Episode Transcript
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Speaker 1 (00:00):
Welcome to the
Profitable Painter Podcast.
The mission of this podcast issimple to help you navigate the
financial and tax aspects ofstarting, running and scaling a
professional painting business,from the brushes and ladders to
the spreadsheets and balancesheets.
We've got you covered.
But before we dive in, a quickword of caution.
While we strive to provideaccurate and up-to-date
financial and tax information,nothing you hear on this podcast
(00:22):
should be considered asfinancial advice, specifically
financial and tax information.
Nothing you hear on thispodcast should be considered as
financial advice specificallyfor you or your business.
We're here to share generalknowledge and experiences, not
to replace the tailored adviceyou get from a professional
financial advisor or taxconsultant.
We strongly recommend youseeking individualized advice
before making any significantfinancial decision.
(00:43):
Welcome to the ProfitablePainter Podcast.
I'm your host, daniel Honan,cpa, former painting business
owner, and your guide tomastering the numbers to drive
success.
And I am here joined today bymy lovely co-host, richard
Dunton, enrolled agent.
How's it going, richard?
Speaker 2 (01:00):
I'm good, Daniel.
I appreciate that introduction.
I've never been called lovelybefore, but I like it.
Speaker 1 (01:06):
I'm going to hold you
to it.
Yeah, yeah, I mean, I thinkthat's, if you look at our
reviews, that's what clients aresaying about you.
I mean you're just lovely towork with.
They just really enjoy yourcompany and I enjoy your company
as well.
Well, that's very kind, thankyou as well.
(01:27):
Well, that's very kind, thankyou.
So I'm super excited.
Today we're going to talk aboutidentifying the bottleneck in
your business, using a frameworkthat we use with our clients to
help them break through to thenext level.
Because a lot of folks thatcome to us and they're
struggling financially in someway and they're hitting a
ceiling there and they want toget to a certain goal but
(01:49):
they're not sure how or what'sholding them back, and so
there's a framework we're gonnago through today that should
help you identify what yourconstraint is, and then we'll
touch on some ways you canaddress that constraint.
And this is actually from a bookthat I wrote called Profitable
(02:11):
Painter how to Scale yourPainting Business While Avoiding
Profit Leaks, crushing Taxesand Financial Guesswork.
It is releasing on Amazon onSeptember 8th, so you can pick
it up there.
But if you want to get it forfree, with a bunch of other cool
resources, you can actuallyjoin the book launch which we're
(02:33):
doing a book launch onSeptember 9th, and if you want
to register for that, you can goto profitablepaintercpacom
slash webinar.
Profitablepaintercpacom slashwebinar.
Profitable painter cpacom slashwebinar.
So, uh, definitely, this iskind of just so folks know we we
recently rebranded frombookkeeping for painters to
(02:54):
profitable painter cpa and thebook is kind of is coming out
and in congruence with thatrebranding.
Um, but this is kind of aculmination.
This book is like a culminationof what I've learned over the
last nine plus years of workingwith over 400 painting
businesses, from startup to 20million in revenue, and I try to
put the frameworks that I'velearned to help painting
(03:17):
businesses know their numbersand what they mean and stay big
in tax and scale to whateverlevel they're trying to scale to
.
So I'm super excited.
So, again, if you want to joinus on the book launch, you'll
get a free copy of this book.
That's September 9th and if yougo to ProfitablePainterCPAcom
slash webinar, you can register,get the book for free and then
(03:39):
a whole bunch of cool specialgifts that I'm going to give out
during that time.
So definitely want to attend.
So let's jump into the topicfor today, which is identifying
your bottleneck and scaling tothe next level.
Speaker 2 (03:56):
Yeah, I've gotten a
chance to read like an early
copy of the book.
I haven't gotten my paperbackone yet because I'm waiting for
the release date but there'sdefinitely a lot of really good
information in there.
Daniel, I don't think you heldanything back when you created
this out what your constraintsare and learning how to not only
(04:28):
identify them, but how are yougoing to push through that and
unleash, you know, the growththat you're looking for, so I'm
excited to talk about it.
Speaker 1 (04:35):
Yes, sir, let's dig
into it.
So we use a framework.
It's called GAPS, g-a-p-s.
It's a backronym, I believewhat's that's what it's called,
a backronym spell somethinganyway.
G A P S.
Uh, the first constraint isgenerating customers.
That that's the firstconstraint.
(04:56):
So that one's, I think, kind ofunderstandable, like if you
some symptoms that you mighthave is your revenue is stagnant
, your maybe lead flow is down,you have low close rates, so
those are some potential thingsthat you might experience if
(05:19):
you're having this constraint.
So those are some indicatorsthat you might have this
constraint.
So I think that's that's a verycommon.
A lot of people think that theyhave this one, but they
actually have another one, whichwe'll talk about later.
But this one is, um, you know toget into how to solve it, uh,
there's, there's kind of a onething that I like to look at
(05:43):
before anything else is reallylooking at the sales process and
there's three main numbers outof the sales process that can
kind of tell you is your salesprocess healthy?
That's your set rate, your showrate and your close rate and
those numbers.
Taking a look at those numbers,first you got to track those
numbers and usually it's in yourCRM, but making sure that those
(06:08):
numbers are healthy, comparingthose to benchmarks, which are
all in the book.
But that's where I like tostart.
When you're, when you're notgetting as much customers that
you were hoping for, taking alook at that.
That sales process first,because maybe you're getting
enough leads but they're justnot converting.
Because your sales processfirst, because maybe you're
getting enough leads but they'rejust not converting because
your sales process needs somework.
(06:29):
So I like to start there.
Speaker 2 (06:32):
And if a business
owner tracks these metrics the
set rate, the show rate and theclose rate that will give them
some good information aboutwhere their process is lacking
right.
Maybe, like you said, they'regetting enough leads but they're
not able to set those leads ontheir calendar because they're
(06:54):
not responding fast enough tothe lead.
That would show up if you havea low set rate, or perhaps a low
close rate would help youunderstand hey, you're getting
interest, you're going to doproposals, but there's something
not quite right with your salesprocess that allows you to
(07:16):
close those proposals intocompleted work.
So I think, like you said,having that CRM will allow you
to gather that data and thenyou're looking and seeing where
the weaknesses are in yourprocess so you can direct your
efforts at the things that needattention the most and be the
(07:37):
most effective in overcomingyour constraint.
Speaker 1 (07:40):
Yeah, definitely.
I mean CRM is helpful, even ifyou just have a spreadsheet you
could do it.
I mean, I've seen paintingbusinesses just do it with a
spreadsheet.
But just knowing, knowing thosenumbers and what, where you,
where you're, where you stand oneach of those metrics and then
how they compare to to thebenchmarks.
That's the first thing I lookat is the sales process.
(08:02):
The next thing so let's say,assume your sales process is
good, You're hitting, you havesome general numbers.
Maybe your close rate is around40%.
Your share rate's really high.
Your set rate is appropriatefor the type of leads that
you're getting.
Then we go into do what hasworked historically.
(08:22):
So first check your salesprocess.
Next step is do more of what'sworked historically.
So first check your salesprocess.
Next step is do more of what'sworked previously.
So whatever you've done in thepast that's worked, that has
gotten you leads, do that more,Do that better.
So it's not recreating thewheel.
Whatever you've done in the pastbecause sometimes I know I've
(08:43):
been at fault here is you'll doa certain marketing thing and it
starts working and it's great,and then you get a bunch of work
.
You kind of get busy anddistracted and then it's work
slows down again and then youforget, like the reason why you
had all those customers wasbecause you were doing that
thing that you stopped doing.
Do that thing first.
Right, if you something youknow that works and it's worked
(09:05):
in the past, try do that doingthat again.
Do it consistently.
Maybe do it better than whatyou did it before.
So just to throw out an example, maybe you get all your work
from referral and repeatcustomers.
So and that's maybe you do likea monthly email newsletter or
(09:25):
direct mail newsletter, or justcalling past customers or
sending out text messages topast customers, or maybe going
to trade shows, whatever thething is that has worked just do
that more.
Do that again.
Whatever the thing is that hasworked, just do that more.
Do that again.
Do that more, do thatconsistently and see if that
gets you to then break throughthat ceiling that you're
(09:49):
experiencing with generatingcustomers.
Now, once you've, let's say,you do that, you re-engage those
past customers or whatever, youdo more of what's worked, but
it's still not doing anything.
Maybe you even do it better.
You try to do more you knowmore reach outs to your prior
(10:10):
customers, or you try to do youknow more spend on Facebook and
it's just not giving youtraction.
To get to the next level.
Maybe this is when you want totry to add on another marketing
channel, and so I usually liketo choose a marketing channel
(10:35):
that supports what I'm currentlydoing, that I know that works.
So, for example, maybe you getall your clients through door to
door, like door knocking, andthat's been working and it's it,
but you kind of hit the ceiling.
You feel like, so maybe add in,layer in, direct mail on top of
(10:56):
that, Like, so you do your doorto door in a neighborhood, then
also do every door mailers toto those same houses, so you're
hitting them multiple times in adifferent way.
Or let's say, maybe you have areally strong Facebook, like
organic Facebook, and you have alot of folks that find you on
(11:20):
your organic posts.
Maybe you're in Facebook groups.
Maybe if you start adding inFacebook ads on top of that,
that will support and complimenteach other.
So looking for a marketingchannel that kind of compliments
what you're already doing andmaybe makes it more powerful.
Speaker 2 (11:40):
But now, as you
mentioned, Daniel, these new
marketing channels, these arecomplements to what you've
already been doing, that youknow what's work, that you know
that works.
They're not a replacement forwhat has been working, Just kind
of roughly speaking.
What would you suggest thepercentage of your advertising
(12:02):
budget should be Like?
Do we continue putting like 80%of our efforts towards the
tried and true and 20% towardssome experimental new channels?
Where do you see that ratio at?
Speaker 1 (12:16):
Yeah.
So basically, in order to kindof for generating customers, you
have to spend more money.
Typically, that's the you know,the more especially if you're
going from repeat referralcustomers to more people who
haven't heard of you beforeyou're going to have to spend
more money.
So usually you're going to haveto increase the amount of
(12:37):
money're spending on on clientsto acquire customers for the
most part.
So now, if your other metricsthat you know we've talked about
in past episodes it's in thebook if your other metrics are
healthy, then you should be ableto support that increase in
marketing spend.
But the idea would be you wouldcontinue to do what you know
(13:00):
that works at the same level,whatever that is.
But then you're adding onadditional marketing on top of
what you're already doing.
Because, again, if this is thebottleneck in your business, if
everything else is working andthis is the thing that's
preventing you to grow, thenyou're going to have to do.
We've already done more andbetter of what's worked.
(13:22):
Now we have to add in newthings that will hopefully work
to break through that ceilingthat we're experiencing.
Speaker 2 (13:30):
So don't replace any
of the tried and true.
Keep that as your bread andbutter and then add additional
new experimental channels.
I like that because it's goingto also help you get better
feedback right.
If we're continuing to do whatwe have been doing, we know what
our baseline is and then if wesee an improvement in our leads,
(13:52):
then we'll know it's from theexperimental stuff and we'll
know how to quantify the returnwe get on that.
But if we start chopping awayat our bread and butter, it will
be very difficult to know whyour numbers are the way they are
.
So that makes a lot of sense.
Speaker 1 (14:11):
Yeah, yeah,
absolutely.
So that's a rough framework.
There's more details in thebook, obviously, and we'll cover
it in more detail at the booklaunch on September 9th.
So if you want to register forthe book launch we'll go into
this more detail Go toProfitablePainterCPAcom slash
webinar and register for that.
(14:32):
You'll get a free copy of thebook and a bunch of other really
cool resources.
So let's talk about the nextconstraint, which is a for
aligning labor with demand.
This is basically do you haveenough people to to meet demand
enough people on your team?
And I really like thisframework that Tara Riley has
(14:56):
from the Academy forprofessional painting
contractors.
She was the CEO of Fresh CoatPainters, where she oversaw 180
painting businesses, and soshe's super knowledgeable on all
things painting businesses.
But she has this frameworkcalled the rule of three, and I
(15:17):
really like it, especially when,when I when figuring out, do
you have a constraint with yourcurrent staff?
That you have, and so the ruleof three is that you need to be
able to respond to leads comingin within three minutes.
So if a lead comes in, likeeither calls, signs up on
(15:39):
Facebook as a Facebook ad leadhowever the leads are coming in
you should be able to get backto that lead if you don't answer
initially within three minutes.
So that's the first rule, andthen the next one is, once you
(16:00):
get that lead in, to schedulethem for an estimate.
An in-home consultation youshould be able to get out there
within three days probably needsto be dedicated to responding
to leads within three minutes.
(16:20):
Then you need to have asalesperson that can be out at
someone's house within threedays of them requesting an
estimate.
And then the last one is threeweeks to produce the work.
So once you sign the person upfor painting services, you need
to be able to get a crew outthere within three weeks to
produce the work.
(16:41):
And so if you are unable to hitthose that rule of three metrics
, three minutes, three days,three weeks then you might be
constrained with your labor.
So now this might not be thelimiting factor of your growth
because really, again, withthese three constraints
(17:07):
generating customers, aligninglabor with demand, and the
policy constraint that we'lltalk about here in a second
there's only one of these thingsthat are holding you back.
So you might have issues onmultiple of them, but there's
only one that's holding you backfrom growing.
This is the theory ofconstraints that Eli Goldratt
came up with many years ago.
(17:28):
That is well accepted.
But you know there's only onebottleneck.
So if you have a lot of demandfor your services, maybe leads
are coming in, you're closingdeals and you're booked out for
six, seven, eight weeks, youmight be constrained with labor,
(17:52):
because if you're booked out,eight weeks that's a long time
to close a client and then toproduce the work, because a lot
of things can happen withineight weeks.
You know client changes theirmind.
I mean, we had that disasterthat happened in North Carolina
where the hurricane came throughthe Appalachian and you know
(18:16):
that destroyed a bunch of homes.
So there's painting businessesthat had booked a bunch of work
and but then all the homes weredestroyed in that, you know, and
they lost all that work, youknow.
So there's things that canhappen that the further out in
the future it is, the lesscertain it is.
So ideally you want to producethe work as as quick as possible
.
(18:36):
Now, yeah, and so using the ruleof three as kind of your
guideline to kind of say okay,do I have, am I have the ability
to generate this work withinthat timeframe.
So if you're significantlybooked out or you're not able to
respond to lead.
Maybe you get in all the leadsbut you're just not replying to
them within three minutes andyou get to them the next day.
(18:59):
Maybe you don't really have alead problem or generating
customer problem, maybe it'sjust you need somebody to be
dedicated to answering the phone.
So this is a common constraintthat folks and it really comes
out.
How do you solve this Once youdiagnose it and say, okay, this
is my constraint in my business?
Basically you start looking foreither your current team needs
(19:25):
to cover down maybe you havesome slack in the system and
somebody can cover down oncertain tasks or maybe you can
improve efficiency or capacitysome way.
But if not, then you'll have tohire somebody to give you more
capacity to accomplish the ruleof three three minutes to lead,
three days to an estimate, orthree weeks to produce.
Speaker 2 (19:49):
I like that framework
.
It's easy to remember and Ithink it really kind of helps
you diagnose where yourmisalignment is and it gives you
some metrics to work off of.
So that's really valuable.
Speaker 1 (20:03):
Yes, sir.
So the next one is the policyor behavior constraint.
So I think the first two arepretty understandable.
I think when describing this,people get it pretty quickly.
But this third one is actuallythe most common, even though
when I say policy or behaviorconstraint, you know I'm sure
folks listening are like whatthe heck are you talking about?
(20:24):
And I get it, but it's actuallythe most common constraint that
we see when we're working withfolks for the first time.
So and I'm going to, we'regoing to hit on some of these
things we can't cover it alltoday in one podcast, but if you
want to hear more about thepolicy constraint, which is the
(20:45):
most common constraint that'slimiting painting businesses
from going, definitely go toprofitablepaintercpacom slash
webinar and register for thebook launch, where I'm going to
go into this in more detail.
Plus, you'll get a free copy ofthe book and a bunch of other
resources I'm excited to giveyou that I've been working on
(21:06):
for the last several years tohelp painting businesses grow to
the next level.
So the policy constraint isbasically it comes down to
either pricing, cash flowmanagement or compensation, just
kind of like three differentthings that could and it's
basically you have some sort ofpolicy in your business or
behavior that you're doing inyour business that's hurting
(21:28):
your business from growing tothe next level.
So it's kind of like aself-inflicted pain that you're
causing for your business.
And so the first one is pricing, which I think a lot of people
have.
There's a lot of talk aboutpricing, how to price correctly.
If you don't get the pricingright, it definitely will hurt
your business, especially ifyou're underpricing, because
(21:51):
you're likely your margins aretoo low and that's going to
prevent you from really beingable to grow.
Because if you don't have a lotof profit margin, it usually
means you don't have a lot ofcash and you usually you need,
you need money.
You need cash to be able toreinvest into the marketing, to
grow the business.
So pricing is a huge, hugepitfall there.
(22:15):
The next one is cash management.
Sometimes folks have decentprofit margins but they're just
not managing the cash in a waythat's, you know, helping them.
So, for example, taking adeposit some people don't take a
deposit, so if you don't take adeposit, that means you're not
(22:37):
getting paid until after the jobis done.
So you're having to pay for themarketing to close the job.
Pay the salesperson, pay theteam, pay the salesperson, pay
the team and then you get paid.
So it's just like you're notgetting your.
It's cash is going out all thistime and then finally get paid
at the end.
So it's a recipe for disaster.
You're going to have some sortof deposit.
(22:59):
A lot of the clients we workwith take a 50% deposit and so
in the book I go into a lot moredetail on that and how to make
it work, but that's a commonthing, like not taking a deposit
or taking a really low deposit.
And then there's also likepaying your team, like the
timing of paying your team Ifyou have subcontractors, making
(23:21):
sure you get paid before you paythem.
Paying your team if you havesubcontractors, making sure you
get paid before you pay them.
And the whole game with cashflow is really to get paid
faster and then slow downpayments to others.
That's the key is to get paidfaster and slow down payments to
others.
So you know, take a deposit,collect as soon as you can from
(23:42):
your customer and then delaypayments when you can, for
example, putting your materialson your Sheryl Williams account
or running payroll every otherweek instead of every week, or
paying your sub after you'repaid.
Again, we're trying to have acash positive cycle, get paid
(24:07):
faster, slow down payments toothers.
And then the last category ofthe pricing I'm sorry of the
policy or behavior constraint iscompensation to your team.
So sometimes folks just havecompensation plans that are out
of whack, like they're paying,overcompensating their team, and
(24:30):
so just just understanding whatshould the salesperson be
getting as a commission or as acompensation plan, or what
should a production manager getpaid, or what should an office
person be paid, what should apainter be paid, just
understanding those numbers andmaking sure you're not
overcompensating.
(24:51):
If you're overcompensatingsignificantly, that can
obviously constrain yourbusiness because that's going to
eat into your margins and againaffect your cash flow.
So in the book we give you allthe numbers and compensation
plans and we'll also go throughit on the book launch on
(25:11):
September 9th.
But that's the last constraint,the policy or behavior
constraint.
Speaker 2 (25:20):
Yeah, I can see why
this is one that a lot of people
struggle with and can almost belike the most difficult of the
constraints to approach, becauseit requires us to really look
at ourselves and be self-awareand to say have decisions I've
made been the reason that wehave this bottleneck?
(25:42):
Do I need to change my thinkingon my relationship with money
and how I ask for money from mycustomers, how I pay out money
to my employees?
Do I need to maybe check myselfthere?
Have I initiated policies thataren't, you know, healthy for
(26:04):
the business, and why have Idone that?
Do I need to maybe kind ofthink of my mindset?
So this one could be a littletricky, because we have to do
some self-reflection and maybethink about why we're making the
decisions we're making, and arethey really in the best
interest of our company?
Speaker 1 (26:22):
Yes, sir.
Yeah, it's usually like whennew clients come on board, um,
usually it's the policy orbehavior constraint that's
because they'll come.
They'll say it's just.
This happened just todayactually.
Um, I asked you know, so whatdo you think is really holding
back your, your business, fromgrowing?
They're like customers.
We need more customers.
Like it's we.
(26:43):
We really just need to get morecustomers in.
Once that we get more customersin, that will solve everything.
But the thing was they only hada couple thousand dollars of
cash in the bank and they onlytook a 20, they only took a 10%
deposit down and they weren'tfully.
They weren't using theirSherwin-Williams line of credit.
(27:05):
So you can't really, if youonly have a couple thousand
dollars in the bank, it's kindof hard to grow.
You really need to have somefunds to invest into marketing.
So you know we that was.
The first thing I brought upwith them was the policy
behavior constraint.
(27:26):
We need to.
We need to increase the deposit, we need to start using that
Sherwin Williams line of creditso we can get more cash into
your bank account.
And the other thing we probablyneed to look at is your pricing
.
So, yeah, it's, it's definitelya big one and the most common.
So that's oh go ahead big oneand the most common.
Speaker 2 (27:46):
So that's if you're
oh, go ahead.
Oh, I'm sorry.
I just kind of wrap up thatthought I was going to say if
your pricing is too low, thenmore customers does not mean
more money, because you're notmaking anything off these
customers.
More customers is actuallygoing to be a problem for you
because you don't have the cashto hire the people and buy the
materials.
So yeah, when things aregetting tight, we always think,
(28:11):
well, I need more leads, I needmore customers.
But if we don't have thesepolicies corrected, then more
customers could actually be nota blessing but kind of a curse
until we get these things fixed.
Speaker 1 (28:25):
Yes, sir, all right,
so that's the GAP.
Of the GAPS framework, the S isscale to the next constraint.
So this basically once you fixone thing in your business, you
scale to the next thing thatbreaks right.
(28:47):
So for an example we just gaveabout the business, you know,
once we fix the policy issuesand we get more cash in the bank
, then their constraint willprobably be customers, because
then they'll have some cash andthen they need more customers.
So that's now the constraint.
So now we can put more moneyinto marketing or whatever we
(29:09):
need to do there, improve thesales process and start focusing
on that.
Because the problem is, if youthink your constraint is
generating more customers butyou have all these policy issues
, then you're focused.
You don't have any money in thebank, but you're focused on
trying to generate morecustomers.
It's kind of like you're notgoing to be able to successfully
(29:33):
do that unless you just take ina bunch of debt, which is not a
great way to grow.
You know, take a bunch of debtout to finance growth.
You want to use your customers'money to finance growth, which
we talk about a lot in the bookProfitable Painter, and we're
going to talk about the booklaunch as well.
Profitable Painter cpacom slashwebinar If you want to join us
for the the live book launchevent, which you will get a free
(29:56):
copy of the book and also abunch of cool resources that I'm
going to be giving out for free.
So I'm excited about that Cool.
So any last thoughts on thistopic, richard.
Speaker 2 (30:10):
No, I think it's a
wonderful framework.
You know, one of the biggestthings our clients tell us is
like hey, I need help growing mybusiness.
And you know, as accountants,we're really good at looking at
the numbers and seeing where theweak spots are on the profit
and loss.
But these constraints and thisframework really help us to kind
(30:34):
of say what needs to be doneabout it.
We see the numbers.
The numbers are showing a redflag.
Okay, what's causing that andhow do we work through that?
So I think this is a greatadd-on to to a lot of what we
already do and I think a lot ofpeople are going to really
benefit from this portion of thebook.
Speaker 1 (30:54):
Yes, I agree, and I
know that they they do, because
you know that's that's what wedo when we work with folks is
use the gaps framework toidentify what their constraint
is and help them fix it.
So, yeah, I'm excited If youwant to join us for the book
launch event in case you missedit, I think I only mentioned it
(31:15):
like 10 times in this podcastSeptember 9th at 9 am Pacific,
12 pm Eastern, and you canregister at profitablep cpacom
webinar.
We look forward to seeing youthere.
Awesome.