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Host Scott Lollar is a 35-year veteran of the painting industry and founder of Consulting4Contractors. The 'Success Beyond The Brush' Podcast serves as a touchpoint to painting contractors who have hustled, sacrificed, and worked hard to get their business to where it is today. Now, you need the guidance, expertise, experience, and team to make it into the multi-million-dollar company of your dreams. You'll hear stories and interviews from "Brothers of the Brush" and "Sisters of the Sprayer" who have been where you are and are charting a new course for their company's success. Listen in and go beyond $1,000,000!
SBTB Ep. 25 | Can You Afford That Next Hire? How to Build a Contractor Budget That Protects Profit
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[00:00:00]
Welcome To Success Beyond The Brush
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Welcome back to an all-new episode of Success Beyond the Brush. You know, most contractors don't discover whether they can afford a new hire or a salesperson or a larger facility until the expense has already hit their business. In this episode of Success Beyond the Brush, Scott Lollar explains how to build a practical contractor budget using real financial history, realistic revenue projections, and clearly defined costs.
You're going to learn how to model new overhead, account for seasonal revenue, protect your profitability, and use your budget as an active roadmap instead of looking backwards after the damage is already done to your business. Let's get into it.
Financial Pillar Focus
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All right, welcome to a new episode of Success Beyond the Brush. I'm Scott Lollar, founder of C4C, Consulting4Contractors, and today I'm going to be flying solo. We're going to talk about one of our pillars, which is financial. We have five pillars that we utilize in running a contracting or service business. Today I want to talk about the financial pillar, and specifically I want to talk [00:01:00] about how do you create a budget.
I recently had someone that had hired four overhead positions very quickly and then asked me, "Can I afford all these positions?" And the answer is, I don't know. So how do you create a roadmap to understand if you are on track in regards to revenue and expenses and answer those kind of questions when they arise? I'm going to make some assumptions here. I'm going to make an assumption that we're working in QuickBooks Online, and I would suggest you need the QuickBooks Plus version. You do not need the Advanced, but QuickStart or the lower version is not going to be sufficient to what we're going to talk about today.
So make sure you're on the QuickBooks Plus.
COGS vs Expenses Basics
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So the first thing we want to do is we want to make sure our chart of accounts is set up in a way to help us organize our data. We'll talk more about that in other podcasts, but for today, we're going to talk about really three categories that give us a result of net profit.
So the first thing is cost of goods sold. Those are all the items that you spend money on to get a job [00:02:00] done. One job, right? So for instance, if you buy some things that you use for the whole year, that's not really a cost of goods sold. That is an expense.
So we're talking about labor, which is either W2 or subcontract. On your labor, it's going to also include your burden, so your taxes, your insurance, your work comp, and any benefits you offer. If you offer health, PTO, holidays, dental, 401k, any of that stuff is a labor burden and attributed to the person that's producing the job.
It will also have materials and supplies, any rented equipment, so if you have to rent a lift or a porta potty or scaffolding or whatever, and then it also will include any additional direct costs. So maybe it's travel, per diem, lodging, permitting, blueprint, production costs.
I, I don't know what else it might be for you, but all of those costs to produce a job. That's your cost of goods sold section.
Next, we're going to look at all your expenses. This is everything you spend money on in your company [00:03:00] that's not cost of goods sold, and then of course the result then is net profit.
~I am feeding back~
~I'm hearing an echo~
~And I don't know where it's coming from, but you don't hear it?~
~Test, test. It's gone now. Okay. Um~
Export Reports to Excel
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So I'm going to teach you a little trick to how to create a budget. Now, QuickBooks has a budgeting feature in tools, and we're going to get there, but that's not actually where I create a budget. I run a report, a full year or year to date by month. You'll get all of the categories by month that you have spent or do spend, and I would export that then as an Excel spreadsheet.
Secondly, immediately run the same report, but not by month, but by year total, and add the percent of revenue to those categories. Export that as well, copy those, and paste them right on the edge of your initial twelve-month budget. Now we have a history of everything that happened either year to date or for last year.
Now, we're usually doing this in November, early December, because we're planning for 2027 as we record this. So I would do budgets in [00:04:00] November, so you're not going to have full twelve months, but if you still use twelve months, you're going to get all full range of, cells.
Realistic Revenue Forecast
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So now what I do is I start with your revenue.
As you're looking at this document, you're seeing the reality of what happened in your company this year. A lot of times people have really inflated ideas like, "I want to do 5 or 10 million," and yet this year you've only done 1.2 or 1.5 or 2. So you have to understand the reality. You're looking at it, and then you're also projecting.
I'm okay with a stretch goal. I just need it to be realistic, because we're going to use this to really guide steps. So let's not do crazy things. Let's do realistic things.
So where I would start is with a revenue projection. So you can see, are you a flat company, like in a nice beautiful place like California, San Diego, you can paint year-round, there's no ups and downs? Or are you like me in Chicago, where in the winter we can't paint outside? If you're residential heavy, Christmas and Thanksgiving times can be a little [00:05:00] wonky.
So you have to look at your cycles, and I would start there. Then I would take that revenue goal, say next year you want to do 2 million. I would parse that out in 12 month increments in line with your reality. So if you're a bell curve, then start lower, ramp up, then ramp down.
Now, this is a place where you can play with that number because some of you are going to see some big numbers. Some of you are going to see in your reality that you're going to need to do 4 or $500,000 a month and you've never come close to that. So I'm not saying be scared of it and run. I'm just saying this is the reality.
So we want to, create vision and stretch goals, but we need it to be within our reality. So start there. And by the way, once we do this, we can create copies, and then we can do some crazy numbers if you want to do some fantasy land, you know, crazy, right? So let's start with reality.
Model Cost of Goods Sold
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The next section is your cost of goods sold. Now, why I brought in the percentages is I want you to look at what you've spent on your [00:06:00] cost of goods sold. How much as a percentage of revenue, do you spend on labor? Are you a subcontractor model and you spend 30 cents out of every dollar, 35 cents o- out of every dollar, 40 cents out of every dollar?
I don't know your reality. And by the way, just because you say one thing, you're going to look at this data and go, "Well, this is the truth." So I know through the industry what our targets are for labor, and so I know what yours should be. But if yours is more than that or less than that, that's okay. Let's start there.
just because I say the rate you're paying is way too high doesn't mean you can come down quickly just because I said so, right? So first of all, take your number for labor, so if it's W2, plug in a, formula it'll be a percentage of revenue for every cell, and put that all the way across.
Now you have your gross wages Then you put in the company cost for taxes and your burden, all those numbers in your spreadsheet. Then put in your materials, supplies, other costs, subcontractors, et cetera, [00:07:00] et cetera. As you do this in the spreadsheet, because we exported it from QuickBooks, it will automatically sum these numbers and you will have now your gross profit.
Build the Expense Plan
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From there, we're going to get into our expense section. Okay? So what did you spend on salaries, project managers if you have them, estimators, your own salary if you're S corp, how much did you spend on rent if you have that, utilities and shop maintenance, and all these things, cell phones softwares, all of this stuff all the way through that you spend money on.
And you can see what you spent now. So one of the things I would do is take office expenses. They're all fluctuating. Sometimes you've bought a lot of this, sometimes you bought none of that. So I would say if your number is twenty-four hundred a year, then I would just put two hundred dollars a month and just spread it all across evenly.
If you have cycles of, "Hey, we always pay our insurance premium on the 1st of July," then you can put it in there. So either one's fine. From there, you're going to [00:08:00] see what's left over, and now we can do some work. Okay?
Fix Profit and Add Overhead
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So that's our first pass. So now all you do is just say, "We've done all this work, we spent all this money, and at the end I'm faced with 1% net profit."
That's not acceptable. So what does that mean? It means we got to go back into our numbers and start figuring out what's off, what we need to cut. Maybe we can't afford that estimator that we wanted to add, or maybe we need to drive revenue, or, you know, we don't know. But we need to start working with those numbers until our net profit is in line with our expectations.
Now, how much is good net profit? Well, that's a tricky one. I'm looking to get a 20% ROI for most business owners, not just net profit. If you're taking a heavy salary as an S corp, I include that in. So, you know, we need to work on looking at all the ways you take money out of the business.
it matters how you take money out of the business, and we can look at that. Now, In the expense [00:09:00] section, that's where we would start adding these positions that are new for you. So for instance, if you don't have a project manager right now, and you'd like to add one, now you add that number in.
Or if you want to add them in April before spring rush, we add it starting in April. If you want to add a salesperson or an additional salesperson or an admin, this is where we start layering in these costs that are new to you, so we can see how it affects our bottom line. Now, no one's going to add expense without driving revenue.
But on the short term, you might pay for these items through retained earnings, and that's very normal. But what we really want to do is see what will happen to our net revenue and the cost of our expenses as we add different things. So for instance, if you don't have a sufficient or proper shop, and you'd like to go add that next year, we'd add that in.
Well, what other costs are associated with renting a shop? Well, you're going to have utilities and garbage and internet and electricity and water. You have a little insurance there. Maybe you have to snowplow it or whatever. So we have to look at all those [00:10:00] expenses and put all those in, so we can see what's the cost of adding the shop.
So then the other question is, can I rent one for 2,000 or 10,000? Well, those are numbers we need to plug in there based on the reality of your market. So this is a place, a sandbox, if you will, that we can make some assumptions, play with some numbers, and from there, we can settle on, "Here's what we're going to do."
Now you have an accurate and proper roadmap to guide your year. We look at these monthly, if not bi-weekly, because your revenue, cost of goods sold, and expenses are the numbers that affect your bottom line and your... affects your cash flow, by the way, as well. So when you feel broke, and I'm like, "How, can we have no money?"
We can track back to our budget and what's happening, and usually we can answer that question. Well, you're, you don't have enough revenue, so you hired all these positions, you're paying them no matter what, but you don't have enough money coming in top line to do that. And that's why we do this. If you just start running a [00:11:00] race that you don't know the, finish line, you may do well, but that's going to be the old technology of when I was young of, "Hey, if we have money in the bank, we're doing well."
And that's not the good approach. We have way better tools.
Upload Budget and Track
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So now we have our finalized budget. Now, you can go into QuickBooks in your tools under the budgeting section, and you can plug this in or upload it into your QuickBooks file.%
So what's the benefit of that? As you go through your year and your data fills in year to date, you can look at projected to actual numbers in all of your categories, and you can see how you're doing. So have you overspent? Have you hit your revenue numbers? Do we need to make some adjustments?
And you can monitor that. And what we're trying to avoid is looking back and doing an autopsy of something that's already screwed up. So if you wait a full year to look at all this information, it's too late to do anything about it. The patient's dead. So what we can do is we can do [00:12:00] analysis as we go through the year, and we can look at how things are going, and we can make corrections.
We can run a little bit faster. We can celebrate that we're right on target. We can see that we've overspent here and modify that or moderate it or increase our budget maybe if we need to. So this is the tool that will really help us stay on track and make sure we finish the race strong.
Clean Books and Next Steps
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Now I'm saying a lot of things assuming everyone has a clean and accurate QuickBooks file and I know by my experience that straight up isn't true. I see amazingly over and over files that are really inaccurate, not set up properly and just really are not usable.
And I really sometimes can't even imagine how people file their, corporate taxes accurately. So a lot of these terms that I've been mentioning today, budget, revenue, cost of goods sold, expense, et cetera, might sound familiar to you and you might think you have a grasp on these things, but in reality you really don't or it's not in a way that's really usable.
~At C4C, we absolutely are ex- At C4C, we are absolutely experts at helping you manage your data, organize it, and get it to a usable space. At C4C, we are absolutely experts at helping you~
~At C4C, we are absolute... Okay, let me go one more. Why do I want to say abs- experts at?~
At C4C, we are absolutely experts at helping you [00:13:00] mine this data, get it into usable formats, and then extract it so that you can run a successful and profitable business. If this is you, schedule a free call with me. In the show notes, you'll find a link. It's no pressure. It's no cost. It's just going to be you and me talking to try to see if there's anything we can do to improve your situation and make the business of your dreams. We'll see you next time.
Thanks For Listening To Success Beyond The Brush!
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Well, that wraps up another episode of Success Beyond the Brush. A budget gives you more than a revenue goal. It gives you a roadmap for managing expenses, evaluating your new hires, protecting profitability, and making adjustments before financial problems become permanent. For help organizing your QuickBooks data and turning your numbers into a usable business plan, schedule a free strategy call with Scott right now.
You're gonna find a link in the show notes or video description, or you can visit us online at www.consulting4contractors.com. Be sure to subscribe, leave a review, and share this [00:14:00] episode with another contractor who is ready to stop guessing and start planning. We'll see you next time on Success Beyond the Brush.