Expanding a business can be both exciting and challenging, with new opportunities and complexities to consider. In this episode, John and Jack explored the nuances of blending two businesses together and the key strategies involved in managing the transition effectively.
Jack also discusses his recent plumbing business acquisition, detailing his initial successes and challenges within just one week. They explore the complexities of integrating purchase order systems and optimizing QuickBooks to manage income and expenses efficiently as Jack introduces new departments. Furthermore, they tackle the practical strategies for overseeing departmental finances, stressing the importance of simplicity in bookkeeping and operations.
Episode Hosts:
Special thanks to our sponsor: Service Scalers: Looking to scale your home service business? Service Scalers is a digital marketing agency that drives success in PPC and LSA. Discover more growth strategies by visiting Service Scalers.
Check out Owned and Operated Weekly Insights: a newsletter where John discusses topics ranging from recruiting and marketing to the growth of your home service business. Subscribe to the newsletter here.
Contact us:
Youtube: @OwnedandOperatedPodcast
Expanding a business can be both exciting and challenging, with new opportunities and complexities to consider. In this episode, John and Jack explored the nuances of blending two businesses together and the key strategies involved in managing the transition effectively.
Jack also discusses his recent plumbing business acquisition, detailing his initial successes and challenges within just one week. They explore the complexities of integrating purchase order systems and optimizing QuickBooks to manage income and expenses efficiently as Jack introduces new departments. Furthermore, they tackle the practical strategies for overseeing departmental finances, stressing the importance of simplicity in bookkeeping and operations.
Episode Hosts:
Special thanks to our sponsor: Service Scalers: Looking to scale your home service business? Service Scalers is a digital marketing agency that drives success in PPC and LSA. Discover more growth strategies by visiting Service Scalers.
Check out Owned and Operated Weekly Insights: a newsletter where John discusses topics ranging from recruiting and marketing to the growth of your home service business. Subscribe to the newsletter here.
Contact us:
Youtube: @OwnedandOperatedPodcast
John Wilson: I'm John Wilson. Welcome to Owned and Operated. Twice a week, we talk about home service businesses, and if you're a home service entrepreneur, then this is going to be the show for you. We talk about our own business in residential, plumbing, HVAC, and electric, and we also talk about business models that we just find interesting.
Let's get into it.
If you like what we talk about on our social media, on Twitter, on this podcast, then you should be signed up for our newsletter. Go to ownedandoperated. com where every Friday we break down our business, we break down insights, things we're learning, things we're working on, and it's good stuff. Check it out, ownedandoperated. com.
Welcome back to Owned and Operated. Today, we talk about Jack's acquisition. He's a week into his acquisition, which is awesome. It's going well. We're all super jealous and wish we were doing deals. On top of that, we dive into purchase order systems and how to classify income and expense inside QuickBooks as he's adding new departments and divvying up the books.
It's a great episode and a really good one if you're growing, you know, past that 5 million and you're starting to add new departments.
Welcome back to Owned and Operated. What's up?
Jack Carr: Hey, how's it going?
John Wilson: Man, it's good. It's good.
No, not yet, but this is the first week that we didn't execute on a couple ad campaigns, so we are feeling it. So not a big fan.
We basically just missed some due dates on postcards. We had some, like, misses on our end.
We had some misses on the vendors end and stuff ended up getting delayed by 10 days which matters a lot when you're like timing it
Jack Carr: That makes sense
John Wilson: So this is the first time. Like, we've gotten through quarter one pretty well. This week is the first week that we have really felt like yeah tough week so far
Jack Carr: I'm sorry to hear that.
John Wilson: But we've dropped, we overcorrected.
So hopefully by the time we're talking next week in person, we'll be singing a different tune. But we hit the overcorrection pretty hard yeah. How about yours?
Jack Carr: So this was the first week of transferring the businesses. So take the two businesses, smash them together. We really just have been zero chill with it in the sense that really smashing the business together. I ended up taking that approach mostly cause I just didn't know what else to do and it's actually been going great.
I'm really surprised at how smooth the transition was.
A lot of it was on the seller. If you're listening to this Tanner, great job. He's been absolutely fantastic. The team, their team has been doing a good job. Really the big transition is going to be getting everyone onto Service Titan. But as they're running their business, we're running our business.
We change all incoming outgoing money flow expenses and sales. But besides that, I love plumbing, man. I'm so excited. We went from like an HVAC company with a little bit of plumbing to now like a plumbing company with a little bit of HVAC. So I say that as a joke, but really it's almost equal.
However, that being said, in this time of the year plumbing, we sold like, 30, 40, 000 today and like another 15, 20, 000 yesterday. I mean, oh my gosh, it feels good. So anyway, I'm very happy with the sale, very happy with the team. And we're throwing a big old barbecue tomorrow.
So I'm pumped.
John Wilson: Man, that sounds
Jack Carr: We got it catered. We're bringing everyone in for an hour, hour and a half. Even some of the, they use a little bit of sub work. So we're going to bring some of those sub guys in too. Just really get everybody acclimated with our team and well, we're all a team now, which is the big thing.
John Wilson: Did you already move into one location?
Jack Carr: So they have a small location. They're going to be working out of our location
John Wilson: And has that happened yet or like what's the timeline?
Jack Carr: The timeline is going to be kind of now like we're starting to hold material at that location and not at the other location. I mean, the other location really wasn't much. A sub 2 million plumbing shop, there really isn't a ton that you're carrying on hand. So they had one office and a little warehouse space where they kept like some tools and parts and pieces, but that's all over with us now.
I'm actually worried because now we're below the million dollar per thousand square foot line. And I'm going like, where's our mini X going to sit? Where's this going to go? Cause we're already like becoming space constrained just by the smashing of it together. So really excited on that. It's been going well.
John Wilson: That's awesome. And this is day like eight?
Jack Carr: Yeah. Like week end of week one. Give or take
John Wilson: Yeah, you've had a big year so far. You launched plumbing, you bought a business?
Jack Carr: We're going to buy another one too.
John Wilson: Even in bigger news
Jack Carr: Oh, and even bigger news.
John Wilson: TikTok is getting banned, which is your primary lead channel. Did you see that today?
Jack Carr: I did. Oh, so sad. I'm not going to be able to talk about it anymore.
John Wilson: We got the news alert for that, like, five minutes after launching a campaign. So we're like, dammit.
Jack Carr: Are they actually getting mad? Like, I feel like this is news that comes through like every six months. They say something like that. And then it's like, Oh, well they just moved to Texas. There's servers moved to Texas.
John Wilson: I don't know. It would likely be in everyone's best interest if it didn't exist. It's good for humanity argument. I think it's pretty bad.
Jack Carr: I wouldn't disagree with you there that being said, I mean, it has a lot of us users. So that's a lot of people that are just not using their favorite app anymore. So we'll see. It'll be fun. I'm not a huge Tik Tok rather than advertising on it.
John Wilson: Yeah.
Jack Carr: Maybe we just need to move to YouTube shorts,
John Wilson: Yeah, I deleted TikTok and Instagram and it was a bit too much.
Jack Carr: You find that it's a huge time distraction
John Wilson: I was only on it like 15 20 minutes a day. Like, I was good. Nothing that it gave me was like, valued in my life.
Jack Carr: I do have a fun story. So today somebody walked into the office a restoration guy shout out to Tucker. He's a listener. He walked in start talking to my plumbing guys, my csr, front desk lady and just chit chatting about, sometimes they need plumbing work with restoration and that whole, can, what sort of, not congruity, but you know what I mean? They kind of compliment each other. And then he calls back later and goes, was that Jack from Owned and Operated? And yes, it was peace. It was Jack.
going on? I'm famous.
John Wilson: Nashville famous?
Jack Carr: One day I'm going to get stopped on the street.
John Wilson: Yeah
Jack Carr: I'm waiting for that day. So if you see me just yell at the bald guy,
John Wilson: Yeah, next time I'd see you I will yell the bald guy
Yeah, the blending of real life. That's awesome it's funny when like random people in my life listen to the show. I'm sure people I don't know, but like the only people that bring it up are people I do.
I don't know. I think it's funny. I'm glad that people share this hour with me a week.
Jack Carr: Yeah, it's cool. it's you know, we sit in front of a webcam and talk to each other It doesn't blend into real life all that much. It's proof that you can see a number on a screen that two, three, four thousand people are listening.
But it's hard to comprehend what that actually means until something like this happens.
John Wilson: Yeah. Okay, let's hit the topic of the day. So you are blending these two businesses together. You shot me a text. You were like, what's up, dog? I love you, man. Let's have some barbecue together. And you asked like how to blend the financials. I think what was a better way to phrase your question?
Jack Carr: question was around how do you set up classifications and business accounts? Do you operate out of a single operating account and then you just work with a bookkeeper to do classifications. So that you can follow how much each business is making like what does that look like the minute that you add a second vertical?
John Wilson: Yeah.
Jack Carr: i'm gonna leave that super broad.
John Wilson: I think it's a good one. I don't remember when we did ours. It was probably a million and a half. And it's something that we tinkered with all the way up until. I don't think we've messed with it in a couple years now, but it was like five years of like, okay, do we like this? How does this track? We'll answer the first part, and then we'll dive into the second part. And the first part, like, own them in the same EIN, like if it's the same legal entity, you just combine them. One set of books, one payroll, yeah, and that's the easiest way to do it. And then, the next part is, like, how do you segment the books? And the reason this matters is, it's like short term and long term. So like for the short term, you need to now know what your three trades are doing and how they're performing. You need to know if HVAC service is doing what it's supposed to be doing, what it's percentage of labor is, what it's percentage of parts is.
You need to know what HVAC install is doing, what plumbing service, plumbing install, electrical, on and on. So you divide all these things up into business units in Service titan. Have you done that yet?
Jack Carr: So we have different business units we did that when we did the plumbing vertical.
John Wilson: Yeah. So it's ever evolving. We have 11 classes, 11 business units. And so those 11 business units in Service Titan feed 11 classes in QuickBooks. And how we use that, aside from revenue per trade or revenue per department really, is we take it down to gross profit. We take the labor out of, The people inside each department is put inside their class in uh, QuickBooks, and the material purchased for that department is also put inside its class in QuickBooks.
And that's important, because you need to know gross margin per department.
So that tells you how things are performing, what to improve, what not to improve. The big thing that we're working on now, which is taking a long time, just because it's like, takes people, I don't know, or expertise, is we're trying to get down to net profit per department.
And that's much more complicated because you're like allocating different parts of your overhead, you're, how do you share call center, how do you divide up marketing.
Jack Carr: Yeah, so that's exactly what we set up I would work to the bookkeeper yesterday we are setting all of the HVAC stuff to an HVAC classification in QuickBooks and all of the plumbing stuff to a plumbing classification easy peasy but then do you worry at this stage about the net or are you just running net as a whole company?
John Wilson: I don't think net matters at your stage. I just don't think the juice is worth the squeeze. Like, what's it really gonna give you? The things that really matter is when each department starts having its own OPEX, like expenses, so that could be staff, that could be its own marketing budget those are really the big ones, that's how we think about it.
So like HVAC, HVAC for us has four dedicated overhead positions that like their entire job is HVAC. So that's the trade manager, dispatcher, service manager, install manager. So that's enough for us to care about NET for that department. And they're managing an 8 million business like just themselves.
John Wilson: So they need to know the NET. We also need to be thinking about their contribution to call center their contribution to accounting. So how do we divide that up? So the way we use net now is each department can have up to four percent of revenue of their department for dedicated staff. And they each have their own marketing budget based off their own revenue. But I don't think that really matters until you're running a siloed separately managed department.
Jack Carr: I agree. Yeah, not until the point where until you finally have that department head manager who can manage the PNL of that specific section. It doesn't matter. Well, it does matter, but you can't get good data, right? So until you need have somebody who can look at that good data, there's no point in having that really incremental data.
John Wilson: Yeah, we don't think so. I mean, maybe an accountant would disagree because they need to know where everything exactly goes. I just don't think the juice is worth the squeeze. So the way and we're just moving to this now. So probably in the next two months. We'll be there. We're we'll know net so like vehicles fuel card. Marketing budget depending on the credit card will be divided up by trade. So we'll know exactly what's going on in each one.
Jack Carr: Awesome.
John Wilson: Hey, this episode is sponsored by Service Scalers. So Service Scalers is actually a brand that I've used personally with our companies for a little bit over a year now. They've helped us manage our digital advertising. Frankly, they did a lot better than our last agency. Leads went through the roof and cost per click went way down.
Check out Service Scalers if you're a plumbing, HVAC, or electrical home service company. That's what they knock out of the park and they did a great job for me.
Jack Carr: If this is too much sharing, I completely get it. But like, what does the bank account situation look like? What can you say towards that? Do you keep it like a separate operating account? Is it just a single operating account
Just one account
God, I love that.
John Wilson: What would the benefit of multiple accounts be?
Jack Carr: According to our accountant. Sorry, if my accountant listens according to the accountant, it was easier tracking. That's all right. You could do credit cards or any kind of charge cards or charge accounts directly to that account. So then they can watch what's going in and out. So I think it comes back down to that net is they're able to see the inflow and outflow on that account and then that's theoretically is going to just be only for plumbing and only for hvac. But I think like you said when I was going through it I'm going as long as we have the information from a classification standpoint and we can use the CRM system, service type, and QuickBooks to really understand what we're doing in terms of gross sales on each division and then gross cogs.
I think we should be fine with that.
John Wilson: I think this is a case of like forested trees. You're missing the big picture or not you but like that concept is missing the big picture. Like, it just doesn't really matter. Company net is what matters. And I think it's really easy to overcomplicate something. It's the easiest thing in the world to overcomplicate something.
And it's a lot more complicated, or it's a lot more difficult to, like, simplify. And I think you'll just end up adding administrative burden.
Jack Carr: That's what I wanted to talk to you because that was that text purposes. I felt like I had the direction and I always worry, I love myself, some lawyers, I love myself, some accountants, but at the end of the day, you're asking a butcher how you want your steak, which steak should I get?
Of course, it's going to be the ribeye. It's going to be that nice, juicy prime rib. They're going to pick the expensive cuts. And in that term, the more administrative work for the accountant, the better it is for him, the more job security. Don't get me wrong. It is like the best thing to do if you could do that effectively.
John Wilson: I would argue that's not the best thing to do.
Jack Carr: Maybe that's the wrong terminology, but from an accounting perspective, it is like the best way to get the top amount of information for your business is to have everything segmented off Individually and perfectly so that they could see every cost that goes to HVAC and every cost that goes to plumbing and then you divide, you know the additional labor .
John Wilson: You can just divide that up inside your chart of accounts. I think the big thing here is, like, I'm strongly disagreeing that is the best way.
Jack Carr: See so i'm not either disagreeing or agreeing. So you're kind of arguing with yourself
Like I said, I felt like it was an over administrative burden. And so like, that's why we were kind of in the same direction here. And I've done what you've said prior to you saying it.
And now I'm just trying to figure out if we were supposed to take the next step. And it sounds like that answer is just, no, you're over complicating it.
You can figure that all out a different way that will be better in the long run.
John Wilson: Yeah, I think, Like, as simple as you can get it is what matters right now, like staffing is lean and anything that you do to overcomplicate your process means time, like that's going to take someone's time, means it's going to take your dollars. So like what's the least amount of lift that you can do while still getting the maximum amount of information and benefit from scale, which would be one bank account and dividing it up inside QuickBooks and business units and classes.
You will have to develop a purchase order system if you haven't already. That way you can sort that stuff by department as it comes in. So do you guys have a purchase order system ready to go?
Jack Carr: I mean, we have a very very rough last name purchase order system. I think moving forward, we need to work on that.
John Wilson: I can give you an easy one if that would help. So what we do is we take the project number or the job invoice number from Service Titan. There's a two part here. So you have the job number and then you have the business unit initials. So like what the job number does is it allows you to control cost.
We don't allow techs to buy from wholesalers anymore. We don't pay a vendor unless RPO comes across. If somebody doesn't have RPO on it, and it doesn't tie up, then we didn't order it. Because everything goes through the purchasing system. But you can do this if you have text too.
It's just, this is always how it has to look. We take the business unit initials, so like HVAC install is HI, HVAC install is HI. And then there's the Service Titan job number. So like maybe it's H I 1, 9 So what that does is when accounts payable or the bookkeeper or whoever's doing it, like anyone can do this.
We created it when we were your size cause it was low lift. So it comes in through the email. The bookkeeper can take that H I that first two initials and they know where to classify it inside your QuickBooks. So that's the purpose of those is you can classify those properly. And then the purpose of the job number, aside from like control in releasing parts, allows you to job cost it too.
So you can classify it very quickly, very easily, and then you can job cost it just by searching the job number.
Jack Carr: I love that. We were talking about this internally and trying to figure out one, that piece right there, what makes it the easiest way of moving forward, but two, so what, like when a tech runs and they're picking up, so we just got rid of credit cards, like we cut the head off credit cards with six people, eight people, you can manage that you can't manage that once you get to 16, 20 people.
And so, the second part to what we're trying to figure out next is that actually solves that problem, which I really appreciate. And then how to follow up with text to make sure that if you go in for a P. O. Making sure that they're not ordering truck stock as replacement parts, so we get a lot of truck stock, but really it's replacing that prv valve that I used from my truck. When he goes back and orders that does he order that?
Under that PO?
John Wilson: Yeah. He would order under the job and then yeah, then the other thing we did was in order to classify truck stock. We put business unit initials Hi PS plumbing service PI plumbing install and then you put the last five of the VIN of the truck
Jack Carr: That's good Yeah, so I mean there's just a lot around I think that's a whole new like 30 minute conversation on really how to dig into the intricacies of that and it comes back to management and setting expectations early on. This is how we do this process.
Don't do this process a different way.
John Wilson: We've done this for years, and it helped basically do everything that you're trying to do. So the big things we were aiming for were, how do we sort quickly, if the bookkeeper and the job costing person are different people, which in our business they are, but they don't have to be, you can do this in any size business, but like, those are two different people.
How can whoever's doing accounts payable just within a second? Sort the invoice because she has like 300 a day that she just has to You know sort and then how can the job cost her throw it against the job quickly. And then how do we also get control of purchasing? And not have like fraudulent invoices because that was a thing at one point.
So those were all the boxes that we had to check.
Jack Carr: I don't know if you can talk about it, but it was a fraudulent in from internal
John Wilson: No external yeah external like random people would walk
Jack Carr: That's what we've just ran into that for the first time.
John Wilson: Yeah, so now, we cut off all buyers, only like five people can buy on all vendors accounts. And it has to have, the code the way we need it to look, or otherwise we just tell the vendors, like, we don't, we're not gonna pay it. Like, we didn't buy that.
Jack Carr: Yeah. I get it.
John Wilson: Yeah, I mean, once you tell them you're not gonna pay it they start listening to your rules pretty quick. But yeah, so that helped a lot, and what we're trying to do now is we're trying to, years later, initiate a similar thing on the OPEX side, which was way more complicated because it's the same thing.
So like, what we used to say is like, everyone's a buyer. We had 80 people and everyone can buy anything from any supply house. There was just no control. So that purchase order system and then basically cutting off all access and only giving it to the purchasing team, warehouse team, warehouse guy, like whatever it is at your size of a company.
For us at the time it was just a warehouse guy. Helped a lot, but now we're in the same problem with OPEX where there's not enough control and we're not running budget. So we just finished developing the PO system and it looks similar to the other one. And then it just like, it sits on the backbone of Slack that way people can like order and approve easy.
Jack Carr: Yeah, I mean that makes sense. You have to do that you can't have 200, 300 people running around buying. It just doesn't make any sense. I think I asked this question a while back and you said Jack we just don't even have this issue was about like especially in HVAC but warranty parts, right?
It's a warranty parts are a huge thing in HVAC. They come with a 10 year parts warranty And you have to return them most of the time. So if you don't return them, you don't get paid. And so all of our prices are including the return. So what does that look like and having someone to manage that process?
So a warehouse guy becomes something pretty quickly, but overall not too difficult to just rip it all away from everyone and say, Hey, this person in the office is just call them they're buying. And that's their only job is to buy parts.
John Wilson: Yeah. It's definitely an adjustment. But, everyone gets mad for two weeks and then it works.
Jack Carr: Yeah, I mean if any vendors are listening out there and they just want to like do vendor managed inventory in my 2, 500 square foot shop, you're more than welcome.
John Wilson: There are a bunch of consigned options. Like, that's a thing.
Jack Carr: Yeah, we've talked to people about consignment like they will do it but I mean, if no one has seen John's storage shop area. It
John Wilson: It's good.
Jack Carr: the most beautiful thing.
John Wilson: I walked through there the other day. We just moved into our new headquarters like eight months ago now.
And most of my career has been like working in a building that like we didn't fit in. It was 120 years old. Like the levels were all weird. The floor was janky. The lighting was terrible. And our warehouse looks good. So I was like walking through our warehouse the other day and I was just like, I cannot believe that this is my warehouse. Like, this is awesome. This is like a decade long dream of like, a baller warehouse.
Like, we're there, man. Like, that's sick.
Jack Carr: That's cool. It really is. And like the whole staging area,
John Wilson: Yeah, it's good. I'll put some pictures on, or I'll put some videos on YouTube or something at some point.
Jack Carr: Yeah, you guys will love it. And the way that they do the Milwaukee binning and just, it's like the epitome of operational efficiency.
Like it's just really cool how to see how it's flowing through there.
And then like end of day, like 3pm, empty. It goes from like this bustling, everybody's getting their stuff in the morning, really, really busy area, and then like 3 o'clock it was just crickets.
Pretty neat.
John Wilson: Yeah, we've had events here before, but this is our first workshop next week. So it'll be fun to have like people in industry. It's funny seeing it from other people's eyes because from our perspective, we still get frustrated at all the like, oh man, like this part of it's not working or like, pick a thing, but obviously a lot different than it was years ago.
And we're really early on in a lot of this stuff. So like, I don't know if we've ever walked through a warehousing journey. Maybe we do that next episode, but like a lot of the stuff that we're currently doing in warehouse, we are only a few months into because we didn't have one big centralized warehouse with all the resources that we have now we didn't have VMI. In the past, I would say 90 days, maybe just 60 like we've completely changed the way that we run warehousing, purchasing, like day of inventory, all of it.
Like, totally changed it into something that we've been wanting for years, we just didn't have the physical space to do it. We can dive into it ep. Sounds like a good one.
Jack Carr: Yeah, I mean, that would be neat because I'll tell the story next step then.
John Wilson: Boom, cue in next week.
Jack Carr: Next week for Jack's cool story. Yeah
John Wilson: Yeah, that's solid. All right. Thanks for tuning in to Owned and Operated. This was a good one. As the business expands, you just need more information by department and people need to have ownership. So business units, classes in QuickBooks, and I strongly urge you not to over complicate it.
Most of the tinkering we did was like me overcomplicating it, only to uncomplicate it a year or two later. Keep it simple.
Jack Carr: Awesome. Thanks guys
John Wilson: Thanks for tuning in to Owned and Operated, the podcast for home service entrepreneurs. If you enjoyed today's episode, please hit the like button and subscribe to the podcast. If you have any questions or topics you'd like us to cover, feel free to reach out. You can find me on Twitter at at Wilson companies.
I'll see you next time.