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[Music]
do you have a team without an hr
department
or maybe your hr department is someone
who just got the job because they were
already in the office
or maybe you have a well-staffed hr
department
and are just looking for outside
professional advice
whatever the case hrtg can help
hrtg can help with handbooks interactive
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do what they are great at help you
with your hr needs go to
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[Music]
welcome to scaling up h2o the podcast
where we scale up on knowledge so we
don’t scale up our systems i’m trace
blackmore your host for scaling
up h2o and nation there is just so much
stuff
going on if you are a member of nace the
national association of corrosion
engineers
you want to be on the lookout for their
corrosion technology
week that’s going to be the week of
october 17th
and if you are involved in nace and any
one of their technical committees
this is your opportunity to learn
exactly
what their committees are working on
what standards they’re working on
and how you can help and truly
understand
what is coming out of those committees
if you want to learn more about that you
can go to our show notes page and we
will point you directly to
that website something else that i am so
looking forward to
it is my favorite event all year because
i get to see
so many of you and we didn’t get to do
that last year
is going to the association of water
technologies
conference and that is just around the
corner
and it is 100 percent in person
this year it’s going to be held in
providence rhode island
september 22nd through 25th
so if you have never been to an awt
convention
you have no clue what you are missing
and if you have been to one you know you
do not
want to miss it so you can also go to
our show notes page and we will take you
directly
to that site so you can sign up there
are still spots available in the hotels
but they are going quickly so if you
want to have a convenient location
at a hotel where you don’t have to drive
very far
if at all go ahead and register
today now if you are a business owner
you’re going to want to make
arrangements to arrive
one day earlier because that’s when
they’re holding their business owners
meeting
folks this is when they get people
together
to talk about different experiences and
give you
tools that will allow you to run your
businesses
in a different way maybe there’s just
that
one nugget that you’re going to pick up
that changes
everything else so if you’re a business
owner
you’re going to want to attend that that
information is also
on our show notes page well folks my
favorite episode is today
i’m talking about pinks and blues
episodes that is when
i answer questions from the scaling up
nation
and we’re going to hear from somebody
right now who has a question
hello trace and hello scaling up nation
i think i have a question that will help
many folks here
many of us are lucky enough to have
reporting systems that will calculate
this data for us
but for those who don’t what do things
like revenue
gross profit and margin mean and how can
we calculate those things
manually if we don’t have a reporting
system doing it for us
thanks in advance well thank you so much
for that question and i know a lot of
people
have a hard time asking a question like
that because it’s just
expected that we know terms like revenue
gross profit margin operating
profit net profit i mean come on who
doesn’t know that stuff well i’m here to
tell you
i work with enough companies that
many many people do not know the proper
ways to use those items so thank you for
asking that question
and even if you do have software that is
helping you figure that stuff out
i promise if you truly understand where
that information comes from
and also realize that you are only
getting one
sliver of the pie and you’re not able to
make
a full decision based on the entire
picture
when you understand all these things it
is just going
to laser charge how
you are able to make decisions as i just
mentioned
so many people that i’ve worked with
think that if they sell something
for two dollars and it only cost them a
dollar
they just made a dollar profit
well that’s not true and how much did
they make
and what’s the margin on that and how
can you tell
if that’s where you’re supposed to be
and that’s what we’re going to talk
about today
how much profit do we really need
to make and do we really know what those
numbers
are knowing information like this allows
us to understand
where we are and it allows us to
understand where we’re going
it allows us to make better decisions
and it allows us to see if the decisions
that we are
making are good ones do we need to make
slight tweaks
on those decisions so we can get
better let’s all go into business
together all right we’re going to open
up a restaurant
now my business coach tim fulton would
kill me if i said i was going to open up
a restaurant because
i remember him telling me that the
restaurant industry has the highest
failure rate now why is that well i
think it’s the same reason
that we’re having this podcast episode
and the topics that we’re talking
about today many people are really good
technicians or in our restaurant’s case
chefs
however knowing how to run a kitchen
is only one aspect of the business
and when you run your own business you
have to be
responsible for everything
that goes on in that business not
just the kitchen and for this reason
is why great chefs are likely to
fail when they open up their own
businesses
now the premise of the book called the
e-myth by michael gerber is all about
this he talks about people that are
great technicians or chefs
think they know how to run a great
kitchen they know how to run a great
program
and they do but they don’t understand
all the things around running a
successful business
and when they don’t learn those items
they’re not
spending their time and their assets
where they need to be spent
and that is why they fail so let’s get
back to our restaurant
we’re going to call it scaling up
burgers and our signature burger
is called the boilermaker because it has
these scorching hot
jalapenos right on top of the burger now
let’s say we’re gonna sell this burger
for seven dollars
customer comes in they order the burger
we prepare it we give it to him
voila we just made seven dollars right
yeah we didn’t make seven dollars and
that’s what we’re going to talk about
let’s cost out that burger let’s say the
meat
is 5.99 a pound and we’re selling a half
pound burger so that’s three dollars in
meat the bun
it’s an artesian bun let’s say it’s 30
cents a bun
the cheese is 25 cents and all the
toppings
on the burger including our scorching
hot
pickled jalapeno peppers giving the
burger its signature name
all comes to a dollar so if you add all
those things up
we get a grand total of four dollars and
55
cents but we still have a few things
that we had to buy in order
to sell this burger so we’re not done
costing it out
the wrapper that it comes in let’s say
that’s seven cents
and of course that burger doesn’t make
itself
so let’s say we’re paying somebody ten
dollars an hour to work in the kitchen
and for argument’s sake let’s say they
can make 20 burgers
in an hour so if we divide that out
that’s going to be 50 cents
in labor cost so we add that together
our 57 cents to our 4.55 cents we find
out that the real cost of that burger
is five dollars and 12 cents
now let’s answer some of the questions
that our caller asked
what is the gross margin of that so to
talk about gross margin
we kind of need to know what gross
margin is so this is a company’s
net revenue minus the cost of goods
so what we sold the burger for minus
what it cost us to make the burger
cost of burger is everything we just
added up including
the labor so the gross margin in order
to get that you’re going to take the
selling price of the burger
and then subtract out the cost of goods
and then
divide that by the selling price
so let’s go ahead and do that seven
dollars is what we sold the burger
for we’re going to subtract twelve
cents which is our cost of goods sold
and we’re going to take that sum
and divide that by seven dollars
folks that gives us a 27
margin or a 27 gross profit
now i think that’s why numbers are
confusing too because there’s so
many ways to say the exact same thing
by the way that is horrible for a
restaurant
the food cost for a restaurant should
not be
any more than 30 percent
so you can see how a chef that
didn’t know this information could be
selling a
ton of burgers he’s thinking that he’s
doing great
but in fact he is selling himself out of
business
if he knew what his food cost should be
less than 30 percent
and he just did the math and he figured
out that his food cost
is 73 i think
some alarms are going to go off but so
many people so many chefs so many
technicians
don’t look at that information and they
think hey if i buy it for this
and sell it for a higher number it has
to be profitable right
and as we’re learning in this episode
that’s not necessarily the case by
knowing these numbers the chef does not
have to suffer
bankruptcy he can make some changes
right now so he can start becoming
profitable
so what about that little close loop
account that’s
on your way to another account that
hardly uses
any product that has to be profitable
right
well i don’t know what is it actually
costing you
what are all the things that you
have to put into that account
in order to properly service it
product time but what about
all that other stuff that allows us to
do
the things that we do your vehicle
your training insurance on the vehicle
the building that your company is in
the electricity that powers that
building the liability insurance you
have to have or you wouldn’t have that
customer to begin with
all the licenses that you have to have
to do
business and i’m sure we could keep
going and we can think
of dozens of more things well all of
those things are
called operating expenses these don’t
really
get bigger as you put on new business
but
as you put on more new business they
have to become bigger
to support the larger amounts of
business
that you have most people don’t think
about operating expenses but if we don’t
have those items
we don’t have a business once you
subtract out the operating expense
from the gross profit what you have left
is the net profit and many of us do not
know
what the actual profit is on the
accounts that we
are charged with servicing i think if
you ask
any cfo worth anything
they will tell you the only number that
we discussed today that matters
anything is profit profit
is what matters profit is what we get to
put
in the bank profit is what allows us to
grow the company
to give pay raises to make the company
better can you begin to see
that if you don’t know the actual cost
of what we do
you are not able to make the best
decisions
so here’s my call to action if you are
somebody who is responsible for
accounts be responsible for knowing the
numbers surrounding those
accounts and learn what it is you don’t
know that you don’t know
we just talked about revenue gross
profit
and net profit which is what makes up a
profit and loss statement or also called
an income statement again 50 different
terms for the exact same thing
and i think that’s why finances are so
complicated
but they’re really not if you learn some
key metrics
you will start to see how all these
things come together
and then you start adding more metrics
to them and folks it is amazing
what your own data will tell you
and what decisions you have to make
here are two books that i’m going to
recommend
for you to learn more about these
numbers the first one is called
financial intelligence
a manager’s guide to knowing what the
numbers really mean
it’s by authors berman and knight
and they actually go through and they
break out how to read some of these
statements
and what you need to do when you know
that information it’s a great read it’s
very simple
and another one that i think is great is
one that’s
called accounting for non-accountants
that’s by wayne
labelle and he goes through pretty much
every equation that you are going to see
and he breaks it down
and allows you to see what those numbers
are made
up from so you can make decisions from
that if you’ve been in my math class you
see that’s how i teach
math i don’t teach you how to work the
math problems
i teach you why the math problems are
set up the way that they are so they can
start making
sense to you and then you can go work
those problems well that’s how
accountants for non-accountants is laid
out
and if you’ve enjoyed my class i think
you’ll enjoy that book
so if you are somebody responsible for
accounts that’s
what i am suggesting for you now if you
own the business
i’ve got a challenge for you as well
and here it is and this might be a
little bit scary
share your financial data
oh my goodness i’m going to share with
my team my financial data
yes absolutely why would you do that
because these are the people that have
the boots on the ground that are making
the day-to-day decisions
that are creating those numbers
anyway i know it’s scary at first and
there’s ways that you can do it to make
it
less scary to make you less vulnerable
and
when you learn how to do that when you
start sharing those numbers and you make
people responsible for those numbers
that you
are sharing they’re able to make
decisions
on the spot that will affect those
numbers and because they have better
decisions because you’ve
shared those numbers with them they are
going to make
better decisions just think you wouldn’t
give somebody a gun
blindfold them and expect them to hit a
bull’s-eye
well if you’re not sharing these numbers
with your team and
teaching them what they mean and how
what they
do affects those numbers that is exactly
what you were doing i will admit when i
first started my business
i didn’t respect the numbers the way i
do
now i didn’t find them fun in fact i
found them
a distraction i would much rather talk
to a customer
or troubleshoot an issue in an account
that is my jam i love going into an
account
knowing there is an issue and knowing
that i will
find that issue and figure out how to
get it fixed
that is my most favorite thing to do in
the field of water treatment
and that’s not numbers numbers when i
first got started in business
i felt took me away from that so i
avoided the numbers and because i
avoided the numbers
i felt like i fell so far behind
from keeping all my numbers together
that i
could never catch up and the truth is
i never did catch up i wasn’t able to do
what i needed to do
based on the knowledge that i had and as
you heard me say before
i didn’t know what i didn’t know
but what i decided to do was put myself
into a room of people that knew
different things than i did so i had a
situation
where i was going to inject myself
in to learn what it is that i
didn’t know and folks there is a ton of
stuff that i
don’t know i’m hoping i’m figuring out
more and more of that stuff
so i can learn it but that’s what this
group did and this group was
the mastermind that i joined the
mastermind
was led by tim fulton my personal
business
coach now and 10 led that group for
10 years and we would always have
different
topics that would come up he would have
different speakers that would come in
he would have us share our business
on how things were going he would have
us share our numbers
with the group and that’s what really
got me to get my numbers together
because now i have a room full of my
peers
and if i tell them i didn’t have my
financial data together
i was letting them down and i didn’t
want to do that
but i couldn’t get my numbers to a place
where i could get the information they
were asking for
so i asked somebody who was really good
with the numbers
if i could buy them lunch and they could
help
train me on what i didn’t know i didn’t
know
he then helped me you’ve heard from him
mike iverson in fact you’re going to
hear from him again
in a couple of weeks mike iverson is my
fractional cfo i met him through my
mastermind group
and he knows numbers better than i could
ever
even hope to know numbers but i’ve got
somebody on my team
that can help me that can guide me and i
don’t have to know everything
but i do have to align myself
in a situation where i can start
learning what it is that i didn’t know
so
my secret weapon was joining this
mastermind group
that’s where i met tim fulton that’s why
i met my cfo
that’s where i learned so many things
over the last 10 years now tim no longer
leads that mastermind group and tim and
i have a
private coaching relationship and i now
have the honor
of running my own mastermind the rising
tide mastermind
and this is where i put water treaters
together
so they can start learning the things
they
need to know that they don’t know they
don’t know and when you get people in a
room
of like-minded people and the overall
goal
is to make each other better while we’re
working on ourselves it is amazing
what happens i’ve been doing the rising
tide mastermind for about two years now
and to see the growth of the individuals
that show up each and every week it is
just
fantastic my friend chuck hamrick says
that
he has had over 30 percent
profit increases just doing some of the
things
that we talk about in the rising tide
mastermind just think if you know your
numbers
you can try something new and you can
instantly
see what that effect is
so the next time you buy a burger in a
restaurant
i want you to think how much did this
burger
really cost the person that owns the
restaurant
and the next time you service that
account
i want you to think about the same thing
how much
is it really costing you how much is it
really
costing your company for you to be there
how much is your time worth and are you
using your time
at its highest and best value we all
know that one thing
is for sure improving what we know
decreasing what it is that we don’t know
constantly
challenging ourselves to get better is
us being at our highest and best value
and to help us out with that here’s
james mcdonald
[Music]
hello scaling up nation the next james’s
challenge as we grows as an industrial
water treatment professional
drop by drop is
[Music]
install or change out corrosion coupons
corrosion coupons with all their
advantages and disadvantages are a tried
and tested method of detecting corrosion
trends in water systems
their importance can be underestimated
and forgotten
we get busy and think i’ll change those
out next time
or we get short-sighted and say i could
be trying to sell my next account in the
time i spend changing out corrosion
coupons each month
take time this month to think about the
corrosion coupons in the water systems
you manage
do they have the proper flow rate are
metal energy is installed in the proper
order
be sure to have a plan to change them
out in a timely manner and ensure you
have corrosion coupon racks on all
appropriate systems
be sure to share your experience on
linkedin by tagging it with hashtag jc21
and hashtag scalinguph2o this is james
mcdonald and i look forward to seeing
what you share
well thanks james i also want to thank
the listener
for that question without that question
we would not have had that discussion
and where at the very beginning when
that question was asked it seemed like a
very simple question
but i hope you see it is a very complex
question and the more that we know about
our numbers
the more we can do the better we can do
it
and the more profit that we can make
while
we are doing it so here’s the bottom
line
when you unpack the real cost of what it
is
that you do you can truly see
where you should be spending your time
and speaking of time i’ll have another
brand new episode
for you next week until then
take care scale it up nation
[Music]
nation the mastermind is wildly
successful
and the only thing missing is you
go to scaling up h2o.com forward slash
mastermind to see if this is the group
that you have been waiting for
and the group that can push you to your
next level of success