Answering Your Biggest Business Questions

In This Episode

• Intro

  In this episode, Bec (who works with John at Serve) is back in the studio putting John on the spot with the questions that come up again and again with the trade business owners he coaches. Every answer comes from the reality of building, running and selling a multi-million dollar electrical business, not from a textbook.

  John covers why your profit and loss can look great while your bank account doesn't, the simple debt recovery system his team used to get paid every week, the one number he watched obsessively while growing from $3M to $6M, and how he kept great electricians for close to a decade while everyone else was saying "you just can't find staff anymore."

  If you're a trade business owner who wants practical answers on cash, debtors, hiring and leading your team, this one is for you.

• Why a Profitable Business Can Still Have No Money in the Bank

  John: G'day and welcome to Trade Business School podcast. Today I've got my wife back here again. A little while ago we did a podcast where Bec was asking me some questions, and it got a really good response, so we thought we'd do something similar again. Bec works alongside me in the coaching business doing a lot of the marketing, and she's been doing quite a bit of research into themes that have been coming up with our coaching clients. Over to you, Bec.

  Bec: When I've been looking at what's really prevalent with the businesses you work with, I wanted to ask a couple of really practical money questions. Something that comes up a lot is the difference between cash and profit. A lot of guys think they're making X amount of profit, but then there's no money in the bank. So why is just focusing on profit not the best way to measure your business's financial health, and what should people be looking at instead?

  John: If your profit and loss is showing that you're making a profit but you've got no cash in the business, there's a couple of things to look at. Generally speaking, any repayments that you're making won't show up on the profit and loss. So if you've got ten vehicles out there with a loan on each, and you're paying $1,000 a month per vehicle, that's $10,000 a month coming out of your cash that's not being shown on your profit and loss. Any debt you've got generally isn't shown on the profit and loss. It's on the balance sheet.

  Another reason: I've had clients who've had a number of profitable months, but it hasn't transferred into cash yet because they've had a number of bad months before that. Sometimes the cash cycle takes months to pick back up. I remember telling a client after a very bad six months, "You probably need a really good nine months before you're going to be comfortable again." If you get extended out too far with your suppliers, you've got to pay that back. You might get behind in tax debt, and ATO debt is something that doesn't show up on the profit and loss either.

  Bec: And what should someone be looking for? What are the symptoms of a more significant problem?

  John: It depends on the business, but one of the things I do with all of my clients is a finance metric that shows the money we're owed, what's current, and what's overdue by 30, 60 and 90 days, with a traffic light on it. Over time, the 90-plus and the 60-to-90 should be eradicated. I can live with zero to 30. I can live with some in 30 to 60. But that's it. You need to get people to pay you.

• How to Actually Get Paid: The Debt Recovery System

  Bec: The longer an invoice takes to pay, the less likely it is to get paid. So for the people listening who've got thousands of dollars 90 days overdue, what do they need to do right now?

  John: First of all, there's a direct correlation between how quickly someone pays an invoice and how quickly they receive it. Do a job today and invoice today, they'll probably pay tomorrow or the next day. Do a job today and invoice next month, they'll take just as long to pay. So invoice quickly.

  But instead of fixing the problem, why don't we solve it altogether? My management team came up with a debt recovery system years ago (I can't take credit for it, they did a great job) and it's very simple. Every Monday morning they sent a statement to everybody that owed us money. If you were overdue, you got a statement every single week, not just at the end of the month. That alone was enough to get a lot of people to pay.

  If they went 30 days over, they'd get a call every week from my admin team: "We noticed you're overdue on this invoice. Have you received the invoice? Have you received the statements? Why haven't you made payment? Can you make payment by the end of this week? If not, I'll call you next week."

  If they still hadn't paid after that, quite often they'd get a phone call from me. And on rare occasions, a visit.

  Bec: How would that phone call go?

  John: I'd call the person in charge: the homeowner, the business owner, or if it was a large business, the CEO. It'd be something like, "G'day Bill, it's John. Mate, I'm calling because you've got an overdue account. The girls in the office have sent it over to me because they've been contacting you. Can you just tell me what's going on with it?" Quite often you'd get, "Look, I'm really sorry, I've been meaning to pay it, things are just a bit tough."

  Bec: So you go in curious. You don't go in guns blazing.

  John: No. Even if you got a knock on the door from me, I didn't rock up with a baseball bat. I'm not there to be aggressive. But mate, you owe me money. Can I help you? Maybe you pay me $1,000 today and another $1,000 next week. But I'm not going away.

  Bec: For the people who struggle with that, who can't always be the nice guy, what would you tell them?

  John: A lot of people don't want to be pushy. I've got a client right now whose customer owes him a lot of money, and he's been nice and polite because he doesn't want to ruin the relationship. But we're at the point where he needs to be paid, and if that ruins the relationship, so be it. The advice I give is: it's your money. You've done the work. Just be straight up. "Look, you owe me some money. You know you do. The invoices have gone out, you've talked to my admin team. What's the problem?"

  Bec: Especially given they've already paid for the materials, paid their staff, paid all their costs. So far they've just funded someone else's extension.

  John: Yeah. And you're going to have people who genuinely can't pay because something's happened. A big client of theirs hasn't paid, or something's fallen through. You want to work with those people, but you really do have to be the squeaky wheel, otherwise they're going to pay somebody before you. And there'll be occasions where you're just not going to get your money. My experience with debt collection agencies? I can remember one time it worked. It almost never works. Sometimes you've got to cop the loss and put your time, resources and energy into making money elsewhere.

• The One Number John Never Took His Eyes Off

  Bec: In terms of the numbers you have your finger on every single week, with your clients as well as in your own business, what were the few numbers your focus never came off?

  John: There's one number. I call it the cash position. When I was going from $3 million to $6 million, this was the one thing I focused on, and it's the main thing I focus on in the businesses I'm still involved with and the people I coach.

  In basic terms: what would happen if I went into the office tomorrow and said, "I'm done. I'm shutting this thing down. Pay everybody we owe money to, and get all the money in that people owe us." How much money do I walk away with?

  Bec: Is it cash at bank?

  John: It's cash in the bank, plus money owed to us, minus what we owe people. And if you've got debt, you have to add that in. I know there are variables like employee entitlements, vehicles and stock. I just assume that selling the vehicles, materials and equipment covers the entitlements and zero it out, because it makes the calculation too difficult otherwise.

  Bec: You never had debt?

  John: The only debt I had was to purchase vehicles. I had a credit card for business purchases, but it was paid off at the end of each month so I never paid interest. No overdraft, no loans outside the vehicle loans. I heard right when I started in business that one of the biggest stresses business owners have is money, so I decided that wasn't going to be an issue. From early on, the minimum amount I wanted in the bank was $200,000. Very rarely did my cash go below that.

• Good Debt, Bad Debt and the Truth About Credit Card Points

  Bec: For the business owners running their business on debt who want to stop, what needs to be the thing they do today?

  John: First, understand what Robert Kiyosaki meant by good debt and bad debt. Good debt is when you borrow money and make more money from the money you borrowed. Most people would say vehicles are bad debt because they're a depreciating asset. But if you own a trade business, it's good debt, because that vehicle has a tradesman in it earning an income for you. Good debt is anything to do with an appreciating or income-producing investment. Put your good debt aside.

  With your bad debt (quite often people have an overdraft, a personal loan and a credit card) list it all down: the amount, and the percentage of interest you're paying. The highest interest rate gets paid down first, then the next, then the last. Set a goal to get out of debt, and go after it like you're on fire. Once you're out, continue the momentum to build cash so you've got money to invest into income-producing assets. And the best book on this is The Barefoot Investor. That's a really good book for everybody on how to manage money.

  Bec: How do people get the interest rate so wrong? You've had people come to you thinking they're paying 3% on an Amex and they're paying 30%.

  John: Take responsibility for your life and your business. You're an adult. You don't even need to read the small print. Just look at your statement. It'll show you how much interest you've paid.

  I'm going to touch on points for a second, because this gives me the shits a little bit. A lot of people run their business costs through their credit card to get points, and that's fine, but you've got to understand the game. Say you spend $10,000 a month on your card. You'll get roughly 10,000 points, which equates to around $50 to $100 of spending. But the 1.5% to 2.5% merchant fee you pay actually costs you more than that. The points aren't free. If you're buying flights, you might be better off just paying the tax on the money you earn from the company and buying the flights outright.

• The COVID Cash Squeeze: Why You Stash Cash Before You Buy the Boat

  Bec: When you were running your business, did you ever encounter a cash crisis? During COVID your business was down about 29%, you didn't qualify for JobKeeper, you had a quarter of your staff on site being paid overtime and half the workforce on COVID leave being paid full time.

  John: The business was losing a lot of money because of the COVID restrictions. The business was running out of money, but I wasn't. So I had to liquidate some of my shares to put money back into the business. If I'd gone out and bought shiny cars and boats and watches, I might not have had the ability to do that. It was always the last resort, but I think there were two occasions where I had to sell shares and inject cash back in. Otherwise I would've had to go to a bank for an overdraft or a personal loan, or the business would've gone into liquidation.

  Bec: So what's the lesson?

  John: Don't buy yourself a boat when things are going well. Build investments. I don't give anyone investment advice, but I tell people what I did: I went to property seminars that proved property was a better investment than shares, and share seminars that proved shares were better than property. So I decided to do both. It meant when I needed a cash injection, I could sell some shares and three days later I had the cash.

  Bec: And for the business owners who are thinking about the boat, the second car, the caravan, but haven't got their cash and investments sorted?

  John: Get it sorted. Income-producing assets are what you need. The conveyor belt describes it perfectly. It shows the priority for your money, and lifestyle is down the bottom. The problem is, unless you educate yourself, you'll put lifestyle at the top, because that's what you're taught through social media and advertising. You're taught to be a consumer. But you really need to invest back into your own business, reduce debt, eliminate it, and buy income-producing assets. For most people that's a ten-year process. Some will do it in five, for some it'll take twenty. It's long and slow, but if you stay persistent and consistent, at the end of it you've got choices. Which is what I had.

  Bec: And your perspective shifts when you start filling the wells with cash and investments. You stop caring what people think. It doesn't matter that your car is 20 years old, because you know if a rainy day comes, the security is there. It's the private wins, the things you do that nobody sees, that show up decade after decade.

  John: Yeah. You've got to keep a lot of what you make, not just have it come through you.

• Back on the Tools: When Should the Boss Go Back to Site?

  Bec: I want to ask a question that comes up a lot when businesses get busy. The business owner is a great tradesperson, deadlines are approaching, they might not have the staff, so they jump back on the tools for a couple of weeks. But then the pipeline falls down, accounts aren't managed, the business stops growing. What should a business owner actually do?

  John: It depends on the situation. Sometimes that person is just going to have to go back on the tools. When you're at stage two, where you're off the tools trying to get to stage three with a management team in place, from time to time you're going to have to go back and help the guys out. One of the things you need to learn is: do I need to get back on the tools, or do I need to support them more?

  If you go back on the tools and there's nobody doing the quoting, the following up, the scheduling, the ordering of materials, the business development, you need to find a way to do both. It might mean you go to site for two or three days, tell the guys what they need to do for the remaining two days, and get back to the office to do your quotes and follow-ups. A lot of guys get sucked back onto the tools, drop the ball on all of that, and then it's "Oh my God, I've got no work for the guys" and they've got to scramble.

  Bec: And at what point do they think, "I need more tradies"?

  John: It depends what's coming up. If you've got one big job and nothing after it, you don't have to hire. But you need to look into your crystal ball and see what's there.

  Bec: Was there ever a time when you were the biggest bottleneck in the business?

  John: I'm sure there were plenty of times. Perhaps not towards the end, when I had things up and running, but definitely at times. And a lot of the people I coach are the bottleneck, because until you build a proper management team, there's so much coming through the business owner. You're only one person. There's only so much you can do.

• "You Just Can't Find Staff": How John Attracted and Kept Great People

  Bec: Something I hear everywhere around trade businesses is, "You just can't find the staff. There's no good tradesmen around, and no one wants to work anymore." But you had big teams and very good guys who worked with you for a long time. Walk me through how you hired people, and why it was different for you.

  John: It's not that I never had trouble. It was always a challenge. One of the sad realities in Australia at the moment is that the biggest issue for most expanding businesses is finding staff. There are very few people in the trade world looking to work for somebody else. The barrier to entry for electricians and plumbers is low, so a lot go out on their own. The big build in Victoria has sucked up a lot of tradespeople. Mining and fly-in fly-out money is out there too.

  But there's a but. Almost everybody's mentality is "it's impossible to find staff", and you've got to change that. I had a Post-it note on my right-hand screen: "I easily attract and keep great quality staff." That was my mantra. I changed my thinking around it, and I always found the staff I needed.

  Bec: But you did more than just put thoughts out.

  John: You can't just put thoughts out. It starts there, but you've got to put a lot of action behind it. The first thing is to build an environment where you keep the good ones you've got. Your employees don't think like you do. Money's important to them, but it's not the most important thing. They want to like where they work, like the people, and feel valued. Recognition is something babies cry for and men die for. Pay them a good wage (not necessarily the best wage), give them interesting work, encourage them to grow, and recognise the things they've done well. When I sold my business, there were a number of people coming up to ten years with us.

  Second: what are you doing about training the next generation? How many of your apprentices can you hang onto once they finish their time?

  Third, when you do need to hire, take massive action. Put an ad on Seek, LinkedIn and Facebook, talk to your suppliers, talk to your team (offer them money if they bring someone in), talk to your friends and family, all in the space of a couple of days, and see what comes out of it.

  And the last thing: my coach Steve used to say, "Always be hiring." I didn't understand what he meant at first. But it means always having the attitude of hiring, so when you're out living your life and you come across somebody good, they might be a person to work for you. Not today, but next year. That happened a couple of times. One guy took two or three years of staying in touch. He came and worked for us, was a very good electrician, and has his own business now.

• Firm But Fair: Standards, Difficult Conversations and Being a Strong Boss

  Bec: You've said you were maybe too soft as a boss, but you also had very high standards. And there were times when you had to be really tough.

  John: Whenever there was a situation, I'd almost always decide to do what was better for the employee rather than the business. If someone came to me and said they deserved a raise, I probably gave it to them. But I had great staff retention and I made a lot of money, so maybe that was the right formula for me.

  There was one occasion where I had to fire somebody, and I really didn't want to. He was a good electrician and a good guy, but what he'd done was bad. I sat down with my management team and said, "I do not want to fire this guy. Be honest with me. There's no way I can't, without looking weak and setting the wrong example, is there?" And they said, "Yeah, he's got to go." He accepted it, apologised, and moved on. But if I hadn't fired him, it would have sent the wrong message to everybody else. Doing the right thing sends a message too: we can't do what this guy did.

  Bec: The boss doesn't always understand that everybody is watching, all the time. If you let sloppy work go, or people take the piss with sick days and you don't call it out, it's only a matter of time before everyone's work gets sloppy.

  John: Your standards are set by what you accept. You really do need to set the example. Everybody's watching, they're just not going to tell you they are.

  Bec: So what are the dos and don'ts of being a strong boss?

  John: First of all, you've got to work on yourself. You can't be a strong boss if you don't respect yourself. Private victories before public victories. Be the version of you that you can look at in the mirror in the morning and be proud of. That's the first step, and it's probably the hardest. Don't be impulsive, don't be emotional, think about things before you act. We had a client who sent a group text that should have been a private conversation, and it did not go down well at all.

  Then set some standards. When something falls below the standard, call that person in and have a one-to-one chat. If I've done something right, tell everybody; if I've done something wrong, tell me. A great way to start a difficult conversation is, "Look, this is going to be a difficult conversation." People actually have the capacity to handle bad news, if it's given in the right way. Then ask questions rather than telling them: "Mrs Smith has made a formal complaint about your behaviour. Tell me your side of the story. What happened?" Maybe she's wrong, maybe she's not. And if they've done the wrong thing: "Mate, do you think that was the right thing to do?" If you're asking questions, they'll get it, and what you want is for them to improve.

  Bec: This is where a lot of people do and don't make the transition from boss to leader, especially if you're really friendly with your staff.

  John: It's just a matter of being firm but fair. You can still be nice. You can be a nice person and have the difficult conversations. You can have them in a nice way. You just can't avoid them, and that's what a lot of people do. Genuinely nice people often don't want to have the difficult conversations, and that's when your kindness becomes a weakness. And most of us aren't born with these skills. Go read some books on leadership, listen to podcasts, go to seminars. Learn the skills.

• Hiring Mistakes, Red Flags and Why You Can't Get It Right Every Time

  Bec: You mentioned you made some hiring mistakes. Was there a bad hire that stands out, and what red flags should people look out for?

  John: Firstly, if you're going to have a team of 20, 30, 40, 50 people, you're going to have some poor performers, and as you build that team you're going to make some mistakes with who you hire. Try to get it right, but accept you're going to make mistakes.

  There was one person we hired where there were red flags early on around attitude and history. He'd mainly been on union sites for decades, and he was literally the only suitable applicant we had in that period. He said a lot of the things we wanted to hear, because he knew we wanted to hear them. Once he started, his attitude became a problem. One day he was doing exit and emergency light testing, got into an argument with someone at the local cafe, and when the alarm went off and the bloke had another go at him, he cracked it and went home. I rang him the next day and said, "Mate, you can't just do that." He went off at me, and I said, "You know what, if you handed in your resignation, I'd accept it." He said, "Great, I'll do it today."

  Here's the point: I didn't win the argument. I didn't want to win the argument. I wanted him gone. If I'd sacked him, he's probably the kind of guy who would've taken me to Fair Work. Him resigning on the phone and emailing it straight away was the best thing that could have happened.

  Bec: There's a good saying: hire slow, fire fast. But it's important to know a bad hire costs the business between 50% and 200% of their salary in direct costs, plus the prep time, interview time, time to productive, and the time other staff spend training them. So how do you help people navigate the pressure to hire quickly against getting it right?

  John: With my clients, I'll go through resumes with them, we'll talk about people, come up with a pros and cons list and rank them. It depends on the business too. When I was over 40 employees, sometimes we just needed a couple of extra hands for a well-managed crew. At the start, I needed really good electricians who could think for themselves. But definitely: hire attitude over aptitude. And if you're hiring somebody for the office, that's a very different story. You've got to make sure you get that right.

  I've got a client going through it right now. We spent almost an hour on the four people on his list, got it down to two, and neither is perfect. Sometimes making a decision is more important than getting the decision right. There's a flip side to the bad-hire statistics: all that information can paralyse people. Don't be afraid of hiring the wrong person. You can always hire someone else. Once people get paralysed, they stop.

• Coming Up: How to Get A-Grade Clients

  Bec: Something your clients value that's quite different to what a lot of other trade business coaches teach. It's not about getting as many leads in as possible. It's about building a really good reputation and going after A-grade clients. Why is that your approach?

  John: I'm not going to completely diss marketing. Have that going in the background. But don't be looking for a whole bunch of leads each week. The method I used to create the business I built and sold is: look for one to two A-grade clients per year. If you can get two A-grade clients per year, over ten years that's 20 A-grade clients, and that is a very stable and profitable business to own.

  I think one of the reasons it's not popular is because it's a slow and steady approach, and in today's world everyone wants everything now. If you want to build a really good quality business, I doubt you're going to get there with 50 leads a week. But I can guarantee you: if you spend ten years picking up A-grade clients, you will have it.

  Bec: So for the guys earlier on in their business who are asking "how do I do that?"

  John: That's a very interesting conversation, and it's quite a long one. So we'll come back into the studio another time and I'll do a podcast on how to get A-grade clients.