I Track Everything You Could Possibly Measure

[Music] hello everyone welcome to the 21 hats podcast I'm your host Lauren Feldman several weeks ago we had a great conversation about how Jay goz Diana Lee and Dana White track their financials so good that this week I decided to put similar questions to Paul DS and Laura Xander it's funny I was listening to that episode Laura says and Diana said she's a freak about the numbers I'm like God does that make me a super freak in this episode Laura walks us through how labor costs can affect the types of yarn She carries Paul suggests a quick and easy ratio that can signal when a business is in trouble NJ explains how an hourly performance indicator that he began tracking 30 years ago transformed his business plus Laura tells us how she got a bank loan that's almost three times the size of the one she couldn't get last year even in Good Times owning and running a business can be a lonely Pursuit our hope is that these weekly conversations will let owners know they are not alone in facing challenges same thing with our daily newsletter the 21 hats Morning Report which highlights the most important news of the day for business owners which you can subscribe to at 21h hats.com where you can also find transcripts of our podcast episodes and lots of other articles and interviews joining me this week on the podcast are regulars Paul DS who is CEO of Paul DS cabinet makers which makes custom conference tables outside of Philadelphia Jay goz whose companies in Chicago include a picture frame business artist frame service and a home home furnishing store Jason home and Laura Xander who is CEO of Jimmy Bean wo a digital yarn store based in Reno Nevada and meline TSH a yarn supplier based in Fort Worth Texas the episode is titled I track everything you could possibly [Music] measure welcome Paul Jay and Laura great to have you here Laura let me start with you anything new anything going on oh yeah yeah actually um two or 3 days ago earlier this week we got formal confirmation that the SBA has approved our loan to buy a building in Reno congratulations that's like saying congratulations when somebody says they're pregnant you're like really or getting married like is it really a congratulations I think it really is oh yeah isn't it you were very worried that this wasn't going to go through you were convinced that no bank would ever lend you money well because this loan is like three times more two to three times more than the loan we tried to get last year this time and same bank same everything um and we got denied last year it's all relative to the cost of the building and the cash flow from it so last year they put in some different measures um you know we tried to get the loan four months after everything got shut down and I think the banks were just really scared and we've you know in the last 12 months I mean the financials were in a good spot last year and the year before but the couple years before that which were still on their radar weren't great we had lost money so now those have kind of Shed off and this last 12 months we did a great job you know we did a really really good job so the nice part is because we've worked with the same banker and I know Jay you always say don't work with the big Banks but it's US Bank and it's the same dude that we've been working with you know this is the third time we've tried it was so easy like really oddly because he's had all of our financials he knows our story we've been working together for three you know two years originally we were going to try to finance the purchase of the business down in Texas through US Bank I mean it was so easy that it's just unsettling you know um but I took Huck out of school yesterday and Huck and Doug and I went by ourselves to the new building you know and measured everything and looked around it's a really wacky building building and the people that bought the building or bought the land and then built the building and then lived in it you know or had their business in it for 15 years they do um displays they manufacture displays for trade shows so they have all of this really cool looking um all the fixtures are really cool they're all custom tons of kind of like acrylic signs all over the place and it was a it's a one-story building it's like 16,000 177,000 square feet footprint and then they built a mezzanine and over the 10 or 15 years they've added on like all these little rooms and they did a nice job of adding them on really we call it kind of like the Willy Wonka Chocolate Factory I mean you get lost you know you can't really find your way around because there are just tons and tons of little rooms and there's a little Harry Potter room you know that Huck is going to use that's under the stairs and it's like this kind of cool crazy house which is actually perfect for us cuz that's very on brand for us at Jimmy beans um and like I said they did a really great job it's beautiful you know the colors that they used are really cool they have really cool fixtures all over the place so it's just wacky you know it's just a little funky and how are you going to use the building I mean is there going to be a retail aspect to it or yep yeah so you'll walk in and it's a retail space and then they have a customer service Bay you know three or four desks four or five actually or six or seven desks um in one area and then you walk up the stairs and we'll have marketing and everybody else up there and then in the back it's big warehouse space so you know we'll put all our racking back there and um and it's exciting you know I was talking to this really smart guy I know um one my mentor my main Mentor um and he runs a business in Chicago um that is all about Aesthetics and he was saying you know owning your own building you should be able to increase your retail sales because now you have control of even what the building looks like so being able to maybe will paint like a knitting mural on the outside of the building you know and put really cool signage and you know it's in a really good location for Reno um especially from our customer based you know there are like two churches down the road there are three schools there's a big huge gym we're right across from the brand new DMV that Services all of Northern Nevada um literally right across the street from that and then we get about an acre you know it's an acre of land so it's it's terrifying it's like I you know it's like getting married for the first time I'm guessing um you know it's equally terrifying and exciting it's interesting that you have a mentor in Chicago you should introduce him to J like to me he sounds like a great guy oh super smart really smart guy old there's more RS there Lauren did you get that she's doing it again make her stop uh I think your factory outlet will pay for the entire occup occupancy of that building and you know you saying that to go back to Lauren just asked what I was terrified of what I'm terrified of and you know I've been journaling about it and meditating about it and um I'm terrified of making a mistake number one um and I'm terrified of just commitment in general you know we've got a 25y year loan on this thing uh and I just I don't do well with commitment but I think mostly I'm terrified Reno itself um has gotten so I hope your Banker isn't listening to your to this no he knows he knows your terrified of commitment oh totally yeah I'm very open and honest um the prices have been are so inflated right now that I think I'm most terrified that we're purchasing this at the top of the market and that everything's going to come crashing down in the next 5 years and that we'll have to get out you know Doug and I are always just terrified what if nobody what if everybody decides to stop buying yarn you know what do do then granted it's been almost 20 years now so I guess it's probably not going to happen and I wait yar's been selling for a lot more than 20 years it has but I mean for our business you know they probably won't stop buying it from us the bottom line is in 10 years even if the market comes down a little bit there aren't a whole lot of people that own real estate and 10 years later go oh my God I can't believe I bought this that was so stupid there are certainly some that it goes bad but most people are extremely happy because the math Works inflation inflation Works you're not going to have your cost keep going up every year well and that helped me with the 10 years because I'm not uncomfortable when I think about it from 10 to 25 years out you know the math just like you said the math works it's more the 3 to five years you know what if business tanks what if we need to get out um you know so just being a little bit caged in but that's just personal fear what also helped me is Jay had you know he just said the increase and sales from the building should cover you know most of the mortgage or the cost and if I can look at it that way um that helps me kind of rationalize and understand it so I did some math the other day to take a look and at how much principal we'd be paying so right now we're paying 50 cents a square foot for our space per month per month in other place like Chicago we go per year so it's $6 a foot per year okay so that's what we're currently paying but the market is 80 cents 80 cents a square foot so what is that um 960 which is similar to here okay and our lease at our current location is up in March so realistically our um our lease and our rent our monthly payment is going to increase by at least 50% anyway which is about the same as the mortgage and the key is if you were renting the rent would go up every single year another 30 or 40 cents a foot that's where the big thing is Plus the math on bond you put 10% down because it's an SBA loan yes yes the return on investment I'm living it I've done this three times and now as I keep telling you I'm 15 years ahead of you I've done this three times in 20 years the return on investment is unbelievable because you have so little money in it the return on investment is going to be in the 20 some percent range that's what it's going to be because of the low down payment if you had to put down 30% if it wasn't an SBA loan it would still be good but in instead the return might be 16% instead it could be 35% and that's exactly what I did and I can't tell you I was smart enough to know what I was doing with it I just needed a building but in hindsight um oh my God you know 20 years down the road you know hu's going to be a millionaire just from the building just from the building yeah Laura I assume you're going to be doing this so this must be a building that someone could use as a uh distribution warehouse to ship online Goods right yes and that's what we'll be using it for right that's not going to stop happening people aren't going to stop looking for that kind of space anytime soon I don't think no and there's none in Reno I mean when we were looking this was literally the only building um in that 20,000 square foot range and it just so happen to be a building that kind of fits us perfectly so I'm just you why am I terrified I I don't know why do people get nervous before they get married I know this will shock you but some people don't get nervous when they get married I know that's shocking but seriously yeah yeah there are people that just are happy that is shocking I worry about those people yeah seriously Paul what's going on with you anything new in your world nothing like that I should probably buy a building but uh did you ever think about it yes I have thought about it and it would mean mine in a location that greatly increases my commute and it would be a hellish 18 months doing it and I'm not looking forward to either of those things so I haven't but we our our space is pretty satisfactory in many ways and has some irritating aspects and it's just hasn't gotten bad enough that I want to do something different uh other than that uh business has been strong all summer our biggest issue has been trying to accommodate employees who are having life events that take them out of the shop for a couple days or a week or whatever at a time babies illness military deployments uh a lot of children's mental health issues and and that's something that seems to be going on all the all over the place these days and I don't think there's been a single week this year yet where we actually had all of our people all week and that affects production I got the same problem I have the my wh sale business I've got the five people that answer the phones and three of them have really horrible stuff going on in their life that you know the kids the parents the husband the wife that it's and like there's nothing you can do about it except try to be supportive but at the end of the day it's like you don't know who's going to show up to work every day yeah I F what's the answer Jay I think the answer is maybe to just have an extra employee to cover I I don't you know what else you going to do that's what we're doing it's the exact same thing so we finally we're overstaffing um and we created a position that's a flex position so we've hired a few people to be Flex workers you know that know most of some of the jobs uh yeah so same thing in baseball they call it a utility player yeah oh I like that that's an interesting approach I I've been thinking about the same thing the problem being that there's such a wide range of different things that we do in manufacturing and one day you got to fill in for an $118 hour guy and the other one it's a senior project manager and it's hard to imagine one person being able to actually provide that swing unfortunately the result is a service problem I went to Whole Foods last night I got to tell you there were many shelves that were just completely empty um I went to Nordstrom the shoe department is decimated I like there's a third as many shoes on the Shelf as there used to be and I I asked the guy goes yeah we're having supply chain problems it's it's it's still out there wow so you're shopping at Whole Foods in Nordstrom so business is good that's how well I'm doing yeah just showing off well and just to jumping on that we had put some uh deliveries down on our loading dock to be picked up and these are large pallets like 10 ft long and XO Logistics said ah we're not going to pick them up we're only picking up stuff that's 4 feet or less cuz we're so backlogged in the in the terminal oh thank you the trucking situation is is really bad let's take a quick break I want to hear from our sponsor work better now you guys should listen to this Rob Levan is going to explain how to manage a virtual assistant it's good stuff we'll be right back I'm here with Rob Levan co-founder of work better now which provides businesses with highly talented virtual assistance Rob I've noticed that owners tend to have certain questions about virtual assistance for example what exactly can they do yeah Lauren we get this question all the time uh because people really know deep down that they need an assistant but they're not exactly sure how it works and what they can do for them I would say that our clients use our assistance in one of two ways they will either use them much like I've been using my assistant for the past eight years as an executive assistant and my calendar which takes up so much time email management database file management personal tasks creating documents for me and then a lot of our clients basically operationalize our assistance so we have assistance with titles like project manager marketing associate operations manager and customer service representative I think some owners worry they'll spend more time managing their assistant than it would have taken them just to do the test themselves how do you respond to that right right right this is a deadly trap not only with assistance but really with any employees which is oh I can do it faster myself and the reality is you might be able to do it faster yourself of course it's impossible to grow your business if you're doing everything yourself I was very much uh of a similar mindset and what I did with my assistant is I basically told him what needs to be done and had them document it I hate documenting tasks but I know the processes are so important now we have a manual full of my uh tasks I only had to tell him once that he can follow time and time again and if he's out somebody else can follow and also think about it this way if you're a business owner making something like let's say $200,000 a year which is about $100 an hour you're basically paying somebody to do administrative work at $100 an hour if you're doing these tasks yourself that makes a lot of sense what does it cost it cost is $1,900 a month and as you know Lauren we are offering 21 hats readers and listeners $150 off per month for 3 months just by mentioning the word Lauren there are no contracts also very important for people to know can you promise a return on that investment if you're not getting a return something's not going right all of our clients are not only getting a return with the first assistant they've hired but many of our clients are now on their second third and fourth assistant where can we learn more work better now.com and again when you sign up for a 15-minute consult just mention the word Lauren we'll make sure to give that $150 off for each of the first three months thanks Rob and we're back a few weeks ago we did an episode in which I asked Jay Dana and Diana to talk about how they track their financials it was a great episode I'd like to do the same thing with Laura and Paul Laura why don't we stop with you you told us uh a few months ago that you actually really enjoy getting lost in your numbers I got to think that's somewhat unusual especially for someone in an artsy business like yarn you know it was funny I was listening to that episode and you know Diana said she's a freak about the numbers and I'm like God does that make me a super freak because I you know Doug obviously is our software engineer so he has built every time I have a data question and I ask it more than say five times then it's time for us to build a report so that I can just go look at that number whenever I want to so I have all of these numbers I have a business intelligence tool that I look at um from a kind of um repetitive standpoint I look at my books I look at somebody had said you know it's important to look at every dollar that comes in and every dollar that goes out well I do that so I look line by line at everything that we've spent money on every month um and run through it and then I look at our days of inventory so I have reports that tell me what our margin is um per sale and po per vendor and just overall and then I look at the days of inventory that we have and I shoot for 90 days of inventory so I track that um like Jay had talked about in that previous episode I've gotten burned and did a poor job of managing inventory really early on in the business what I did is I created a highlevel budget for spending for inventory since that is our biggest expense um and so I've divided all of our inventory up among a couple of different people and each month they report on here's how much we made in this area of the business and here's how much we spent and then throughout the year I give them you know like now it's October so I'm like this is how much you have left for the rest of the year so I adjust it based on you know the sales and the forecasts and stuff how do you do this Laura do you track this through a dashboard that you look at every day or do you get reports once a week or what are you doing no I pull everything um so yeah I mean I have QuickBooks online so I just go in and dig through the data um and then we have our own system that we built so just jump in there and take a look at it at any point and then I have access to our database that has everything in it so it's important to note at this point you don't have a CFO correct I do not if you don't have a CFO this is your job you need to do it if you do have a CFO that's something a CFO could be doing again listening to the episode that you guys were talking about with the CFO you know I probably am at that point where I and I recognize that because I'm I am out of my league when it comes to the forecasting and can we hire one more employee so I'm playing around and I do all kinds of math and I I create like I figured out if our sales stay the same as they are right now blah blah blah if we do this amount in sales we can afford $67 more in wages over the next six months you know per hour um so I figure all those numbers out but I don't know if they're right or not well it's not just being out of your league it's also just about can you be doing something better with your personal time and the answer is yes you can hire someone to do this that's the answer yeah yep I probably could or I'm sure I could so it's just do I want to let go you know am I ready and I I think I'm getting to that point where I am ready especially now that we have two manufacturing businesses and one e-commerce business um and like I said I'm my confidence is not there but there's part of me that just really wants to learn more about this you know and I really want to learn this new forecast T in tool and I I really enjoy you know you can ask me about any of our number ask me how much postage and delivery is as a percentage of our business and I'll tell you well right now it's 11.7% but two years ago it was 10.2% and that's increased blah blah blah blah blah and so what we're going to do is we have you know we've increased our shipping cost and blah blah blah blah blah do you have a handful of metrics like that Laura uh kpis that you uh think are the most important things to keep an eye on I do yes um but not as formalized as it sounds like other people have because I have access to the data and it's just you know after 19 years it's become ingrained I know that I'm looking at days of inventory I know that I'm looking at payroll as a percentage of sales um I know that I'm looking at um you know cost of goods and shipping and some of these metrics change over the years like right now Postage and delivery is a really important metric because those rates are changing so much so if they increase by 5 or 10% where do I need to shave 5 or 10% off um and I need to figure out where that it where there's comparable savings it can't just be about percentages it's also got to be about dollars yeah I mean I again I'm I probably am a super freak about the numbers and I really love it um I'm reading a book right now about choosing your customer and you know how to compete with all the digital Giants and it's all about data you know and what are your most profitable customers and and that helps me understand which Yarns we should buy which Yarns we should carry um and what the strategy kind of is take us through that how how does it help you decide which Yarns to buy um it helps well I you know I had a conversation with a vendor last night I had dinner with somebody um and I was telling her if we can't you know just as a as a basic number um if we can't make $5 off of a ball of yarn then we're not going to carry it because labor costs have increased so much in Reno shelf spaces increased so much so I figured out how much it costs us to pull pack and ship a package and you know there's this threshold of how much gross margin or gross profit we need to make to make it worth carrying this item and so with this vendor in the past we had carried some of their lower priced items um because it made sense at the time 10 years ago it was all about selection and now it's all for us here in Reno it's all about I believe believe that it's going to be about margin it's not going to be about volume anymore um I want to increase the ticket prices and increase the margin on each ticket as opposed to increasing the number of orders that we're shipping out because each order is getting more expensive to ship out so that changes you know my relationship with this vendor I believe that everything you said applies to all three of us that labor is gone up for whatever reason that's complicated and that uh small businesses probably are not going to win the price game and that we have to get we have to win the better quality better service better design game and I believe all three of us are in that same business I'm not chasing the super cheap there there's hotels they want frame they want frames pictures they want them for 15 bucks and if you go into a typical Hotel you'll see why the stuff's falling off the wall I just I can't make money on that stuff and I don't want to do it and I think we all could Chase cheaper business but you can't make money with it because of the labor cost no and what I'm learning is that it's also it's just not as rewarding anymore it's not as fun and maybe again that's you know a a a factor um of our maturity and knowing that we've been in business for a long time and so our goals are a little bit different now it's about relationships now it's about you know how do we do a better we always say we don't want to be the biggest we want to be the best Paul how about you how do you track your financials I could give you a condensed version of of what lur does it's very similar I I like a good spreadsheet and and I keep an eye on everything and I don't have a CFO and I see that keeping those data series as being pretty much my main job and my goal is to understand what normal looks like on a lot of parameters and what you know what the red line Looks like if something is deviating from what it usually does and then to make decisions uh based on that I might be different in that I have a different cash flow forecasting system than many people I started writing a spreadsheet back in 2009 when I nearly went broke that just allowed me to look at my running bank balance weeks and months into the future by putting in budgets for expenses and never putting in a budget for income but just the actual income and mapping it on to the weeks that I expect and then I can just see okay how much money are you going to have in the bank and if it looked like we were going to run law in cash then we start focusing on collections or sales or whatever but it's just a an early warning system that I've that I've run continuously for well whatever it is 12 years now and that's been super useful so here's my question for cost accounting so somebody comes in or they go online and they want a magnificent conference table and you put it in your pricing thing which I'm sure is pretty you know sophisticated and the table's $20,000 and in your system you know that the lab should be X perent and the material should be y my question is are you tracking it are you having a work ticket go through that when that table is done we do we I'm very very fortunate that that one of my employees back in before the recession my partner's daughter was a very very talented database administrator and she sat down and just wrote us from scratch an entire Erp system that runs on FileMaker but which includes all of that information so we use a pricing spreadsheet that I wrote which is a very complicated Excel sheet to predict labor hours and material costs on any project that gets entered into FileMaker and then the workers report their hours in that they worked on the job and the material purchases into each item in the you know each production item and I can look at a p&l on it on a per item basis and that's useful uh the biggest takeaways are that some jobs go right for reasons you know you can't predict and some jobs go wrong for reasons you can't predict or you can't really build into an algorithm but on aggregate it shows that our pricing model works and when we drill down we can get a pretty good sense of what's going on with any individual project well it also I assume gives you a handle on making sure that people are productive because I know the learning curve I went through with framing pictures I never ran a factory I you can have 10 people working in the back looking busy doing nothing I mean people can make an art out of it they all and I I'm telling you this sounds silly the biggest breakthrough in my business was I put a board up on the wall and I said okay here's how many pictures are due for Tuesday Wednesday Thursday and I put their names at the top every hour in the hour we did a call out when you got done and throughout the day you could see where you were at and it changed my business because up up till then somebody could look busy the whole day long and frame two pictures and at the end of the day you go what happened oh it was a bad day I had some bad molding at really we and it's too late do anything nobody wants to scream out I didn't do anything for the last hour and I I came up with this 30 some years ago and I'm telling you it is the absolute brains of my thing because unlike the way you're doing it I've got a lot of small jobs you've got one job I've got maybe 50 for the same dollar amount so I have to do it in a I have to figure out to keep score as the day goes on and it made a huge difference I took your advice Jay and it's kind of a hybrid in Texas so we have a big huge white board now and we're like these are all the things that are due and then we have two different departments we've got you know a production department and then a finishing department and the painful process um we went through a painful process because we thought that what we needed to do is have all of these 40 people kind of report and record what they were doing per hour like how many pieces per hour they were producing and as it turned out the production part of the process it works really well for everybody to say okay I'm at 12.5 skain died per hour right so we set a standard and we actually created a pay Matrix and rolled it out about 6 months ago that says basically based on like you know how complicated a product is versus how productive and quickly you can produce this product between those two things the people who can produce the most complicated um product and produce the most of that product are going to get paid the most and so we created this whole Matrix that was very visible so that people can now keep track at the end of the day how many pieces they produce per hour so we tried to do that on the finishing Department as well and realize that their's need to be a team goal you know and that does it doesn't work very well for them to do that specifically because there are kind of multiple steps to the finishing so now they have a team goal where they have to finish X number of products as a team per day you know and more importantly per week to get those things out attach that to a pay Matrix and that has changed so those are the metrics that I look at as well every day from a manufacturing standpoint are we hitting our productivity level both from an individual and a team standpoint um and then you know the money part of it kind of works itself out as a result of that well I think that in our situation we're working on complex projects where everybody's contribution is a little bit of the total product and the products themselves have tremendous variation in size complexity cost you name name it and so it's not really feasible for us to be looking at you know like can you do 12 units of widgets an hour because it's never that the same day twice and what I try to do is figure out what's the overall Revenue goal per month and communicate that to my people along with the costs and then show them the p&l and say okay here's what we need to be doing in order to be a healthy company that can afford to let people who are sick go home for a few days and try to tie it all together to something that means something to them because we we just I I mean I I dream of having balls of yarn or something simple and discreet to deal with as a as a product and it's just not like that for us so we have to back it up and make it more abstract and that makes it harder to zero in on any particular thing that one of the things I've noticed after looking at this data for years and years now is that you know we could build the same table four times maybe spread them a month apart but just the same thing and you would end up with different build times every time because there's external factors like did the machine break did the were the materials late uh this tree has a bunch of knots in it that cause processing the wood for that one to be much worse than the other one and we just have we're dealing with so much variation on a micro level that the only way to make use of the numbers is on a very macro level Paul are you saying that uh sharing the p&l numbers with your staff is enough to motivate them to you know work as hard as they can or are you paying them a bonus based on that how does that work I have paid bonuses based on it if if it seemed appropriate uh but I am counting on the idea that that a company that is prosperous has more goodies to give out than one that isn't and that the p&l is a pretty good measure of how prosperous you are and so my people are aware that they're enjoying a work experience a pay level and a set of benefits and privileges that they haven't seen in any of their other work experiences and that the profitability is the way to support that if you drill down much much more granular than that like I have in the past tried to do more formula driven bonusing and found it to be unworkable because there's a lot of things that drive profitability other than just did we produce I mean if I have to make investments in Machinery or repairs or whatever that's going to affect the bottom line and I would rather have the staff be aware of that by talking about the entire p&l rather than just a production goal so what he's saying is and I'm on the exact same page it's not about motivating it's about if you have good employees they want to do a good job that's all they want to do a good job and if they understand what they're doing they're going to get they're going to they're going to work with you to do a good job otherwise but Jay you still you had those good employees and you still felt the need to put up a sign to make sure they know that that they're tracking what they're accomplishing on a hour to hour basis yes that's for the 10% that aren't great employees or who need to know that we're looking at the numbers every hour on the hour and you better get the stuff out yeah well and realize too Lauren I mean again going back to like being an athlete you run faster if you know what your times are you know I mean that transparency is really important to a lot of people but I think if I understand what Paul was saying he he doesn't have the ability to do that on an hour by hour basis he has to take a more macro approach as as he put it well because he's working on projects that take you know a week I'm working on projects that literally take 40 minutes so it's just a different animal and we've done within even our own business that half of the team can do that on an hourly basis but the other half of the team needs a more macro goal you know so even within the same business the micro versus macro might be different depending on you know where you sit and what your job is I think the point is if you do this improperly and you start to try to put some bonuses in and you do it badly you'll end up with more negative consequences than positive so if you have three choices do a really good plan that works great do a bad plan you're better off with no plan than a bad plan because you know people start getting mad oh how come he's getting a bonus because I got the harder job and bl if if you have to really do it properly and some businesses is easier to do that than others I agree with that Paul could we go back to your uh cash flow uh analysis you said that that's something that you think is probably different from um Jay and Laura's businesses no not different from mine I just happen to done this yesterday I've got a new CFO I'm training and I I did the math I haven't done it in years 23% of our sales are in the first quarter and 27% are in the last quarter so there's a pretty big cash flow difference but plus the fact that we get rid of inventory in the last so you know we we are tied on cash parts of the year and other times of the year it's just flush so we do have to watch the cash flow Paul did I get that wrong do you think you do something different than most businesses or well I think that I think that I can do something different than Mo most businesses and so I do it and the the things that make it feasible for me to to run the sheet the way I do and unfortunately this is a podcast so we can't just take a look at everybody's system uh but we have a limited number of transactions per day and that makes it relatively easy to track the income and we have a a finite number of of outgoing transactions too so QuickBook you know my bookkeeper Works in QuickBooks but then she also replicates uh everything she does in this spreadsheet because what QuickBooks is really bad at is cash flow forecasting and so I want to be able to see literally what is my bank balance on every single day for as many weeks in the future as I feel like and my system allows for that but if I was doing a business where uh income was hundreds of transactions or thousands of transactions the manual entry aspect of my system would become unusual and now I look at it multiple times a day like I never don't know exactly where we are financially in every respect what exactly are youing at multiple times a day if you could see all the spreadsheets I keep I keep track of everything you could possibly measure do you have a favorite metric I think that the the the metric that I found that is pretty interesting and that you can use to compare businesses to each other is the revenues per employee and uh particularly in manufacturing businesses let's say the world of small domestic manufacturers if you're not doing significant Outsourcing the range of of answers I've got when I've asked company owners okay what were your revenues how many employees total uh usually it's going to be in the 150,000 to 200,000 per per year you know I'm doing it in my head and mean you say that and that's just reminds that that's funny that you're right I'm GNA that's 150 to 200 is a is a healthy number that's is not an indication of terrible trouble um different kinds of businesses like software businesses consultant I mean that can get up to 3 400,000 ahead but it's pretty hard to manufacture your way past 200,000 a person unless there's unless it's a very highly automated manufacturing and does that include marketing people and office people as well everything everything everybody you pay full-time equivalents because if you just look at it as shop floor then you're fooling yourself like in my situation right now we're relatively heavy in the office because I'm paying more for marketing I've brought that inhouse and I've have reasons but it affects that that uh revenues per employee now one thing I've known for certain is that if you meet someone and you do the math and their revenues per employee are under 100,000 that's trouble they are in trouble in ways that they may or may not understand especially since the minimum wage has gone up the days of yeah I couldn't agree with you more with the with minimum wage going up well I don't know if it went up everywhere but in Chicago it's $15 an hour you can't you can't take in $100,000 uh per employee and make any money I mean crazy number that's so helpful and interesting do you include yourself in that Paul yeah I do okay cuz I'm I'm here working all day like if I was just at home collecting you know opening my mail and cashing checks what if you were sitting at your business just doing like podcast and stuff no that's I'm sweating right now this is work all right okay so so yeah and and what I find is okay what I find is the uh you know the Ken Clark koh's of the world are fortunate but far between and I meet a lot of business owners who are on the opposite end of the spectrum just had a lunch with a guy yesterday who's got a two-person painting company and ask him okay what'd you bring in last year how many people you got well it works out to like 95,000 ahead somebody's paying for that it's usually the employees are poorly paid and the owner isn't making any money and that when there's that precarious a financial situation then there's staff turnover you can't afford to train it's just a sign of trouble but it's the easiest way to identify a situation which is likely to be unfavorable and then if you got a business where you're pulling in 250,000 and you're not Outsourcing again if you Outsource that'll shift the numbers but if you can get that much revenue per person and get the work done you're probably doing pretty well well to put meat on the bones it's simple if if you're paying $15 an hour that person by the time you pay FICA and health insurance they're clearly costing 40 Grand so if you're only taking in a 100 you're labor is 40% now maybe if you're a landscaper that could work because there's no cost of goods sold maybe and maybe even painting there's there's the paint cost but if you've got any kind of material cost how do you spend 40% for labor and have anything left well you don't that's why I say it applies to manufacturing businesses and if you start applying it to different businesses all you have have to do is think about it you know like why would 100,000 ahead work for this particular business as you say if there's no material cost or there's no rent or there's no whatever you know maybe but it's it's a it's a quick way into thinking about what's going on in a business that will lead you to useful questions what do you guys pay both of you Jay and Paul um what's your payroll as a percentage of sales is it in the 20s no mine's in the 30s 30s yeah okay but keep in mind I buy Direct on everything my my material cost is lower because I'm I'm doing the literal cutting out the middleman but I give great service because I got better people so the customer is getting a better value proposition because maybe they're paying the same as somewhere else but they're getting a much more qualified person there because I keep people around they're Ian my average person's been here 11 years yeah and actually one of the things that I can say is that I can give you an answer for every single year going back to 2011 on EX exactly that cogs and labor and uh if it's in the if it's below 30 uh we're doing okay and if it's more and it has been more on some it's it's bad so I have a pretty good idea of what normal looks like and if I'm wondering whether something's going on I can usually go back and find some data about it and say okay rather than just my own fears and memories and suspicions here's some actual numbers and that's useful in in talking to the employees as well well uh here's another way I track everybody's labor hours how often are they working how do they compare to the other ones and I had my manager was in my shop last week and he's like this one guy this new young kid he's never here that wasn't true he was there quite often so I like okay let's have a discussion about facts like why do you feel he's not here when he is and then we're dealing with the actual problem rather than just a uh a suspicion Laura did you figure out what your Revenue employee number is it's around 130,000 um and then the which is interesting cu the e-commerce side of it is closer to 200,000 um but the manufacturing we're still you know we're still in rebuild mode so I can I know and we know that we we still have a lot of new people because we're training that we can get we're going to get to 150,000 no problem um and that's the plan my thanks to Paul Downs Jay gz and Laura Xander as always thanks for sharing guys really appreciate it wait wait don't leave yet if you have a question or a comment that you'd like the 21 hats owners to address send it to me by replying to your Morning Report or by email at Lauren 21h hats.com that's l r n21 hats.com do it now before you forget and don't be afraid to tell Jay what you really think you can take it and if you got something out of this conversation help us reach more business owners tell a friend subscribe and review us wherever you get your podcasts follow us on Twitter subscribe to the morning report at 21h hats.com this episode was produced by Jess thubron founder of blank word Productions okay now you can leave thanks for listening everyone