How to Make sure you are being profitable in your businessNov 10, 2020
Here is the transcript of the video
Hey guys, I'm Jason Geiman host of the King of pressure wash podcast. I'm a self-employed entrepreneur. I grew my pressure washing business to a million dollar business in under five years. And now I'm here helping hundreds of pressure washers start grow, be successful in their pressure washing business so that they can be the King of pressure washing and their area too. Today's show is going to be an awesome show on the King of pressure wash [inaudible]. I have mr. Dan, mr. Dan is a bookkeeper, and we're going to talk about how to make money and not just how to make money, but how to make sure that we're being profitable. Make sure that we're not doing stupid stuff with it, just because we make money doesn't mean that we need to spend it all in one go. And so that is what I want to talk about because you know, this is what can make or break this will, what, following this stuff here that we're going to talk about tonight, this is what's going to make sure that you're in business over year after year, after year after year. And rather we're going to grow it to sell it or grow it to whatever we're, you know, to be successful. This is some things that we got to look at to make sure that we are being successful at the end of the day. Dan, tell me who you are and where, you know, your family and all that good stuff.
All the background. So, yeah, thanks for having me, Jason. It's cool to, so we're w you're out bookkeeping, beer and BS this last Wednesday on our Facebook live that we do now, we get to do it again and dive into some some finance stuff tonight. And then I get to see you in a few days in Nashville. So we're like running the, running the gauntlet here. We'll be sick of each other. W where we'll either really like each other after all this, or we'll just be totally sick of each other blues guys in the house. Oh yeah. Well, yeah. So, so yeah, Dan Plata with blue sky services. So I'll get into the business stuff. We got a lot of like goofy things going on. But you know, the reason why we do these things and you and I like jumped on a little earlier here and we're just talking about our kids.
And it kind of all comes back to our family. And I, Josh Latimer always says like he's mostly just trying to impress his wife and like make the family proud. Right. And so I think that just so rings true. It's like, yeah, we could go get a job and work in the corporate world, but then you're just doing somebody else's work. And it's really, it's way more fun to create your own and do your own thing and try to show off for your wife while you do it. So I got a married, two little kids, a four year old and two year old daughter. We'll see, we'll see if we ever, hou know, we're kind of at that, like, do you have a third one or not? Like, should we, should we not? So we're, we're, we're not, u,'re not pulling the plug on it, but as a finance guy, you know, I don't know if I want to like,
Have to get a minivan and, you know, re redo all my assets for, for a third car seat. We'll see. But yeah, so, so blue sky services. So we've been around since about 2010, we got into the business by buying a company called blue skies window washing in Minneapolis, and they were doing the, the origin story has been told a few times, and basically they were doing $60,000 a year in revenue, thereabouts, then two employees, one that could go on ladders and one that legally, or, you know, for, for weight restriction purposes, couldn't go on ladders. And, u,d the, the guy that couldn't was the only one that showed up on day one with his beer drinking cutoff t-shirt on. Um, se didn't make it too long with the business, but we started with a small window cleaning company, acquired other companies along the way.
And so now we have two different window cleaning companies, one in your backyard and Cincinnati. Umnd then we have three home cleaning companies, hne in Cincinnati, one in Cleveland, one in st. Louis. Um, anust in the last few years we took our, we had this administrative team in the background that served all of our operating operating teams. So we took that and started doing that for external clients and the things that scaled the best for, for us that we could do for our locations. And therefore we could do for external clients as well was our recruiting and our bookkeeping and our marketing. And obviously I got bookkeeping fear and BS up behind me cause I'm the book or the group. Um, buor me, it's mostly, it's like you and I talked about the other day, it's all about just helping people and trying to like, especially folks that are new to the industry and maybe leaving a corporate job and like trying to figure out what's the focused on. And one of the first few things too. Um, and using my, my finance powers, hopefully I'm just trying to like provide as much information and content and coaching as I can to help people make good business decisions, avoid the pitfalls and make a lot of money faster.
Awesome. So when you were doing the I'm doing, did you ever do any pressure washing or was you always just kind of the books kind of person?
So I joined blue skies officially, like full-time back in 2016. But I had been for probably five years before that doing bookkeeping stuff and, and merger and acquisition stuff. And kind of had like the game plan eventually to leave my corporate gig and, and full-time kind of replaced Mike Delcy, who is our CEO at the time and still one of our business partners,uI've sprayed a couple houses, I totally oxidized or hit one that had some massive oxidation. Umnd so that that's like the one house that I've pressure washed I've I botched cause the ratio was too strong, so they don't let me do that anymore. But, u,u know, we do, we do more window, I'll say then pressure washing, u, our couple of locations, but obviously like more and more and more and more the pressure washing the soft washing, like gets to be a little bit bigger chunk of our portfolio every year.
But actually where I, when I first started the first thing that we did that was like, Hey Dan, here's your thing was we started a home cleaning business in Minneapolis, everything we had had in our business portfolio up to that point we had bought, and we had never said, we're going to launch a business from the ground up. But largely because you just have to have, you have to have like an owner mentality to do that, right. You can't just hire somebody to do that and it's usually needs to be an owner. And so we're like, yeah, let's build a business model of how we can start one from scratch that way as we grow, if we ever have somebody that's like outgrowing their role and they want to give it a shot, we have a model for how we're going to launch a business from nothing.
And so we did that and for almost two years that I was operating that and, you know, running the rest of the business. And we grew that to about 250,000 of recurring residential cleaning, which was a nice little business, but it was such a distraction for me. UI mean, when you're running any business since 250,000, we had six employees and we just struggled to find that manager and in our conversation, I'm sure we'll circle back to some of the key learnings. And so I'll, I'll this one, won't be the last time we talked to this, but I just could not find a manager, which meant like there was one Christmas. I don't remember it was Christmas Eve. It might've been Christmas Eve. My wife was six months pregnant with our first kiddo and she was out helping me clean because three of our six employees were out sick, u,, you know, quote out sick. And so it's just like the toll of that. And which is fine if, if you're running that business and that's everything you got going on, but we had four other businesses that I needed to run. And then I'm out scrubbing toilets on Christmas Eve with my pregnant wife. We're like, yeah, this business, isn't a fit for somebody trying to run, u,few other businesses too. So we ended up selling it just like focus on growing the bigger portfolio. So
Why do we need, what first off? I didn't know this the other day, but tell me what first off, what is a bookkeeper different than a CPA or, you know, just a person of a data entry. What is the purpose of a bookkeeper?
To me it's all about like having a financial business coach, if you will, somebody that's like looking after what's actually happening in the business and helping you make better decisions. So there's, there's three accounting roles that need to get done in your business. Bookkeeping is only one of them. So kind of at the onset, the daily task stuff, somebody in your business, usually you, if you're just starting out is doing accounts payable, accounts receivable, you know, invoicing clients and depositing the money and running payroll. So there's a group of accounting tasks that are,ufit for somebody that is just responsible and consistent and can run a process, but it doesn't need to be an accountant. You don't need any accounting knowledge or background to be able to do those things. You just have to be trustworthy and reliable and, you know, do a little bit of problem-solving,uat the other extremely of your CPA.
And you need a lot of education be able to do that. And you're, you're, you're very tax focused. And your work is really like once a year in a lot of cases or a little bit here and there, but your consulting related stuff from a CPA is all about tax planning, related stuff, CPAs in general. And for some reason, like this is a service industry thing is most CPAs. Don't understand how our businesses work and how they make money. So they end up being not great financial coaches for us because they just don't quite get how we trade labor for time to us. It's like, of course we send somebody out, it takes as much time it costs this. That's how we make our money. Like we're, we're not making widgets, right. We're selling labor. And so the bookkeeper role to me is having somebody that is doing your QuickBooks for you on an ongoing basis, but on a really timely manner, not once a month or once a quarter, but like every week.
So you have up-to-date information and giving you a good way to like roll that up into the right buckets to make decisions with. Because at the end of the day, like if all you do with your QuickBooks and your P and L is give it to your CPA to do tax purposes, then you might as well just like give them your bank statements. You don't need to do all the bookkeeping work if it's just for tax purposes. So what's a P and L P and L is a profit and loss statement. So it measures your results over a period of time. And so it's kind of like, it's, it's your report card. It's how you did during this period of time. So I think like a, having it in a structure that is broken down into the, the decisions that you need to make super important, but B if you're not putting the data in the right spots or not doing it in a timely manner, then you don't have the decision-making power that you're getting from it anyway. So you're kinda missing the point of the book.
So what all is on this P and L
Well, let me, I'll, I'll break it down into like how we would, how we would structure it for our bookkeeping clients and why we do it that way. So obviously the first thing is your revenue, how much money you're bringing in, but every time you go do a job, you've got all the expenses that go along with that.
I thought you just got all this money and you just, it just showed up there.
Right. And you just put it in your pocket and then, you know, tell people how much you're making. Yeah. That you brag on Facebook a little bit. No, you nailed it. Are we done? Are we done with the conversation? We've got to wrap it up, right?
So you, you got your top line revenue, right? You've got groups of expenses and I'll, I'll kind of get into the naming conventions here in a sec, but basically you've got the expenses that are going out the door. Every time you're doing a job, you've got obviously the expenses that are going out the door to bring clients in and to make, you know, make the lead transition or transaction process look pretty. You've got the people that you're paying to do that work of like converting clients. And then after that, you still have like the expenses that don't really generate revenue for you, but you still need them to run a business. Like maybe a shop, maybe insurance, maybe borrowed money. You've got some interest expenses. Maybe you go, you take your team out or, or, you know, buy courses or whatever. And so you've got overhead expenses that don't necessarily immediately generate revenue, but still need to be tracked and go somewhere.
So those, what I just explained are kind of like the decision-making buckets that we group expenses into for our clients. So the first one is cost of goods sold. And that, like I said, that's anything that you're spending. When you go out and do a job, you can say, I did this job. Therefore I incurred these expenses. So things like labor supplies, gas to run the equipment or get you there in your truck. Uthe next one marketing is pretty obvious. That would be the money you're spending on ads to get clients. But I'd even say it's the, it's the website or the software that you use to make it easy for those clients to interact with you. It's the person you pay to do your SEO. It's the charitable donations you make, or the client gives us that you do it's anything to build your brand or just bring leads in, in general.
And that next bucket, the admin bucket is what we call it is, is the people that you're paying to convert. Those leads into clients and somebody is going out to sell them, or somebody is answering the phone. If they have an issue, right. And doing the customer service stuff, or the, the person that we talked about right at the beginning, that's doing your accounting manager type things, the payroll, AP, the AR stuff. And then, so last is overhead the expenses that don't generate revenue for you, but you still kind of need them to run your business. And actually this, this area, I'll say admin, a lot of people go wrong on admin because we can, we're, we're generally pretty good at about managing our cost of goods sold. Like we can see because so many of us have been out in the field.
We just know what demons, any efficient and when they're, when they're not. So if they're being efficient, we can kind of tell if they're being inefficient. We can tell that too. So we're pretty good about managing that spend. We just understand it. The admin spend is hard to measure or hard to manage because it's hard to see somebody working at a computer and be like, Oh, they're not being efficient. Right. Every admin person in the world is like, I'm super busy. You know, like we're busy with what, like, and it's harder to track their productivity. Like the metrics when somebody is out in the field, they're pretty easy. Like how much revenue did you produce today? And did we get complaints on it or not pretty easy to tell if they did a good job, harder to tell if your admin did a good job.
And so, so I see people get tripped up on that expense bucket quite a bit, because it just feels like you need more people because everybody's so busy all the time. So that's a risky one. As we grow the other, that overhead bucket too, can be kind of goofy because there's two different types of decisions that you make within those overhead expenses. And generally we're bad at one or the other. Um, one bucket of overhead expenses would be fixed overhead expenses where you're lacking something in for a period of time. It's, it's like a negotiating decision or a contracting decision, your rent, your insurance, your interest rates, maybe some software that you buy, like when you sign up for something and you're just kind of stuck with it and you revisit it once a year, maybe. So those are, those are big once a year types of decisions. Some people are good at those. Some people are just like, nah, whatever, like just sign me up for that thing. Um, then they never revisit it. And those expenses get out of control. So those are fixed expenses, a measure of your contracting negotiating skills. I'll say
How often, like, so you're saying that you should go back and, you know, renegotiate and see like different things of like tack or insurance and stuff like that. How often should we do that? Is that something we need to do once a year, once every two years, or
I think there's two components to it. Uand not just for those costs, I think this works for everything, but I'd say revisit it quarterly a just so you have tabs on it. Uand then, you know, when, cause not everything's going to expire at the same point in time. So if you just revisit it once a year, you can be like, Oh , last month was my deadline to like, look at this health insurance thing or that you might be 11 months away from your opportunity to redo something. And then by the time 11 months is up, you're gonna forget about it anyway. And then, you know, that vicious cycle will go on. The other reason why it's good to look at quarterly is cause you pre I mean, I shouldn't even say you probably, you for sure have signed up for something that you're still paying for a new forgotten about. So, so at BBB, we do that. We're going to be at this week,uwe do a P and L detail review where we literally go through our P and L detail of where did we spend money in these different buckets and dues and subscriptions and software,uare ones that we always look at because that's where the lands that you just signed up. Or, and then you totally forgot that you're paying us 50 bucks a month.
Don't say that too much. Yeah, no, I agree. A hundred percent. That is definitely something we need to look at. You know, anywhere that, you know, if we're not using something, then get rid of it. I've done it many times. I bought something, never used it and keep paying for it, you know, but if you're using it, then it's a different story. But if we're not using it, get rid of it at the end of the day. But you know, and quarterly, I know that sounds hard for a lot of people in, you know, it is not, it's not going to be easy this to be like, Oh, I gotta do this fun thing of bookkeeping, you know, and all that kind of stuff. Doing that by having a bookkeeper is is this something that you'll be able to take everything to a CPA? Do you need a CPA? That kind of stuff.
Yeah. I mean, like, you always need a CPA. I, I, I'm not a CPA. I don't want to be a CPA. I did, I studied the finance equivalent of a CPA, which is the CFA. I just I'm too cheap to pay for the letters. And I don't really I've passed all the exams. I was like up like, I did what I set out. But like, to me, like that's what, that's what I get my jollies on is the decision-making side of it. Like I could really care less about the taxes, unless it has a, unless it means more dollars in, or out of my pocket, but you need a CPA for that sort of stuff. I even my own personal taxes, I think I was telling you about this. Like I had, I'm pretty much done. I do that myself because I'm an accountant.
I should be able to do my own taxes. Right. Had them done. There was one thing that I couldn't do on my tax software that I was using it. It was like it was going to cost me 800 bucks if I did like, have access to this one form. So I like get my CPA up and I was like, Hey, Brian, can you like, hile my taxes for me? Cause I have this $800 credit from something from our business. And I can't put into tax layer that I was using. And he's like, yeah, just like send everything over to me. And he got my taxes. He's like, well, I got that in there partying, but you also miss this thing and that thing and that thing. Umo, you know, you'll get 1800 bucks back. And I was like, man, I was about to pay 600 bucks.
So like having a CPA that understands, and that was like my first max. Right? So the more complex your business situation gets somebody gotta be looking at that for you because yeah, you're going to have to pay them. But generally they'll save you a lot more headache and time and money than it will cost you to pay them. So for sure you need that. But the beauty of having a good bookkeeper is by when you get to the year end, instead of being like, Oh gosh, I need to like scramble and whip everything together here. You're pretty much like, Hey CPA, here's my file. Bake my depreciation entries for a good bookkeeper. Like one thing we had to tell all of our clients is like, feel free to put us in touch with your CPA. Your CPA is probably going to send you some questions like right. Spanish, what link could you speak? But it's not one that I know because it's just a bunch of made up terms by people that didn't want you to know what they were talking about. I think so having a bookkeeper that understands what a CPA is asking for and can like do some of that legwork for you and be in the loop again, just like saves you the headache from feeling like you're on an Island. So I think a got to have a good one, but you also should have a good bookkeeper. I feel like
A hundred percent, 100%. Somebody asked how much do you need to make to have to before you get a CPA. And I think that it's something that is important for, you know, obviously if you're just starting out, it's one thing, but you know, if you get going, you really need to have a CPA that will save you more money in the end. And if you don't have one,
Yeah. I mean, if you have a business and it's a separate, you know, if it's an LLC or a S an entity separate of yourself, which it should be, if you're doing it for more than a hobby, and I just, just get a CPA, find one that you, that you trust. But I don't, there's no level of making enough money where you like, Oh, now's the time. I mean, it's like the time is you have a business, therefore you need a CPA. I think.
Well, and it's one thing that I always say too, you know,uthere's one thing that'll make you go to jail. Um,d this here, and it's not filing your taxes right. Or doing something stupid, we are taxes. So unless you like Bubba, u,would highly suggest you, u,ke sure that is right at the end of the day.
Yeah. Yeah. And I mean, that's like, they're, they're legally signing off on your taxes. Like they are taking that legal burden. And just like we do in our business, the reason why we set up an LLC is to try to like protect ourselves. Right. So for, for a few hundred bucks, just protect yourself, like pay somebody to sign off on those. And again, they'll probably save you more money anyway.
Awesome. So, Dan what are some things that make businesses profitable versus not profitable?
Man? I was talking to somebody the other day that was just starting up and us coaching them along is the, I mean, they're their primary expenses right now are just the labor to do the work, right? Like they're out in the field and they've got somebody helping them. They don't really have to worry about the overhead. So they're asking me like, you know, what are the top three things I really need to be thinking about to get my expenses, right? It was, it was really like your cost of goods sold your cost of goods sold and your cost of goods sold. Like they're not spending a ton on marketing. They're doing like flyers, like very like boots on the ground. They're trading their, their, their time for the marketing. They're not like doing a bunch of big spends. They're trading their time by answering the phone themselves or they're out in the field. So they don't have big expenses there. They don't have a big office or anything like that. So their expenses are literally just like going out and doing the work. The biggest thing I see is I'll, I'll, there's two, two big things in cost of goods sold. One is always making sure that you pay your employees the same way that you get paid so that you de-risk. And I'll explain what I mean by that. But the idea being de-risk your P and L right from the get go that, u,
If your customers pay you for the hour of the hours of time that you spend there pay your employee by hour, if your customers pay you by anything, that's like square footage or, or piece rate, whatever it is, that's like a fixed dollar amount for cleaning so much stuff. Then you need, then you can't pay your people hourly because just because the price was X, and now this cleaner might drag their feet or be on a bad day. And they take six hours instead of three hours, like you have a ton of risk you're exposed. So when your price is locked in, based on like a piece rate or a square footage or whatever it is, then paying commission, or like, Hey, for every square foot, you do, you make this much money, some sort of thing that ties directly to how you price your customer so that you don't have a mismatch there.
If you have a mismatch in how your customer pays you and how you pay your employees, you just open up a ton of risk for yourself that you don't need to have. And in general, in our industry, whether you're pressure washer, you're cleaning windows or cleaning houses or mowing lawns or whatever, very few of us charge hourly anymore, people used to. But I feel like now it's mostly square footage based some way somehow. So like, you really gotta be paying your guys, commission, your guys, or your girls whoever's out in the field commission piece rates, something that aligns with exactly how you bill your clients so that, you know, if you do a thousand dollars worth of work, your labor is going to be 250 bucks every time, no more, no less. It just saves you. So like getting that set up right from the beginning saves you so much time and headache, and like having to worry about if you're making money on that job or not. So that'd be the first thing getting labor paid. Right? The second thing would be understanding that equipment doesn't make money.
What I've talked to biggest shiny stuff made the most money. I thought you had to have a $30,000 rig to make money on this stuff.
You know, only only if it tucks you in at night too, I guess. Cause that's, you know, otherwise you're going to be laying there thinking about man, I got that big rig. I better be like, I can't have that thing out of production. Right. You know, like they better be working 24 seven. So I like it's the guy or gal that's out there running the equipment is the only thing making you money. So like maintenance on them is the most important part, like mental maintenance for them and employee engagement stuff. Equipment is a, is a tool that we use to get the job done. When it's not an investment in our growth we have a few rules that we use when we buy equipment. The first one is we never buy it until we have like the job on the schedule that requires it.
And that job has to pay for that piece of equipment. So like, yeah, if we have so much work out there and a bunch of little jobs, like maybe we'll go get another vehicle or maybe we'll go get another pressure washer or whatever it is, or Waterford, poll, whatever we're doing. But making sure that the work is already on the schedule that pays for that piece of equipment, like book yourself eight weeks out, if you have to, but know that that work is locked into that RP date or when you buy it. Because like for most of us, we don't understand not that we don't understand. We don't have the time to like dig into the, the interest rate off on the financing thing that we get. And nobody's going to give us a good rate on things for the most part. So like making sure you've got it paid for. And like you're not getting screwed over on financing is super, super, super, super important equipment doesn't make you money. People make you money equipment because the thing that they're using. So,
So I liked the one thing you were saying about the pay and that kind of stuff. We paid our guys hourly. We played our guys, you know, percentage and all that. Then the thing that a lot of people don't understand that even if you're paying an hourly, let's talk and go down that road of paying hourly because you know, you, you might say, well, he's only getting five hours overtime a week or 10 hours of overtime a week. You know, how much is that really coming out of your pocket at the bottom line at that point, because if you're working five hours overtime, 10 hours overtime, obviously the pay went to time and a half. You're paying all your taxes on that. You're paying payroll taxes on that. So when, when people don't realize that well, he's, you know, we don't keep them at that 40 hours. We allow them to work over to try to get this stuff done at the end. Are we really making money at that point? Does that make sense?
So, so for two reasons, it's, you're like it's a double whammy. You're really, you're, you're kind of screwing yourself over. So one is the overtime and the time and half pay and the extra payroll taxes on it. Um,mpared to if you're paying commission, you don't have to pay overtime. Um,u can't like there's a, and I, I won't get the IRS or department of labor rule. Correct. Um,t if, if they're commission-based pay overtime is not part of that calculation. Um,u can still like calculate, we, we do an hourly minimum. Like they S there's some rules around it. So it'll just say, Oh, I don't need to worry about overtime. Like, there's some specific rules that you need to meet, but in our business we pay a minimum of $15 an hour. Um, if they're not making enough commission, we do both calculations.
Well, how much was their commission? How much would this hourly minimum be? We pay the higher of the two. And if they work 50 hours, we do that hourly calculation with the overtime in there so that they still feel like, but I mean, if they're working that much and we're that busy, they're going to make $30 an hour near commission-wise if they're cranking out that much work or that busy. So I think that's one side of it. The other side of it is I'll say I have a few examples where we've helped people go from hourly paid and commission-based pay. And their productivity increases by about 40%. Um,ich is like how, right? Like, interesting. Like, no, my guys work hard. Right? Um,ve seen one guy in the pressure washing space where I was like, I don't know if I would change anything.
Like he pays hourly, but just the way I don't like the way he's managing and working at like his, his P and L is perfect. He has the risk that if his productivity goes down, but I said, man, like, you know, the old, the old adage, if it ain't broke, don't fix it. But, but in general, everybody that we've seen that was, you know, struggling, managing their costs of goods sold the minute they switched and commission-based pay their productivity, went up about 40%. You know, the guy that was doing $500 a day by himself is now doing like $700 a day by himself.
I can believe that though. Cause I used to have a guy that, I mean, I could load this sucker up. I could give him anything he want. He'd be back by three o'clock that day. Well, and he made a killing off of when we was paying through the percentage wise, he was making a killing. Well, when we sold the business, they went to hourly and he would still load him up and he would be back by three o'clock and he wasn't even getting his 40 hours. Then I'm like, dude, you need to slow down a little bit. Cause you are killing yourself. And he would be the one of, I need more hours. It's like, you you're the perfect employee for the percentage side of things. Cause he, I mean, he just knew how to make it and work it and get it done. So,
Yep. And that's the guy that you want. Right. And so like that guy is going to leave if you're paying hourly, because he's going to look at that and be like, I'm the one that's getting done at three and doing the big schedule. You got Tim over here that does 400 bucks a day by himself. Uand he around and then he works, you know, till five o'clock and complains that he's working too long. Like that's the guy you want to leave. And the other [inaudible], if you switch to commission, you're going to lose half of your employees. It won't matter because the ones that stay will pick up their work and, and make more money and you'll make more money. And so it's like, it ends up being a win-win it's a little scary at first, but
Beautiful thing about EI or percentage percentage-wise is, you know, your numbers at this point, I know we're talking about bookkeeping and numbers, but you know that a fixed number of, Hey 20, you know, I did 15%, 15 to 18%, you know, I know that my cost is 15% plus my payroll taxes and all the other crap goes with it. I'm at 20% labor versus I don't know where I'm at at the end of the day. You know what I mean?
Yup. Yeah. Well, that's, that's what I mean. It's just totally like de-risks your P and L right from the get go. Is you like that guy? That's getting done at three o'clock and making a ton of money. You want him making money? It's a very simple equation. The more money he makes, the more money you make. Like there's nothing wrong with that. I've I've had some people be like, well, like now I'm just paying them so much. Like, do I need to lower his commissions? Like, no, you can like raise his commission because it's so reliable. If you know
That you get to keep 80% of every dollar he goes and makes. And he loves doing that. Like you have a match made in heaven
Because he's going to want to make you more money. Cause he wants to make more money.
Yeah. It's just, I mean, it's, it's a very simple business principle is like the more you can get people aligned. I mean, win-win right. Like the more I can win and you can win at the same time. A, it just makes your business so much easier to run because you just have way less to deal with. Ubut B the, the decisions that you have to make are so much less frequent, you just don't encounter the same amount of drama or problems. And so it frees you up to actually like, think about growing your business, instead of think about managing these employees that aren't getting enough done in a day.
So since you have this, this is a good question here. What percentage is a good percentage for paying employees? And if, what if so, and if you have two guys, how would you split that? Or how do you split that
Good question? So very much depends on your industry that you're in pressure washing. And I'll answer the second question first, which is the cook. You should think about the commission on a per truck basis. So as if you were like sending that truck out with one person in it, pay the commission per truck in pressure washing, I'd say 20% commission is a good level. You'll find some people that will pay lower than that. Some people that will pay higher than that. So that's like a good average level. And I guarantee if you pay that level, you will be successful. Like, yeah, you could probably save a few percent, but you could also justify paying a little bit more than trying to get better employees too. So,uthere's, there's arguments both ways. I'll say in pressure, washing 20% is a good level. Uand that's a per truck basis.
So if you're sending people out solo, which I would recommend, if you get, if you can do it without creating safety issues, guys are just way more productive by themselves. I don't, you won't get the same 40% increase, but you'll get like a 20% increase. And I'll, I'll mathematically explain why even like, if two guys work seamlessly together and don't Dick around at all, and one guy's not on his phone, you'll still get about a 20% productivity bump, megardless of how well they work together or, you know, mess around and look at their phones. But if they're working by themselves out and so you just have way less distractions. Umut I'll say, mf you've got two guys out there, you know, one guy would be the lead. And so going back to that, you want to have 20% per truck. So maybe one guy's making 11 and the other guy nine or some, you know, some ratio like that, where you've got somebody that's a little bit more and has a little more responsibility.
The reason why one person crews make sense and now safety always comes first. So it's not like we're going to jeopardize safety and you'd go home. Like, just cause you run one person crews doesn't mean when there's a big job or there's a job that, you know, need somebody to hold the ladder for this thing or that thing he's still sent people like to those types of jobs, mr send a crew that has a trainee because the trainee's still going to be with somebody. Umut if you think about the number of drives when you send a crew of two out, so let's say you got a route with three jobs on it. So two person crew is that the office, they go to job one, that's two drives. They go to job two that's, four drives. Now they go to job three that's, six drives, and then they go back to the office.
So that's eight drives cause you've got two guys in that car. Uand so one drive for each of them. So you've got eight drives for two guys to go do three jobs. Um,t's, let's make it four jobs. Cause then it'll be easier to split this up. So four jobs, you've got another set of two in there. Um, now you've got 10 drives. Now you send each of those guys out individually and they both just go do two drafts, two jobs, and then come back to the shop. Each guy individually goes office to first job to second job back. So each guy has three drives. If you total together, you have six drives. So two guys in the vehicle, you had 10 drives, two separate guys with two different vehicles. You only have six drives. So you have a 40% reduction in your drive time, basically.
And driving, you know, doesn't make any money, right? The customer's not paying you to drive. So the routing might be a little bit different and you could argue their drivers might be a little bit longer. So it's not quite that simple, but like in general solo crews on top of that, they tend to just be more productive in the field is what we've found. We we've seen that in home cleaning and window cleaning, like kind of no matter what they're doing, if you send two people,utheir mentality, their psychology is they work as slow as the slowest person
To ask. Also, you're also going to be getting paid more. You're going to be paying that guy more. So if you've got one guy versus split and 11% now I'm going to be making 20% at that point.
Yeah. And it's all yours, right. You're not sharing it. So you have all the incentive to like run up the Hill instead of walk up the Hill, back to the truck when you forgot something. Like it was my time and my money, if it's you and another guy like now you're splitting the revenue. So you're not as motivated to, to hustle. Right?
Exactly. And so, you know, you're, you're like I say, you know, and we had guys that, like I say, Danny, he was an amazing employee. He, we could load him up no matter what he would and he would be back in and you would be done, you know? And so that is definitely something that, you know, you're going to get rid of the lazy guys at the end of the day too, you know, because they don't want to work. So for sure. So what so talking about profit and loss and some things, what is a good number? So a lot of times we talk about our bottom line, which is profit. What's good number for our business to be profiting on either per job per month per week. What what's a good kind of a deadline to know, and that we're being in profitable and we're not spending more than what we're making.
So let me, there's two levels of profit that we need to think about. One is what's our gross profit. Umnd one is what is our net profit? So gross profit is going to be the money that you keep right after you go do a job. So we talked about cost of goods, sold, being all the costs that you pay when you go out and do a job. Um, immediately you go do a thousand dollar job. And what do you have left? Like you pay the labor, you pay for the supplies, you pay the gas. So in pressure washing, I would say you should spend about 40% of your money on cost of goods sold. So that's like I said, labor, you're paying around 20% fully loaded, call it between the, the payroll taxes and the, u,rkers' comp for the people and the uniforms that they're wearing.
You're probably somewhere 25 to 30% for wages, which leaves you another 10% for supplies, equipment fuel merchant processing fees to collect the money customer damages or repairs, if you burn supplants job related costs. So that means thousand dollar job, you spent $400 on those things. Your gross margin is the 600 bucks that you keep. So you do a thousand dollars job, but you never get a thousand dollars. You get 600. And then you got to think about your marketing, spend your admin spend in your overall overhead spend, right? So admin spend and that if you're new and starting out, and you're the one answering the phone, your admin spend is going to be super low. Uyou're maybe paying a bookkeeper CPA once a year type of thing. Umaybe a virtual assistant here or there, but I'll say as you scale up, you want that admin spend between like salespeople, customer service, people, accounting, people, your salary.
If you're taking one to be at about 15% of your revenue, that's a good level to manage with. Uyou can definitely get at skinnier, but like I said, I've seen people because it's so, it's so hard to tell if your office people are being efficient. I've seen people get to like 20, 25% and then they're like, where's all my money going. It's like, it's the lady that keeps saying she's really busy. She's a computer all day watching YouTube videos. UI mean, as long as she's watching your YouTube videos, that's fine, but yeah, just watching cat videos. Umo, and then you've got overhead expenses and I'll say fixed and variable combined should be on around 10%. So now the, the profit, the net profit that you keep is after all your marketing expenses, your depreciation of assets, stuff like this, I'll say it's, it's hard to pick a number there that is like, you should be hitting this in pressure. Washington, 20% would be a good net profit level. But, mvery dollar that you don't put back into marketing just like handcuffing
The future of your business, right? So like, yeah, you could make a 20% profit and that'd be pretty comfortable. But the more of that, that you can sacrifice back into marketing to keep growing your business, the more profit you're going to make later.
So what is a good pro what is a good number for profit? How much should we earn profit? How much should we be spending on marketing?
15% is like a good average level. So, so in the numbers that I was just laying out. So if cost of goods sold is 40%, admin is 15 and marketing is 15. Now in total, we're at 70. And then overhead, like I said, is at 10%, that's 80% of our money spent. That means we get 20 or buy a 20% net profit margin. That said like, if you want to get really aggressive, you could spend of that remaining 20%. You could dump 15% of that back into marketing. Your marketing could be 30% and early on, the more you can do that, the faster you grow, right? Like our growth is purely a function of our marketing and our repeats and referrals. So the more we can do those things and focus on those things to grow our business, like that's what we were talking about earlier. Equipment doesn't make you money. The people do, but you don't get the work unless you're spending a bunch on marketing to get those people busy. The equipment will take care of itself. I mean, not maintenance wise, but like goodbye is the work will be coming in plenty to be coming in. So yeah, I would say 15% is like a good average level for marketing in our space. But if you're at 25%, don't feel bad. Just make sure that it's converting for you.
Right? No. And so I think that this has been a good talk here. We're actually up to about 107 people in here.
So man, people, people be loving that accounting stuff.
No. I think what a lot of people are really loving is the pay structure talking about that kind of stuff, because honestly we don't get a lot of people to that understands that, and it is something that can blow your mind. And so talking about that,uyou do bookkeeping for people, is that correct? That's what we do. And so by that, what all do you all offer and how does that, how would that help somebody and kind of, what kind of price am I looking for? What kind of price a month am I looking at?
So we start our bookkeeping service at one 25 a month. And it goes up from there based on the level of activity in your business. So we'll look at the number of transactions you have in the number of bank accounts that you have transactions in. And we build our price up that way. I'll say like today we have a handful of clients that do, you know, a few million dollars of revenue and we don't, we don't have anybody that pays. We have one customer that pays us just over 500 bucks a month. So in general, you know, even for the guys doing a million bucks, they're usually like a few hundred bucks for bookkeeping. Umo I'd say it's super affordable in that sense. I
Mean, you're looking at 1500 bucks a year, but at the end of the year, you're also, this is also going to help your CPA, that he's not going to have to pay you. You're not going to have to pay your CPA as much because this is going to be like, here you go. Here's all the information at the end of the day. Is that not correct?
Yeah. I mean, it'll definitely speed that up. I don't know if they'll give you a discount or not. You might have to negotiate that that could be one of your fixed costs negotiations, but I will say the, the, the lack of good information throughout the year to make decisions with that's the that's, what's killing you. If you're not doing bookkeeping the right way and having somebody that's staying on top of it, by all means like 90% of the bookkeeping work, you don't need an accountant to do. Uthe problem is the 10% that you, you need an accountant to know, cause you're making journal entries or you gotta like understand the inner workings of QuickBooks. Like that's where things can get really hairy. UQuickBooks is great. It makes things really easy. It also makes things really easy for you to screw up and not know it. And it doesn't tell you. Uso I think, I mean, just like having bookkeeping help is great. The I'd say what draws people to it most is that they just hate doing it. So therefore, like it's great to delegate because a, you know, if you're not an accountant, it sucks doing it. And B it's not, it's not the most fun thing for somebody that likes spraying water to jump on QuickBooks at night and be like, let me code these transactions. I'm going to love this work here.
So let's talk about this a little bit because not everybody uses QuickBooks. Can we use our CRM? Do we have to use QuickBooks? That kind of questions?
You know, I don't, I, you don't have to use QuickBooks. There's a lot of different options out there. I haven't seen a CRM that does a good job of it, cause that's just not what they're made for, you know, CRMs are made to interact with your clients and bill them and all that stuff. Quickbooks is great at doing your bookkeeping stuff. And it's so cheap. Like we get it for 20 bucks a month. If our clients go by themselves, it's 40, but we're QuickBooks pro. So we get it for half off and then we just give it to our clients at that price. So for 20 bucks a month, it's not, it's, it's a very low cost software to have that data. And when we do it, like I was saying earlier, like we're in there on a weekly basis, getting all the transactions done. I was actually doing that tonight. I have a handful of clients that I'm onboarding and I doing all their drag transactions tonight. So Monday morning they wake up and they just have like done books. They're good to go. They can look and see how they're doing. At the end of the month, obviously we reconcile everything to say, does the bank,
The transactions, no duplicates. And then we send all of our clients, a P and L report that breaks down those five buckets I talked about and has those, those exact percentage targets I talked about too. And it'll, it'll color code, everything automatically to say, you're either green, yellow, or red, you're green. If you beat the target yellow, if you're like close to it, red, if you missed it. So our clients get that report at the end of the month and they don't need to know how to read a P and L they just need to, if they're colorblind, then they can ask me, you know, which color is this know. But, mhey just need to see that and be like, okay, I'm high on cost of goods sold. What's going on? Do I have a problem here? Oh yeah. I bought that trailer and I loaded it up. Okay. Like this month is high, but for the year I'm still doing good. So they see each month individually and they see the year to date. So you're going to have spikes when you load up a new trailer and you're buying hoses and reels and this sort of thing and that sort of thing. But you can keep managing to that percentage throughout the year and like keep a good tack on how you're doing.
So we're getting to the new year here shortly and, and hitting goals. And that kind of stuff has some good things to do. Is this a good thing to do with the bookkeeping also of hitting those goals or setting goals and to make sure that we're staying on track and, you know, if we, maybe we want to spend this much in marketing, but we're spending too much because we're not bringing that in. Is this something that we can use to help set our goals and make sure that we reach our goals?
Yeah, for sure. I mean, history is like the best predictor of future performance or at least lets you know where you're messing up. So for us, when we look at next year, we first look back at this year and be like, okay, like I know Minneapolis for me last year, my Minneapolis window cleaning business, our fixed costs were way out of line. We just didn't, we had too big of a space. Our rent was too high. We had interest expenses and so like going into this year, it was like, all right, I know our cost of goods sold is good. I know how to protect that part of our P and L but I have way too much fixed infrastructure. So that was like my winter project was I got to get our fixed costs back in line, back down to that 5% that I'm shooting for.
So it just let me focus on the one thing that I really needed to like strategize around,uto that point. One thing that I'm working on and I don't have it done yet. We'll see, we'll see how much progress I make this week over in Nashville. Probably not a ton I have tomorrow. And then I had some time Friday, maybe if I'm not out chasing deer. Umut I, h'm working on budgets that are pre-built for you. So it's not going to be based on what you think you're going to spend. It's going to be based on what you should spend. Umnd so it's a target budget by every single line item in your chart of accounts that you should have. Umou might not have it, but again, that's something that we could help with, but basically like here's your pre-built budget if you're in pressure washing and there's some, like you can customize it and override it to your own stuff, but it's pre-built with how much you should target the spend on any given thing.
So you just enter your sales and you're good to go. And I'm pretty pumped to roll that out here. I I'm building the window cleaning one first, a couple of tweaks and there'll be a pressure washing one. I'm going to build the home cleaning one. I'm going to build a landscaping one. So everybody will kind of like have the here's what I should be doing. And then are you doing it? And if not, you know, you can kind of tweak it and adjust it to make it fit exactly what you're doing in your business. But at least like, I think that's, that's back to your question of like, what should you be doing for next, um t if you're not building that budget, it tends to just like make you not focus on the targets next year, because what are the targets anyway? Um, building budgets is not the most fun thing in the world for pressure washing guys, right? So therefore like I'm just thinking my goal is if I can get everybody a budget and take that weight off their shoulders, that immediately gives them those goals for next year,
That somebody is asking the question, is that a dollar or a percentage budget?
I'm building it based on percentages. There's a column for you to override it based on percentages or dollars. So if you type something in the percentage override column, it'll take that one. If you type something in a dollar override column and it'll override my target percentage and a percentage that you rolled in, it'll take that one and it's going to have a building. The reason it's taking longer than I thought is I have tabs to like build your sales budget just based on your marketing spend and your repeat percentage thoughts. You don't have to use it, but if you use it, that'll roll in and same thing with how you pay your people. You can just say like, I want to spend 30% all in on my labor. Or you could say, I'm going to have this many trucks and this many texts, and this is my commission rates. And this is how many people I'm going to train each month. So I'm building that like breakout for somebody that really wants to dive in and study their labor and build it out. And then that would roll into same with purchasing vehicles and equipment and stuff like that. So trying to make it super easy to use, but also give some like added, herdery in there for people to get really nerdy on their business financials. If they want
Brooke pap pressure washing says, hurry up day and finish mine
Everybody's but I did tell Jeremy like, Oh yeah, this is just for you, Jeremy. And nobody else is gonna get this I'm no, I, my I'll start putting them out on our website here, hopefully by next, not this week, but the following week, I'm going to start rolling them out. So your blue skies.com, if you want to stay tuned on that and there will be a, your blue skies.com/jay Gaiman rolling out probably tomorrow with some special deals for anybody that's watching this self.
Awesome. put archery hunting, smack unwell. Brown is down. Uno, I didn't there. Give me back up there cow. Let me see if I can scroll back up here. Oh, I got a tax question. UI've been working under a sole proprietary and I've, I've totally reported every job, cough, cough. What should I expect at the end of the year for the jobs I've sent a w nine in for CPA,
As I say, that's, that's very tax-related. I mean, I kind of go, I go about it this way, which is I just say report everything. Like, yeah, there's a small benefit in saving some money by not reporting it, but then you still like, then you're still paying expenses with that too. So you don't get the expense benefit for tax purposes. And way more importantly is when you try to sell your business, nobody's going to pay you for revenue. That's not on your P and L so it's, it's like, it's just thinking small by not reporting stuff. You're better off reporting it all and just like spending it on marketing, like that's the best tax avoidance strategy, grow your business, spend it on marketing. Then you don't have to pay taxes on it and grow the hell out of your business instead of having to worry about that. Cause that, that shit's stressful. So I don't know that that's my 2 cents on it,
Unless you have a really good gun safe. Just
I don't want, I don't condone tax fraud. I I can't
But awesome. So what is, so if I was a brand new person and I'm starting to do pressure washing, what are some things that for the bookkeeping side of things, what are some good, good do's and don'ts
Man, I'd say don't get a CPA off the bat. And you don't have to get a bookkeeper right away. Like I said, you can kind of do them yourself for a period of time, but there's going to be things that you'll probably get tripped up on. If you don't have some accounting knowledge, I'd say don't wait too long to start giving yourself good data to make decisions on. I see people like, Oh, I've got two or three employees. Like, should I get a bookkeeper now? Or I'm doing about 200,000 in revenue. It's like, man, you should have had a bookkeeper when you're doing 20,000 in revenue. Like when the minute, you know that you're doing this thing and it's going to be a legit business, make sure you have good data because how the hell are you going to grow a business without knowing what your numbers are?
You're just throwing money in a bank account at that point and crossing your fingers. So like, don't, don't get into the habit of running your business out of your bank account, get in the habit of learning, how to read a P and L it's kind of one of those things like riding a bike, you know, first time you do it, it's a little wobbly. And then after that, if you can look at that thing and in five minutes, know exactly what you need to do, like you're just so laser focused on doing the right stuff and just making so much more money.
Well, and it goes back to the whole thing too, of do what you're good at. You know, if you're not good at bookkeeping, pay it out and be done with it. That's, you know, that's stuff that I'm not, I hate numbers. Numbers is, you know, I like numbers of a hundred dollars. You know, I like those numbers, but that's not a thing that I want to deal with at the end of the day. You know? And so if you are trying to, you know, do, and I understand you sometime we're on a budget, but again, a lot of times it comes back to being successful, making sure we're charging enough. And by having a bookkeeper, this will allow us to know that if we're being profitable or not, if are we charging enough so that at the end of the day, there is going to be profit at the end of the day. Is that not correct?
You see like all those Facebook posts, about how much are you charging? How much are you charging? What, how much should I charge for this? And it's like, the answer is very simple. Whatever the customer is willing to pay is like, where you go, but you need to build your business in a way that you have the right operating strategy to fulfill what that client needs. Like maybe you don't need the $30,000 rig because your client's not willing to pay for it and your market. Maybe you do need it in your market. I don't know. But like knowing how much money you get to keep after you go and do that service, there's just no substitute for that type of information. So yeah, it's like, it literally informs every part of your business. And if you're not making decisions with it, you're just kind of guessing really you're,
You're shooting up in the winter now, hoping it comes back for you.
Yep. So I, and I think the, if, if I was starting all over again, the, the couple of things that I would make sure that I'm doing, like get QuickBooks going right away, whether you're paying somebody to do it or not just make sure that you're keeping track of it other than just your bank account. I say QuickBooks because it works great and super cheap. Use a CRM if you're out there. I think everybody's using a CRM these days. I hope, but I've run into a few that aren't it's, there's no right or wrong time. Like don't try to run a service business without a system that manages your clients. Pro tip don't link it to QuickBooks. You don't need to, they won't tell you that, but it's a disaster if you like your CRM to QuickBooks. So don't do it. You don't need to, and it's not valuable, but I like those two things from a managing your systems perspective, like get those things done. And then back to the first thing that we talked about is pay your people the way you get paid. Don't lose, sleep over how much you get to keep when you do a job, like lock that in. It's up to you. They're just like your employees don't decide that your customers don't decide that that's your business.
So let's talk about that. So when you say that, what you're really saying is, is if you're going to pay 20% per job, you pay yourself 20% per job. Is that what you're basically saying right here?
Well, so, so if you're out there doing the work, for sure pays off the replacement costs, like put yourself on the payroll that way, when you fire yourself and you're just an owner sitting on a beach somewhere, you know what? You have to pay like your built into the business model, right? So many people confuse profit with how much money they're getting to take home. When they're just taking home a wage, they literally just have a job. So yeah, pay yourself a wage, run it through payroll. You're going to pay the payroll taxes anyway. We don't need to get into like the complexities of that necessarily, but pay yourself a legit wage for the work that you're doing that way. When you have to hire somebody to do it, it's not like a big explosion in your business, went off, like your business was built to pay somebody to that work your time.
Isn't free. Your time is super, super valuable and you know, the most expensive time. So for sure do that, but just back to the, if you get paid based on square footage or piece rate or some, you know, some fixed way of, of your customer paying, you don't pay your employees hourly, like only pay your employees hourly. If you're getting paid by the hour that you're at the job site, take that risk out of your business because that's where most of your money is going to go is to that labor. So de-risk it as much as you can. And yeah, definitely include yourself in that labor. If you're out there like don't, don't discount yourself, pay yourself.
That's, that's probably the most important thing right there that I heard all night. Because a lot of times we don't know how to pay ourselves. We just all bad. And also it allows you to understand that if you go to hire somebody, you're already paying yourself, you're just going to put that pay into them. And then you're going to have to find out where you're going to get that.
Now you got to go sell like crazy. You got to, you have to add value a different way, other than spraying water. Do we have so-so going in down, down that path? Do we have like five more minutes to get like some, some super valuable content here? I know, I know you try to keep it around an hour. We got all the time. You want them. All right. So, so if you are, whether you're paying yourself or not like through payroll if you're making and by making, I mean, your net profit, like after you pay your expenses, if your business is making more than like $20,000 in a year, and that could happen when you're making 50,000 revenue or maybe 200,000 revenue, depending on how you're set up. But if you generate a profit and it's, you know, this'll be useful if you're doing 10,000 a year profit too.
But like this incrementally goes up in value is make sure, and we're two months away from the end of the year. Make sure you are set up as an S-corp. Udon't just be an LLC via be an LLC taxed as an escort, you'll have to you'll have a corporate veil like at blue skies. Our S-corp name is Scott. It was the two street names that two of our business partners grew up on. It's meaningless, right? But all of our LLCs roll up into that and we get taxed at that escort level. So you have a corporate failure. Your businesses are still LLC has, but now you have a corporate veil. The benefit of it is now you have to take a payroll. If you're working in the business, you have to be on payroll. You're going to pay payroll taxes. What, what the mistake that you're making, if you don't have that S-corp is when you're just an LLC or sole proprietor, either way your tax as a sole proprietor is called self-employment tax.
The 20, let's say let's stick with the 20,000 bucks. If your profit is $20,000, whether you distribute that money and put it in your personal bank account or not, you're paying payroll taxes on it of 15.3%, you're paying it as the employer and the employee, whether you take it out of the business or not, whether you pay yourself a paycheck or not. So don't fool yourself into thinking you're not paying payroll taxes, you're paying payroll taxes out the wazoo. If you are not an S-corp, when you become an S Corp, then you declare a certain payroll. And you know, if it's $20,000, maybe you pay yourself $10,000 a year, whatever. But you only pay payroll taxes on that payroll. You don't pay it on all 20,000, just on the half that you actually take as payroll. So incremental, you can see when you're doing $100,000, maybe you pay yourself $50,000 salary.
If you distribute that other 50,000, you don't pay payroll taxes on it. Versus if you're just an LLC taxed as a sole proprietor, you're paying payroll taxes on that whole $100,000. So I'm not going to try to do the math while we're live here. But like at 15.3% of self-employment payroll taxes, that's a hell of a lot of money if you're not an S-corp as you're, as you're gaining in profitability. So if you haven't done that yet, talk to your CPA, like tomorrow about being an S-corp come Jan one, because you'll save thousands of dollars a year, like literally thousands of dollars a year right off the bat. Huh.
Awesome. Awesome. That's that right there is some good information. Let's talk about one other thing. Ujust because I know we're running over, but I I'm, I talked on yours for an hour and a half, so you're just going to have to deal with it. So,uI usually try to be nice to my guests, but,u
You know, they'll, they'll tune off if we're not doing a good job, nobody's holding them, hold the gun right here, but don't go anywhere. . What would you say
Charged for pressure wash, starting up? So what what if I want to sell my business? What makes it a profitable business? What makes a business so that I can sell it? What are some things that will help me sell my business? If I want to, my goal is to grow a business and sell it. What are some things that are going to bank my business? Where so
Man good books are the first thing, cause nobody will pay you anything for something that's not documented. So a good set of books. The, the biggest thing in there is the revenue piece of it. When our, when our service businesses are bought and sold, they're often done. So based on revenue certain cases may be based on earnings, but usually you end up getting bought by somebody that's already in the market. And so they're not as concerned about the rest of your cost structure because they're going to bring their own in any way, right? Like if you have four admin people and they're like, I already have an admin team, they're not going to use all four of your people, right? So they're going to look at it in their own lens. In that case, it's really like the revenue side of it that they're going to be concerned about.
That's going to be what they're buying, but they're going to look through all of your costs and just see if there's any massive red flags. Like, can this business be profitable if they're plugging into theirs, they might not pay you based on all of those things, but they're not going to pay you anything. If you don't have those records that shows that this can be a profitable business. And then they'll kind of go through and do their own analysis of each of those line items. If that cost is going to carry over to them or not definitely something that shows your client list and how often it repeats. So maybe if you have contracts, that's a huge win, right? Because you can say like this revenue is locked in, right? We don't have any contracts. So we need to be able to show if we're going to sell a business that we have a 70% repeat rate, which means like, yeah, we did, you know, a million bucks last year, 700, 700,000 of that is just going to show back up after an email.
We're going to go get another 300 plus thousand by new marketing and growing that way. And here's how we did our marketing, but something that shows either contracts or repeats so that the client list that they're buying has value. Because if it's, if they're just buying revenue that you did before, but every client hated you and then you burn them out and they're not repeating, like then they're buying a client list with no value, which means they're really buying nothing. Like when you buy a service business, you're basically getting a list of clients. So
Good junk equipment.
Yeah. Yeah. I mean like the equipment might be included in that valuation, but we've like carved it out of a few of them where it's like, we already have enough stuff. We don't need your stuff. Like sell it on Craigslist, knock yourself out. But you're buying a client list and you're selling a client list and you're selling some equipment. They don't need to go together. So,
So, so Dan, I did a million dollars. How much is my business worth? How much am I going to get paid?
I'll pay you 300,000 without looking at it. But like the, I'd say in general, you get 30 to 50% of your revenue. And it'll be in that range, but depends on the type of clients that you have contracts that you have, if there's any huge red flags and all of your expenses, or like contracts that you're locked into, pay something that, you know, is an atrocious atrocious fee. And that's going to carry over with the, the business purchase. But I'll say in general, for a home service business, somewhere 30 to 50% of your annual revenue would be like, that's the ballpark you should be thinking. And if you're buying or selling the range that your ad in there might fluctuate just based on you know, if, if you're the only person in your market, that's, that is a business. Somebody would want to buy it because they kind of like lock in the space. But other than some extreme situation that's kind of the ballpark
Because if somebody, and this is just something that, you know, a lot of people don't think you're buying a client list at the end of the day, can I start a business? So let's just say a million dollar business and you sell it for $300,000. You know, I can start a pretty dag on good business for $300,000. At the end of the day, if you pump that into marketing,
Chances are you're going to acquire a few clients. And that's like, all you're doing when you're buying a business, it's just another way of acquisition costs. So you should put it in the same lens of, should I spend 300,000 bucks on Google ad words? It's no different, right? You're just buying clients the, of the million clients, the million dollars or the clients that you'd buy. Not all of them are going to want to switch. Anyway. Maybe if you're in that market, they've already gone with you. And there's a reason why they're using the other guy. Maybe they had a bad experience. Like they're not going to come back to you just because you bought that guy's business. So you're probably going to have some attrition there anyway. So yeah, it's, it's just a client acquisition strategy. Is it an and therefore, does it meet your client acquisition costs? If in general you want to pay no more than 150 bucks a client for your business, but now you're doing this acquisition and you're paying this guy 300 bucks a client it's probably not a good acquisition. Like you're not you spend,
What does the next year at? What does, what do you mean by an acquisition cost? What does that, what does that mean?
So how many dollars you spend on marketing for every client that you get? And I'd say not just on like the Google ad itself, but on the person that's running it and managing it and the website that they check you out on in the Facebook ad that they maybe saw like you can look at acquisition costs directly by source, but also make sure you look at it holistically of like, what are all of your marketing spends in totality? And then how many clients is a good way to do is just by month. How much did you spend in marketing that month? How many new clients did you get? Not necessarily repeats just new clients. And that's how you would calculate your client acquisition.
And you want to say, you would want to keep it at how much
It depends on your average job size. I like to, I know back back to our P and L that we were talking about 15% would be like the marketing spend that on average we would do. But that's also based on the fact that we have a lot of repeats, right? So we're doing 15%, which means we're actually spending way more than that on new clients. And I would say, we probably want to be at about 30% of average job size is our acquisition cost. So if your average job size is $600, you could spend $200 to go get that $600 client. And that's a decent acquisition costs. You spend 30% to go get them. At least you're going to basically break even in your P and L you might not make money the first time you serve them, which is why you don't want to go over that 200 bucks in that case, because if you have to spend 250 on the next lead or on the next client, like now you're starting to lose money when you go do that job, but you can pretty much go up to that point of diminishing returns where the next client isn't worth it.
And then as long as you're getting some referrals and repeats OD them, like there's still, you're still at least making money on them that year, or you're not losing money, I should say. So that's kinda how I look at it is your acquisition cost is driven by your average job size, and it can be about 30% of your average job size.
Awesome. Awesome. So I we're getting here. We went late, longer than an hour, but that's all right. Cause that was some gold information, right?
Accounting is just too fun, man. How can you stop?
I don't think it's fun at all, but that's not my thing. But again, I think that it is very important. I think to grow a business, it is very important to know this stuff, you know, that's why I was, I'm not asking. I was, you know, I'm wanting to get all those terms out there. What is an acquisition cost? What is that kind of stuff? Because a lot of times we don't understand what that is. Some people might not even know what the word is. And so that's why I wanted you to break that down a little bit further because I want to make sure my hundred people, 87 people in here understand that stuff. And so you know, that is very important at the end of the day, because
I can just go back to why you need a good bookkeeper. Like if somebody's getting things into the right spot for you, you can really quickly figure out what that acquisition cost is and know when something's working or not working or when to change it or when to pull the plug on it or when to do more of it. Right. So,
Because if we know that stuff and it, and it works, we can put the gas down on it and we can throw more on it at that point. But if it's not working, then we need to, we need to look and reevaluate.
Yeah. And that's, I mean, like, therefore, I mean, not that the accounting and the bookkeeping is the fun part of it, but like spending our money on marketing is like the most fun thing we get to do the, the equipments. Like it's kind of our toys, I get it, but it doesn't make us money. The marketing makes us money, like that's funded to nerd out on and make sure we're crushing them.
Marketing marketing is more important than anything at the end of the day. I mean, I preach that all the time. You know, we can have the most nicest equipment I've seen it the most 20, 30, $40,000 equipment. And it don't make your dime at the end of the day. You've, I've seen many people sell that same rig for half costs because they couldn't make it down the other way.
Yeah. The customer doesn't know what the hell it is. And they don't really care as long as the outside of their houses.
Exactly. And again, you know, we just don't customer service. We just happened to be spraying water at the end of the day, so. Yep. Yep. Awesome. Well, I appreciate it. Give me the web address and I'll put it in notes later on up her, after I get done with here, where are they? People can find out about you also, you got a pretty cool channel. It's kinda funny. Give us that information too.
So I got our bookkeeping beer and BS. You can go join that group on Facebook. I'm getting the YouTube channel started. So there's a YouTube channel there too, but doesn't have much content on it yet, but definitely join our Facebook group, bookkeeping, beer and BS. We go live every night or at least most Wednesday nights at around eight central nine Eastern, we drink beer. We talk shop. It's not it's bookkeeping because it has alliteration properties, but we kind of talked about all business things. And at the end of the day, all business things come back to, are you making money or not? So that's how we weave it in. If you need bookkeeping help, or if you want that budget sheet that I was talking about that I'm, I'm, pre-building for Jeremy, Brooke, but I'm gonna give it to everybody else too.
I'll have that. I'll start rolling those out next week. So check out bookkeeping, beer and BS. Cause that's where I'm gonna be like talking about it, but it'll be on your blue skies.com is where we'll make that available. And tomorrow it might even happen tonight, but I don't want to promise tonight. There will be a, your blue skies.com/j Gaiman, and we'll give like some cool offers and half off set up fee stuff. If you need help with bookkeeping, buy it that way. So you get a better price because you know Jason, so there you go. Awesome.
Alan Hanford put pros versus Joes is great. So
We got, I think we just released our window cleaning one. That was our last one. I, we have to film the holiday light one, but we were waiting until it got colder. I wish I didn't realize it was going to be 30 degrees now. Um, we got our holiday light pros versus Joes to fill that though. That'll get done in the next couple of weeks here.
All right, guys, that is all the time we have for today's show on today's King of pressure wash podcast. I know you find it as exciting as I did. If you appreciate the work we do here at King of pressure wash, be sure to subscribe. So you don't miss an episode and give this episode a share on your favorite social media network. And if you're looking to start and grow your own pressure washing business,