The $150,000
Tax Debt That
Changed Everything

In This Episode

• Why Jeff chose the ultra premium end of the solar market

  John: G'day everybody. Welcome to today's episode. With me today I have a good friend for quite some time. Jeff Hoare, all the way from Rockhampton. Jeff, why don't we start by you telling us a little bit about yourself and about your business.

  Jeff: Sure. Good morning John. Jeff Hoare, I have a business EcoSmart Solar, located in Rockhampton in central Queensland. We're a solar and electrical business. The business was founded back in 2004, so we've been going 22 years now. We're a solar business that niches into domestic solar, particularly at the ultra premium end of the market. We specialise in ultra premium inverter, ultra premium panel. We definitely do not do the super cheap Chinese cricketer style solar packages that you see. We do full service in-house, from start to finish, done by our in-house team. The electricians we have on staff, most of them did their apprenticeships with us. Very experienced in doing solar, and they deliver an exceptional quality of finish to our clients.

  John: Why did you choose the ultra premium end?

  Jeff: I am not a fan of callbacks. The reason we partnered with ultra premium providers is so that I don't get callbacks. The other part of that is I've always looked at solar as a long-term solution. Installing a system on someone's home that's gonna last 20 or 30 years. Not doing something cheap that needs to be replaced in four or five years, because recycling of solar panels is only something that's just begun. Taking panels off the roof so that they end up in landfill completely defeats the purpose of putting solar on in the first place. Solar and renewables are here to help save the planet, not make the problem worse by adding to landfill. When we first got into solar, I did research on who was the best solar panel manufacturer. There was a company called Kio Sierra out of Japan. We started selling ultra premium Japanese made panels and pairing them with a top of the range German inverter. Then LG came along, the first to market with a 25 year parts and labour warranty, and we used LG product for almost 10 years. In central Queensland, we would probably be the most expensive installer. But you can see significantly the difference, not just in the quality of the product, but the quality of the finish. That in turn provides exceptional performance and exceptional longevity from the system. We've got systems we did nearly 20 years ago that have never been touched. Panels cleaned at three yearly intervals and the things are still pumping out rock solid performance day in, day out.

• Why Jeff went into business for himself

  John: Do you remember, 20 odd years ago, why you got into business for yourself?

  Jeff: I was a tradesman on the tools. I just sort of lost interest in just working and saw a bigger future for myself. Went down the path of getting into the solar business and just ran with it. From day one there was a lot of hard work involved and we were fortunate enough that things went pretty well.

  John: I think the word you chose there, fortune, is an interesting one. I know how hard you've worked since I've known you for 10 or 15 years. I don't think fortune played too much of a role in it, Jeff.

  Jeff: Yes and no. We entered the solar industry at a good time when there was a new rebate announced by the federal government. A John Howard led solar program. We were fortunate in that we entered the market at the same sort of time as this rebate came about. But yeah, there was a significant amount of hard work and graft to get to where we are today.

  John: Can you remember why you started in business? It's actually a hard question to answer. For me it was just natural. I remember as a boy at home playing in the sand pit, I used to in my mind have a trucking company. Half a dozen trucks, a house I'd made out of sand with a garage out the back, and I'd build these highways and truck these trucks around the sand pit. I think even back then I had a natural tendency to want to get into business.

  Jeff: For me it was a pretty much a natural progression. Finished my apprenticeship, did a couple of years to pay back the boss. Family businesses have always been part of my family. I remember from really really young, mum and dad having real estate agencies, dad working seven days a week, 12 hours a day. Just that upbringing of being around people in business from very early in life, it was just an absolute natural progression for me to end up in my own business. Master of my own destiny. I've said for a while that I don't know that I'm all that employable these days. I've been in business such a long time that answering to someone else's requests is something I could struggle to manage.

  John: I think a lot of us that have been in business for a while fall into that bracket.

• The biggest lessons from 25 years in business

  John: 25, 26 years in business. Are there any lessons that sort of pop out?

  Jeff: One in particular. It's not one instance, it's a lesson I've had to learn a few times, and that is listening to my gut. If you are taking on a client and the client isn't your type of client, or they're making the deal more difficult than it needs to be, the big lesson I've learned is actually listening to my feelings in relation to that. You don't have to take on a client. Even though they may want your product and accept your quote, if there are too many red flags and you don't listen to those red flags, most of the time when you get that feeling, the job tends to go pear shaped. That lesson is sometimes difficult to swallow, especially if work's a bit scarce.

  John: What's the difference between a thought or a feeling in your mind and one in your stomach? Where does that come from, do you think?

  Jeff: There's a lot of research out there in relation to your gut being like a second brain, having more synaptic connections in your gut than actually in your brain. So that feeling, if it pops up, you should pay attention to it and at least do a little bit more digging on the client to make sure you aren't falling into a potential issue in the future. When that feeling comes up, I specifically ask more questions of the client. And if I don't feel that there's a values alignment between myself and the client, we won't be progressing through to a job.

  John: Do you have any issues telling them that?

  Jeff: Not at all. I'd rather have an uncomfortable conversation now than have an uncomfortable conversation three months out from a job being finished and not being paid because of nothing.

  John: For people that really avoid having conversations like that, what advice would you give them when they've got a client they really don't want to work for?

  Jeff: The way I approach it is just say, thank you Steve for the opportunity. But I really feel that there is a values misalignment here. As a result, I'm unable to progress with completing your job. I respectfully withdraw the quote and we can each go our own way from there.

  John: Do you have anybody come back and say, why not?

  Jeff: Yes, that has happened. But if I'm listening to my gut and I've seen the red flags, the lessons I've learned over the years in relation to ignoring those red flags, it's non-negotiable. Life is too important to have someone else not respecting you and affecting your health and wellbeing just because they want to be a prick.

• The three biggest challenges in 25 years

  John: What would the three biggest issues that you've faced be if you could only choose three?

  Jeff: My biggest challenge, especially a few years ago when we had a large team, was people management. And it's still a challenge today. Sometimes it really feels like you're not running an electrical business, you're running a kindergarten full of adults, handling different attitudes and behaviours. Following on from that is allowing small slips in quality and allowing small slips in attitude from the team without pulling them up faster. There was a period in our business recently where after COVID we lost a couple of electricians due to them chasing other opportunities. We got to a point where we had an electrician in the business who was toxic. Bad behaviour with the team, bad behaviour with the admin team, bad behaviour towards me as the business owner. And me not pulling him up, not holding him to account. Looking back, this particular individual was with us for nine years and did his apprenticeship with us. Me allowing that behaviour to go unchecked has cost us many, many good employees. Third and fourth year apprentices about to come through as tradesmen, leaving because they no longer wanted to work with old mate.

  John: What would you have done differently?

  Jeff: Hold the line and hold him to account quicker. Having the conversation. Bringing him into the office, sitting him down, having the conversation witnessed by another person, having the conversation documented, and keeping good records to gather evidence to be able to exit an individual as quickly as the law allows.

  John: That's really good advice. One of the things I find about coaching people is I've had experiences like that where we've done it wrong, and then where we learned and did it right. If I could get people to listen to exactly what you said there and do that from the beginning, their life would be a lot easier. One of the challenges I find is sometimes you've actually got to go through it before you realise, shit, this is what I should have done. So for anybody listening to this, if they've got an issue like what Jeff just described, the best advice is to stop fucking around. Don't wait to learn the lesson. Learn the lesson from someone that's been there. And do it today.

  Jeff: It's been a long road to run that sort of lesson. I've been in the same situation myself. Luckily never ended up in a tribunal of sorts, but there have been a couple of occasions over my business career where I haven't been all that proud of the way I've exited someone from the business. There are lessons in that. And the result of those lessons is the process we now follow. I strive to only make a mistake a couple of times and try to learn from those mistakes and not repeat them too often.

  John: A mistake repeated is a lesson not learned.

• How a $150,000 tax debt changed everything

  Jeff: The other issue is about knowing your numbers and the importance of it. At one stage we were running three different trading companies. The solar business, an electrical contracting business with 25 staff, and a wholesale solar business as well. All three businesses were very, very busy. As a result I became busy and I took my hands off the wheel in relation to the numbers. I'd almost ignored the numbers by being too busy. As a result we ended up with a $150,000 tax debt. This was about 10 years ago. So I spent the next six months bringing in a forensic accountant who would go through the numbers monthly, and then I would have a meeting with him to teach myself the numbers. Now today I look at my P&L once a week. It's at eight o'clock on a Tuesday, it's in my diary every week. I look at the P&L and I know my numbers so well that I look at four different lines in the P&L. That's it. If one of those lines isn't what I'm expecting, I can then deep dive into the P&L and find out what is going on.

  Jeff: One of the things I did back when I learned that lesson is, a P&L in general, if you are using Xero or QuickBooks, a P&L is set up for an accountant. It's not actually set up for a business owner. If you have a look at a P&L, the things are bloody alphabetical from top to bottom and it makes absolutely no sense. So as part of that learning, we also replaced our accountant. I had my new accountant set up a P&L so it made sense to me. Grouped all the costs, all the expenses, all the vehicles, the travel and meals expenses. Having the P&L set up in a way that actually made sense to me, so that I can look at it on a weekly basis and see instantly when there's an issue and how to address it. The other thing I did when I changed my accountant is I set up a set of KPIs for the accountant. At the end of the day, an accountant is working for you, they're effectively an employee for you. On the 15th of every month, it's non-negotiable, I meet with the accountant. We go through the P&L, we look back on the last couple of months, but we also look forward to the next three months. What that allows us to do is tweak our cash flow, make sure our tax bill is paid on time, super is always paid on time, accounts are paid on time, and we can monitor our cash flow forward so there are no surprises.

  Jeff: The way we run our business is with four different bank accounts. One bank account where the money lands and comes in. From that account we move money into a trading account. We have a tax account, a war chest account, and a lease account. Every week, non-negotiable, we put X into the tax account, X into the leasing account and X into the war chest account. So the important pieces of the business are looked after and the cash is sitting there waiting for the BAS payment, waiting for the super payment. And having that discipline to keep your hand off the money. Ideally you want to put things like your war chest in a different bank so it's not there as a temptation. Some months our tax account can have $150,000 to nearly $200,000 sitting in it. And it's very tempting to move that around. But the thing you need to have discipline around is that's not your money. That's not your money at all. It's the ATO's money. It's the team's money from a super point of view. We put our personal super into that account too so that when it's due, we pay it on a monthly basis. Because that's a big thing for a lot of business owners, the first thing that doesn't get paid is your own personal super. One of the great resources I was introduced to a few years ago was a book called Profit First. Taking your profit first. We get paid on a Wednesday, everyone else gets paid on a Thursday. We take our non-negotiable cash off the table, making sure that we're paid first before anything else. Because that's the whole point of business. We're not in business to employ people. We're in business to employ ourselves at the end of the day and make sure that our life is right.

  John: I reckon what we could do Jeff is just cut that bit out and I could give that to every single one of my clients. Because that, for people listening, that is the way that you run the finance in your business. Textbook. That's the way I did it. That's the way Jeff does it. That's the way most of the successful people in business I know do things.

• What an employee actually costs you per hour

  John: When I first started in business, the way I knew my numbers was when I met with my accountant once a year and found out whether I'd made money or lost money. Didn't do any tax planning. Had no idea what was going on. Then as I started to get a little bit more sophisticated, I learned I needed to learn my profit and loss. What were the numbers that you needed to learn the most, or what do you think is most valuable to learn?

  Jeff: Knowing your costs. The costs of employing people more than anything. In a trade business in particular, that's the one thing that can get away from you. You think you're doing the right thing but you have to actually sit down and do the numbers. When we first were employing electricians and growing the business, we were selling our services way too cheap. The reason being is I didn't actually sit down and take the time to work out what an employee costs. So I worked out the employee's wage, multiplied by the hours they work, but I also worked out an efficiency. If you are paying an employee for 40 hours of work but their billable hours is only 70% of that time, multiplying it by the 70% gives you a truer hourly rate. Then working out the fixed costs of the business like vans, fuel, operations manager, admin team, and breaking those down into a cost per hour. What I worked out is that to pay an electrician $50 an hour, they actually cost you closer to $110 an hour. By the time you add up efficiency, RDOs, holidays, public holidays and all the other costs of keeping that person employed, it's more than double what you're actually paying that employee. When I first did that exercise, I worked out we were undercharging for our guys by about $50 an hour. Which is a significant number. So immediately overnight we changed that number to make sure we were actually making money on these guys. The other thing I did at the same time was abolish a call out fee. What I would do is build the call out fee into the first hour at a higher rate. So there is no call out fee. Right now we charge $165 an hour for a tradesman including GST. But the first hour is $220. So there is no call out fee but it's $220 on the first hour, which covers 15 to 20 minutes of travel to get there, setting up and all the costs.

  John: That's really interesting. I've got a spreadsheet I use with all new clients. You basically put someone's name, how many hours a day they work, what their productivity is. If it's eight hours and they're a service guy, it's six or seven chargeable hours. Then you go through public holidays, which in Victoria there are 13, annual leave, training days, payroll tax, superannuation, long service leave, all of this stuff. When I sit down with a new client and we go through that, I have not had one client when we get to the final figure go, oh, that's what I thought it was. I had a client recently nearly vomit. They were shocked. They had a whole heap of plumbers paying them all $50 an hour and didn't realise it was costing them $95 to employ these guys. When you're not charging more than that it becomes a really, really big problem. The other thing I do with all of my larger clients is we have a metrics system with different metrics for all the areas of business, admin, finance, operations, sales, HR. One of the really cool things we end up tracking is not only revenue per employee but profit per employee, profit per billable employee and total business cost per chargeable hour. Most people I find aren't charging enough on an hourly basis. Ideally that should be your cream.

  Jeff: With our business in the solar industry, it's pretty competitive. Our net profit at the end of the day runs at around 8 to 9%. So it's pretty skinny. It emphasises the importance of knowing your numbers because you have a 2% or 3% slide and it's significant.

• Why personal growth and dropping your ego is the fastest way to grow your business

  John: We've known each other for a long time, been to some interesting places around the world. One of the things you've done outside of business that I think is very important is you've gone looking for knowledge in other places. You haven't just sat at home and done what you do. Why is that important and how has it helped you?

  Jeff: What I've found over the years is the more I grow, the better the business gets. And I'm not just talking about knowledge in business, I'm talking about feelings for instance. I've got two daughters. I grew up in a house full of boys and dealing with young ladies was something very foreign to me. So learning about feelings and emotions and how to talk about those things. But in addition to that, having a thirst and want to know more and understand more. Business can be a bit of a lonely existence. Going back a few years I sought support and I joined a business group. Not just to learn about business, but because I was lonely. My mates, none of them had their own businesses, and it was really difficult to talk to someone who's not in business and have them understand what it takes to actually be a boss and run a business. I started learning how to be a better person first. And the result of that is the business got better. Every little percent that I improved, so did the business. The correlation between the two was quite astounding.

  John: What do you think stops people from going out and doing those things?

  Jeff: The biggest issue I see with most of the new people joining that group was ego. Who are you to tell me to do this this way? I've been in business 20 years, you can't tell me anything. That stick your head in the sand attitude and not taking anything in. That's the first obstacle a lot of business owners need to get through. Being humble enough to say, one, I need help. And two, when help's given, say let's give this a crack.

  John: I think that's such a prudent point. I remember when I was going to a business group, it was called an advisory board, we just met once a month for a whole day. There were some really good business owners, 12 of us. Some of them are still friends today with great businesses. One of the things we were supposed to do was bring our profit and loss. I noticed very few people brought their profit and loss, but they would talk about it. There was one guy who brought his profit and loss every month, whether he had a good month or a bad month. I observed over the period of about a year that this business was something different and this guy was something different. It's an enormous business now, he's made a lot of money out of it, and he's an incredible businessman. What I learned from him was the figures are the figures. When you get over that and you come in and just lay it all down, it's a freeing experience. You actually get good feedback from the people you're with. But it comes back to getting past your ego and being big enough to get out of your own way.

  Jeff: Being exposed to many different businesses through that business group, one thing you realise after looking at a few different businesses is they're all the same. Yes, mine's a solar business and yours is a bakery and you might have a retail shop, but every business is the same. You've all got employees, you've all got costs of goods, you are all trying to make a profit, trying to do the best you can. It doesn't matter whether you're selling widgets or trade services or anything. A business is a business.

• What Jeff would do differently if starting again

  John: If you were starting again, would you have built it the same way?

  Jeff: If I was starting again tomorrow, I would set out to build the business so it would 100% function without me from day one.

  John: That would be your goal from day one?

  Jeff: From day one. To have a business that didn't need me at all, period.

  John: Why would that be your goal?

  Jeff: A lot of people get into business for freedom. Or the thought of freedom. And at the end of the day, working 80 hours a week seven days a week, that's not very free. That's what I did at the start, day in, day out, all day, every day working. So if I had the opportunity to start again tomorrow, I would make myself redundant as quickly as physically possible.

  John: What advice would you give people starting out today?

  Jeff: My biggest piece of advice I would give someone today is train someone to do a job, get out of their way and let them do it. If you can train someone to do a job with at least 80% competence of what you do it at, train them and move on. That would be the biggest thing.

• The best system Jeff has implemented

  John: What's the best system you implemented in your business and why?

  Jeff: Our job management platform. Back when we had an electrical contracting business running in parallel to the solar business, in the electrical business we were part of a franchise group. As part of the franchise group we were introduced to SimPRO. SimPRO is a great program, a massive animal. But once you learn to tame it, it's a very, very good tool. We use SimPRO in the electrical business, but in our solar business I implemented Service Mate. Service Mate is very similar to SimPRO. It's definitely not as massive an animal, but it doesn't do what SimPRO does either. I implemented Service Mate in 2015 so we've been using it for 11 years now. It was the biggest change because we went from handwritten quotes hand delivered into emails. And being able to track our numbers significantly better. Using the tools within both SimPRO and Service Mate for the reporting, being able to see visually what your profit's going to be for the next 30 and 60 days with the work that's already in the pipeline. And having the job management so nothing gets lost, jobs get done but never invoiced, that never happens. Stock control as well. It doesn't matter whether it's SimPRO, Service Mate, Tradify or one of those platforms, having an online platform to run the business and the jobs through is essential in a trade business.

  John: Given that you've run both SimPRO and Service Mate, what's the difference?

  Jeff: SimPRO was excellent for the complexity of an electrical business where you're dealing with multiple parts, little bits and pieces all adding up for a job. SimPRO is really good for that. Whereas Service Mate was more suited if you were selling a package. If you weren't trying to account for nuts and bolts, Service Mate was really good from a package point of view. The in depth nature of SimPRO was really good for that nuts and bolts type business. So definitely SimPRO for the electrical business, and Service Mate for the solar business where we didn't need that level of fine grained pieces.

• A favourite failure and what it taught him

  John: Do you have a favourite failure or a failure that taught you a lesson you needed to learn?

  Jeff: We had a business that failed once. The reason it failed: one, it was too complex. And two, I didn't listen to my gut again. The more complex something is, the more pieces you've got moving around the chessboard, it just makes it difficult. It's just friction. The failing of that business taught me an important lesson. Simple is effective, simple is understandable, simple is teachable, and simple is good.

• What 25 years in business taught Jeff about himself

  John: As you were growing your business, what have you learned about yourself?

  Jeff: It's okay to ask for help. And the surprising thing there is where, when you do ask for help, where that help comes from. I've been blessed with some really good friends that I've met along the way, and just dropping the ego enough to actually ask. And people will bend over backwards to help you.

• Hobbies and switching off

  John: What hobbies do you have outside of work?

  Jeff: The wife and I enjoy very nice restaurants. Travelling to destination restaurants, that's definitely a hobby. I love my rugby league, that's a big thing being a Queenslander, a central Queenslander especially. And purposely chasing the experience would be a hobby.

  John: I thought you were going to mention the fact that we're gonna go have a cigar after this.

  Jeff: We certainly are. And a whiskey. Your lovely wife rang me and said she's very annoyed at me for introducing you to cigars, but she's also very grateful because it helped you relax. The four o'clock Friday afternoon cigar and whiskey in the yard with the dogs and the kids in the pool. I haven't toned down the dogs and the kids in the pool, but I have toned down the whiskey and the cigars. But yeah, it was definitely a break. I've been into cigars now for about five years, and just that end of the day mind shift where you can just sit, relax, and try to do nothing for 90 minutes while you have a cigar and have a break from the day.

  John: Jeff, thank you very much for coming in today mate.

  Jeff: Thanks for having me.

  John: Really, really good information there that I'm sure a lot of people will get a lot out of. If anyone wants to find you, where can they find you?

  Jeff: Our business, EcoSmart Solar, Google it. We're in Rockhampton, Central Queensland. Our shop is in Denison Street for any locals. More than welcome to come down and have a chat about solar. And a big thing for me these days is spreading the knowledge. The more people I can help, the better.

  John: Thanks mate.

• Connect with the guest

  Jeff Hoare, EcoSmart Solar, Rockhampton
  Find them on Google: EcoSmart Solar Rockhampton