Greg Crabtree, Author, Speaker, Small Business Expert

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Greg Crabtree, Author, Speaker, Small Business Expert

Greg Crabtree is a speaker, author, entrepreneur and financial expert. Crabtree has used his entrepreneurial skills to develop Crabtree, Rowe & Berger, PC, a CPA firm focused solely on the needs of entrepreneurs, helping them build the economic engine of their businesses. Working with entrepreneurs all over the country in a broad range of industries, Crabtree has simplified financial reporting and empowered all entrepreneurs to take ownership of their finances. He has pioneered a revolutionary metric for driving business profitability: measuring labor efficiency and developing simple benchmarks for company, team and individual performance.

In 2011, Crabtree published his first book “Simple Numbers, Straight Talk, Big Profits,” in which he shares his core principles of how to turn your business into a wealth building engine. He is currently working on his second book, “Simple Numbers 2.0.”

Crabtree’s community service includes serving as Boys and Girls Clubs of America National Area Council Member, Entrepreneurs’ Organization Global Board (2006 to 2009), ALS Association of Alabama, Boys and Girls Clubs of North Alabama, Atlanta chapter of The Entrepreneurs’ Organization (EO) past board member. Crabtree is a frequent speaker at EO Chapter events, EO’s Accelerator Money Day program and the U.S. State Department’s New Beginnings program for international entrepreneurs.

Greg and his wife Debbie have four children. Greg is an avid golfer and enjoys playing historic golf courses whenever his travel plans permit.


[00:00:01] You're listening to Scaling Up Services where we speak with entrepreneurs authors business experts and thought leaders to give you the knowledge and insights you need to scale your service based business faster and easier. And now here is your host Business Coach Bruce Eckfeldt.

[00:00:21] Welcome everyone. This is scaling up services. I'm Bruce. I'm your host and our guest today is Greg Crabtree. And Greg is a speaker author entrepreneur financial expert. I'll even say financial extraordinaire. With Crabtree row and burger which there's a CPA firm based solely on the needs of entrepreneurs. And one of the things I love about Greg is he takes kind of the CPA conversation which is usually about taxes and how do I save money on taxes and really make it a conversation around how to understand your business and how you don't understand how your business works where it's working where it's not working what you can do about it.

[00:00:55] So I'm excited for this conversation. Greg welcome to the program.

[00:00:59] Thanks a lot Bruce.

[00:01:01] So before we get into the books and we get into some of the things you teach and the things that you help explain to entrepreneurs about how to understand their business let's just get a little bit of your background. How did you how did you get into this. What how why accounting why entrepreneurs.

[00:01:18] What was the story that got you here.

[00:01:20] Well why accounting started on a chicken farm in northeast Alabama. So when you gather six to seven thousand eggs a day by hand you learn what you don't want to do for a living. So so when my mom always talked fondly of her tax accountant and I realized he worked in an air conditioned office. And so it's like OK. So I. I had a pretty low or pretty low bar and becoming an accountant.

[00:01:44] Conditions just better work. Yeah.

[00:01:46] So so why would I do what I do now. As I realized I hated accounting once I learned how to do it and so I said there's gotta be more to this. And usually I think every profession has that. I mean there's always the more aspect of it. And I was always fascinated with the entrepreneurial stories of the guys he just created.

[00:02:09] Most times in our first generation well you know in the sense of somebody like me that just came from a farm or are you know they really didn't grow up with money in their hands and they they created something from rubbing two dollar bills together to get the third and the fourth and the fifth and the next thing you do you turn around you've got 10 million. That. That was always fascinating because they're the creators of business. And so it was more anecdotal at first and then through actually to be quite honest I mean joining the outfitters Organization in 2001 you know I changed the world of people that I hung out with I didn't hang out with other accountants I hung out with outfitters and and and really it was that thing that they helped refine my service offering because I just did a simple thing of asking you know what was it that they weren't getting from their current CPA and smart. And it really really led to help me. They wanted help to run a better business. They knew that they could be better but that just really wasn't a good repository or a place you know to really at least take. There were people that had good ideas but you could never take those and apply them to the numbers and really hold them accountable. And so that was really what led to it and then it just continues to refine itself and led to writing the book and so forth and hopefully next book soon yeah.

[00:03:33] And so for people I'm assuming many many people who listen to this podcast know you know your work. But for those that don't. For those few simple numbers straight talk big profits is really a key book that we teach and that gazelles community.

[00:03:50] That's part of the community. And it really has some I think some really good fundamentals for business folks and I mean not the accountants finance side but people who are trying to run and operate businesses really breaks it down into seeing the numbers as a tool and tool to really understand how your business works and what you can do differently around it. And then you've got a new book coming out symbol number 2.0.

[00:04:11] Tell us a little bit about what you're going to try to publish now one really really in that when we see simple numbers is really kind of a framework or a platform so to speak because what is allowed us to do is we've created this construct of how to see data consistently across all businesses so we can we can do business comparisons across industries. So you know you can manufacturing company can learn something from a service business or learn something from a retail business and so forth. It also gives us a common way of understanding the why behind the business in a sense of both capitalization and profit targeting. And really once you once you understand I think that was it has since been kind of the last mile of the journey is I had observational things in the first book that I felt like from my study but I couldn't explain the why and now I think I've taken it another step of going Okay here is why this works this way. And so when you're hearing people discuss things you have to take it with a grain of salt because if you don't know the capitalization structure the business what kind of support do they need from accounts receivable or vendor support. You know those kind of things what kind of margin do they get. Then it's really hard to understand. They can be telling you something and leading you down a path of destruction or or you could say oh I can never do that when absolutely it's right there in front of you and you can. And so it's really fascinating to see that there is this signature of every model that you can almost build it from. And then it gets down to just execution. Are you good enough to just go make it happen every day.

[00:05:52] Yeah yeah kind of the discipline and the drive to actually implement the learning well and then and that's.

[00:05:58] And I always say this.

[00:05:59] I mean that's really where I really appreciate all the coaches like yourself that we work with because I mean that's the part that you know once you can get the financial strategy it does get down to that that discipline of execution which I you know we really appreciate the coaches that we get to work with with our clients because I think that's the added element that is always gonna make those businesses perform better than those who try to go it alone.

[00:06:25] Yeah. Yeah it's really I mean I would say as a coach I just accelerate the process. You know we're trying to pick the right rate model clarified the model and accelerate the process because as it is it is a game of it's a game of time and it's a game of competition. Right. Like you don't have infinite funds you don't have an infinite capital you know you've got to put it at work and make it productive. And when you have people nipping at your heels the fact is is that there are other people trying to grab your lunch. So yeah.

[00:06:48] So let's talk a little bit about service based businesses because that's you know kind of a particular area of focus of mind or an interest in mind when you look or when you are working with an entrepreneur or a CEO who's who has a service based company.

[00:07:02] What are the things that you first start to ask are the things that you start to inquire about to give you a sense of the type of business or to sort of see how the business is running or how well it's running what are the what are the questions that come up for you.

[00:07:14] Usually the first thing we look at is you know what type of service base model are you. Are you trying to do in the sense that are you think of it. Probably in the simplest form of service. I'm a a stepping model I'm providing labor but I'm providing no guidance of that person. I'm just a random body to the people who need it all the way up to a service to where I know there is a an agreement of the outcome that the customer wants and it's up to me to find a way to make it work. And so when you when you plot each of those on the ends of the scale you're gonna find that there's a lot of different elements along the way in terms of what the market will accept your ability to the ad management labor to make those people more successful in delivering what the customer needs. And I always start with really the first idea of asking the first simple question when you start thinking about the financials. All right. So I charge X amount for whatever service on providing and then. Well is there is there some other thing that's involved other than Labor is there some other hard good cause to pass their item. Because the few service businesses that might have some out-of-pocket goods you do have to filter that piece out because that's not service. That's just a an enablement of that service to be applied.

[00:08:38] So some examples are give me an example of I understand the staffing models so I'm basically I've got people that have certain capabilities you need people with those capabilities I view them on a per hour per day basis either like you know they come to your site or you have access to them and they they are working under your direction kind of that's the right Labor model. When I start to add some of these goods and stuff like give me some examples of those.

[00:09:02] Good example go to the construction industry know that is a. So if I'm a concrete specialist I don't make the concrete I order the concrete from the concrete manufacturing place have it delivered it's my skills my services that directs the pouring of the concrete in a correct fashion. So the concrete is a material that generally I I'm going to be passing that calls through to the customer. And so it's not it's what I charge for the total job minus the cost of materials that I get to what a term we refer to as gross margin. That's the true economic top line. Let's take it to say a marketing firm in marketing I can have some out of pocket expenses for either a specialist that I don't retain on staff. So a subcontractor or a freelancer and so I'm the billing face to the customer but I don't. How's one hundred percent of the skill set in office. So in theory anybody that I hire externally is gonna be essentially a pass through you know that's what I was going to cost goods.

[00:10:04] I mean based on I count that as a COGS. Absolutely. So this is like I've always seen these like advertising agencies you know I'll work with them and they'll Don't be like a 30 million dollar advertising agency. Twenty eight million of it is advertising spend. You know it's really only. There's really only a handful of people in exactly.

[00:10:21] And I think ad agencies are one of the ones ones that have been severely disrupted in the business model over the last 20 years that they used to get a solid 20 percent commission on every hour they place and they would count revenue for all the ads that they bought. Yet they're really getting 20 percent commission off of it. That commission has fallen dramatically from there but I would say so. So that that's kind of a case of you got to understand what is the real business model in that process. So once I get the gross margin now I have the numerator of the fraction saying what is the direct labor cost that it takes to produce that gross margin. And that's my first lever output of understanding you know how well is the market respecting the quality of my labor. And so we refer to this term as labor efficiency ratio. And so for my direct labor and so a good example is in the staffing industry the average is about a dollar 30 dollar 40 ish somewhere around there we have quite a few staffing clients as examples and essentially think of it like that for you to run a dollar of payroll. The marketplace is only giving me 30 to 40 cents on top of that to cover 10 percent of minimum basic payroll taxes and benefits and I'm only getting 30 cents or so to actually have found the person and run their paycheck and replace them if you don't like them.

[00:11:39] And all my overhead and everything I need to run the company.

[00:11:43] Yeah. And so then as I scale up probably the most common number is somewhere around a 2 is where most services most manage services would be in that process. As you get higher typically these are going to come from you have a market niche you have better management systems in place to get more leverage from that labor. You may have technology enhanced labor. You know we've got a client that does some nominal things with a call center that you know he's getting you know somewhere upwards to ten dollars of labor efficiency because he's invested in the technology to make that labor more effective. What time they do have to spend interfacing with the customer. Now the marketplace kind of equalizes itself out over time. But ultimately I would tell you that our functional learning when I wrote the first book from studying the data was if I want to get more profitable it is about the leveraging of the labor that I'm spending money on is what makes every business profitable. And because we still haven't gotten to the point that there's not a business out there that doesn't require labor. And to a certain degree I mean I say you know I know a lot of onto theirs. You know I don't want to managing a body or rising to be a contractor. Well if he was going to be a contractor who's going to be a really small business or he's going to be passing through a bunch of stuff and I nothing. So you've got it you've got to have some employees and it's the leveraging of those. And what we've done is segregate. We take that labor pool and break it between who is direct and we make a simple statement of are you necessary for the production of what you charge customers for. That's a direct person. And then have to be you know generally it's 40 50 percent of your time or more is direct then all of you go into direct. We never split a partisan. I'm not a fan of splitting.

[00:13:31] So it's messy. It's become subjective.

[00:13:34] And so generally put everybody else into management labor and so the idea is I'm trying to get to this pure output. This simplistic without allocating a bunch of cost to what gross margin did we make in what is the cost of our team that is that is doing this and that ratio then gives you a way to measure it and see are we trending better or worse across time in that process. And so got gross margin monies direct laborers is really a term we create a call contribution margin. So we believe that's the pure output of the business engine and that is a clean number that we also believe we're fans of the great game of business that Jack Stack and his vote created. And we believe that contribution margin is an easy number to actually share openly with the team because I'm not getting them involved in whether we buy two ply toilet paper or not. You know it is or whether I hire somebody on the management team that's up to me I want my direct people understanding what is the output and so that they can actually say you know are we winning the game or not. And it's such a clean measure because I will tell you the rest of the stuff below contribution margin is fairly predictable in every business we work with. And so if I can just get the right kind of output the rest of it becomes a whole lot easier to direct. And then on top of that I can hold my management labor accountable to that contribution margin production because that to me I think is really that kind of the key if I want to build a scalable business it is the effectiveness of my management labor ultimately that drives my profitability.

[00:15:11] Yeah well so talk to me and hold them accountable so.

[00:15:13] So I get the direct labor incentive that you carve out the labor and you can look at sort of the efficiency of that. How do you look at the efficiency of managed I mean what's with you when you're actually looking at the numbers. How do you have that conversation with the management folks. What's the sense. What does that really say.

[00:15:28] Yes it that's right for I mean direct labor can only work with the gotten that with the gross margin that's put in front of them to work on. So now they can. They can not mess up and they can stay focused and get more throughput but really that's a management function. And so it's really management is responsible for three things. Management needs to drive revenue. They need to control direct cost. It gets to gross margin and then they need to supervise the effectiveness of direct labor. Then you know I can pick any one of those three or all of them to optimize my fact if I optimize all three I'm going to be the guy that wins the game. Yeah. Yeah. I can't be singularly focused on one thing. I can't be singularly focused on revenue increase and when might my labor can't keep up. When I when I don't I don't train them when I don't give them tools to measure productivity. You know we've got one guy that you talk about a classic service based business that's just killing it. They're a long care company in Texas. And and what's fascinating is is they really. So they've adopted our labor efficiency ratio to manage their direct labor staff. And so. So they actually have a kind of a logistics parts and that checks in with every mowing team every two hours. And so they know where that team is supposed to be at every two hour window. And if they're behind they're saying OK do we need send more folks what's that why are you behind.

[00:16:50] But but their management and that logistics person they're they're part of management labor so they're checking up on people to make sure that are you hidden gate to gate to gate. Because if I don't know if there was a two hour window that I didn't get this yard mowed when am I going to get to it that hours Don.

[00:17:08] Yeah but I like that because I was saying that you know one of the main purposes of management is to create the right systems and policies and practices to help people do their job well. And then if someone is not thinking through like OK what are the obstacles one of the roadblocks. Oh my you know removing you know things that are hindering my people from being productive.

[00:17:28] I mean the fact is most most direct labor folks have little control of the system that they're in. I mean there's ways you can kind of you know help them do that but it's really management's job to do that and figure out you know how do we make people more productive.

[00:17:40] Well I mean I think the idea is as much as we like the idea of well I'm going to hire good people I've got a good head on their shoulders and they're just going to pick the right thing to do every day. Well you know no matter. I mean they're probably good people. And I'd I would probably say that I think the epidemic is more so in bad management than it is bad people.

[00:18:01] And I you know I've seen some examples that is starting to turn my my mind in this way of saying some people are just so exceptional at getting the right behavior out of their people that we really actually at the end of day as business owners we must be better. Behavioral psychologists than we are business people.

[00:18:19] Yeah no I totally agree. I don't know if you got into Deming and his kind of early look at systems and you know how to motivate incentive you know green incentives around folks but it's just I still go back to all that stuff because the examples he has is so just so good about just sort of backwards thinking management and about you know how to motivate people and how to give people some people up for success.

[00:18:42] So I think you know I think if you think if you give them clarity and I just look at the things that I wanted people to do and really it's on me that I just was not as clear and specific and I didn't train them to that level of the term that that I learned from a recent place that I went to visit and look at their processes. The term that they use is brand the standard. Yeah. And I really like that because in their case it's a company Bill Powell sudden service in Kingsport Tennessee and Malcolm Baldrige award winner and one of our fellow hours Blair Christensen up in Calgary Canada turned me onto them and I just got back from a two day class with him and I was blown away. I mean these guys are incredible accomplishing incredible things but with a simple mindset of they want 100 percent to brand standard 100 percent of the time at 100 percent of the volume.

[00:19:33] Yeah and and you look at that and you would think oh well you know yeah that OK. That's a good thing to aim at now. I mean they have. I mean this is a drive through hamburger chain. Yeah. No no indoor seating dropping. They have one customer complaint in every thirty five hundred transactions.

[00:19:51] Wow. That's pretty surreal actually.

[00:19:54] I know and the people who put it together I mean it is about kind of when you mentioned damning I mean you think that in that you know they look at making a hamburger as a manufacturing process. So what did you define the standards in into or are you holding people to the standard. And one of the exercises we did in the class I realized that I was totally woefully deficient in defining a standard that that I wanted to achieve to so that my goal in the New Year.

[00:20:21] But I look at this and I realize that you know I mean to whatever we you know we want to accept or allow you know let's just be more definitive about it. But then the idea is it's got to still then measure back to the key business drivers of. Am I you know one of things we like about labor efficiency ratio is once we establish the signature what your labor efficiency ratio can be. I mean that's that's almost about the only number you got to look at. Because when I look at my own numbers every month I just look at my last 12 months the what we call the rolling twelve what's my rolling twelve revenue trends and then what's my rolling twelve labor efficiency trends and if I'm at a two early are as is my model I know that I'm going to make my profit standard and if I'm below it too then I'm going to be below my profit standard likely. And so you know what. So now I know what was it that caused that labor to not be productive. Did we not sell enough. In our case as on near term Yeah ours is going to be throughput. They we train right do we have to redo work. Did we get those. I mean you can have plenty of work but did everybody get it out the door. I would say that the number one thing of every service client that we've done a planning session with that they have 10 to 20 percent more output just by getting everything done that they have in hand at a better efficiency because there's about 10 to 20 percent lag of flow that it's like plaque in your arteries. I mean you know if you want to be healthy let's get the plaque out and put a stand in. And I think every every service base business is largely starting from that standpoint that there are about 10 to 20 percent blockage of throughput and many times it's actually just because of one thing its lack of focus.

[00:22:09] Yeah I. They don't know a thing about like this you know someone told me of the day they're 26 seconds away from running a two hour marathon. So the last marathon best time was two hours and twenty six seconds. So when you look at that I mean that's literally that's just a crazy tie that you look at when the or something because they measure it.

[00:22:34] So a guy run in a marathon I mean are you are you waiting till it's over to just see how it turned out. Well no no they're measuring gate to gate to gate to gate another get in there and then they're trying to find can get better can it get better. Can it get better. Yeah yeah. And especially in what you're talking about in terms of focusing on service based businesses. Here's the one big thing of why we keep labor. We never mix labor with something that's not labor in the panhandle. And the reason for that is labor is the only cost that comes to work every day with an attitude.

[00:23:05] Yeah no. And it also leaves your door every day like walks out. That's right.

[00:23:10] And when you when you look at the variability of performance of the human what what's capable you know. I mean that's really where it not now granted there's there's a level that's also unsustainable and you can't build your business around unsustainable performance you know but we're so far from the sustainable standard. But then again I mean the nice thing is I get to say hundreds of businesses you know really insides and our practices all over the US and Canada and now some international clients we had a few collapsing Australia now as well. And it's amazing. I mean business is business I mean it is not exactly it really isn't any different nowhere in the world really.

[00:23:50] Yeah. So let's talk a little bit about the growth process because I think that's one thing. I mean you kind of hit upon it a little bit. I got one thing that I often find when I go in a ceremony with the client is they're anxious to grow we want like you know double the business in three years like they have all these growth targets and we often kind of take a step back and say look before we start scaling this thing up let's make sure that we of optimize and fix things.

[00:24:10] You don't want to I was look we want to scale problems we want to scale and things that are working and I think you're hitting upon this and then you want to be able to kind of diagnose the business and figure out OK where is it working where is it not in and the labor efficiency ratio I find as a key one. One thing I'm kind of curious about is as the company grows do you find that deliver efficiency ratio changes. I mean you know you need more management you know running a team at 10 is very different than one lender and is different at 500. Like what.

[00:24:36] What are some of guiding principles or insights that you have around the impact of growth on labour efficiency.

[00:24:43] Yeah I mean if short of a lot of it depends on where you penetrate the market and so you have to understand where you are on the on the market curve of picture. You know an elbow curve on the marketplace where the high end company is Nordstrom and in which they have got the highest price rate but the lowest number of customers compared to Wal-Mart the highest number of customers and the lowest cost. Well where am I going to be. Because there's only so many customers that are going to get a Nordstrom. And but there's a whole lot more customers that are going to go to Wal-Mart for me to go compete with the Wal-Mart of the world I do. I will lose labour efficiency because I have to change my pricing to accept more competitive pricing relative to volume. Now as long as I'm still penetrating the target of my market there should be actually increasing improving labour efficiency more margin for dollars spent as my my team gets more fully utilized when I'm a team of right now. I mean we are we are better labour efficiency today as a team of forty five people than we were a team of one team of 15 because I have fewer people that are just coming on board to take on that that next range of work.

[00:25:58] And so from that standpoint but there again. So there's two factors that you always have to ask the question of the data. Well if labour efficiency is declining Hwy Is it because of the throughput of work or is it because of pricing in that regard.

[00:26:12] Because I'm looking at so I can talk about the same through. But if my pricing is coming down right my revenues are gonna gonna drop even though I'm selling just as much.

[00:26:20] Exactly but but I really do believe that you know it is that aspect of understanding the growth concept so here's what we've learned about growing number one is especially in a service based business. Your average return on invested capital. Whatever. So think of invested capital as the sum of everything that you have in assets that are real assets everything you owe in real liabilities. And the assumption is there's no debt that's that's there that's not tied to either receivables or equipment. You know that would be I call that fake debt. That's really kind of capital disguised as debt when it's financing something that there's no hard asset underneath it. You know that it's productive. And so just my simple equity no that's really what I've got invested in the business. And so what I'm really striving for is I want a minimum 50 percent return in terms of annual pre-tax profit for every dollar I've got invested in the business that is actually how I've determined the universal profit standard because in the original book I kind of hypothesized 10 percent was good 15 percent is great. Yeah well that worked for quite a few of the businesses but it didn't work for everybody.

[00:27:33] So far I've not found any US business that violates the 50 percent minimum profit standard. So if you have a properly capitalized business you should be able to make an annual 50 percent of that number in profit every year. And the average is actually closer to 75 to 90.

[00:27:52] Oh interesting. Yeah. So this is actually new for me. So yeah I've always since the you know 10 is good. 15 is great. Any more than 15 is probably not sustainable.

[00:28:00] You've got some angle in the market that you know is either not scalable or is not sustainable in much like you know kind of the old rule of thumbs of life five times even as a neutral value business. Well that 10 to 15 percent standard it will get pretty close. Most of the time. So if you actually run the math on those and look at it now you may have some that are super high because they're highly leveraged so I'm trying to get this based off of a fully capitalized business which means I got two months of OP and cash and nothing drawn on a lot of credit.

[00:28:31] The only business had a Latin America food distributor that I could only get them to 40 percent return on invested capital because they had such dysfunctional trade terms with their customers and vendors that it took too much capital. Yeah but that's the blessing that we have living in a in a in a trade economy that has a basic amount of trust built into it. And so with this 50 percent standard let's talk about growth. Well if if I know that I can sell enough to add the next team member that provides my services and I know that that I can get a 50 percent return on what that takes would I do it if I had access to that cash yeah. And the answer is all day long. And really like say it's closer to 75 in reality 50 is just the minimum standard. Yeah. And so the reality is it depends on how good of a better you are. And so I have some scale that affects my quality of my bet in the sense that can I go hire somebody that you know what am I going. And this is a term we call launch capital. What am I going to spend and that is a discretionary choice. I don't need it to keep what I am going. This is to grow.

[00:29:42] This is my catalytic cost.

[00:29:44] Yeah that's right. And so what am I going to spend before that cost will pay for the break even. And then I want to hold it accountable to not just break even I wanted to get my money back and so we identify that you know there's three primary launch capital spans I can add people I can spend money on marketing and I need some infrastructure I need to buy a piece equipment or buy a building or whatever.

[00:30:06] Now another cubicle or another another spot to work.

[00:30:09] Yeah. And so the idea is what we do is we isolate this incremental discretionary choice span. And my belief is is within 12 to 24 months I need see a 50 percent return on that spanned. So if I think that adding some new team members that I'm going to be a hundred thousand dollars in the negative before they start to break even then my overall profit target after I've spent that has to show fifty thousand dollars or more profit increase. To say that it was a good plan within 24 months at the outside and the closer I get to a 24 month payback I've got to really start to think about 100 percent return instead of. There are certain things that I know I can't penetrate a marketplace with sales except being because I've got a nine month sales cycle or something like that.

[00:30:58] Yeah but the longer the cycle of requirement for repayment I get to get a bigger return on. Otherwise I'm in a really high stakes professional gambling game and the vast majority of entrepreneurs just aren't suited for that. You better bring bags of money with you to play that game.

[00:31:14] Well I find it's always there's always been this dynamic of what is your what is your constraint. You know sometimes it's you know I can find people pretty easily it's hard for me to sell in other cases like I get you know it's easy for people to sell. It's hard for people to find talent. So I always find I look that bad or that that risk analysis kind of depends on which side of that equation is most uncertain or the most difficult to to make it.

[00:31:36] And so here. So here's our here's our formula for that. So our research data we've got a 50 company model that we track that's all different kinds of industries all over the US. So it's kind of our economic index that we kind of keep a pulse of what's going on in the economy and and out of that what we learned was that generally this particular group grew about 15 to 20 percent per year over the years of 14 15 16 in that number. I

[00:32:02] Don't have a final number for 17 yet but it was probably somewhere still in that you know twelve 13 percent range. At least if not 15. I mean we still see a general continual increase in in terms of the business that we're working with. But here's what we found from the how to fund it side that on average they took 40 percent of profit out to cover taxes.

[00:32:23] They left 30 percent of profits in the business to fund growth and they took 30 percent out is after tax profit distributions. So we call that the 40 30 30 model. And so once you're fully capitalized you can grow at about 15 percent and still improve cash and still distribute 30 percent of your profits. So the key is what you have to get what you have in your hands fixed first before you try to grow on top of it. So that is our number one play that we recommend running is listen. Well if I don't fix what I have now I'm just adding bad on bad. Yeah exactly. And that's not going to get me there but we are the data's pretty compelling that there's very few business models that are constricted. If you'll just you know now you've got to go on a diet first to get fully capitalized. So if that business you then have the two months of operating expenses cash and you've got money on a lot of credit. Okay. Just pause. You leave a hundred percent of the after tax profits and some 40 percent going out for taxes 66 60 percent is staying in capitalism. But I will tell you that the time frame required for that is generally six to 12 months max that most people take to get there a few maybe outside 18. But I know it's amazing when you get focused how quickly you can turn that now I always say though that the ordinary needs profits of his business distributed to cover their living expenses they're on the slippery road dolphin or all hell it's because that you know you just you just destroy the very capital creator that you've gotten in.

[00:34:02] Yeah because a profitable business is a capital creator. And when people say that they don't have access to capital it's like nobody.

[00:34:10] You know everybody is in the same boat. Just just go be profitable. You won't need your own capital.

[00:34:17] No I you know self self-sustaining business is a powerful business. Once you get it going it's tough when you keep relying on outside capital. GREG We're going to be on time here. This was great. I learned a few things.

[00:34:29] I liked the whole fairly simple way of kind of just breaking down looking your business figure out where you're efficient. I love the whole thing of like get the business working well before you start to scale. I think it's one of the biggest challenges and biggest missteps that people make. Excited about Numbers 2.0 looking forward to hearing when that's going to amount and excited to stay in touch. Thank you for taking the time with me today. This was it was a pleasure.

[00:34:52] Yeah thanks for having me. I appreciate it. And if you want to find out more about you about. About the work you do about the books. What's the best way to get a hold of you and more information.

[00:35:02] The best the best ways the book Web site is So that's fairly easy to get to. And then there's a contact form on their that'll they'll email or get sent out to somebody in the office and either myself or someone I get get back with. So I have gotten the interest in it but we tried to put even beyond what I put out there there's people I've been fairly generous to let people videotape my presentations and so from what I've learned there's quite a bit of stuff on YouTube that I didn't put out there. So. So actually I'm out on YouTube for holidays and about as well. But we've got a few of those links on the Web site and some free tools that hey you know it's like whatever works. You know I I'm just as thrilled when somebody can take something we teach and apply it and we don't have to work with them. But there's always gonna be plenty of people that hey if you need somebody to help you work through it. We're here for you.

[00:35:52] Awesome. And I'll make sure that that link is on the show notes here so people can click through and I'd recommend people checking it out and looking at some of the content. Like I said one of the reasons I love the work that you do Greg is that it is it is so accessible and turns out from this. This thing I think about once a year when I have to pay taxes to really a tool to run your business which I think is powerful good. All right appreciate it. Thanks Greg.

[00:36:15] You've been listening to Scaling up Services with Business Coach Bruce Eckfeldt. To find a full is a podcast episodes. Download the tools and worksheets and access other great content. This is a Web site that scaling up services dot com and toll free to sign up for the free newsletter scalingupservices/newsletter.