This week, Taylor White is joined by legendary leader of Blount Contracting and BuildWitt Chief Financial Officer, Randy Blount, who shares his inspiring journey of taking his family business to simply incredible heights of success. Together, they also dive into such essential themes as leadership, accurate job costing, and the intricacies of managing overhead costs, providing invaluable insights for professionals aiming to enhance the construction industry.
Throughout the episode, Randy shares his wealth of expertise, offering listeners some of the tools and knowledge they need to navigate the financial intricacies of the industry effectively. Emphasizing the importance of distinguishing true overhead from indirect expenses, Randy notes that misclassification can impact project profitability assessments. He also delves into the complexities of equipment-related costs, offers practical insights into accurate financial reporting, and introduces the concept of using "revenue per employee" - a strategic metric for construction companies to enable effective growth planning and proactive business management. Randy’s insights, as shared here today, into making informed decisions, optimizing costs, and planning for sustainable growth, ultimately contribute to the entire construction industry's ongoing improvement. You do not want to miss this opportunity to access the wisdom of this giant in the construction field that can absolutely transform your construction business and the very industry itself.
Topics:
- Transitioning into leadership roles and shaping a business's future
- The impact of job costing complexities on profitability
- Distinguishing between indirect and administrative overhead costs
- Accurate project estimation and long-term cost management
- Challenges, opportunities, and the need for continuous improvement in construction
- Harnessing financial insights and effective management for growth and success
- Key financial management topics, including true overhead, equipment expenses, revenue per employee, and growth planning
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Episode transcript:
Randy Blount: “Okay, trying to figure out our true cost overhead. What's our overhead? You know, we spent the last three years buying a crap ton of machinery. Now we're in a brand new office. We got this mortgage for an office. We need more work to feed the beast. You know, what percentage is our overhead? So am I splitting overhead into administrative and operational, so fixed and variable, and I'm going down. And like, right now, I just feel like my head's going to explode with all these numbers because I'm at this turning point of like, “Okay, we need to be more profitable.” Because you could brag all day and say, “We do $9 million a year.” Well, that's great. How profitable are you off that $9 million, though?
Taylor White: Welcome back everybody to the CONEXPO-CON/AGG Podcast. I am your host, Taylor White. As always, this podcast is brought to you by our good friends over at Komatsu. Today with me, I have somebody who I am super excited to chat to. I've been kind of geeking all morning over actually getting to sit down and talk to this man. On the internet, he's known for, you know, blunt contracting, growing a business from four million to 40 million, being a leader, what it takes to be a leader. And now he is CFO over at BuildWitt. So, Randy Blount, thank you for being here today.
Randy Blount: Yeah, thanks for having me. Excited to be here, excited to talk about the dirt world. And like I was telling you beforehand, to geek out on anything financial or training. Just love to talk to people who are passionate about making the dirt world a better place.
Taylor White: Yeah man, that's kind of what our thing has been. I've been chatting with Aaron over the years too and it's kind of always been working on the culture and all that stuff and figuring out what makes my business, can my construction stand out and retain the people. But before we dive deep into the numbers and all that stuff, maybe for the people listening at home, I'd love to get you to give a little bit of a rundown of who you are and what you do.
Randy Blount: Yeah, so I was like many people who were in the industry. I was 17 when my father decided he wanted to start his own company. And so like my senior year of high school, I helped my father estimate from the kitchen table while he was starting to build a company. And then after I graduated high school, I worked for about a year with my dad and then I went on a mission for my church. And then returning, I actually didn't think I was going to be in the dirt world. I went to college, thought I was going to go do something else, and my dad got sick. And so I kind of jumped in and started helping out the business. And I think I was like my senior year of college.
And I remember I was talking to a buddy who was working at the Federal Reserve. I was in a finance program. and he was at the Federal Reserve and he was telling me about how boring his day was. And I was thinking about like, I was working nearly full-time most of my college career. I was thinking, I don't remember a boring day in construction. And it kind of just got me thinking maybe there's something more here than what I thought.
And so, started taking a little bit more active role in the business. After my father's passing, I took over as vice president of the company, and then eventually bought my mom out. And we grew that into from about $4 million to about $40 million in revenue. We were acquired by the Clyde companies, it's a large company, like 4,600 employees in the inner mountain west. Good family owned company. Stuck around there for two years and we grew to about $100 million in revenue over those next two years. It was kind of a culmination of having additional capital, the market being really good for growth and the Southwest really expanding mega projects, data centers, microchip factories. We were landing contracts that were more than our yearly revenue just a year or two before.
So it was a cool experience for me being acquired. I learned a lot. I got to learn what we were doing that was really smart and what big companies are doing that's really smart. And then since then I've been able to consult mostly east of the Mississippi with a fair amount of companies and share with them what I've learned and see what they're doing. It's been really fun.
Taylor White: That's impressive. You skipped over a little bit. Like I just want to touch and make sure that I say that, sorry to hear about your father as well, to have that happen at such a young age kind of throws you into the fire and makes you grow up real quick. I think probably, right?
Randy Blount: Yeah, it was. Actually, I built it, we had a team member who recently lost their dad and I told him, it's been 11 and a half years, it still hurts. Time does have a way of healing those wounds and now I can look back and mostly cherish the good memories and also reflect on what was learned. And I can see, for me, I'm a religious person so I feel like I can see the hand of God and kind of everything, the way it felt. But yeah being 26 my dad passed away while he was 50 so it was quite unexpected. And I tell people all the time some people say, “I'm on this call with a smart guy.” And I tell them, “I'm not sure if I'm smart. I think I'm just too dumb to quit.” And so because of that I just I learned stuff because I just kept running at the same wall until I figured out how to knock it down
Taylor White: You learn by your mistakes, right? We make so many mistakes here in my business all the time, constantly sitting at a roundtable that we have every Wednesday, figuring out what the hell did we do last week because that didn't work. So how are we going to make it work now? But I mean, the ultimate thing for you is getting to– You had this situation happen with your father, unfortunately, and then here it is, you grow the family business. That is a great way to honor your family and your father. So that's super impressive.
Randy Blount: Yeah, I also think like I've told this other team member at BuildWitt who lost their father, growing the business was definitely a part of it, but then also just one of the things I try and do, and my dad had a really big heart. He was the quintessential earth work guy, bigger guy, big beard, but just had a big heart. And so I was telling him, I always try and honor his legacy when I can by just being kind when I can to whoever possible and growing the business was definitely a way to honor his legacy but the actions as human beings, I think, sometimes speaks louder.
Taylor White: Yeah, 100%. Where did this love for the growing the business? I mean, obviously, you kind of just were in a roundabout way saying that but like you went to school, what did you take in school?
Randy Blount: So my degree's in, it's funny, the program I was in, it changed while I was there. So I have a Business Administration/Agribusiness Finance.
Taylor White: Okay, interesting.
Randy Blount: I've always enjoyed business and I've always enjoyed numbers. It's kind of the way I think and so it was really fun to go do that. And I thought I was going to be a commodity trader, is kind of what I thought. I did some trading strategies in some of my upper level college classes and I thought it was really fun. And then ultimately, in some ways, bidding and doing earth work is similar to trading in the stock market. It's like understanding risk, pricing the risk accordingly, sometimes it's having the confidence to hold your position when maybe everyone else around you is not.
Taylor White: Oh, yeah, the weighing out the risk is very– My father-in-law, he's a private wealth investor. So I always joke and say he's a professional gambler. But you know it's almost like the same here with my estimator. We're pricing a big project right now. And it's just like, there is so much risk and so much weighs on an estimator at a company. Because ultimately the company's trajectory or how well they do or not always is in their hands with the pricing, obviously, it goes down to the super and everyone else to execute the job accordingly. But it's a big role. How long were you an estimator? Were you actively always an estimator? I know you started probably as an operator and then worked your way up. But the estimating part of it, was that something that you kind of always had a hand in? Because where we are in our business, I feel like you still never lose that kind of, “Okay. Well, let's see the numbers. Let's see where we're landing on this. Let's all review this project.”
Randy Blount: Yeah. So my dad, he's a big believer in, if you're going to run a company, you should do everything at the company. And so like, if we took on a new scope, even up until the time we were acquired, if we started to do something new, I would make sure I'd go spend some days in the field with the guys who were doing the work to make sure I really understood what it's like to break bags of grout into a hopper for the soil-nail walls, or what. It's like to be at the end of the hose when you're doing shot, create, or laying pipe. So yeah, I've done it all. I did spend a lot of time as an estimator. especially like even as an executive, we had a bid review process. So, I was reviewing every estimate with the team up until the time I decided to resign from WW Clyde. And so. I think you never really get away from it. Even some of our parent companies, presidents of most of our subsidiaries at that really large company, we're also involved in the bid review process. And I think it's because it doesn't matter how good your operational team is if you get a bad estimate, like it is really, really hard to overcome a bad estimate. Now, you can be super innovative and you can make a job more profitable or you can overcome some mistakes in an estimate, but you make a mistake that's a couple million dollars on a $10 million to $12 million job, you're probably not making that up.
Taylor White: No.
Randy Blount: So I think you kind of always are involved in the estimating process and some of that's just experience. Towards the end of that, my run there at Blunt, I started going back to see all the projects that I had been involved in. And like the last I counted it was like over 500 projects ranging from a few thousand dollars to like $20 million. Right at the end we got a $100 million project as I was leaving. We did it for about a year. So, 550 plus projects from $10,000 contract value up to a $100 million plus and that's hard to replace. So I think that's part of the reason that you're always involved is you're sharing the experience that you've gained over years.
Taylor White: I would totally agree with that. And the one thing that, like why I ask that question is just because I find that it's hard sometimes letting the control go. And I feel like cause you always being more profitable is the main thing right now for us anyways. The past three, four weeks of my life, has basically just been diving into, and I'm not a financial guy. The guys in the office joke, I'm a psych guy. I had the privilege of– I'm third generation business, took it from a six to seven figure business, and I've been fortunate enough to hire people in positions that where I'm dumb. Because I'm the first person to understand and realize, “Hey this isn't good. I'm not good at this. There's somebody who's better than me at this.” For me, it's just been kind of trying to figure out because right now I feel like we're missing the CFO or a controller or like somebody who's a CPA like a registered accountant.
I just don't know because the business the financials have outgrown myself and my father. And it's just like, what is our next step? Because I'm trying to figure out how we're going to be more profitable and how we're going to do things. So we're at this big turning point. That's why I was so excited to talk with you today because like myself alone, and I know that a lot of other people can relate to this, I'm at this point now where it's like, “Okay, trying to figure out our true cost overhead. What's our overhead? You know, we spent the last three years buying a crap ton of machinery. Now we're in a brand new office. We got this mortgage for an office. We need more work to feed the beast. You know, what percentage is our overhead? So am I splitting overhead into administrative and operational, so fixed and variable, and I'm going down. And like, right now, I just feel like my head's going to explode with all these numbers because I'm at this turning point of like, “Okay, we need to be more profitable.” Because you could brag all day and say, “We do $9 million a year.” Well, that's great. How profitable are you off that $9 million, though?
So that's what I'm trying to figure out right now. So can you tell that I'm a little above my head right now?
Randy Blount: I don't know about that. I think you're like many in the industry. We actually have talked a lot about– We have a training program at BuildWitt that we offer, but we've talked about potentially putting together a webinar series because there are so many people who love the dirt world, love what they do, but there comes a time where you kind of move into these uncharted territories where you have to operate it differently. Job costing becomes really important and the ability to job cost your equipment, each project, and the importance of phase codes and understanding what is GNA or real overhead, what's indirect cost and how do you make sure your indirect costs get to your job and what's the right process for that. Projections is what gets people caught up a lot. The way projections work is based off the cost that you incurred in that month and the profitability you should have in all your projects. Each month you really need to be doing a work in progress or an over and under calculation. And nobody really talks about this or really prepares somebody for this, but it's one of the traps that really catches construction workers or construction companies. So imagine I had a $500,000 bill month and...
Taylor White: So your receivables are $500,000. Okay.
Randy Blount: Yep, I built $500,000 for the month. But I only had $140,000 in cost. But the cost of doing the work was more like $400,000. But I had an asphalt bill that didn't hit in that month. I had a concrete bill that didn't happen that month. Maybe I forgot to put my depreciation in or something. So I only had $140,000 in costs. So you pull a profit and loss statement and you're like, I made $360,000 last month. And you start making decisions of how you're going to deploy that $360,000 in the business, buying new assets, maybe giving bonuses. The next month, you bill another $500,000, so you have another killer month, but this month all of those $360,000 in costs that didn't hit last month hit plus the regular $400,000 in cost. And now all of a sudden, you have $400,000 in cost from this month and the $360,000 in cost from the previous month that didn't hit. And turns out you lost $260,000.
Taylor White: Now your book for that month's showing that you lost $260,000.
Randy Blount: And you've spent the cash potentially because you thought you made so much. And so that process of projections, projecting what the costs to complete the project are and then doing what they call an over and under adjustment becomes a really key component to making sure you know really how profitable the business is.
Taylor White: Okay, I understand. I have been doing that. So recently what I've been diving into– So for the past week, what I did is I opened an Excel spreadsheet and I've been trying to figure out exactly how much my triaxle truck cost me to drive down the road per hour. How much my tandem, how much my other truck, specific to each driver and their pay wage driving my 325 excavator, my 336, my roller, my skid steers, figuring out the true cost of what it takes to actually make that machine go based on there's this many working hours that it's probably going to do in the month based on this. So that was kind of the first step. Then the second thing was figuring out, what's our account payables at? What's our receivables at? Okay, how much more work do we plan on doing the rest of the month? And then what are my costs to doing that work? And then adding all that up and then at the end kind of trying to see what's left. But I think where I'm at is sometimes I just, I'm getting all this information, but my big thing is I need to be incorporating my true overhead cost. How do you find out your overhead cost? Because it's all your numbers that don't change based on operation, correct?
Randy Blount: Yeah, so overhead cost is a broad term and it can be made up of kind of two categories. It can be made up of what they call SG&A, sales, general and administrative, and indirect costs. And the reason that it's important to recognize the two is because SG&A from GAAP, Generally Accepted Accounting Principles, should never be charged to a job. They should show up after gross profit. So it's kind of a below the job level line. Whereas indirect expenses can be charged to a job. And so you might be asking like, well what's the difference between an indirect and an overhead expense? It's like stuff that you know is maybe hard to cost to a job. but is specifically being bought for a job. So it's some companies that might be like, hey, I have a surveyor on staff, or I have a guy who builds models and he goes out and visits sites, but it's hard to track exactly where his hours go. Or I have a PM who's managing all of my projects and how do I put his hours right. So those would be indirect costs.
So you would go and say, “Okay, what are all the things that if I didn't have a project, I wouldn't need?” So, if I didn't have any work, I probably wouldn't need this estimator or this surveyor, I probably wouldn't need a project manager. So those are indirect costs, the costs of doing the work. Then you have like your overhead, which you can often make the same argument for, but your overhead would be like administrative staff. So people who are at the front desk. People who might be a controller or somebody who's doing finance functions. It also could be like your insurance.
Taylor White: Yeah, I have that in there too, my
Randy Blount: You have all these insurance costs. I want to put those in my overhead. Some would argue. Your insurance costs, a good portion of them are workers' compensation, and should be built into the wage of the employee in charge to your clients. And I'm in that boat.
Taylor White: I think P&L breaks it up too. It breaks up the insurance, like within the insurance line item, it actually breaks it up.
Randy Blount: Yeah. So the best way in my opinion to figure out your overhead cost is to go through and kind of go through like everything that's a cost that you know is not part of the job and work through all of that and get a number. And so like, “Okay, that number is based off of this much revenue.” So, our office staff and all of the overhead and indirect will be this much for 2024. And in 2024, our goal is to do this much in revenue. And what you'll then be able to do is create a percentage.
Taylor White: Divide that number into your gross revenue.
Randy Blount: Yep, and I have a percentage. And then when you're estimating projects–
Taylor White: What should that be? Sorry.
Randy Blount: You're good. So one thing that I think is really cool is, this is a plug for CFMA, Construction Financial Management Association, they post key metrics. And so they actually have metrics around, what should that be? It obviously varies by region. It varies by company size. It varies by specific scope, but I would say overhead, not indirect.
Taylor White: True overhead.
Randy Blount: Should be between 5% and 10%.
Taylor White: What do you do if you're way more than that right now?
Randy Blount: My guess is you have a lot that's indirect that you're calling overhead. And the reason that you want to get indirect to the job is you don't want everyone to have a false sense of profitability on a project. So like I'll hear stuff like, “Oh man, my overhead's 18%. And I'll say, “Well, what's your gross profit margin?” Like it's around 34% or something. Like, “Okay. Well, you're not 34% gross profit and you're also not 18% overhead.” Like you probably have 10% that you think's overhead that's really supposed to be at the job level and so your gross profit would be closer to that 24% number and then when you apply your 8% overhead, now you're at a more realistic percentage for profit.
Taylor White: Yeah, for true net profit.
Randy Blount: For net profit, yep, net income. So true overhead, I would say between 5% and 10%is a good target for most site development contractors.
Taylor White: But that metric like, I, trust me, I've been diving into this. I am higher than that.
Randy Blount: You probably also include indirect expenses in that is my guess.
Taylor White: I don't know if is this a direct cost to if we have more work, we don't, but I think, but the number changes.
Randy Blount: Like an example of this is like mechanics. Mechanics end up in overhead a lot in companies. But in my opinion and in most large companies, the mechanic is built into your equipment costs. The cost of them is in the equipment costs which gets charged to the job. And then like depreciation, sometimes depreciation will be seen, as a G&A expense, but you can make sure that your equipment rates include that depreciation cost so that your jobs are paying for it and then there's a contract out.
Taylor White: Because I do have my depreciation in my administrative.
Randy Blount: You should.
Taylor White: I should, okay.
Randy Blount: You should, but it can be offset by revenue, equipment revenue. Well, you're small enough to say that you probably don't have an equipment department on your balance sheet or on your income statement and probably don't have enough equipment financial, but at some point you'll grow into the point where you want an equipment financial and you'll see revenue and you'll see all those costs so you can say, is my equipment being profitable or am I losing or making money on it?
Taylor White: That's interesting. A question. So my mortgage for my office, administrative. Property taxes, administrative. Insurance for my business, for all my machinery and my and everything, my blanket insurance, administrative.
Randy Blount: You could make an argument that's indirect. And the reason being is it's for equipment, right? And equipment's being charged to the job.
Taylor White: Yeah, shit, I didn't think of that.
Randy Blount: So what some people would do is when they figured out their equipment rates and they were charging the equipment to the job, they would include the insurance costs there. And then on your profit and loss, your chart of accounts, you might have a section that, I have no idea what your chart of accounts looks like. But say you have like a 5000 series of account codes that's that's not being used or 4000 that's not being used.
Taylor White: Yes, we do.
Randy Blount: You may set up a set of those series that's like for equipment specifically. So like, anything that shows up in this 4000 series is going to be for equipment. So I'm going to have equipment, I'm going to have tires, I'm going to have all these different costs, and they can go strictly there, and then that can be then charged to the projects. The more complicated construction software has a whole fixed asset program. So like when your time card comes in, your people are being charged to the job and then the equipment's being charged to the job with the same rate. And then all the costs are being charged to the equipment. So that's a good example of something that equipment, insurance, you know, inland marine, general liability, all these things that you have on your equipment could be going to the job.
Taylor White: And then this is my last thing because I love– This is so awesome for me to hear. So then payments on machinery, is that an administrative overhead or is that, should that be in my indirect?
Randy Blount: Well, so technically it should be in nowhere. And the reason being is your depreciation should be the cost.
Taylor White: Because the jobs are paying for the machine.
Randy Blount: So a payment is like a balance sheet item. You buy it and you have a note and the note sits there and as you pay it, you're paying back the note and an interest expense. So the interest expense could be G&A and the depreciation that you're paying could be G&A, but the full payment itself should not be. So only the insurance portion and the depreciation. And depreciation is interesting because so often, when it comes to depreciation, especially in recent years with Section 179 in the U.S., people take advantage of depreciating an asset out quicker to reduce their tax liability. You have book depreciation and you have tax depreciation, and they can be different. Generally speaking, when you're running a business, construction business, you want to have a booked appreciation. You don't want to have your taxed appreciation be what hits your financial statement. What I mean by that is, if you maybe said like, “Hey, we made $300,000 this year, but we wiped out all of our profitability through additional depreciation.” Well, now that depreciation is no longer on your income statement.
So next year, you have no depreciation to take because you don't buy any new assets. So what will happen is your income statement, you'll be like zero profitability, really profitable. Zero profitability, really profitable. And it has these big swings. So obviously I'm not a CPA and I have to have that as a caveat. Talk to your CPA though, because there's wisdom in setting up a depreciation that falls in line with GAAP. So, you know, straight line depreciation. Five to seven years is like pretty good term range for a lot of equipment. And using that for your books, if you want to do stuff for tax purposes, that can be kind of separate, and you can work with your CPA on it to keep those separate so that, I call it managerial accounting. Like the whole idea behind what all the financial professionals are supposed to be doing for a construction company is helping you understand how to manage your business. So what is my revenue, what is my cost? And your depreciation of a piece of equipment in real managerial terms doesn't do this, right? It doesn't go up and down, up and down. That's taking advantage of a tax code.
Taylor White: How do you know all these? Like do you love this sort of stuff?
Randy Blount: I think if you asked me at BuildWitt because I came in to help out from a CFO standpoint, I think they'd probably all tell you like, it's just the way I think. Like I get it. It's just like a God given talent and it's just how I think. And I think because of it, I enjoy it. And so I wish I could say like I did something spectacular to have this, but it's mostly like I enjoy it. I love to read. And so I read a ton and I try and stay up on this. The thing that's crazy is it's always changing. So a few years ago you could do what they call a 1031 exchange on equipment, similar to like the real estate exchange. And I think a year or two ago we traded in equipment and it was post acquisition and they're like, “Yeah, you're going to have this taxable gain on the sale of the equipment.” I'm like, “No, just do a 1031 exchange.” You're like, “No, that expired with some of the Trump tax changes.” And so it is hard to stay up on. So a good tax professional, good CPA is always a good friend to have.
Taylor White: Yeah, I totally agree. And I think that I'm at the point where I don't maybe not necessarily need the overhead of paying for an in-house CPA, but definitely somebody, a controller or somebody so I can focus on the stuff that I know that I'm more useful at. I mean, this stuff is useful because now we're understanding our true cost of machinery and learning. Okay, is it making sense when we talked about we needed an extra skid steer this summer? Do we buy one or are we just going to rent one for the summertime? Because we're talking about at our peak when we're running super, super hot and things are great, but hey, now we're in December, and guess what? I don't need a third skid steer. I don't need three of them right now.
Randy Blount: So can you picture a bell curve, right? It kind of flat, comes up high, and it kind of–
Taylor White: Everyone always buys up here.
Randy Blount: Yes.
Taylor White: Yeah, I'm trying not to do that now.
Randy Blount: So having like a 70%, maybe 70% is a fairly good target. Like, hey, I'm going to own 70% of my equipment and I'm going to rent the other 30%. It's probably not a bad target. Each industry and each business is going to vary a little bit, but it's probably not a bad target. One other thing I would say is one of the things that I think was a really interesting and probably business changing metric was revenue per employee. And when I first heard it, I'm like, that is stupid. Like, I could have a ton of material on a job or a lot of subcontractors, that's kind of a silly metric. But over about four years, we actually came to like really love this metric of revenue per employee. Once again, it changes based off the size and type of work that you're doing. So it can beas low as like as $15,000 in revenue per employee per month. We were trying to do over $40,000 in revenue per employee per month towards the end. CFMA has quite a bit of data on this, different company sizes, I would say somewhere around that $30,000 in revenue per employee per month is a pretty good number, or if it's easier to think of $360,000 per year.
Taylor White: You're talking per month. Because I've heard this metric before and people have said, and we're Canadian, $250,000. I mean, this was five years ago that I heard this for the first time. And okay, so when you say $30,000 you're talking monthly. So about $360,000 yearly.
Randy Blount: Yeah, the reason I'm breaking into monthly is I want you to think through how this could help you managing the business. So as you win projects and you start kind of estimating your billings, you're looking out in a goal, you're looking out two, three, four. We try to have four months of projections of our billings for the next four months. Obviously, the smaller you are, the smaller your projects, the harder that is to do. But we try to project like, “Oh, hey, we're going to be billing this much for the next four months.” Then imagine if I said, ‘Hey, on average, we want to be billing $30,000 per employee per month.” And in two months from now, I know that my revenue is going to go from $2 million to $3 million. I'm going to increase my revenue by a million dollars a month. I can now take that $30,000 number and say, a million dollars divided by $30,000, I need about 30 more employees in two months. And now all of a sudden you have time to react instead of that phone call from everybody, like, “Hey, I need five people, I need six people, I need three people.” And it starts letting you like pre-plan, look forward.
We also did a five-year plan for our growth. And five-year plans are really like a plan, you know? Who knows if it actually will happen. But it's helped us put into perspective like, “Hey, we want to grow this much over five years.” For us to do that. we would use that revenue per employee, and we'd say like, “Okay, we need this many people this year, this many people that year.” On average, how many people do we need to be hiring per month? And we're able to start putting together, you know, metrics that would allow us to know, are we on track as managers? Are we moving in the right direction to hit these goals? Instead of, “Hey, I want to do $10 million in revenue next year, but not putting into context a lot, like how many people does that mean we need, and how many pieces of equipment do we need, and all of those types of things.
Taylor White: Now, when you're saying figuring out cost per employee, does office staff come into that?
Randy Blount: That's full-time employees. There's two metrics. Some people will do salary versus hourly. I prefer to use everybody. And the reason I prefer to do everybody is I want to know what the total employee count is. And then we also had an idea based off of revenue size. Like, hey, for us, an estimator needed to be responsible for between $20 million and $30 million in revenue. And our estimator would have a full-time takeoff technician. So like they weren't doing takeoffs. They had somebody that was doing take-offs for them
Taylor White: Well, I think you need to at that size.
Randy Blount: Yeah. Well, the thing is you alluded to this at the beginning, which is, hey we're growing, we went from this size to this size, and now I'm trying to figure out how do we keep the work in front of us. Like, the bigger the machine, the hungrier it is. So we were doing $4 million in revenue when I kind of got brought in to start taking over when my dad was sick. when I left, we were billing between $6 million and $9 million a month. And so all it does is like what we needed in a year to feed, we had to have every month. And so just everything becomes more. You have to estimate more projects because good estimates is important, but I think the number of estimates is probably just as important. You have to get enough estimates out there because if you put together a good estimate, you're just not going to win probably more than like 30% of the time. I'm sure someone will listen to this and argue with me on that, but I think somewhere around a third of the time, if you're winning that many estimates, you're doing really good. And I wouldn't even be concerned if you were winning like 15% of your estimates. Anywhere in that range, I feel like you're in a pretty good spot. You'll definitely have times where you know, maybe you'll win quite a few and then maybe you'll lose quite a few in a row. So if you look at any given month that number might be skewed, but you shouldn't be winning 50% or more of your bids.
Taylor White: Or else you need to raise your prices. It's weird because like you're saying, I kind of alluded to now we have this big hungry machine that needs to be fed. And it's difficult. And I'm not saying I'm not playing a victim like, oh, this is poor me. But it's difficult here in Canada because come right now to about May, which is a long time, the work really slows up and everybody else who has this big machine to feed, their margins start getting lower, lower on the jobs and then you get your bid results back and you're like, “Okay. Well, that's almost cost.” Because everyone just wants to keep rolling. Everyone just wants to keep stuff going. So it's like this fine line of like, “Okay, we need to grow but you need to ensure that you have that constant feed of connections or a network of people that can feed you that work and you can estimate it and win it, and then execute it.” It's like this crazy cycle that I just stay asleep at night looking at the ceiling. It's like, “Ooh boy, let's go.”
Randy Blount: You're not alone in that. One thing that we did, and we were successful in it, and maybe it can be replicated, maybe not, I don't know. But because I guess the more people that think this way, the harder it would be to replicate. But we felt really strongly that we were going to win our work after everybody else got full. Like everyone has a construction season, even in Arizona, believe it or not, we get busier in the summer. It just is.
Taylor White: Really?
Randy Blount: Yeah, which sucks because it's freaking hot outside. But I'd say even in Arizona, June to September, October are busy, the busiest. Our biggest billing month is usually October. is the biggest billing month
Taylor White: Wow.
Randy Blount: There's probably a lot of reasons why. So what we would do is early in the season, like January through March, April, we wouldn't win as much. And it was mostly because like we knew we wanted our margin. And the first year we did this it was really scary because that means you don't have as much revenue, right? But then as we moved into the summer, we said, “All right, everyone else is getting full. Let's just keep our margin where we want it to be and let's go win all this work.” So we tried to make 12% net.
Taylor White: After, all said and done.
Randy Blount: Yeah. Our overhead was between 8% and 9.5%. Like all in we were like 9.3% is what we thought. So we're bidding around 21% markup, trying to push 12% to 13% before tax, so earnings before tax. We would just basically say like, “Hey, in the summertime, a lot of people, they start adding like, ‘Oh, we're busy, let's add a few points to this.’” We just said, “Well, what if we just keep our margin where we want all through the summer and even when we're slow? And what if we start winning 50% of our work at a greater margin than we would if we got it in the winter?” And then we won what we normally would in the summer anyways. And I think something as simple as that ended up adding up to a fair amount of additional profit. And it took us several years to get to where we could do that. So don't listen to this podcast and be like, “Hey, I'm going to just raise my price and I'm not going to win any work in the spring.” I'm not saying that–
Taylor White: That's not an option. We need the capital.
Randy Blount: But remember, if you win work at low margin, now your assets and your resources are tied up on that low margin work and you're going to miss out on higher margin work. So be careful about taking low margin work.
Taylor White: Yeah, it's such a fine thread because we're at the point, I'm third generation business and people are always, I think from the outside, maybe looking in, it's like, oh, yeah, they got nothing to worry about. There's probably a honey pot somewhere, but it's the case. And it's scary because yeah, if there ended up never being any work or come and knocking on the doors and we're closing up shop. Because when you're growing, it requires so much capital and construction to grow. It's so overhead orientated. So it's kind of like you need so much money to grow in my opinion, in construction. And it's tough because then you look at it, it's like, if you don't get work for two or three months, everything's kind of depleted and then like, okay, what are you going to do? So it's just this constant grind of like, yes, we need higher margins and I would love to do that. But at the same time, what better? Zero revenue or? You know what I mean?
Randy Blount: No, it's really difficult. It's as much art as it is science. So you use the metrics and the numbers to try and inform making good business decisions, but there comes a fair amount that comes down to like, hey, it's gut and it's experience that gets you the rest of the way there. I just say like, in general, no, when I take low margin work, it's going to use resources. If you look and say I don't have any other opportunities out there to put those resources on, then it probably makes sense to take that work. But if it's in April and you're like, “Hey, I'm going to take this three month long project, it's super low margin, but I'm kind of slow right now, I need to take it.” Well now, in May and June, when the better opportunities come, your resources are tied up and you can’t get to it. So that's where it’s like. Use the numbers, but then also weigh some of that experience and say like, “Okay, I know that's a three month project. What if I pass on this one? Is there any other opportunities out there that are maybe a three or six week project that doesn't get me locked into that low margin work when I know the chances of me getting better margin work are a lot higher?”
Taylor White: Yeah, you gave me a lot to think about here. You understand and that's what I like is because I can talk to an accountant sometimes and it's like, well, they've never owned a construction business or ran a construction business, although they know the laws and taxes and stuff. To actually talk to somebody that understands this kind of language, but also owned and ran a construction business, I think it's two different conversations because it's like, no, I get it. Like what I'm saying is ideal, but this is kind of where we have to fall to make it work.
Randy Blount: Yeah. Exactly. And I think that's one thing that's really cool about what we call the dirt world. So mining, construction, infrastructure in general. I think there's a lot of people out there who are willing to help. And yeah, my wife was sick for the last week and we were in the hospital and even that, like the number of people who reached out who were wanting to help. So, hopefully if people are listening to this podcast and they feel like they, they need help, like, know, I'm randy@buildwitt.com. Shoot me questions. We do have a consulting service where we'll consult, but mostly just like if you need a quick response to an email or want a quick phone call, we jump on all the time to try and help out because we've been there. We know what it's like to not know how you're going to make payroll this week because you had to pay for fuel and somebody hasn't paid you and your fuel bill was $80,000. That sucks.
Taylor White: Yeah, I can relate very well to that.
Randy Blount: I'll tell you this. It's a long game, but taking care of the business and making sure the business is taken care of often means that the owners have to have delayed gratification. I never owned a boat, and I'm not saying that you can't. I'm just saying I never owned a boat, I never owned an RV because at the time the business was growing, and so all the capital ended up being in the business. But as we learned metrics, we realized about how much cash we needed in the business. And so we worked really hard to get to a level where we had millions of cash in the business. So near the end of my stay there, we had a $3 million plus balance in the business at all times.
Taylor White: Geez.
Randy Blount: And it got really big at times. But because we were good about taking care of the business for a decade, we started to learn what we needed to do and then we started doing it for a decade. Then it got to a point where I was able to take massive draws out of the business because the cash got to where the business was taken care of. So my saying is take care of the business and the business will take care of you. So often we try and take care of ourselves and we're surprised when the business doesn't last. So if you put the business first, and when I say stuff like this, it's a generalization. So nobody think I'm saying like, “Hey, your mental health is worth less than taking care of the business.” That's not the case, clearly. But that delayed gratification financially to make sure the business is good is going to pay huge dividends in returns. I made a lot of money owning that business and then selling that business that I never had I been worried about how much money can I take out of the business.
Taylor White: That's awesome.
Randy Blount: That's my soapbox I guess.
Taylor White: They do that. I love it. That's kind of like this just the stuff that you need to hear. And I know that I feel like this was like an hour long consulting fee I did not have to pay for to Randy. But I know deep down that there's so many other people that listen to this podcast that are in the exact same boat or going to be in the exact same boat going to find somebody's asking and being open and talking and asking about this stuff because t's hard to find this information online because when you Google what should be in my overhead for a construction company, it's so hard to find an answer because it's all like, well, if you want a brick and mortar retail store and you buy your clothes, and I'm like, I don't have a brick and mortar store that owns clothes. I have a construction company with fuel costs and a building and payments and like so many different variables.
Randy Blount: I think the biggest thing is if they have those questions, reach out. If we can't answer them, we can point them in the direction of some webinar series or consulting. Nobody needs to be alone in trying to figure out how to go manage this. The way we change the dirt world really, at BuildWitt we're all about training and development and telling the story of the dirt world. And we see kind of all that as one mission of making this an industry where people want to be. Believe it or not, making and helping the businesses become more profitable is a big part of that. Like if you want to be able to invest in a training program and you want to be able to invest in all this, like we can't have businesses that are operating ar 2% margin. It makes it really hard to invest in competitive benefits and competitive training programs and that kind of stuff. This is the kind of stuff that although we are seen as maybe a marketing company or a marketing and software company, our care for the dirt world really is how do we make the people in the dirt world succeed, whether that's business owners or that's somebody who's entering the industry new and wants to grow into becoming an operator or a foreman or a project manager, etc.
Taylor White: I cannot wait for everyone on my team to even listen to this podcast. So thank you for coming on today, Randy. I really appreciate it.
Randy Blount: No problem.
Taylor White: This has been a podcast brought to you by our good friends over at Komatsu. We will catch you guys on the next one. Make sure to subscribe, like the podcast, whatever you got to do and catch on the next one. Take care. See you, Randy.
Randy Blount: Thanks guys.
