Ten Signs Your Home Service Business May Be Busy But Broke

Welcome to the Profitable Home Services Podcast, created to help home service business owners like you take the fastest path to profits by sharing industry secrets to increase sales, lower expenses, eradicate stress, and put more profits in your pockets. So let's welcome your host and profit coach, Diane Gardner, and dive into today's episode. Welcome back to another episode of the Profitable Home Services Podcast. I'm Diane Gardner, your host, and I am so glad that you joined us again today. Today's topic is going to be 10 signs that your home service business is quietly bleeding money. And on this podcast, we always talk about hidden profit leaks because my life's mission is to make sure that we plug those profit leaks in your business so that you can have a business that supports your family, it supports your dreams, it supports your team, and it gives your customers the best experience that they can get. And so by knowing what these signs are, you have the ability to be able to take action. So listen up, get out a tablet and some paper or some other device that you can take notes, whether it's on your phone or some other way, take notes of what these signs are and let's see where they are showing up in your business. My first question for you today is, have you ever looked at your revenue numbers and looked at that number and go, we have done this much work and we're still feeling like we're broke? Where's the money going? I know, especially this time of year, that your trucks are rolling. You're busy. Your phones are ringing. Your crews are out there going a lot of times from first light to darkness or fairly close to it. It's your busy season. Revenue is coming in strong, but the cash still feels tight. when you have to pay that vendor or vendors or when it's time to make payroll or place another large vendor order. So most home service business owners, they don't lose money through just one big giant mistake. They lose it through dozens and dozens of small profit leaks quietly sitting in the background. Now, if you've been hanging out with me for very long, you've heard me talk about sneaky leaky. He is a master at hanging out in the background and saying, I'll take one of these and I'll take one of those and I'll take two of those, please. And before you know it, thousands or hundreds of thousands, tens of thousands of dollars have leaked out of your business. So today I want to walk you through 10 warning signs that your business may be quietly bleeding out money, even if your revenue is growing. So these are some of the exact patterns and warning signs that I see when I coach home service business owners. And the scary part is pretty much everybody I talk to has no idea that profit leaks are happening in their business. And they usually don't even think about it because they're busy. They don't think about it until it becomes a cash crisis of some sort. So number one of our first 10 signs is revenue is up, but cash is still tight. Busy season. Think busy season. And what you as a business owner are seeing is, you know, the business is busy. Your revenue numbers are growing. You're working so hard out there. But yet that bank account still isn't reflecting all that effort. And you're wondering why. And I want to just really take a minute and say that revenue and profit are not the same. They're two completely different numbers. And if you're in this process where sales are growing, but profits and bank accounts aren't, having more sales can actually magnify that problem. can make it worse. And the reason it makes it worse is because you are more than likely not making the profit margin you need on each of your jobs. And when you do that, the more you sell, the more you compound that problem. So some of the common leaks in this particular area where cash still feels tight is we've got weak margins. We've got rising overhead, potentially, Slow receivables, that's a big one. And labor inefficiencies. So if you're not collecting your money quick enough, or if you're paying too much out in payroll, and then lastly, our underpriced jobs. So we can't deposit revenue and we only get to keep profit. So you hear me all the time saying, don't settle for the scraps in your business. Learn to take your profits first. And that is where we love to turn that light bulb on for our home service business owners. Number two, payroll feels stressful even when your schedule is full. And what you're seeing from your side as the owner is that at payroll week, you start feeling some anxiety. Are we going to make it? Is there going to be enough? Oh my goodness, how much overtime did we have? their team is busy but cash oftentimes feels short especially for my roofers and my electricians the guys that don't get paid on the spot most of the time my hvac and oftentimes even the plumbers get paid right up front right as soon as that job is done they flip out the device and run the card and off they go but a lot of times roofers and electricians don't get paid right on the spot so you have receivables. How quickly can you get them collected? So busy employees do not automatically equal profitable employees. Ooh, that's a big one, isn't it? Busy employees. Have you ever really drilled into what your employees are doing and how they're doing it? Hidden labor leaks hide in areas like overtime and drive time and idle time and poor scheduling and parts runs and callbacks and the list just keeps going on and on. So we really want to turn that your paid hours into profitable hours by decreasing things like the overtime and the drive time and the idle time and those kinds of issues. When we can do that, then payroll doesn't feel nearly as stressful. Eventually, it gets the point it's not stressful at all, but we have to fix those leaks to get there. Okay, let's move on to number three. You're winning lots of jobs, but the profit just isn't there. and so you might be seeing a lot of customers saying yes you might see a lot of jobs getting booked but you just know your gut feeling says we're not making enough profit here and you may not have the numbers to back it up but that gut's pretty powerful we're not making enough profit here And I see, unfortunately, I see home service business guys pricing based on what their competitors charge. That's a scary one. And then they price just based off of their gut instinct. Well, I've always done it this way. Worked with a business not too long back that that's how he did all of his pricing. And there was no amount of convincing I could do to get him to drill down in his numbers and actually see what his costs were. I've always done it this way. I've been in business for 30 years. Always done it this way. And I know for a fact that he's leaving lots of money on the table because that business is barely hanging on. They're super busy, but the business is barely hanging on. Oftentimes we're pricing with outdated numbers. We haven't been keeping our price book current. And I know some of you have software programs like Service Titan and those things that keep them updated automatically for you. Others don't have that, so you have to manually update things. Your pricing has to include lots of items that you may not be thinking about. It needs to include a fully burdened labor. Well, that fully burdened labor cost includes payroll taxes and insurances, your overhead for your business. It includes overtime and callbacks and the desired profit that you need. Oftentimes we're not drilling down and picking up vacation and sick time. Ooh, those are big. We got to factor them in there because you're paying it. Or non time your windshield time meeting times those kinds of things All of those factor in there Recently my husband and I had a garage being built on our brand new home Well I noticed the first couple of days the guys were there to work that they were just kind of standing around and visiting. And I'm thinking, I don't hear any hammers going, nothing's happening out there. What's going on? And I went on to work and I talked to my husband later and he said, they sat there for three hours because somebody forgot a particular tool that they need. And we don't live in a city. We're out in the country. So somebody had to wait for somebody else to bring that tool out to them. Three hours, there was three or four guys on the job. What did that cost that owner? I'm over here watching his profit drip away. Sneaky Leaky was having a heyday in that business because that happened a couple of different times. Three or four guys sitting there for multiple hours visiting because they were waiting on a part or a tool or something. And those kind of things can kill your profit on a particular job. So a busy business with bad pricing is just an exhausted business. And some of you are going, yeah, I know. I'm one of those exhausted businesses working so hard. And at the end, you don't have enough to show for it. Okay, number four. Sometimes, I won't say all the time, but sometimes big jobs are barely worth the work. And where I see this is normally you have a fee that you charge to do a particular service and an opportunity comes along to do a larger version of that service. But whether it's the homeowner or the GC wants you to give them a better price because it's a bigger job. And when that happens, oftentimes I see my guys get excited about the big dollar amount and they're willing to give up some of the profit because they're getting more dollars. But in reality, they end up making hardly anything on that job. Everybody was super busy, but that's nice. Except that, could they have been doing other more profitable jobs during the time that they spent doing the big job? And I've seen that over and over in my clients over the years. revenue can hide those weak profit margins. In fact, one client I worked with, when we costed out the big job, he made, I think it was only like five or 6% when we actually looked at his real costs associated with that big job. He thought he was going to make quite a bit higher. And he was shocked that we only had that small of a profit margin because he hadn't fully factored in everything that comes along with a big job. Many home service owners don't know which of their jobs are profitable because they've never sat down and actually costed out different kinds of jobs. And I know that's not fun to do, but it is something that's very important. Cost out some of the types of your jobs. And I'm happy to jump on calls and do that with people. Because until you see every cost that's associated with that job, it's hard to see if you're actually really profitable or not. And oftentimes you're running multiple crews. And you may think overall we're getting X percentage in profit. Let's just say 35% in profit. But crew A makes 38% in profit and crew B makes 23% in profit. And you don't know that because we haven't costed out things, not only by job, but by crew. And so that is a place that Sneaky Leaky gets excited about because if he can pull those profit margins down because you've got one crew who's not as efficient as the other one. And oftentimes you guys have challenges over determining which of your service lines actually make you money. Now, it's fine if you want to run a quick service, a loss leader type service just to get in the door, but that has to be something that's planned. We can make it up by whatever's following behind it. That's not what I'm talking about. I'm talking about just if you've got multiple service lines. A lot of times I see the business that are just call themselves home services or certain kinds of services and maybe they're running HVAC and plumbing together or those, you know, where they're running multiple types of things. And is one making money and the other one not? We need to know that because if not, the service line that's not making money is pulling down the overall business. And we need to know that. I've seen that where home service guys purchase another company because they want to add on that other service line. So maybe you started out doing HVAC and that's what you're good and strong at. And you buy a plumbing company. Had a guy worked with last year in Georgia, did that same type of thing. His initial company was making money once we costed things out. But the second company, the one he bought was losing money. You put the two together and they were barely above a break even. and he couldn't figure out why cash was so tight. Both businesses were running fast. They were busy. They were growing. But the second company didn't have systems and processes and stuff. And so they were actually floundering when it came to profit. That was a not a happy moment when we came across that number, but it allowed him to make some better decisions and determined he needed systems and processes in that plumbing side of the business. so not all revenue is good revenue be careful what you're chasing in the form of revenue okay let's move on to number five materials that cost more than you expected this one's hard this is one where your material costs oftentimes will surprise you I had this happen with an electrician in Colorado they thought that they were paying x amount for whatever some of these materials were. And I had them pull vendor bills for like a six month period of time. And in that time period, their, their cost on a couple of their items had gone up 35%. Vendor hadn't said anything. They just kept ordering. And in their busyness of being busy, didn't realize that material costs had jumped that much and they were still charging the price that they had always charged. So we had to sit down and make some decisions and they actually found a different vendor and didn't have to compromise on quality, but were able to get better pricing at a different vendor. And so that's the move that they chose. Otherwise they would have had to raise their prices significantly to cover the cost of those materials. So this is where you're thinking, boy, this vendor bill seems high. Isn't that higher than what we've paid in the past? I wonder why that's so high. So kind of be thinking about that when it's time to pay those vendor bills. And so here's some areas where profits and cash can be leaking out in this area. Things like possibly over-ordering. I've seen this one turn into employee theft. Especially if you're the type of business where materials get dropped at a job site and you don't see them before they do that. The vendor just drops them at the job site for you. And I've seen, unfortunately, a lot of material walk away from job sites. And it may not even be your employee, but sometimes it's their friends or family members. It's been set up so that the materials get dropped. and at some point, you know, they end up on the job site and the pieces disappear and you never know it because you're not always out there all the time. I also see leaks in this area of waste. Employees are not as careful sometimes with the materials as we as an owner would be. So a lot of waste or inaccurate estimates. I've seen this one way more than I'd like to see it. materials get ordered, but they're not ordered accurately. Too much, too little, too little. We end up running to the parts house for additional pieces, may pay higher price for them. Plus we have lost time of doing that. Or we order too much. And now we have this whole problem of unused inventory sitting there, whether it's in your own little warehouse type thing or out on a job site. And then there's the poor tracking. If you don't have it in a system where inventory is tracked correctly, you may not know that inventory is over or under or walking away on you. And then that equates back to a weak purchasing system. Making sure that whoever is in charge of your purchasing is doing a good job for you So how many times have materials been sitting on a truck or in a warehouse or at a job site without someone really tracking them in your business? Because this has the ability for some hidden profit leaks in there. And Sneaky Leaky loves to get in there and take your money, steal your profits. Okay, let's move on to number six. These are callbacks that feel like a normal part of your business. Don't like callbacks. They are expensive little boogers. Okay. What you might notice as the owner is you might see rework happening constantly, where in the past, maybe it happened occasionally. We got to look at that, dig into that. Or you might start feeling like these follow up have to go back and do something type visits, start feeling normal. and I'm not talking somebody come back along and check in on the customer and say, hey, how's everything going? These are where your crew gets called back out on a regular basis. Callbacks cost not only labor in the form of dollars, but they cost labor in the form of time. When your production guy, I won't say just a tech, because they could be an installer, they could be whatever. When your production guy has to go back to work on that job a second time, he or she is no longer able to do that next job because they're back on the first job. And the customer only paid for the job once. And your person is back on there a second time. That becomes very expensive. And you as the owner are paying them generally, paying them to go back and work on it a second time. That's a score for the employee. and a loss for the owner. So we want to really pay attention to callbacks. It also can cost additional materials because something wasn't done right the first time. You may end up having to replace it or add something else to whatever was done so that it is done and done correctly. It also affects your scheduling capacity. You're turning down a job or scheduling it way out there because you had a callback that took that time slot that could have been another paying productive job. And then one of the things sometimes we don't think about is your reputation out in the community. What that does when people tell their family, their friends, their neighbors, what it was like to work with you and your company. So reputation is huge. And trust, it starts eroding your customer trust. And word starts getting out there about what kind of a company you are. So those are some really big costs that may not be actual cash out of your bank account, but it still comes out in a different way. And the root causes for this type of profit leaks are things like poor training. Are we spending enough time training our crews? Are we doing not only the main training, but the safety training that's required? so they get things done correctly and safely the first time. Are they feeling rushed? We got to just get in there, get this job done and get out and get onto the next one. So they're cutting corners. They're not thinking it through. They're just slamming it together and onto the next job. Or is it because there's a lack of systems? We do not have a documented process that we follow when we do X, Y, Z. And that can be super expensive. or unclear communication. I have always loved the term over the years, drive-by communication, drive-by delegation. Me, you as the owner, you're busy, you've got to get to wherever you go and you just kind of spout something to a team member and keep on going. They may not have gotten the full picture. They got just a few words and off you went. So we want to make sure that our communications are clear. They fully understand what our expectations are, what we require of them. Because I think deep down, employees really do want to do a good job. We just got to give them the tools so they can do a good job. So callbacks are one of the sneakiest profit leaks in a home service business. And Sneaky Leaky loves to live in this area. Number seven, this is when your money comes in too slowly. And what you'll notice is that jobs have been completed, but invoices are still sitting out there and cash isn't available yet. I remember this in the early days of my business thinking, you know, there's $40,000 or $50,000 sitting in accounts receivable. I have to make payroll on Friday and I don't know how I'm going to do it. I could not be their bank. And so we had to change that over the years. And now, thankfully, we have minimal in accounts receivable at any time. But I could no longer be the bank. I wasn't strong enough capital-wise to be the bank. And that's what banks and credit cards and things are there for. So cash flow timing is super important. Now, some of you collect your cash right when you're there at the customer's home. Great kudos for you for doing that. But others, those invoices will sit out there for 30, 60, 90 days. Meanwhile, you've made payroll after payroll after payroll after payroll, waiting for that money to come in. How can we speed up the cash collection process? So some of the issues in this area potentially might be some slow invoicing. If we're not getting the invoice out there immediately, part of it's on us. or if we have weak collections, nobody's owning that part. It's uncomfortable. Nobody likes to make those phone calls, send those emails, those text messages. Nobody likes to do that, but somebody needs to own it. And somebody needs to be on it a couple of times a week, making sure that you're getting paid on those invoices. And then poor follow-up. Do you, are you following up once the job is done and finding out if the customer's happy? Because if not, that could be part of the reason why you're not getting paid timely. Or you don't have good payment terms laid out for people so they know what your expectation is. Comes back to that poor communication part. Or there's no system. Maybe you need to be collecting a deposit up front and getting the remainder when the job is done. Whatever it might be for your business, but making sure that we're pulling that cash in just as quickly as we can. So you have it to turn and pay your employees and pay your vendors. So profit on paper doesn't help make payroll if the cash hasn't arrived yet. We've got to get that cash out from their bank account into your bank account. Okay, let's move on to number eight. I hope you're taking good notes on all of this. Number eight is expenses keep creeping up. Ooh, here's another one. Sneaky Leaky loves this area. Expenses keep creeping up and you might notice it. There might be some more subscriptions or maybe we've added some new software or new tools or more fuel or more admin costs. These are some of the areas that I go digging in when I'm working with a home service business owner. And these small recurring expenses quietly stack up. Sometimes it's only 50 bucks a month, 100 bucks a month. Oftentimes I'll dig into somebody's QuickBooks file and we'll see two or three pieces of software sitting in the subscriptions that are supposed to do the same or similar things. And they'll tell me, oh yeah, we're no longer using that. We're using this one. But the other ones are still sitting there just hitting their credit card or their bank account month after month after month. Well, let's get those fixed. small recurring expenses can also be in the forms of just supplies and tools here again tools walking away i know your trucks and your vans generally are outfitted with a certain amount of tools and material and stuff but keeping a close eye on that having a checklist watching the inventory levels in there so that you're not spending a lot of unnecessary money on additional tools. Tool accounts can be pretty big on some of my clients. Pay attention to overhead because oftentimes it grows at a faster rate than your profit does. We add another person to the team. Is that person allowing you to bring in more revenue? So really being on top of these expenses in your overhead section. Death by a month, by a thousand monthly subscriptions. It can be very costly and sneaky leaky's over there with his pom poms going, yay, I scored again. Okay, we're going to move on to number nine. You're making big decisions from your bank account balance. And this one I see when you guys are making a decision based on what in that bank account today And this one is where I really love to push the profit first principles In profit first we are able to protect money to do certain things So we protect money so you can always pay your income taxes. We protect money so that you can pay your vendors and your employees. We'll protect money so that you have enough to make your payments and stuff throughout the month. will protect money so that you, the owner, get to take your profits up front and not wait and settle for the scraps from your business. A lot of times we might have a future capital goal that we're working towards. And so we'll put money in the account for that and protect that money so that what's left in your operating account is what's actually left for paying overhead bills. But we still need to be paying attention to what is in the bank today does not include maybe payroll that's due this next week or some receivables that haven't been collected or just an upcoming accounts payable run that needs to happen or poor job profitability. So we want to really watch those and pay attention and don't just look at what's in your bank account. All too often, I have seen guys with a nice, healthy bank balance today go out and buy a piece of equipment or a truck or something like that. And their bookkeeper hits me later with, how am I going to pay XYZ? That's coming up in a few days or a week. He just drained the bank balance. and now there's stress at the bookkeeper level there's stress at the owner level because now we don't have the cash so we made a decision based on what's in the bank account today so if we were using profit first principles and we wanted to go buy a truck or a new piece of equipment or something we'd go to that capital account that we've been saving for our capital asset or whatever you want to call it we've been saving for this do we have enough in there to go buy it and we don't make that emotional decision of, oh yeah, there's money in the bank. I can go. So that's a big one. So the bank balance is one of the most dangerous financial tools in your business when it's not been allocated out and have money protected. Okay. Lastly, number 10, your business is growing. It's bigger, but you're not taking home more. Ouch. That one kind of hurts, doesn't it? What you might notice is that you have more employees and more jobs, but you also have more stress and you're not getting that freedom or the additional income that you thought you would get. So that one probably touches pretty close to home for a lot of you. Growth without systems in your business just creates chaos and oftentimes leads to a term that we call growing broke because you can grow your way right out of business if those profit margins aren't strong and your systems aren't strong to be able to support the growing business that you have. Revenue growth often magnifies weak pricing because it gets lost in the bigger numbers. So weak pricing, it often can magnify inefficiencies. It can magnify overhead that's been growing and poor cash flow because you're putting more stress on your system. And so we need to go back and we need to look at these numbers. As you grow, are you maintaining your same gross profit margin. How about your net profit margin? Making sure that you're holding these numbers strong so that you can grow and grow profitably. So a bigger business is not automatically a better business. Okay, here's a quick little recap. Most businesses don't fail because of one catastrophic event. They just, they don't. They slowly leak profit through operational blind spots. And as owners, it's really easy for us to have blind spots. We're busy. We're running the business. We got crews that we're monitoring. We're trying to deal with cash. Maybe we're dealing with a banker for whatever's happening. We got to go find the newest piece of equipment or vehicle or something that we need. Got to look at insurances and taxes. There's just a lot on a plate for an owner. And I want to just give you some encouragement because the good news is once you're able to identify these leaks and get them plugged, oftentimes you can do this quicker than you might think you can. I know when I'm working with clients, we tend to pick the top one or two biggest leaks and we plug those first. Drop that money back in your bottom line. Then we'll go, okay, what's next? Let's go back to our list. Let's grab the next couple and we'll start working on those. It does take some time, but you actually can get that turned around once you become aware. And then we have to make sure that you don't fall back into the trap of getting there right back where you were. So we have some tools and stuff that help with that. So if this episode has made you realize that some of these leaks might be happening in your business, please reach out. Because I know that every one of you has some of these leaks in your business. And which one of these leaks do you think is hurting your business the most? as we've been talking through these 10 different signs and leaks you can see that they're not just an isolated problem they're interreactive to each other they're linked to each other when you solve this sometimes it'll solve this one over here as well And so we know that most home service business owners have several leaks all happening at the same time. Might be pricing leaks and labor leaks and callback leaks and overhead and cash flow, all of those happening at the same time. And quietly, they are draining out tens of thousands or even hundreds of thousands of dollars in your business. Sneaky Leaky is having a field day. and the frustrating part is most of you are just working harder and harder but you don't ever feel like you're getting ahead financially well I have some good news for you this type of scenario that I see over and over and over and over again is why I am going to be holding a live workshop on on July 29th at 11 o'clock pacific time this will be about a 90 minute to maybe two hour workshop and during this workshop, I'm going to walk through how to identify some of these hidden profit leaks inside your business and share stories with you of clients where we've identified a leak and what we had to do to fix it. Because I want you to be able to improve your cash flow and profitability. I don't want you out there having to sell more and work harder because that usually isn't the answer. So we'll be going over things like how profits typically disappear, how labor inefficiency quietly destroys your margins, why revenue growth does not automatically create more cash, the numbers every business owner should be watching for, and practical ways to start keeping more of what you earn. So if today's episode is hit a little too close to home, this workshop was designed exactly for you. You can find the registration link in the show notes below or reach out to me. You can catch me at diane at profitcoach4u.com. That's D-I-A-N-E at profitcoach, the number four, Y-O-U.com. Diane at profitcoach4u.com. And remember, oftentimes home service businesses can look very successful on the outside while they're quietly bleeding money on the inside. And the sooner that you identify those leaks and get them plugged, the sooner you can start a business that finally pays you for all of your hard work. I'd love to help you with this. So be sure and reach out. Hop on our workshop. We'd love to talk with you. Okay, with that, we're going to call this a wrap on this episode of the Profitable Home Services Podcast, and we'll catch you on our next one. Thanks so much. Bye-bye. And that's a wrap for this episode of the Profitable Home Services Podcast. Remember, it's not how much money you make, it's how much money you keep. Why don't you grab a free digital copy of my book, Paths to Profitability, which shares nine profit boosting tactics that will transform your service business. You can get your copy by heading over to your path to profits book.com.