A construction company owner told me he owned a $50 million business building residential homes. He looked like he could have been chomping on one of those big “look at me” cigars (although he wasn’t). I then asked him a few questions about the business.
He shared that roughly $20 million of that money went to materials. Another $25 million went to subcontractors.
I did the math out loud: “You don’t have a $50 million business. You have a $5 million business that manages the transfer of $45 million from your clients to other businesses.”
Silence. Then a little nervous laugh. Now he looked like he was smoking one of those soggy, droopy “you got me” cigarettes.
Mind you, he wasn’t doing anything wrong. He was doing what most of us do. Every dollar landed in one operating account, got mixed together, and went back out. The business looked big and healthy from 30,000 feet. Underneath, who knows? I suspect you actually do…
The junk drawer problem
You probably have one of these in your house. Scissors, batteries, a takeout menu from a place that closed ten years ago, a half dozen keys that open nothing. You know there is an actual functioning pen in there somewhere, but finding it means dumping the whole thing on the counter.
One operating account is a junk drawer. Five jobs, ten jobs, twenty jobs, all tossed in together. The total looks fine, so we assume every job is fine. Meanwhile, one project is quietly paying the bills while some of the others are chowing down on the margins. Stuff that you may discover, besides the burning frustration of “I am making tons of money, but there is none left. What the h***?!?!”
Here’s the nuance, though. The Profit First setup you already have (Income, Profit, Owner’s Comp, Tax, and OpEx) is still right. It tells you what’s available for what purpose across the whole company. In this standard setup, it just can’t tell you whether House 7 is making money or if House 3, 4, and 8 are eating you alive. That’s a different question, and Profit First has the answer.
Two layers, not two hundred accounts
With the builder, only $5 million of that $50 million was what the company actually got paid. The other $45 million was passing through to materials and subs. So we ran Profit First on the $5 million and moved the rest into its own accounts, broken out house by house (he was, at any given time, building up to four homes):
- Subcontractors House 1
- Subcontractors House 2
- Materials House 1
- Materials House 2
They even gave each home its own profit account. Now, when someone asked, “Are we profitable on the Maple Street house?” The answer was a number sitting in a bank account. No spreadsheet archaeology required.
I call that instant cash clarity. Your Profit First Professional can dig into every molecular detail with job costing, and I am sure glad they do. But most entrepreneurs like you and I log into the bank because we want to know where we stand right now. We want to spot the red flag in real time, then know where to look closer.
Your layers might not be houses. It could be by service offerings or division. The accounts just need to match how you actually make and spend money.
“That sounds like a lot of accounts”
I hear ya. I thought the same thing. Am I really going to open an account for every job?
Here’s the trick: you only keep accounts for what’s active right now, then rename them when the job wraps.
In my own publishing business, we work with several authors over a year, but only a couple of books are being written at any given moment. So I’ll have John Profit and John OpEx for one project, and Madie Profit and Madie OpEx for another. When their book is done, I rename those accounts for the next author and keep rolling.
The structure moves with the work. It doesn’t pile up every time you say yes to something new.
What you can finally see
Once you can see profit per job, you stop asking “did we make money?” and start asking “where did we make money?”
I saw this with a company that leased Learjets, trained pilots, and did mechanical repairs. The owner told me the company was just getting by. Then we separated the three divisions, and three very different stories showed up:
- Pilot training was highly profitable.
- Mechanical repair was roughly breaking even.
- Leasing the jets was taking the other two divisions down.
Within a couple of months, we knew exactly what to do: expand training, fix mechanical, shut down leasing. The company went from getting by to doing exceptionally well. They didn’t work harder. They just stopped guessing.
That’s the same thing that happens job by job. It shapes what you take on next, how you price it, and where you look first when the margin isn’t where you expected. (And if you can have a bookkeeper who gets this, my gosh, grab a Profit First Professional. They’ll keep you honest.)
Relay, the official banking partner for Profit First, makes this easy. You can open and name a separate checking account for each job. You can hand debit cards to project managers with spending controls, so purchases keep moving without you approving every swipe.
Back to the $5 million
That builder didn’t need a new business. He needed to see the one he really had. The $50 million was never the real number, and neither is your blended, everything-in-one-account profit.
This week, pick the one job you’re running right now and open a separate account for it. Name it after the job. Move its money in and its costs out.
That’s the first step to making Profit First bespoke to your business. Not a rebuild. One account, one job.
Better yet, bring in a Profit First Professional to set up this second layer with you.
