Why $20M Contractors Still Feel Broke — The 7 Numbers That Actually Matter

Rishi Srivastava (00:41)
Today our guest is Patrick Shurney. Patrick, welcome.

Patrick Shurney (00:45)
to be here. Thank you.

Rishi Srivastava (00:48)
Section one here is on from banker to millionaire contractor coach. Many dollar 15 million plus contractors still take home less than their foreman. What’s the root cause you see most often and which of your seven numbers usually fixes it first?

Patrick Shurney (01:09)
Yeah, my framework is the seven numbers that make you a millionaire contractor. And oftentimes I meet with contractors, whether they’re five million or 30 million or more. The owners, a lot of times, you know, are the least or last to get paid because they’ve developed a bad habit that’s persisted past the startup years of just kind of being the last one to pay themselves. Because, you know, a growing company, especially a fast growing construction company, just eats cash, right? Especially if you’re doing commercial work that takes 60 or 90 days to get paid. So you…

It’s altruistic. You kind of put yourself last. But after a while, like I have contractors that are like been doing this for 10 years and they’re like, this is just getting old, you know? And so the numbers that really bring this to light is if you look at a P &L and you look at the bottom line number, net profit, the big aha is, but that’s not what my bank account has. So you have this accounting number on a P &L that’s built by accountants for accountants that’s totally disconnected from

yourself and your own pay. So I take that number and I reverse engineer it. And if your profit margin is 10%, maybe it needs to be 25 % because we got to figure out debt and taxes and how much you should be making. And so we work backwards up the P &L and we’ll talk about some of the other numbers. But we start with the end in mind. You how much should you be making? And I believe if you’re a five million dollar contractor,

walking away with 20 % is not unreasonable. That’s a million bucks. So if you’re a 10 million or 20 or 30 or 50 and you’re making less than a half a million, when you could be making millions, like we have to address that.

Rishi Srivastava (02:44)
Yeah. You know, it’s tough as you grow, the operations gets very convoluted, know, finance and operations.

Patrick Shurney (02:51)
Well, like any business, I’m a small business, but I mean, when I make more money, it’s always more stuff to buy or spend on. It’s like, what are you disciplined to keep it? You can make it, but can you keep it? It’s like the old Seinfeld, you you can make the reservation, but can you keep the reservation? You can make the revenue, but can you keep it?

Rishi Srivastava (02:58)
Mm-hmm.

Yeah.

yeah, yeah.

I like the Seinfeld reference there. Give us the high level tour of the seven numbers and the two that are most misunderstood by owners and even CFOs.

Patrick Shurney (03:11)
Yeah, my favorite.

Sure.

Yeah. I’ll give you the seven numbers, but I’ll tell you, I’ll lead with the most over overlooked or misunderstood as the gross profit margin. I’ll come back to that. So remind me. But the seven numbers are really four of them are on a P and L and three of them are on the balance sheet. And the balance sheet is that report that owners seldom look at. I was a banker for 30 years and I literally had a client who did over a hundred million. And he’s like, I don’t know why you want the balance sheet. I never look at it. And I’m like that the balance sheet is where your cashflow problems can be identified.

where your capital is. And so I have a little chart for those numbers. You can share it with your listeners afterwards if you’d like. But I mean, I could pull that up and you could look at it just because it’s a visual and people can see it. But I can just show you the seven numbers at a glance if that’s helpful. If you want me to share a screen, I can do that. Would that be all right? OK, sure. All right. Let me do that. We don’t have to talk through each of them, but we can just use it as a backdrop.

Rishi Srivastava (04:11)
Yeah, yeah, go for it.

Patrick Shurney (04:20)
Let me see if I can find it in the window here. Here it is.

Can you see it? Yeah. So I do this little chart and I have it on Excel, but I also built a custom GPT, but across the bottom is all the different industries. And based on your revenue, these are, these are, I take the seven numbers against industry comparisons and I throw in a couple other ones, but you know, it’s basically your revenue. And we’ll talk about why that’s, you know, it’s not just about revenue, but the gross profit margin.

Rishi Srivastava (04:24)
Mm-hmm.

Patrick Shurney (04:51)
How much do you spend on payroll? That’s the next biggest expense. Your net profit margin and that number that’s I mentioned is the number that’s not really telling people the true story. On the balance sheet, it’s how many days does it take to get paid? Contractor will tell me 45 days, but then I do the math and it’s like 60. So it’s kind of like a scale in your bathroom. Like how much do you weigh? You’re like, oh, I think I’m 195. And you step on the scale and you’re like 208. So you need to have a scale.

Now, does the scale help you lose weight? No, but it definitely provides you the motivation showing you the benchmark. ⁓ The only really nerdy accounting term is this number six. It’s the current ratio, which we can talk about, but that’s the number that just tells me if you’re sleeping at night. It tells me, can you pay your bills? And the last number, there’s a question mark by, because this is like the custom. You can buy off the rack, but that’s equity. Are you building equity in your business? And we look at some other numbers down here, but I’ll stop sharing for now. But those are just the seven numbers right there.

those just came to me over a lifetime of working in banking and then building my own framework. But the number most overlooked a lot of times, and I can just tell you a quick story, is the gross profit margin. So was at a conference and I asked for a volunteer. I said, I’m not going to embarrass anybody. I’m just going to ask you a few questions.

and share as much as you want to share or not share. And so this gentleman stood up and he did concrete, poured foundations for custom home builders and people like that and some commercial work too. So what’s your gross profit margin? And he said what most business owners say, he goes, it depends. I go, I know, it depends on each job, but it’s sort of like after 90 days, you look back over 12 months, think of your business like a scoreboard on a sports game. The game’s over, what was the scoreboard?

So said, what’s your gross profit margin over the past 12 months when you meld in all of your jobs? Some are high or some are low, but what’s the average? And he wasn’t sure. He said somewhere around 30%. So here’s the takeaway. Your gross profit margin should be known to you as clear as your birthdate. It should not be a guess. Like what day were you born? What year? Like most people know. Except for my wife who’s in the Philippines. Apparently her parents couldn’t seem to get the birthdate down right. I don’t know why, but whatever.

Rishi Srivastava (06:56)
See you soon,

Patrick Shurney (06:57)
Our brother found out he was born two days later than he really was. But for most of us, you know, we’ve got our birth record and our date. So what I said to him is this. said, here’s the learning piece. At a 30 million dollar company. Gross profit margin, there’s three levers. That’s how much you charge for the job, that’s revenue. And then how much is your labor and how much is your material? And there’s some other numbers that go into that, but that’s the bulk of it. So we’ve got three levers to pull. I said one percent of.

30 million is 300K. Most of my clients are able to get a three to 5 % increase in their gross profit margin. So I said 3 % of 30 million is 900K to the bottom line. Like that’s not more revenue. And he’s like skeptical, right? And I said, okay. So if it’s helpful, I’ll just walk you through that real quick. I said, can you get 1 % more on the revenue side on your jobs? He goes, yeah, I could probably get 1 % more revenue. So good.

Rishi Srivastava (07:36)
you

Patrick Shurney (07:52)
I said, what about labor? Can you do better in labor? 1 % better? He goes, I don’t know, man. That labor pool is tight. It’s probably my biggest headache. I said, I got you. I said, what’s the average it takes to do a job? And he said, maybe three days. I said, do jobs ever go five days or seven days? He goes, yeah. I said, well, getting jobs done on time can add up pretty quick. Could you find 1 % of wasted labor? He goes, yeah. I said, what about materials?

He goes, I don’t know, man, we shop around. Like, we have good vendor relationships. We do really good on materials. I said, all right, cool. I said, but do you ever have any job waste? He goes, oh yeah. We got all kinds of waste on the jobs. I said, you got more than 1%. He goes, I probably have 5 % waste. I said, so I think you can find 3 % right there. That number alone will do more to create profit in your business than cutting your subscriptions or firing some lazy guy in the accounting office or whatever. I’m not saying don’t go through your expenses, but…

Focus on that number.

That’s the big takeaway. And when people do, that’s the lever that moves everything. And a lot of people are like, I don’t need to go from 20 to 30 million in revenue if I don’t make any more money. But if I can make more money at 20 million, that’s good too.

Rishi Srivastava (09:05)
You say traditional finance pros gather stats while you call plays that double income. What’s your first 30 day play and how do you measure a win?

Patrick Shurney (09:21)
Yeah, so I’ll use an analogy. You know how you think when you go to the doctor and if ahead of time, they want you to get x-rays and blood work, right? It’s your body, but some other professional outside of you knows what’s going on. So before they even talk to you, they have a pretty good idea what’s going on with you. Then you go in there and they say, hey, Rishi you see this x-ray over here in this one gray area? And you’re like, I’m not trained to read an x-ray. Everything looks great to me. I don’t know. But you’re trained and they can see that.

So when I look at financials, because I reviewed over 10,000 of them during my 30 years in banking, I can just see stuff really fast and I can circle it. Tell me about this. So I can look at their financials in 10 minutes and like a doctor can with this set of x-rays and I can see whether we got a problem or not. Right. So in the first 30 days, we do we do some assessment work, but that’s pretty fast. And just like a trained doctor, I know the questions to ask. so it’s easy to customize that.

Rishi Srivastava (09:55)
Hmm.

Patrick Shurney (10:14)
as opposed to giving like generic advice, but I’m most concerned about where cash gets caught up and gets stuck in a business. And so in the first 30 days, we do that assessment, but that quickly has to turn into a diagnosis and then a prescription. And so at the end of 30 days, even though it’s not a sexy thing, they have a financial blueprint for the next 12 months and the next three years.

And believe it or not, dude, most businesses, even under 50 million, don’t operate on a budget. But to me, it’s like, that’s your financial blueprint. You would never show up to a job site without a blueprint. But yet in your own business, we’re just throwing darts. So in 30 days, you know, I really want them to have a blueprint. It doesn’t mean it’s gonna materialize, but now you have something to execute against. If you don’t have a plan, right? So…

And the reason that I say it’s not sexy is because most people, they hear the word budget, I mean, like, what’s your reaction? You’re like, ugh. Like even just to say it is painful. But it’s like a blueprint. Like I look at blueprints and I don’t see what a contractor sees. A contractor sees HVAC mechanical work. He sees electrical runs. He sees walls and everything else like that. To me, it’s kind of like looking at an x-ray. But then the reverse is true. I look at finances and I’m like, so just pull out seven numbers, not 70.

And I think most business owners are like, I can look at seven numbers, I can do that.

Rishi Srivastava (11:34)
You know, I really like the analogy. A trained professional can look at a financial report and can give insights that a normal person may not be able to do it.

Patrick Shurney (11:45)
Well, accountants I found are great at doing your taxes and compliance. And even though they understand the things that I do, they’re more players, not coaches. Think of like sports, right? Like a really good player doesn’t always make a great coach because they can’t explain it. So accountants a lot of times speak in accounting jargon and it just it doesn’t resonate. And so I’m like a coach, like I’m going to give it to you in like a real world example way that you’re like, I get it. And if the light bulb doesn’t go on, we keep teaching, you know, because if they’re not learning, I’m not teaching.

Rishi Srivastava (12:11)
Yes, sir.

You claim owners can become millionaire contractors at 5 million dollars. And that more revenue won’t fix this. Focus through that math and the mindset shift.

Patrick Shurney (12:26)
So take a $5 million a year contractor making 250,000. Nothing wrong with that. I’m not knocking that. It’s not bad. But they want to make more money. So they try to grow. And they grow to 10 million. They grow to 15 million. They grow to 20 million. And they’re at 20 million. And now they’re making 300,000. They 4x their headache, but not their income. And I know because I see it. I see them at 50 million. And they’re not millionaires at that number. And I’m like, you know,

Rishi Srivastava (12:38)
Okay.

Mmm, yeah.

Patrick Shurney (12:55)
In my estimation, even at five million, I have my own business. To create revenues hard, at five million, it’s not unreasonable for you to keep 20 % of that after debt and after taxes. I just don’t think it’s unreasonable. So percentages are like, would you rather have 1 % of a billion or 1 % of a million? I’d rather have 1 % of a billion.

So as a company gets bigger, they don’t need to have a 20 % profit. But certainly a $30 million company, even at a 10%, would be $3 million. And they’re not even keeping $500,000. So we start talking about that, and we start reverse engineering that. We build a plan that doesn’t happen overnight, but maybe within 18 months, they’ve got a path to making $1.5

And so I’m not a field guy. can’t help them, you know, move dirt better or pour concrete better. But I can, I can certainly point out where like, you know, money is leaving their company that not that they’re going to just snap their fingers, but the first part is having a plan. It’s like I got, I was like three, four months ago. I was like, I got to get fit. I didn’t need to learn more about what to eat and physical fitness. I just needed to do it. I just needed to go out and execute.

So for a lot of people, like the information is helpful, but that’s not transformational. The transformation is the execution of it, being accountable to your numbers. A lot of people just aren’t because, you know, it’s hard, you know, it’s embarrassing too. It’s like, you know, you go to some event and you tell everybody how great your company is, but then I’m the guy that’s like, hey, can I look at your books? And they’re like, But that’s where the change is.

Rishi Srivastava (14:15)
Yeah.

Yeah, ho ho.

Yeah, I mean,

these guys, they work so hard. They deserve to keep some more money, you know.

Patrick Shurney (14:36)
So they’re the hardest

working people. I tell people when I was a banker, I may have two or three fires to put out all day. A contractor by eight o’clock’s already put out 10 fires. I mean, it’s the most hectic life. I’m not diminishing brain surgery or anything like that. Don’t get me wrong, but I’m just saying like to be a contractor, you’re dealing with the weather, you’re dealing with employees, you’re dealing with vendors. I mean, you just have so many variables. It’s really, they work really hard and it’s really hard to make.

Rishi Srivastava (14:46)
Yeah.

Patrick Shurney (15:04)
You can make good money. And I think a lot of today’s millionaires, second and third generation businesses started as construction companies. And I think when people worry about AI, AI is not going to put a roof on your house. So I think construction is the future of millionaires in our country.

Rishi Srivastava (15:15)
No.

Yeah, yeah, AI is taking so many white colored abs. Right.

Patrick Shurney (15:25)
Yeah, I’d be more worried if I was an accountant that you can replace with,

you know, right? Like, I can’t wait till I get all my bookkeeping done by AI.

Rishi Srivastava (15:30)
Go here.

Your transformation promise. Financial blueprint in 30 days, cash flow stress gone by 90, and owner take home up in 12 to 18 months. What milestones should a GC actually calendar for each phase?

Patrick Shurney (15:49)
I think in 30 days you can have the information you need. In 90 days you can start to see results. You know, it’s kind of like back to physical health. If I need to lose weight and I fast one meal, I’m going to be hungry and I’m not going to see any results. But if I do that every day, over 90 days, I’ll see results. If you’re not seeing results after 90 days, something’s not right. And it starts to compound.

Rishi Srivastava (15:56)
Hmm.

Patrick Shurney (16:15)
And within a year, I have a number of clients and I even told them, I said, this is the year I think they’re going to hit a million bucks cash free cash flow. You know, because they’ve learned they’ve begin to instill the disciplines, but then you have to make it routine. And you know, what is it? I don’t know how long it takes to make something a routine. say like 90 or 120 days. It just takes it just takes some time. But I asked people, I said, do you plan on being in business next year? They’re like, yeah. I said, OK, well, let’s just get started.

Rishi Srivastava (16:15)
Hmm.

Yeah, actually, I was just coming from a swimming class and the coach, his style of teaching was so good. I’ve never met somebody like him. So great coaches, including like you, are so valuable to the industry.

Patrick Shurney (16:55)
Well, you know, I endeavor to be one. I I think about the guy at Indiana, Coach Cignetti, that just won a national championship. I mean, what was the difference? The team that was terrible through ever one of the most losing football schools in the country within two years, turn that thing around. And I believe that is leadership.

Rishi Srivastava (17:01)
Okay.

The next section Patrick here is on the financial playbook for construction leaders. After reviewing 10,000 financials and approving $2 billion plus in loans, what three red flags kill bank decisions and how can a contractor fix them within a quarter?

Patrick Shurney (17:32)
Yeah, so when I was a banker, we always were trained that owners look to the future, but bankers look to the past. And past performance is indicative of future performance. And so if you’ve not handled your obligations well in the past, it’s going to be hard to get bank financing. You can get some financing, but it might be very expensive financing, right? There’s a lot of predatory lenders out there to be aware of. But let’s just say your past is a little sketchy.

Rishi Srivastava (17:40)
Hmm.

Hmm.

Patrick Shurney (17:58)
and that one is going to be a problem. Okay, that’s one red flag. Let’s just not have three. So how do we fix the others? The second thing is have your books in order. I’m not a bookkeeper. I’m not an accountant, but I make sure that my clients get good construction bookkeepers. Don’t have one of your relatives who’s not been professionally trained. That’s like having me pour concrete. It’s going to be a problem. And so most people don’t want to pay for bookkeeping. Get really good bookkeeping. It’ll make your tax life a lot easier too. Get your books in order.

So if your past wasn’t that great, get your books in order. Then you have to paint a picture of the future. Bankers think numbers. So I always tell people, my superpowers, people speak to me in words and I turn it into numbers. So the third thing I’d say is have a blueprint. So you go to the bank, maybe the last two years haven’t been great, but your books are clean and you have a three-year plan for where you’re headed. That will show the banker that

you’re paying attention. But if you go in there with the past isn’t that great, your books are kind of a mess and you don’t have a plan, you’re just asking for a no.

Rishi Srivastava (19:04)
Yeah.

You frame your mission as faith driven and about building generational wealth. How does that shape tough calls you make with owners stuck in 70 hour weeks?

Patrick Shurney (19:17)
Good question. Nothing pains me more to see somebody just working so hard at the cost of losing their family, their relationships, their health. So one of the questions, and I have a coach that he asked me that I asked my clients is I say, what do you want? And it’s actually a pretty deep question because usually the surface stuff is, I need some money to do this. I need more clients. I need better this or better that. But then I’m like, well, why? Why? And that’s what we really dig down deep.

Rishi Srivastava (19:25)
Thanks.

Patrick Shurney (19:43)
So had this one client and his numbers were kind of a mess. You he’d made some bad financial decisions and I’m not there to judge him. I’m just like a doctor. I’m just want to get him healthier. I’m not sitting there shaming him. And so I said, what do you want? And he goes, well, I need a loan for this and this. And I asked, I asked a question like 10 times and I said, but why and what do you really want? And he goes, you know what I want? Peace of mind. I want to go to the beach without my phone blowing up. I said, okay, now we’re talking because if we’re only going after money.

Rishi Srivastava (19:54)
You

See you

Patrick Shurney (20:12)
Money, if money made you happy, everybody in Hollywood would be normal.

Rishi Srivastava (20:17)
Yeah.

Patrick Shurney (20:18)
I mean, I want to make a million

dollars. My clients want to make a million dollars. to me, that’s because you then want to do what? Have freedom. But if making a million dollars means you’re now working 90 hours a week, is that really… So I try to understand what the money represents and it’s not just the money. But it is a business and we got to talk about the money. But then what does it mean for you? So that’s kind how I like to bring… When I say faith, I like to bring that deeper component in. I’m not preaching to anybody.

At least I hope it doesn’t come across that way. But what’s it all for? Like what are you trying to build?

Rishi Srivastava (20:50)
You have a great energy. feel like, you know, the way you would coach anybody. I mean, they would get so much out of you.

Patrick Shurney (20:57)
appreciate that.

Thank you. I appreciate that.

Rishi Srivastava (21:00)
You emphasize making finance simple so it scales. What’s an example of simplifying a CFO slash owner dashboard that instantly improved pricing, job selection, or cash clarity?

Patrick Shurney (21:15)
I heard it said that smart people make complex systems, but really intelligent, genius people make things simple. because simple is hard. You hear these stories about these CEOs that say that if you can’t say it in one page, then I’m not going to read it. Anybody can write a 10 page rambling plan. But if you wanted to distill that down into something not simplistic, but simple in one page, it’s actually hard. So.

For me, simple means a really amazing, well thought out kind of machine. And so my life’s work is really these seven numbers that I didn’t invent, I didn’t discover, I just explained them. I’m like, there’s four on the P &L and there’s three on the balance sheet. And if you get those right, pretty much other, I mean, there’s other things to look at, but that’s gonna take care of most of it. So I feel like that breaking that down into a

to understand and to grasp, is this something that people can execute on? And so the example I’ll give is, I keep talking about these seven numbers and there was a CFO of a client because I’m not trying to be the CFO, I’m not the person that’s working 30 hours a week in someone’s business, I’m coaching my clients monthly, so I’m really much more of a coach, not a consultant and a coach. Someone explained it this way, a consultant helps work on your business, a coach helps work on you as the owner. So I work with the owner.

Rishi Srivastava (22:35)
Mmm.

Patrick Shurney (22:37)
So talking to a CFO and I said, show me what you show your owner. And he showed me the spreadsheet that went off the page to the right, I don’t know, like 30 columns. And I wasn’t shaming him. I just said, is your owner following you? He goes, yeah, he’s following me on that. I know the owner’s not. And I just said, you know, it’s really just seven numbers. And he’s like, and he’s got a lifetime in finance. And he’s like, what are the seven numbers? Because it’s easy for a CFO and I’m not knocking them. They play a great role.

It’s easy to complicate the crap out of it.

And I said, these are the seven numbers. And so I feel like in the financial world, we overcomplicate things for people and that’s why we lose them. No contractor is in business to be a CFO or an accountant. That’s not why they started their business. And when you start talking accounting, it’s boring. I don’t talk accounting. I talk money. How do you create a dollar and then how do you keep, if you only keep 10 cents, how do you keep 20? Most owners will lean in. They’re interested in that.

Rishi Srivastava (23:18)
Yeah, definitely not.

Patrick Shurney (23:34)
but they’re not really interested in the chart of accounts and all the minutia of an accounting system. Some are, but not most.

Rishi Srivastava (23:42)
Yeah.

Yeah. You know, Einstein said simplicity is the greatest sophistication.

Patrick Shurney (23:49)
I like that. I’ll borrow that one. It really is.

Rishi Srivastava (23:51)
Your sweet spot is helping owners move from operator to CEO. What are the two mindset barriers you see most and the weekly ritual you install to replace firefighting with leadership?

Patrick Shurney (24:06)
When I was a banker, I had a contractor’s probably doing over 50 million moving dirt. That’s when I learned that dirt is gold. If you have dirt and have to get rid of it, you have to pay for it. If you need dirt, you got to pay for it. So if you just, if you’re in the dirt business, you’re making money everywhere. That’s a lot of capital intensity. But this owner, I’ll answer your question by giving you an example. The owner said to me, you know, Patrick, I’d much rather be working on a piece of equipment out in the field than being in the office. But I find myself in the office all the time.

And that sentiment is pretty much true. Even if you’re a CEO of a business or a company as a contractor, you probably long for the days where you could just be on a piece of equipment operating it. A lot of people don’t really like the office. And so they don’t play to their strengths. And so it’s hard for them to become a CEO. How do you go from being an operator, even of a $20 million company where you’re the bottleneck, you know?

to becoming a CEO. And so the mindset shift is thinking that to be a CEO. And a lot of times it doesn’t happen with the owner, it happens with the second or third generation. Because the second generation is like, I’m not doing what dad did. That’s brutal. You know, we never saw the guy growing up. Like, don’t want, I don’t, you know, I don’t want to do that. And so the second generation comes in and says, no, man, I’m going to have people like I’m going to need to have an executive team and all those kinds of things. So it’s hard for the first generation to ascend to that. They can.

Rishi Srivastava (25:10)
Mm-hmm.

Patrick Shurney (25:29)
But a lot of times I see it in the second and third generation. And so the habits have to be that they understand the field, they worked in the field, you know, but they’re at high level solving the big problems in their company. And they’re not in every meeting. I still want them signing off on all the bids, but like an x-ray, they know what they’re looking at. They’re just going to give the signal. They’re not going to have to create the bid. They’re not going to have to do all the estimating, but their signature should be on it because it’s important. So it’s…

It’s a process and it’s hard at this lower levels. Contractors at 15 million and above, it’s table stakes.

Rishi Srivastava (26:05)
Yeah. And the mindset shift is so important actually as you scale your business.

Patrick Shurney (26:10)
I think

it’s more mindset stuff than anything else, even though that’s so touchy feely. If I said I was a mindset coach, I don’t think people would hire me. But really it is almost anything. Our systems are designed to run exactly how we set them up.

Rishi Srivastava (26:17)
Mm-hmm.

Hmm. At $30 million, every plus 1 % gross margin is roughly $300,000. What are your fastest, durable ways to capture plus 2 to 3 % and how do you wire those insights back into the P &L so owners see impact this quarter?

Patrick Shurney (26:45)
Yeah, we touched on that a little bit earlier when I was at that conference and I mentioned about the gentleman that stood up and said he did 30 million in revenue and 1 % and walking through that. I won’t walk through that again, but they’re not hiring me to help them in the field. There are people, a good friend of mine, Jerry Aliberti, I do a lot of work with, you he does the stuff in the field. But there are already professionals in the field. I’m just looking at the numbers, the output, because, you know, your numbers tell a story. Your numbers are just

a combination of your clients, your employees, all your initiatives, and that’s your scoreboard. And so when we look at that and we start benchmarking, their ideas shoot off. like, how could you save 1 % on labor? So I call it strategies and tactics. Think about like when we went to the moon. I think we went to the moon. I’ve watched too many conspiracy theory shows. I’m not sure we did now, but the strategy is we’re going to the moon. Tactically, they didn’t know how the hell they were going to get there.

Rishi Srivastava (27:39)
Mm-hmm.

Patrick Shurney (27:40)
So I say to them, strategy wise, going to improve profit margins 3%. Tactically, how are we going to do that? So tactically, we talk about, and I ask them questions, how can you improve 1 % on materials? Give me some steps that you can be accountable. So that’s kind how we do it.

Rishi Srivastava (27:53)
Thank

Yeah, that makes sense. And I’m so proud of someone like you. As I’ve been working with contractors, actually, I’ve been falling in love with this profession myself. These guys have utmost respect for them, the contractors. ⁓

Patrick Shurney (28:10)
Yeah, they’re the hardest

working salt of the earth people I know.

Rishi Srivastava (28:13)
The next section here is on integration, cash flow and collaboration. On our call, you noted banks and buyers judge the P &L, not the Ops system report. What’s your operational checklist to reconcile field slash CRM data to accounting so the P &L truly reflects job reality?

Patrick Shurney (28:36)
Yeah.

A lot of contractors, if you ask them what reports they look at to run their business, are gonna not tell you it’s the P &L. And that’s a big mistake because they’re running out of some CRM and they have all kinds of reports. I’m not saying those things are bad, but I tell them this. What’s the report that the government looks at for your taxes? Your P &L and balance sheet. What’s the report that your bonding agency is gonna look at? Your P &L and balance sheet.

If you were ever to go to sell your company, what report are they going to look at? The P &L and the balance sheet. So we need to have one source of truth. Now, we live in such an information age. If your CRM or your field stuff is not talking to accounting, you have to get an integrator to get that stuff fixed because it’s just too simple now. These systems talk to each other and there’s too many smart people. mean, heck, you could go on Fiverr and you could find people that will get these systems to talk to each other. It’s inexcusable.

that you can’t get… I’m just trying to think of a name of one of the popular ones that’s escaping me. Which one of the popular ones that people use out there? Yeah. Not just a CRM, but for other bidding and all those kinds of things. And I’m just like, you’ve got to get those to talk. And so that way you’re not doing double and triple entry. And that you’re looking at your P &L that’s telling you the story. Because here’s what’s easy to happen.

Rishi Srivastava (29:40)
Sierra or follow up here are

Patrick Shurney (29:56)
You look at some internal spreadsheet that says you’re making a 35 % gross profit margin and this happens all the time. And I look at the P &L and I said it’s 22%. And they go, oh, and they get their accountant in there and they fix a few things and it gets 25%. I mean, I had one customer, he just never would admit, when I say admit, he wouldn’t submit to the fact that he was lying to himself thinking that he was getting a 40 % margin when he was getting in the low 20s. I said, look, your P &L is telling the story.

just like your bathroom scale. I said, if you want to set it back 10 pounds, go ahead and convince yourself you’re lighter than you are, but you’re not. So we’ve got to get our system to talk to each other. That’s not my expertise. It’s just like I have my own business. My systems all talk to each other. I don’t have time for double and triple entry. It’s an excusable.

Rishi Srivastava (30:41)
Yeah.

Yeah. And there’s so many smart people, IT people, like even somebody like us, we are in that kind of business, mean, but yeah, using integrations are so important. when a team runs ops in service titan and accounting in, and you went service titan, right? Yeah. Okay. Okay. And accounting in QuickBooks.

Patrick Shurney (30:57)
service page.

Yeah, that’s what I was trying to think of earlier. Yeah, service.

Rishi Srivastava (31:07)
Where do you start? Which three integrations must be live before month-end to stop re-keying and spreadsheet chaos?

Patrick Shurney (31:15)
When I say I don’t know, I say that tongue in cheek. Service Titan and all these others have figured all this out. They can integrate with QuickBooks and all these other kinds of things. And they need to. There are accountants and bookkeepers who specialize in it. I don’t. But the table stakes is that should be done for you. It’s like a business owner when they’re trying to do it, it’s beyond them to like, I hire people for stuff like that because it’s like, I don’t want to spend all my time doing integrations, but I need to have them. So I just tell them,

There are too many people out there that can do it for you and pay to get it done because you’re trying to run your business on two different systems and that’s not, you need one source of truth.

Yeah, so that’s not my area, but it’s certainly so solvable. So solvable. It’s like saying you can’t figure something out in math. It’s like, get a calculator. You can figure it out.

Rishi Srivastava (31:53)
So true.

Right, right, yeah. And we as humans, we’ve grown our GDP in the world so much because of specialization, right? People do things that they’re very good at, you know.

Patrick Shurney (32:11)
Of course. Yeah.

Oh, yeah. Yeah. So I just, I just, I’m like, I’m okay. Like I’m old enough now to know what I’m really good at and what I don’t really specialize in. But I also know that you’re running a business, not a charity. And I think oftentimes people are like employing family members who aren’t really getting their value and stuff. it’s like, look, you got to, this is a business. You you got to, you got to hire people, whether it’s contract, you know, 1099ers or whoever to get these things done for you. Quit trying to save, save a penny here and there, cause you’re losing it out the back door.

Rishi Srivastava (32:41)
You said shaving five days off AR can put about $100,000 back into cash for a $20 million shop. Walk through that math and the three levers you pull to remove those days.

Patrick Shurney (32:57)
Well, I thought you might ask that, so I have it sitting right here. I’ll just pull this up because I built this. This is very rudimentary, but I use this right here. Can you see my Excel spreadsheet right here? ABC Company. Okay. So your accounting software can do this for you, and most people don’t know this, but it’s basically this accounts receivable turnover ratio. How quickly do you collect AR?

Rishi Srivastava (33:05)
Mm-hmm.

Patrick Shurney (33:23)
and they’ll tell me 45 days, I have them step on the scale, I find out it’s 60. And that usually when people give you their AR collection, they’re not even including like retainage, they’re not including the fact that they’ve worked 15 days before they bill. So here’s a prime example. Let’s say you have a $5 million company, your AR when you started the year was at 600, at the end of the year it’s 400, right here it takes 36 days to collect. Okay?

So I just use this now, five million, like I work with contractors this size, but also ones that are a lot bigger with much bigger numbers. ⁓ Let’s say that AR at the end of it, because they’re collecting it much quicker, is 200 and it just dropped like six days off of there. And that’s going to put over six figures back in their bank account over the course of 12 months. mean, you know, I can share this with your group or whatever, but to me,

You know, it’s not so much like fancy spreadsheets or whatever. It’s just that’s the power of knowing what that number is.

You have to know what the number is to measure it. It’s like, can you imagine playing darts but not knowing where the dartboard was and just wearing a blindfold and throwing darts around the room and putting holes in your wall? I mean, you know, what’s your… Yeah, what’s your dartboard? What, how many days does it take to collect? Let’s just measure it. Because all this, when you don’t measure something, you’re just kind of guessing like, I think I’m eating healthy. But when you measure it, you’re like, all of a sudden you’re really tuned in on… And I’m like, well, how can we collect that AR quicker? Why we only bill once a month? I was like…

Rishi Srivastava (34:35)
Wow, that’s gonna be so bad.

Patrick Shurney (34:54)
I think you should build like right before the job’s over or right the day it’s over. You know what mean? Like there’s a lot of things that you can do to improve that because that’s to me, that’s the biggest problem in construction collecting AR. It’s the worst. Like I don’t know about you, but I charge upfront before I do any work because I’m a consultant or a coach. But most construction companies, it’s the opposite. They work for 15 days, then they bill, then they wait 60 days to get paid. Meanwhile, they pay weekly.

Rishi Srivastava (35:12)
wow. Yeah.

Patrick Shurney (35:24)
They’ve paid three months worth of rent. You know what I mean? Like, you have to have a lot of capital to grow a construction business because it takes forever to get paid. So the quicker you get paid, the better you sleep and the more money that’s in your pocket. So it’s a big deal. It’s probably the second most important number, how quickly you collect AR.

Rishi Srivastava (35:41)
You could be profitable in accounting terms, but have zero cash in the bank.

Patrick Shurney (35:48)
That’s the common thing. I post about that on LinkedIn all the time. That’s the problem. You know, or you could, have one guy, had a million dollars in net profit, but his debt service was a million too. Because that’s on the balance sheet. So he was actually losing money. So who cares what’s on the P &L if it doesn’t really mean what’s in your bank and you’re worried about payroll and you’re constantly stressed. So accounting profit, people know this, but you’re like, okay, but how can I take the accounting principles and have them work for me as opposed against me? Because the language of

Rishi Srivastava (36:06)
Okay.

Right.

Patrick Shurney (36:17)
business is fifth grade math. And the question is, are you smarter than a fifth grader? I mean, it’s fifth grade math. It’s very basic math, and you have to know the rules. Like you wouldn’t play a sport without knowing the rules.

Rishi Srivastava (36:29)
Definitely not. Contractors like to be fast to collect, slow to pay within reason. What approval flow and terms policy keep vendors happy while eliminating month-end AP surprises?

Patrick Shurney (36:47)
Yeah. I think most contractors conceptually have two phones. One, when they’re calling people who owe money, hey, pay me. And the other phone is people who are calling them that they owe money. Hey, you owe me money. And so all day long, they’re on alternate phones, right? Like, you know, trying to collect money and then the vendors who are trying to collect from them. And it’s brutal. It’s a constant game. And so there are some…

You can get some pretty favorable terms from some vendors that do just that kind of like materials financing that might give you 60 days or 90 days to pay as opposed to 30. Some companies out there like Billd There’s some other companies out there like Mobilization Funding that helps you give you some money upfront on a job because you have to front all this money. So you can do some things to manage your cash flow from some reputable companies. I just would stay away from those predatory high interest rate lenders because it’s…

they get you addicted to their money like crack cocaine and then you’re out of business. there’s some good resources out there. If people reach out to me, can connect them with some good people. I just mentioned two of them.

Rishi Srivastava (37:46)
Last question here, Patrick, is share a before slash after. A contractor with paper-routed AP and disconnected systems.

Which seven numbers did you tackle first? What changed in 90 days and what made them truly capital ready for growth?

Patrick Shurney (38:05)
There’s a lot of paper intensive stuff out there.

I think when it comes to the answer to that question, I have to go back to cash flow. I’d have to go back again to the AR collection because I find that when I have to get really granular, which is painful, why is taking so long to collect AR and how come AP is almost equal to AR? It’s part of the current ratio. It’s one of my other numbers without getting too accounting nerdy, but current ratio just means

Hey, do I have enough money to pay my current obligations? So where’s my money? My cash in my bank and my AR. What is my obligations? My accounts payable, my vendors and my loans, right? My credit cards, my vehicle and equipment loans and those kinds of things. Do I have a $1.25 of every current asset for every dollar or do I have a $1.25 in current assets for every dollar of current liabilities? That’s the cushion I need to have. And so I measure that number. And if that number is tighter than that, that’s stress. So

I look at those two numbers, which are on the balance sheet, which, like I said, most owners don’t look at their balance sheet. They look at their P &L. And I’m like, those are really important numbers. And so that’s it’s basic, but it’s an aha. And so they start measuring their current ratio. But here’s where that’s a problem. I have a contractor does over 10 million. I use a 10 % rule of revenue for AR. So if you’re a $10 million contractor, I would expect to see a million to a million to an AR. But he’s got like 3 million in AR. His current ratio is fine.

Rishi Srivastava (39:32)
out.

Patrick Shurney (39:33)
But he’s waiting on all this money. So he has no cash. I have another contractor at like 30 million. His AR is like 4 million, but his AP is like 4 million. So every dollar he collects, he’s got to pay out. So we’re not messing with the P &L because the P &L is fine. We’re trying to fix the balance sheet. And sometimes what happens is, not sometimes, oftentimes they’ve grown so fast, they have no capital. And so like a three to five year working capital loan from a bank,

isn’t bad debt, that’s actually good debt to help you grow. Because it’s like a teenager in your house, just eats everything. Growth eats everything. So a lot of times we have to spend some time on that. I haven’t gotten to the point where I’ve gotten so granular that I’ve looked at their AP collections or AP payment systems. That’s probably a different type of consultant, but I know what the symptoms are.

Rishi Srivastava (40:23)
Yeah, this is so good. You know,

The business owners, contractors, they need to be able to work with someone like you. And it’s kind of the future where people who are the most hardworking, they’re rewarded for the work they do.

Patrick Shurney (40:38)
Yeah, and that’s what’s rewarding for me to see them actually keep more of what they earn because a lot of times they’re chasing revenue. And look, I love revenue as much as the next guy. But if it’s the wrong revenue. on a P &L, revenue is usually one number to sales. And I’m like, well, who are your clients? I have commercial, I have home builders, I have whatever. I’m like, well, not every dollar is created equal. So we took we look at revenue and we break out the profit margins on different types of revenue. Right. And you start doing that.

Rishi Srivastava (40:47)
I have

Patrick Shurney (41:05)
I always use this analogy. Think about like, if you’re looking at your business, like a pair, you have a pair of heavy winter gloves on and you can kind of run your business, but it’s clumsy, right? With a pair of gloves, it’s hard to do any kind of fine work, right? So I help them take the gloves off and now they can feel their business like really tactile in their hands. And that’s powerful because now they’re like, I don’t need help getting new contracts. That’s not why I hired Patrick. I need help keeping some of that money.

And then once they’re better at keeping that money and then they grow from 30 to 40 million in revenue, now they’re keeping a lot more.

That’s what I love to see.

Rishi Srivastava (41:36)
Contractors, yeah,

I’ve heard from somebody, contractors don’t, run out of business because they don’t have work. They run out of business because they don’t have the cash.

Patrick Shurney (41:48)
Yeah, I always say cash

flow and capital are the two biggest challenges no matter what size you are as a contractor. And when I was a banker, I probably helped a hundred different industries. I went to help contractors when I started my own business because I just love contractors, but also because they’re the ones that have the biggest challenge. If they got paid in five days, it’d be different. It’d be fine. Like, you know, that’s why a lot of people do home services because a plumber comes to your house and you pay him right then and there. They don’t have cash flow issues.

Rishi Srivastava (42:10)
Yeah.

Patrick Shurney (42:18)
But commercial work, big ticket item, but you’re looking at 60 or 90 days. That’s why a lot of contractors try to live in both worlds, which is hard too. It’s hard to pick. You got to pick a lane.

And the ones that are doing home services have good cash flow, but then they have to buy trucks all the time. I mean, they have lot of capital needs.

Rishi Srivastava (42:35)
Thank you so much for coming on the show. I’m sure our audience would love this content.

Patrick Shurney (42:40)
I appreciate you having me on and getting a chance to talk to your listeners, share a little bit about the things that I do and the things I’m passionate about. So I appreciate letting me share.

Thank you.