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In this podcast, host Paul Sanneman interviews Adam Cooper on how Ascent Consulting helps construction companies perform better. Adam shares insights from his experience as a former contractor and his work as a construction consultant, offering advice on improving business efficiency and profitability.

The two discuss essential systems for contractors, technology recommendations, project management, and strategies for incentivizing employees. Adam emphasizes the importance of effective labor management, technology adoption, and cash flow forecasting for contractors. Listen now on the Business Success Tips Youtube channel.

Download the podcast transcription here.

Podcast Transcription:

Paul Sanneman:
Hi, this is Paul Sanneman. I’m founder of Contractor Staffing Source, which actually is the world's largest company at finding employees for contractors, and I have a podcast called Business Success Tips where we help people make more money in less time and have more fun. I just want to specialize on the have more fun part. I'm lucky today, I have Adam Cooper is actually the founder, the guy for Ascent Consulting, and he's going to tell you all how to make more money in less time and have more fun, right Adam?

Adam Cooper:
I’ll do my best.

Paul Sanneman:
Okay. So, yeah, look, give the background, what you do, why they should listen to you, why you’re a smart guy.

Adam Cooper:
Sure, thanks. So, I'm a former contractor. I started out as an electrician after college, worked my way up through the ranks, had my own electrical contracting business for a number of years, went to work for big national companies. And then about ten years ago in 2014, I founded Ascent Consulting as a way to give back to the small to midsize construction industry, teach them all the tips and tricks I learned working at big national contractors, as well as things I did to be successful in my own business. So, for the last ten years, I've been helping contractors all over the United States and now Canada, and now have a team of about 20 people. We do all sorts of different projects for contractors to help them increase profits, grow their business, add more fun, have more free time available for the things that they have outside of work in their life. And it's a pleasure to be on the show today. Thanks.

Paul Sanneman:
Thanks. Okay. So, Adam, people have successfully franchised a lot of things, right? But somehow nobody has really ever successfully, at any kind of scale franchise, remodeling. Right? You noticed that? And, you know, homebuilding you can get you can get two large home builders that works, right? But you’ve been in the franchise world and you've worked remodels, why don't you think that's ever happened? What keeps the remodel … is it fractionalized? What keeps it from being franchise-able?

Adam Cooper:
That's a really great question, Paul. I've never really thought about it from a franchise model. There are some companies that do a piece of remodeling and they're a franchise model. I actually recently had a closets by design system put into my house. I bought a new townhouse or bought a townhouse recently and I wanted built in closet systems in my master, and my pantry. And that's a franchise model. They operate multiple cities. Each one operates as an entity, but they have a common marketing platform, a common website, common advertising. But as far as full home remodels, it's a great question. I think some of it probably has to do with the entrepreneurial spirit of a lot of these contractors. They don't want to franchise it out, and I think a lot of it has to do … you have to create a pretty complicated, intricate system to create a franchise. You think about a Burger King, there's distribution chain, supply chain ….

Paul Sanneman:
Well I mean, Alair has tried it and they may have 120, right? But nobody's ever done big time with it, you know, And I think … I think it's I think it's because of the nature of that industry, right? But there's a lot of consultants like yourself which are supplying those franchise kind of systems to remodeling contractors so they can scale. So, you've been in both worlds. What kind of systems do the contractors need to have, remodeling contractors, to get them to where they’re not a slave to time and they're making a decent money and they're just, you know, they're not overwhelmed all of the time.

Adam Cooper:
Wow. Multifaceted question. As an owner, you need to have systems to do everything that you do as an owner so that you can stop doing them. You have to be able to design a system so you can hire somebody, delegate that system to them to operate, such as accounting, sales, estimating, project management, you have to have systems for all these things. You have to at least have a methodology for doing that, how to set up a budget, how to buy out a job, how to schedule resources, and you need people that can run those systems. That frees the owner up from the day-to-day grind of finding work, winning work and performing work.

Paul Sanneman:
Right now, when you look at those systems, there’s … I mean I have drug contractors through technology for 50 years, I’m an old guy right I mean, I started with, they don't want to have cell phones because it's going to mess up their peace of mind in the truck, right? And so we've gone through, you know, any mail was a fad, nobody needs a website and now, the latest one like project management systems finally, you know Builder Trend and you know Co-Construct and you know Job Tread have actually made that viable too, but some contractors don't even use those, which is amazing to me. And so now the latest one is AI [Artificial Intelligence]and am now dragging them through AI, who needs GPT, you know? It's interesting.

So you've worked with a lot of contractors. What advice do you have for contractors on what systems they should have? Be specific if you can. As far as accounting, is it QuickBooks is a Job Tread? Is it you know, Procore? What systems do you use and how do you get them to work for you?

Adam Cooper:
Got it. Well, for residential contractors, what I would say is typically not all the time, but typically, Procore is not a great fit. Procore is a beast of a program. It's designed with the commercial contractor in mind. It's not very residential consumer, homeowner friendly. It's an internal type of system. It's made for big commercial industrial contractors. We typically recommend something more like Builder Trend and Co-Construct bought Builder Trend I think last year, so they’re the same company. Builder Trend bought Co-Construct. So, Builder Trend we find to be a very good, reasonably priced technology solution for residential builders. As far as accounting systems, the old standby of QuickBooks works very well. It talks to Builder Trend. You can have integrated financials and reporting. If you're an advanced builder and you need more detailed, more reporting, there's a couple of software’s out there that we really like. Foundation is a really good one. It has an integrated payroll. If you buy their payroll for construction module. They're a US based company out of Ohio, I believe, and they've been around a long time. So, they have a lot of longevity. Other systems such as Sage, Viewpoint, those systems are really designed for more enterprise-level customers, bigger customers. SAGE 100 is an old workhorse, it used to be called Master Builder, until Sage bought them.

Paul Sanneman:
I'm the guy who actually wrote Master Builder, swear to God way back in Santa Rosa. I'm an old guy, right?

Adam Cooper:
Wow … well, exactly. Well, I remember when it was Master Builder 20 years ago, and it's still around. It's still a workhorse of a program. It really works, but it's really good for those small to midsize commercial builders. On the commercial side, there's a lot of choices now. You know, aside from Sage 100, there's Acumatica, Foundation, again, is a great choice for commercial builders. It really depends on what kind of … what kind of work you do and who your clients are. That can really dictate which is best system for you. There's nothing wrong with QuickBooks, but I would say by the time you're in the $10 - $20 million range, you're probably outgrowing it and it's probably not supporting you or not doing you any favors. It's probably hindering you on the reporting side a little bit.

Paul Sanneman:
Now, as a coach, my problem was always not knowing what to do, what was getting people to do what they know. I mean, it's sort of like, you know, your gym membership is not going to make you in good shape. Right? So, I always had a problem in implementation. Have you had that same problem. and how have you solved it?

Adam Cooper:
There's always going to be people who resist change. When we work with clients, we spend a lot of time upfront in discovery learning not just about the company but about the people. We have to learn who's going to be an early adopter, who's going to be a champion, who's going to be a cheerleader. We ask ownership to get involved to help pull the projects forward, drive change from the inside. You know, the old adage my mom used to say is, you can lead a horse to water, but you can't make it drink. Same kind of thing. If we can show your employees a better way of doing things, and the ‘why’ behind how it's a better way of doing things, it'll show them that'll make their life easier or give them better visibility of things, help them make more money, tie that into a bonus program, perhaps. We do a lot of work on bonus programs because they’re great ways to motivate. One of the things I like to tell clients’ ownership usually is you have carrots and you have sticks, and you can't be afraid to use both. You've got to be able to give them rewards for doing exactly what you need them to do and doing it well. And there also have to be consequences if they're not getting with the program or not doing the things you need them to do. And those can be minor, or those can be major consequences.

Paul Sanneman:
Show me some of the carrots and sticks you may set up for a project manager of a small remodeling company.

Adam Cooper:
Sure. So, you know, there's certain things you need, say, your project managers to do on a remodeling job that make the job successful, and it’s not all about the money, but it ties to money a lot of the time. So, if they buy out the job well, like they hire all the subs upfront and get it and buy them out and lock them in at prices that were used in the estimate. If they're conscientious about buying materials and not overbuying, staying within budget, and then making sure that those materials are protected on the job site, nothing gets damaged. They're installed in a timely fashion. Subcontractors are held to a schedule, and they get the work done as they're supposed to so the homeowner isn't delayed in getting their house back to them. You could talk a little bit about safety, we could talk about inspections and passing inspections on time. All those things can be measured and then you can reward project managers for hitting those marks. And the reward maybe is something as simple as maybe a 1%, 2%, or 3% profit share on the job. If the job was bid at 30% and it makes 30% and they check those boxes to help make sure the job came in 30%, share the profits with them. Let’s say they only bring in at 25%, maybe they don't get as big of a profit share, or they get less of a profit share. There's less profit, less share.

Paul Sanneman:
Can you give a specific example of something you set up for a company you've worked with that actually worked?

Adam Cooper:
Oh, sure. We've done lots of those. I mean, top of my head … some of that would be a little proprietary for some of the things that we did.

Paul Sanneman:
Just give me Company A, you don’t have to give me the company. Give me Company A and John Doe, that’s fine.

Adam Cooper:
Sure, Company A and John Doe. So, the one we set up recently was for a masonry contractor up in Indiana. And he had certain things he wanted his people to do on these masonry jobs that made the job perform well. One was profit, two was managing materials, buying it out and then managing it so they didn't buy extra block, didn't buy extra bags of mortar. They were budget conscious when they bought the materials, and they self-perform, and they had subcontractors for some of the work. So, buy the subcontractor for the price it was estimated and then for their own labor forces, manage that time, keep them working efficiently and make sure they didn't go over on ours. And if they hit all those four marks or five marks, they got like a 5% profit share. So, the job was bid at $500,000 with a 20% margin, that is $100,000 of profit. And if they hit all their marks, they got a 5% profit share. The project manager got a 5% bonus, $5,000 … $5,000. That would be a quick example of one that we just took care recently.

Paul Sanneman:
Okay, so – that’s the carrot. Let's hear about the stick.

Adam Cooper:
Well, the stick is that it was like a points system. So, to earn the 5%, you had to hit your marks in all the 5 areas, each one of those areas earned you 1% of the 5% profit share. So, if you only hit the marks in three of those five areas, you only got a 3% profit share. If you had a catastrophic failure on the job like it didn't make money, like you lost money or came in at 10% instead of 25% or 20%, no bonus. It was an all or nothing at that point. If you didn't hit certain marks, you got nothing. And then if you continue to have failures, like let's say you had … damaged equipment. Like let's say you had scaffolding that got damaged, or you rented out a piece of machinery and it got damaged, or you know, you broke the lift on the job site … that was that was taken out of the profit share. So, you weren’t watching the equipment. It got damaged. $5,000 bonus, minus $2,000 for repairs to the machinery. $3,000 is what's left.

Paul Sanneman:
What percentage of compensation do you think should be bonus?

Adam Cooper:
I think in this day and age, with the current job market and the current labor shortage that we're still experiencing of hundreds of thousands of jobs nationally in the construction industry … I don't think that compensation should include the bonus. I think bonus should be on top of compensation. If you want to be competitive and hire good people that are going to stay with you, you need to at least have their base be something reasonable market, fair market value, and then you add bonus on top of that to incentivize them to outperform the base expectations.

Paul Sanneman:
So the base salary is whatever is current wage for that position in that market. And then anything in bonuses are on top of that.

Adam Cooper:
That’s correct.

Paul Sanneman:
Now, do you have any suggested Key Performance Indicators [KPI’s] for like a project manager that you use?

Adam Cooper:
Some of the ones we just talked about. So, we talked about profit and budget management and labor management. We talk about having paperwork done in a timely fashion. If you're a commercial contractor, getting all your submittals in on time, making sure your red lines are done at the end of the job, submitting RFI’s and managing your RFI process. If you're a general contractor, making sure that you are communicating with your client regularly, your OAC meetings are going well, your homeowner meetings are documented. You know, managing the budget, providing job site daily reports, updating the photo log on the job, taking progress pictures, all those things can be incentivized and measured.

Paul Sanneman:
So, if you develop key performance indicators, how often should you go over … let's take a project manager for a remodeling company that’s doing $2 – 3 million. Should you do it once a month? Once a year? Once a week? I mean, how often should you review those and reward or not reward for those factors?

Adam Cooper:
Typically, we would be saying you need to be at least looking at every job and every project manager once a month. The reward usually doesn't get paid until the job is over. We don't know how the job's going to do till it's done. Even with a great forecasting model, if you're tracking it month over month, you'll be able to spot problems earlier on. We hope you'll be able to help the project manager adjust and correct for anything that's going sideways on the job. But the actual bonus is figured at the end of the job when everything is said and done, the homeowner’s got their keys and they're happy. You know, a happy customer is always a great indicator of success for a project manager. You don't want them to do everything right and piss off the customer the whole way through. So, maintaining that relationship is crucial to a successful job we find because especially in the home remodeling business referrals are a great source of business and if your customers don't like you, you're not getting any referrals. So, make sure your project managers know how to smile and talk nicely to their customers even when they're giving them big change orders.

Paul Sanneman:
Okay, now … question: What do you think? Do you think you should pull this stuff … once a year? And to help retention, like, they get all these bonuses, but they don't get them until the big end of the year bonus, or you should pay monthly, quarterly, how often?

Adam Cooper:
You know, it depends by contract type, but a lot of times we say, you know, a home remodel project could be 3 months, it could be 12 months, it could be longer if it’s a whole home remodel. So usually, the project managers are managing more than one project. We’d like them to get bonused at the end of each project. If these projects are all long duration, like whole home remodels, an end of year bonus would also be appropriate. That would be more of a discretionary bonus based on measured performance to date through the year. If they've been doing the right things and the job isn't done yet, you give them discretionary at the end of the year. We typically like to give out and recommend giving out holiday bonuses, end of year bonuses, annual reviews, performance reviews, we typically recommend doing those. The way we actually split it up in our company, if you were hired in Q1 or Q2, your review is in Q3. If you were hired in Q3 or Q4, your review is in Q1. That way there's six months apart for us to manage, we only have to do about half the staff each half of the year. Everybody's getting an annual review. It's based on their hire date. So, they never go more than a year from their hire date without getting a review. And so, look at their compensation package and make adjustments accordingly. And then bonuses are paid out as jobs are finished. There's an end of year bonus, which is a thank you for all the hard work this year, on top of the earned bonuses. That's a mixture of systems and processes there. You know, in this day and age, it costs you so much to replace a great employee. I hate to think you've lost them because you didn't give them a Christmas bonus.

Paul Sanneman:
Yeah. Now, next question. How … what do you think of a profit level should be? Let's say … this is over the map …but let’s say you're remodeling contract. You're doing $3 million, right? The two numbers that seem to get really weird with contractors is one, What’s a marketing budget? What's the profit? And I've heard everything from, you know, 2% to 15% for marketing budget. I’ve heard everything from, you know, 5% to 50% for a net profit budget. I'd like to hear your opinion.

Adam Cooper:
Residential contractors in the remodel business, we typically see gross profit. So that's just sales minus cost of goods sold, right? Gross profit is somewhere between 30 and 40%. We typically net … a good net, a good healthy net bottom line … 5 to 10%.

Paul Sanneman:
And that’s only for your reasonable salary, right?

Adam Cooper:
It's a reasonable salary … that's not counting like, distributions and things. That is actual PNL [Profit and Loss] numbers. So, you have $1 million in sales. You should have about $300,000 in gross profit. That's about 30%. By the time you're done, you should have spent $200,000 - $250,000 of that and have about 5% net left. That's taxable income. The rest of that $250,000 was spent on SG&A, sales, goods and administrative. That would include marketing. A good rule of thumb for marketing for small companies, 10% of gross. So, if you're doing a million, you should have about $100,000 earmarked for marketing if you want to grow your business. If you're trying to just keep your business plateaued at where it's at, 5%. So, I'll you’d be spending $50,000 on marketing. Now, marketing could be everything from website, Google Ads, Facebook ads, Pinterest, Instagram, whatever you're doing for social media. It could also be the costs that you're paying an agency to do digital marketing for you.

Paul Sanneman:
But would you count … say for like an owner who’s being paid, pick a number … $150,000 a year. He spends 50% of his time marketing. Does that go into the marketing budget or not?

Adam Cooper:
That would depend. If he's spending 50% of his time doing marketing, he should probably think about hiring somebody to do his marketing, because that’s a waste of time for an owner, right? Most owners are not that good at marketing. They're much better at sales and they don't understand all the things that work. Marketing is a full-time job. We have a marketing division here where we have a full-time marketing staff that does third-party marketing for... we currently have three residential contractors, one in California and two in New York that we're doing full marketing campaigns and agency work for, and it's a full-time job. I need a person for every account to manage all that marketing work.

Paul Sanneman:
Okay, good numbers. So, this is a straightforward question. You're in an airport, right? And you meet a guy, came across this guy and he has a $3 million construction company, right? And he's complaining, you know, I did $3 million. I made maybe, you know, $50,000. I was better off when I was becoming you know, when I was a framer or whatever, complaining of making not enough money, not having any time …

Adam Cooper:
I lost sound … There we go. Got it. I got you back. Okay. I heard … I'm in an airport and he said he's doing $3 million, and he made about $50,000.

Paul Sanneman:
$3 million … right. So, the question is, he’s complaining about … he’s a typical contractor guy, right? Like, ‘It's way too much work. You're this big-time, you know, high-paid consultant guy. So, I'm not paying you for this, I'm just want your advice for the next 10 minutes. What would you tell that guy on how to improve his company? What should he really look for? What are the basics of running a good construction company that he should or should not do?

Adam Cooper:
So this is a residential contractor doing $3 million, it's not making it right? Okay. Well, the first thing I would ask him is to just tell me about his business. How many people does he have working there? What geography is he in? Does he work in California where wages are higher or is he a Midwest kind of guy where people are a little more median income? I would ask, you know, what does he spend his money on? What does the company spend all its money on? Is it being spent on marketing; is it being spent on project management? Is it being spent covering costs because of cost overruns? What is what does the average project look like? What is the contract value? What is he estimated at for gross profit and what does it actually finish at when it's done? Does he have a project management problem? Does he have a labor performance problem? Does he self-perform? Does he hire out subs? Is he more of a construction manager? So, I’d need to understand more about his business before I knew … how to start diagnosing him.

Paul Sanneman:
So, when you come into a company, what are the typical problems you solve that you think most contractors have? Is it the numbers? Is it labor? Is it the vision? You know, what's one of the biggest?

Adam Cooper:
Yeah, I would say … I would say the biggies that we solve for contractors that self-perform work, labor is your biggest risk and that's usually where they're losing the most money because they're not effectively managing their labor. And that can be a variety of factors. They don't have the materials there, they don't have anybody providing oversight. Nobody is pushing them or they have quality issues and you have to go back and redo work. Or there’s bad communication between the office and the field? And so, the office gets plan revisions, but they don't get to the field, so it gets installed the way it was originally designed, and now they have to go back and rip it out, put it back. Or, they just don't have good communication with their client. They’re not helping their client make decisions, so client don't pick their cabinet package and then things get ordered late, they get delivered late. There's delays to the project. Labor is typically a symptom of a problem, not the problem. The Labor numbers are over, but the labor numbers are over because of some other underlying root cause. So, getting in and trying to figure out root cause analysis on why their labor numbers are going over budget is a big area that we focus in.

Once they have the Labor figured out, then we can start looking at the other areas. Do they subcontract or self-perform? How are they buying out their subcontractors? Are they scoping them properly? A lot of times we find that they don't scope their subcontractors properly. There's big gaps like, the electricians are doing it and the HVAC guy isn't doing it. And there's all this stuff that isn't connected like they put a package unit in and nobody's wiring it up. There is nobody motorized in the dampers, nobody picked it up. So, scope gaps in buying out subs. It could be that they're not managing their cash flow very well. That's another big problem we encountered is that they don't have a good way of forecasting their cash flow and they’re always borrowing from their front line of credit to make payroll or borrowing to pay their vendors, or they're late paying their vendors and they're paying late fees. Their credit's getting crunched. They can't get bonded. These are all the problems that come from not accurately and properly managing cash flow. So, teaching them how to manage their cash flow is another big area that we solve. And then the third area I would say that we come across a lot is technology and accounting systems. They just … they're running the business on a spreadsheet in email and notebooks, and they don't have a good project management software like Builder Trend or Co-Construct or even Procore if they're a commercial builder. And so, everybody's doing it their own way on their own little spreadsheets. Everything's siloed. The owner can't get visibility into the projects without pulling people into the office and sitting them down. And it takes hours to go through. So, coming up with some type of a technology solution that standardizes the way that they run their projects can really help solve profitability issues.

Paul Sanneman:
So, your feeling is that … they should have a dashboard, right, that they can look at weekly so they will know specifically how the company is doing? You can't fly an airplane without an instrument, same kind of thing here, right?

Adam Cooper:
Correct. Yeah. And they need a dashboard for the projects as well as the company. So, looking at project, project cash flow, looking at Project progress, looking at hours spent versus budget, labor progress, all that stuff at the project level, rolling it up into cash flow forecasting for the company, when are we going to get paid? How much on each job by month? How much cash are we going to spend on payroll overhead expenses by month so they can see what they're going to be over or under cash flow wise for the month helps them forecast out. They should be able to project their cash flow 3 to 4 months out, 90 to 120 days. If they cannot project cash for 90 days, there's an opportunity there to get better.

Paul Sanneman:
Okay. And then how often should they look at these numbers? Weekly, daily, monthly? How often?

Adam Cooper:
At first, they should probably be looking at them daily, maybe a couple of times a week. Once things are stabilized and they've got a good sense of it, at least no less than once a week.

Paul Sanneman:
Okay, for all the projects. Cool. All right. So, Adam, let's say somebody wants to get in touch with you, that this makes sense to them. How would they reach your company? Who should they call. and do they get like a discovery call? How does it all work?

Adam Cooper:
Sure. So, we offer free consultations over the phone or on Zoom. You can go to our website Ascentconsults.com, and there's a ‘Free Performance’ button … ‘Free Consultation’ red button all over the website. Book yourself in and set up a call with one of either myself or one of our consultants. It's like a round-robin. You'll get whoever's available at the time that you want to meet. Those are free consultation calls. Sometimes we can solve your low lying, low hanging fruit problems right over the phone. Other times it's an opportunity to go deeper into discussing what's going on at your business. So those are always free. And then our office number, we're based in Atlanta, but we work all over the country. You call our office at 404-566-5855 and just ask to speak to one of the consultants. Say you heard about me and our business on the Business Success Tips podcast and they'll put you through to one of our consultants.

Paul Sanneman:
Right. Well, thank you, Adam. That was very informative. Now, if you're smart, you'll give them a call because you're some really great free advice guides. So come on, at least you take advantage of that. Okay. Thanks, Adam. I appreciate you being here.

Adam Cooper:
Oh, it was a pleasure, Paul. Great to connect with you again and thanks for having me on.

Paul Sanneman:
Have a good one. Thank you.

- End of Podcast -