This week we have a special guest: Michelle Scribner, CEO of Sum of All Numbers. Michelle talks us through the psychology behind Profit First and the behaviors and habits that could take a contractor’s company from failing to profitable.
We discuss why all business owners, even in the same industry, have to implement the Profit First system based on their unique behaviors. We also cover adjusting how you view your numbers, why you should look at your company as if you’re working for someone else, and how drip and vault accounts can help set you up for long-term success.
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Rob Williams, Profit Strategist | IronGateESS.com
Wade Carpenter, CPA, CGMA | CarpenterCPAs.com
Stephen Brown, Bonding Expert | McWins.com
Rob Williams: [00:00:05] Welcome to the Contractor Success Forum. Today, our guest is Michelle Scribner with Sum of all Numbers accounting and business strategy firm. Michelle is a Mastery Certified Profit First Professional, Pumpkin Planner, and Fix This Next strategist. And of course, today we are on the Contractor Success Forum, discussing financial strategies for running a more profitable, successful construction business.
And you know what, Michelle, we have got this really cool thing we’re doing today. It’s this future time machine. So we are going to talk to future Michelle right now. So when you’re sitting there, listening to this podcast, you know what you can do? I know you’re sitting there wondering, gosh, we have all this amazing, incredible information I’m listening to on my phone. And I wish I could get this to my computer. You know what you can do right now? Michelle well say, say hi to yourself first. All right. Everybody say hi to future. Michelle. Stephen, it’s a wave.. So have Michelle. Right now, you can go on your phone and you can hit the little share button right there. And to get this from your phone, you hit share and email it to yourself.
It’s going to show up right there on your computer, because I know you were just wondering how you could get that information. Okay. Everybody’s shaking their heads at me, but that is how you can do that. I know you were wondering, so hi future Michelle.
All right, guys. Back to our regular programming. So our three professionals here, our long-term construction industry professionals are Stephen Brown, a construction bond agent with McDaniel-Whitley bonding and insurance agency with over 30 years of experience underwriting and placing bonds for you as contractors. And Wade Carpenter with Carpenter and Company CPAs, helping contractors nationwide to become permanently profitable for over 30 years. And me Rob Williams, your profit strategist with IronGate Entrepreneurial Support Systems, driving profit in your businesses with decades of vertical integration as a contractor, manufacturer, aviator, financial strategist in the construction industry.
Welcome Michelle. So Michelle, you spoke to us at our Profit First Mastery Meetup in Arizona about the elements and behavior of Profit First as a habit. And it’s a habit, it’s not an event and behaviors lead to habits. So that was so cool. And, and so, that’s why we invited you here- other than we love you. And.
Michelle Scribner: [00:02:57] Well, thank you. I am. It’s just a pleasure to be here with you. And I think that’s what I got from the first time I read Mike’s book was that it was, it’s like, all right, here’s a program here, but it has to be customized to your personal behaviors. And what I always go back to is that cookie, that chocolate chip cookie, where he says over and over, like don’t put chocolate chip cookies in front of me, and I thought, oh, you can put those in front of me, that wouldn’t do anything. But if you put peanut butter chocolate chip cookies in front of me, okay, now we’ve got a problem here. And so I have found that every entrepreneur or business owner, they’re different. They may be in the same industry and are doing some of the same things, and their product of course is unique, but their behavior truly is unique. And if we can’t tap into their behavior, then we can’t have the best success. What works for one may not work for another or be as motivating for the other. So it is imperative when implementing Profit First to take in the program, but also the entrepreneur’s behavior.
Rob Williams: [00:04:02] I know, isn’t that great? Because Wade and I are both Mastery Profit First Professionals also, and Stephen is a bonding agent and it’s great to have him on here to try to get us, you know, what are the things that we know that we have a hard time explaining to people? And the psychology, Stephen, I don’t know if we’ve really gone over that part.
Stephen Brown: [00:04:22] Right. The psychology is different and you know, these bonding companies, they’ll kind of get an idea of and label you, and a category. As they look at your financial information as they meet you, they hang out with you. But our job is just to make sure that they’re always looking at you as a contractor that can make and maintain profits.
It’s that simple. And that’s what opens the doors up for these bonds to
Rob Williams: [00:04:46] Yeah. And we’re here to help. You know, our listeners want to do Profit First and get that motivation to do the right things. Because as you said earlier, in some of our other episodes, Stephen is, you know, we know logically that this is a great thing to do. But what really is going to make us take that next step and go out there for us? And, Wade, you and I were having those conversations with Michelle when we were in Arizona, standing outside of the bathroom.
Wade Carpenter: [00:05:16] I don’t know if you’re going there, but
Michelle Scribner: [00:05:19] One bathroom, 30 of us, you know, it had to have a
Rob Williams: [00:05:23] Yeah, that’s right. Lots of conversation going on there and long breaks.
Wade Carpenter: [00:05:28] It was a great, great conversation we kind of struck up about a contractor and I, I didn’t know if Michelle wanted to share some of that.
Rob Williams: [00:05:35] Okay.
Michelle Scribner: [00:05:35] I would love to. It’s a roofing company, so you have a couple of factors. One is that they are not, I guess roofing companies are not licensed, and so anybody can be in that business. So they’re trying to differentiate themselves, to be legitimate with integrity. Because if you, we all know that you can have a contractor that under-prices everything, but they may be out of business next year. And so who’s going to follow through with any work that doesn’t get done right? So that was one factor.
The second factor is it’s very seasonal. You can’t be on roofs when it’s raining outside, and you can’t be out on roofs when it’s over 110 degrees outside, either– or you don’t want to be. And so those two pieces came into play, and they, were struggling.
Let me tell you they were struggling. They were bouncing checks and not on top of things. So they came to us in a very crisis mode and a lot of pushback on, they would collect half of the money up front and the other half at the end. And they’re dealing with insurance companies as well.
You have all these components that you’re trying to wrap your head around, and then they had, they had been given some advice that– here I come in as the newbie and the advice was: just run all of your personal expenses through your business. If you get your haircut, run it through the business. If your daughter goes to a private school, run it through the business. And so, as the new person coming in, even though we know that that is not necessarily correct, it is not something that you necessarily come in and start saying, that’s wrong, that’s wrong, that’s wrong. You’ve kind of got to win them over as having the trust factor.
So all of these things were coming into play and it was, how are we going to get this, first of all, so that they’re not bouncing checks? So that there’s at least money in the bank for pieces. And obviously then address all these other parts as well. So what I appreciated hearing from both of you is that you have to take all of these factors in, and really do some handholding in the beginning and structure this almost like with a drip account.
I’m going to say that’s stepping it up a notch in the Profit First world, and then teaching the client how that works so that they get through all of these other parts.
Then the behavior part comes in on saying, what would you do if you worked for somebody else? If you weren’t the boss, would you submit a bill for your haircut and have the company pay for it? And all of a sudden the lights went on. So there are some pieces where it’s like, you may do that, but that will have to come out of the owner’s pay account.
For sure. It can come through on the profit and loss as an expense for marketing, whatever we clarify it as for their sake, but that it needed to come out, for Profit First, out of the owner’s pay. And now when you start seeing your owner’s pay. Oh, I didn’t realize.
Because at the end of the day, there’s a hundred percent money. There’s only a hundred percent money. If you spend 101%, that’s called going down into the hole. So it was, it was good, All of those pieces. So I appreciate that input that both of you gave me on, on working with this client in that way.
Rob Williams: [00:08:49] Yeah. You know, Michelle, when you were talking about that, there were two great points that I kind of get out of that. It’s one, people see a Profit First Professional and, especially when you’re a bookkeeper doing numbers, say what are we talking about their sales and their pricing for? We’re just bookkeepers, right? No, I don’t think that’s right. People, people don’t realize the strategy that we get into. We talk about sales and margins and pricing and distinguishing– different sales factors. That’s probably the biggest impact that we make for people most of the time. It’s not just, are you paying an extra charge for some computer software that you’re not using. You know, I think they see us as bean counters a lot of the time, not really as a strategist. Wade and Michelle, do y’all want to talk about that a little bit, or?
Wade Carpenter: [00:09:39] Well, one thing that Michelle also brought up was the seasonality of certain-
Rob Williams: [00:09:43] Yeah, that was one
Wade Carpenter: [00:09:44] contractors. And so I didn’t know if we could kick around some of the ways to deal with the seasonality. And I remember her talking about getting half of the money up front. How to put that away for contractors so that they don’t just go by that, new truck or something.
Rob Williams: [00:10:00] Yeah, that’s great. Let’s talk about that. So all of these strategies that we can do to help people, this is great.
Michelle Scribner: [00:10:06] know, Wade, when I hear you say that, you’ve got some personalities out there, going back to the psychology of it, that all they need to know is that I need to just follow my budget here. And it can be sitting there in front of them and they are not tempted to spend it. They’re not tempted to increase operating expense because they can see the money there knowing that. that future low time is coming. And there’s others that they, you have to take it away. You have to put it away in that vault account where they don’t see it when they open up their bank statement or, or, log in to their bank, knowing that okay. It’s there.
I’ve got one client that we kept socking the money away because of the seasonality. And then every single time we would get to the low season, she would have a panic attack. And I was like, do you remember that you have $30,000 over here? Every single time, she’s like, no, I forgot. Like I thought.
Rob Williams: [00:11:03] But we just forget it works. It’s the psychology!
Michelle Scribner: [00:11:05] She forgot. And the relief that came over, and then it was funny. Because every single time, she’s like, are you sure I really have that? Thought, well, I’m not manipulating your bank account and I’m not going into it. And, and it got her through those times to see.
I think sometimes they have to have that vision that we see when we look at the financials and we can see trends in it. And though we are bean counters in one sense, every number for us has a story behind it and good bookkeepers and good CPAs see the story. And when they don’t, they ask, Hey, what, wait a minute. What happened here? So, yeah, we are counting it, but we see things.
And then if a business owner doesn’t know what happened, I feel as a Profit First strategist, that’s the first problem. Why, as a business owner, do you not know what happened? We need to dig into this more. So when dealing with contractors, and you see a negative net income, and I say, what happened? They’ll say, that was the freeze that happened in Texas. Nobody was doing anything during that. Or, COVID forever will be a story on people’s P and L in certain industries.
So going back to that seasonality, for two of my contracting clients, I took the prior year’s profit and loss. You can see a lot of error in this because one, we’re helping them cut expenses, no two years are exactly the same. It is not meant to spend a lot of time on, but then you at least capture, this is what’s going to happen here. And we’re only looking at the bottom line. Oops. It’s red.
Now what, how much red are we? A thousand, 2,000, 10,000? Sometimes 70,000. And now when you’re looking six months ahead that it’s like, what are we going to do here? It’s kind of like that IRS, knowing with the IRS, what do we need to be? We know in April or March or whenever it may be, you’re going to have a $40,000 bill. If you’re not socking away enough, then it’s not going to happen. So.
Rob Williams: [00:13:15] Yeah, that’s great. I mean, the two big takeaways there that I think sometimes we have a hard time explaining that your story was so great, is, those accounts explaining what the drip account and the vault account. But before you explained that, the psychology of that. What a great example of how these small plates and the principles that you have out of this scarcity, how it really works! You know it’s there. I know it’s there, but it works on me too, even though I see that these accounts are there. But that’s such a great example of, for Stephen and some of these other people to see how this can really help their contractors. But talk about that again. We quickly mentioned drip account and vault account. What are those things? I know we’ve mentioned it on the show a couple of times.
Michelle Scribner: [00:14:03] So let’s talk about the drip account first. When we’re going to have massive, great months- so, in the real estate world, the summertime is a time where people are moving, in contracting, depending upon where you are in the nation, you’re going to have banner months. And in those times you are going, but your operating expenses should stay the same. So you’re socking away that extra money in a drip account and bringing only over your budgeted amount per se. So this really helps, especially in anyone who gets commissions as well. You sock it away and then you drip back into what your operating expense is so that it stays steady that whole time, and you don’t have this rollercoaster effect with like the big dip over the top of the beautiful rollercoaster.
Rob Williams: [00:14:51] Yeah, and those are the predictable type things that we can do stuff. And then what is this vault thing? What is this
Michelle Scribner: [00:14:57] And then the vault is where this is where I go back to the behavior. Some people need to just have that account that they don’t ever touch. That it’s just there. That is only in cases of emergency and true emergency. Not uh, I needed to go on vacation emergency. Where it’s hard to get to that money when it’s meant to truly give you a bigger goal. So a lot of times we name the vault for psychology purposes. This is my Hawaii trip vault. This is my three months operating expense, but you know, we name them crazy things. Because it becomes a motivating factor to put that vault money away. And I’m going to say that nine times out of 10, that vault is only used- it’s rarely ever used except as the oh, I’m okay. I’m okay. And sometimes with the vault, we put a maximum amount on it. So then we can come back and say, you need to grow your business. Your operating expenses are, are really flourishing and you’re doing well, but that vault account has the 50,000 or the three months worth or what it would take to go to Hawaii for a week or whatever else and say, okay, you’ve achieved that goal. Now let’s go to the next.
Rob Williams: [00:16:18] Wow.
Michelle Scribner: [00:16:19] Yeah.
Rob Williams: [00:16:20] Yeah. So guys, Wade and Stephen over there, if you – hearing that, and as an underwriter, wouldn’t an underwriter get pretty excited about hearing that somebody’s got that?
Stephen Brown: [00:16:32] Sure. And they’d like the philosophy behind it. But you know, Wade will put the financial statement with all those accounts, drip, vault, everything, it’ll just be under bank account. But it’ll be cash. It’ll be working capital. And that gets you bonds. Whether it’s locked up in funds that you won’t be using, or you don’t want to be using; either way they’ll just see that as working capital and you’ll get bonding credit for that.
Rob Williams: [00:16:57] Yeah. And Wade, I guess when I hear those things, I think of your stories in some of the past things, if they had that -I mean, when they weren’t your clients, so your clients would have that- if, but , I mean, think of all the opportunities. If somebody had been on Profit . First, it may have saved some of those contractors if they had gotten to that early.
Wade Carpenter: [00:17:15] Right.
Rob Williams: [00:17:15] Can you identify with that?
Wade Carpenter: [00:17:17] Yeah, absolutely. And I remember thinking back to our conversation too, we, we started talking about the materials and subs, and putting back your labor. Most people that read the book, they don’t think to add another account for materials and subs and, something like roofing, like in your example, they’re probably going to be heavy on the materials and whether they’re subbing that out or their own labor, they need to put that in different buckets.
Michelle Scribner: [00:17:43] There, there was a disconnect until they put them into separate buckets of what was really going on in their business. And so as soon as we put them in separate buckets, then the eyes got wide open, and it changed the whole game. It first gave them clarity of what their business was- and I, I mean, they knew, but they really didn’t know. As financial experts, we add another perspective that they don’t necessarily have. They go into business because they know their business, but sometimes they don’t know business like we do. And so that gave them clarity. It was a motivating factor as well to realize how much money they were, in essence, passing through their business, because everything, all of their materials and anything, except for the actual labor of installing the roof were passed through as well as a material and subcontractor. That became a big eye-opener as well.
And when we’re basing things off of percentages for Profit First purposes, the percentages are the key point. Anytime we try to transfer it to dollar amounts and have that fixed, then, then you have errors that creep in. But when you deal with percentages, which Profit First does, then it gives you even more clarity. Okay. Of a hundred thousand dollar job, if you’re passing through $80,000 of it, you’re only dealing with $20,000. So your percentages are very, very different off of 20,000 versus a hundred thousand. The clarity that came from that was huge huge for them.
Rob Williams: [00:19:20] You’re getting people to focus on the profit, not the revenue.
Michelle Scribner: [00:19:24] Yes. That’s exactly right. And fall into all those traps of, if I like every entrepreneur, if I just do one more, if I just hire one more guy to get that, get that taken care of. All of those pieces that seem very rational from the standpoint of production, but then when you look at well, what is the story behind the numbers that go through? It gives you exactly the opposite of what you were hoping to have happen.
Rob Williams: [00:19:50] I’m thinking of the psychology of this again, of traditional accounting. Because I know we’ve got everybody in here with long decades of traditional accounting, and how, even though we had these reports and budgets and 12 month projections and not having these separate bank accounts. I mean, the difference that it can make, I mean, Wade, you’ve got decades and decades experience. Have you seen that? It makes a big difference to go into
Wade Carpenter: [00:20:18] In the ones- I’ve been installed in the last couple of years, but it’s definitely making some difference in my contractor’s lives and my own life. After I put it in my business, I’ve never taken home as much more.
Stephen Brown: [00:20:33] I think it’s interesting that the only thing that matters to bonding companies is profit first and that happens to be what you do. And Michelle, I’m just trying to help Rob to get the word out to the surety companies. This is a good thing for contractors.
Michelle Scribner: [00:20:54] Well, and Stephen, I’m going to just say, I don’t know anyone out there who thinks that cash isn’t a good thing, except for some people who are in investing, where they are, like cash is just making no percentage in the bank, and they want to have it making more. But any business owner out there, the peace of mind that cash in the bank provides, and to look at a balance sheet year over year or month over month, and seeing that cash grow because of what they’re doing in their business, as well as what they’re taking home; the peace of mind that gives, seems to just excite them more in their business. And all of a sudden they’ve got more energy wanting to do greater things in their business, increase morale, enjoy their lives more as people, and as a business owner, instead of being a slave to your business, and then seeing opportunities for growth because you have the peace that there’s money in the bank, not only for today’s expenses, but for tomorrow’s and even for the upcoming tax bill, that may be nine months away.
Rob Williams: [00:21:57] Man, this is great. I love having such an eloquent speaker on here, Michelle, to add to the voices. I’m just thinking about, this is a show that we can listen to over and over again, those explanations that you just so well said about almost every contractor’s experience, you just summed it up. It is just great to have you on here. Anything else you guys want to add? I know I let us go over our time a little bit today.
Wade Carpenter: [00:22:25] Michelle, I mean, anything you want to tell our listeners about you or anything?
Michelle Scribner: [00:22:29] I think we’ve covered quite a bit. I think that the more and more in dealing with business owners and helping them work with Profit First, the more I’ve realized that we, as Mastery Strategists can really tap into what makes them motivated and what doesn’t motivate them, the psychology behind it. Then it’s a difference between driving down the freeway and being in the fast lane. And that piece of it Mike taps into, and it really is part of what he says over and over it’s behavior-based cash management. And then it just flows through the entire organization for those business owners.
Rob Williams: [00:23:08] When I first heard about Profit First, I really just thought it was a little simple spreadsheet that I was going to put in just like the spreadsheets that I had seen over the years and used already. I thought it was just a little bit different budgeting thing. But the psychology of this has just been really life-changing and business changing for me to discover that over the years, because I used this with some of my clients and used it myself for what, a year, year and a half, maybe two years before I actually decided to become a Profit First Professional, not being, cause I’m not an accountant. That’s like, I didn’t know. I could do this.
Michelle Scribner: [00:23:45] Yeah. I I’m going to say it’s for any entrepreneur. Hands down. I haven’t met an exception yet where it hasn’t been changing for them and eye-opening in some way. So…
Rob Williams: [00:24:00] Yeah. Well, this has been great. And I’m so glad to have you on here. So,
Michelle Scribner: [00:24:05] thanks again for having me.
Rob Williams: [00:24:06] Yeah. So Michelle Scribner and she is the Sum of All Numbers. And let’s say hi to Michelle and future Michelle as well again today, too.
So we’re so glad to have you guys out today and, and I’d love to have you back again, Michelle. This was just to me, this was a great show. So I’ll be listening, future Rob will be listening to you. So thanks a lot, guys.