Profitability Metrics

00:01 Hi there and welcome to the business growth factor. My name is Lyndon Smith and I'm joined today by Joshua Linhorst. And today we're going to be discussing profitability metrics specifically looking at gross margin and net profit margin and why these actually matter. Quick introduction about my uh to myself. My name is as I mentioned Lyndon Smith. I got a company called Expansive EDGE and we work with small to mediumsiz businesses and we help them organize and scale their operations. Uh we do this by creating a business playbook and uh creating a knowledge hub for their team for your team to to access, consume and

00:33 contribute to. I'm going to hand over to Josh for a quick introduction and uh just also to introduce our topic for today. Why profitability metrics matter. Awesome. Thanks, Lyndon. Uh very nice introduction there. That was well well uh well said. I feel like I can't really follow that up, but um I feel like I need to practice more, maybe. Uh yeah, so I'm Josh Linhorst. I am the principal at Baseoint CPA. We are a cloud-based CPA firm. Uh we specifically focus on helping businesses have a profitable and growing business.

01:08 And so that's through uh virtual CFO services. And uh basically it's like GPS for uh your business really guiding you along the profitability journey so you know which turns to take next on a month-to-month basis. There we go. Navigating you through your your profitability challenges. Nice. Thanks, Lynon. And that's a good tiein to the I guess the the topic that we're uh discussing here, profitability drivers. So um yeah, so I mean as far as like profitability, why does that matter? um

01:40 you know if we're not profitable then I guess it's we're not in it's not really business right I guess it's a hobby absolutely so so for for this conversation we've identified uh two kind of metrics that we that we want to touch on and and you just dive into and the one is gross margin and the other one is net profit margin. Can you maybe lean into why why these why these particular metrics why they matter and um you just give us an overview on what what the different

02:12 difference is between the two. Yeah. So um yeah, gross margin and net profit margin. So you probably heard these terms before. They get thrown around a lot. What do they mean? Uh your gross margin is basically the difference between your revenue and then your cost of goods sold on a percentage basis. So, uh, you know, the easy example I always kind of use, um, in generic terms, like if you sold shoes and you sell a pair of shoes for $100, but your cost to buy that pair of shoes that you just sold was $20. That means your your gross

02:46 profit will be $80, right? It's the 100 minus the uh the $20 of your cost. Uh, so it's $80 is your gross profit. And then you divide that by your revenue. That's a percentage basis now to be 80%. You have an 80% gross profit margin. That's kind of the idea behind what's that. That's pretty healthy. Yeah, that that's a healthy margin. We like we like healthy margins like that. Retail usually you want to have like 50 60% if if you can. Uh there's there's a lot of benchmarks out there. We can we can talk

03:18 about that sometime in the future. But um yeah, so that would be your gross profit margin. So there's gross profit and there's also gross profit margin. The margin is a percentage calculation. Um, and so it represents the profitability of the delivery of your products or services. So when you have a business, I mean your business is there to effectively provide a good or a service or maybe both. Right. Right. And so how profitable are you in the delivery of the goods or services that you're um delivering? That's your gross

03:51 profit margin on a percentage basis. Then your net profit margin um is going to be how profitable you are after the business operates, right? Because you're not just delivering your products and services, you are also you have a business that supports the delivery of it, right? You've got a building, you have vehicles, you have uh professional fees, you have very expensive people like ourselves that uh help business owners along. uh you know so these are all overhead expenses that are necessary to keep a business operating so that you

04:26 can keep the lights on. Yeah. Keep Yeah. Exactly. To keep lights on. Exactly. Um and so those expenses are overhead. And so when you look at an income statement, you know, the we have a webinar on this kind of understanding your financials. um that this section of the income statement below your gross margin or your gross profit line is uh often called like your expenses or your general administrative overhead or GNA. Some people call it a selling general and administrative overhead or SGNA. Okay, lots of terms out there, but it's the overhead type expenses. What's that?

04:59 All these acronyms. All these acronyms that you know we end up have they just kind of like flow off our tongues and people like what what was that? Like what are you talking finance a little scary? you know, these all these acronyms, but uh it it's it's not as bad as what uh what people think. I I guess it makes it sound scary or maybe like nerdy. I don't know. But uh so then that section then, right, like your GNA section is that those are your overhead expenses that yeah, like you say, keep the lights on, keep the business functioning. And so the difference between your your gross profit, you

05:33 know, the profit after you sell your goods and then your expenses are going to be your net profit, right? That's how much that's the monetary amount in dollar figures that you take home at the end of the day. Uh shouldn't say that you take home at the end of the day because within there also you're going to have things like amortization, which is actually not a cash thing. So you're not actually taking home. There's there's it's not Yeah. Anyways, I digress. We can talk cash flow in another one. Um but that's your net uh profit. So then if you divide your net profit by your revenue amount um then that gives you a percentage basis as

06:06 well. That's your net profit margin. And so your gross margin will give you a sense of how profitable you are in the delivery of your products and services on a percentage basis. Your net profit margin shows how profitable you are as a business as a whole when everything's said and done. Okay. Excellent. So, um I kind of answers the question that I had. It's like why do these metrics actually matter? What is it that uh you know that they're telling us? So, that was a good uh good lean into that. Thanks, Josh. You bet.

06:37 Um so, we were talking about the the gross margin um being, you know, what the cost of your operations are. So, what the cost is uh it's your revenue less cost of goods sold effectively. Um, how do you tie this into it goes into the conversation we were having before? You know, you've got your projects that your your business would run and then you'd have your your like your business. So each project, I

07:09 mean, I'm just coming from a from a project management perspective here. Your projects, you'd have your your gross and net margins on your projects as well. And then you would have um you fixed or more variable costs you know based on what you've budgeted and cost overruns um you know however your project is performing and um how that starts impacting your your margins for your project and then how that actually starts impacting your margins for your business as well. Any thoughts around that? Yeah. So, um, when

07:44 you have like say a construction company or a company that's has a number of different types of projects on the go, um, yeah, each one is going to be sort of like a profit generator, right? And so, as a project manager of a particular project, you're accountable for the profitability of the project. And so, you want to be looking at the revenue that's coming in, but then you have, like say, you have expenses, which are all going to flow through cost of goods sold, right? So you end up with a profitability uh margin at the end of it which essentially feeds into your gross margin at the end of the day for the the company. Um but yeah, you want to be

08:18 aware of what those costs are. And so when you're starting like day zero of a project, your profitability is effectively your estimate, right? You're like, "Okay, this is what our our bid price was. Um you know, it's X dollars." And then we have a breakdown of what we anticipate for our expenses. That's our profitability. If everything shakes out that way, then great. So maybe like 20% gross margin or something. Um it's like great, that's how it all worked out. But things never go as planned as we know. If some if somebody says yes, they do, then I'd like to have a chat with them

08:50 because I'd like to figure out how that works. But the things come up all the time, right? And so, um, what's important to do, especially if you have projects that span over multiple months, even, uh, years, is on a monthly basis, if you can, is just to revisit the actual expenses on your project and see how they're tracking with your estimates. So, if you had um, you know, I I live in in Northern Canada, so we we have uh a temperature issue here. Yeah, you live in Calgary, so you know, you get a proper winter, too, right? And if

09:22 you have outside projects like or even like a new build um that's not quite outfitted as far as like you know all the electrical and uh mechanical u you know your HVAC units in there like if you're working inside you may need temporary heating in there right and so that's going to be while you're working in the in the space you have temporary heating that you have to deal with and so maybe you budgeted $10,000 over the course of the project for temporary heating but then we have like a really horrible winter that happens to be way colder than normal and So, you know, 6 months into your eight-month project,

09:54 you realize you're at $15,000. So, you're five grand over your initial estimate on that line, right? Now, you start to realize that your profitability, your your margin on the project is going to change. And so, it's important to revisit that. Uh, I would suggest on a monthly basis to make sure you're adjusting your estimate in order to better understand your profitability. Um, because it does help in augmenting decisions, too. you're like maybe we won't be as liberal with um you know some of the other expenditures that we might otherwise have on the project because we're already eroding some of the the profits and this this this comes

10:27 from you know experience I would imagine you know the more um the more estimates that you've prepared the more projects that you've done that your business has done you you you would know what to factor in and and much to factor in there um and it's it's a systematic process too I mean if you Um if you have if you actually have the disciplined time and you do it on a monthly basis and you look at your estimate and you take the costs I mean you have to stay on top of your your you know your your accounting make sure your accounting is always up to date but if you have your

10:59 costs in the system you can go through and be like okay how much have we spent on this how much have we spent on this for each project so you can constantly update your your estimate. Doing this also, this kind of a side note, but very important, doing this also helps make sure you've captured any potential change orders that you might have to also issue uh to your customer, right? Because maybe, you know, in in the course of the work, maybe one of your trades is like, "Oh, hey, like this came up. We need to issue a change order for this." You're like, "Yeah, no problem." Now, that's an additional cost for you, right? You're like, "Oo, I forgot to

11:30 account for that in my billing for this particular month for the customer." And so, uh, it helps you track things like that as well. And it's uh I mean that's that's the the value of bringing on you know project managers, project corders and a team to you know to to to ensure that you're staying on top of on top of that and and not um you know that the scope creep doesn't get out of control, right? And uh that you are actually invoicing for those change orders and getting them approved and you know just running running through that. Uh otherwise it's an awkward conversation five months down the road being like so

12:03 we had this change order that came up. Can we uh squeak that in at the end here? Yeah. No, absolutely. I think uh yeah, a lot of project managers would uh would relate to this conversation right now. Probably had it once or twice. Yeah, at least once or twice. All right. Um so, we've done a quick overview on uh like gross and net margins and um you know, you've you've given us an overview on how to how to calculate that really just high level overview. Um something we were chatting about earlier was uh you know salaries and

12:37 wages and where where does that belong? Is it you know in your calculation for gross margin or net margin? I guess it would depend on the company and how they've got things structured. I think a a good rule of thumb was um you know anything that's an an overhead for you keeping the lights on so to speak is um you know your accounts or admin department um sales marketing anybody that's not out there being doing billable work they kind of fall into that um you net margin calculation whereas anybody that's billable guys that are in the field that are being

13:09 charged out at a rate or you know at a at a value um they would fall into the gross gross margin calculation. Any thoughts around that or anything to add? Yeah, that's that's a good summary, Lyn. And it's and it's not something that's consistently applied across all businesses. And so that's that's always a challenge. I mean, we see all sorts of uh um ways in which people do this, sometimes consistent, sometimes not. And even uh Industry Canada actually has a smallmedium enterprise benchmarking tool that's a super handy tool to get a sense

13:42 of how you're performing with respect to profitability margins if everybody wanted to play with it. Uh we can maybe put a link to to that um in this episode here for people. But um so so you can kind of see you're like okay well my I'm like say you know maybe our our company is like 15% margin at the end of the day. How does that compare to other companies our size in the industry? Um, now the is the challenge if you end up using that benchmarking tool is you will recognize that it it also includes a whole bunch of information of companies

14:14 that don't uh do this consistently. And so if you look and you're like my gross margin is way off, but my my net profit margin is fantastic and comparable. It's probably because of things like this particularly uh where you might have a lot more uh staff costs in your cost of goods sold. So if you have like an electrical and mechanical contracting company or milwork company, you're going to have a lot of heavy material costs, but you know, if you're like a demo uh contractor, for example, a lot of your costs are going to be your people. Um

14:46 and so in in that situation, you know, where you put your cost of goods, your your payroll, whether it's a cost of goods sold or overhead makes a big difference. And so, um generally, as you say, Lynon, like, yeah, having anything related to the delivery of your products or services, even with payroll, should be in your cost of goods sold because then it gives you the best picture of your profitability. Because if you don't have it in there, maybe you're looking at your gross margin because now you know how to calculate it because we've talked about it. um you know, if you're looking at your gross margin, you're

15:17 like, "Hey, we're doing really, really well." But then if you take your payroll related to the delivery products and services and put it in there, you're like, "Oh, that actually doesn't look so great anymore, right? And we still have to keep the business going." And so that's why as much as possible, you want to get project related costs into your cost of goods sold so that it factors into your gross margin. Just really quickly, uh, one last thing to consider in this is the idea of allocation of overhead expenses. So, if you have, uh, like a te like, you know, all all your team has a cell phone, right? Your cell

15:50 phone bill every month could be like five grand plus for for the company, right? If that just ends up sitting in your telephone expense in your overhead expenses, sure, it brings down your net profit margin. there will be no difference to your net profit margin whether or not it's sitting in overhead or cost of goods sold but it's primarily for your team and that is impacting the profitability of your projects right and so it should try to be you want to allocate that to which there are ways to do that we can dive into that another time though yeah absolutely super um I just want to maybe take us back to you

16:25 know the good old saying you know revenue is vanity profit is sanity and and cash flow is king um a lot of a lot of people are always looking at the revenue metrics. You know, it's re revenue as a metric. Why is this more valuable? Um you know what is what is there? It's it's not telling us anything about cash flow immediately um or at all. Uh it obviously contributes to our cash flow. But why is this metric you know gross and net profit margin um you know

16:57 like why is that valuable? It tells it I say that numbers tell a story. It tells a more complete story, right? Because you know, you can say, "Oh, hey, we have a $50 million company." And it's like, that's very impressive. You do $50 million of work every year, but what do you take home at the end of the day? That's kind of the question that really matters at the end of the day, right? Um, and so that's why it's important to understand these two metrics and we'll get into it in a little bit here, but like that helps you then diagnose where you might be having

17:31 profitability challenges. So you can have high revenues, that's fantastic, but and that's why it's like revenue is vanity, right? It sounds great. $50 million company, we built this, right? It's great. Um, but profit is sanity. It's like it kind of brings it down to like is this reasonable? Does it make sense to have this big business? is it making the profit that uh one would expect for the amount of work that's going into it? Right. Then at the end of the day, you got to make sure you're still getting the cash out of it. But that's a separate topic alto together. Yeah. So, um I love what you say there. So, it's uh you know, we've got a $50

18:04 million company. Um you're you're always going to be looking at that as a revenue metric. You're not going to say, "We got a $50 million profit profitable." Yeah. Actually, quite often people will hold that number closer to themselves. The the actual profit number. Yeah. And it doesn't sound as nice, right? That's why the vanity number is the high number. The vanity number. That's exactly it, right? Um you deal with clients and it's like what's your revenue and they'll share that openly, but the the you know the the margins or the profitability metrics that they that they're looking

18:37 at, they might not even know it. Yeah. I mean the the revenue number will oftent times indicate like the level the scope of the the size of the business right because you're like okay well if you're doing $50 million of work you probably have x number of employees probably have these many vehicles right like you get a sense of the the size of the operations of the business at that point as well but yeah profit at the end of the day you want profit you want to be able to collect it so cash flow at the end of the day yeah so so Josh Um when we're looking at profitability

19:15 in a company so uh let's take a $100 million company for example we're looking at a revenue metric there how do you detect or diagnose that they have a profitability challenge for example and how do you link that back to um you know some of the earlier conversations around driving uh your pipeline and you know maybe we can kind of lean into that conversation in a bit. Yeah. So, and these these types of I mean profitability challenges happen like for every company is going to bump into it

19:47 at some point. There's different reasons behind it. Having a constant pulse on this is super important. Um it's it there are a lot of businesses out there where the owners just kind of look at their financials at the end of the year. They're like, "How did the year shake out?" Right? Um, so what I would highly highly recommend is is from your accounting system, and most can do this, uh, pull out what we call monthly comparative income statement. So you basically pull your income statement out and have it broken down into months. So

20:20 you can see month over month how your profitability is looking and then you can see changes. And so you're like, okay, it feels like we're not making as much money as we should be. Why is that? That's a profitability. How far back would you go? Months, a year. 12 month rolling basis is typically helpful to to get a pretty good like recent picture. I mean, you can go back five years, but that's irrelevant at that point kind of thing, right? So 12 month rolling, I think is good. Um, but then it, you know, if you're getting the the feeling or the sense that you aren't as profitable as you should be, this is

20:53 like where you can start to diagnose it. And so get that that monthly comparative income statement and then look at month over month and look at your gross margin and be like what is our gross margin doing is if your gross margins going down right off the bat you know that could impact profitability unless all of a sudden you're trimming your overhead costs and maybe you know you'll level out on the net profit margin level but uh always look at your gross margin first because that's the kind of thing that as you're scaling up your business you're scaling up your operations uh efficiencies come into play there. And

21:25 it's, you know, something that you're probably a bit more familiar with in terms of like how to how to do that. But, um, when you look at your gross margin month over month, if there's changes there, need to ask why, right? We've seen this with materials costs in construction over the last 5 years, like fluctuating before, during, and after COVID. I mean, materials costs have been all over the place. So, you've seen some some massive uh fluctuations in gross margin as a result of that. um uh payroll for your site team. Uh this is significant, right? When you have large

21:59 trade unions that say like impact the HVAC industry, for example, uh come up with a a pretty significant um raise uh anticipation over the next 5 years. That ends up ends up impacting a lot of the other trade scopes as well. And so you'll start to see bump ups on your uh payroll expenses as well. That's going to decrease your gross margin. So pay attention to that. Uh if your gross margin is pretty steady, then you know, okay, we're experiencing lower profits, but our gross margin is steady. That means it's happening below our our gross profit line, right? And so it's in our

22:34 overhead expenses. And so then you want to be looking there. That's where you would be uh diving a little bit deeper to see where those expenses are coming from. And those are going to be uh you know, again, your overhead type expenses, right? So, it's going to be um you know, subscriptions are are classic. We call these the set and forget expenses, right? They're like those things that you pay for for certain subscriptions for software or maybe that you start using and you kind of forget about, right? So, this is why again if you do this on a monthly basis, you look at your comparative monthly income

23:06 statement each month and look at each line, you're like, "Ooh, right, that line has a lot more in it than it should because we forgot to cancel this particular subscription or cost." um that is still continuing, right? That happens so often on projects where uh you know someone needs software to you to to to deliver certain components of a project because the client has it as a requirement. Subscribe and then forget about it and then three years later you're still paying for the subscription. Yeah. Nobody's using it or the person that originally subscribed to

23:40 it has left the company and uh yeah, no one's using it. Yeah. Exactly. So, it's it's good to look at that. And so, that's a very good practice. And, you know, if there's one takeaway, I this may be jumping the gun on takeaways. I'll leave it for the takeaway. We'll we'll get there later. Sounds good. Um, cool. Uh, yes. So, we we've chatted about the we've chatted about quite a bit here. Um, I had I had another question here for you. Sorry. I uh maybe some some strategies uh around

24:15 you know um improving your your gross margin and your net margin. Sure. Some of the notes that I got here was uh you know supplier negotiations you where does that fit? That would be your gross margins right? Yeah. Yeah. So your supplier is going to be well for the most part, right? You might have suppliers that supply things that are related to your overhead like maybe you have a whole bunch of office like you know uh stationary type stuff that you always get from a supplier, right? So that's typically going to be in your your overhead or yeah your general administrative overhead expenses. But

24:48 like material suppliers, building supplies stores, all these things, primary vendors for equipment that you're selling, like reselling. Um yeah, negotiations there are pretty key, right? Making sure that you uh have good relationships with your um suppliers is pretty important. A good way to do that is make sure you pay them on time. Right? As soon as you start paying your uh vendors and suppliers trades later, they are going to price you higher uh and that's going to erode your gross margin. So that's important to consider for sure. And they typically offer some

25:20 discounts if you pay earlier or if you're buying in bulk and you're paying on time. Yeah, absolutely. Um, yeah, the buying in bulk is is a good that's a good point, Lynon. Like if you can anticipate that you're going to need a bunch of materials for something and if you have the capital available to do it, like that's that's a good opportunity to bring down your cost there. Uh, for sure. And those early payment discounts are pretty significant. They um some of those if you calculate it out to an annual basis amount to about 18% uh interest equivalent. So depending on

25:53 on the nature of the discount, but yeah, oftent times those are a good thing to do, too. Yeah. And I think that goes back into like that whole cash flow conversation. If you've got the cash flow to be able to reduce your um your expenses or just like increase the the mar like your profitability margin, um you could do it in in certain areas of the business and have a a pretty significant impact right on the bottom line. Yeah, for sure. Um, yeah, sorry. I had I had a bunch of

26:27 notes here and uh I've just lost them. Yeah, no problem. So, we were just talking about strategies to increase your your different margins. Um Oh, yeah. If you had something to say there, I'll leave you to to continue with that. Yeah. So, some things to consider, you know, just kind of higher level even is like, okay, so we're seeing an erosion on our gross margin. Maybe there's a pricing uh adjustment that's warranted, right? I mean, uh, it's always hard to increase prices, right? But it's a reality. And if you look at your expense lines, those are certainly usually

26:58 increasing. So, other people are doing it. Um, you know, there's other cost drivers that businesses have. And, you know, in Canada in particular, like the increasing impact of say like the carbon tax, which doesn't have a credit tied to it, that's a an ongoing increasing cost, which erodess profit. And so as a result, companies end up having to increase prices to maintain profit margins. And so if you look at your expenses and they're constantly climbing, but you are seeing eroding profits, you may want to reconsider your

27:30 pricing. And you know, even in construction, um, you know, just being aware of what some acceptable benchmarks are for price per square foot on certain types of projects. Um, if you can benchmark that for your own company, that's super helpful. So you can see how you're typically pricing, right? if you uh if if you can break it down to that. Yeah, I think uh that that's a great point. You know, it's always just going back to to what the industry benchmarks are. So, you mentioned that we can we've got a you got a link that we can share in the um Yes. Yeah, we'll put that in

28:03 there. We'll share that in the comments section of this u whatever uh format you're listening to this in. For sure. Or you can find it on our website as well. We're going to build out those pages for uh for each one of these episodes and we'll have that um you know that those resources available there. Awesome. One last question Josh before we start wrapping up here is um so we've we've looked at in earlier conversations you know cash flow revenue now we're looking at specifically gross margin and net margin. I wonder uh are there any tax strategy or uh tax considerations,

28:39 you know, when when um you know, when looking at like your net margin, for example, and how to start maybe offsetting that or reducing your tax liability. Any maybe not uh advice, but any considerations rather? Yeah, I'll maybe preface this by saying this is not tax advice. If you need tax advice, talk to your accountant. Um which we can help with, but uh don't take this as tax advice. So your net profit uh which is again is going to be the difference between your revenue then your cost of goods sold then all of your

29:11 overhead expenses gets you to your net profit. Uh in a corporation uh that is an approximation of your taxable income um off of which taxes are calculated. So without getting hyper nerdy on it, there's a schedule one on your corporate tax return which does some adjustments which take you from your your net profit from your company to what's called taxable income. That's what you pay tax on is your taxable income. Um that that's what should go into your your tax account if you listen to the earlier one of our previous episodes. Yes, that's right. Yeah. So

29:44 then you'll know what your actual taxable amount is and if you know your corporate tax rate is then you can kind of determine uh what your taxes are. So, um, yeah, tax strategies. I mean, uh, I get a little bit hesitant to to give any in particular, but at least if you know what your net profit will be, um, it it I always say like the numbers tell the story. And so, if you know what the story is, you can best write the next chapter. And so, if you're like, hey, look, we're going to have a whole lot more profit than we need. We've been thinking about um, purchasing some of these things for the company or, you

30:16 know, uh, we've been thinking about this bonus program that we wanted to do to incentivize our employees. Uh I've been thinking about some equipment that maybe has some really good tax credit uh um opportunities that are tied to them. Sometimes the government will incentivize purchase of large larger equipment. We saw that especially uh even during co um then you can make decisions based on that. You're like okay so our net profit is X. Uh let's try to bring that down a bit or y I should say our anticipated net profit is X because if you do this after the fact it's too late, right? So this is why if

30:50 you can keep on track of this on a monthly basis and know your numbers, you can forecast out where you think you're going going to be landing and then you can make some of these decisions before you get to your year end. So it would be applicable uh to your year end from a tax perspective. Yeah. All right. Excellent. So I mean uh there could be different investment strategies that you cons uh consider um based on those numbers knowing what those numbers are and um you just have a good solid financial plan moving forward for your

31:22 business. Yeah, for sure. And even if your company has like a um you know a charitable uh arm or something, right, where you maybe give charitable donations and it helps to know how much you want to be uh donating. If you do profit sharing as a company, right, it's good to know what your net profit will be at the end of the day or what your forecast net profit will be so that you can create your profit pool which is then distributed through a profit sharing uh program. So uh certainly very very important base number to to use to make a lot of different decisions but

31:54 understanding yeah that that difference between your gross margin, your net profit margin and what's driving each of those is very key. Excellent. All right, Josh, we we got to wrap it up here. Um, you you mentioned you had a a key takeaway or a takeaway for for today. Uh, do you still have it there? Yeah. So, I I think it came out of what we were talking about earlier with like the monthly comparative income statement, reviewing that regularly, and then if you have projects that span multiple months, doing the same thing where you look at your expenses against

32:26 your estimate and revising your estimate each month so that you understand what your actual anticipated profit will be on the project is super important because you don't want to find out after the project is done how profitable you were, right? It's best to know on a monthly basis how profitable you are and are expecting to be so that you can have the agility to make the decisions to to optimize and augment where needed. And so that's at the project level and then also at the overhead level. And so if you look at the monthly comparative

32:58 income statement, compare it, see the trends, see how you're tracking from a gross margin perspective, a net profit margin perspective, and look for any anomalies in any of your accounts because you can track them and deal with them almost immediately rather than again if you just look at it on an annual basis and then you're trying to to to backtrack and fix things after the fact. So that would be my big takeaway. Monthly, make it a monthly system that you implement in your business. I love it. Yeah. So just looking at your your um actuals versus your estimates um your

33:31 profitability there uh before during and after projects, right? So you're always uh sort of keeping on track on that. And I think you know just one one last thing you know before we wrap up here is you know implement datadriven pricing and cost control strategies um because that can help you protect your margins you know as you're forecasting and budgeting in future building out those estimates and um you know you at least make that data available to your team as well when you know when they're preparing and bidding on projects. Mhm. And I should say as well, Lynon, I think it might be

34:05 important and this is this could be a totally this is a totally different topic, but it's very relevant even uh to this conversation is looking at where efficiencies can be found in your business is also a very key way to like a an important strategy to optimizing your gross margin and net profit margin. If you are not running an efficient business, you are bleeding profit and therefore cash. And so systems in your business are key. And on that note, I'm going to wrap us up there because that

34:37 is our next episode for the business growth factor that we're going to jump into. So to our listeners, um we our next episode is going to be looking at efficiencies and workflows um to to be able to drive your profitability. Um from Lyndon and Josh, just want to say thanks again for listening and uh stay tuned. Thank you. Cheers.