Does your building business actually make a profit?
If not, here’s WHY.
Watch the video now, or read the transcript below. Be sure to also subscribe to our YouTube channel www.youtube.com/
Where Has All the Money Gone?
I don’t even think about turnover anymore. Turnover literally means nothing to me.
Duayne you and I both see so many builders out there talking about these massive turnovers, these big figures, as this kind of measure of their success. And it being something that lots of builders will aspire to, They literally set themselves benchmarks of ‘I want to have this size business’, ‘I want to have this size business’. ‘I want to hit this many figures by this point in time’.
Tell me what do you think is more important, in the turnover vs profit debate?
In the past, it was all turnover. 100% focused on turnover, I didn’t really know any difference. And, I actually used to focus so much on turnover that I had a figure in my mind, from a very young age actually, that I wanted to turnover in a business and I felt that if I turned over that amount, I would be successful. And the thing is that we were literally within a couple of $100,000 of my target, and just before we got to it was when I actually got to a point where everything was falling apart. And we actually made no money.
The year that we nearly got to the turnover that I’d been trying to reach for probably 10 years, a good 8 to 10 years, was actually one of our worst ever years in business.
That must have been really hard to kind of figure that you weren’t where you thought. I do see that lots of builders think that once they’re at that turnover it’s going to solve a whole heap of their problems, or it means that they’re going to afford a particular kind of lifestyle. Or be able to live in a particular area. Or have their business working a certain way. It must have been really confronting for you to be almost there. And for things to not look like you’d expected them to.
Oh, it was devastating. It was a reality check. I was being told by my accounts manager in my office for a long time that our pricing wasn’t correct. We weren’t making the money we should have been making. But I just had this mindset of:
how can I not be making money if we are turning over that amount of money?
If we’re literally turning over millions and millions of dollars, I need to at least be making a bit. Surely I’m making something. Where’s it all going? And I just had no understanding of what it was actually taking to run my business.
And the reality check was that at the end of the day turnover is absolutely nothing if you don’t have profit. And we see it now. And now that it’s on my radar, it’s funny, because you see these massive multinational companies that turnover hundreds of million, some billions of dollars. And you’ll see these tiny little profit margins. And I just think what for? Why do all that? So for me, it was a big reality check, and again, it comes back to taking responsibility and owning it. And so I don’t even think about turnover anymore.
Turnover, it literally means nothing to me. My business needs to be sustainable. And for it to be sustainable, I need to be profitable.
Data Driven Building Business
Do you think that lots of builders struggle with this because turnover almost becomes an easy target, because if you’ve got a certain number of projects at a certain contract sum per project, that’s going to add up to that turnover target. But, if you don’t know what actually generates your profit, or you’re not keeping track of your numbers, that becomes very difficult. How do you see that happening for builders, and where the problems lie?
The problem for me was that I wasn’t going back and reviewing our data. It was purely in my mind, it was purely focused on the value of each project. And when you added up all our projects, what the turnover was, it was just an absolute recipe for disaster.
I had no systems in place. And to be honest, I didn’t really understand. Quite often I would go back and I would check some actuals such as framing, against what we’d quoted and what it had actually cost us and a lot of the time our quoting was quite accurate. But again, it came back to me not understanding what it was taking to run a business. And it’s a huge reality check, and we see it with our members, when you actually sit down and we’ve got our overhead calculator sheet that we work through our members with. And it’s funny, for some people it’s just like an instant light bulb moment.
They get excited because they’ll see that instantly from this point on they’re going to make money.
Others get upset.
I probably put myself in a bit of a hole for a little while when I found out because I’d had this goal of turnover for so long. And when I actually started to understand the numbers and that we weren’t making any money, I was a bit ashamed of what I’d been chasing and probably more ashamed that I didn’t understand. Because of the value of the business we’re running. I didn’t understand what it was taking to run. And I sort of felt a bit silly, stupid, not sure of the word for it.
The Holy Grail
But, I think it’s just one of those things. Again, there’s so many great builders out there. And we just don’t understand even some of the simple things that it takes to run a business. And at the end of the day, it doesn’t matter. Like we’ve said, if you’re turning over 1 million, 10 million, 100 million, a billion dollars. If you don’t understand your numbers, and you’re not covering your costs, and you’re not making profit, it’s all a waste of time. And if you think increasing your turnover is going to solve the situation you’re in, you’re going to get more cash flow. All you’re doing is digging a deeper and deeper hole.
Something we teach our ELEVATE members is the benefit of using Project Sheets to help ensure their projects remain profitable [you can check that out here]. See how ELEVATE member Matt describes his first profitable year of business here.
So don’t get in that trap of thinking that turnover is the holy grail and the target that you need to aim for. Profit is far more important. So start figuring out how your business needs to make a profit? What does that look like? And focus on that and you’ll be in a much better position financially.