How to Manage Become More Profitable

Dennis Oz: Welcome to Remodeler Success podcast. I’m your host, Dennis Oz. Remodeler Success Podcast gained a real good traction and we are getting a lot of comments and a lot of thank you messages from our audiences. Because we are bringing you pioneer industry leaders, they’re giving us a lot of information, they’re helping us to see our footprints and understand how we are performing. This episode is gonna be based on our financials, and I have an amazing speaker. See, as I’m shaking right now because I’m super excited about this session. Before introducing my speaker to you guys, just wanted to talk about the, the importance of our financials. Why this is important? Because, you may be a great business owner, but you may have some scalability problems. The idea here is to scale our businesses, step up and grow our businesses. While we are growing our businesses, it’s not going to be something like creating a black hole and consuming all our time and energy. So this is the idea here, but I’m just a guy here just trying to bring you the speakers. Today I have a key speaker. It’s Rocky Lalvani here with me. Rocky, thanks so much for coming. Welcome to the show.

Rocky Lalvani: Thank you so much for having me, Dennis. Excited to join you today.

Dennis Oz: Yeah, great. Could you please introduce yourself?

Rocky Lalvani: Sure. So I’m a husband of 27 years to my wonderful wife, Dolly. We have two grown kids, and right now what I do is I work with small business owners, is their chief profitability officer, so we help them to have a growing and more profitable business and continue to do that. I’m also a real estate investor and I have hung a few kitchen cabinets in my day.

Dennis Oz: There we go. Yes, this is what we’re gonna also focus today. Of course our audience is kitchen and bathroom remodelers and showroom owners and cabinet dealers, manufacturers, and also carpenters, This is a mixed segmentation right there, there’s not like one type of audience. But I would like to start with that profit first idea. It’s teaching all small businesses how to create better businesses, let’s say, and the healthy businesses, right? We’d just like to talk a little more about that. You have podcasts and you have blog post and 15, 20 minutes speech or all of these. But if you try to include how we can implement Profit First and increase our profitability, can you tell us a little bit about that?

Rocky Lalvani: Sure. all of this comes from the book Profit First, which is by Mike Michalowicz. Mike Michalowicz is a serial entrepreneur, has had many different businesses, and now he’s a serial author, and the whole goal of what he wants to do is help people to end entrepreneurial poverty. Here’s the backstory though; Mike used to own a couple of different companies. One of them was a forensic accounting firm, they actually investigated Enron and yes, they were guilty. He sold that company, walked away with his big payday. But what he said was; ”You know, when I owned that company, we were never profitable.” He goes; ”When I sold the company I was profitable.” Meaning he got his big payday. And of course, as most business owners, you know, you get your big payday, you think you’re the smartest guy in the room, and he started to go out and do a whole bunch of business investments and within a couple of years he lost all the money to the tune that they were coming for the keys to the house and the car. So not a very good ending. And clearly he went through, you know, a period of trying to figure out, ”Hey, how did I do this wrong, how do I fix it and how do I do it better…” One of the ”Aha’s” in that period was he realized he had been given the wrong equation for profit, as we all have. So we’re all told sales minus expenses equals profit. Which means that profits a leftover. It’s an afterthought. It’s something you might find out when you see your tax accountant at tax time and they say; ”Congratulations, you were profitable. Here’s how much you made.” And invariably, two questions come up. Number one is, where is that money? And number two is, how am I supposed to pay that tax bill? And Profit First answers both of those questions, right? Instead of saying you’re profitable and you go, ”How come I don’t have cash?” And ”Hey, I got a tax bill. How do I cover it?” Profit First actually helps to make sure those are done. Profit First is not an accounting system. It is basically a cash flow management system, designed by an entrepreneur for entrepreneurs, right? It’s not designed for accounting people. It’s designed for the way you do business and the way you think, and it leverages your behaviors and makes them work for you. .

Dennis Oz: It’s a whole different approach. And the key part here is: It’s created by an entrepreneur for the entrepreneurs right? That’s what you’re trying to say here.

Rocky Lalvani: Absolutely it is. It’s basically a bank balance accounting system. So most entrepreneurs do not look at their accounting software, right? They don’t open up their computer or do any of that. Most entrepreneurs look at their bank balance, and let’s face it, I know some of you look at your bank balance a few times a day. Is there money? Did they come in? Did it go out? Where am I at? And this leverages that behavior to your advantage. So basically what Mike said is; We set up five bank accounts, and the first bank account is your revenue account. So every time you get money coming in, you can see it in your revenue account, right? You know how much it’s come in. And then we set up four other accounts. Sometimes, and especially in this industry, you might need an extra account. And we’ll talk about that. But the first account is what can you guess is of course, profit, right? Because profit comes first. The next account is your pay account. Because a lot of business owners, they pay themselves last instead of paying themselves first. They’re afraid to take money out of the business. Well, this is a way to ensure that you get paid and give you a little bit more comfort in removing money from the business. Next up is your tax account.

Dennis Oz: The third account is gonna be tax account, right? The first one is revenue, second one is for the profit.

Rocky Lalvani: There’s actually five, number one is the revenue account where all the money comes in. Number two is profit. Number three is your pay. Number four is tax. And then number five is your operating expenses. So how much you truly have to work in the business. What happens a lot of times, especially in an industry like yours, you might get a large deposit on an order. Well, if you put your deposit in there and you start spending it, that’s a problem. And so sometimes what people will do is they’ll create a sixth account, which is just a reserve hold account, so that if they get a deposit from the client, they can put the money there. And when they actually do the work and the bills come, then they distribute it to their revenue account and they do everything else. So it’s just basically there to hold it, to make sure you are not spending money before it’s time. And what this does is when you look at your bank accounts, you know what the money’s purpose is and you use it for the intended purposes. So I’ve had guys come around at tax time, I had one person your accountant does your taxes based on the previous year, and if you’re not having conversations all year, they don’t know if you’ve grown. And so if you go through a good business spurt and you grow tremendously, tax time comes, you’ll find yourself short. And that’s exactly what happened to Mike. His tax accountant didn’t want to call him. Because the dirty secret is when you owe taxes, they don’t like the conversation. They’ll make sure that they can do whatever they can so that you don’t pay taxes. The downside of that is they’ll tell you to go spend money that you shouldn’t spend so that you get a deduction, which doesn’t make sense. Mike’s tax person didn’t want to call him because he owed a lot of money. So they finally had the phone call and he’s like, ”Well, how much do I own?” And she was like, ”Almost a hundred thousand dollars.” He’s like, ”No problem. I’ll drop off checks tomorrow.” She was like, ”In 20 years nobody’s ever said that to me.” He had his tax money and he didn’t even tell her there was more money in the tax account than he needed, so he got a bonus for himself because he over saved for taxes. He had confidence in taking the phone call from his tax person cause he knew he had the money to pay it and he knew it was all going to work out. And so each of these accounts has a purpose and you can look at your operating account and if you’re spending too much money, you’ll start to see that it’s negative, in which case you realize you’re spending too much and now you have got to do something about it.

Dennis Oz: Right. It’s a, it’s a clear projection of how much we are making and how much we’re spending. Of course, tax is also a big portion right there because we need to consider that. Because at the end of the year, you will be paying your taxes to the IRS. So it’s like a preventative action right there because you need to understand your numbers and then you should have some sort of allowance to just to go and pay those taxes. I think this is how we implement, how we set up the Profit First system in our businesses. You have a lot of content about that, you just talk about that as well. Because I believe it’s really important for small businesses.

Rocky Lalvani: Yeah, so I have two podcasts. One of them is the Profit Answer Man podcast. And if you go to that podcast, the first episode is ”Why I did this.” Episode two is ”Mike Michalowicz”, and then episode three to thirteen is every single chapter in the book. I give you my thoughts on that chapter. While you’re reading the book, you can also say, ”I feel like something’s missing. I’m going to fill in those missing pieces.” Everything we do on the podcast is teaching business owners how to be more profitable, how to look at different parts of your business. So how do we be profitable in marketing? How do we be profitable in this area of our business? Because too often when we have problems, we throw money at it. And one of the things we say is you don’t necessarily need more resources. You need to be more resourceful. How can I do this in a better way that makes sense for my business instead of just throwing money at everything?

Dennis Oz: I’m gonna go back to the equation of the profits and sales and expenses and customer satisfaction. Once we start the business, I believe between zero to $5M, there are a lot of things going on. You need to hire, you need to set up your team, you need to be profitable, you need to look at your expenses, and also you need to check your customer satisfaction, the most fundamental things when we are building our businesses. Well, what’s the equation between all of those departments? What do you think?

Rocky Lalvani: I think what you’re really asking is, and what I see that a lot of business owners don’t do correctly is what happens first, right? Which is the proposal. And the proposal includes the pricing. And too often I think we say, ”Well, nobody will pay us for that.” And I think that’s a mistake. Especially during Covid, one of the biggest things we saw was that business owners weren’t keeping up on their pricing, meaning the inputs, kitchen cabinet, prices were going up and down. Well, they weren’t going down, right? They were just going up, up and up very quickly. And so if you didn’t have your pricing down and current, you got yourself in trouble. Second is an appropriate markup for your time. I think in the beginning we undervalue our time and as we’re hiring employees, we might say, ”Well, I can get this job done in a day.” Here’s the reality. Well, you can get the job done in a day. Your employee might take a day and a quarter. So appropriately pricing for the labor and then having collections procedures in place. How are we billing? When do we collect money? I mean, you don’t want to do an entire job and then get the money when you’re finished. Because that makes you a bank. So making sure that upfront, we’re collecting a deposit, we have milestones that are clearly deliverable, and that the client knows, ”Hey, this is how we do it.” And so this way you’re collecting throughout the project and you’re not chasing them. And then again, when you are profitable, you’re making decisions based on your values, not on your bank account, so that you can do right by the customer. Sometimes mistakes happen. You need to make sure that you price for mistakes. Because this way when they happen, you at least have the margin to do what’s right and to fix it. And then as you talked about the traction and so forth, having all the proper systems and processes in place, you don’t want to order the wrong color cabinet. You don’t want the wrong knobs, you don’t want the wrong countertops. Making sure that you and the client are in agreement that they have signed off and agree to everything, and that it’s clear so that the two of you are on the same page because mistakes cost a ton of money, and that’s one thing that we don’t want to happen. Always building in those processes and systems to make sure everything’s done correctly. And then at the end, asking for the feedback and asking for the ratings, the Google ratings, the whatever systems you’re using, or for the testimonials. And don’t forget to take. Before and after pictures, right? It’s very important so that you have social media content that you can use. We tend to forget all of these little things, right? We get busy, but these are the little things that lead to success over the time.

Dennis Oz: Right. You are also talking about the importance of pricing and last couple of years, and in 2022, we were dealing with high inflation and the prices, especially after Covid, we just have some price increases. It’s not only the kitchen cabinets, but for everything. Here we have a problem: The pricing. How can we modernize or let’s say, how can we adjust our pricing to that environment at that given time, what do you think?

Rocky Lalvani: So a big part of that is how quickly from the time the client places the order that you can order all the supplies for them. What we did with a lot of our clients who have longer construction cycles is they all switched to a cost plus contract. They would price out the actual materials and they would say, ”Here’s your material price. If it changes, we’re going to change the price to you.” ”Here’s our construction price. Your labor is pretty fixed.” And so by doing both of those separately and saying to them, ”Hey, this is going to be variable, just because things are changing so fast.”, that protects you from something going wrong. And then also the other thing is having systems in place so you have dynamic control. And keeping up your pricing systems and have good bidding software that is kept updated so that you’re not bidding a contract based on last year’s costs. Because if fuel is a big part of your delivery, A:, you are getting fuel surcharge by your vendors and then if you’ve got a lot of trucks on the road, your fuel costs may have doubled in the last year.

Dennis Oz: Right, exactly. Since it’s delivering the goods and delivering the cabinets and countertops and you’re going to the places for measurements. You need to make a quick first visit to get the measure. This is how we work. If you are remodeling a kitchen, you need to go there first, make the measurements, and they have to come to you. You need to finalize with the round table meeting, it’s multiple trips to the location. Let’s say we are not maybe expanding our operations more than 30 to 50 miles. That’s going to be our local business. So for example, if you’re right now I’m in New Jersey. I’m not going to Pennsylvania every day, or if let’s say in somewhere in Texas. I’m not going California. So that’s what I’m trying to say because we are local businesses, but we need gas money. That’s also really smart to consider when we are doing our pricing. And, uh, uh, we are talking about the quotes. Most of the sales people, kitchen designers, they feel like they cannot sell this project if they cannot make any discounts. They are always feeling like they have to make a discount to get the customer, but what I always hear it’s really easy to sell when you give the discount, but if you’re a good a salesperson, you have to sell it with a good margin. So it’s value sensitive projects and price sensitive prospects. How can we differentiate these people? How can we understand if they’re price sensitive or value sensitive? What could be our reaction to these type of prospects?

Rocky Lalvani: First of I think you need to decide what type of client you serve. Are you going to deal with people who are price sensitive? Because if you are, it tends to be erased to the bottom. And the question you have to ask yourself is; Do you want to be in that business? We tend to look for value sensitive clients, those who want the value, who are willing to pay more. There’s some people who want to pay more. They want to pay top prices. They want that level, they want that level of service, and they’re willing to pay for it. If you ask me, those are your best clients, right? The ones who are looking for every penny off are the ones who are going to drive you up the wall and complain about everything. It’s up to you. Is that who you want to serve? Go serve them. But you’re in a race to the bottom. I prefer a race to the top. Choice is yours.

You have to teach your salespeople not to discount. So, two ways of doing this; either you mark everything up 10% and give them a 10%, or two, you pay your salespeople not on sales volume, on the profitability of the job, and if you pay them on the profitability of the job, they’ll realize that if they’re discounting, they’re giving away their money too.

Dennis Oz: So it’s going to be helping in both ways. If you are making huge discounts, it’s gonna be less commission for you guys. So I, I’m sure that the kitchen designers are selling projects and they’re listening to us right now, so especially for the business owners, it’s all about sending this $1 to the street and bringing more and more dollars to your bank accounts, right? For all these business owners right there: Your team needs incentives and you need to structurize this incentives. That’s what we are trying to say here.

When you the growth for success, we have a process for this one. I was watching your videos, you were talking about that for half an hour, but what are the significant processes for successful growth?

Rocky Lalvani: I think everything in your business needs to be a repeatable systematic process. Let’s take McDonald’s. You can go to McDonald’s anywhere in the United States. You know what the experience is, you know what the food is going to be like. They literally are plug and play to employees into their system, and they can do this anywhere. Your business should be somewhat the same. You should have certain things they’re standardized, and you should have those processes written down and everybody needs to follow the processes. At the beginning of all of this is creating a culture. Where everyone does things in accordance with your values, so you have to define them. And everybody follows the systems in processes. And when you go to hang a cabinet, for example, there’s a certain way we put the screws in. It should mostly be standardized. We use a certain type of screws. Who wants 50 different kinds of screws? Then you know, every guy’s doing it his way and then someone else comes to complete the job. But he doesn’t have that because the other guy used this. No, let’s systematize everything. it makes it easier to tell the client what they’re getting they know what to expect. You actually deliver on that, which increases customer satisfaction, which allows you to charge higher prices, and then your people follow the systems. And this way, if you have to replace people or swap people out on jobs, nobody is recreating each time. They’re all doing it the same way, and it just takes so much headache out of it. The problem is it takes time to build systems and everyone says; ”I’ll be profitable when… and I’ll build my systems when…. and I’ll build my culture when…” No, you do it now because otherwise it’ll get too big and it’ll be too hard.

Dennis Oz: That’s great. Thank you so much for that information. With all these information, Rocky, I wanna go to that bottom line. At the end of the day, it’s all about financing, right? it’s all about our finances. Looking at the new kitchen and bath business owners, they starting a business and they are putting a lot of hats and sometimes they are selling, sometimes they are accounting and they’re also delegating some of the tasks to different people in the business. How can they manage their finances? What are your final tips for them?

Rocky Lalvani: First and foremost, you need to separate your personal and your business finances. We need to have clear separation, different bank accounts, different credit cards, because if you are missing deductions because you forgot to put it in, the tax person’s taxing you on that, and it’s a severe penalty if you’re not showing them all your deductions. Number two, create a system. Profit first works no matter where you are in your business journey, and it keeps you honest with your numbers. That’s a big thing that we talk about, and then having a system to make sure you’re capturing all of your expenses, all your receipts, and that you can tie everything to a specific job, because how do you know if your proposal was right or wrong, or if you made money unless you can tie everything to a job. And you can see how that job finished and whether you actually priced it correctly, because you might grow your business and you’re constantly wondering why there’s no money, it’s because you built it on an unprofitable model. Those are the basics I think you’ve really got to get it down and then don’t spend money that isn’t yours. What I mean by that is if a customer gives you. And you’re not doing anything for them for three months, that money needs to be segregated because if they cancel in 90 days and you spent that money, you’re in trouble. So keep your money segregated. Give it a purpose, let it do its purpose.

Dennis Oz: That’s gold. That’s a million dollar advice. Just note this down guys. It’s really important. well before we wrap up, uh, Ra, I would like to talk about Richer Soul and you have amazing stuff over there. Could you please give us a little more detail?

Rocky Lalvani: Yeah, Richer Soul is it’s kind of at next level, although you don’t have to be at the next level to start doing it. You built this business for what? To have freedom, freedom of time, freedom to be with your family, financial success. How do we then live that life? What does that really look like? And we go into a whole variety of areas starting with being clear on what your purpose is, having the right mindsets, and then finding harmony with our time, our money, our health, our spirituality, and our relationships. How do they all go together? How do we define how much is enough? Because I think that’s what too many people don’t define, and they keep chasing and chasing and chasing instead of saying; ”You know what? I have enough. I’m happy.” And they have a clear direction of what they want in life. Because when you know where you’re going, it becomes much easier to say no to all the shiny objects that come in our way. And distract us from that. That’s a big part of what we talk about there, how to be that better person, how to lead your employees, how to create culture, how to maintain your health, how do you maintain your money and so forth.

Dennis Oz: Well, thank you so much for that. And let’s say for our audiences, if they need any more information, if they say they’re struggling with their numbers and, they don’t know where to go, sometimes you are just in a real good market, you’re making real nice numbers, real good money. But if you cannot manage this money, you may still go down because managing is everything. For all these people, if you feel like you’re making good amount of money or you are struggling, you still have a good opportunity to learn more from Rocky. So Rocky, if these people are there listening to us, how they can reach out to you and how can they get more information about the things that you can give them, show them the way

Rocky Lalvani: Before they reach out to me they need to find the like button for this podcast. And they need to like it. Leave a rating. Show Dennis some love. Tell him how wonderful it was. The world of podcasting is sometimes lonely. We don’t hear a lot of feedback and I know Dennis would really appreciate that. Plus, it helps him to get out in front and help more people as well. If you’d like to find us the podcast is Profit Answer Man. Wherever you’re listening, you can find the podcast. We teach everything that we do. We’ve actually added a whole new tier of service. We realize that people are at different places on their journey, and so now we have educational and training programs. Wherever you are on your journey and they come with different levels of support so you can get the help you need in, in a very, very affordable way.

Dennis Oz: That’s perfect. Rocky, thanks so much for joining me today. I asked you our frequently ask questions. All our audiences they know about our podcast. We are just bringing these experts to give us the best answers. And this is one of these days. This is one of these episodes. Rocky, thank you so much for coming and joining me today. We’ll keep in touch definitely after that one. We will include all these links. If you’re seeing this on YouTube, you can see that on the description, and if you are just watching that on our webpage, or if you’re seeing that on an email, you can see all these links. You can see what we created and it’s really important for you to consume that information. I always say if you are listening to music going from A to B, just stop that Listen podcasts and it will give you a better world. I’m gonna be gonna see you next time and thanks so much for tuning for today, and have a great day.