logan Shinholser
Yeah. Yeah. She’s, she’s super smart. She would never just put her head in the sand on the financial dials.

Kyle Hunt
Bingo. Bingo. But you said she’s. She said common sense. I remember my wife like, it was probably ten years ago. She, for some reason I got home and she’s like, how was your work day? And usually it’s kind of like a. Just a quick question. Yeah, good. But I said, yeah, I was good. And she goes, no, no. Like, what did you do today? And I went through, I met with Josh Nelson, with Nelson Builders, and I met with, you know, Stu with innovative. And I was telling her what I did, and her response to it was, you teach a lot of common sense stuff, don’t you? And I said, yes. But to your other part of your question?

Kyle Hunt
Yes, it’s common sense, but until our eyes are open to it, until we understand it, until we’re nodding our head, it can be very confusing. There’s a lot of people listening that the things they can do with their hands and what they can build and what they can envision going into a kitchen and knock that out, da da, is stuff that I would never in a million years be able to do. And here, as a business owner, you need to build up your skills on the financial side to near that level so that you can be successful. There’s a direct correlation between. I know my numbers. I can tell you what gross profit is. I can tell you how overhead expenses go. I understand the difference between markup and markup Mark margin.

Kyle Hunt
Kyle put a profit and loss statement in front of me, and I can explain it very clearly. And, yes, when I take an owner draw, it comes out of net profit. When I have a remodeler saying that I’m talking to a profitable remodeler, when I have a remodeler that’s confused with it, I already know what their financial situation is. I’ve seen it time and time again. We gotta fight for this knowledge and understanding.

Logan Shinholser
So nobody’s, like, just ignorant about the finances and just skating along at 60% net profit?

Kyle Hunt
No.

Logan Shinholser
Okay.

Kyle Hunt
I’m sure there’s an oddball out there, but it is not the case.

Logan Shinholser
All right, so what is financial dial number three?

Kyle Hunt
Financial dial. So we touched on total revenue. We touched on gross profit. Let me hit on estimating. I would say I’m not an expert when it comes to the estimating side, but I do know enough to advise clients on a few things. When you look at your estimating, I need your materials and your labor to be broken out. If you have your labor and materials tied in together, it is going to be very hard to see, number one, how many in house labor hours we have available on this project and to measure that. So that’s something often when it comes to estimating. Oh, there’s so much software out there where we can create some really nice templates for that kitchen project, for that bathroom project.

Kyle Hunt
And when I have a remodeler who has their estimating templates dialed in, they are forgetting a lot fewer things, and their estimate is so much stronger. Another thing related to estimating is if you aren’t job costing and going back to what we talked about earlier, paying attention to what my expected cost is versus my actual, the best way to become a better estimator is to have solid job costing on the projects that you’re building, you can’t help but become a better estimator. If you can tell me. I quoted 20 hours on demo. It took us 30. I quoted x amount for this and it cost us. And it ended up being that because you will go back and you will fix it the next time. You will fix it the next time. So those are a few things related to the estimating side.

Kyle Hunt
The other thing I say related to estimating is most of my clients do not enjoy estimating. Do you hear that a lot, Logan?

Logan Shinholser
I do.

Kyle Hunt
And what I like to say is, hey, you love estimating. Say it with me, everybody. You love estimating. And I know it’s a drag and I know it’s hard work, but there are few dials and few areas in your remodeling business and contracting business that has more bang for the buck. You have to embrace estimating, embrace templates, embrace details on the estimating side. Oftentimes, it’s kind of like in real estate. I think a lot of people would say, you know, you kind of make your money when you purchase the house, not necessarily when you sell it. You’ve heard that analogy, I think a lot of times on the remali side, you make your money on that estimate and doing it well and doing it correctly and then moving on from there. So that was the third dial was related to estimating.

Logan Shinholser
So when you talk about breaking out labor materials, are you talking about breaking that out to the client and saying, this is where the money is going, or is this just more of an internal?

Kyle Hunt
Internal is what I was referencing there. The biggest thing is need to, I need to be able to know what my expected cost of materials is versus actual. I need to know what my expected in house labor is. That’s a big issue with a lot of remodelers, where they are going over hours. It is eating into our gross profit. There’s a lot of slippage. And what I found is it’s very hard to job cost if I’ve got things bundled up like that.

Logan Shinholser
And when you talk about, speaking of estimating, when you’re talking about all this, are you a big cope fan?

Kyle Hunt
Cost of project execution.

Logan Shinholser
Yes.

Kyle Hunt
It’s a total aside. I am open to it for sure. So, Michael Anshul, for those of you listening, Michael Anshul developed this cost of project execution. Michael and I have done some training on it. We hosted an in person event in Minnesota. We’ve done some online training. So this, again, an aside to what we’re talking about. But what we’re talking about there is being more transparent in our estimating. And what I would say is in today’s day and age and probably going forward, more and more people are wanting to understand where is my money going? The cost of things has gone up so tremendously in the last five, six, seven years. And I have a feeling that when we’re selling in 2030, you can either approach it from a standpoint of, here’s the scope of work, here’s the price. It’s $172,252.

Kyle Hunt
Take it or leave it. And people will continue to sell that way and sell well that way. And there’s another approach that comes with a much more transparent approach for the client, kind of you being on the same side as them. And by the way, when you’re implementing this, you can still have just as healthy margins. I would argue Michael has very healthy margins on his projects with this approach.

Logan Shinholser
So because I remember when went through our bathroom remodel, essentially, my wife, like, found some of the shades online, and then when they came back with, like, the portion of, like, the shade installation, you know, just, you know, they just took it, they just doubled it. And that’s what it was. And she was like, well, I can just, for this amount of money, I’ll just buy it. Can they just install it? And I was like, well, it’s not really about that. But it was also. It just, it caused this thing in her head. Yeah. Of just like, well, what else? Like, what does that tile cost and what is it? So it just, like, the whole.

Logan Shinholser
And I remember my dad used to get this back when he was like, you know, doing ponds where, you know, he would charge a certain amount to install a new pump. Well, they could go on Amazon to find that exact same pump for a fraction of what he was selling it for. And his whole thing was like, look, mine comes with a warranty, something goes wrong with it. Like, if you want, I can install yours for you. I still got to charge you for the labor of it. But if something goes wrong, that’s now, you know, something you’re going to have to deal with on your own. So that was kind of his out to it.

Logan Shinholser
But, like, the more that we go through it and the more that, because I’ve watched, you know, webinar between you and Michael going through it, to me, it makes a lot of sense. Cause it just, like, puts it out there and makes it a little bit more like, hey, you and I are together on this from a, you know, we’re on the same team, and the bad guy is the amount of money that it costs for these materials. God, I wish this tile was free, but it just isn’t, you know? So, yeah. All right, cool.

Kyle Hunt
So if you go to costofprojectexecution.com comma, you can click on some interviews I’ve done with Michael related to that. And I think my biggest thing that I would say, anybody listening is if you are all about putting one fixed price at the bottom. Mazel tov.

Logan Shinholser
Cool.

Kyle Hunt
Rock and roll. At the same time, you’re out there selling in a very competitive marketplace, and you’re out there selling and putting numbers in front of people that six years ago you would have laughed at. You would have never dreamed of selling a kitchen project for what you’re selling it now. Times are tricky. Times are changing. So even if you don’t want to embrace a more transparent approach, go understand it. Go dig into it. Go be a student of it. Don’t just immediately say, nope, not for me. Transparency sucks. End of discussion. Be a student of it. Find some aspects of it that you may incorporate into what you do. I think we need more of that. Just in society in general, that’s not the way I do it. Therefore, it’s bad. No, no, no. Go learn from it.

Kyle Hunt
Be a student of it, and then have an opinion of it.

Logan Shinholser
Cool.

Kyle Hunt
Love it.

Logan Shinholser
All right, let’s get back to Kyle’s financial dials. So we’ve gone through estimating what is dial number four?

Kyle Hunt
So we got, we did total revenue. We got some gross profit. We got some estimating. The fourth dial here is overhead. Overhead expenses. When we look at our p and l, we’ve got our revenue minus cost. Goods sold equals gross profit. And then we’ve got our overhead expenses. Ooh, we even got hearts. If you’re watching the video down below is overhead expenses. If you are a business owner listening to this, you may have to look it up, but you should be able to tell me, Kyle Logan here in the year 2024, I am going to spend $372,000 on overhead expenses. And yes, that includes a reasonable owner salary for me in there of $75,000.

Kyle Hunt
If you can tell me that I’m talking to somebody who actually has created a business budget, who has gone line by line through their overhead expenses and said, hey, this is what we did last year. I’m going to spend $4,000 more under this line item. I’m going to spend $2,000 less here. I’m going to spend $8,000 more here. And you have studied your overhead expenses and you know them. Clearly, this does not, this is the biggest area of your numbers that shouldn’t be super murky. These are pretty reliable numbers based on where you’re at in your business and where you’re going this year. So I would encourage that dial.

Kyle Hunt
When we see that and we consider what our total revenue is telling us, when we consider what our gross profit is telling us when we look at this overhead dial, it may be time to dial it up. And Logan’s like, tell them to invest in marketing.

Logan Shinholser
Use the m word.

Kyle Hunt
Use the marketing. You might need to dial this up and start investing in marketing. I, as a coach, having hundreds of conversations this year. I am talking about marketing more in 2024, in the first four months of 2024 than I was all of the previous year. Marketing, marketing. Leads are starting to slow down a bit. We’re not panicking. But you may look at your overhead and say, I need to dial up my marketing, my advertising by 25,000 this year. You need to know what that is. You need to know how you’re going to do that. You may look at it and go, it’s time that I dial back. Maybe there’s somebody that is an overhead expense in your company that you may need to cut back on.

Kyle Hunt
Maybe there is a stupid storage unit that you have that you’re dropping $250 a month on, and you go, you know what? That’s $3,000 a year. We could live without that. When you’re in tune with where your overhead expenses are and how it’s planned, playing into your overall numbers, you might adjust it down, you might keep it the same, you might adjust it up. But wise business owners are paying attention to that dial.

Logan Shinholser
And then when you’re looking at, let’s say, how do job costs and stuff, are you factoring your overhead into it, or are you more along the lines of, look primarily at just cost of goods sold, as what I’m going to actually estimate this job at job costing.

Kyle Hunt
Is simply looking at revenue minus cost of goods sold equals gross profit has nothing to do with overhead. When I’m, when I’m analyzing, it gets real confusing when you look at a specific project and say, well, this produced a 33% gross profit margin and x amount net profit. Whoa, whoa. What do you, what are you talking about? Those are totally separate things. So job costing is specifically revenue minus cost. Goods sold, gross profit.

Logan Shinholser
Perfect. Okay, cool. So we got overhead. And sometimes because I see this a lot from my side sometimes when it comes to the overhead, like those are like the tougher decisions to make because it’s easy to cut out, like a cell phone bill, but it’s harder to cut out that, I don’t know that extra office admin or that PM that’s been with you for a while but no longer actually helps bring money in the door in a tough situation. So when somebody’s looking at overhead, what are some of the more common things that are really hurting their bottom line from an overhead perspective?

Kyle Hunt
Oftentimes, I would say, I mean, there’s certain, you know, I’m a fairly conservative business owner from a standpoint of I didn’t, I wasn’t two years in the business and going, all right, it’s time for me to add to my overhead expense. I was quite safe with it, partly because I had a stay at home wife and we had two young kids, and I was playing it fairly safe. There’s other business owners that are quite aggressive with their overhead. One of my clients over the years, I’m going, buddy, are you sure you want to add that designer now? Like you are rolling the dice a little bit here? Yeah, no, it’s going to be fine. It’s going to be good. Yeah, but look at your cash balance in the bank. We haven’t really saved for this and proven that it’s coming.

Kyle Hunt
Yeah, it’s going to be all right. You know, making business decisions in a much more aggressive way. So I find that, you know, I have to, when I coach, I have to make sure that I’m not just putting maybe a little bit more conservative view of investing in overhead versus what some other people are comfortable with overhead expenses. I don’t usually see a line item in overhead expenses that’s really causing things to go wonky and to go poorly. The biggest issue that happens with overhead is if I’m projecting, let’s say, one and a half million dollars of revenue, and I have a goal of a 30% gross profit margin. That means I’m going to produce off that one and a half million dollars of revenue, $450,000 of gross profit.

Kyle Hunt
And that pays for my overhead expenses, let’s say, of 300,000 if my sales are down, or instead of having that 30% gross profit margin, I’ve got all kinds of slippage and it’s turning in very quickly to 24% or 25%. Now, all of a sudden, my overhead expenses become a much bigger thing. So I usually see when we start to see trends or things aren’t as rosy as I thought, or revenue isn’t coming in, or gross profit margin isn’t as high as we want. Living through 2008, 2009, living through bumps in the road over the last decade and a half, frankly, a lot of people listening to this have not tasted a real slowdown. And realizing that, you know what?

Kyle Hunt
I may need to look at the signs and be a little more proactive and make some of those hard decisions of knocking back my overhead expense. And by knocking down my overhead expenses, it makes it easier to produce the gross profit dollars that you need while still kicking out a good net profit at the bottom.

Logan Shinholser
Cool. Love it. So that’s overhead. What is Dao number five?

Kyle Hunt
Dial number five is owner salary. Owner salary. I tossed this one in there partially because it can get a little confusing, and I’ll try not to confuse it too much here. A lot of people, when they’re just starting out, they are taking their pay as an owner. Usually as an owner draw. An owner draw comes out of net profit. As you start to build your business a bit, as you start to get off the tools, let’s say that’s your situation, and you start to work more in the office, oftentimes you will start to say, all right, I have a $50,000 owner salary. I actually write myself a paycheck each month, and I’m taking an owner’s salary. And then I’m also taking some owner draw to compensate me for the. For the rest of it.

Kyle Hunt
Oftentimes when we get into that $100,000 of total owner compensation, a lot of times we’ll break it out into a salary and an owner draw. We will convert ourselves over to an s corp because there’s some tax benefits, kind of just planting some seeds, not trying to go too into the weeds. So owner salary is something that I like people to pay attention to, and we’ll call it owner salary plus just overall owner compensation. What are you taking as an owner salary, and what are you able to take as an owner draw? How do you feel about that?

Kyle Hunt
When we put together our business budget, we kind of have that in there, and we see how the numbers all play together and make sure that there’s still plenty of dollars in there to cover our overhead, to cover the owner’s salary, and to cover a healthy additional owner draw.

Logan Shinholser
How does somebody balance, like, kind of going back to the beginning, what were talking about with, like, the whole, you know, if you got that ten grand in the bank and it goes towards estimated taxes to not touch it. When you talk to clients about balancing, hey, you’ve got some extra money in there, you can pull it out for yourself as an owner’s draw versus, hey, you got some money in there. Let’s actually put it towards something, you know, whether it’s investing into a new team member, marketing, other overhead expenses. I guess from an emotional standpoint, how do you navigate that with clients?

Kyle Hunt
I do my best work on that when I’m really working one one with clients where I really understand their situation. I’ve had examples over the years where we have been fighting to build up a good cash balance in our bank account. If you’re doing a million dollars revenue, I want $100,000 in the bank, free and clear. 2,200,000 free and clear. 3,300,000 free and clear. And I have examples of clients who finally kind of gotten there, and then I see them drive up in their little $75,000 truck and I go, bud, we’ve got to think a little longer term here. So there’s always going to be tension and balance between taking what you need to support your family as a business owner and also investing in your business.

Kyle Hunt
So getting clear with what we need to be bringing home for the family budget and your goals related to that, and hopefully funding all of that. And still, in addition to that, being able to build up our savings and our retained earnings, if you will. Starting to think through, hey, next year, I really would like to purchase fill in the blank, hey, starting next year, I do want to add that selections coordinator, and that’s going to cost me $60,000.02 years from now. I want to actually get out of this rented space and get into fill in the blank space.

Kyle Hunt
It’s really just when you start to understand your numbers, and I love the idea of tucking money away into little accounts that are earmarked, future building purchase or future employee hiring or yes, to the profit first standpoint, some of these other buckets of anticipated taxes, etcetera. So there’s always going to be tension. There’s going to be tension when you’re making $80,000 as an owner in this. There’s going to be tension when you’re making 100 and 5300. There’s always going to be tension there. And frankly, we have to have kind of the full financial picture in mind. And sometimes, frankly, to be really patient and kick some things down the road that you might like to say, I want to take $50,000 more out of the business. You may need to say not right now. I’m going to take ten more out.

Kyle Hunt
I’m going to leave the rest of this to strengthen the business side and the future investments in it.

Logan Shinholser
So would you say from that standpoint, is the issue mostly that people are taking out too much money? Because I know, like, in my case, it got to the point where, like, I mean, I, the, I just had, like, I’m s corp. I just did my w two and that’s all I would take out. My wife was like, look, you got to do more than, like, I, you know, because it’s a two income household because we both work. But she’s like, you got to, like, do some more. And that was one of the best things for me was to put just like, an auto withdrawal from the business account to the personal account, which then auto withdraws out, like, my estimated taxes.

Logan Shinholser
So it’s just like having that, it allowed me to, like, kind of be smarter with money as well, versus like, oh, we’ve got that money. Instead of pulling it out and actually putting it towards personal stuff, I can reinvest it back into a new camera or things like that. So do you, am I in, like, the minority that I’m, like, leaving everything in the business and most of your clients are all just pulling out too much if that’s like a wrong dial or is it kind of common where people just leave everything in the business and at some point you got to be like, look, you earned this. Take some of that out?

Kyle Hunt
I would say it’s usually people are drawn a little bit more than, I mean, you’ve earned it’s your money. But at the same time, if we’re talking one side of our mouth of going, I really want to invest more in marketing, advertising, I really want to have more security by having more dollars over here just so that we’re not kind of chasing payments down. And then on the other side, like, I just took $30,000 out so I could buy a new four wheeler. I just took x amount out. There’s, again, there’s always going to be that. That balance of that. I want my clients to take healthy owner draws, but we do it in a way that the business is also not kind of getting stifled as a result of that. Sure.

Logan Shinholser
Love it. Okay, so that is owners draw owners salary. What is the 6th and final financial dial?

Kyle Hunt
Financial dial that we selected here? And there’s a lot of different dials we could choose, but the 6th one is related to net profit. Net profit. What I have found is that 2% net profit is no fun. Call it breakeven, call it rounding errors. We have worked so hard to generate the work, to sell the work, to produce the work, to fund the payroll, to do all of these things. And then down there at the bottom is kind of a piddly number. For those of you listening. 8% net profit. 8% net profit. And then going up from there, that is our goal. Going up from there. 8% is great. 12% is even better. 13% is even better. 15% is even better.

Kyle Hunt
But to really draw a line in the sand of go, man, if I’m going to take the risk, if I’m going to do all this stuff, I need to design my business budget and design my financials around a solid 8% net profit, which will leave me the ability to take some additional owner draw to invest in this, to invest in that, to build up my safety net that I have. That’s my biggest thing on the net profit side, is one. Again, can you tell me what your net profit actually has been? Do you have a goal for your net profit? Do you have a budget that is built around producing a healthy net profit at the bottom? This is definitely one that what gets measured, gets improved, and wants you guys to have goals related to that one.

Logan Shinholser
What is the industry average for net profit?

Kyle Hunt
You know, you got the. Well, you know, 42% of all statistics are made up, Logan.

Logan Shinholser
Yeah. So if you had to make up one right now.

Kyle Hunt
Well, if you look at the NIHB related studies, and then it’s like, well, but that was commercial. That was this. Wait, does that include owner draw? I think when I’ve looked at it in the past, it’s piddly. It’s piddly. But I think you could look at a bunch of different studies related to that. But overall, a healthy remodeling business, a healthy contracting business, after paying all of their overhead expenses, after compensating their owner solidly, we need that to be 8% and going up from there.

Logan Shinholser
So now that we have all six of these dials, how do you then approach it? So, now we know what each one actually is, and we talk about the idea of dialing it. But I can imagine you’re typically not just dialing one individual thing up or down. It’s a combination of, you know, increase this, reduce that, I guess. How do you approach it now that you know what these dials are?

Kyle Hunt
Yeah, you know, you look at. All right, what is our current situation and what are the biggest issues we’re having. That’s going to be one of the first things we look at. Sometimes we are not charging enough, and we have a pricing issue. We need to increase our pricing, which is going to help increase our gross profit margin. Sometimes we are pricing things beautifully. We’ve got a good, healthy margin that we’re selling at and markup that we’re selling it at. We’re just not bringing it in. We’ve got way too much slippage. So once we understand the situation, we have got to do a better job of planning our projects out in more detail. We need to have a much stronger pre construction meeting. We need to finalize all of our selections upfront. We need to be having a weekly production meeting.

Kyle Hunt
All of a sudden, that issue fixing that slippage, we’re going to think of, okay, I just gave you four ways that we could start to improve that. You know, hey, our overhead is reasonable. We actually don’t have a lot of slippage. We need to turn up our revenue. We need to add another $500,000 to the top, and if we put it through our machine, another 500,000 there, that is going to take our net profit from 3% up to 8%. Let’s do that. So you can kind of see it depends on the situation. If you lined up ten of my clients, my recommendations of what dials to adjust is different for all of them, and frankly, how much to adjust them is the big thing.

Kyle Hunt
But if I once I understand how to measure them, and I have some systems in place and I’m putting the time and frankly, getting some coaching on how to understand it, and I start to adjust this and adjust that. You look up three months from now and six months from now, nine months from now, two years from then, and things can look dramatically different. That’s the other thing I like to tell clients is like, or even just people that listen to my stuff, there’s hope for this. A lot of people are hopeless when it comes to numbers. Hopeless to understand them or hopeless to improve them. You can do it.

Kyle Hunt
I’ve got people that have gone from I don’t know how to understand a p and l at all to being able to talk to me about the tax approach they’re taking to optimize their gross profit and taxable income and net profit because they become students of the numbers side. You can do it.

Logan Shinholser
How long does all this stuff take to, like, really see a difference? Like, so you start, you know, start working with Kyle. You get your dials dialed in. Is this like a lot of cases. Oh, wow, there’s ten grand just sitting there that we didn’t even realize. Or is this more of like, hey, it’s gonna take some time, but incremental change is gonna be huge for us in the long run.

Kyle Hunt
You’re gonna, you’re gonna see results immediately when you start to make adjustments. Talking to one of my clients in the VIP club, so he’s going through the remodel your profits course that I have, that’s part of the VIP club. And he quickly realized, I’ve got a pricing issue. I’m just flat out not charging enough. And the next job he sold was at about 10% more margin than what he was selling at. He hasn’t fixed anything else yet, but he increased his pricing. And as far as impact goes, he’s going to see it right then and there after that first one. So that’s one of a dozen adjustments he’s going to make. But you can see impact on here very quickly, right when you start to make your first adjustment, it could be job costing related, it could be estimating related.

Kyle Hunt
I’m never going to miss that $200 permit fee or whatever the case might be ever again. I fixed my estimating template. That’s going to save me money on the next one that I do. So it can be very quick.

Logan Shinholser
And when you’re working through all these financials with clients, I mean, most people that are in financial struggles is because they don’t, you know, put their energy and effort towards it. But then you got like, the Dave Ramsey approach that his whole thing is like just whatever has the lowest amount of debt, just pay that off first. It’s from an emotional standpoint, you’re just checking the boxes. When you’re working with clients, how much of this is like behavioral and emotional where you’re like having to almost like, help them shift their identity from, hey, we’re just going to be ignorant towards financials to like, now you’re like, I financial guru and you’re just like, really, you know, you’re taking on the identity of somebody that does these things.

Kyle Hunt
Did you use Dave Ramsey? So we get better in the algorithm when people are using the transcript and stuff?

Logan Shinholser
Yeah, well, because he’s friends with like, Tony Robbins and like, you know, Barack Obama and stuff like that.

Kyle Hunt
So this episode is going to get found all over the place now. You know, I think what one of Dave’s approaches there is more like, yeah, start with some small wins, and then that’s going to build on this, build on this. And I think that usually is the case of I’ve got kind of the confidence meter and the clarity meter. We start to get people more comfortable and clear with what’s going on. Then they make a small adjustment that they feel confident in and they see a result from that. And as you start putting wins together and as you start putting successes together, it does not to use Ramsay’s phrase, but it does snowball. It does snowball a bit. And now all of a sudden, you’re like, what are you talking about? We’re not looking at the job cost report.

Kyle Hunt
Let’s get that thing out of here. What are you talking about? We had $300 of slippage. What are you talking about? We took 22 trips to the lumberyard. I thought were working on that. I thought were improving that. What’s going on here? All of a sudden, these little improvements, I mean, the people listening to this that are struggling their financials, as they listen to all these examples I’m giving, they’re probably nodding their head and I think a lot of this and use Dave Ramsey, a lot of people that finally start to get a hold of their personal finances, they have a moment of enough is enough and remodelers and contractors stop making excuses about, I can’t charge that much. I don’t understand it. I’m too busy to study it. Well, my CPA doesn’t really explain it very well.

Kyle Hunt
You can continue to make excuses across the board, and I will show you what your future is. And it’s not pretty. Once you say enough, I’m going to understand this. I’m going to invest in some training. I’m going to invest in some coaching, and it’s not going to be overnight that I’m going to be a financial guru. But I am going to understand my numbers better this week than I did last week. And if I continue to make incremental improvements, if I continue to kind of start to understand these dials and adjust them, I know that a year from now, things are going to be a lot better. I don’t know exactly what that looks like. I don’t know how it’s going to happen, but I know if I put effort towards it’s going to get better.

Kyle Hunt
So whether you’re at the end of your rope of it and like, I just, I got finally time and you’re smacking the table or you’re kind of like, the warning signs are there, I need to do something about it. Lean into financials.

Logan Shinholser
Cool.

Kyle Hunt
Love it.

Logan Shinholser
Kyle, if somebody wants to lean into financials and connect with you, what’s the best place to do it?

Kyle Hunt
Oh, what a segue. Great segue.

Logan Shinholser
So you teed it up?

Kyle Hunt
It was easy. What can I say? I’ve done a couple hundred podcasts. I know how to teed up. You can go to remodelersontherise.com. One easy way to get started is to take a look at that vip club. There’s a training that’s in there that’s step by step. It’s about 3 hours of training called remodel your profits. And it really just is a wonderful overview of my training on this. I do some one one coaching. I do some peer groups. But if you go to remodelersontherize.com, reach out if you want, just through the contact us form logan mentioned earlier a free Facebook group I have. If you go to remodelers community.com, you can request to join that. And then I’ve done a few hundred podcast episodes so you can look me up at Remodelers on the Rise.

Logan Shinholser
Cool. Kyle, you make it easy to find you. So I appreciate you coming on here, guys. If you want to get your stuff dialed in, call Kyle. Cool. All right, everyone, thank you so much. We’ll see you next time. That was awesome. I think for me, the biggest takeaway was the fact that I know we all in business just think that the easiest way to make more money is just to grow top line revenue. But the fact that there’s all these other different ways to go about making sure we’re hitting that bottom line that we need to, that was like, fantastic. So there’s not a one size fits all. It’s figuring out what levers and dows we got to really finagle to make the perfect combination for our own company. If you want to connect with kyle, go to remodelersontherise.com dot, that’s his website.

Logan Shinholser
Learn all about what he’s doing there and we’ll see you on the next podcast in a couple of weeks. Thank you so much for joining us this week on the Contractor Growth Network podcast. This episode of the Contractor Growth Network was hosted by Logan Shinholser and produced by Dane Appleyard. And Logan Shinholser.

Kyle Hunt
Today’s guest was Kyle Hunt.

Logan Shinholser
We look forward to seeing you next time when we talk about simplifying your business systems with Liz Chism.