On this episode of Roots Of Success, we dive into the importance of financial statements for businesses. From an overview of your Profit and Loss statement (P&L) to understanding expenses, pricing, and profitability, McFarlin Stanford’s head of finance, Liz Helton provides a wealth of information for entrepreneurs and business owners. We touch on everything from managing labor costs, marking up materials, and understanding direct and indirect expenses. We also talk about the unique 50-40-10 rule you can use to help maximize your profitability and grow your business. Tune in to learn more about financial management and how it can pave the way for business success.
THE BIG IDEA:
Your P&L statement is the heartbeat of your business
[04:31]The important numbers between revenue and net profit on your P&L statement.
[05:42] The 50-40-10 Rule you can use to maximize profitability.
[08:52] Increase prices or increase efficiency (cut costs)?
[12:32] Focus on big line items and provide incentives to save big money.
[14:37] Simplify expense categories to avoid analysis paralysis.
[17:45] Why personal finance is a good comparison for running a business.
[18:51] Monthly book closing and why it’s so important.
[22:16] Matching revenue with costs is key to profitability.
[24:32] Depreciation: the two types and what you need to know.
[29:31] Your statements provide the key to making business decisions.
QUESTIONS WE ANSWER:
- Why is raising prices not always the solution to increase profit?
- What are the big categories in cost of goods sold?
- What is the recommended percentage for direct labor on the P&L statement?
- How can reducing unproductive time help reduce direct labor costs?
- What is book depreciation and why is it important?
- What is the 50-40-10 rule?
- Why is it important for businesses to have accurate estimates for pricing?
- Why is monitoring hours and overtime important for saving money?
- Why should insurance policies be rebid every other year or annually?
Episode Transcript +
John: [00:00:00] The Roots of Success podcast is for the landscape professional who's looking to up their game. We're not talking lawns or grass here. We're talking about people, process, and profits. The things deep within the business that need focus to scale a successful company from hiring the right people and managing your team to improving your operations and mastering your finances.
We've got a brain trust of experts to help you nurture the roots of a successful business and grow to the next level. This is The Roots of Success.
Tommy here with McFarlin Stanford. We have a awesome guest lined up for you today. Liz Helton. She is the leader of the bookkeeping team and financial services at McFarlin Stanford. You're gonna be so blown away by some of the topics we've got for you today. the 50 40 10 rule. It's super awesome to run your business. Also, we've got three buckets to measure and improve your financial statement. We've also got why you should close your books and lock them up for good [00:01:00] in the previous months
Exciting to have probably one of the smartest people I know on our podcast. Get her in the room and share her knowledge and expertise.
Tommy Cole: Liz, real quick, what's, what's some of your background? I know you stayed at a company for a long time. What was that experience like?
Liz Helton: Well, I have an experience mainly in big business. I went and worked for Ernst and Young, which is now one of the, the top big four accounting firms globally. I very quickly realized that I actually enjoyed working with people more than companies. So I was a CPA, still am a cpa. But very quickly after joining them, I got my CFP license as well.
That stands for Certified Financial Planner. And I was dealing primarily with big executive groups, wealthy families, you know, multi-generational wealth and of course a lot of business owners as well.
I I really like kind of getting smaller in a, in a big arena.
Tommy Cole: So big business for what, 18, 19 years, and then this curve ball came [00:02:00] and it was known as Liz Helton, general contracting for the most part. What in the world is that all about?
Liz Helton: Well, I started a business, it was actually called Helton Residential. And I had the opportunity, it sort of fell in my lap to buy my neighbor's house. They were very, very elderly. Their house, I think they'd been in it for almost 50 years. Hadn't really done a lot to it. It was, it was not in great shape.
So I, got it under contract, agreed to buy it. And then I went to my father-in-law who had built houses for decades and said I'm gonna need your help here because we're gonna tear this down and put up a new house. And so I worked with him for about four years. We built a number of houses from, you know, scraping the yards to dropping in the landscape at the very end.
Sold them, they were all spec homes. And then my father-in-law retired and I was kind of in between things, wondering if I should stay in that, in that risky market. And that is when I met Jim Cali.
Why It's Good to Have an Outside Industry Perspective
Tommy Cole: So you're, you're [00:03:00] not from the green industry. A as we can see which is good. We need people like you in our industry to see the outside perspective, but working for the big four and then doing general contracting, you got to learn how to manage subcontractors, manage a deadline, manage the numbers all that sort of thing.
What's, what's something that you learned during that timeframe that has benefited in what you do now?
Liz Helton: I think it really just gave me an appreciation for small business which is where everybody starts. You know, it doesn't really matter what your industry is. Accounting and finance spans all industries. There's, you know, unique things that go on and I've, I've certainly enjoyed learning all about the green industry.
I, I pretty much learned something new every day, which is, is always fun. But I just really learned that as a small business owner, you do everything. I mean, I remember one Friday night I found myself on my back in a bathtub screwing in hardware because something had to get done. You know, something was [00:04:00] misdelivered and I was just like, well, I gotta do that.
I also have to handle all of the legal work with the company I'm doing, like you said, all the sub management and everything you wear, you wear a lot of hats as a small business owner.
Tommy Cole: Yeah. You know, I think everyone can relate to that. You know, we work with hundreds of small business owners. At the end of the day, you gotta roll up your sleeves. And that's, if that's with financials, great. That's what you gotta do. And if it's putting a tree in the ground or or whatever it's gotta be done.
So I love that aspect. Let's, let's get into a couple things.
Knowing Your Numbers
Tommy Cole: We use this term called Knowing your Numbers all the time. It's sort of like the slang term that we've created of knowing your numbers, but for our audience, what does that mean?
Liz Helton: I think it's something different depending on where you are in the growth cycle of your business and really your background and how comfortable you are with numbers in general. I would say what a hundred percent of landscapers know is their top line. They know what they're selling, they know what they're producing, they know what they're billing.
Right? That's that top [00:05:00] line in your P and L. It, it's your bragging rights. Like, you know, I'm a, I'm a $2 million company. I'm a $20 million company.
Tommy Cole: You know what's funny about that Liz is we're always judged by the top line, and that's the size of our business. Cuz we go around and go, well, it's not how many people you have. It's like, so how big are you? And you're like $2 million. You're like, okay, that's what we all think of, right?
You could be a $2 million company, that's completely unhealthy.
Liz Helton: Absolutely. Absolutely. So it's all of the numbers that fit in between that top line revenue number and your net profit or loss at the very bottom that you really have to figure out what's important to me and my business. And when you start looking at a P&L it can be pretty daunting.
So what we generally talk to with business owners as we work through a P and L is we start focusing just on really big concepts and big ideas.
We take that 30,000 foot, perspective and say, okay, [00:06:00] what can we see from here? And then as people get more comfortable with those big sections, those big ideas the terminology becomes more You know, comfortable with them, then we can start talking about some of the individual line items and start narrowing the scope and what's really going to help tighten up all of your expenses so that at the end of the day mathematically it falls to hopefully what is a healthy net operating profit.
How to Read A P and L Sheet
Tommy Cole: Okay, let's, let's take a little deep dive, the P and L sheet, big grand scheme, picture 30,000 foot elevation.
I'm looking down on it. What's some big things to look at there?
Liz Helton: So the top, the number one there is your sales. That's what starts your, your profit and loss statement. Then you get to your first big bucket of expenses, which are your cost of good sold.
So everything that you have to spend to put that tree in the ground or to mow the yard or. You know, you're paying people, you're buying materials you're putting gas in your equipment, that type of stuff, those direct expenses. [00:07:00] And when you subtract your cost of good sold from your top line revenue, you get what's called gross profit margin.
all of that gross profit margin together is what's left over. To cover the second big bucket of expenses that a business faces, which are all of the indirect expenses, all of those things that you have to pay, really, whether you're doing a lot of work or a little bit of work you know, things like insurance, things like payroll expenses, your overhead payroll.
And when you subtract both of those two big buckets of expenses, you get down to your net operating profit. And that's sort of the high level perspective.
The 50-40-10 Rule
Liz Helton: We like to talk about a 50, 40 10. So if you think about it mathematically, right? You have a hundred percent of your sales to, you either have to spend money to produce those, and if you spend less than you take in, you have a net operating profit.
So if you think about your cost of goods sold, representing about 50% of your sales you're left [00:08:00] with 50%. If you can manage to keep those indirect expenses at or below 40%. Mathematically you will end up with a 10% net operating profit, which is very healthy. It's a goal of a lot of green industry companies.
It's a very hard target to hit, but if anything changes with the 50 or the 40, obviously your net operating profit is gonna be impacted as well, either positively or negatively.
Tommy Cole: So to recap, you have sales, you have your COGS, and then you have your expenses, then you have your net.
Liz Helton: Correct.
Tommy Cole: Okay. 50, 40, 10, all. I love that general rule. Did you know what the industry average of net is? What, 3%?
Liz Helton: It's about 3%. And, and you know, you know that the industry has thousands and thousands of, of very, very small mom and pop companies as well, and then you've got obviously all the big guys too. But that's kind of a razor thin margin for error if you think about it.
Tommy Cole: People get in this industry [00:09:00] one of two ways. One, they start pushing a mower one day, right? Or I start mowing as a young kid. And they, they learn that aspect. But not knowing their numbers very much or they, a lot of people will buy into the business cuz they're like, man, landscaping is really simple and easy.
It's mowing and putting in shrubs, right? It's gotta be. And they're going, oh my gosh. There's way more to it.
Liz Helton: It's a hard thing to consistently right month over month, quarter over quarter season over season to, to hit that.
How to Improve Your Net Profit
Liz Helton: Liz, let me ask you this. So say you've got a business, someone's out there and going, I don't have the 50, 40 10, so my net is 3%. Well, what do I gotta do to get that net into up to 10? What, what can I work on? You can always increase your top line by raising your prices, right? That's one option. We have seen people raise, sell, sell more, but if you're not selling work that you can perform profitably, that 3% will never change. [00:10:00] So if you just charge more, right, and you continue to have all the same inputs, in theory, your net operating profit will increase.
We've seen a lot of companies increase prices more than once over the past few years. We've been dealing with a lot of inflationary aspects and certainly there was a period of time where wages were just kind of going up, almost out of control, and there was no way to, to field a full crew or full staff without really matching market rates.
So if we put aside raising prices and we say, you know, this is a market price, I just have to figure out how to do it better I like to run a profit and loss statement. With a percentage number down the right hand side. So income is your, your top line, it's a hundred percent. And from there you assign a percentage to every single category on your profit and loss statement.
And then you end up with, we'll say hypothetically, a 3% net operating profit. Well, if you [00:11:00] look at those percentages, you'll realize very quickly that there's only a few things that are significant enough that if you focus on them and improve those numbers will have a massive impact on your business.
Dealing with Labor Expenses
Liz Helton: So for example, in cost of goods sold, if you look down however many categories you have, you'll realize that direct labor is the biggest cost on the P and L above everything else, whether it's a direct or an indirect expense. And typically in this industry, we like to see that at or below 30%. So we saw that metric really go up.
It got a little bit outta hand for a lot of companies because they were in a reactionary position. You know, they didn't raise their prices. They couldn't really increase their efficiencies, but their direct labor just kept going up because wages were rising. But if. You can figure out how to manage your hours right to a budget so that you know that I'm bidding this job and it's 200 hours [00:12:00] worth of work, and as long as my guys can do it in 200 hours or less, I'm good.
You know, it's things like obviously estimating properly, but eliminating overtime unless you're taking that into account. But anything you can do to reduce windshield time gas station stops, all of that unproductive or unbillable time can have a massive effect on that single biggest cost.
So that's usually where we start with, if somebody doesn't have a direct labor number that's at or below 30% of their sales it's something operationally that they really have to dig into and figure out how to improve.
Tommy Cole: Yep.
Liz Helton: other big categories in cost of good sold are materials and subcontractors. And some people, you know, use subs heavily, some do not. And materials, it really varies. But that's usually where we have the conversation about, You have to mark up your materials, whether it's hardscape or softscape, an appropriate amount in order to produce that healthy 50% gross profit margin that we're targeting.
Tommy Cole: [00:13:00] Yeah, that's good. Those three big numbers there. Have the most impact on your net in your entire a hundred percent, like you were saying. Right. So labor, materials and subs that has the biggest effect. And you talk to the ACE members all the time about that, that there's certain things and expenses that don't move the wheel very much.
Can you explain that a little bit?
Liz Helton: sure, sure. You could say we generally consider uniforms to be a direct expense, you know, cuz there's something that the crew goes out in to officially represent your business every day.
And, you might have a, a budget of half a percent if you look at it that you're spending on your uniforms.
Right. So you're like, I'm gonna just. Slash my uniform budget, we're going to, practically disposable stuff. It looks terrible, you know, it's not comfortable. And you really haven't moved the needle. You've saved hardly any money. And, you know, nobody wants to wear your uniforms, [00:14:00] plus you probably look terrible.
So that's not an area where you wanna focus at all. I mean, you know, you do wanna represent your company with your uniforms, but you don't wanna look at that as a place where you can really save some money. Whereas if you start monitoring your hours possibly providing incentives when budgets are, are met or exceeded monitoring your overtime and things like that, you can, you can really make a big difference
Tommy Cole: That, that's what we find a lot is those numbers are the crucial things that you manage every day
Liz Helton: every single day.
Tommy Cole: every single day.
The Heartbeat of Your Business
Tommy Cole: The P and L statement is the heartbeat of your business. I mentioned earlier, You may look great on the outside, but how are the internal functions of your body feeling?
Right? And so what do you go, do You go get a blood sample or a test, right? And you pull all that data up. In fact, I just did it this week. That's why I'm using that example. So I got all my data back cuz I haven't [00:15:00] done it in six months.
But it gives you everything. It's like three pages worth of data that should be in these certain levels, high, low, or right on.
And it gives me a game plan for myself, which, you know, Liz, I love to work out and take care. I can take it a little bit extreme, you know that like your husband, right? Your husband's the same way. So I have a financial assessment basically of my body, right? But like most landscape companies don't have that tell the importance of getting a P and L statement and getting it every month .
Monthly P&L Analysis
Liz Helton: Yeah, so the important thing I think when we, when we talk about a P and L, cuz I, I mean I look at these kind of all day long and, and generally what I see is that people want to put all of their expenses in so many buckets. We call it analysis paralysis, right? Because there's so many buckets that you can't figure out, like, well, what should I focus on?
Or what should I look at?
And so there's kind of a fine line between, you know, Trying to get every little [00:16:00] penny in exactly the right bucket as opposed to having a little bit more broad categories. And what we, what we find is that if we can put more broad categories on the P and L, the details are still in the background.
They're still there. You know exactly what goes into each bucket, and you can slice and dice the buckets any way you want, if you're interested in that data from, but from a high level perspective, you really have to look at things a little bit more consolidated. So when we talk about indirect expenses, which again are that other bucket of costs you have to think about how you could possibly save money there as well.
And just like direct labor is your number one cost to good sold, typically administrative and overhead payroll expenses, salaries, et cetera, are the biggest single indirect expense that a company will have. After that, it drops off significantly. Depending on what state you live in insurance is oftentimes the second expense.
And then you see [00:17:00] things ranging everywhere from advertising to recruiting, to professional development, to, you know, legal and professional fees. But those are, again, are really relatively small. So it's the things that you can really focus on. For insurance, of course, you have to be getting your policies rebid at least every other year, if not every year.
We have seen those, those fluctuate rapidly. Vehicle insurance,
We just had a $5 million client. They saved $40,000 this year by rebidding their vehicle insurance.
That's not small potatoes!
but you know, you stick around with the same company and they're gonna keep charging you kind of what they were.
There's really no incentive for them to reward you.
Tommy Cole: Yeah. That's good. You know, I remember I was around in the 2008 - 2009 recession, and we created a a quote that said,
Manage by the line item.
And We would take those estimates as a project manager, operations manager, whatever it is, and we would literally manage each line, item of the [00:18:00] estimate.
If the estimate just said $10,000, people think there's just $10,000. Right. That's like, I'm good.
Liz Helton: of money out. Yeah, I'm good.
Tommy Cole: What we learned was if you manage the line item of 250 bucks and 500 bucks or $2,000, Each line item, you know those two trees are 500 bucks, right? Those 500 shrubs are $2,000. And if you manage buy the line 'em and get those under budget, the rest is great.
Right. So it's kind of like managing your personal finances too. Yeah. I got a bucket of money, but if I review every everything that comes in and understand it then you're good. Right.
Liz Helton: Yeah, personal finance is a very good comparison because if you deal with young people, I've got some. Young, young adults in my life you know, and you get outta college and you think like, Hey, this is how much money I'm making. It's so much money. But if you start tagging everything right, for taxes and food and your rent and your car payments and [00:19:00] insurance and all of those things, you realize that that.
That gets eaten up pretty quickly. And if you blow a budget in any, you know, single month you're gonna feel it. And it's no different running a business or running a project. Right? Yeah. You can have a mini P and L on any particular project. Your estimates should be designed to provide that gross profit margin to support the rest of the business operations.
And so, You know, if you are bidding accurately so you can price accurately and then everything works as planned, which is obviously easier said than done. You know, that's the first, the first step is that planning.
What Does Closing Your Books Mean?
Tommy Cole: Liz, let's talk about closing your books and what that means. Explain the importance of closing your books and how often that should happen and why.
Liz Helton: Closing your book should happen monthly. And if you are doing everything monthly, you'll find that a year end close is really no different than a regular old month. So, you know, we kind of just got [00:20:00] through tax season. It's fresh in people's minds and , there should be no reason that you can't give your annual numbers to your tax preparer, like I'd say by February 1st, maybe February 15th if you're kind of doing a deep dive in reviewing stuff.
If you've done that every single month for the entire year, you already know everything is accurate.
So closing the books essentially means that once a month ends, you go through and you look at every number on your P & L.
You also look at your balance sheet and you review it and you say, does this make sense? Have I captured everything? So every single credit card receipt should be recorded. There's no reason that you shouldn't have recorded every expense that you've charged on your credit card. You know, sometimes vendor invoices take a little bit longer to come in.
Hopefully you have a relationship with your vendors, where you're getting that more quickly so you can record those invoices. And then closing the books in our world actually [00:21:00] means that , you lock them, you digitally lock them. So that if anybody wants to go in after you close the books in April and change something from March, they have to put in a password in order to do that.
And you don't give that password to very many people because what it should do, and I actually like it also is it'll make me think why am I going back and putting something into a month that in theory was already closed and I thought was accurate? There is the occasional, you know, acceptable reason to do that, but in general, you would just fix that and account for that in April.
So closing the books literally means this is done. We're not gonna go back and, you know, change things. We're not gonna change the dates on things or the amounts. This is exactly a fair representation of what happened in the month of March. Tommy Cole: Yeah. Very good. I I, I'm a strong believer in that.
Liz Helton: It should take you, you know, definitely no longer than the whole following month depending on, you [00:22:00] know, who you have doing that work for you. What their skillset is, you know, what their workload is like. I, I mean, we do have companies that can close their books in like seven days.
Tommy Cole: Like record time. We worked on the same thing, but we always had a goal to hit the next month of when we should close, because nothing's greater than having a deadline to get that stuff closed. And when I was project manager, I was managing multiple projects, hundreds of thousands of dollars.
And guess what was the worst thing on record? Subcontractor invoices. Right? You know, the worst about getting your invoices. And, you can look at a a P and L statement, three days after the previous month and things look great. You're like, man, we're kicking butt.
Liz Helton: That's right.
Tommy Cole: And then my, I remember our director of finance, he's like did you get all your invoices in?
I'm like, I, I don't know. He's like, there's no way this is right. We have 20% net profit not gonna work. And you had to, really get these subs, which are mostly small companies, [00:23:00] maybe mom and pop that Give me your $25,000 invoice. I need it now so I can record it. Explain the importance of revenue and cost in the same month.
Recording Revenue & Costs in The Same Month
Liz Helton: The only way to really know if you're making money is to, match the work that you're producing, with all the costs that go into producing that revenue.
So generally things like payroll are in the month that you paid payroll.
So that matches up with what you build in the month. What Tommy was really referring to earlier is, Hey, you know, we had a pool sub come out and, you know, install a pool in the month of March. We haven't gotten the invoice until maybe the end of April. And so in the meantime, everything looks fantastic, but that vendor is really holding up your assessment of how much you really made on that construction project.
And so when you amalgamate every single [00:24:00] project, all the work that a company does, you wanna be able to put those in the same column and say, did I make a lot of money? Did I make a little bit of money, or did I lose money? And so, so getting that information quickly I would say that that's typically what we see is that the subcontractors, the vendors that are maybe not as sophisticated as, say, a Weather Matic or a Ewing or a Site 1, right?
You're waiting for them to bill you. I always find it surprising that, you know, the smaller the company, the longer it takes them to bill you, because. In theory, they should be the most cash strapped, the most dependent on, Hey, I did work for you this week. Can I get paid? You know, on Friday, that's typically what, what we would see in the construction company.
I'm mean, every Friday morning I'm madly writing checks, right? To go get to the job site and hand 'em out. People wanna be paid, you know, like, Hey, I finished work 30 minutes ago, where's my check? But that's not always the case, but, but lining up your income and expenses allows you to [00:25:00] really tell.
Exactly how profitable or unprofitable that work was.
Tommy Cole: That's why it's important to have that P and L statement. Accurate, as possible so you can move forward with your business and, and go from there. I got one question. Depreciation. We get asked depreciation all the time, if you know what I'm talking about, right? I feel like every meeting there's a discussion about this. Should it be included, should it not ?
How to Handle Depreciation
Liz Helton: Yes. Depreciation should be on your P and L.
The confusion typically arises because there's two different calculations for depreciation. There's a tax depreciation, which is just sort of like a benefit that the government gives you, but that's really not reflective of what's happening to your fixed assets. So you wanna put on your profit and loss statement, what's called book depreciation. And it is an approximation of the fact that everything that you have purchased, your trucks and your [00:26:00] equipment potentially even your buildings are being used up over time. So I think the best example is probably, let's just say you buy a truck for $60,000 and we'll assume for simplicity of math that you're gonna depreciate that truck over five years.
Maybe you keep it seven. We know even after five years it's gonna have some residual value. But just, you know, again, this is supposed to be an approximation of the fact that you are consuming that truck in the course of your daily business. So over five years, that 60 months, you would record a thousand dollars a month in depreciation on that truck over a five year period.
That just really kind of aligns what you know is happening in your business. The tax depreciation, which you kind of wanna ignore, would say, Hey, I'm, I'm gonna depreciate all $60,000 worth of that truck the year you buy it. Because that gives you a tax break. Great. I'm all for tax breaks. You wanna accelerate those.
You don't wanna [00:27:00] pay the government a dollar more than you have to. But what that means is that your P and L looks terrible. You just took a $60,000 expense in a single month, the month that you bought the truck. Well, You know, it's really kind of hard to recover from that accounting wise, right? It makes it look like a terrible month.
The flip side of that is that then you have a truck that you know, you own, it's practically new or it's a year or two old, but on your balance sheet, it's represented at zero because you've already depreciated the other truck and you don't want that either, right? Because it's important to have a healthy balance sheet that shows truly what does this company own and, the opposite of that, what does this company owe? So, if you're looking to get financing for any type of loan or potentially you're looking to sell your business, you want a healthy balance sheet as well as a healthy profit and loss statement. So book depreciation is the way to get there.
It does not have to be perfect.
But that's [00:28:00] conceptually what's behind depreciation and why it's important. In essence, it somewhat mirrors what you would pay if you were leasing vehicles and equipment, right? You'd have monthly expenditures of actual cash to have those assets available to you.
It's a little bit different when you purchase it, but depreciation is kind of a comparable calculation.
Tommy Cole: We get asked that a lot and I think, I think owners are hesitant about doing it cuz it takes their net down, right?
Liz Helton: Sure, sure. But you know it. Yeah,
Tommy Cole: It's proper books and that's what you want.
Liz Helton: it is. And it's a little bit like kicking the can down the road. Right? If you don't take depreciation, well then what happens when you have to buy a new vehicle? Like how do you account for that at some point? You have to account for it. And so it makes the most sense to say, yeah, we're using our trucks every single day, so we're gonna just depreciate them over time.
Tommy Cole: If you're scared to put that depreciation, then I think you need to work on the [00:29:00] big three, which is labor materials, and subcontractors like we spoke about, right?
Liz Helton: That's right. That's right. And. Yep.
Yep. And you know, depreciation can just also give you a sense of how, how old are all of my assets, you know? If you have really high depreciation, of course it's gonna affect your, your net profit. But it also means that you have newer or newish vehicle and equipment.
If it's really, really small, it means you've depreciated all of that stuff already and you know, you're likely about to have to, to replenish or replace some of those assets.
Tommy Cole: As we wrap up, Liz, I'm sitting here thinking if you're a new business owner or you're young and people ask me all the time, like, what would you different differently if, if you were to get a business going I would so recommend you partnering with somebody. Or getting someone good that can do your bookkeeping.
Okay, here's where I'm going is because it's gonna give [00:30:00] you a lot of ammunition for years to come to make sure your books are correct and that's what everyone forgets. They're often racing to get the big machine, the brand new truck, the new facility, and the swag gear and all this. But at, at the end of the day, you can only get all that stuff.
If you've got the correct P and L and your books are all in order every single month, would you agree?
Liz Helton: Yeah, I mean the financial statements are really just a scorecard. And they're really going to, if they are accurate, they will provide you with valuable information so you can make those business decisions, right? Can I hire another foreman? Can I afford another truck? You know, everybody knows you have to invest in your business for growth.
But there is something to be said. If you are not making money, it's going to be very hard for you to pay for those investments over time. So I really look at the numbers as sort of the beginning and the end, but [00:31:00] really only for purposes of figuring out, okay, what is my business doing? How can I make it better?
One of the things that we talked about last year, really for the first time at ACE Summit when we were all in Napa we, we did a, a presentation over all of the ACE groups and just some big picture type stuff with them. And what really struck me is we added up all of the vehicles that all of the ACE group members owned at, at the time of the last reporting and it was like well over 3000 vehicles, and then we added up the number of members on their team, which was extensive.
I don't remember off the top of my head the exact number, but you think about the number of people. That you impact as a business owner, right? And it's not just those people, it's their family. It's their children. And so if you think about like I'm building this business for opportunity, opportunity for myself and opportunity for other people.
You really have to be [00:32:00] smart and understand that really money talks, the only way to continue doing that is to continue to be profitable. And so even if you're a kid, right? And you're out there mowing a lawn you have to think, well, did I buy the lawnmower or am I leasing the lawnmower maybe from mom and dad, and then like, they're making me buy my own gas for it, right?
So if I spend X dollars, you know, mowing like the five neighbors grass, am I making money or is this like, am I doing this basically for free? So, you know, you can boil it down to real, real simple things. And I think what we see the most with smaller businesses is that they just aren't considering all of the costs of doing business because not all costs are something that you see regularly.
And so, their pricing just isn't sufficient in order to cover all those costs and still be profitable, which is again, where if you have somebody who is.
[00:33:00] Keeping track of all that stuff and, and you know, I'm not a landscaper, but I can definitely tell you if I think there's an issue with one of those line items on your, on your P and L, and then I'm gonna, you know, boot you over to Tommy and say, Hey Tommy, tell 'em how they can, how they can improve this as the operations person, you know, how do you fix the problem?
Tommy Cole: yes. Love it. Love it. Liz, there is a quote that you've mentioned for a long time since I've known you and I, I'm gonna recite this cuz I think this sums up everything. You'll probably be like, I can't believe I've said that or I've said it a hundred times. I didn't even know it, but I think this sums up everything.
It says Big decisions can't be made without accurate and timely financial statements.
And that's what we just talked about, right? That that's. That's the name of the game is you've got to have that statement prepared and it's gotta be accurate and on time in order to make decisions.
Liz Helton: Sure. Yeah. If you're not confident in your numbers, in that [00:34:00] what you are seeing on paper is correct, you might as well just throw darts at a dart board, right? Because I mean, like, they could be better, they could be worse. It's like nobody knows. And, and you know, if you don't have those things turned in timely you as a business owner, there's a lot of things that happen on a daily and weekly basis and you have to be able to pivot and respond to those.
And if you don't have numbers that can help you assess situations and make a decision. You know, it doesn't help what happened three months ago, like, that's water under the bridge. Nobody cares, right? A lot of things can have changed in three months and, and, and what do you do if you don't have current data?
Tommy Cole: Thank you so much for joining us and giving us your perspective in the Financial world. Once again, she is the smartest person in the room by far.
So I love to partner with people like that, that know their stuff. Right. I know the operations side, and she knows the financials, so I think we work hand in hand. I think we can see it. It's been a pleasure, Liz.
Liz Helton: Thanks for having me, Tommy,
John: Ready to take the next step? Download our free [00:35:00] Profitability Scorecard to quickly create your own baseline financial assessment and uncover the fastest ways to improve your business. Just go to McFarlinStanford.com/scorecard to get yours today To learn more about McFarlin Stanford our best in class peer groups and other services go to our website at McFarlinStanford.com And don't forget to follow us on LinkedIn, Facebook, and Instagram. See you next time on the Roots of Success.