Andy’s tips to cutting 50k out of your business

Andy
Ah, sounds great. Let’s dive in.

Ange
All right. If you’ve been in business for a few years now, you’ve probably accumulated a lot of expenses and it’s draining your business. Plus it’s having a huge impact on your profit margin. So as a result, you’re not making the profit that you deserve.

Andy
Yes. Does it sound familiar? Anyone? You know what? Most businesses have a bucket load of cash coming in, but it’s going straight back out, and most tradies I talk to are really confused where their money is even going. Hmm. You know what your overheads are sucking up your cash. Plus, in this day and age, we are a plastic society, so tapping credit cards to make payments and racking up costs seems normal. Mm-hmm. But the bad part about this is we treat it like it’s a never ending source of money. You do need to pay it back, sadly. What we’ve got to do is cut the clutter, especially if you wanna start pocketing some real profit. You know, it all comes down to how your businesses run and knowing your exact numbers. You’ll hear me say it all the time. You need to know your numbers. So many businesses we work with, we cut up to $50,000 with one simple exercise that we teach.

Ange
Yeah, absolutely. Trade businesses have massive overhead costs and for the most part, don’t need half the stuff they have. Or perhaps they haven’t even looked at alternative solutions, Hey, because they say, but that’s how my old boss did it.

Andy
Yes, but on Ange, imagine what you could do with an extra $50,000 in your back pocket. Invest it back into the business. Buy a new piece of equipment.

Ange
Stick it in your offset account for your mortgage or maybe upgrade your kitchen.

Andy
Upgrade. Yes. We need a new kitchen after our blue staffy Piper decided to eat it.

Ange
Yeah, I love her. Seriously, but it’s a crazy dog. We always say that just because your old tradie boss or your mate ran their business like that, it doesn’t mean it was the right way for you to run your business, but that’s not your fault. You know, you were taught to be a hero on the tools, not a business expert. So it’s not surprising that you’ve actually just tried to mirror what you’ve seen others do. Andy and I also learnt the hard way. But what you need to do is both be a tradesman plus a smart business person if you wanna succeed.

Andy
That’s right. Ange. Let me tell you guys a story about my plumbing business, Dr. Drip, when I started the business, it grew fast. Very fast. I had the best of the best equipment, the best of the best trucks. A huge warehouse with a big side on the front saying Dr. Drip . We had a staff of 17, eight trucks on the road, you name it, and we had it. You know, this made me feel awesome because it made my business look so professional. And as a result, that made me feel successful. It was an incredible business, but literally overnight I went from making great profit to losing a stack of cash every week. It was an absolute nightmare. I had no idea where the money was going and why I was losing so much every week. You know, I had a ton of work. The boys were booked solid, and I thought I was making heaps of money on every job. And I was at a complete loss.

Ange
Yeah. Basically we had way more money going out than coming in, and that was a massive problem.

Andy
Yeah. When shit hit the fan, I had to learn my numbers fast because honestly, before that I was just seeing money coming in the door, which made me feel like things were okay. You know? I’d never really sat down and gone through my numbers in detail, so I decided to start with my profit and loss statement. So I grabbed a ruler and a highlighter. I printed my profit and loss statement and went through it line by line, checking every cost to see where my money was going. I couldn’t believe it. I had so much stuff in there that I just didn’t need. It was crazy. I cut around $300,000 outta my business.

Ange
Within a few months we were making a profit again. Now, I know that sounds like we just waved a magic wand over the business and fixed it in an afternoon, but it wasn’t really that easy. We had to make some really tough business decisions and take a good look at the business structure if we wanted to survive.

Andy
Yeah, that’s true. I thought I understood my numbers, but in reality I absolutely had no idea if the tradies wanted something, I just bought it when I wanted. . I just bought it.

Ange
Yeah. We had to scale back the business so we could get control of it again. It had snowballed and the expenses and overheads got so bloated that making these significant cuts at the time really was our best solution. Andy and I essentially stripped the entire business back to its bones and rebuilt it based on the facts and not on Andy’s ego. Yeah. So for those of you listening, I can’t encourage you enough to do this exercise of reviewing your P&L to see how much money you could be saving. So, Andy, that said, in a profit and loss statement, what would you say are your top five things or tradies should be looking out for?

Andy
Oh, uh, putting me on the spot, uh, off the top of my head. Uh, well listen, I, I think number one would definitely be materials, you know, not being charged for the right things or being charged way too much. And I really have a problem with this at the moment. The cost of materials have gone absolutely through the roof, and it’s always us tradies that seem to have to wear that cost.

Ange
Yeah. Materials are the biggest expense for most businesses, and it’s often what kills that gross profit margin. So what else?

Andy
Oh, what I found was insurance. I found that your cost for your vehicle, business office, you can talk about equipment higher. You know, maybe your team is lazy, forgetting to take the equipment back, you know, when you’ve got a half day full day rental. Or maybe you should just consider buying the equipment yourself. And also another thing would be subcontractors. You know, I see a lot of tradies using subies these days, and you’ve gotta make sure you’re getting bang for your buck. You know, are they overcharging you or maybe are they underperforming? You know, would you be better off to put a staff member on that you have more control of as well. And in general, overhead expenses. There are so many trade businesses out there that are just too top heavy and they have the wrong ratio when it comes to tradies versus admin staff in the office. You know, it also mentioned renting a warehouse or a space and other expenses like subscriptions.

Ange
Right. Great five points Andy, and I’d like to actually dive into them a little bit more, but first I just wanna throw into the mix. What about marketing? What would you say about that?

Andy
Well, marketing is another beast. You know, in your P&L, you’ll always be able to see what you are spending on marketing, but the P&L doesn’t show you the performance, you know? Mm-hmm. , and a lot of people spend an enormous amount of money on marketing, but they never track the performance to find out exactly how they’re going, you’d have to have a look at your marketing stats and perform its metrics to get a clear indication. I know it sounds boring. I can hear everyone yawning right now, but if I saw you every day and I grabbed $50 outta your back wallet and I picked it up and I threw it on the ground, you’d be literally wanting to punch on with me , you know? But that’s essentially what you are doing every single day in your business if you don’t know your stats.

Ange
Yeah, exactly. I know it sounds tedious, but when you’ve done it and you’ve saved yourself 10K, 30K, 50K, it won’t seem so boring then. So break your P&L down line by line and question everything. So for instance, let’s have a conversation about insurance. So many of us just renew out of ease, I suppose, but insurances creep up a hundred bucks this year, 300 bucks next year because they’re literally banking on you, just continuing out of making it so simple. So, uh, check this out for sure.

Andy
You can say that again. The insurance companies are always looking at ways to charge you more.

Ange
Yeah. Right. You also mentioned overheads too, like subscriptions. I feel this is another one that creeps up also in our personal lives. There’s so many apps and websites, programs that help us these days. 50 bucks a month here, 150 bucks a month there. And when you’re reviewing these costs in your P&L, you need to question it. Are you actually even using them all? Or do they all have a purpose and can you maybe combine some of them and maybe cancel some of those subscriptions?

Andy
Yeah, and another bonus tip is to look for things out of the ordinary. You know, you can compare your P&L month or month or year on year. Mm. Because sometimes you can see obvious differences and trends. So if all of your monthly expenses, for instance, are normally 2K for petrol, and all of a sudden at 6K, there’s clearly something wrong. You know, this allows you to do some research and find out what happened in that month and why had it blown out so bad compared with past months because if you don’t know, you don’t know and you can’t forecast or allow for it in the future if you haven’t taken the time to understand why this month was a blowout.

Ange
Yeah, so true Andy. Let me move you on to materials cuz materials are probably the most considerable expense in a trade business, so it makes sense to focus on this line item. Can you tell me a bit more about that?

Andy
Yes, I definitely can. You know, even though it’s one line on your P&L, it’s a massive one. And for starters, do you even currently check your invoices to ensure you are getting charged the right rates for your materials? Do you even know what they are? Could you be getting a better deal elsewhere? You know? Or are you losing money to human error?

Ange
Yeah. Human error is something I think a lot of tradies overlook. We live in such a computerized world, Hey, and we just think that everything is a hundred percent correct, but we don’t even think about that human error part.

Andy
Exactly. And we absolutely should. You know, human error was a big one for me back in the day, especially with our suppliers. You know, if you’re not going through your supplier invoices, there’s a bloody good chance at some point they’re double or triple charging you. You know, I can’t believe the number of times this has happened to me. You know, they always tell you that the managers will keep an eye on your account and fix it up, but let’s face it, that’s crap. So many of us do no checks of the invoices and just pay every month. But if you only stop to look, you’d be surprised about what you found.

Ange
Yeah. So tell me more about that. What have you found with supplier invoices in the past?

Andy
Well, we were working with a supplier and who we just filled at the time was pretty good. You know, until I started going through my P&L and I saw a huge spike in my materials cost. I thought I better have a look at this closer, I realized that we had bought 10 items on multiple occasions, and where there were only 10 units purchased. But we’ll charge for a hundred units. You know, that is a massive difference. And on top of that, we’re also getting charged for other people’s stuff, other companies putting stuff on our account, which got me really angry.

Ange
Yeah. I never saw that one coming.

Andy
I still remember the time I questioned a hot water service on one of our invoices. I didn’t remember the company buying it. And it turns out one of my tradies on a Saturday had gone to the supplier, bought it for his own personal job, but just happened to forget to tell me about it. Mm-hmm. , you know, when I called him on it, he said I was gonna give you the cash for that, but it was over a month later. I dare say, I don’t think I was ever gonna see that money if I hadn’t checked and questioned the guy. Do you really think he was gonna pay for it?

Ange
Uh, probably not.

Andy
I don’t think so. You know what? It was our fault though. We never consistently checked the supplier invoicing and references it back to what our tradies were being handed. You know, often they’d rush in, they’d just collect the order and they would be out the door. There were so many opportunities for us to cross reference and ensure what goes out and what we paid for was what we bought, but we just didn’t have these systems in place. Now we have this process fully systemized, so we don’t get overcharged. Or a chart for other people’s stuff. You know, make sure you check out our show notes and we can show you the exact process that we use.

Ange
Sounds tedious and you know what it can be. But you are the business owner and if you don’t think it’s essential to watch your spending, then no one else in your team will either.

Andy
Yeah, that’s a great point, Ange. And if you are not watching, you can’t expect your team to be watching either. You know, watching your trucks is another excellent place to see where we could cut some costs, you know, consider the value of the stock that’s in your trucks right now. You know, we have a stock checklist that shows exactly what shouldn’t be on the truck and what should be on the truck. This ensures we only have around $7,000 worth of stock and at any given point.

Ange
So can you share why that’s important?

Andy
For sure. Because your team can get outta control and just keep buying stuff for the sake of it, you know? Mm-hmm. , like you said before, if you are not checking, I guarantee you they’re not either. It’s laziness. They don’t check the truck because it’s not their money. They think it’s okay to have five extra of one thing just in case, and it’s so frustrating at times. Plus, when your trucks are overstocked, things get lost, damaged, or just chucked out.

Ange
Mm. It’s such a waste.

Andy
Many trade businesses have never operated with a stock list, and as a result, they’ve got two to $4,000 of extra stock on the back of their truck because of this just in case mentality. And if you times that by five trucks, that’s potentially $20,000 that you could cut down easily.

Ange
Wow. We understand that when you’re trying to do everything in your business and be across every single thing, huge cracks can appear and you probably don’t even know about them. That’s why it’s essential to find time to review your spending and look at your P&L. It has to be done consistently. And then what we need to do is build some systems around what needs to be done to ensure that you are saving money and not throwing it down the drain. So Andy, in your top five things, you also mentioned the business might be too top heavy. Can you tell me a bit more about that?

Andy
Yeah, I definitely can, and I think this is a really big one. You know, there are so many trade businesses hemorrhaging cash because they have the wrong ratio of staff, you know? Like do you need three offer staff when you only have three billable tradesmen out on the road? Or would you be best to streamline processes to remove the need for the extra staff? You know, we need to be thinking smarter.

Ange
Yeah. What we find is that some trade business owners have too many staff, cuz they don’t have their business model, right? They’ve got no structure, no streamlining, and hence double or triple handling work. And speaking of staff, what about subcontractors?

Andy
Yeah, subies are an interesting one. And I think the big thing I mentioned was are you checking their invoices? Because you’ve got to make sure you’re getting bang for your buck, and if they put the go slows on, they need to be pulled back into line. Otherwise you’re better without them. Or maybe you’re better to consider employing someone full-time.

Ange
Yeah, right. So another area mentioned was a warehouse and storage shed. So this one can get a little outta control too. It’s one thing to need a warehouse for your boys, but have you stayed longer than you should? Because now the trade is only visited once a month. And is a warehouse an absolute necessity for your line of work? Or is it vanity and maybe ego?

Andy
Yeah. A lot of people think having a big warehouse is a sign of success, and sometimes you feel you need it because, oh, I need the space, but do you really? You know, often they’re used as dumping grounds, and let’s face it, it’s certainly easier to dump leftover stock and materials outta warehouse, then take it back to the supplier and then you are stuck with it forever. Yeah. You know, you justify it by saying to yourself. You know, I’m going to use that one day. I might use it on the next job, but it’s funny how the next job never comes around or whenever you do need it, the warehouse is just so far away that it’s like, ah, can’t be bothered going back there. So you just end up going to the supplier and buying more.

Ange
What a merry-go-round. This one hits home for us. We had this huge warehouse in the middle of our Tarin, which is basically the heart of Sydney. It’d be fair to say that we stayed for way too long, even when we knew that we should have given it up, the effort of moving just seemed daunting.

Andy
Yeah, it definitely did. When we stayed for two to four years longer than we should have, I reckon.

Ange
Yeah. It was costing us 60K a year and when we reviewed our P&L, it was a cost we totally could have cut and put the money back into our pocket.

Andy
And I’ll definitely put my hand up and say it was my ego that made us hold onto it for those extra years. If we cut the year, we realize it was costing more than it was saving. We could have saved almost 250K.

Ange
Mm. Ouch. That so hurts when you say that out loud.

Andy
Yeah, I know.

Ange
Ah, I understand though that it felt like a success to have it. I guess it’s hard to let go of something that makes you feel important and accomplished, but looking back, it was the wrong decision to hold onto it for those extra years. It was an overwhelming feeling to change, but in reality, it was a change that we needed. Unless for you guys out there that you’ve maybe bought your warehousing, your super, cuz that’s a really smart wealth creation strategy for a trade business owner. So Andy, we’ve covered so much in episode one. Should we do a recap?

Andy
Yeah. I’m in information overload.

Ange
Okay. So tradies, here are the key things you need to do today. The first thing, what I want you to do is get a copy of your P&L and go through it line by line and question every cost. Then I want you to use Andy’s top five things to look at. I think he mentioned insurances, material, overhead expenses, equipment higher and subbie rates. And three, I really need you to ditch the ego and make your business decisions based on fact. If you think your business is losing more money than it’s making and you don’t know why, then perhaps now is a great time to fix this once and for all by booking in a chat with Andy. Use the strategy session link in the show notes, and together you guys can work out a way to reduce the costs in your business.

Andy
So that’s a wrap for us today. Next week, let’s get some hours back. This is something we hear all the time from tradies. We’ve never got enough time. We’ll, guess what guys? We’re gonna solve this problem once and for all.

Ange
That’s right. Tune in next week and learn exactly how to gain back four to six hours in your week. You are going to love it.

Andy
This season we are sharing some of our best trade secrets yet. Tune in at 5:00 AM Monday because we are dropping new episodes weekly. Subscribe so you never miss a thing.

Ange
See you again soon.

Andy
Catch you, then.