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Why You Should Pay Yourself a Market-Based Salary!

3 Good Reasons You Should Pay Yourself a Market-Based Salary!

What Is a Market-Based Salary?

Often, I’m asked by our clients, “How much should I, as the owner of my company, be making?”  What a great question! After all, as owners of restoration businesses, they’ve probably worked tirelessly day and night for that paycheck! But how much is too much, and how much is too little for all that hard work?

In my previous article, “Are You Making Money?” I mentioned that business owners should be making a market-based salary. A market-based salary is a method of compensation determined by using market pay data of comparable positions and functions. A good distinction to make early on is that a market-based salary is not the same as taking distributions. Distributions are a reward for running your business effectively and making your company profitable. Your market-based salary is what you get paid for doing your job.

Why Should You Pay Yourself a Market-Based Salary?

There are three big reasons as to why you should pay yourself a salary instead of just drawing your paycheck from your presumed profit. If you’re not paying yourself on a market-based salary, you’re:

  1. Not putting enough money into your Social Security. This can rob you of money you’ve earned for retirement.
  2. Distorting your financials, and consequently, they’re lying to you. This is because you’re not properly stating your profit before taxes.
  3. In risk of an IRS audit. Nobody wants this, including your employees.

Bonus- your employees are watching what you do in your business. If they know you’re taking a fair salary (like them) and not constantly paying yourself out of the company’s profit, your employees will be more engaged, happy, and productive.

How Much Should a Small Business Owner Be Paid?

Think of it like this: “If I were hired by someone else to do the job I’m doing right now, how much would my salary be?”

If you find that question difficult to answer and you’re wearing multiple hats in your business, make a list of your top responsibilities. How much would it cost you to outsource each of those responsibilities? Combining all of the wages that you would pay to outsource those responsibilities will give you your market-based salary.

You can find hourly and yearly market pay data specific to owners (as well as employees) of construction, restoration, and remediation businesses through these websites:

  1. Glassdoor.com
  2. Salary.com
  3. Payscale.com
  4. SBA has good resources as well- https://www.bls.gov/data/#employment

So what’s your salt’s worth? To help you get to the next level of profitability for your business (and yourself), Business Development Associates (BDA) is offering you a FREE Gift in the form of a Profitability Assessment that is a value of $997. Contact us by email to schedule an initial discovery call to discuss your profitability.

At BDA, we believe that every restoration business owner has the right to expect that their company can deliver to them what they want out of life- freedom and the ability to create wealth.

May the Profit Be With You!

John Capponi, CR
Operations and Management Consultant  |  Business Development Associates, Inc.
john@gobda.com |  Cell: 407-745-7698

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Outstanding Weather Tracking Website & App

In honor of Hurricane Florence and now Michael let’s talk weather tracking.

Windy (Windy.com) is a fantastic tool for weather forecast visualization. This fast, intuitive, detailed and most accurate weather app is trusted by professional pilots, paragliders, skydivers, kiters, surfers, boaters, fishermen, storm chasers and weather geeks, and even by governments, army staffs and rescue teams.

Windy.com has a ton of data that you can interact with in lots of ways and the app let’s you utilize the service on mobile devices. You can even embed the feature into your website.

In addition, there is a Windy Facebook page (https://www.facebook.com/windyforecast/) an interactive blog and much more.

Have fun!

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“Are You Making Money?”


What is a Good Profit Margin?

As a veteran coach/consultant for small business owners, I am often asked for a guideline on how much money a successful restoration and reconstruction company should be making. The answer is always the same because there is no set amount of money that makes you a successful business owner or your company a successful business. It all depends on how much money your company requires to complete restoration jobs, pay your bills, pay your employees, and pay yourself for the work you do in your company.

A simple answer is your company should be making a minimum of 8% net profit before taxes after paying all cost of goods sold, sales/general/administrative expenses, employees’ salaries, and a market base salary for you the business owner. Profit is what is left over after all the bills have been paid.

It is important to understand that profit and the owner’s salary are two different items. This salary is for what you do in the company and profit is the reward for you running an effective and profitable company.

Is your business considered sick, healthy, or robust? To answer this question here is some basic data you need to consider about your company’s profitability- when your business net profit before taxes is hovering around:
• 5% the business is sick and on life support;
• 10% it is healthy and on an upward trajectory to provide rewards to both business owner and the key employees;
• 15% it is a robust company and prepared to sustain growth and take advantage of opportunities.

Which one is your company? To help you determine the profitability position of your company Business Development Associates (BDA) is offering you a FREE Gift in the form of a Profitability Assessment that is a value of $997. Contact me by email to schedule an initial discovery call to discuss your profitability.

At BDA, we believe that every restoration business owner has the right to expect that their company can deliver to them what they want out of life- freedom and the ability to create wealth.

May the Profit Be With You!

John Capponi, CR
Operations and Management Consultant | Business Development Associates, Inc.
john@gobda.com  |  Cell: 407-745-7698

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One Sales Success Formula

While there are some overnight sales (and business) successes, when you dig a little deeper you find that those overnight successes were more likely 20 years in the making.

And that tells us something important.

One formula for sales success is doing the right things (proper marketing strategy and sales process delivered by the right salespeople) over an extended period of time during which the message (and the service/product) is refined, tweaked and perfected.

And voilà! After months or years or decades—the breakthrough! The “overnight” success!

So, if this is the case, tremendous effort over lengthy periods of time with delayed gratification are going to be required. So how do we “stay the course” as we invest in our future success?

Now, I’m not a particularly religious guy but one client shared a Bible passage with me that I think of as words to live by for people of any faith. Here goes:

“Do not be anxious about anything, but in every situation, by prayer and petition, with thanksgiving, present your requests to God. And the peace of God, which transcends all understanding, will guard your hearts and your minds in Christ Jesus.” Philippians 4:6-7

We have to do the footwork but God will handle the heavy lifting (if we let Him!)

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Is Your Business Stuck In The Black Hole?

Navigating the Black Hole in Your Business

Many restoration and reconstruction companies get stuck at certain revenue levels and seem not capable of getting beyond these points. I have witnessed this situation many times as a consultant and coach to the restoration industry over the last four decades.

All businesses go through predictable stall points- what we call “black holes” and some businesses can disappear into them for many years.

According to Greg Crabtree, author of the book Simple Numbers, Straight Talk, Big Profits, the “The Black Hole” for small businesses is between $1 million and $5 million in annual revenue. Greg says that “this is the time in your business growth when you are forced to add employees and infrastructure before you can really afford to. Even if you try to add it as late as possible and maybe even pay for only part-time help, at the end of the day you are going to drive profitability down and risk destroying your business.’

Most black holes are due to insufficiencies in the company’s underlying organizational structure and its resources such as:

  • Not having the right people doing the right things.
  • Lack of effective systems and processes.
  • No formal organizational structure.
  • Inadequate operating capital.
  • Lack of a Strategic Plan.

Do not fall into the “black hole” of letting your company’s revenue growth outpace your internal infrastructure. This typically happens when a company is making revenues between $1 to $5 million in annual revenue because at this phase of the growth cycle a business may need more management staff, production workers, vehicles, equipment, office/warehouse space, and financial resources before it can afford to build the infrastructure.

One key action you can immediately implement is to set aside core capital reserves of 2-5% of your collected revenue and make a transfer of funds to a separate bank account on the 10th and 25th of each month. You will be pleasantly surprised as the money builds up in this account. This will be a great head start to help you on your journey.

To get through the challenges of the black hole here are 6 business building blocks that you can begin to design, build, and implement in your company immediately.

  1. Company Vision, Mission, and Core Values
  2. Financial Rhythm
  3. Organizational Structure
  4. Leadership and Management Teams
  5. Employee Recruiting, Retaining, and Training Programs
  6. Meeting Rhythm

Contact me to discuss your business and how you can avoid being sucked in by the black hole. I will be happy to give you a FREE GIFT of a Business Profit Assessment valued at $997.

At BDA, we believe that every restoration business owner has the right to expect that their company can deliver to them what they want out of life- freedom and the ability to create wealth.

May the Profits Be With You!

John Capponi, CR
Operations and Management Consultant
Business Development Associates, Inc.
john@gobda.com
Cell: 407-745-7698

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Prepping for Disaster: Is Florida Ground Zero?

BDA’s Operations and Management Consultant, John Capponi wrote an extremely well-received article that appeared in April’s issue of Restoration and Remediation. It asks the question whether Florida is the “Canary in the Coal Mine” in regards to the future of the restoration industry. We think this is a must read for anyone in the restoration business. Read the full article here: https://www.randrmagonline.com/articles/87886-prepping-for-disaster-is-florida-ground-zero

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The Three Types of Motivation and Why They’re Important

There are few other jobs that are as motivation dependent as sales. This is because salespeople face so much resistance and rejection and must have or develop resiliency and a set of habits or processes that carry them through the tough times.

One of the key responsibilities of sales management is to keep salespeople motivated. Some of that is by the quality of the inter-personal relationships they develop; some based on the Sales Manager’s understanding of the rep’s personal goals; some of it is based on leadership fundamentals.

But here’s the thing. Salespeople are motivated three ways. And if you try to motivate them based on the wrong approach your efforts are worse than wasted, they may amplify the negative motivation!

Sales Motivation now breaks down in the following way:

Extrinsic motivation is somewhat “old school” at this point. People with extrinsic motivation are motivated by commissions, money, cars, trips to Hawaii, materialistic things. This type of motivation fits the stereotypical salesperson of yesterday and some business owners think this is a requirement in their salespeople but the facts are that only about 25% of salespeople today are extrinsically motivated.

Intrinsically motivated salespeople are motivated by satisfaction, love of what they do, mastery, being part of something bigger than themselves. 47% of salespeople are intrinsically motivated but there’s an even more important stat I’ll share at the end.

13% of salespeople are altruistic (being of service to others) while the other 15% are a combination of these three.

It is very important for Sales Managers to understand the difference between the types of motivation so that they can provide the proper type of external motivation.  And to complicate matters further altruistically motivated people should not really be in sales.  Their most effective role would be in customer service.

Now, ready for the most important stat? Elite salespeople – the top 7% – are the most extrinsically motivated group while the largest percentage of altruistic salespeople – a whopping 35% – can be found in the bottom 10%.

So, when it comes to hiring or motivating existing salespeople, understanding what motivates them is crucially important!

To find out how to discover how your salespeople are motivated give me a call at 847-386-6556 or tim@gobda.com and I’ll schedule a free, no obligation consultation.

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Cash-Now You See it and Now You Don’t

Creating an Effective and Simple Purchasing Process

Cash management requires special attention by all your company staff, not just because cash is quite elusive, but also because a restoration company cannot operate without an adequate supply of cash on hand.

The use of an effective and simple purchase order system for cost control for purchasing materials and selecting subcontractors will help your company maintain healthy job profit margins and protect cash on hand.

These are some of the most common reasons why restorers do not use purchase orders:

  • Don’t want to take the time to get quotes or bids- just get the stuff done.
  • We get the bids from suppliers and subs, and that is enough.
  • Too much bother and paperwork.
  • Takes too long and prevents efficient operations.
  • Have worked for years on verbal agreements- no problems.
  • Employees will not buy in.

Purchase orders are considered the best accounting practice for managing the ordering of supplies, materials, and services. They allow you to specify, confirm, and track every detail of an order placed with a vendor or subcontractor. They are even more valuable since they enable restorers to never lose sight of committed costs from the beginning to the end of a job. An effective purchase order process provides such advantages as:

  • Guarding against overpaying or double-paying bills.
  • Ordering flexibility to avoid job delays.
  • Verifying delivery of materials and satisfactory completion of services.
  • Monitoring subcontractor payments and retainage.

Without an effective purchase order process in place to track job costs from start to finish, restorers run the risk of thinking a job is more profitable than it really is, overpaying suppliers, or simply running out of cash.

Use purchase orders to control costs in order to manage job profitability and cash flow, as well as to deliver the specifications outlined in the scope of work. Develop a Work Plan:

  • Identify Job Stages using the Xactimate® Estimate Categories.
  • Determine Job Stage resources- in-house labor or by subs.
  • Establish a Job Budget by Job Stage.
  • Create POs for each individual supplier, vendor, and subcontractor.
  • Monitor committed costs to actual costs- keep the job on budget.
  • Review all bills and credit card receipts for accuracy.
  • Confirm that all materials have been received and services completed.
  • Review the Job File to make sure that all bills have been accounted for.
  • Approve bill payments.
  • Pay bills within the approved payment dates.

A purchase order process allows you to keep track of all “committed” costs- essentially subcontractor payments and material purchases to effectively manage your jobs profitably and conserve cash. Give it a try and you will not regret that you did.

At BDA, we believe that every restoration business owner has the right to expect that their company can deliver to them what they want out of life- freedom and the ability to create wealth. Make it a prosperous month!  Stay tuned for next month’s article.

John Capponi, CR
Operations and Management Consultant
Business Development Associates, Inc.
john@gobda.com
Cell: 407-745-7698

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Sales is for Almost No One

I am fond of saying that, “Sales isn’t for everyone. In fact, it’s almost for no one”.

Statistics and hard won experience tell us that about 75% of people who are in a sales job ought to be doing something else. Simply put they suck at the job of selling. It’s not their fault! They just don’t have the make-up to be salespeople.

These folks shouldn’t feel bad. It’s a very small segment of the overall population that has what it takes to be successful in sales.

I also like to say that many salespeople go from failure to failure their entire careers.

Why?

Because the nature of our labor laws prevents the poor performer’s last boss from telling the prospective next boss the truth about this salesperson.

Perhaps even more insidious is that many so-called sales organizations do not have a step-by-step process that they can articulate to new a sales hire as to how to be successful in sales at their company!

This is a sad state of affairs for everyone involved.

To learn more about hiring great salespeople and providing them with a process to be successful at your company give me a call at 847-386-6556 or tim@gobda.com and I’ll schedule a free, no obligation consultation.

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How to Profitably Scale Your Business Using a Salary Cap

Integrating and Implementing a Salary Cap in Your Business

Sports fans understand the concept of a salary cap because most of the major professional sports leagues have some version of a salary cap. In business the term salary cap is used to define a determined payroll limit that restricts the amount of money to be spent on wages and salaries for a specific period of time. Some restoration business owners do not think about how their business could benefit from establishing a salary cap.

As a restoration business owner your single biggest expense is likely labor– the salary/wages that you pay to your employees (including yourself) and the money paid out to subcontractors or vendors for labor. If you want to impact your overall success and your profitability, then you need to start by looking at your labor productivity as the biggest component in your business.

In a growing business, labor costs can quickly balloon out of control. When small businesses are making the transition to medium-sized businesses it is possible to fall into a dangerous feedback loop of borrowing and spending. As you scale your business, your costs will grow, and it is tempting to see break-even (your previous measure of success) as sufficiently safe growth.

Greg Crabtree is the author of Simple Numbers, Straight Talk, Big Profits, and one of the great ideas in his book is the recommendation that every business should self-impose a salary cap just like the one that NFL teams deal with every year.

How to Calculate Your Salary Cap:

To keep the math easy we will use an example of a business that generates $1,000,000 in revenue. In this example the business owner has determined that they want a 10% pre-tax profit from the business after paying themselves a reasonable market wage.

The non-salary costs were calculated by adding up all the fixed costs like materials and subcontractors, and operating expenses like rent, utilities, insurance, communications, and advertising, etc.  This would also include the cost of goods (less labor and management labor) for $1,000,000 in revenue. In this example the non-salary costs are $400,000. As you can see, that means the salary cap is $500,000, which includes all labor costs.

A simple calculation can help you determine the total labor costs allowable with your current revenues.

Labor CAP Formula:

LC = (total revenue) – [(0.1 x total revenue)] – (non-labor costs)

($1,000,000) – [($100,000)] – ($400,000) = $500,000

Here is an example:

If the current payroll expense is more than $500,000 (and the other numbers are correct) then this business is not going to hit the profit target and the business is at risk. That gets us back to the labor productivity idea- the key is to generate $1M in revenue from that $500,000 of labor, and if you want to be more profitable than 10%, then you either need to cut your salary expenses without impacting your productivity (do more with less) or grow your revenue without increasing your salary (again do more with less…or technically the same in this case).

At BDA, we believe that every restoration business owner has the right to expect that their company can deliver to them what they want out of life- freedom and the ability to create wealth.

Make it a prosperous month!  Stay tuned for next month’s article.

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