The Home Service Expert Podcast - How To Price Yourself Correctly And Boost Your Bottom Line

Episode Date: August 21, 2020

Stephen King is one of the top thought leaders in the accounting industry. He is the President & CEO of GrowthForce, one of the nation’s largest cloud-based accounting services, and has a life-long commitment to giving back to the community through charitable causes. His eBooks and blog provide insights on management accounting, business strategy, and finance to small businesses and nonprofits, the latter being his largest client sector. When not immersed in helping clients grow, he serves as a role model to his company for proper work-life balance. In this episode, we talked about managerial finance, financial reporting, business strategy, entrepreneurship, accounting, management services...

I've been a CPA for 36 years, and I think you're 100% right. The single biggest challenge I see with entrepreneurs is not just a lack of financial acumen, but a fear of it, an acceptance like, I don't know how to read my balance sheet. I don't know what it tells me. My CPA sends me an income statement and a balance sheet every month. And I look at the top line, I look at the bottom line, and then I file it. And it's not actionable. We've studied this. The companies that are the market leaders make data-driven decisions. Every decision they make, they work backwards from the decision and figure out, all right, what are the drivers of this

decision? What information do I need to know? And then you figure out how to get a report that shows you that data. We do this with QuickBooks, right? And we also serve Xero and NetSuite. But QuickBooks and Xero and NetSuite are incredibly powerful, but it's like Excel. If you only use it to add, subtract, multiply, and divide, you're not going to be a market leader. Welcome to the Home Service Expert, where each week, Tommy chats with world-class entrepreneurs and experts in various fields like marketing, sales, hiring, and leadership to find out what's really behind their success in business. Now, your host, the home service millionaire, Tommy Mello. Welcome back to the Home Service Expert. My name is Tommy Mello, and today I have a guest coming all the way to us from Houston. He's an expert when it comes to managerial finance,

financial reporting, business strategy, entrepreneurship, accounting, and management services. Like I said, he's based out of Houston, Texas. He's the president and CEO of Growth Force from 2004 to present. He also used to be the president of Inspirity. No, I met financial management services. I was the vice president of that division, president of the subsidiary. Oh, see, there you go. I don't know. It's weird. He sounds huge.

First tool growth president from 95 to 2002, an Amnesty International CEO director of development from 89 to 95. He's the president and CEO of GrowthForce, which is one of the largest cloud-based accounting services. He's regarded as one of the accounting industry's top thought leaders with eBooks and a blog that provides insights on management accounting, business strategy, and finance to small businesses and nonprofits. He has a lifelong commitment to giving back to the community through charitable causes, thanks to his years working with Amnesty

International. In fact, nonprofits are Growthforce's largest client sector. When not immersed in helping his clients grow, he strives to be a role model to his company by modeling proper work-life balance, which is something that's almost impossible. I know. Stephen King, great to have you on, my friend. Thank you, Tommy. Good to be here.

So there's a lot here. You know what I like to do to get started, and I can't wait to talk to you because I'm launching the A1 Cares Project. It's a lot here. You know what I like to do to get started? And I can't wait to talk to you because I'm launching the A1 Cares Project. It's not a nonprofit. It's going to be run under my business, my S Corp. But Steve, let me ask you, you've been doing this a long time now. You've got a little bit more experience than I do when it comes to accounting. I enjoy accounting and finance, but why don't you tell us about the road that got you to where you are now and what the future looks like?

Sure. So, you know, I got into accounting because in high school, my father said, you should become an accountant because you'll always have a job. Even if there's a recession, which I didn't know what that meant. It was the Carter years, right? That tells you how old I am. And things were tough and that really stuck with me. And boy, six recessions later, I'm 60 this year. I'm really glad I chose accounting because it's helpful to be feeling like you're making a difference in people's lives and kind of helping them weather the storm. I started with a small CPA firm in college and I loved it. I went to Ernst & Young. I did that for seven years. I ended up being a manager of accounting system design, building big accounting systems like Gulf and Western and MasterCard International

were clients of mine. But I found I missed that small business where you really are touching the books and changing lives with the owners and the staff. So I started my own CPA firm in Hoboken, New Jersey, where I lived at the time in the Reagan years. And the economy was booming. And I hated it. I had a people problem. I couldn't attract and retain accountants and bookkeepers because as soon as I got them trained, they'd go off to a bigger CPA firm.

And just like I stole at Ernst & Young from the small firms, the big firms were stealing from me. So I ended up joining one of my clients, a nonprofit called Amnesty International as their CFO at age 29. Two weeks after Bruce Springsteen and U2 and Sting and Peter Gabriel finished a worldwide now tour and MTV rocketed Amnesty from 6 million to 18 million in a year and a half. And my job was to kind of put the systems in place to help manage that growth. And I really loved that gig. And I took over fundraising for the last three years there. So I learned how to raise money, which was helpful. I started a company when Netscape 1.0 came out. I'm really dating myself here, Tommy. And we raised $43 million in venture capital funding from Citibank and Bessemer.

And we built the first outsourced accounting business on the web, before it was called the web. Ended after September 11th in New York City. The economy collapsed when the buildings collapsed. And Insperity gave us a lifeline. So they bought the company and moved me to Kingwood, Texas, which is northeast Houston, where we are now. And they do outsourced HR. We do outsourced accounting.

So it was a natural fit. We spun off GrowthForce as QuickBooks experts. So we specialized in doing the same thing we were doing for larger companies for a QuickBooks market, because QuickBooks rewrote their entire application in 2006. And suddenly, it had all this new power to take advantage of the web. And we've been doing it ever since, with helping small businesses with outsourced bookkeeping, accounting, and controller services.

And about a year ago, we added advisory services to help give advice to small businesses that aren't ready to outsource their accounting and their bookkeeping. And that's been really rewarding, especially now when people need help as times are tough. It's interesting because times are tough, but they're either really, really good or they're really, really bad. I feel like recessions, any spike in the economy either way, builds quick losers and quick winners. It's like, unfortunately right now, it's not fair because for restaurants, hospitality, hotels, motels, they're deemed not essential, which it's really hard to swallow that. I mean, I thank God every day that I'm on the winning side of that. But, you know, there's so many things going on with the PPP money right now.

And then you've got the killer SBA loans over 30 years. You know, they's so many things going on with the PPP money right now. And then you've got the killer SBA loans over 30 years. You know, they just released this yesterday. And a friend say on the newspaper, they said all the people that received PPP money were listed. And he said, you just better be prepared for that conversation. And I said, what conversation? We took the PPP money because I had to lay off workers and they incentivized me to bring them all back. And the door. And yeah, it's flawed. There's a lot of things that you could do differently, but you didn't have the time. So I agree with you. I think now what I find really interesting is after six recessions is seeing what is the

difference from the winners and the losers. And it's pretty consistent. the people who make it come out of it stronger and the others fail. And there's a couple of simple steps to get you through this. Well, let's talk about a couple of steps here. Now you got me intrigued. You know, it's funny because it really did bring us closer. And I feel like a lot of the people that I consult and I know and friends in the business and just the Facebook groups I'm part of, it's either right now is the time to come out and just change. And we became so much stronger. I mean, we probably took on about 25 projects of just little things here and there to tweak, make sure our KPIs were super dialed in for every single market. We're in 17 markets. I wanted to make sure that every single thing, this is the time to grow when

everybody else is failing. And I think that's one of the things is we're not going to get into the death spiral is when you start getting rid of your marketing and keeping the people that you know, you shouldn't have kept. If you didn't get rid of people, they didn't say, see the PPP program, this is some confusion is they said you have the to say employment, employees, I should say. So I won't lie, I did about 15 top grades. Yeah, and that's the first step, which is getting the right mindset, right? The right mindset starts with, okay, whatever this is, it's going to pass. So you got to be thinking about how do you come out of it stronger

on the other side. So it starts by setting that expectation as soon as the recession hits. And if that becomes your expectation, guess what? When it's over, you'll be stronger because you went in planning this. This is a little bit different because it's a pandemic. And so the other mindset shift to me that's really important is you have to have a feeling of abundance, of gratitude, of being blessed. Your health is your wealth, right? That's my Irish grandmother. My parents are both off the boat. If you don't have that, then you have nothing. And if you're not strapped to a ventilator in an emergency room, you know, right now, Houston is the epicenter here, right? We're the New York. And if you're not infected with this disease, then count your blessings and start with that mindset that we're okay. We're going to come out of this and we're going to make it. And then the third part of the mindset is you got to have data. And you said the key words, Tommy.

I have my KPIs. What I see with most entrepreneurs and small business owners, finance is not a strength, especially when times are bad. There's a natural tendency to kind of avoid the bad news. We're all optimists. And the opposite needs to happen. You have to understand how bad is it? And so what we're advising our clients is to figure out, are you in survival mode? Are you in restructure mode? Or are you in strengthen mode? And I'm blown away by, you know, we don't do a lot of retails. We don't have the same kind of problems with clients that are in rock.

But we do project-based service businesses, which is your audience. And most of the businesses, 80 plus percent are either in restructure or strengthen. And so what that means is, you know, restructure means we're going to make it, but we've got to make some hard decisions. That's what you just described. You know, you top graded 15 people. This is a great time to go through and look at the people that you just shouldn't be there in the first place. That if you were to say, you know what, I hope they quit, and then use this as an excuse to say, we've got to make a change. It's not a good time. So that's kind of what we suggest. But it's really about strengthening, coming out of this stronger, and knowing how to do that.

You know, I was talking to another good buddy of mine a couple nights ago and, and I said, I think I realized a secret that I, it's not a secret, but for me, it's difficult. It's reflection and the ability to reflect and the ability to know. I always say the definition of insanity is doing the same thing over and over again. And he said, well, Tommy, you got to understand, he told me he's actually works for me for a vehicle wrapping company. And he said, I told this guy to print this stuff off. And that the difference is I always used to have people do it and then wonder why they didn't do it right. Then I mastered the eight steps of delegation. And I really got good at delegating. And I really got good at getting a signature saying you understand what I'm telling you, give them the repeated back to me. These of delegation. And I really got good at delegating. And I really got good at getting a signature

saying, you understand what I'm telling you, give them the repeated back to me. These little steps, everything now has become a checklist and an order of operations for me. It's crazy. It's almost like the military, but it's not run like that. Everybody has freedom. But what do you find when you see these small companies? Because our audience is obviously home service, people in the home service industry. And they're just, I feel like they lack structure. Like they don't have manuals for things. They don't teach people how to win and lose. They just expect that if you're like me, back in the day, you'd say, if I don't do it, it won't be done right. Yeah, that's a death knell. I think the first thing is really getting your handle on those

numbers and making sure that you understand the critical data points. Like, for example, what's your break-even point? If you don't understand exactly what your fixed costs are and what your margins are, you can't make decisions about what people to keep, what people to cut, and what the dollars are you got to bring in just to keep afloat. And right now there's some hard decisions. So that's the first one. And then break-even is very simple. It's your fixed costs in dollars, the costs that don't change whether you add a new customer, divided by your margin, your gross profit margin or your contribution margin, the profit percentage that you make on every new job you bring in.

Just divide those fixed costs by that profit margin. And that tells you how many dollars you need to bring in just to not dip into your reserves. That's the first piece. The second is cash flow. Once you understand how much you've got to bring in, now you've got to understand, all right, what's the timing of money flowing in and money flowing out? And whether it's good times or bad,

this is basic financial management 101. How much liquidity have you got? How long will that last based on how bad you think it's going to be? And so we've got a cash flow forecasting tool that we created for our clients. I got a software back on from Ernst & Young. We've got a visual basic programmer on retainer. So anytime we see something we want to do, like clients that have QuickBooks, we got sick of manually having to record all the receivables and then figuring out when they're

going to pay us and when are we going to pay on our payables. We download those from QuickBooks, download the receivables into Excel, download the payables into Excel, and then quickly be able to figure out what does my cash flow look like over the next 13 weeks. And if you don't have those two data points, then you're starting with a position of weakness because that will lift the fog. That will give you that peace of mind to know you can sleep at night because it's rarely as bad as you think it's going to be, right? But you got to plan for the worst and pray for the best. Well, you can't fix it if you don't know it's broken. And that's what I learned is I had the wrong controller and he used to be a yes man, tell me everything's good.

We were growing very fast and I didn't realize I had four markets. I knew I was losing. I just didn't know how bad. And when I got a good balance sheet and I got a good P&L and a good income statement, I was able to look at it. I said, oh my gosh, I closed those markets right away. I said, I got to stop the bleeding. And it was embarrassing because I had to say, I can't do this. But now we're back in a growth mode again. We're back. I had to make some things, but now we're hitting over 20% consecutively. And that's hard.

There's not a lot of companies that do that. And when the COVID hit, we took an Excel sheet of every department and I put every employee in every department and we rated them. And we said, can we lose this person? Yes or no. And if we can, who could pick up their work and how are we going to do this? And we put numbers. We actually had the breakeven and different things and said, if we hit this number

in gross profit, here's what we need to do. And we had a plan. I mean, we filled that thing out and we communicated with the staff daily, but it could have gone either way. And I'm very, very fortunate. And the last thing I'm trying to do is sit on a podcast or a high horse and say, we did it right. I'm happy about the way it went, but ultimately without a guy like you, I think that the finances is the biggest missing piece to most of these companies. They don't realize when they should be growing, when they should be just making it through. There's a good book by Michael Michello.

It's called Profit First. It's pay yourself first. And it's hard to do that. Have you ever heard of that book? No, it sounds good. Yeah, it just basically says there's this lull of, you ever have a toothpaste bottle and right at the end of it, you're squeezing it out and you're making that last toothpaste last? Yeah. And it happens all the time. Well, that's what we do

with our bank account. You give us a fresh bottle or a fresh paycheck in the bank, we can spend it. We spend it. That's what we do. And when you don't have it, you tend to be a lot tighter with your money. So when you pay yourself first, you see what the money's left. So it says accountants, they seem to think is revenue minus expense equals profit. Well, this one says revenue minus profit equal expense. I love that. I love that a lot. Actually, I never thought about that. You know, I've been a CPA for 36 years and I think you're 100% right. The single biggest challenge I see with

entrepreneurs is not just a lack of financial acumen, but a fear of it. An acceptance like, I don't know how to read my balance sheet. I don't know what it tells me. My CPA sends me an income statement and a balance sheet every month. And I look at the top line, I look at the bottom line, and then I file it. And it's not actionable. We've studied this. The companies that are the market leaders make data-driven decisions. Every decision they make, they work backwards from the decision and figure out, all right, what are the drivers of decision? What information do I need to know? And then you figure out how to get a report that shows you that data. We do this with QuickBooks, right? And we also serve Xero and NetSuite. But QuickBooks and Xero or NetSuite are incredibly powerful, but it's like Excel. If you only use it

to add, subtract, multiply, and divide, you're not going to be a market leader. And what we find is some of the simplest things make a world of difference. Pricing is the single most important decision every business will make. A small change in pricing has a profound impact on the bank account, on your profits. And the challenge we see where most of our prospects and clients and friends is they don't have visibility in what does it really cost to deliver on the services. You're looking at your KPIs. For me, the single most important number on any financial report is gross profit percentage, because that shows you how good a job you're doing at pricing, at managing your service delivery teams, at figuring out which of the clients that you add the most value and can justify the highest margins. And the reason I say it's margin and not profit, it's because gross

profit causes profit, net income. And if you start there and really understand what's the difference between above the line and below the line. Now, that's a real important concept that I see a lot of our prospects and clients initially struggle with. Above the line costs are all the direct costs, the costs the customer directly paid for. It's your direct labor. It's the labor that directly went to delivering that service. For you, the guys who are installing that garage door and the spring, and everybody else is indirect. It's below the line. They're overhead labor. And you should be thinking about your people differently. Your overhead costs, I want to pay as little as possible for overhead.

I want to pay the lowest amount for accounting and IT and HR and whatever is not generating revenue. And I want to get the right people in the right seats on the bus for my above the line, so that I can deliver as much value and therefore as much profit. And I think that's the big differentiators, understanding that. You know, what's really interesting is I've had a consultant over the years, one's Al Levy. And what he taught me was you need to strive to be at a two-to-one ratio, direct labor versus anybody else in the company. So if the people turning a wrench is your two, you want two of those to every one of everybody else. And if you get better than that, if you get to a three to one, you're going to be making good money for the most part. Now, I've got a good book. It's called The Power of Positive Pricing. And my philosophy is think about the most expensive price you could ever charge these prices. The problem is that these people just, they don't run a business. The people that say you charge too much, they don't know what it

really costs. I've got a really good financial breakdown that add in the time that you spend driving windshield time to it. The time that you spend in meetings, all these people, the time that you spend on repairs and how much you pay the owner and how much the management makes and the printer and the advertising and the days off that you get. And you know what? A plumber should charge $400 an hour plus parts. Isn't that crazy? It's 350 to 500, depending on the business. And people just, they say that's highway robbery, but they don't understand that it's a business and there's insurance and there's all these other

things. There's cracked windshields. I have the people here fixing 10 windshields. It's all the time. This stuff costs money. Yeah. I think value pricing is something that most entrepreneurs don't spend enough time understanding. Ron Baker has a great book, The Value Pricing Handbook. It has a very similar to your power of positive pricing. You have to be able to demonstrate the return on investment from your fees, right? So, you know, for us, we're a premium accounting service, right? Bookkeeping, accounting, and controller service. And the way we're able to explain to

someone why we're worth it, it's because I want to increase your profits. I want to improve your cashflow. I want to automate your back office so that you put more money in your pocket. And that 35 years of experience allows us to be able to show you, if you got 5% or 6% net income, then you're leaving 10% of your business on the table. So why not invest a little bit more money in getting the management account and getting management reports and key performance indicators and measure the ROI and put it in your bank account? That's a good thing you just said. You said 6%, you're missing 10% because I think that

a good number in the home service space is 15%. Yeah. You know, there's people like Ron Smith that actually started in the early 70s that said, you're welcome when you start a business to make 20%. People just don't realize it. Yeah. But you know what? Walmart does not make those margins and they do really well. So you got to find out where you live in the marketplace because you can have a very few amount of customers or clients and have a huge margin, or you could have a ton of them and have a smaller margin. And I think that people, they say, I'm going to do everything. They say, I'm going to do commercial, residential, new home installs. I'm going to do home warranty companies. I'm going to advertise on Craigslist, Google, radio, TV, billboard. And they just, the biggest thing I say,

I talked to a guy last night, first time ever. And I said, man, he said, Hey, it's an honor to just talk to you on the phone. I said, I appreciate you saying that. It's an honor to talk to you on the phone. I meet a lot of people and I learn a lot from everybody. But ultimately, what I wanted to tell you is, you got to have a plan. Show me the documentation. The biggest thing I look at is a good CRM, right? Yes. Show me your numbers. But here's the thing, they show me their numbers and I say, but this isn't accurate. Well, I had to have a workaround for this. All the time, I look at their call booking rates. I look at their conversion rates, all this stuff. And I'm like, you can't use this to guide you. And I'm guessing half the QuickBooks you look

at. Look, I try to buy companies all the time. I've had two successful. I'm working on another one. I can't get the right numbers. I'm like, wait a minute, you claim this to the IRS. You're telling me you have cash over here. You're paying your wife this, but she doesn't do any work. What the hell's going on? I'm sure you've seen that. Yeah. I think a lot of it is fear, right? A lot of it is your relationship with money. Too many people don't feel like they see their own value. They minimize. I used to have a lot of staff accountants and QuickBooks gurus, and they'd be like, hey, I just did this for somebody, and it was really easy. I'm not going to bill them for

it. It's like, wait, no, no, no. They expect you to bill them for it. This is what we do for a living. This is what you went to college for. Don't minimize what you bring to the table. And your audience is delivering services, right? There's not enough knowledge workers in the world, in the United States in particular, to do all the work that has to get done. We're all competing for a limited pool of talented staff. So you've got to make sure that you're pricing and billing for every single hour that you do so that you can generate the profits to keep those people there a long time. One of the big things that I see as a major mistake, I used to make this mistake. I used to

think turnover was just the cost of doing business. I chaired the strategic planning committee for the strategic planning committee for the Houston CPA Society for a couple of years. And the average turnover in the United States in small business is 19%. So one in five people is leaving every year. But it's the same people who leave. It's a revolving door. The companies that are wildly successful figure out how to get that down below 10%. How do you keep people for a real long time? And that's where a human capital strategy comes in, helping recruit for cultural fit and recruit for behaviors and understanding how Maslow's hierarchy of needs works and understanding how to

meet your employees' needs. But then being able to recognize and reward the people who contribute the most to profits means that you're going to be a much more profitable business because we're all run by tribal knowledge. No matter how much checklist you've got, when a member of the of what it really costs you to deliver on every air conditioner that you install or every garage door that you install, so that you can price it to get your real margins, that's what generates profits. And if you have profit sharing, that's what keeps people sticking around for a real long time. Yeah, I always talk on the podcast is everywhere from the call center to my technicians, to my installers, to my managers, everybody's on performance pay. Because there was one day, Steve, that I remember this day

distinctly where they said, Adam calls me up, my COO always says, hey, it's time for annual reviews. I said, what? So I could give them a raise because they've been here another year? I said, that's BS. I said, why do I get excited when my guys that make money on reviews or commissionable items, why do I get excited when they make a lot of money, but everybody else I hate? I said, can't we come up with a performance pay for every single role? So I wrote on the whiteboard and I got whiteboards everywhere in the building. What are the most important three to five key performance indicators that matter? And we built a really successful payment structure that made them want to stay and made them happy. But more importantly, it helps for attracting people too, because I've got a call center rep that made 30,

I think it was, I looked earlier, $38 an hour. Now, people listening to this call say, that's outrageous. I would never pay more than $16 or $17. And I say, she booked more phone calls per hour at over 90%. Her tardiness was perfect. And then we've got two other data points. The data integrity to make sure it's road not street she repeated herself

and then one really really small one as we look for sincerity in your voice which ultimately is a big deal but the big one is how many calls so if you get a call above 90% that calls worth six bucks plus an extra three dollars if you get the right

stuff right so So they're incentivized to answer as many calls as possible and book them. But I like what you said is that you didn't know how to attract and retain before. And I think performance pay does that. But I also think, and the ultimate sales machine, Chet Holmes said, could you bring 200 people in to your office per month and train them? And that means you've got an amazing systematized way of getting people to learn rather than saying, hey, I want you to go follow Bob around for two weeks. And Bob's the best I got. But, hey, don't listen to him when he rolls his eyes when I call him because me and him don't got a good thing going.

But he's a good sales guy. So watch that, Pete. It's amazing when I watch home service companies. They've never set up a way to open the door. I get $1,500 to every employee that gets someone they know to come on. $750 up front and $750 after three months. My managers thought I was crazy. I said, do you know how much it cost me?

My top producers are producing $2 million. My worst are $300,000. Now the 2 million is super specialized, but that's $1.7 million. You think I'll pay $1,500 for every 1.7 million? I wanted to ask you, so many people talk to me about a CFO versus a controller and when it's time to get somebody in-house versus a company like yours. And can we use a company like yours to audit our person, you know, when we're a bigger company? So let's just go through that. Sure. Yeah, that's a great question. Controller versus CFO versus CPA, right? What's the difference? So let's start with the CPA. The CPA, and I've been

one for 35 years, had my own CPA firm and worked for a big one, is a compliance job, right? Our whole industry is around tax and audit. It's designed to make sure that outside users are happy. The IRS is getting its pound of flesh. The bank is staying comfortable giving you that credit line. And any outside investors that you've got feel good about the business. It's compliance, not reliance. Our very few CPAs are real trusted advisors, unfortunately. And again, why is that? Because they are the most trusted of all the advisors. When you look at the studies, the ICPA does a study and accountants are at the top, but there's not enough knowledge workers to fill all the jobs.

And every time they change the tax rules, it creates full employment for the CPA world. And it's a cyclical business, right? July 15th is coming up. Every CPA right now is slammed, so they don't have time to sit down with you every month and review and hold your hand and give you guidance. The CFO is a chief financial officer. It's a C-level executive whose job is to sit at the table with you and to help management make decisions. It's to look forward, not just look backwards. has written goals. There are financial forecasts associated with those goals and that you're reporting against actual results against those forecasts. And right now it's July. You should be re-forecasting

the second half of the year. Anybody who doesn't have a budget, now is the time. We started the top of this show talking about getting the right mindset and getting the data as part of that mindset. If you don't have

a budget, you're missing half the value of every report you come out. Your income statement is half as valuable as your competitor who is looking at actual results versus your plan, versus what you hoped they would be. And what happens is when you cascade that budget from the company down to the department and the department down to the team or the individual, Maslow comes in here and you know that we all have a need to belong to something bigger than ourselves, right? That's why sports is so big and religion and our communities and our schools. I'm in Texas, right? I moved from New York City to Texas where they they play football on a Saturday. And it's a religion. It's not for fun. It's part of your identity. I went to Texas A&M, or I went to UT, or Oklahoma.

And when you create that same connection at work, Harvard did a landmark case study where they said the simple act of writing down goals increases your likelihood of success by 82%. Now, when I read this report, I thought, okay, I get this. You have alignment. Everybody knows what their goals are. They know what direction you're going in. You're going to make sure that people are staying in line. But what I didn't understand was how important the need to belong to something bigger than yourself is. When you understand what your role is in the success of the team, and you understand your team's success in the success of the team and you understand your

team's success in the success of the department and your department and the company, you're not going to let the team down. You're going to start acting like an owner. You're going to give discretionary effort. And especially when you recognize and reward the people like your incentive compensation plan. I love the pay for performance. I love that because then then all of a sudden people say, they start giving you that discretionary effort because they understand what success is and they're not going to let you down. And it helps them make more money. It helps them live a better life. It helps them achieve their goals.

And so that budgeting process right now is what the CFO's job is. The controller's job is to control the finance, to control the accounting department, is to make sure that when a report comes out of that accounting system, and QuickBooks is amazingly powerful, when you deliver a report out of that system, that it's actionable. It will give you a data point that will allow you to make a decision. The job is to control that process so that those reports are meaningful, they're accurate, and they're on time. If you're now just getting your reports from May, then what are you going to do from six weeks ago? It's too late. You know, I always ask people, what does the balance sheet tell you?

You know, we're here recording this in the- A piece in time. It's a snapshot, right? It's a snapshot. And here it is, it's the beginning of July. And what balance sheet are you looking at? You're looking at May's balance sheet. That tells you how much cash did you have in the bank six weeks ago. What's your deadline? I'm curious because

you're talking about this. Mine's on the 10th. I'll have June's out by the 10th. Yeah. I'd love to have it faster. Some people go to the 15th. What are you like it to be? I typically say the 10th business day. It's going to take you three to four days just to get the statements. And it depends on the size of the company, but you should be looking at the 10th. You should be looking at last month's numbers and you can do that. If you automate everything, you know, one of the things that's really important for your listeners to understand is

the bookkeeping function will be completely automated by 2023 using technology that exists today. If you're writing checks, then you're wasting a lot of cash that should be in your bank account. There's a software package called bill.com, automates the whole process of your payables and bill payment. And it lowered our cost of bookkeeping by 86%. It went from $12.35 to write one check to $1.35. And this is what we do for a living, right? We're really good at bookkeeping. We're really good at bill payment.

But the amount of time chasing down the owner to get a signature, getting all the supporting documentation to back up the bill, and then they would give me a yellow folder on a Friday and say, here are the bills to be paid. And the last thing I want to do on a weekend is pay the bills. And so I would sit there until Monday. They'd be like, do you get the bills to pay? I was like, yeah, not yet. They'll pull out the one that you need, right? You need to pay the rent. Okay. They pull out the rent and then I'll sit there on it. As long as like, if I'm sitting on this folder, that money's staying in my bank account instead of going into my vendor's bank account. But the cost of having my bookkeeper get distracted by chasing bills all goes away, plus the risk of fraud.

And we're going to start to see some significant leaps in fraud over the next year because desperate times create desperate people. And so the ability to automate that back office and study, how do you get a bill out the door, an invoice out to your customer's hands? How do you automate the collections process? How do you streamline everything? That's the job of the controller. A good controller is responsible for making a state-of-the-art accounting department. And COVID-19 has sped up that automation process because we started our conversation saying a lot of businesses come out of this better because they go into this saying, I want to sharpen the saw,

I want to strengthen, I want to be a better business when this recession is over. Automating the back office is the number one way to do that because you get more data faster and it costs you a fraction of the cost to do it manually. That's kind of the difference between the CPA. Oh, I love that. Oh man. And I got to tell you, you hit Ross with the nail on the head with the budgeting and teams. And I mean, he's really excellent at what he does. It's always concerned me a little bit just when I see 80 things come in from Amazon and who approved that stuff. Little things, but as a percentage, I got to tell you, when we hit 24%, not last month, but the month before. 24% what? Gross profit or net?

That was net. Nice. So I'll tell you though, I mean, we got lean, we got lean, lean, right? Almost too lean. So now I'm building a backup. I think when you're that high, you're too lean or at least my business. So 15 to 20% is what you should be. A well-run company does for most industries. You know, I've got some specialized industry. I've got an infrared camera company right now. That's killing it, right? That's different because they're specialty, they can charge premiums because you know, they have patents and specialties, but for field services businesses, that's a well-run business, 15 to 20%. You know, we, we do a lot of custom stuff where we hand make the doors ourselves. And we,

if you dream it, we could build it as our philosophy. So let me ask you something. What are some key decisions businesses have to make with data right now that they want to make it through their current situation? What are some of the data points that they need to be paying attention to? I think it doesn't matter if it's right now or anytime, right? The best practices are the best practices, but you really need to do it. And when times are good, sales will hide a lot of ills. Yeah, I know. They mask everything. Masks everything. So when times are tough, the first decision here is, are you pricing your jobs right? You got to understand those above the line costs. What does it really cost? You're fully loaded. And when I look at fully loaded, I got a couple of case studies so I could share data. Everything's confidential, but all my case studies are like, oh, you can tell

this story. We had a pipeline services business, field service organization. They got people out in the field. They had 8% to 12% gross profit margin. And the industry average is 20% margin. And at 20% margin, he should make 11%, 12% net because there's basically no overhead. So you've got to really understand he was only looking at salaries. Well, when you added taxes and health insurance and retirement and training and recruiting costs, you're going to have 25%, 30% additional cost of labor that has to be included in your bid. If you want to make a 50% margin, you got to make sure that you know the true cost. So you want to review those above the line costs and make sure that you're pricing right. The second thing you do is you got to look at your fixed costs. You're below the line costs.

And you just said it before, you got to get lean. Outsourcing, you asked me about outsourcing. What outsourcing does, and it doesn't matter what you're outsourcing, for us, it's accounting and bookkeeping. It turns that fixed cost into a variable cost. First off, you should save 30 to 40%. We save clients 30 to 40% over hiring one person. Why? Because we're going to automate everything. You're going to get just enough of a bookkeeper that you need. You need a staff account with an accounting degree to make sure that the accruals are right and revenue is being recognized, percentage of completion is calculated right. You just get enough of that skill set. And then you're going

to get just enough of a controller to be able to make sure that the financials have been reviewed and they're right and they're on time and they're meaningful. Instead of paying one person to be a jack of all trades, you have to overpay because you need the highest level of skill. So outsourcing really helps you to turn that fixed cost into a variable cost. Then what you've got to do is you've got to look at which of your people drive your profits. Not all your people are created equal. So by understanding the above the line costs and studying your pricing, QuickBooks has a job profitability report. Most important report we give to our clients is the job profitability summary. What that does is allow you to be able to look and see who are your lowest margin clients. You should fire them,

or you should reprice them so that you're getting paid for the value you're delivering. And you should use that knowledge to price the next job to make sure that you understand the value. Biggest thing that we see with clients, and it's an immediate ROI, as soon as we bring them on board, we look for time leakage. What's the time that you're spending on a job that you're paying for, but not getting paid for? And when you identify that time leakage, that immediately translates into additional billing opportunities. And that allows you to be able to have that additional billings.

It all goes right into your bank account because your costs don't change. When you increase your prices by 10%, let's say your $3 million business, if you can eke out another 10% out of the same people, that's $300,000 that goes right into your bottom line. And that's how you get to a 15% or 20% margins. Yeah, I love this stuff. I never thought I'd be so excited to talk to an accountant. We get these price raises. Like I'd say typical home service company, whether you're getting chlorine because you're a pool guy, my metal prices go up.

You know, every time you get a price increase, I do two things. I increase my prices so the way we pay our technicians is we this is one thing we do is we take the total cost minus the taxes minus the cost of parts so when i get and then we take a dividend of that and then we've got other things that go into it like reviews how satisfied is the customer cancellation rates there's all these other modifiers that we're working on to make sure that it's a fair because the problem with straight commission is you know on the 29th of the month they might sell something that the person doesn't need so they can make their rent check the next month oh yeah yeah and then the problem with

hourly is they're not incentivized to do everything because they're not incentivized but ultimately you know the big thing is raise your prices, raise your prices and raise them again. And when you're sick of raising them, then you should raise them again. I can't tell you. Yeah, I agree with you. So I like a lot of people that have been on the podcast. And I think a lot of smart people are here. But I really like you. I really like the fact you know what you're talking about and how do people get ahold of you? So growthforce.com, G-R-O-W-T-H, force.com is our website. We've got a whole bunch of tools right there on the homepage. You scroll down to

increase profits, improve cashflow, reduce your risk, especially fraud. Be careful of fraud. If your bookkeeper who's paying the bills is reconciling the bank account, be afraid. If your bookkeeper insists on running payroll, that's the single biggest way you can get ripped off. We could do 45 minutes just on how business owners get ripped off and what you can do about it. That's my specialty at Ernst & Young. I'm on Twitter, Sking G-Force. Stephen King CPA is my LinkedIn profile. But you can email me, Stephen, S-T-E-P-H-E-N, at Growth Force.

And I love answering small business owner questions. That's kind of my love language. So, you know, if you've got a question, I'm happy to answer it. You've definitely seen the stuff that I've seen. Like, there's a lot of things going on right now with email. Phishing is what they call it. And it's so easy.

Spear phishing is worse. Yep. Yeah. It's getting very, very advanced. You know, you mentioned a book by Ron Baker. What is it? Value? Value Pricing.

I always ask, what are three books that you recommend to the audience? Oh, my favorite. I got it on my bookshelf right here. Traction. I got Gina Wickman. Gina Wickman. He was on the podcast a month ago. He was? Yeah. Man, what management monitors gets done. What do you want to get done? That's what you monitor. I run the company in this. Every week we have a traction meeting. Every quarter we have a traction retreat. It's a step by step guide for business owners to actually get traction and resolve issues. The other one that I love is Start With Why, Simon Sinek. People do not buy what you do. People buy why you do it. People don't buy payroll from us. They don't buy bank reconciliations. They don't buy financial statements. They buy increasing profits.

They buy improved cashflow. They buy peace of mind, sleeping at night because they're not worried about getting ripped off. People don't buy what you do. People buy why you do it. And I would have to say my favorite, the first book was The E-Myth, Michael Gerber. Every business has four legs to a stool. You got to have a product. You have to be good at that. You have to be good at sales and you have to be good at service. And the last piece is finance. And most human beings are good at two out of four. Entrepreneurs have that extra gene. So they're good at three out of four. You need to outsource the fourth leg. And for most business owners, it's finance. Because they didn't go to school to get an MBA in finance.

And so by outsourcing to a company like GrowthForce or whomever, you can focus on the other three legs of the stool. And those are the companies that are wildly successful. You know, what's interesting is his wife and him were just in here two months ago, and they handed me one of the original e-mits, and they signed it for me. It was right before the pandemic, and he said, why is this place filled up with people? I said, well, you came on the wrong day. But anyway, he was such a nice guy in his 80s, super relevant, super smart.

I'd like to finish it up, Steve. I'm going to give you the floor to talk about one last thing that you're passionate about. Maybe one thing that we could do today in this time of trials. Just give you the floor here for the next few minutes. Well, I think it's about team and technology, right? It's all about people, process, and product. And one of the things that gets me excited is making a difference in people's lives. And on our website, we've got a bunch of tools that we've created for our clients that during

this COVID-19 crisis, this global pandemic, we're giving it away to our clients and friends and prospects. And our cash flow forecasting tool I mentioned, so you can download, automatically download from QuickBooks your receivables and your payables to make it easy to have your fingers on that pulse of a 13-week cash flow. That's number one. Number two is a break-even calculator, a tool that lets you see what are my fixed costs? What are my variable costs? Most CPAs, that's not how we think. This is management accounting when you start talking about fixed versus variable. And there's a big difference between financial statement and manager reporting. The other is the KPIs. We've got a KPI toolkit that is a one-page scorecard

that shows you the five most important drivers of every business. Top line revenue, what's the trend on that? Gross profit dollars, gross profit percentage, which to me is the number one measure, net income dollars and net income percentage. And what we do is people drive profits. So we study on this scorecard, how do people drive profits? We look at revenue per hour paid, labor costs per hour paid, and what's the ROI on your total labor costs? And those three tools we have found,

combined with a PPP calculator, if you haven't figured out how much of this is going to be a grant that you don't have to pay and how much is a loan, you should get the calculator. We have a whole COVID toolkit here to help you make sure that you're coming out of this stronger than you went in. And now is the time to automate, automate, and automate. Because the bookkeeping function and the accounting clerk function, they'll be gone in the next three years. And the companies that are leading it are getting ahead of that curve right now. Holy cow. Well, Stephen, my man, you got me excited about these numbers.

You know, I think we do an amazing job here. I'm going to call you because I want to bring more value to the listeners. I just love what you teach. I love how, you know, I tell people the fact, my real competitive advantage, it takes us a half an hour every other week to do payroll. Not because of me. It's because Adam Ross and our data integrity team and Jed, they do an amazing job. Ultimately, how can you get things done faster and better? I'd love to talk more.

Can't wait. Thanks, Tommy. Appreciate you very much, man. Hey, guys. I just wanted to thank you real quick for listening to the podcast. From the bottom of my heart, it means a lot to me. And I hope you're getting as much as I am out of this podcast. Our goal is to enrich your lives and enrich your businesses and your internal customers, which is your staff.

And if you get a chance, please, please, please subscribe. You're going to find out all the new podcasts. You're going to be able to ask me questions to ask the next guest coming on. And do me a quick favor, leave a quick review. It really helps us out when you like the podcast and you leave a review, make it four or five sentences, tell us how we're doing. And I just wanted to mention real quick, we started a membership. It's homeservicemillionaire.com forward slash club. You get a ton of inside look at what we're going to do to become a billion dollar company. And we're just, we're telling everybody our secrets basically.

And people say, why do you give your secrets away all the time? And I'm like, you know, the hardest part about giving away my secrets is actually trying to get people to do them. So we also create a lot of accountability within this program. So check it out. It's homeservicemillionaire.com forward slash club. It's cheap. It's a monthly payment.

I'm not making any money on it to be completely frank with you guys, but I think it will enrich your lives even further. So thank you once again for listening to the podcast. I really appreciate it.