Episode 15 Podcast Transcript

Speaker 1 (00:00):
Slow and sustainable growth trumps fast growth any day of the week. Hi everyone. Rob Kropp here and welcome back to another episode of the Trade Den podcast. Welcome back, Dan. Good to have you here.
Speaker 2 (00:18):
Hi Rob. Hi listeners. Great to be back. Looking forward to today as always.
Speaker 1 (00:23):
Today’s going to be a bit of a cracker isn’t it?
Speaker 2 (00:24):
It is big topic. We might have a bit of a surprise for people as a part one and two, but yeah, really looking forward to today.
Speaker 1 (00:32):
Yeah, it’s a really, really big topic and so this is going to be a little mini series that we’re going to be doing and today is going to be more of a mindset conversation around money and then our next episode, part two of this is going to be more of a practical side of things around the strategy side of things, and so make sure you listen to these as a bit of a pigeon pair because together they’re going to make up some really good lessons in here that you as a listener can really listen to and take some great points away from this episode.
Speaker 2 (01:02):
Yeah, huge, huge steps if you follow this all the way through. We see this all the time in coaching. These are some of the biggest leavers people get to pull earlier on in their journey. We come back to them, but guys that really take this on board, this topic that we’re about to discuss today really do start to make some big strides pretty quickly. So really important topic.
Speaker 1 (01:22):
Yeah, so let’s get stuck into it. Let’s talk a bit of a scenario that a lot of business owners in the trades and construction space find themselves in, and I think as a business owner goes on that growth journey to be able to grow their business. They grow from half a million dollars, $750k, $1 million, $1.25 million or more, and throughout this growth period, despite their revenue increasing, they experience cashflow problems. It’s an all too common scenario. They think that the logical solution is to go and win more work, and by bringing more money in the door, their cashflow problems are going to go away. And so what they do is they equate more sales as the solution to solving their money problems. Lo and behold, they grow their business and their cashflow problems follow them. Now they’ve got a bigger team, bigger payroll, even more problems and making no extra money or worse yet making less. So they either scale back down to a more manageable level or stay at this level confused about what to do next. If you’re in this situation, you have a no shortage of work, but when you try and grow your net profit stays the same or in some cases actually decreases, or B, you’re considering opportunities to enter a growth phase and you want to grow in a sustainable and profitable manner, then this episode is for you.
Speaker 2 (02:47):
Yeah, what we’re going to do today is break down what’s the mindset behind all of this? Where did it come from? We’re going to look at how that mindset has become so strong, so where does it benefit you and to what point it benefits you and then where does it start costing you and when do you need to make that shift in mindset and strategy and actually how you can make that shift going forward. There’s no doubt that cashflow issues are some of the most painful, persistent and stressful things that a business owner has to confront, and I say they have to because they’re inevitable. Chances are if you’re a business owner, you’re going to experience cashflow pinches and struggles from time to time, but when you’re in this situation, the most common mindset that we see prevailing is the idea that the way out or the easiest way to fix it is that making more money fixes my money problems.
(03:36):
Now we need to look at this and we’re going to camp out here a bit to begin with on where did this mindset come from, and it’s obviously big in trades and construction, we see this all the time, but it’s probably prevalent in society just as much this idea that more and bigger is better. You see it all over the place and we get this reaffirming of that commitment that the more you have, the better things get no matter what. So what I want to do is start and bring you in Rob and sort of talk around mainly not so much that more is bigger idea in general, but the trading mindset and how has this played out that it leads to this position that most business owners find themselves in as they start to grow their business.
Speaker 1 (04:13):
I think the starting point for a lot of tradies is obviously before they got into business, the way that they made money was trading time for money. They worked an hour, they got paid for an hour, and then when they wanted to make more money, they worked overtime. That’s just how you did it before you got into business. And so that’s where the first mindset of the longer and harder I work, the more money I make. That’s where that first mindset comes from. But then when they get into business, that original mindset still carries them into business and then when they start hiring team around them, they go on that growth curve and that’s when they first experience the cashflow crunch and when they experience that cashflow crunch, that’s when the feelings of stress and pressure and sleepless nights and how am I going to pay bills on Monday and how am I going to make payroll the next day? That’s when that first cashflow crunch really hits. Then when they start experiencing that, then that’s when the second mindset of which is what we’re talking around today is well, making more money is just going to fix my money problems, so let’s just go out there and win as much work as we can and bring as much work in the door as we can because then surely that will make my cashflow problems go away.
Speaker 2 (05:52):
And I think you’re right. I think the reason why I look at it, and when I say this I sort of think in terms of, well, when you’re in that early phase or maybe you’re just starting out and you’re going, well, I’ll just work more overtime, more time spent at work means more money. I think it’s all one sided in that it’s always just money coming in. So if I’m in that position, it’s always money coming in. There’s no consideration to what the costs of that are, and I think that’s where this is going to balance out as we have this discussion today. I think given how prevalent it is in the industry though and how people do go on this journey, we’ve got to stress the point that it’s not just throw everything out the door As we go through this process, there is a point at which that idea of I’ve got to get money in the door, I’ve got to make money, I’ve got to recruit some of my initial investment in the business that works. So I think let’s get clear on where that point might be up to there. So if you’re on this journey listening and you’re hearing this, let’s go through what the stages are as this starts to maybe tip as a mindset where it goes from serving you into hurting you, but let’s start on serving you. What do you think those points are where it does serve you to have that mindset?
Speaker 1 (06:57):
It serves you when you’re in the early phases of getting your business out of the ground and entering your first growth journey. And so I think for any trades business, there’s a natural sticking point at around a million dollars, and so I want to anchor on that million dollar mark and the reason why that million dollar mark is a key point for a trades business is at that point you’ve generally got a couple of people in around you. You’ve almost taken that point where you’ve proved yourself enough in business that you can get to a million dollars in revenue and to get there. It’s just through sheer grit, determination, drive winning work and taking on any work that you can. And if it’s a job that you can do, you generally take it. So in this early phase of your business, you generally don’t specialise in anything because you’re just winning whatever work can come in the door and off you go.
(07:55):
And that million dollar mark is also a natural point in business because this is when you start to get to the point where it’s no longer you being on the tools, you are generally entering that phase where you’re starting to hire a couple of grand crew in around you and you are starting to wind yourself off the tools and it’s no longer about being a great trade. It’s about starting to be a great businessman. So I think getting from being a one man band and going through hiring those first couple of people to get up over that million dollar mark, it serves you to be able to bring whatever work you can in the door, but that’s when the problems start appearing and that’s when the cashflow challenges really start to bite.
Speaker 2 (08:41):
Yeah, so because it makes sense because when you start the business office, you it’s run lean. You’re lean and mean, you haven’t gone out and if you play this out, you haven’t got a branded fleet of vehicles out in the road and all of that that goes with it. It’s that sort of early stage where chasing work down and winning work and setting up relationships, it’s just all systems go.
Speaker 1 (09:03):
Yes, absolutely. And so when you’re in that phase, in that early phase, your overhead costs in your business are actually very lean. You’re often, you’ve got no admin, you might have a little bit of bookkeeping support, maybe your partner helps you out with a bit of after hours stuff with shooting invoices out the door, you’re generally working from the front office of your home, so you’ve got very little overhead costs within the business. What you have done is generally you as the owner is the biggest overhead because you’ve gone from the main guy bringing in most of the work to having to pay yourself out of the margin from a couple of people that work in around you. And then when you get to that phase in around that million on dollar mark, you get a taste for success in business and you start thinking, well, this is good.
(09:49):
I want to keep growing it. Now I’m starting to get off the tours and I want to really grow because now I want to get my time back and build team and really start building that lifestyle business. But the problem is that that mindset that got you from zero to a million dollars is not the same mindset that’s going to get you from a million to $1.5m to $2.5m to $3m to build out a business of what we call a lifestyle business in the family and freedom zone. So this is where the problem exists because what got you here is not what’s going to get you to the next level from a mindset point of view around financials.
Speaker 2 (10:23):
Yeah, absolutely. And this is where guys try that, they hold the same mindset and we see it all the time. They grow to a point, they can’t sustain it, therefore they blow up and guess what? Go back to go start again from step one and you do the same process over and over.
Speaker 1 (10:36):
Correct. And I think that where that comes from is because it’s really good that the owner might be in that phase where their sales led, so they start to get really clear on which market do they want to sit in. They’re really clear on their business identity, they start to niche themselves into a market, they become renowned for what they do and really specialise in some space and they become really sales led or the market is naturally just buoyant at the time. And what often happens is when that market is like that, they chase a whole heap of work, get sales led, bring a whole heap of work in the door, but because they haven’t optimised their financials or they haven’t optimised their operations, what often happens is they leave this trail of destruction behind them after they’ve won all this work and brought it in the door.
Speaker 2 (11:31):
Yeah, absolutely. And I think that’s where we get to, right? So obviously that at some point the focus has to shift, the mindset has to shift. You’re now not just pursuing a better result or geez, isn’t it great to be in this position? You’re now chasing growth, you’re now starting to pursue growth, but what I want to get to now is as that point turns, what’s that cost of pursuing growth and where do the cracks start to appear when you start to hold onto that mindset for too long?
Speaker 1 (12:00):
Yeah, I use that word optimised before and getting from zero to a million is all about chasing revenue, but when you start hitting a million dollars plus, it’s all about focusing on gross margins of jobs and profitability of the business, and this coincides nicely with an identity shift or a mindset shift that any business owner has to go through. When you’re going from zero to a million, you’re still in that tradesman mentality and you’re thinking around sales revenue, bringing cash in the door, exchanging time for money. When you generally hit that $1 million plus mark and you’re really starting to build a business that’s got an identity of its own, you’ve got to start shifting your mindset as a business owner to not just focus on revenue. How do we focus on margin and profitability of the overall business? And that’s the real shift that has to happen.
Speaker 2 (12:57):
Yeah, I think you’re right. You go from that doing and doing more work to get more money to managing better, to get better results. I think that’s where we get to. So let’s do that and let’s start to break that down then in terms of that transition and look at probably the two key concepts we want to bring in today, there’s two that I know you want to talk about. Let’s talk about that first one, what we call about, the analogy of the leaky financial bucket.
Speaker 1 (13:21):
Yeah. I love this analogy around the leaky bucket and if you are listening here today, I want you to think about a bucket that you are holding up and it’s got all these holes sitting in around the bottom, and guess what? That bucket with all the holes is your business and it’s the financials of your business. What happens is when you’ve got a bucket with lots of holes in it, the more water that you tip into the top, the more water that gushes out the bottom and it’s the holes in the leaky bucket. And so that concept of the leaky bucket analogy is the same around your business. If you’ve got all these holes in your financial management systems and around your business, you can tip more and more revenue and work in the top of your bucket, but if you’ve got all these holes that you haven’t plugged or optimised in your world, then that’s where the profit slippage and the cashflow slippage sips out of your business all day long. And so this is where the unprofitable growth occurs because you’re tipping more in the top, but it all just seeps out the bottom as no matter how big that you get.
Speaker 2 (14:30):
Yeah, I think that makes perfect sense. It’s a great analogy, and I know we said this is part one of part two, part two of this topics all going to be around that leaky bucket and we’re going to really look into those holes and how to plug them. I think the second thing then, and you mentioned it just before, was that unprofitable growth and what we call and what people would’ve heard before growing broke is sort of what comes to mind. Do you want to just explain what growing broke means and then we’ll get into some of the helpful strategies to get through this phase?
Speaker 1 (15:01):
Growing broke is a, we’re seeing it a lot at the moment and over the last number of years there’s been a lot of businesses that have ridden the wave of a buoyant market. And so when you’re in the good times, anyone can succeed in business in the good times. It’s not until you start experiencing challenges in the marketplace that it exposes those people who don’t manage their business well from an operational point of view and a financial perspective. And so we’re really seeing that in the marketplace at the moment. We’re seeing a lot of businesses go out the door. This whole growing broke analogy is a really important concept because there’s a lot of businesses that grow fast and quick and they go broke despite the success that they’ve had. And that’s fundamentally because a lot of business owners don’t actually understand the cost of growth, and because they grow so fast, they actually run out of cash to fund that growth or working capital to fund that growth. And that’s where the term growing broke comes from because despite having all this pipeline of work in front of them, the trajectory of their growth is so steep that they actually run out of cash to fund that growth, and then that’s when they fall over despite their success.
Speaker 2 (16:33):
Yeah, we talk about it being growth is cash hungry, and I want to explore some of those things when we say growth is cash hungry, just a quick laundry list for you. What comes to mind? I mean, I think growth is cash hungry. One of the easiest places to see that is in payroll, but there’s other places to look at in the business where that happens.
Speaker 1 (16:52):
Payroll’s for one of ’em where if you win a big contract and you’ve got to put three or four or five guys on all at once, the moment you start, you’ve got to start paying wages. Super PAYG, increase your workers’ compensation and you’ve got to buy materials. And if your payment terms don’t line up for when you’re getting paid, especially if you’re working more in the construction space where it might be 30 or 60 days end a month, there’s a big cash gap from when you start spending money for when you are getting money in the door. And so this is where cashflow problems come is if you don’t really manage that growth during that phase, you outlay all this cash in the short term revenue isn’t lined up with that, you’re not bringing in the door, and then boom, that’s when we see a lot of business owners out there finding themselves with Prosper Loans, ATO debts, payment plans and all those types of things because all the money they spent on wages, vehicles, equipment, they’ve actually used other people’s money like the ATO, and that’s when they find themselves in those problems.
(17:59):
So that’s a real life example where a business is underutilised in the beginning from a cashflow perspective, and then they’re starting to use the atos money to fund that growth. That’s real problematic.
Speaker 2 (18:10):
Yeah, I know from a coaching perspective, when we hear those words, Hey, guess what? I just won my biggest job ever. It’s going to be massive. There’s always that little bit of trepidation within me, I dunno about you, but you’re always thinking, all right, are we in position to be able to afford to do this job? It’s always got to be a consideration.
Speaker 1 (18:29):
Yeah, I think then that’s when you were referencing back to the whole leaky bucket analogy we were talking a bit about before, that’s why some business owners grow and then they shrink back down again, grow and shrink back down again. And that’s a cycle that a lot of people find themselves in is because they do grow and they start to grow broke and then the wheels start to get all shaky. And what they actually do is go back to the waterline of what was manageable at the start of that growth curve. And so they might go from one to two, back to 1.5, 1.5 to two, back to 1.5, and that waterline that a lot of business owners find themselves in is the waterline in their business before where the cracks are before, where all the seepage starts. That’s not only the waterline financially, but the waterline of the mentality of the owner of where they find it manageable to manage a business of that size.
Speaker 2 (19:31):
Yeah, it makes perfect sense. I love that. Yep. I think that’s a good turning point for us given the limitations of the mindset, Dan, and where people get to with this whole more money fixes my problems that we’re talking about today. Let’s see if we can come up with or give the listener some more helpful strategies or beliefs when it comes to growth. I know we’ve got a handful of them. What would be the first one you’d pull out if you said, all right, how do we get past this? How do we move beyond this?
Speaker 1 (19:59):
The biggest shift when a business owner achieves a certain size of business is understanding that numbers is the language of business. And if you want to win the game that is running a profitable and successful business, you have to learn how to speak that language and talk that language and know how that language works. And I think fundamentally, this is where so many business owners go wrong is because they’ve got this mindset that, well, if I’m a good tradie, then that’s going to make me a great owner of a trades business. And they equate being a good trade to that success, but being a good trade does not make you a great owner of a profitable trade business. You’ve got to learn the language, which is numbers, to know how to speak that language to run an actual profitable business. And that’s the real turning point that a lot of business owners need to make to really understand their numbers and get into bed with them intimately and know them like the back of their hand.
Speaker 2 (21:05):
And we’re talking about a big thing here. I mean, you’re talking about making that move from doing everything as a trad into being the manager and the owner of a business. Huge shift from an identity perspective. The other thing is that the stakes are so high. If I’ve got to learn my numbers, I’ve got to know these numbers. I don’t know anything about my numbers. I’m sitting here listening going, well, if I don’t know that, then how do I do it in a way? How do I overcome the fear or the uncertainty and practise developing these skills? Where’s the safe place to do it? Because business is real time. You don’t sort of get second chances. You get to do it again, but you don’t really get that second chance or just get to practise it. So where do I go or how would you suggest someone who’s facing that fear or uncertainty around learning their numbers committed to doing it, still scared? How do they get that practise?
Speaker 1 (21:52):
Yeah. The biggest problem is is that money is just such a taboo topic. That’s the biggest problem. And most people don’t have money conversations growing up. It’s almost like a bit of a taboo topic. Let’s not talk about it. And it’s not common conversation at the kitchen table. And so when a lot of people get into business, they’re not taught how to make and manage money. Well, that’s the biggest fundamental issue here. And if there’s one skill that I wish they enforced that before anyone had, before they opened a business and got an ABN is that they had to learn how to make and manage money that would make a lot of these problems go away. And so one of the most important skills that anyone in business can have regardless of where you are in your journey is your ability to start to ask questions and start to get inquisitive around your numbers and appreciate that knowing how to make money, manage money, and keep more of it in your top pocket and get to the point where you are growing wealth inside and out of your business. It’s a learnable skill, but you’ve got to want and to be willing to go on that journey to learn that skill no matter how much you suck at it or how scary it seems at the time.
Speaker 2 (23:13):
So if conversations and having those conversations with key people and just getting practise at it is the way to do it, who are the people and places that we go and talk to?
Speaker 1 (23:24):
There’s a couple of key people which we two refer to in coaching is your power team and a couple in your power, a couple of people in your power team, number one, your accountant. The biggest problem with accountants is you speak to them once a year and they say, Hey mate, great work. Well done. Awesome business has grown 20% by the way, here’s your tax bill. It’s like, oh shit, are you serious? I thought I was doing well. And that’s fundamentally the biggest problem is how most business owners have their relationship with their accountant. Ideally, what you want to be able to do with your accountant is sit down with them regularly and go through your key financial statements, which is your profit loss, your balance sheet, your cashflow, what we call triple bottom line reporting system and ask questions and sit with your accountant and go, mate, I know you’re going to talk to me in tax language and accounting language, but dumb it down for me, mate, and what does this mean? What does that mean? Why is this doing that? And ask the dumb questions because the dumb questions lead to good answers.
Speaker 2 (24:32):
Absolutely. There’s probably one other that you left out and that is they can get a coach and they could even discuss some of this stuff with you.
Speaker 1 (24:39):
I think so, and I think having a good coach in your corner is one of the most important people in your power team. It’s their ability to understand and map out your growth plan. It’s your ability to help you around modelling around what your business looks like in today’s term and also where it’s going. Because what we find in coaching, part of the strength of our coaching at Pravar is two things, leadership and financial management systems. And I think that we see it all the time, don’t we, Dan, that when a client gets empowered around their numbers and they know their numbers well, they start to make far better decisions as a business owner don’t they?
Speaker 2 (25:21):
They do, and they start to use their numbers as a decision-making tool. They become informed from their numbers as opposed to fearful of them or just looking at ’em in past tense and by past tense, I mean, well, what happened? Did we go well? Did we not go well? And that’s all they’re really looking at numbers for. But when you understand the language of businesses you’re talking about and you work with a coach through that, you certain learn to see those numbers as data to help inform you of what the next decision is. When’s the right time to put that next person on? How much more do we need in sales this quarter, this month, whatever it is that your cycle is. If we can get informed about our numbers and start to look through the front windscreen as opposed to through the rear view mirror every time, then that’s when the power of numbers really kicks in.
Speaker 1 (26:04):
What confidence do you reckon that gives a business owner when they start to get empowered around their numbers when they’re working with their coach?
Speaker 2 (26:12):
We see this all the time. I think that the biggest one I see, or the overarching thing is leadership. I think most guys know instinctively that you can’t lead a business without knowing the language of business. You have to have some level of knowing your numbers. And I think that’s where it’s one thing to say yes, they become more confident, but where it shows up is in their leadership. And by that I mean their decision making gets better. Their ability to manage their team from a distance and not step all over everyone and sort of get in the way of things getting done operationally improves. I think their ability to delegate improves because they’re not so hung up on, if I can’t see it on the ground, then I’m going to miss something. So their ability to step back and look at numbers and interpret reports means that they can see what’s going on without having to be there. So they get a lot of time back and collapse time as well.
Speaker 1 (27:03):
Yeah, when you’ve got a smaller business, you’ve got the ability to run it almost by gut feel, but when you get to a certain size business, it’s no longer good enough to be able to run that business by gut feel because what you’re doing is you’re basing decisions on gut and innuendo to some degree. But when that business gets to that certain point, and especially when you are starting to step off site and build in team around you, I like that word that you used there before, is informed. That’s what information is. You become an informed leader because you get the data, you see the data. And with my accounting background, I’m a big believer that every number’s got a story behind it. And that’s what I’m looking for. And what our team looks for in coaching is not what the numbers are, it’s what the story is behind those numbers.
(27:58):
Because when you get that story in behind the numbers, you’ve got the ability to be able to go right, what’s the right strategic decision that we need to make to be able to move forward rather than just that gut feel of what we think might be best based on what we’re feeling on the day. And the worst decision around this is making decisions and riding the wave of how much money you got in the bank. How many times do we see it that business owners measure their success by how much cash is actually shown in their bank on that given day?
Speaker 2 (28:31):
Yeah, the old, if there’s something left at the end of the day, it means we must be doing something right. We hear that, and it’s sort of in a way we get hopeful because we know how much room there is for this person to grow and they’re being successful. The people we’re coaching and we’re talking about today, remember we started off, we’re talking about million dollars in turnover. That’s not easy feat to get to. So the people that are doing that with this mindset, it’s like, wow, you got to this point now let’s take you to that next level. But you’re absolutely right. It’s possibly the worst measure, especially if that’s all you’re looking at. There’s so much more going on that you need to be knowing.
Speaker 1 (29:04):
Because what you do is you ride the wave of emotion. If you’ve got no money in the bank, you’re feeling down and depressed. You’ve got lots of money in the bank, you’re thinking when hires a kite thinking you’re conquering the world, but it’s a very, very poor measure for success. So if you’re in that position right now where that’s how you measure your success by the amount of cash is in your bank account, and you are starting to realise that, hey, maybe there’s a massive skill gap for me as a business owner, and you want to really start understanding your numbers better so that you can eliminate some of that stress, become a more informed leader and start making more strategic decisions to be able to grow your business profitably, then jump into the show notes and book a call in with myself and let’s have a good conversation and strategize around what are the key numbers in your business? Where are the holes? Where’s the holes in your leaky bucket? And let’s put a strategy in place to be able to work out how we can plug those holes, put some cash back in your door, and let’s get on that growth journey and actually do it profitably. So jump in the show notes, book it a call in, and I’m really looking forward to chatting you soon.
Speaker 2 (30:08):
Yeah, I love that. I really do, and I’d encourage everyone to do that. That’s listening. The other thing I want to finish off on, maybe as we get to the end of this sort of shift in mindset is probably around growth itself. I mean, some people, you can ask 10 people, they’ll give you 10 different ideas on growth. Some will just chase it down and hunt it at all costs no matter what happens. They’re the ones that usually bust and have to go back to square one. Other people are so fearful of it and they’ve got no real strategy for growth. So I think a big thing is to change your mindset around just how you view growth in general.
Speaker 1 (30:39):
There’s a common mindset in business that a bigger is always better and fast is better, and that’s dangerous. That’s a really, really dangerous mindset. I think one of the most important mindsets to remember in business is slow and sustainable growth is the best form of growth because when you have slower more sustainable growth, what it does is it gives you the time as the leader to develop your leadership skills to stay ahead of the growth curve. That’s number one. Number two, it gives you the time to build out the structure, which is your people and systems to stay ahead of that growth curve, but it also gives you time to be able to manage your numbers better and manage profitability. So you’ve got the ability to cash flow and fund that growth within that business. Because when a business grows rapidly, it often grows faster than the leader.
(31:44):
It grows out of control operationally, and they run out of cash to fund that growth. So if you are listening here today, don’t get lured into the whole five x in 12 months or 10 x my business in the next 12 months, don’t get lured into that BS marketing spin out there that’s just there to excite you to really give you a jolt. If you are listening to those stories, the first question that should be in your mind is going, I wonder how that business owner actually funded that growth and what problems they had during that period. So the big thing to remember, guys, if you are listening to this, is slow and sustainable growth trumps fast growth any day of the week.
Speaker 2 (32:31):
And that’s why I love when we do case studies, we’re looking at guys that have been five, six years in and really looking back on that journey as opposed to people telling stories around, well, yeah, we grew rapidly and we got this huge result, and that’s the end of the story. I mean, for me, that just sounds like you had a good month, you had a good quarter, and I think anyone can do that, ride that wave. And as you know, you can ride that wave all the way to the beach and hopefully you land or you can get wiped out. So you never sort of get to see that aftermath when people tend to talk the speed at which they’re growing, especially when it’s ultra rapid or it is just some sort of monumental achievement that happens seemingly overnight.
Speaker 1 (33:08):
Yeah, correct. There’s oftentimes in coaching that we’re actually saying to clients, slow down. Slow down your growth. You’re growing way too fast. We need to allow things from an operational point of view to catch up, and the business owner hates it because we’re actually putting our foot on the break in coaching going slow down. And that sounds weird from a coaching perspective. As business coaches we’re saying to business owners, you’ve got to slow down when a business coach says, Hey, let’s go as fast as we can. That’s often the ego of the coach getting in the way. It’s not the right thing for the business at that time.
(33:44):
And so when you’re growing, it has to be controlled, it has to be measured, it has to be managed, it’s got to be sustainable. Let’s grow over a period of time. Let’s not have one flash in the pan year and then be busted for the next couple. You’ve got to pick yourself up off the ground again.
Speaker 2 (34:03):
Yeah, agreed. It reminds me of that principle we tell all the clients when they first join us that we work as a marathon, not a sprint. And I think when it comes to growth, growth’s definitely a marathon game, not a sprinting game. So I think that’s really important. At the top, we listed all the examples. We’ve talked a lot about the mindset of these things. We like to tell stories obviously as we wind out this episode. Have you got any real life examples you can think of how this has played out or examples, be it the leaky bucket or growing broke?
Speaker 1 (34:35):
Let’s start with the grow broke one. I remember dealing with a plasterer, and we worked with him for many, many, many years and he did some amazing things. He went from around $1.5 up to about $5 million in turnover, $5m to $5.5m over that period of time in coaching. And I remember about halfway through his journey, I remember there was a time where he was experiencing growing pains because the market was buoyant and he was winning a tonne of work. And I remember we were digging deep into his modelling and his cashflow forecast, and there were weeks coming up where there was red bingeing on his cashflow forecast. And we had to actually say, Shane, you got to stop growing mate. And he was pushing back going, but I’ve got all this work. I’ve got these opportunities. I want to grab them. I want to go.
(35:35):
And we had to really pump the brakes in coaching going, mate, if you take that, you are literally going to run out of cash and you’re going to find yourself in a big hole. And we worked through that phase. We navigated around it. He did end up saying no to a few jobs, and no one likes saying no to sales. But that was an example where if he had to taken on those jobs, despite them being good revenue and good margin, those jobs, he would’ve gone broke in that time. And so there’s a great example where strategically we had to actually slow down that business from actually going broke, which is a pretty cool story.
Speaker 2 (36:13):
It is. And I think again, it just speaks to the management of that, the controlled growth, just the importance of that. And that’s why the story doesn’t sound as sexy as maybe, yeah, I won $20 million worth of work last quarter, but hey, I’m around this time next year to tell the story about how we’ve grown profit and all those sort of things and becoming profit driven.
Speaker 1 (36:32):
Correct. Yeah. The next one would be around the leaky bucket concept that we spoke around before. I remember dealing, this is many years ago, we dealt with a guy called Nick who was running an arborist business, and he came out of the blocks really hard in business, won a whole heap of contracts around a different space. He was a ca before getting into his business, a contracts administrator. And he just came straight out of the blocks and won a heap of contracts, got his business to around one to one and a half million dollars. He experienced that cashflow problem, and he had that mindset or is making more money, will make my money problems go away. He went to $1.5m, $1.75, $2m, $2.5m, and that’s where we met him in coaching. And lo and behold, his cashflow problems followed him, and that was because he was experiencing cashflow problems at $1.5m, added a million dollars in revenue to that to avoid those problems or make them go away.
(37:35):
But the problem was he grew his business with the wrong pricing model. He had poor productivity management within his business. He had no cashflow forecasting in place, and he lacked the ability to effectively manage the operations at a million and a half, let and own $2.5m. And so the biggest issue that he had is he was a prime example of a business with a leaky financial bucket, and he actually got his business up to $2.5 million and he was making a loss. He made a loss at a two and a half million dollars business, and that’s because all the holes within his bucket compounded the loss within his business. And so what we actually did was scale back his business optimised, his pricing, his productivity, his overhead management, put cashflow forecasting in place. We focused on four main levers, four main strategies within his business, and within the 12 month period, we had a $450,000 net profit turnaround. And there’s a prime example of what happens when you’ve got a business with a leaky bucket, grow, grow unprofitably. You have to scale it back, fix the problems, and then go again. But that was a game changer for Nick once we really plug the holes in his financial bucket.
Speaker 2 (38:56):
And I think that’s a really good ending point for the story because it is, once these holes are understood, once the mindset shifts and once you can plug these holes, I think anyone’s capable of plugging the holes. It’s not something, it doesn’t require a huge investment to plug holes in your bucket. It just requires probably time and a real diligence to see it all the way through.
Speaker 1 (39:18):
Correct. And I think that’s why in coaching, we often have our clients stick around for such a long period of time because in the early phases of coaching, getting off the tools and getting their structure, and then it genuinely takes a good 12 to 18 months to really go on this optimization phase before you really grow. Now, some people might think, gee, 12 to 18 months, that’s a long period of time. But what you actually want to do is get into that period of optimization, get your pricing structure right, get your productivity right, manage your overheads, get your modelling done, get all those things that we’ll talk about in the next episode. If you optimise your business and go on that journey to do that over a period of time, what it then sets you up to do is add layers of growth with a good financial foundation in your business. And so sure, it might slow you down in the short term, but it absolutely pays dividends in the long term. You’ve got a good base to be able to grow from.
Speaker 2 (40:24):
What a great takeaway. And I think that’s where we’re heading into now, but if we look at takeaways, that’s probably one of the biggest ones I had. The other one that I’ve got as well as we sort of sum up just knowing that more money in the door is not going to fix your money problems. It’s a real conscious thought to have. You’ve got to pull yourself up if you’re saying that to yourself because everyone said it. Everyone thinks it. Everyone has that sort of reflex action, but that reflex is what’s going to hurt you. So I think from a key takeaways perspective, just knowing that that’s not the answer is probably one of the bigger ones. What about you, Rob? What else have you got as takeaways from today’s episode?
Speaker 1 (40:59):
Yeah, like I said before, around optimization, that’s a big one for me. You’ve got to go on an optimization phase before you try and grow or scale your business. It’s just absolutely essential.
Speaker 2 (41:11):
Yeah, for sure. I think my one as well I had was people discount that cost of growth. And I think that comes from, like we said at the very beginning, that mindset of, well, it’s just me. The more money I get, the better it is for me. But that’s because there’s no cost attached to it. If you’re going to be a business owner, you’re going to grow your business. You’ve got to remember that there are costs attached to it. There’s things that it’s going to take money. It’s cash hungry like we talked about. So don’t grow yourself broke by just chasing more money in the door, because if you haven’t got the money to pay out to afford that growth, that’s where you get into really big problems.
Speaker 1 (41:42):
Yeah. The final one for me is absolutely, it’s really important to be able to have a power team around you, accountant, bookkeeper, coach, financial planner, broker. They’re some really key people around you, but as a director and an owner of your business, it’s your duty. It’s your obligation, it’s your responsibility to know your numbers within your business and manage them well. So don’t abdicate your responsibility as a director to actually know your numbers well and manage them nicely in your business.
Speaker 2 (42:15):
I like it. I really like it. Let’s wrap up with some action steps. I know we think we had a few in there. If you’ve got an action step for people to follow up on this week, and we can talk about that in the Trade Dean community, which if you haven’t joined, jump on Facebook and meet us up in there.
Speaker 1 (42:30):
Make sure you tune into next week because this is part one of a part two series. Today was more around the mindset conversation around money. But next week what we’re going to do is talk around the top five strategies around how you can plug the profit and cashflow slippage within your business. So make sure you stay tuned for next week.
Speaker 2 (42:51):
Yeah, I like that. I’ll throw one in there. I think it’s massively underrated, but please remember, book in a conversation. Start a conversation this week on your numbers with someone, be it your accountant, be it your bookkeeper, whoever it is, don’t shy away from that. And this week at least open the door to that conversation and start getting to know your numbers, like we said. And what I’d encourage all of you to do is if you don’t already have someone to talk to or you are worrying about the next phase of managed growth in your business, book in for a discovery call with Rob. The links are in the show notes. You can find them pretty much everywhere, but make sure you make that book in and just have a chat and find out what it’s like to have a chat about numbers. If you haven’t done it before.
Speaker 1 (43:33):
It’s not as scary as you think. You don’t bite, do you? No.
Speaker 2 (43:39):
Alright.
Speaker 1 (43:41):
Well let’s wrap it there, Dan. Hopefully you’ve enjoyed today’s episode. Thanks very much Dan, and really looking forward to getting in the ears of our listeners again next week. And let’s talk through those five strategies to plug the holes in your financial bucket. Thanks team. Talk to you next week. See you then.