Financial performance 12 steps to improving your landscape business

Financial performance

12 steps to improving your landscape business

by Jeffrey Scott, MBA

Photo by Sahand Hoseini on Unsplash The difference between running a good landscape business and owning a great landscape business comes down to your financial literacy and how well you manage by the numbers.

Many lawn and landscape entrepreneurs

make money even

though they don’t track their numbers closely (is that you?). Others are leaving too much money on the table because they are so busy chasing the day-today (sound familiar?). The difference between running a good landscape business and owning a great landscape business comes down to your financial literacy and how well you manage by the numbers.

This is such an important issue, that before I take on a new coaching client or peer group member, I will survey their

Level 5. Review financial reports monthly, and operational reports weekly, and other operational numbers daily––and consistently make decisions by the numbers.

Level 4. Studying financial reports monthly, making many decisions monthly.

Level 3. Look briefly at reports monthly (or every other month), making a few decisions but not many.

Level 2. Look at reports quarterly at best, making some decisions. management practices. I first want to know what their level of financial management is. Rate yourself; at which level do you operate?

I then discuss with them the 37 specific financial habits and systems that will have biggest impact on their profitability and financial status. For the sake of brevity, I have boiled down the most important to these 12 steps. Rate yourself and see how well you are doing, and where you need to improve.

1. Set a sales budget based on monthly numbers — by sales person

and by division/service line. This allows you to set goals with sales people and marketing, and track monthly how well you are achieving your business plan for the year. You can’t be an effective sales manager without doing this.

2. Use accrual-based budgeting. This is much harder to do than budgeting by cash, but it tells you so much more about your operations when you do accrual budgets vs actuals monthly. This allows you to see problems quicker and to steer your budget more proactively. (FYI: Accrual is defined as following the principle of matching revenue and expenses each month.)

3. Build in a real owners salary to your budget. If you had to replace your role, what would you have to pay on the market? That’s the number you should use in your overhead calculation. While I am at it, I would add that you should run “clean” numbers and don’t keep owners fluff in the budget; otherwise its harder to delegate authority to others and scale your business.

4. Use an industry-specific chart of accounts. Don’t just use the QB standards, or the one your accountant gave you. There is a real opportunity to better understand

your numbers when you break your chart of accounts into four main segments: direct costs, all equipment-related costs, payroll-related overhead, and non-payroll-related overhead. Don’t try to track 100s of line items, you will get lost in the detail.

5. Aim for a positive weekly 'operating

cash flow.' The key to financial success is to achieve a positive cash flow weekly (or monthly at worst); if you track it consistently and by department you will see that some divisions are upside (cash negative) and remain so for many months of the year. If you were an investor in your business, you would want these cash “dips" identified and removed.

6. Set a plan and budget for achieving 20% net profit, don’t just “hope” you will get there by windfall or luck.

The industry average is 5%; my peer group clients average is close to double that, and my top performers are achieving 20% net profit and more. Unfortunately, there is a self-sabotaging belief that the industry average is good enough. How do you achieve better? By setting up a budget, marketing and sales plan to achieve that amount, and by not relying on a “wing and a prayer” to get there. Prayer helps, but must be fortified by a real strategy. The key is to benchmark yourself with the best in class on all aspects of your company; and never ever (ever!) be satisfied with industry averages.

7. Set up your divisional profit centers managers with divisional financials.

You can’t expect to make a high or consistent company profit when each profit center or division leader is not accountable for their own monthly budget. At a minimum they need gross profit numbers on a monthly basis. When I first take on a client, the first place I look is the divisional numbers, because that is where I find so many low-hanging fruits that will improve a company's bottom line.

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8. Give crews daily feedback on their numbers, and show them weekly

scores. This can be kept simple; for example, did the crews get their jobs done in the time allotted? And weekly you can do a forcedranking of which crews came in the best. Keep it simple and motivating. Money is made where the rubber meets the road, and that’s on each crew, each day, on each property.

9. Base your billable and non-billable budgeted hours on historical

averages. It is best to look back 3-5 years by month and by crew type, to see what is realistic. It’s fine to aim for an improvement in billable hours, but it's best to budget for reality. Otherwise, you will shoot yourself in the foot before the season even begins.

10. Review your numbers weekly with your leadership team, and review your financial reports with them monthly.

Ultimately this is the most important action you can do with your team to improve their financial literacy and to improve financial accountability in your company. Set up a weekly dashboard to make this review process easier. Take the time to dive into it, even if you are not as strong a financial leader as wish you were. You don't learn if you don’t begin.

11. Review job costs at the end of each job. If you are in the 'estimating and install' business, then the only way you know how well you are doing is if you review the results as quickly as possible and make corrections to your estimating or your installation practices as you go. A weekly rhythm is a good place to start. There are many good systems you can set up these days to crunch these numbers on a timely basis. Don’t let the thrill of the game distract you from measuring your performance after every game. 12. Work with a CPA who knows business (and not just taxes.) Start by reviewing your numbers at least quarterly with him or her. Remember, your performance will rise to the level of the advisors you surround yourself with, including your CPA, business coach, lawyer, etc. So, let’s start with your CPA and get someone who has a larger view of business success in your corner.

End the year strong

As you head into the rest of the year, use these 12 steps to help you identify your biggest weaknesses and opportunities for improvement. End this year stronger, and set up next year to make it your best year ever.

Upcoming event and free offerings:

The Landscape CEO

Jeffrey's podcast series where he interviews movers and shakers in the landscape industry and who share with you current practices around Covid-19 as well as all other day-to-day practices: https://jeffreyscott.biz/category/podcast-series-theultimate-ceo/

Summer Growth Summit

Des Moines, IA - August 24 to 26, 2020 The Summer Growth Summit is an interactive conference and landscape facility tour for owners and their teams. This year's theme: Optimizing your service mix for increased market share and profitability.

About the author

Jeffrey Scott, MBA, author, specializes in growth and profit maximization in the Green Industry. His expertise is rooted in his personal success, growing his own company into a $10 million enterprise. Now, he facilitates the Leader’s Edge peer group for landscape business owners—members achieve a 27 percent profit increase in their first year. To learn more visit www.GetTheLeadersEdge.com.