The 9 Dirty Secrets of the Contracting Business

Speaker A: 00:00:00

Every contractor who told you he's crushing it this year, almost none of them told you the whole truth. And it's not because they're liars. It's because our industry, it's like, made this agreement quietly without ever voting on it.

And it's like the industry, everybody agreed to keep certain things to ourselves. You know, we trade revenue numbers that we would never let an accountant see, and we. We answer the question, hey, how's the business with.

Oh, busy, man, we're busy. And we let the other guy think that that means that. That we're free, that, you know, we've got freedom. Well, today I'm breaking that agreement.

These are the dirty secrets of the contracting business. Nine of them, and the ninth one most of us have never said out loud to anybody. Welcome to the Contractor Freedom Podcast. I'm Jason Phillips.

If you're tired of feeling trapped by the business you worked so hard to build, you're in the right place.

As a multimillion dollar contractor and founder of Contractor Freedom, I've learned that freedom comes from mastering yourself, leading others, and building systems. Each week, I'll help you build a business that serves your life. Because the goal isn't to build a bigger prison.

It's to build a business that creates freedom. Welcome to Contractor Freedom. Let's go.

So seven of these agreements we keep from each other, one we keep from ourselves, and then one we keep from God. So let's start the clock. Okay, so let's set the scene here.

You know, you've stood on that trade show floor, you've been to that industry event, you know, dozens of times. You sit in a mastermind, and you can scroll any contractor group online. Look, everybody's winning, everybody's growing, and everybody's crushing it.

Look, I'm not calling anybody a liar. The industry agreed without ever voting on it, just to keep certain things quiet. You know, advice that we, you know, nod along to and.

But we never follow numbers that we quote that our own accountant has never seen or would throw up if said saw. They were. If they saw we were sharing numbers like that. Look, you can survive a hard truth.

What you can't survive is a hard truth that you refuse to say out loud. And, you know, these things compound in the dark, on your books, in your home, while you smile and say, oh, man, we're busy. One more time.

Oh, man, business is great. Look, a problem that you won't name is a problem that you can't fix. And all progress. Listen to me. All. All progress starts with facing the Truth.

So here are the ones that we do not say. Secret number one, the business you built for your family is stealing you from them.

Look, you started out with a dream to provide for the family, to maybe it's to get a bigger house or build a retirement or just provide for your kids or maybe leave something for them, but just, you know, a better life. What was, you know, that vision? You started off with a vision, and that was the whole point.

And nobody warns you that the very thing that you built for your family starts becoming the thing that takes you from them. Look at it. You're missing the dinner table.

Maybe you're sitting at the dinner table, phone face up, and you're constantly answering the phone, renegotiating with employees or. Or clients. Always on the phone, always on the email, always texting. And, you know, it's like you're home in body, but you're not home in mind.

Not home, not really present. You're present, but not present. And maybe you're present, your mind is present on the job site.

So it's like you're never fully at work and you're never fully at home. You're just always partially on. And what nobody says. Look, here's why nobody says it.

Admitting it feels like you're failing at the one thing you're trying to win. Business. So it becomes a hard season. And you promise, you promise the family that you're going to be, you know, present.

Later, after I get this next hire, after I get through this push, after I get this backlog down, after I. After I start bringing in some leads, you know, after this stretch, after this push, after this.

After this drought, whatever it is, there's always a reason. It's always after and after, after, after, later, later, later, not now.

All the while your children are growing up, your spouse is having to handle things on their own. Look, here's the truth, friends that were later.

It's a lie that the business tells you so it can just keep taking from you, taking you from your family. And look, this is not. It's not a scheduling problem. It's a design problem. And it's the way that you. Now, look, I'm not saying you're to blame.

I'm saying you're accountable. You're responsible. Look, we're taught to go grind it out. We're in this hustle world. Go hustle, go hustle, go grind. Okay, yeah, I get it. You have to.

There's a certain amount of effort you have to put in to build something great. But the problem Is you get stuck on this treadmill where you're. I mean, imagine this for a moment.

You're like on a treadmill, and you've got to keep running. And that when you run, there's like a machine attached that provides oxygen for you and for your business.

And if you stop running, the oxygen runs out. That's what so many business owners feel like. They feel like they're trapped on a treadmill. They can barely breathe. And.

And if they slow down, they're going to die or they're going to go broke, or they're going to lose their image, or they're going to feel like a loser. There's a better way, friends. Your business should serve your family.

It should not steal from your family, steal you from your family, and it shouldn't even really compete with your family. Your business should serve your family. And unfortunately, most contractors, nobody taught them how to do that. So here's. Here's secret number two.

Do you actually make money? Most business owners, especially in the contractor world, don't even know if they're making money.

They know if they have leads coming in, they know if they have jobs on the schedule, they know if they have money to collect. Okay, but they don't know if they're really making money. And the answer seems to always be, push, push, push. More revenue, more revenue.

Keep feeding the top of the funnel. Feed the machine, feed the machine, feed the machine. It's a nasty cycle, and most owners don't even know if they're making money.

You start asking questions about gross profit margin, net profit margin, different numbers, financial numbers and things like that, and the room gets quiet. Where did the money go? And here's a question. Look, I talk to business owners all the time, okay, Jason, where'd the money go?

I don't understand where the money went. You know, my spreadsheet that I get from whoever does it for me says I should be making money, but I look in the bank account and the money's gone.

Are you profitable? Are you? Or are you just moving fast enough to feel like you're profitable? Most owners don't have financial clarity. And here's why nobody says it.

Because not knowing your numbers feels like you're not being a real businessman or businesswoman. So you fake being fluent.

You talk top line revenue, talk it loudly, and you stay away from the bottom line where the, where the answer lives and you feel like. And you've been taught that more revenue is the answer. To get out of the prison that you're in is the answer. To freedom and success.

Friends, that's not the answer. The truth is, the revenue is what you tell people. The profit's what you keep.

You fund your family, your freedom, and your future with, you know, I would say net profit, but gross profit, because you use the gross profit to buy your freedom back with systems and people, okay? Not revenue. So let's look at this. Let's just say. Let's look at break even for a second.

Let's say that, you know, if we had a whiteboard, right now you're running, say, 45% gross margin minus, you know, let's say 10 points for commissions. Well, that leaves you, you know, now you're down to 35. Fixed costs are, you know, maybe 48 grand a month, whatever they are.

And the owner has to collect, you know, you know, $150,000 or more every single month before he can even make his first dollar. Do you know what your break even number is each month? How much do you need to bring in each month just to break even? Most can't answer that number.

And you can't manage a number that you refuse to look at. We have to stop confusing being busy with being profitable. And I've talked to so many, okay? I've had so many people reach out to me. I did a talk on.

On financial clarity and had so many reach out to me in very personal ways or reach out to me. And when we talk or zoom or whatever, and it gets. It gets. It gets tough. They're like. They're like, jason, I don't. I don't have a clue.

It's nebulous to me. And it's like they're afraid to open their QuickBooks. They're afraid to open it because it's Pandora's box. Because when they open it, it's messy.

They don't understand it. And it's looking right back, staring them right in the face, going, you are a bad business owner. You don't know your numbers.

You don't know if you're making money. And it's telling them that story. So what do they do? They just close it. And all they do every day is just look at their bank balance.

And if the bank balance is going up, they're feeling good. If the bank balance is going down, they're feeling bad. That is no way to run your business, friends. That is no way to run your business.

There's a better way. You fund your freedom with gross profit. Okay, so here's secret number three.

Almost everybody is lying about their numbers, including the guy you're measuring yourself against. You know, we get in these rooms and people are putting out big numbers. Maybe it's their gross profit margin, maybe it's their revenue. Maybe it's.

They had a huge month, and the tendency is to go, oh, man, they're killing it. And I'm over here struggling.

And you feel like you're a bad business owner or you're terrible at sales or terrible at marketing or terrible at leadership or whatever it is, you know, and, oh, we did, you know, $4 million this year, you know, gross profit, you know, all of that stuff. And everybody keeps, you know, rounding up, you know what they're rounding up to. They're rounding up to hope, not reality.

You should round down for some reality. They're rounding up to hope. Look, I talk to contractors all the time, very privately.

What you see out publicly is not necessarily what's really going on, because there's this, hey, we've got to keep it up and make it look like we're killing it. We're crushing it externally. And that very thing that keeps this fact that we can't be honest about these things is holding everybody back.

Contractors are driving home, they're feeling behind. They're making real decisions, real hires against, you know, they have real debt against a number that was fiction.

And the other part of it is, even when they start trying to look at their financial reports, like their, you know, their income statement, their balance sheet, their statement of cash flows, they look at those things and they can't. One, they don't know how to interpret them. But two, they don't even tell the truth because the data wasn't even put in right?

And so there's no financial clarity is missing. It's like they need a complete cleanup, and they need someone to hold their hand or someone to clean it up for them and show them the way.

Because once you look, the first step in solving any problem is facing the truth. All progress starts with facing the truth. Do you have financial clarity? On a scale of 1 to 10, how's your financial clarity?

It's very, very rare to run into a contractor that has good financial clarity. Now, I'm not here to make you feel bad. I'm here to help call out these secrets that are untold. Okay?

Because once we can bring them to the light, they're going to lose their power. The moment you start telling someone what you're struggling with, it loses its power and you can start growing.

But it's time to stop exaggerating the truth and start telling the Truth. You don't want to be in a lying contest that you never even agreed to enter.

So don't feel like you've got to go out there and act like you're crushing it. How about go out there? You know what? I'm a student. I'm hungry. I want to learn. I don't know everything. Nobody taught me this.

I'm having to learn this as I go. Will you help me have the mindset of a student and don't have the mindset of someone who's. Who's got it all figured out?

And, you know, here's the other piece of it. It's kind of like social media, okay?

In general, everybody puts their highlight reel of their life, their vacations, their engagements, all of this crazy stuff, and we end up comparing our backstage to everybody's highlight reel. We're comparing, you know, the comparison against fiction. It's. That's not. That's not what we need to do. It harms us.

And in business, when we can we compare what we know is going on in our business to what, someone else's highlight reel that they're saying from stage or. Or in all these forums. Look, every business has problems. Every business has problems. And, and guess what?

Every business has good seasons, and every business has lean seasons or setbacks. Some setbacks are external. Some are internal. You make bad decisions, whatever it is, bad things happen. All progress starts with facing the truth.

And look, here's the only scoreboard that matters. Your own numbers, honestly kept. Compare it to where you were 90 days ago or this timeframe last year. That's your real comparison.

That's your real competition. Don't get stuck in this comparison mode.

Comparing against other companies, and you may be on chapter two and they're on chapter 12 of their story, right? The power comes when we can learn from each other and learn from the guy who's been there and done that and has the battle scars.

Okay, so here's secret number four. Most contractors are financing their customers and they're calling it cash flow.

It's like the deposit from the job you sold this week is buying the material from the job that you're finishing from last month. It feels like cash flow, but, you know, money is moving and the account's not empty and things are fine. That's not cash flow. That's a treadmill.

And trust me, friends, there's a countdown on that. And as long as that. But as long as that belt keeps moving, nobody has to look down. But here's the truth. One slow Month could put you out of business.

One big cancellation, one big refund, one big legal issue, you know, one payroll you can't make. That's all it takes for that treadmill to show you what it always was. A treadmill. And friends, cash. You know, cash is king. Cash is king.

Cash is not king. Here's what it is. Cash. It's oxygen. And you've been holding your breath and calling it fitness. Those first four secrets cost you money.

The next three cost you things that money cannot buy back. So here's secret number five. The asset that you think you are building is actually worth almost nothing.

You're thinking that you're building something that you will sell one day. A legacy, you know, a number at the end, a multiple. Sell it at a, you know, higher multiple. And here's the, you know, here's the quiet part.

A business that can't run without you. It's not an asset. It's not worth anything. There's no buyer for a company that walks out the door every night in your body. I'm going to say it again.

There's no buyer for a company that walks out the door every night in your body.

And maybe there's no succession plan, except you're going to hand it to a kid who doesn't want it and who's going to run it into the ground between 12 and 18 months after you get give it to them. I've seen that happen way too many times.

You know, and on a side note, by the way, I've had all five of our kids have worked, have worked for me for on and off, and every one of them, I made them start at the bottom. Start at the bottom. Nobody came in with a management role. Everybody had to start at the bottom. Because I've seen this go south too many times.

My kids were going to learn the struggle, the struggle of the people in the field, the struggle of the people in the office to care about the client, to care about the process and what it took, the blood, sweat, and tears it took to build this. And they were going to earn their way to the top. And I want to encourage you to do the same thing with your kids.

Don't just give them something they haven't earned. You give them the opportunity, but they're going to have to prove it. Here's why.

Nobody says that, you know, I'm building something is the story that gets you out of bed. But admitting that it's not sellable means admitting that you built a very elaborate way to stay stuck. But here's the good news.

That same thing that makes, that makes it sellable, that makes your business sellable is the same thing that brings you freedom. You're not choosing between an exit and a life. They're really the same build. It's the same build.

Look, if everything depends on you, you don't own a business. You know this. You own a job with overhead and risk and stress like nothing else. Secret number six.

Your price is not set by your costs or a strong profitability. It's set by fear. You ask a contractor how he prices and he's going to describe a spreadsheet or a system that he uses.

But if you watch him in the living room or at the kitchen table when he's actually with a prospect, you're going to see the truth. The price moves with the customer's face. It moves with what the guy down the road charges and it drops. The second in the air, in the room gets tense.

That's what happens. That's not pricing. That's a race to the bottom. Competing on price is a race to the bottom. Nobody wants to say, hey, I discount when I get scared.

Nobody wants to say that, you know, so we dress it up and we call it. We're going to be competitive. Well, I want to be competitive. I don't care about competitive. I want to make a profit.

My team deserves for me to make a profit. My business, my family, our future deserves for us to make a profit. That's what winning is. Winning is not competing on price.

Now if you just want to build a busyness and be busy and have a job that owns you with a shackle around your neck, yeah, go, go sell it cheap. Go compete on price. But here's the truth. When the sale gets hard at the price, price is not even the problem. It's rarely the problem.

This problem is you lost control earlier in Trust, in Discovery. And the, and the discount that you're giving away is just taking, that's that mistake is just taking the money right out of your family's pocket.

That's why you need to have a value based sales process that helps you hold the price that you need to charge.

Most contractors are providing, you know, level 9 or 10 quality, but they're only getting level 4 or 5 pricing in their sales because they don't have a sales process. And look, your profits leak where your management is weak. Your profits leak where your management is weak. And you know what?

We're going to spend hours and hours trying to negotiate with our material vendor on a gallon of Paint or rebate. And you should do those things. But we don't spend time on the sales process.

Most contractors are losing more money on lost sales and lower prices every single week than their entire rebate for a year. We're managing the wrong thing. We're stepping over, we're stepping over dollars to pick up nickels and dimes. Okay, here's secret number seven.

Nobody's actually developing anyone. Then we, we blame the workforce. We don't have a recruiting system, a hiring system, an onboarding system. You know, here's our onboarding system.

Hey, follow that guy around. Hey, will you tell them everything you know? Okay? There's no training. There's no scorecard.

There's no, you know, 30, 60, 90 day onboarding plan with, with milestones and, and visible targets that they can shoot for. It takes a lot of effort to build those. I'm not gonna undersell that. It takes a lot of work.

But what happens is you end up churning through people or you hire underperformers and then you throw them to the sharks. And they have no clarity. Maybe they're the wrong person. They don't have clear targets. Nobody's really coaching them. There's so many.

There's not accountability. And then either you fire them or they quit. And you say, look, nobody wants to work anymore or Gen Z this or whatever.

We blame the younger generations because they don't want to work. And here's the piece that contractors don't want to admit. Maybe they don't even understand it. It's this. That my people is actually a me problem.

My people is actually a me problem.

Look, if on a sports team, let's just say a football team, if the team keeps having a losing season, it's not the players that get fired, it's the coach. It's the coach that gets fired. And it's so easy.

It's much easier to blame a generation than to admit that you hired out of desperation and threw them into chaos. You hired out of desperation and threw them into chaos. Come on, don't tell me you haven't done that. We've all done it.

But friends, there's a better way. And here's the truth. Great. People hate chaos.

Back in the day, there was this time on my team, probably 15 years ago, where literally this was openly said. We thrive in chaos. We thrive in chaos. Oh, man. We can conquer any problem. Yeah, we could. We thrived in chaos. But you know, we also did.

We never prevented chaos. We never prevented chaos. We were just firefighting constantly and you just can't outwork that. You can't throw enough people at a bad system.

You have to start preventing fires, making standards, holding people accountable. That's what the systems in your business are for. That's what leadership is for. That's what management is for. You can't scale chaos.

Let me say that again, friend. You cannot scale chaos. You are going to get to a level and it's going to exponentially become so chaotic that. That you're going to want to quit.

This is what happens.

I talk to contractors all the time, and they build this prison where they have no extra time to even start fixing things because they are constantly firefighting 24 7. And when that's the case, the. The hard truth is you got to scale back. You have to scale back to fix some things. And that's what I did.

I got to a point where about three years in a row, we kept hitting the ceiling and we just couldn't break through it. And it was because we had some bad role design, bad alignment of person to role.

And we had too many systems that were just tribal knowledge, passed down knowledge and not actually systemized. So I had to scale it way, way back. Literally cut the company in half in 18 months. We went from.

We went from almost like 13 million a year all the way down to like five and a half. Cost me a lot of money. I didn't have to do it. I chose to do it because I knew there was a better way. And I was sick of dealing with the stress.

It was a me problem. 100%. It was a me problem. And your problem is a you problem. Yours is a me problem, too. But we think, oh, you know what we need? We need more leads.

If we just get more leads, things are going to be okay. No, more leads is not going to solve your problem. You know what more leads needs, better hires, more leadership. That's what you need.

Look, you don't have a people problem. You have a system problem, a design problem, an accountability problem, a leadership problem, a management problem.

Look, you could fix all seven of these and stay exactly where you are because there's a secret under the secrets, and it's the one that actually it costs the most to admit. And it's probably the reason that you're still listening here today. You're addicted to being needed. Come on.

I'll admit felt good when I started my company. Oh, man, I was smart. I was so full of energy. I could work night and day. I could fix any problem faster and better.

I knew all the answers than anybody. I was the smartest one in the company. It felt good to tell someone how much I knew. Do you see yourself in that?

And then one day, I'm like, superman needs a vacation. Superman's tired. Superman wants to go to the pool with his family. I'm like, there's got to be a better way. Are you addicted to being needed?

Do you like being the smartest person? Now? It could be a control issue, that you don't trust other people. Maybe. Or maybe you've hired the wrong people. Not trustworthy people.

And now you were burned, and so you don't trust people anymore. Look, if you don't get over the trust thing, you're never going to get ahead. Yeah, and you will get burned. Sometimes it happens. You will get burned.

But what happens is, you know, contractors, they complain about being the bottleneck, and then they quietly rebuild it to where they're the bottleneck. You take the call that you should have delegated. You know, you just check on the job that you train someone to do.

Now, again, you do have to inspect what you expect. But we keep numbers in our head instead of on paper or written down or we're afraid to write things down because we're. We fear that.

You know, we fear that someone's going to take them and go elsewhere or start their own company. Look, chaos convinces you that control equals safety. So you grip tighter. You hold on tighter.

And look, being needed by anyone you know, hey, it feels like proof that you matter. You're important. I get it. It feels good. Feeds the ego. So you end up hiring people who depend on you instead of people who will own the outcomes.

And instead of building a team, you built a fan club. Is that you? The tendency is to build systems that make life easier for you instead of systems that run without you. That's what I did.

I made systems that made me a superpower. Whether it was on the computer. Most of my systems were in the computer. Okay, they made me a superpower. But they needed me to run.

They couldn't run without me. I couldn't give it to someone else and have them run it. And look, if your systems can't run without you, you're not building a company.

You're building a cage. A little contractor prison. And you know what? What you really want is relief. A nap, a good month. How about a quiet phone?

How about a dinner date without your phone ringing? If you just want a little relief, that's only temporary. The freedom that you really want, friend, is structural.

And if your freedom may Cost you the identity that you've been protecting. The superhero syndrome, the hero that holds it all together. That's one of the real reasons that most contractors never get free.

It's not capability, it's not information, it's identity. Look, being needed by everyone is not freedom. It's probably the most respectable prison in the trades.

Freedom is not necessarily when you're needed less. Freedom is when others are empowered more. Now, friends, many of us call ourselves believers Christians.

You know, we say it on Sunday and we mean it then Monday through Saturday, we run the company on fear, on pressure control, and a little manipulation when the month is tight. And we never connect the two, not once we confess Jesus on Sunday and we function as the sole proprietor of the universe for the rest of the week.

And so many people, you know, they're going to go raise their hands and pray and sing on Sunday, then they're going to come back on Monday and treat their people bad. And here's the deal. Listen to me. How you treat your people is your theology. It's not the version you sing.

It's the version you deploy through the week. Let's talk about profit. Profit is not greed. Profit is stewardship. If you consider the parable of the talents, the servants were expected to multiply.

What the master entrusted to them, they were expected to multiply, burying it, protecting it in fear, actually got condemned. And a man who can't stop working doesn't own a business. The business owns him.

And if you want Sabbath, if you will, if you want rest, you've got to unlock the doors of that contractor prison. But most owners, they won't walk out. Because stopping means trusting that it's going to hold up without them.

And that's the one act of faith that the business can't stand. Friends, faith is not an app that you run on your phone on top of the business. It needs to be the operating system that the whole thing runs on.

If you're a believer, I want to challenge you. Commit your works to the Lord. Pray over your business, pray over your plans, and don't wait until things are on fire. Yeah, pray then too.

Pray then too. Pray. But dedicate your works to the Lord and your plans will be established. So what do you do with all this truth?

Look, you don't fix nine secrets with nine hacks. They share a route, so they share an escape. It's self, others and systems, in that order. Self, others and systems.

It's so s. Your business cannot grow until you do. And you can't do all this Alone. You're not going to build freedom on your own. And you were never supposed to. Look.

Freedom lives in systems not in heroics. Freedom lives in systems, not in heroics. If you constantly have to be the hero, you've got a systems problem. So here's your assignment today. Tonight.

Write down the secrets that are true of you. Use the real words, then finish the sentence. The reason I've never said this out loud is blank.

And whatever fills that blank, that's where your prison actually lives. Then take the hardest one and say it out loud to one person who's earned the right to hear it. Maybe it's your spouse, maybe it's a coach.

Maybe it's a brother or friend who won't flinch. Not to fix it, just to end the silence around it. Bring it into the light, and it'll lose its power.

Secrets lose their power the moment they stop being a secret. So this isn't just motivation. This is mechanics. And most contractors don't fail. You know what they do? They survive.

Quietly exhausting, paying everyone but themselves and calling it success. Look, you don't have to. All progress begins with facing the truth. And you just faced nine of them just now.

Now go and build a business that serves your life instead of consuming it. If today's episode helped you, don't do this journey alone.

Join thousands of other contractors inside the Contractor freedom community@contractorfreedomlive.com and start building the business, the team, and the life you really want. We'll see you next time.