Chasing Financial Freedom

How to Make Profit a Priority in Your Business with Rocky Lalvani

November 01, 2022 Ryan DeMent Season 4 Episode 34
How to Make Profit a Priority in Your Business with Rocky Lalvani
Chasing Financial Freedom
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Chasing Financial Freedom
How to Make Profit a Priority in Your Business with Rocky Lalvani
Nov 01, 2022 Season 4 Episode 34
Ryan DeMent

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On this Chasing Financial Freedom Podcast episode, we have special guest Rocky Lalvani. He is a certified Profit First Professional, teaching business owners how to ensure they get paid and make profit a priority. As a Profit First Professional, he implements Mike Michalowicz's Profit First System. This system ensures that profit comes first, and it's not about money at all costs; people come before money. Tune in to learn more from Rocky Lalvani and how you can make profit a priority in your business!

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Show Notes Transcript

Send us a Text Message.

On this Chasing Financial Freedom Podcast episode, we have special guest Rocky Lalvani. He is a certified Profit First Professional, teaching business owners how to ensure they get paid and make profit a priority. As a Profit First Professional, he implements Mike Michalowicz's Profit First System. This system ensures that profit comes first, and it's not about money at all costs; people come before money. Tune in to learn more from Rocky Lalvani and how you can make profit a priority in your business!

Looking to Share Your Story? Be a Guest on the Show

Support the Show.

Thanks for Listening! Follow us on Tik Tok Facebook and Instagram

How to Make Profit a Priority in Your Business with Rocky Lalvani

[00:00:00] Ryan: Hey guys, Ryan DeMent from Chasing Financial Freedom Podcast. I hope you guys are having a great day today. On the podcast, we have Rocky Lalvani and Rocky's gonna have a very simple intro, guys, but you know how I can do a little intricate versions of it. He's the profit answer man, and he's gonna help all of us, entrepreneurs, small business owners, you guys out there with those Johnny side hustles.

To manage our money better. Rocky, welcome to the show. Thank 

[00:00:31] Rocky: you so much for having me, Ryan. Excited to be with you today. 

[00:00:34] Ryan: You're more than welcome. So before we get into what you're doing, tell the listeners or and the viewers a little bit about who you are. 

[00:00:43] Rocky: So I am first and foremost husband to my wife for 27 years.

We've got kids. Congratulations. Thank you. So also a dad to. Two kids, one launched one about to launch as well. So I spent a lot of my time having the freedom to be with them and do the fun things and enjoy the ride along the way. Spent a lot of my time in corporate. I also do some real estate investing.

We've done a variety of things there, but really what I love most is digging into numbers, playing with spreadsheets, and helping people to build wealth so they can live their life on their terms and their values instead of what their checkbook. 

[00:01:28] Ryan: That is a great way to live. But before we get into that, I love your backdrop in all your books, and I know you told me you're a very large consumer of reading.

I'm with you. But out of all those books I have to ask, have you read all of 

[00:01:41] Rocky: them? I have read a very good chunk of them, yes. That's So the ones that you're seeing most likely I have read. 

[00:01:53] Ryan: And let's Seth Gogan. Yeah, Tony Robbins. I'm just reading. I'm sorry. I digress. So that's really cool. It's a lot of books and I'm all for it.

I've , I know I'm a little late to the party, but I joke about this is I've never been an audio listener or audio learner. And now I read with my tablet and I have the audio version most of the time with the. . And for some reason on the books that I really want to get into the audio and being able to read just, it absorbs into my brain three times better and I retain the information.

I'm like, Where was this when I was in high school? But that was, a Koons age ago. . 

[00:02:32] Rocky: So are you actually reading while the audio is playing? Yeah. Ah, so I'm guessing what's happening is you're picking up two. Senses of information because you're hearing it and you're also visually seeing it.

I've never done that. Maybe that's something to think about. 

[00:02:50] Ryan: Sp I do it, especially in books that I first start reading it and then if I'm really into it and I'm learning something from it and I'm, when I say learning from it is, I'm like, I can't put it down cuz some books, I'm like, Okay, this is great.

I'll pace. Some books, more books than not. I just won't put down, I'll get the audio version of it too and read it and I can consume it in a matter of hour or two and be done. It's, it just goes very quickly. Wow. Yeah. This I'm late to that game. Someone else, one of my other guests early on in my podcasting career told me about that and I'm like, Yeah, I'll try it.

I'll try it. And I never did. And then about a year and a half, two years ago, I tried it and it was like, Where's this been all my life there we go. So you you are about the money and you wanna get people into the right place. And I know a lot of us, including me, in my past I've struggled with money.

So let's get into that, that roadmap and what got you there. What started you down this path in being able to help others with their finances? When I say others, business owners, small entrepreneurs, that type of group. 

[00:03:55] Rocky: So when I was a little kid, I wanted to be a millionaire. . And so I just started figuring out like, what do I need to do to make this happen?

So it started out with just reverse engineering. How much do I need to make? How much do I need to save? And if I save X for this amount of time and it grows at this rate, how many years will it take me to do this? And so it was a slow, steady thought process of doing this. So how do you run all these calculations?

Today you do 'em on Excel or on a calculator on the internet, but this was. The late seventies. , we didn't even really have digital calculators. No, and it's funny because I bought my first computer, it was an Apple two. Was $2,000 in cash back then. It had 4k of memory, the four, four, just four.

There's no whatever beyond that, right? That's like a pixel I think. I walked in with 2000 bucks in cash, which I had earned cuz I was, hustling as a kid making money. And one of the first programs that I really started to play with, Program calls Busy Calc, which is an electronic spreadsheet, the first one.

 And like the adults started noticing, Hey, here's this kid playing with these spreadsheets. And one of my friend's dad had me come into. The accounting department where he worked at a major Fortune 500 and said, Teach these accountants how to get off of paper ledgers and go on to these digital spreadsheets cuz this is the future and you know how to do it.

And so that kind of got me started. Even in college, I was working for a bank. They're like, you know how to do spreadsheets. I'm like, yeah. They're like, Come do this for us. The problem was I get outta college and I'm like, Okay, I wanna do spreadsheets for people. But how do you even market that? What do you tell people?

How does a 21 year old kid even explain what that is? And there was no way to learn. There was no internet, there was no, we still listened to AM radio like . It was hard. As much as I had a love for that and I was using it in my life, I just got the corporate job and followed the path I was supposed to follow.

And what I found is, good is the enemy of great. They treated me well. Life was good. I had time freedom, money freedom, and I was building my wealth. So life was good. And then at some point it came to the question of, what do you really want to do with your life? And I'm like, this money thing has always been there.

I was always reading, learning, trying to figure out. How to build wealth and do this. I'm like, Why do people struggle with this? It's not that hard. And I learned a lot, . It's actually not that hard, right? It's all emotions. So I learned a lot through books and a lot of new research came out, and then I was helping people with that.

Like I, I've been down to Dave Ramsey, learned how to be one of his coaches and all of that, but, People all want to get rich quickly. . And then I started to come into the thing that I heard business owners didn't look at their financials. I'm like, How the hell do you be? I could just did not dawn on me.

Like, how could you run a business and not understand the language of business, which is the numbers? Correct. And so that became the final pivot and that's where I pivoted and I said, I can help business owners with numbers and all of this information. I understand. How the numbers flow through the spreadsheet, the spreadsheets tell me stories and from the stories we can bring about change.

I'm also an enrolled agent, so I know taxes. , because never wanted to pay taxes. So how do you cut taxes? So I, I would read the tax books to figure out how to do all of this. So I think it's just that natural skill set. And now I finally took the things that I love doing that I'm good.

And turned it into a viable business, 

[00:07:49] Ryan: Wow. You're you're about around my age, cuz you're talking Apple. I can probably date you a little bit more. And I started on a Commodore 64 I'm just, That was a little 

[00:07:58] Rocky: bit later, but not much. I had the. Trash 80 to start as well. 

[00:08:04] Ryan: Oh yeah.

So we're, it's all in there. My brother had a, an apple too, but for some reason there was a commodor before the 64 and I don't remember the name. I dunno if it was 32 or what, but there was one before it and it just didn't work. And I was just amazed that, I was like, 

[00:08:17] Rocky: That was 64 K, I had the four 

[00:08:19] Ryan: canvas . Yeah. Yeah. So it, it's amazing how we've evolved and. How technology has made it a lot easier. And you mentioned something and there's a lot in there, but the one thing that stood out is we as human beings want to get rich like tomorrow. But unfortunately up here in the brain, we're wired as short term, instant gratification is why do we have so many financial issues?

It's because of that. You trained as a Dave Ramsey financial coach. I'm very familiar. One of the things they teach are the Joneses are you're trying to keep up with the Joneses. The Joneses are broke, they're gonna file bankruptcy. It's unfortunate, but entrepreneurs and small business owners run their businesses the same way.

I don't get it because I'm with you. I have a bookkeeper and a cpa and then, and we do all our taxes every month. I know where the books stand. We've got the p and l, we've got the proforma we've got the balance sheet. We sit down and we talk every single month, but I'm looking at it on a weekly basis.

I can't look at it every day. I, it would drive me crazy. But weekly is my pattern. Friday nights or Friday afternoons late. When it comes down, that's when I look at it. Make sure everything's in line. Ha ask those questions. But that took me three tries. My first two businesses failed. I called myself a two time trier and third time charm.

Yeah. Corporate America never taught me to be a fisher. So I had to go back and learn how to be a fisherman and feed myself. Otherwise I starved. And then that's what happened in the first two businesses and I think there's so many things we can unravel in this conversation about money, and we can go many different routes, but I think the first step is when you start engaging with an sorry, a.

How do you dissect all that? Especially in, I've seen some pretty bad PNLs and some balance sheets, and I'm like, who manages these? A five year old? And it's pretty hard. So where do you start and how do you work that process through to where they can come out on the other end healthy?

[00:10:21] Rocky: So first of all, the fact that you're doing that weekly puts. and probably the 5% of business owners, cuz 95% of them don't do that. And that's just the reality of it. And I think we just need to address that. The funny thing is you ask the question, where do I start? And honestly where I start is the person.

. My first question to most my clients when they come on board is, tell me about how you grew up and how you learned about. Because whatever that programming is that's going on, it's gonna show up in your business and your behaviors. And I really want to know who you are as a person, what got you to where you are today, what created the problems that we're working on, and then we can.

To peel the onion and figure out the different layers and what's preventing you from success. And so I think that's a big part of it. Now, one of the cool things about Profit First and the way that Profit First Works is we don't necessarily have to have good books. It's the designed for business owners who are.

To bookkeeping and financials . So it allows us to work within that. But honestly, that's step one. , it'll at least get you going in the right direction. Okay. But over time, I think it's building the right frameworks, creating the systems, creating the processes. And I think it really depends on the company.

If they're a small company and they don't have a ton of transactions, it's all high dollar, it's pretty easy. But you start getting into some of these construction guys, , and they're, they've got 50 jobs going on. Buying lumber like crazy. Nobody knows what lumber's going to, what job, who to bill, what to, You're talking a major task of trying to wrap your head around something like that because the reality is every business has a ton of leaks and it's figuring out the leaks.

As a matter of fact, this is how bad the leaks are. So one of the books you can't see is. Islands of profit? No. Sea of red ink. It's Jonathan Burns. He's an MIT professor. He looks at large companies. Okay. He said, if I look at large companies, 20 to 30% of what they do probably creates more than a hundred percent of the profit.

Okay? Which means, And what he goes on to say is 30 to 40% of what they do loses. And 20 to 30% breaks even. So what happens is if you don't know what's driving your profit and what's crushing your profit, you're gonna create this big, massive business and you're gonna be on a hamster wheel working so hard wondering, Why don't I have any money?

Yep. It's because you haven't taken care of the leaks in your business. You don't know where it's happening and what the problems. 

[00:13:33] Ryan: Wow. And you speak construction cuz my day job is we run affordable housing slash workforce housing developer. So we're starting our next full block project. And the first thing I've already asked the bookkeepers are, Okay, here are the addresses that we're gonna be working on.

Set up a pnl, set up a proforma, set up everything balance sheet for each of the properties as its own entity so we can start managing that effectively. In the beginning we didn't do that, and now that we've got multiple houses going at a time, every purchase, so all the, unfortunately I say this unfortunately, but I still enjoy this.

All supplies and materials still come. It's just, I've got a system, we can make it work and we can scale it at some point. I'm gonna have to find somebody that's gonna do that, but I need to train somebody. So I gotta figure out how to do that. But the thing I wanted to get back to is if I did not have each of the properties broken down by address and then putting my expenses I would probably spend hours upon hours with my bookkeeper trying to balance out our QuickBooks and make sure everything is right.

It's crazy. And even if you don't have construction, if you have many transactions, I'm just saying from personal experience, if you can't manage that, then you gotta find another system because you're gonna get lost and then your bookkeeper's gonna be , charging arm and a leg. I've gone through that route too.

[00:14:59] Rocky: It's not easy. I, and we'll be honest, it's not easy to set up good systems and processes. You've done it and even then it's hard for you to turn it over. , 

[00:15:09] Ryan: but it's also. I failed multiple times. Not talking about business, but just setting up QuickBooks properly and then finding the right help. It's not the, it's not a problem of giving it out.

have no problem giving it out. I want to train somebody, but I wanna make sure he or she's trained properly. I don't have an sop, so guess what? I gotta go make one. So then that means I gotta make time. So that's the other part of is small business. You gotta juggle all these additional hats that you have to wear.

I'm blessed with my two podcasts. I have a virtual assistant that after I record, I don't have to worry about anything. She handles everything. Now I'm looking for another virtual assistant that can start. He helping on the booking, the, excuse me, the bookkeeping side with our bookkeeper. So she, he or she can start earmarking stuff in QuickBooks and just going with that process and then train 'em, go through that.

I don't think if I was just a solopreneur and doing this on my own, I don't know. I guess I don't know if I would go that route with somebody or not. Cuz margins, depending on what type of business you're in, you gotta look at those margins, I don't know. You speak on it. I'm, For me, it's all about scale.

And if I can take stuff off my plate and move it over and focus on the things that make me money, that's where I'm at. I just, I've seen a lot of smaller businesses that struggle with that, and they don't make a lot of money to begin with, and more than likely you'll find it in the books they're spending on stuff they shouldn't be instead of reinve.

Sorry. And that's 

[00:16:43] Rocky: long one did. That's No, you're correct. And they also reinvest it inappropriately and they don't measure the reinvestment. , and they don't measure the return on it. So you're constantly doing things by gut. What we find is when we actually show them what's going on, it's Oh, that explains a lot.

[00:17:04] Ryan: Numbers don't lie. They, you can, of course you can fudge numbers or whatever, but when you're doing the right thing, the numbers don't lie and it tells you a story like you said story-wise, when it comes to numbers like that, you start with the person in their background, how they were taught about money and their relat.

What happens? You're almost like a, you're almost like a counselor at that point. So how do you handle a small business owner or entrepreneur that grew up with very little money education or financial education? So 

[00:17:34] Rocky: if the good thing is, if they grew up with very little, they know how to be resourceful, and that's a great skill for being a business owner.

They'll find ways to be resourceful. So in that case, it's more about teaching them to let. And to spend a little bit of money and not do everything themselves to actually value their time and say, What's your time worth? What is your highest and best value of your time? And how do we get everything else off your plate so you can scale and grow?

So I think it just depends for each business owner, where they're at, what they need. And then when we look at their business businesses are math equations. You have to figure out the math equation for your business. And once we can look at the math equation, then we can start to play around with the different variables.

So let's just do this and we'll try and make it. You own a business, right? So we gotta sell stuff. In order to sell stuff, we need prospects. . So how many potential prospects are we reaching out of the potential prospects? What we're reaching, what percent are buying? What's my average sales value?

When you start to multiply those numbers, you then come up with total revenue. If I looked at that equation and I noticed, Hey, a lot of people are coming into your business and looking at you, so you've got a good, you've done a good job of getting them to come see you, but a lot of them aren't buying.

What's wrong? What can we fix to improve the amount of people who look at your business and then make a purchase? Okay, maybe they're doing that well, but maybe the amount they're buying is too low. So how do we increase the amount that they're spending on average and then that helps the drive revenue without working a lot harder.

It's improving the processes. And then once we know what your revenue is how much does it cost to deliver that? Are there cost of goods? Cost of time. What does your overhead look like? How much are you spending on employees? What's your marketing look like? And then we come up with your net profit and then we can start to tweak things.

What I don't think APO a lot of people realize is if you can pick up a small percentage in your gross. Margin up top. , it makes a dramatic difference in your net profit. Small numbers multiplied throughout the system make big differences. So this isn't about making big changes, it's about making systematic small changes throughout your business to totally improve it.

[00:20:14] Ryan: Very simple, straightforward. How many small business owner entrepreneurs. Do they, I just have to ask, do they actually see that when you actually lay it out to them, or is it more of you've gotta hold their hand and walk them through that process? 

[00:20:29] Rocky: I think for a lot of 'em, we don't always have the data to look at all of the different points.

Sometimes we don't. Sometimes the data's there, but they don't know how to read the tea leaves . Sometimes it's emotion. I can look at a business owner, I can look at his things going, Look, I don't know how you're coming up with that pricing, but you don't have margin. Either you raise your prices or you're a charity and a lot of business owners early stage are, I can't raise my prices or people won't pay that or I'll lose business.

So we've actually run numbers sometimes where, Hey, I want you to raise your prices 20. And even if we lose 10% of your customers, you'll actually make more money. So you'll work less, make more, and everybody's happy. And usually the people who leave are the price sensitive pain in the, But customers, 

[00:21:21] Ryan: yeah.

You're 20% of people that you have to spend 80% of your time on. . what I mean, just I've never had that problem, but I hear that a lot is, Why are entrepreneurs or small business owners struggling with raising their prices? What's the emotional attachment? They just think people are gonna bolt and run.

[00:21:36] Rocky: I think it's fear of people are gonna bolt and run. A lot of times we don't understand the value we deliver, and so a lot of times they're like, Nobody's going to pay that for this when the reality. A lot of people don't know how to do that. You're saving them tremendous amount of time. Or if there, if their time's worth two 50 an hour and you're coming in with a hundred dollars an hour solution it's a no-brainer decision.

Yeah. Especially if you don't bother them, you get it done and you're good at what you do. So I think a lot of it is emotion. And that's the real, especially you'll see a lot more of the emotions on the creative side. So any kind of creative business it just depends. It's all over the board.

I think 

[00:22:23] Ryan: it's the best way I know to describe it is, when we're building houses we have to stay within a threshold. It's called Area Media and Income, ami, and we can only go so high. So during the pandemic, we had to slow some of our stuff down because. Cost of goods supply chain issues, and then people not wanting to work.

So we really couldn't push out our numbers. So we had to find ways to reduce costs overhead, of course, and then deliver a product that's still in the same price range. Otherwise we couldn't sell it. And that was tough. A couple of them, we only made a few bucks. Thank God we didn't lose anything.

But now, We still have supply chain issues, but our cost of materials like lumbers was the biggest expense during the peak of the, I'm looking on my board, cuz we have we've, we have to hedge, unfortunately, and today it's roughly $520 a thousand board feet back at the peak of the pandemic, $1,700.

So three times. Which translated to the houses we were selling about $30,000. Ask as an ad. Let's see, that's almost 60% of our budget to build a house. , there'd be no way to do it. So we had to stop. So we had to find other ways to make money. And it's just, I guess the resor resourcefulness is one and two the other pieces.

When the numbers don't match up and you're emotionally attached to it, you have to gotta step back and say, , how do I make this work? And then what others, what other lovers can I pull? Luckily we had lovers. If we didn't, I don't know if we would've survived the pandemic. So I'm sure that in, in these businesses you're helping and there's more and more of those.

In that situation today, are you seeing those type of clients come along where they gotta figure out where they're gonna pull their levers? Close their doors. 

[00:24:13] Rocky: I think everybody has got to figure out their levers and how they're making changes. I think what we're really seeing a lot of times in some of the traditional businesses is their margins are getting squeezed.

 And so they only have so much margin they can charge because everyone's selling the same commodity product. At a discount online, and now you have to compete with online, and that's not always easy. So it's how do you make it, how do you differentiate? How do you figure out how to get premium pricing or how do you pivot your business?

How do you shift away from what you are doing to something that is more profitable? So I think there's a lot of ways of doing this. I deal with retailers and so for the retailers we'll bring in private label. because in private label, they can get higher margins, even though the cost of what they're, even though they're selling it for less, their margins are higher.

And so it makes sense to do that. And so then they're building their own brand. So that takes the competition out. The other thing is just knowing your prices so you can raise them. I think early in the pandemic, a lot of builders didn't have contracts that allowed them pricing flexibility. So they got burned and now they've learned to change the way their contracts are written.

Yep. Or a lot of 'em didn't even keep up with the dynamic pricing. You have the price up on the board. A lot of them weren't even looking. And then they're like, Where do all my money go? Didn't you happen to notice what happened to the price of the two by four with $8? Yeah. That's a massive, If you're not paying attention, all that stuff comes to bite you.

So I think it's just awareness and then, Most business owners are pretty smart. Once they understand the problem and they know the target, they can figure out what to do to make it happen, But they have to know what the target is and what they're looking at. 

[00:26:16] Ryan: Yeah, it's it's amazing. Last month, new home builders had over a 22% cancellation rate because they put those escalation clauses in at the beginning of the year, and they started hitting it and boom, it goes up up.

And it's like now of a sudden lumber is at its lowest point, pre pandemic, and they're still raising the prices and it's. 

[00:26:40] Rocky: I think a lot of the cancellations aren't because of the building costs. They're Because the mortgages interest rate have, Yeah. The mortgage rates went up where the average payment for somebody's mortgage is 50% higher.

Most people don't have the margin to pay 50% more for the mortgage on top of the increased electric, gas, and all the other prices. , they got squeezed. 

[00:27:03] Ryan: I've got some good friends that are some national builders and they still haven't, They're just I call this 2007, 2008. I was living in Las Vegas.

We all know, that was a downturn. It's where I learned how to buy defaulted mortgages, everything to that extent. When the new home builders start discounting homes, when they discount with closing costs upgrade. They get rid of lot premiums. You now know you're in a spot of, okay, we're going on the other side.

They're just start, I'm in Arizona. They're just starting to do that here. They started in Vegas, but now they're doing something a little differently. They're hitting the interest rate, so now they're starting to carry the interest costs. So there's a few of 'em out here that are now saying, Okay, I'll buy down your rate for the first 12 months or 24 months, but you're still paying top dollar for the house.

Figure that one out. It's a new one on me. So I've started to digest that and figure that out. I'm, 

[00:27:56] Rocky: How do they only buy it down for the first 20? Oh, they, Is that the way the mortgage gets written? 

[00:28:02] Ryan: Yeah. It, So they would write it for the first 12 months and then after that it goes back up to whatever par is or whatever.

They decided what the closing table was. So today we're over, we're over 7%. In a traditional marketplace, and you're buying it down 1%, on a hundred thousand dollars mortgage, which you don't have that out there is, it's nothing. So you are right. The interest rates, we digress.

The interest rates are there, but there's still overcharging for houses. There's still, there's, I'm in a pretty new neighborhood and I've got Toll brothers here luxury builder, whatever, and. They have houses that they initially listed in September, August, September, for close to 900,000 now have been shut.

Now listen to this, have been price reduced to 600,000. . That's crazy. It's unheard of. It just, it's amazing. But we digress. It's life . Anyhow, back to our business owners and entrepreneurs. I'll play the struggling entrepreneur or business owner, whatever the case is. What would be some tips?

You come in, you're, we've engaged. What are some things that we can do as small business owners to improve our bottom line, improve our financial awareness and run our businesses more effectively? So 

[00:29:17] Rocky: the first thing is, everyone gave you the wrong equation. Okay? Everyone told you, sales minus expenses equals profit.

but then profit's a leftover. It's an afterthought. , what we say to people is, you created a proforma, you said what you were gonna do. So we changed the formula to sales, minus profit equals expenses. So you scrape your profits up front. If you're gonna make 10% on that house, then let's take the 10% out and let's put it aside and say that's our profit.

And we put it in a separate bank account called. Okay. And now it's guaranteed you don't accidentally spend it. The other thing we do is a lot of business owners don't pay themselves first. They pay themselves last. And they struggle. And so what we do is, look, if you said to me you do this project and your time is worth X, then we're gonna take that amount of money and we're gonna put it aside for your pro, for your.

so that you can appropriately pay yourself. Cuz if you're not paying yourself and you don't have a solid foundation, your business is gonna crumble. So we want you to be on solid ground. Then the other thing we do is we save for taxes cuz the government comes, , they have access to your bank accounts and they got guns now.

Yes, be ready for. Then what's left becomes opex. Because what happens more often than not, we see a problem. We go, Oh, I got a problem. Let me throw money at it. , when you have less money, you go, Oh, we got a problem. Oh, I don't have a lot of money. Let me figure out what to do. and we start being more resourceful instead of just throwing resources at everything.

And when you give every do go back to Dave Ramsey. You give every dollar a job and we send it to do that job. Is this a profit dollar? Is it my pay dollar? Is it an expense dollar? And you do that appropriately. So that's the biggest thing I think is defining where you're. Sending your money to do the job it's supposed to do, and then measuring against it.

Did it work? Did I overspend? Where can I cut my spending? Where can I increase my prices? Where can I do things appropriately? And I think that's a big part of what we do, all of this in the profit first. Book is based off of bank balance accounting because most business owners don't look at their QuickBooks.

They look at their bank balance, Do I have money? Do I not have money? So this leverages that behavior and it says, Go look at your operating account. Is there money? Is there no money? But you've at least covered for your pay, you've covered for your taxes, you've covered for your profits. And it constrains.

And that's basically what this is all about. Constraining the business owner cuz the whole thing comes down to Parkinson's law. However many time and money resources you allocate to a business will use it all up. So we go back to the construction, right? We're gonna buy the house. What's your budget?

First question, How long? Whatever your budget and how long it is, I guarantee you'll exceed 'em both by 10. But if you say, Hey, my budget is 30% less and my timeframe is 30% less, we'll figure out how to get it done for less and faster. And that's what you really need to do is constrain yourself. 

[00:32:40] Ryan: You sound like me already cuz I actually, So when we do these projects I call it the.

The fudge factor and I, and there's always, there's something that happens. You just have to play it in, but if you are able to manage that fudge factor to a nominal piece to where it's not controlling you, you're able to ring out those expenses. And be more effective. And when I it's like a, I don't want to Assembly line is how I look at it is you come in you, we pour the foundation cures for seven to 10 days, sometimes 14.

During that time, you're ordering all your lumber packages and making sure they get delivered. If you wait to the, I know some people that are, in my, our range of builders. They will wait till the foundation cures before they order their lumber package. Unlike even a good world prior to Covid, you, wouldn't you?

You're wasting time. That's 14 days. And I said, Think about how many days, Let's say you have a build schedule of 180 days. Take 180 days divided by how much year it's gonna cost you to build. That's what it's costing you per day. You just wasted 14 of those days. That's money right out the door.

It's amazing. Once you start just getting down and looking and grinding you can find efficiencies in there. And that's how I started to learn. We started on rehabs. We never started on new builds. We started on rehabs and rehabs. You couldn't ask me to go back to rehabs again. Rehabs.

You gotta understand we're in the mid, a lot of our businesses in the Midwest, and these are old stock homes. They're made in the 1920s, 1930s, which great foundations, great building, but now you've got asbestos and you've got all these other things that have to be brought up to code. It just caused more stress than it needed to be.

And it's like, why can't we just get into infill lots? And that's when we started. But back to, it is, Systematic piece of building, and you can translate this to any business that if you can systematically lay things out and understand where they're at, like you. You can squeeze out your, mar your profit immediately and know what it's gonna be.

And then as that comes in, you just sweep it out and move it on to the other side. I have a secondary account. I don't call it profits, I just call it the account, , It's labeled that way with our bank, the account, and it just sh, it goes over there. But that's, again, it's practice, trial and error.

You gotta find what works. But like you said, we have to be. 

[00:35:12] Rocky: You do have to be engaged. And again, that comes back to doing things in the proper order. I've flipped houses and in the beginning you make mistakes like. Oh, we put the carpet in before the paint was done. Now the workers are working all over the carpet.

Now you gotta clean it, Now you have losses. So it's all of that kind of stuff. Appropriate things, the appropriate time stuff always tends to get lost on site, so if you get it too early, it disappears. If you get it too late, you've held yourself up. So it's understanding. The system of your business and designing it well.

And then if you start to find your over budget, what are we gonna do to come back into budget? How are we gonna make changes? Then you might start to question instead of putting in 10 shrubs, we'll put in seven because we gotta figure out how to get this in as close to budget as. 

[00:36:09] Ryan: But that, that just translates to every business that we can get away from construction.

Let's go to any business whatsoever. That's where you need to be at is if you're not, if you're not if you're not managing that process of your books and understanding where you're at it, it becomes a problem. Go for 

[00:36:28] Rocky: it. So it's funny cuz I was in my local pizza shop, I've known him for 20 something years, and we're talking.

Numbers and , I'm like, Oh, your cost of goods has gone up your cheese and all this stuff. He goes, You know what, everyone looks over there. He goes over, he looks at the other side of the restaurant. He goes, Nobody looks over there. He goes, They raise the price of my cheese. I get mad.

They raise the price of my napkins and I have no idea. They went up. What? Cuz you're not paying attention to it. You're. 

[00:36:58] Ryan: It's a, it's, it is part of his supplies. He doesn't see that it doesn't go up. 

[00:37:02] Rocky: It's not that he, you're less likely to look at those kinds of things. He might not even be the one ordering it.

Okay. I'm gonna make sure that the main ingredients are taken care of. But all this other stuff, Oh, we need more forks, or we need this, or we need that. They just call and they order it. It's a small decision. They don't think about it, and it just multiplies over time. And so you don't realize that all of this other stuff is leaking out.

You're looking at your one area and you're missing the rest of it, I think is the point there. No, I 

[00:37:35] Ryan: get that. I really, 

[00:37:37] Rocky: take out containers. 

[00:37:39] Ryan: Oh yeah. Yeah. And I've seen some pretty sophisticated takeout containers nowadays that are going around. It says it's microwavable and reusable, and I'm thinking, How much did you pay for that?

And how much, or how much did I pay for it? ? 

[00:37:53] Rocky: That depends. Did he know he paid for it? Did that true ? 

[00:37:59] Ryan: No, I guess I, I'm just a little more hypersensitive to that stuff because with construction, if you don't know where your material costs are at you you're messed up. It's gone. So maybe I'm a little more sensitive to that, but it's I see where you're coming from now is, the main stuff for a pizzeria, you gotta make sure your flour's good, your cheese is good, your toppings, are taken care of, and you don't worry about, your napkins and your forks and so forth, and your straw. . 

[00:38:26] Rocky: And that's the other thing.

He's I think in the past it was always you had a flat amount per topping or something, and now he's looking at it and he's going, My cost of toppings is quadrupled. And Wow. You think about bacon prices and meat prices. Oh yeah. So if you're not paying attention to all of that and you're not then appropriately changing the prices up.

Then you run into that kind of 

[00:38:51] Ryan: stuff and you're running at a deficit 

[00:38:53] Rocky: and you or your contracts, run out. Now you're not on contract. And that could be the cable provider. . call you up and go contract over, they just send you a new bill and Yep. Bookkeeping pays it. Oh yeah. We pay the bill all the time for cable.

Nobody notices that. It just went up a hundred bucks a month.

[00:39:15] Ryan: How as entrepreneurs, business owners, can we be more effective with this? 

[00:39:19] Rocky: I think you have to look at it like you do. You look at it weekly. I think if you look at it once a month as far as costs, I think that's reasonable sales almost daily. . How much is coming in? Are we appropriate? But then sitting down and looking by line item to see what your costs are.

So the only reason I know their cable bill went up is cuz all the cable bills are on a single line and it's 200, 200, 200, 300. Oh wait, why'd that line change? So if you can, but if it was all grouped together, I wouldn't notice. Yes, but when you start putting it nicely in your bookkeeping systems or you have alerts to tell you something changed, then that's how you find it.

But you have to dig. or you have to have somebody on your team who does it. 

[00:40:11] Ryan: Yeah. So I gotta ask, is there a secret in there? You just said there can be alerts when something changes. Does QuickBooks do 

[00:40:17] Rocky: that? QuickBooks doesn't. I can see it cuz what, So here's a couple things we do when we run our p and Ls.

. We run our p and ls by month. For the entire year, so I can look across an entire row for the entire year and see how that row is varying. Same thing. Most people look at a balance sheet as a one time. Item. We run our balance sheet by month for the entire year, and I'm watching where is cash? Is it going up or down?

Where is this? Is it going up or down? And that's the other problem. People don't realize when you look at your p and l, there's a lot missing on the p and l. . That's why p and l says you're profitable and your bank account says you have no cash. Yeah. Because a lot of things that occur don't occur on the p and l.

They occur on the balance sheet. . if you don't know how to look at the balance sheet from month to month, it's really difficult. And I always I. I talk about the kid, You know when if you have kids, you know they get these magazines and they show you two pictures, find the eight differences, right?

You're sitting there for hours looking for one's, got a shoelace and one doesn't. Honestly, when it comes to looking at your numbers, it's the same thing. We're looking for those little differences over periods of time because it's only over time that you will.

[00:41:46] Ryan: That is very true because I will, when I see a, when I see an expense on the p and l line item, I always drill down to it. . I always on QuickBooks, I'll drill down to it and look at and go, Oh, interesting. What is that? Let me click on that. And so then I'll, start asking questions because I pretty much know what goes into a build and I know what the expenses are because it all comes through me. But there are things that get through and I'll be the first one to admit. There are things that get through and I'll say, Okay, I gotta figure this out, and, move forward. But if you would've asked me in my two prior businesses, zero, I had zero.

And I came from corporate America. I was running call centers and collection agencies in underwriting departments. I had budgets I had to run in and manage, but they were professionally done to me, handed to me and said, Oh, you need to look at this, and this. I never had to really use my brain on it.

It was more fed to me. That's what I was talking about, being a fisherman. It never taught me how to keep my, my, food on the table, clothes on my back, and a roof over my. and it's, I honestly think that's part of, if you want to be an entrepreneur, if you don't know how to fish, you gotta go learn.

And this is what you're teaching and what you're doing and helping is a huge part of that. 

[00:43:05] Rocky: And I think when you look at corporate budgets, they don't necessarily give you a p and l for your department. Nope. And so you don't even know if your department's profitable. They've given you some metric that somebody made up.

. And if you're. And it's the same thing as business owners. We tell business owners, whatever you give people is a number. You tell salespeople, here's a number. Or you tell them you want X, you'll get X. But be very careful what you ask for cuz you will get it. . And it may not be the intended result you expected.

[00:43:37] Ryan: Very true. Very true. And it's just I wish there was more of you to help entrepreneurs out there, small business owners, and I'm being serious because it's a struggle. But don't get me wrong, would I give up the learnings that I had for my other businesses and what I learn on a daily basis? No.

Would I not wanna go through that again and rack up a hundred thousand dollars worth of debt and put my tail between my legs and go back to corporate America? I wouldn't wanna do that again. It's invaluable. And I wanna first say thank you because you're doing something that's very big in my community.

I know that in the sense of entrepreneurs, small business owners, we need all the help we can get. And now with inflation and everything going crazy, making sure that we are spot on in our numbers. Otherwise, there's gonna be a lot of us, unfortunately, closing our doors. And that's not something I wanna. 

[00:44:24] Rocky: No, small business is the backbone of America.

You hire all the people, you create the jobs, you create the local community. So you need to survive and thrive, which means you need to have margin and you need to build up excess cash. That's the number one thing my clients say to me 18 months out. They're like, We've never had so much cash. What are we supposed to do?

I'm like, Take it out of the business, remove it from the business, and go create another stream of income somewhere. Buy the building you're in, do something different. Don't just throw it back. Cuz we're all told you gotta spend money to make money. And so there's this mindset of throwing money in the business and never measuring the return.

[00:45:06] Ryan: Very true. Very true. If there's small business owners, entrepreneurs, people doing their side, how so want to get ahold of you? How could they get ahold? 

[00:45:16] Rocky: Before they get a hold of me, they gotta do me one favor. Sure. They gotta like this show. They gotta leave you a rating. They're gonna say Thank you, Ryan, for bringing us these great guests.

We love 

[00:45:28] Ryan: you. Thank you. Thank 

[00:45:29] Rocky: you. So do that for Ryan, please. He's bringing you all this valuable information, Show him a little love, and that helps him get to more people. We get the message out and we're able to help more small business owners. As for me, my website is Profit comes first. The podcast is Profit Answer Man podcast.

I. . Everything that we talk about in depth, we bring on tons of guests. Everything is all about one simple thing. How can you be more profitable? , we've actually rolled out a whole new level of service in the past. It was all one-on-one coaching. We realized not everybody's ready for that. So we've created the Profit First Blueprint, which.

any business owner from startup all the way through with all of the different things that they need to look at, and we've created the Excel sheets and the, we've just created the roadmap for you to do 

[00:46:23] Ryan: this. That's really cool. A lot of us could use it. Me personally as I expand out to other revenue streams, as you say I have to learn other businesses, and it's business is business.

But when you know the nuances of a specific niche, it helps. But knowing the overall piece, like what we're talking about is the. Base you can actually go with, because now you know what you're looking for and where you're look, where you need to look, especially if you're gonna acquire an existing business.

So it is, and 

[00:46:57] Rocky: you gotta do your due diligence on those. 

[00:46:59] Ryan: A lot of due diligence, and I joke about it, but I'm looking at some self-service car washes. In my younger days, I used to manage full service car washes and gas stations, and some of those owners are retiring now and they're gonna sell off their self-service.

which I like better than full service cuz I don't want to be in the full service business at all. I want low overhead, very easy usage. Have a manager that can manage it. Very simple. So we're gonna go through that process and see what that looks like. But it's fun. It's just I'll be going back to some roots, but there's nuances in there that I don't remember or I don't know.

I'm gonna find out and see what happens. So there we are, sir. I, I. I couldn't be more honored to have you on the show one and two. The information you shared is invaluable and I will make sure we put your website on the, in the show notes is the book, are you an author on the book by any chance? 

[00:47:55] Rocky: Author first, It, That's Mike mcCal it's book.

Okay. I am partnered with him. I am one of his profit first professionals Mike's the visionary. I'm the guy who actually digs through your numbers and helps you implement. Mike's the guy that we have to lock the money away from cuz he'll spend it . 

[00:48:09] Ryan: Do you have a link, an Amazon link that we can share in the show notes to the book?

If someone would 

[00:48:14] Rocky: like to buy it? Just go on Amazon or wherever you buy books. Look up profit first. Get yourself a copy. I will tell you episodes three through 13 on my podcast. I go through every chapter of the book. I don't read it. I give you my input on that chapter. So if you're reading the book and you want another point of view where, I see that maybe there's something that wasn't as clear as it maybe it should have been, or that people just don't grasp Beasley, then we add to it.


[00:48:44] Ryan: You know what we'll do I'll make sure we get the link to your podcast and put in the show notes too so people can go find it if they wanna listen and hear your feedback on those chapter. Thank you. You are more than welcome, sir. Thank you for coming on. It's been an honor. Great conversation and look forward to hearing more about what you're doing.

Thank you, sir. Have a good one.