Business Innovators Radio - Episode 16: Is a Recession Coming? Time to Know Your Numbers With Duane Barney and Abe Degnan

Episode Date: June 7, 2023

Part of the Construction Executives Live SeriesIs a recession looming? Learn insights from industry experts and learn how understanding your financial numbers could prepare and equip you for upcoming challenges.Duane Barney helps Remodeler’s make more money by building a sustainable business model so they can achieve their dreams. Duane has lived and breathed residential construction for more than 30 years. He worked his way up as a carpenter, superintendent, project manager, and President of four separate companies. Along the way, Duane saw first-hand that being a great builder isn’t enough to have a great construction business. He discovered that he is just as passionate about teaching builders how to construct a great business so they can have a great life too.Abe Degnan is president, visionary designer, and leader of Degnan Design Builders. Abe is passionate about leadership, community service, and his family. A proud father of 6 kids, he’d love to share his family’s passion for orphan hosting and adoption! Please read about this on his LinkedIn profile.In getting to know Abe, there is one thing that is undeniable, he is selfless and has a deep desire to take care of his family, clients, staff and the community he serves!In The Zonehttps://businessinnovatorsradio.com/in-the-zone/Source: https://businessinnovatorsradio.com/episode-16-is-a-recession-coming-time-to-know-your-numbers-with-duane-barney-and-abe-degnan

Welcome to In the Zone, brought to you by U.S. Construction Zone, bringing you strategies for success with construction innovators and change makers, including In the Zone peer-nominated national award winners. Here are your host, Jeremy Owens. Well, welcome back to Construct and Executives Live. I am your host, Jeremy Owens. I'm in sunny, fulsome, California, where it is 108 degrees today and 114 yesterday. The West is on fire. but welcome to another episode of Construction Executives Live. A couple of things about U.S. Construction Zone and what we're trying to do. We're trying to not only connect executives on our platform.

We're actually trying to connect you guys all together in educational things like this. So we do a live show, we do podcasts, we do blogs, we do member spotlights. What we're trying to do is just not only connect you guys, but connect you with the right people. And that's what a great network does is I'm meeting all these fantastic, people, including Dwayne coming up here in a second, where I get to meet them and then they get to be on my show and I get just to sit around and have fun with it. So today's topic is we're going to be talking about, is there a recession coming and maybe get some predictions there, but also we're going to talk about knowing your numbers and the importance of knowing our

numbers in case of heading into recession or downturn in the economy. And if you're not familiar with EREMEET, if this is your first time in this platform, on your right side, you will see a little Q&A button over there. That is for questions and answers for us, the speakers. And also you have a little chat function if you guys want to chat amongst yourself during the show as well. So on to the show. I want to start with our first speaker, and that is Dwayne Barney. And what he does is he helps remoders make more money by building a sustainable business model so that they can achieve their dreams. Dwayne has lived and breathed residential construction for more than 30 years. He has worked his way up as a carpenter, superintendent, project manager, and president of four separate companies.

Along the way, Duane saw firsthand that being a great builder isn't enough to have a great construction business. He discovered that he has just as much passion about teaching builders how to construct a great business so that they can have a great life too. And he also has a book coming up. It's called The Business of Construction, A Homeowner's Perspective. Please help me welcome, Duane. Barney, Duane, thank you for being here. Thanks, Jeremy. I'm excited to be here. I love this topic, so it's right up my alley.

All right. Well, let's get right into it. How did you get started in construction? Well, I'd say it's probably like most of us. I have been doing this my entire life. I was building with my grandfather prior to going into college, and then, of course, I got a degree in building construction there, went into commercial, and eventually jumped into residential, thanks to the economic downturn of the 90s.

and I have been in residential ever since doing everything from high end of state homes to residential remodeling to hanging pictures for folks. Whatever was needed done, I've probably done it in the industry. Awesome, awesome. Well, I wanted to get into your prediction here. I mean, we obviously have extremely high inflation. The stock market's a little bit precarious and baller right now. We have interest rates rising.

What is your prediction for maybe the rest of this year and on due to 23 in terms of the construction industry? Well, as far as the economy goes, I really do believe we're headed into a recession. Mainly, I think the government's going to drive us into one because they've got to slow this down. There's nothing right now economically that's saying that it's going to slow down by itself. Things are still hot and the government's going to have to slow it down. They're going to put the brakes on. And when that happens, we're going to go into a recession. They're not going to be able to slow it down softly like they talk about. Right.

For better or for worse, given my age, I've been through a recession. And there is a difference between what we saw in 08 and a recession. Back in the 70s, I got to live through it then. And it looks like I get to do it again. Yay. But I mean, the construction is different, right? I mean, I know you're a lot on the remodeling side, and I am as well. So it does kind of feel different this time to me.

Like it doesn't feel quite as precarious, maybe because it's not, you know, built on that foundation of housing. So maybe that'll feel a little bit better from a construction or remodeler, correct? Yeah, I don't, like I said, it's not 08. 08 was a whole different game. Every one of us have our 08 story, which is always a good topic around any table. Right. But this is a general slowdown. And I think it's a huge opportunity for remodeler.

I think remodels can really take off in this environment because folks are going to, they're going to hesitate getting rid of that 2% mortgage they're sitting on right now and dive into an 8, 9, 10% mortgage. They're like, let's just fix the house up and stay here. So I think there's going to be huge opportunities, full remoders in that whole realm where people aren't going to jump around. They're going to start parking themselves. It's going to slow down the housing market as a whole.

but as an industry, I think it's a huge opportunity. Yeah, well said, well said. Well, as you're kind of preparing your clients for some of this, you know, you kind of said it, you know, you're looking at it more on the opportunity side, which is, I love that. I love that perspective. Is that kind of what you're telling your clients now? Yeah, absolutely.

The big push I say right now is marketing. Now, everybody's saying, you know, things are going to turn down. I got to pinch my pennies. I've got to watch what I'm doing. I say absolutely, you know, start looking at, your balance sheets, see what you don't need. But ramp up the marketing because as everything starts slowing down, the nice thing about the recession is going to be,

it's going to clear out a lot of the guys that don't belong here in the first place. These are guys that are not running good businesses. They're not financially stable. And when things start to slow down and things dry up a bit, they're going to fall off the market. From a marketing standpoint, you need to be out there up front. everybody needs to know your name. So when they start thinking,

yeah, let's fix up that kitchen. Who do we call? They know who to call because you've been marketing. You've been out there. The other advantage to that is as these guys start falling off the radar, they're going to be looking for work. Their carpenters are going to be looking for work.

So part of that labor shortage that we're all feeling right now is going to ease a bit. You want to be in a marketing position where you're like, I'm the game in town. I'm the guy that's staying in business. I've got all the work. If you want a job, you want to be talking to me. Yeah, I mean, well said. Exactly. Exactly. How is the financial piece? So understanding our financial numbers, obviously, this is something that a lot of construction business owners have struggled with because, you know, a low barrier of entry, maybe we didn't, you know, pick that up in college or maybe

we didn't go to college, whatever it may be. You know, how is this piece something that we really struggle with? And why is it so important, especially now? Well, I'd say first all, whether it's now or a booming economy, I love a good accounting system. It is the scorecard of our business. It is the only way that we really definitively know if we're winning or losing. So we need that scorecard. We need a good accounting system. When I say accounting system, I'm not talking about a way to write checks.

I'm talking about a way to collect data, analyze our business. Where's our profitability? And as we're going into a down economy, we will. want to know every bit of that information. We want to break down of our overhead costs so we can see, you know, what are these miscellaneous costs out here? What are these subscriptions I signed up for? Do I really need those anymore? What can I do to get lien? And those reports are going to give us that information. The other thing that accounting will give us, if we're tracking our job costs, we're going to know what work is the most profitable. We're going to know where our strengths are as a business.

Sometimes what we love doing doesn't necessarily mean that's what we make the most money in. We could love doing basements. We may find out, I don't know why. Every time I do a kitchen, it's a home run. Our crews just slam those things out. I make money on those. Why is that important? Go back to marketing.

You're going to be marketing your business out there. And you want to be known in your town, in your county, in your state, depending on how big you are. you want to be marketing to your strengths. You want to be marketing to where you can make the most money. So if you know you are like slamming it on kitchens, then market kitchens. You are like the kitchen guy. And that's where you can take that information, use it to your benefit, and then hit the market running. So you know what you're marketing.

And then you know what you're selling. Yeah. I mean, it's so true. I mean, I think it's a lot of us, I like the number. So I've taken that ownership for my business. But a lot of people don't. If you don't like the numbers, you don't want to strategize, I like all that stuff. Because like you said, then you really start to understand where your business is profitable

and where it's not. And the right kind of customers, the wrong kind of customers, all of that stuff comes into play. But if you are not that person and you don't have that person on your team, do you, is it hire a person? Like, what do you do? Because I think that's a big challenge for a lot of people. Well, the nice thing is. And it's still a bit complicated, but I'm a big fan of QuickBooks.

It's relatively easy to set up. And they've got a project process inside there. It's not a process. It's a link in there where you can track the profitability on each job. Okay. So you can set up your job in there. And then when the bill comes in, you just tag, this is for carpentry on the Smith job. The system then takes it from there.

You get a check in from the Smiths. You say this is a deposit towards a Smith job. You begin to see where, how your projects are doing. And it gives you a very simple graph. I mean, it's a green bar and says your profitability on this job is X. So QuickBooks has done, taking some steps here to make it fairly simple to begin tracking this. You don't need a bookkeeper, a degree in accounting to really get going on it. It may take up more of your time.

I recommend a remote bookkeeper. I love remote bookkeeping. Mine's in Arizona. So, you know, you can do this anywhere in the country. And they'll do the data entry for you. And you can start looking at the reports and knowing once a week, you can jump in there and go, why are we not making any money on the Smith job? What do we need to be doing right now?

Well, it's still going on and take proactive action. You don't want to find this out in December. You get to the year end and go, yeah, Smith's job was a bad job. There's nothing you can do about it at that point. That ship has sailed. You lost your money. You can't actively manage the project, your business, or your money. It's always the Smith that screwed up.

Unbelievable. Now, the other thing that I hear a lot and get a lot of questions, and I know we have a lot of different sectors in construction, but the gross margin piece. I mean, this is a million dollar question. I think this is where a lot of people struggle. If you're not doing what you're talking about, I use online, I use QuickBooks online,

and we also have a job jacket, you know, it's one right in front of me, where we have all of the job information on and we have all the profit and loss in the back. So we have kind of like a double system. But if you don't know how you're doing on every job, then you're not going to know where your margins are anyway.

So you really have to start with step one. Step two, where, what margin should we be at? Well, the margin question seems to be a big question, and it's so important to really understand in your business. The average remodeler, the rule of thumb I use is that the overhead cost to run your business is going to be 20%. That's going to include your salary as the owner and all of the overhead costs to run that business. So if that's 20%, and you want to make 10% as a company, and I allow 3%, because it's, it's construction and no job ever goes perfect, your margin wants to be 33% at a minimum. Yeah.

Because pretty much anything below that, you're losing money. Right. Now, to get to 33%, that means that you've got to take the cost of your work and mark it up at a minimum of 50%. And that goes back to the old school rule of thirds, a third for labor, a third for material, and a third for me. Yeah. But that third is 50% markup on labor and material. And that's your bare minimum.

Yeah. To really have some breathing room, to really get some money going where you can grow, you need to be working those margins up. And I say, just tweak them. If you're nervous getting to 50%, work your way up there. Get yourself to 50%. And then when you get there, if you're still getting work, try 51. See what happens.

Yeah. That works. Drive 52. Yeah. You had a great blog post about this on your site. I'd actually just throwed it in the chat. And you talked about that. Like,

what is it about our industry that makes us so worried about having a fair markup? You know, there's something about a lot of us. Maybe it's because we don't have a ton of business experience or business sense necessarily. But like, you know, anything you get. Like, I think in your blog, you had it, you know, go get a green salad at a restaurant.

that's like one of the most crazy markups in the history of markups. You know, so, but why are we afraid to make something fair? Like, it's just, it's, it's always wild to me. But I think it's hard because when you compete with others, you're like, you compete with others that don't even know their break-even point. So they're playing in those 20%. So they're just going job to job to job. But it's just a mentality.

And we got to, we got to switch that. Right, right. And I think even at the 20%, The guys are doing the 20%. It seems like a lot of money. If you know, if you take, you know, you've got a $100,000 job, you think, I'm going to throw $20,000 on top. I got to tell the client, you know, it's 120. You're like, ooh, I couldn't go above that. I surely couldn't tell them it's 150. Right. It feels like a lot of money. And that's where understanding your numbers is so important. What does it cost you to run your business? You deserve a salary. You're not there to work for

free. You're in this to earn a good living. It's a lot of work and you deserve to earn a good living. And when you understand your numbers, then you begin to understand that 50% markup is not a lot of money. It's what it's taking just to run the business. I talk about a 10% profit. You also have to remember, the government's going to take a third of that. You know, so you're down to 7% that you're going to use to pay bonuses to grow your company, to buy new equipment, whatever you need to do. You've got 7% of your gross annual sales to do anything as far as growing your business. That's why I say it's your minimum. That's your working capital. We look at it as a global number and it feels like a lot of money. It is a lot of money. Running a business costs a lot of

money. Yes. Yeah. I mean, and so what are you finding is an average for for the end of the year net profit? I mean, like you said, you're already down seven, but then you have other stuff by the end of the year. I mean, are you seeing three, four, five? Like what do you, what do you think? It's probably in the three, four, five range. I say target for 10 and above. I mean, it's really what you want to go through. It's this is, you know, this is a challenging business. Every job is custom. nothing is ever the same. We're not running an assembly line where it's just punching down,

little bags are filled and they go out the door. Everything is a challenge and there's a potential every single day for something to go wrong. We all know it. So that's why I say shoot for overtime, but you want to be trying to nail that. You're going to need that buffer on certain jobs.

Yeah. And you shouldn't be paying out of your pocket to fix your client's home. That is not the objective here. Yeah, that is so, it's so true. And especially with the supply and labor issues we had during COVID, like, everyone was like, oh, my gosh, you guys, great. You're so busy. I'm like, yeah, but it's not a fun busy at all.

It's like you're a fireman without a hose. You can't find things that they're, you know, they're lost in shipping, your back orders. So, yeah, we were definitely losing margin at a rapid rate because we didn't hit our homeowners up and say, hey, look, OSB went up this week. you owe us another $2,500. It was just like, no, we got to eat it, keep our guys busy, move on. So it was, like, if you don't have that buffer in, then I think a lot of people during COVID lost money, and even though they were crazy busy.

Crazy, busy, and still did not, you know, didn't accelerate on the numbers at all. Because you're right. And trying to go back to the clients on those, you know, I always recommended the escalation clause. It's complicated. It's a lot of work to present. the escalation clause of the client,

you pretty much have to open up your books. Right. You know, and then they're going to want to ask you about that 50% markup that you've got buried in there. They're like, well, what's that? You're like, just don't, don't look behind the curtain. We're just looking at two by fours right now.

So it does get complicated to try to do the escalation clauses. And I always, I recommended, I said, I don't really care what's in your contract. Go talk to your clients. Yeah. If it's a problem, go talk to them. didn't see this coming and there's no reason you have to mortgage your house to pay for theirs. Right. Yeah.

Talk to them. Yeah. Be an open book. Yeah, you're right about that. So tell me a little bit more about business blueprint, your business. How do you go to market? What do you do for your clients? So as you said in the beginning, I have been in this industry my entire career. And one of the, one of the points I have seen in the industry as a whole is I have yet to meet a remodel. or a builder out there that does not have fantastic building skills. I mean, guys can build their way out of a paper bag, take a pilot two by four to turn into a mansion. The challenge is the business side of the business.

We don't teach these skills in school, and a lot of small businesses stumble on this point, and it happens to be something that I really enjoy. I like the business side of the industry. So that's what I endeavor to do, is to work with builders and remodels to help them on those points. bottom line, I'm an operations guy. I love good systems. I like setting up those systems. So the business owner doesn't have to touch every piece of the business every single day.

Other things can happen around them and they can manage their business through QuickBooks or through co-construct builder trend. They can read reports and check in on their business and make sure it's functioning. and I help builders and remoders get those systems and processes in place. Awesome, awesome. So tell me a little bit about your book. What made you kind of write it, what inspired you, and when's it coming out? Well, I started writing the book. I was inspired.

I've also done some work with attorneys as an expert witness. And I ran into a client. They were school teachers who started this home renovation project. and almost everything that could go wrong did go wrong on this house. The builder ran off. He's in Vermont someplace. The bank overspent the construction draws. The builder's original estimate was completely off.

The architect was not an architect. Like, you name it with these poor folks, everything went wrong. So I hated the story, but I love the story because there were so many lessons in this one event. And that's what I wrote the book about of what happened to these poor folks, what they could have done differently and what you should do as a homeowner if you're endeavoring into these projects to make sure your project goes right. And the main crux of the story is you can't just hire an architect and a builder,

step back as the homeowner and go, okay, go do your thing. Right. It's a three-legged stool. the homeowner needs to treat it like a small business, and they're hiring a design team and a construction team, and they are the managers. And I've seen this a lot on job sites. The owner will come out and go, you know,

well, just go build something. They're like, build or go, well, what do you want me to build? They're like, you know, you know what to build. They're like, I'll build you anything. I can literally build you anything. I just need to know what you want. Right, right. And there's a gap there in that community.

communication process. The homeowners step back and let everybody manage their lives for them with no understanding of what's going on around them. They're the cash component. They need to be managing this process through these people, not hands off and relying on everybody to just do this for them. That's when projects go wrong. And that's where builders get frustrated, architects get frustrated. there's just a gap in the whole management process. Yeah. And on this, you've been on this coach consultant side for a while now.

What are you seeing are the most common challenges that construction owners face? Well, obviously right now, the labor, I hear labor, labor, labor, labor, labor, and labor all the time. What about labor? So that's a common thing. And really, that came out of 2008. 08 crashed the industry. Yeah. And nobody came up through the industry.

for 10 years. And now we're feeling it. There's just a huge gap in there. We as builders and remoders are going to have to find a way to set up our own training programs and we're going to have to teach the industry all over again. It's just going to be. And that may mean that we need to get involved in the local high schools, trade schools, whatever it takes to build enthusiasm for the industry and plan on training them.

It's just what's going to happen. Yeah. I'm sure it's a long game though, right? This isn't something that's going to be. It's a long game. It's a long game. You're going to need some of the old players, like myself, to be out training the guys in the field so they can watch the projects. And eventually, guys like me are going to want to retire. We're not going to put that belt on every single day. So we need to accelerate the training as fast as we can because the guys that know how to do it are soon to retire themselves. Yeah. And if we don't do this, we're going to have a gap in the industry.

Yeah. That's the biggest global business issue I see on a specific issue, as you said at the beginning, it's accounting. It's not tracking your numbers, tracking your business, and really running your business as an executive, knowing your numbers, you know, and doing that boring stuff, sitting there reading reports, analyzing your business and making tough business decisions to move the company forward. Yeah. Yeah, I mean, it's quite a pitch for what you do because it's like, you know, we don't have all the time in the world, obviously. We're always so constrained with time. And if it's not your natural bend, it's so much better to hire. I mean, just like you said, you know, the virtual bookkeeping, you can have virtual almost everything now, which is a great advantage.

You know, why not start to take advantage of that? All of these people pay for themselves, tenfold, yourself, accounting, all of these things. we can't do it all. And I think that the part of the construction is we think we can't because we're used to being a fixer. We're used to now I got this. We're control freaks by nature. So like to give your keys to anybody else is like it's scary. And I get it. I'm the same way. But I mean, I also know the value of somebody who's been in a space their entire life. And I don't have the time to get there. So just, you know, know what you're good at, I guess. Right. Well, and that comes down to the systems, too. The systems are all part of one, having a process and getting things done, but it's also having a way to trust and verify. You need to trust your people to do their jobs. You set out the agenda. You set out the objectives. You know what's expected by the end of the week. Your job as the owner is to verify that stuff gets done. Not micromanage and hover over them, but let the process flow and verify things are being completed the way you want them to be complete. Be complete.

And if they're not, go tweak the system. Right, right. So the outcome is what you want. And that's the whole objective in setting up systems and processes. It's not, you know, you're like, well, I'm not a big company. I'm not a big corporate. I don't need all this garbage. Eventually, you have to have the garbage.

You know, what I call the unseen work, the really boring stuff, because that's how you grow. Right. You can't do it all yourself. And if you try to do it all yourself, you'll do everything. kind of good not even not even sort of good because you don't want to do it

you're doing it at nine o'clock at night you're tired and it's not going to be done well it just isn't yeah yeah from that standpoint it's no way to run a business yeah I mean you talked about all these tools I mean QuickBooks QuickBooks is one of them but what other

things have you found to be user friendly good for remoders and construction executives what are some tools out there that you've liked? Well, I love a good scheduling program. Again, a lot of them are complicated. I've used Microsoft Excel for my

scheduling for years. Powerful, powerful program. Us as builders and remoders, we probably use 1% of its capabilities, which is fine, because that's probably all we need. I think they could go to the moon with that thing. We're not, we're just building houses. So that's powerful.

Any one of the project, management systems, the builder 10, co-construct, just lost the good third one. They're all good at helping us build a structure around the operation of our business, getting out subcontracts, managing our numbers, controlling the flow of information on our jobs. Those are all good. But you have to, again, have a process to run your business. You can't just keep buying programs and thinking it's going to solve your problem. The program is a tool to help you run your business.

You need to know up front what that means. This is how I do change orders. And I'm going to use this tool to help me do that. Right. If you just buy the tool, you won't learn it. You'll say it's a piece of crap and a waste of time and ultimately a waste of money. because you don't have an overall encompassing process of this is the way I do business. These are tools to use to assist you.

Right. I mean, it's the whole system approach. And I think that it sometimes takes that other set of eyeballs to go through and find out where you're missing. But yeah, if you don't have a system in place and it doesn't really matter what technology you add to your business if you don't have a system in place to run it. And I think that's the challenge right now we're having with technology is that there's a lot coming out of us. And on paper, when you look at the visuals, you're like, that looks sweet. And then you can buy it. And then you go, crap, who's going to do that again?

Yeah, you find out there's like, you know, three weeks of setup. Just you can't turn the switch on. You know, it's like a car. You just get it in and go. You know, it's a two be assembled kind of thing. You know, the same thing is true with QuickBooks, built. or trend that, you know, there's data that needs to be entered. There's vendor list that needs to be entered. Things have to be integrated together for it to really function and do,

to give you any kind of output. Right. Right. But to get to that output, you need to know how you're running your business. Like what output do I want? What am I trying to get to? And if you don't understand that whole workflow and what you're trying to do, you get frustrated. You throw it aside. you're like, you know, I've been doing it the old way for years. It's worked and you go back to the way you were doing it. Yeah, no doubt. Well, I appreciate you being here, Dwayne. Are you on LinkedIn quite a bit?

How do people get in touch with it? I am on LinkedIn constantly. Okay. Just ask my wife. It's an obsession. But that's my social media tool of choice is LinkedIn. I am pretty much no place else. Okay.

But I post on there daily tips and tricks for contractors, insights, and plenty of other good stuff. I got a YouTube channel if you want to check that out as well. But the new fresh content is coming out on LinkedIn daily. Okay. Awesome. Thank you so much for being here, Dwayne. I look forward to stay in touch with you. Okay.

This was great fun. Thanks, Jeremy. Thank you. All right. On to our next speaker here. We have another great guest, Abe Degnan, is president, visionary desire and leader of Degnan Design Builders. Abe is passionate about leadership,

community service, and his family. He is a proud father of six kids. He'd love to share his family's passion for orphan hosting and adoption. Please read more about this on his LinkedIn profile. If you have any interest in this, he could definitely pull you in the right direction. In getting to know

Abe a little bit, there's one thing that is undeniable. He is selfless and very much a deep desire to take care of his family, clients, staff and the community he serves. So please help me welcome Abe Degnan. Abe, thank you so much for being here. Hey, Jeremy, thanks.

Yeah, I know you had some challenges this morning. You have a couple of kids getting wisdom teeth pulled right now, so how are? Yes, yes. So far, so good. My wife said that it went very quick and I haven't heard from it again. So she's doing fine. The girls are doing fine. Cool.

Well, hopefully she got some good videos because that's always a good time. Right, it sure could be. Well, thank you so much. Tell me a little bit about your upbringing in construction. Well, I'm a second generation owner. My father went into business on his own when I was five years old, so I kind of grew up doing it. And after I went to college for architecture, wasn't necessarily intending on coming into the residential industry. and but by the time I finished college, I realized that there was good money to be in doing the

construction part of it and that I still would get to do the design. And I frankly, I didn't want to spend another couple of years in college for a master's degree and go through any low-paid internship. It was just time for me to get to life and start making money. So I joined up with my father and became co-owner and eventually took over. Awesome. a lot like me. I'm third in the industry as well. So a lot of similarities there. So cool. So about kind of that economy piece that we talked to, Dwayne, about, you know, what are your,

what are your predictions on the rest of this year and on to next? Well, I definitely think that there's going to be challenges in the national economy. The question is, how is that going to affect the building industry? And, you know, there's several different things that I would look at personally. Number one, we know that in a lot of parts of the country there is still a housing shortage. There was a retraction in the number of homes and condos and apartments being built during the last housing recession. We've never recovered from it. So there are still people who need homes. And so the question is going to be with rising interest rates, who can afford them and how. Now, that's a little bit different, though, than what I see in the remodeling industry.

In the remodeling industry, Dwayne talked about people holding their homes, holding onto that low interest rate and things like that. Now, I don't know about you, Jeremy, but a lot of my clients in the design build realm, whether they're doing a $100,000 project or a $500,000 project, they're not worried about interest rates because they're writing a check. They got the money already, right? Right. Yeah, for sure. So those people are still going to be there. And they're going to be the ones, they're going to be your buyers because they're going to be a. able and willing to do that.

And then, you know, in the last housing recession, what I learned was versatility because even when our company contracted just to three people, we all had our wages and salaries. There was no profit to be had, but it covered all of us because we were versatile in the type of work that we did and we sold still we held our margin it was just that it was just that our overhead went up because our revenue wasn't there and and so you know the profit got eaten up by the overhead but we survived and and we and we were ready because we were still putting money into marketing which is another thing jane just talked about yeah so are you you know thinking about this downturn what are you doing as a team as a staff to prepare for

for it. Well, we are, we've been building backlog. And so part of it is that we've been building backlog over the last two years as COVID has changed the supply chain and changed how much backlog we've had. So having a strong backlog of people ready to go six months from now and entering the design process for nine to 12 months from now is a really important thing to do and getting them committed to you through a signed design agreement and through their investment in the design process with my company, right? Right. But we're also making sure that, you know, we run a relatively lean and mean company.

You know, the overhead type of numbers that Dwayne shared as Target were not too far off from that. Right. But the fact is we charge to make a profit. We charge our customers because we intend to make a profit. We share that with our employees. And we make sure that people are delighted and that we're able to say, yes, if a customer says, just not quite happy with that.

And you're like, yeah, I know, I know. You know, it's all good. And you know what? And if it costs you 500 bucks, if it costs you $1,000, even maybe if it costs you $5,000. bucks you got the money sitting in your pocket so you can just go and make them happy so that they brag about you right right yeah i mean good point i mean you know i in talking about duen he's the one who uh who introduced me to you and he said hey if you want to talk to someone who knows their numbers

talk to abe i'm like sweet i'll talk to abe and so you obviously are a numbers guy and and your team you've developed a good team around you so tell me a little bit about how important that that financial number piece is to you and your business Well, I think it's a key because, I mean, there are plenty of people in this industry who are great skilled craftsmen, but they don't know how to run a business. They don't know accounting. I mean, I didn't learn accounting, but I had a knack for it, so I learned how to do this stuff. I could have got this education. You know, I could have got a cursory education for free in high school on accounting and business, but I was busy doing other things.

get at least that much to start. And then, you know, and then you can pay for the rest of it eventually as to go through. But if you know your numbers, then you know what you're doing. You know how much you're expecting to earn. And you know, you know when you have to make a concession, what you can do. And you make sure that you aren't going out and buy in a new truck that you can't afford because some customer gave you a down payment. But you haven't paid for their materials or met payroll yet.

And that money wasn't yours. You don't want to make that mistake. You've got to know where you're at all the time. Right. Yeah. And to the gross margin piece, you know, I'm an open book too. We try to play around that 35% gross margin. But, you know, like I said, during COVID, that got chipped away really fast. So, you know, that 3% of ad or whatever, that was not accurate. So I still think that we're, even though we're improving from a supply side, a little bit more predictability in our lumber cost, it still is something that's. a little bit wild right now. So give us your advice on where you guys like to be as a team. Well, you know, we're still hedging on some of those material costs. You know, we have a great lumberyard who prepares a weekly report ever since the supply chain started drastically changing the prices and telling us what to expect and looking at trend lines. So we started taking

our old material pricing and just jacking the heck out of it. And then we've still put a contingency on top of our overall quote as well. And then on top of that, we have plenty of profit that, that, you know what, if we need to give up 2% in profit because we're keeping our customers happy, we're still a profitable company. It doesn't take us out of profitability. Right, right. Great point. And I think you said it great on our pre-call.

When you're basically, you're talking about this mentality of construction owners, like, not wanting to charge too much. But you said it's so, so good. And it's true. You have to believe you're worth it. And so if you don't believe that part, I mean, how can anything else work? So I guess describe that, how you guys feel about that. Because obviously, you guys are a confident team. You know you can do it better than anybody else.

But how does that make you sell so much better? Well, you know, the thing is you want to want the job, but you don't want to need the job. And even if in the back of your mind, you know you need the job, you're not going to tell the client that. you're going in with leadership and with confidence and you're endearing and drawing people to you. You're not going in from a position of weakness. You're not going in from a position of need. You're going in from a position in a mindset of abundance that you are doing things and going the right direction. But, you know, what does that mean?

Think about this. Even when I go back, even when I go back 10 to 15 years ago and my margin was, probably 7 to 12% lower than it is right now. And I lost the job. I'm thinking back to a job that was going to be maybe $130,000. And they told me that they got a quote from some dude for like $75,000. And they hired him. And here's what happened, because I got feedback on this through the grapevine.

I mean, number one, you know, take margin off of that. my cost was going to be, was going to be 95,000. This guy was going to come in for 75. So even if I had reduced my margin, I can't win based on price. So why not charge so much that I'm going to be happy every time I get a job? Right. Number two, what happened was my energy star consultant came back to me a few months later when this was done. And he was on another job.

And he says, he says, oh, I was at the so-and-so house. He said, I take it that you're not the ones who have. actually did that project, are you? I said, no, we didn't. They went to somebody else. He said, yeah, it's interesting because, you know, every time that you do an addition, not only does the entire house, including the bigger addition, come back tighter, it's a better house. And he said he could see it on the outside of the house as soon as he walked to the front door, that this was not my work. And number two, that went, that the numbers were there because the house was looser and leekier and less energy efficient than when they had started.

So they got what they paid for. And so don't worry about competing with somebody else. Right. Just worry about what you're worth. Yeah, so true. And there's enough business for everybody. It is kind of strange. I mean, we get it a lot.

You know, people are really competitive with us. We don't care. We really don't care. We don't even ask, you know, who they've had out. doesn't matter to us. It's like we just say, hey, we're going to put our best foot forward. If it makes sense, great, if not, no big deal. So it's like back to your point of like, I'm not desperate. You know, we have other clients, but we want it to be a good fit for both of us. And like, they just look at that like, like you guys don't even care. No, we don't, we don't care.

We don't care who else you're talking to. We think you should talk to other people and get, get other opinions. But it just gets, it's a mentality shift that you have to believe it first before you can actually, you know, do it. And it's also the. difference between confidence and arrogance. You always want to be confident, but you don't want to be arrogant. You're a nice guy. You're a nice guy who is the most confident person in the world. That's where you're at when you're doing this stuff. Right, exactly. So tell me a little bit. You mentioned that you've been a part of remoders advantage in the past. So tell me a little bit about that experience, because you mentioned it was pretty powerful for you. Yeah, it was. So I did that for ballpark of 12 years.

And frankly, it started out. It started out the point where I made the decision to join was because my father and I were still in business together and things weren't going very well between us. And I needed to get some people around me who could help me think better, who could help me manage, who had experience, you know, and who could help me take the direction that I saw things being able to go. what I found was a group of people who became my most trusted colleagues and my best friends. I found a group of, I found a system within remodeler's advantage where you were benchmarking yourself, open book benchmarking against your small group of 10 or 12 companies, and blind benchmarking yourself nationwide across several hundred companies. And you could see how you were comparing in every,

measure that is important to this remodeling industry. And so, you know, at one point, there were five of us here from the Madison area who were all in remodellers' advantage, friendly competitors, guys, I love to sit down and have a beer with. But the fact is, we're marketing to the same market, but we're blind benchmarked against each other. I get to see what Midwest numbers are, but it's much more than them. and none of us actually get to see our numbers. So that's really important, but it is in the end, the attitude, the behaviors, the techniques that you learn, the mindset that you learn, and mentoring from your colleagues and from the teachers

who facilitate for you that teach you that mindset and bring you to where you want to be. Yeah, awesome. There's almost like a little bit of vulnerability there, too. You know, you open yourself up a little bit. That's hard for a lot of us to do. So I guess if you're willing to go there, then you've got to go the distance, right? Let's see how we stack up and see where we're missing, right? Yeah.

And for the record, I think that there are, there's several different things that work together. Because I also had a business coach, even while I was in remodeler's advantage. They served two different purposes. So, you know, Dwayne being on, you know, he works largely as a business coach, people who want to talk. to him, talk to him. You might still want to join remodeler's advantage in addition to having someone like Duane as your business coach. Yeah, got it. Cool. And you mentioned that you have a couple, I don't know if it's some accounting, job costing, ownership software. What do you guys like as a team? Because I know you said you've dabbled in a few of them. Yeah, we've tried out all the big ones.

And we are dedicated co-construct users. One of the things we love about it is that we can use every aspect of the program without breaking the problem. You know, the claims about what co-construct does are accurate to what it does. There's no puffery. There's nothing that doesn't work. If you use it, it works. And we integrate that with QuickBooks. We use QuickBooks desktop. We actually do all our job costing in QuickBooks Desktop. And then we use a whip, a work in progress spreadsheet that that we got through remodeler's advantage. That's how I learned all these different techniques. And so co-construct is our hub.

Awesome. Awesome. Okay, cool. That's good advice. And you had mentioned that you started some profit sharing programs with your company. So tell me a little bit why you started that and how it's working so far. Yeah. So a former employee of mine who was a production manager, actually he was in the Remodeler's

advantage roundtable for production management. And he brought this idea back. And, you know, we call it R&D rip off and, and, oh, I can't remember what our joke is, but we talk about R&Ding from another company. So he brought back their spreadsheet in white paper and said, hey, can we try this? The whole goal was to, you know, we were doing bonuses, but bonuses are pretty random, right? And we had reached a point where we had some sustainable profitability where we could relatively consistently distribute money to the team without it, without it being a demotivator,

because if you're always missing your targets or not making any distribution, that's going to be a demotivator, right? Oh, we never. Well, my gosh, we're never going to get it. Yeah, we don't need any of those attitudes. We need some positivity and some goal setting. And so it's formulaic. It is related to the different roles and the different wages and salaries within the company

is how the way we've chosen to weight it. People can see a prediction of what we're hoping to get them through the year and they can see where they're at. And they get to see the global numbers about what our company revenue is, what our overhead is costing us, how much retained earnings that the company needs to keep, because we keep retained earnings so that we have cash and we have money for reinvestment before we pay out profit sharing. And they can see those predictions and see what's going on throughout the year. Awesome. Again, you're so generous to share that your white paper regarding this,

because I think this is, it's such a struggle for a lot of us, me included, where you try to see other examples and that's part of like that where muller's advantage or or coaching experiences that you get feedback immediately of like hey here's what's actually worked instead of you coming up with it on your own so i'll have matt i'll put a little link there so you guys can take a look but i really appreciate you sharing that and it's like i said like like i said in the beginning you care about your clients and your staff and your family like it's it's clear and like this is just another that you are showing that to them and and i'm sure just builds like a tremendous amount loyalty for your team. Yeah, yeah, absolutely. You know, a couple other things that we have in place.

We have a carpentry skills progression where our carpenters, we have a list of skills, and as they become proficient and master things, they can come to us and say, hey, I've done this. So therefore, I'm eligible for a raise. And there's no discomfort about asking for that. It puts them in control. They have a clear progression. And then we have a lead carpenter progression as well. that is related to the skills of managing a job, not just the skills of building a project. And those two things work together. So there is a career path when we hire people with a good wage, a set of wages that is increasing and then profit sharing to boot. Right. Awesome. Awesome.

So the other thing that we talk about, it's clear that you like giving back to your community, especially you have a passion for orphan hosting and adoption. where did that desire come from and how can we all help? Well, let's see here. So the number one answer is it comes from God and I'll give all glory to Jesus, my Savior and this because this isn't about me. I'll give the glory there. But the fact is there's a lot of people in this world who are in foster care,

worldwide, who are in orphanages, either because they're true orphans where their parents are deceased, or because in other countries, orphanages sometimes work like foster care. The parents aren't alive. They're just unfit to care for the children. And so there is, in this Madison area here, there's a very strong community working in this orphan hosting and adoption from Latvia, Ukraine, and Colombia. And so through the experience of our friends and their leadership, and because we sponsor golf outings, for various reasons.

We started following this. I have two biological kids. I had adopted a daughter when she was a toddler. And then just two years ago, we ended up adopting older children who at that time were 7 to 14 and doubled our family from three kids to six. So now I'm going to be a young grandpa someday because I've already got a 19-year-old and a mom. also an old dad at the same time because I've still got a nine-year-old. So my prediction is that I'll be an old grandpa or a young grandpa and an old dad at the same time with that spread in my kids.

That's really cool, man. I mean, I just love it when I hear those stories about where that passion came from. And I appreciate what you're saying about, you know, God being, giving God the glory. And I totally agree with everything you just said. I mean, what a need in our. society and maybe not one that that's talked about enough. So I appreciate you doing that. Yeah. Yeah. And you know, here's the bottom line. This is this is what the construction industry can give you. We had three trips to Latvia. We had two trips to Latvia that were three

weeks each. And my company was able to run without me with me doing a limited number of meetings, some video calls and all that stuff while I was over there. It ran without me. My company has paid for this and still had money to pay, to, to pay the profit sharing to the, to the employees. And for my wife to be able to be a stay at home mom for the last 19 years, that is what the construction industry and, you know, blue collar, white collar, owning your own company, wherever you want to be in the mix of it, you can do it. Yeah. And let's, let's finish with that.

Like, so how did you, when did you kind of start figuring out that you needed those systems and your business because, you know, obviously you have your hands on a lot of the, a lot of the different elements, but when is it, when is it that you decided, okay, I need to start, you know, almost replacing myself, right? I need to replace myself in these positions so that you can't have more freedom. Well, you know, so it started off with, I broke my leg in 2003 on a job site and that removed me from the field for six months. So, so I actually started by replacing myself in the field and making sure that the sets of plans that my father and my other employees were getting were able to be built.

And so, you know, that they had the info that they needed on the job sites, getting everything out of your brain and putting it on paper so that people know what to do. Then eventually that led to me hiring a designer to do some of the drafting work. it led to me handing off some of the accounting and billing and data entry. It led to an office manager. And then from here on, here on, here on, for the point where six months ago, I hired a salesperson now. Yeah. Yeah.

I mean, so we're not exactly giving the advice so you should go break your leg, right? No, that's not the thing. But an emergency, you know, you can figure this stuff out. Do you want to be forced into this position because of an emergency and how will your family be taken care of or do you want to proactively prepare and begin creating the company that provides you the lifestyle and the balance that you want? Yeah, I appreciate it. Well said, Abe, I'm just as a fellow owner, I'm just proud of what you're doing over there and I'll be a fan of yours. So just thank you for being here and I look forward to staying in touch with you.

Thanks, Jeremy. Yeah, thank you. Thanks for being here. And thanks again, guys, for everybody for being here. This has been Construction Executive's Live. If you have a topic in mind, if you want to talk to me further about this, like I said, we have a live show, we have podcasts, we have member spotlights, we have a lot of cool things coming up. Email me at Jeremy at usconstruction zone.com. Our next show is in the chat right now. Go to that event link right there. It is a month from today, October 5th at 10 a.m. And we have a great speaker going to be speaking about his his book, Henry Nut, as a book that came out. And it's called Seven Principles, Creating Your Success in in the Construction Industry. And we're going to go through all of those principles and more. So

please go ahead and register now. That way it lands on your calendar. I don't have to bug you over the next couple of weeks. But thanks again for being here, guys. Enjoy your day. Stay cool. And I hope to see you guys next month. Bye. You've been listening to In The Zone with Jeremy and Valerie Owens. Be sure to subscribe to In The Zone and stay in the know with the best mind. in the construction industry. To nominate an innovator or change maker in the construction industry, connect with your management peers, and stay up to date with construction industry news,

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