Ventilate your business

My travels have taken me to some very interesting places throughout the United States and the world. I like nothing better than the camaraderie of sharing a pint in an English pub, a liter in a German hofbrauhaus, or a bourbon anywhere in the U.S. Add a fine cigar to any of these and you have a winning combination.

Good friend and client, Hans Ellis, president of Blue Ribbon Landscape Maintenance introduced me to such a place in Nampa, Idaho. The V-Cut (cigar bar) Lounge was started by Tim and Jennifer Wangler in early 2020 just in time for the COVID-19 pandemic. Premium cigars, top shelf bourbon, scotch, wine and, most importantly, excellent ventilation. It all makes for an ambiance cocktail of friendship, fellowship and lively philosophical discussion that’s unrivaled. It’s where leaders of commerce, government, education and society meet to discuss the important (and not-so-important) topics of the day. While the ventilation system clears out most of the smoke, the discussions hopefully clear out some of the intellectual fog of the day — the fog du jour, if you will.

Just under one year ago after a long day of travel, I frequented the V-Cut Lounge by myself. Cigar and bourbon in hand, I sat beside a couple who were enjoying the same. Gabe Dean and his wife, Michelle, and I started chatting. I found out that they were good friends with Hans and his wife, Marcie. Our chat led to the inevitable question, “And what do you do?” Gabe told me that he had recently purchased his father’s business, Daystar Excavation, Inc. (DEI). He ran the operation while Michelle handled all of the bookkeeping. Then it was my turn. I explained that I help entrepreneurs format and understand the numbers in their businesses. This takes the form of budgeting, accurately pricing products and services, calculating labor and equipment rates, setting daily revenue goals, benchmarking the entire business, and so forth. Gabe exclaimed that this was exactly what he had been thinking about — how to accurately price his excavation services. I went on to share examples of what I did for other entrepreneurs and encouraged the Deans to talk with Hans about what I had done for him.

How it worked for Daystar Excavation

Gabe and Michelle decided to hire me for a day, have me go through all of their numbers, and help them accurately calculate the rates for their services. We started with a budget for 2022 from which we obtained their general and administrative (G&A) overhead recovery, field crew labor burden, revenue goals and billable field-labor man-hours. We then went on to calculate the cost per hour (CPH) for most of their trucks and excavation equipment to include excavators, front-end loaders, scrapers, and so forth.

Once we calculated these foundational figures, we then turned to pricing specific services. First was a three-man ranch crew with a Volvo 210 excavator, a CAT 615 scraper, a John Deere 850 K-dozer and a RAM 2500 crew truck with a trailer. The crew averaged 45 man-hours per man per week. All in, this crew had to bill in the vicinity of $3,000 per crew-day. We then went on to calculate detailed rates for:

• The CAT 615 scraper with an operator
• The Kubota KX-080 excavator with an operator
• The Volvo 140 excavator with an operator
• Mobilization rates for all pieces of equipment
• And more…

Did it work?

Daystar Excavation currently employs roughly eight field operators and bills out about 20,000 man-hours annually. As a result of our day of reviewing DEI’s financials and pricing, the average price increase per man-hour was in the vicinity of $10 to $20 per hour. Since DEI was already making money, the increase was all net profit. Imagine, that’s roughly $200,000 in extra net profit for every $10 increase (20,000 MHrs x $10). Plus clients gave him little to no pushback on the increase.

Like most construction and service entrepreneurs, Gabe’s area of expertise is in the field running crews, getting the work done on time and on budget. The financial side of the business was a bit hazy to him. Now the smoke is clearing because Gabe and Michelle understand the numbers of Daystar Excavation better than before.

They’re also in better control of the future of their business, their lives and the lives of their employees. That’s something to which we can all lift a glass. There’s no room for smoke, except at the V-Cut Lounge.

Travels with Jim follows Jim Huston around the country as he visits with landscapers and helps them understand their numbers to make smarter decisions.