Simple Financial Mistakes Contractors

Simple Financial Mistakes Contractors Should Avoid

Many contractors do not have a strong financial background and do not like accounting. However, there are simple procedures and financial logics that can help contractors avoid negative financial situations. This article is designed to identify simple errors contractors may make.

Worrying too much about cash. How much cash is in the bank can be a misleading factor when studying the health of a business. Cash makes us feel good and is deeply ingrained in our psyche. As a kid, if you made a few bucks mowing a yard or running an errand, it was great. You had money to spend. Business does not exactly work this way. Just because we have cash on hand does not mean the business is making money at that moment.

Every business needs cash. However, cash is more of a business tool that an actual measurement of success. You need cash to pay your bills and keep the business going but it is not necessarily a measure of profit. A good example of this is when contractors gear up in the spring. The business is making money but much of the actual cash is being eaten away by payroll, material bills, etc. Where in the fall, many contractors gear down for the winter. They may actually lose money in December but have plenty of cash on hand because they are collecting receivables from past work with no money going out.

Cash on hand might be compared to pulling a trailer.

If you are doing everything right, it is always following you. If you charge the right price, make a profit and collect your money, cash follows your business effort.

You can pay taxes on a cash statement if that is what your accountant advises but use an accrual statement for financial review. An accrual statement shows all costs including accounts receivable and accounts payable to show a true profit. A cash statement only shows what you have paid and collected. On that note, enter accounts payable into your accounting system as the bills come in. Even if you do not have enough money to pay the bill, it still is there to show a true profit or loss. Don’t merely use your accounting system as a checkbook and only make entries when paying bills. Try to

by Monroe Porter,

keep your financial records as current as possible.

Don’t put customer deposits into sales when you put deposits into the bank. Show them as a negative receivable or a liability. Deposits represent money you owe the customer until work is actually performed. This is a little complicated but vital to creating an accurate statement. You also don’t want to spend your customer’s money and then not have the money left to do their job.

If you do repairs, you must either price them time and material with a minimum charge or if quoted, build enough into the repair quote to cover sales cost. No matter how you calculate sales expense, it costs a minimum of $100 to run a

sales call. ($50 an hour times two hours is $100). So how can you quote a $100 repair? You can’t. And this gets even more complicated. Suppose, you only sell 50% of the repairs you estimate. Now you need $200 to recover the job you won and the job you lost. If you must give estimates, make sure you build something into the quote to cover sales costs.

Internal theft continues to be a problem with contrac-

tors. Through the years, we have found that over 10% of our customers had embezzlement and less than 1% a fire. Yet most contractors are insured for fire but not theft. The cost of this insurance varies greatly from state to state and you may want to “bond” your bookkeeper or office manager but remember, bonding only applies to the person you have bonded. You want to talk with your insurance person about what options are available in your state.

Tales from the landscape side

In the mid-summer of 2020, I reached out to our members to ask about their most memorable customers. I expected horror stories of the worst, most demanding, craziest and funniest customers. What I ended up receiving was truly amazing. Most of the stories you sent in to us were heartwarming and spoke of your favorite customers, those that took time to reach out and tell you what an impact you had on their lives, those that became like family and those that became lifelong friends. I also received some funny and wacky customer stories, but even those didn't talk of the angry and discontented customers I had expected. I decided that instead of creating one story, I will include a few in each issue of The New Jersey Landscape Contractor. So, keep those stories coming to me, the good, the bad and the ugly. You can send your story to gwoolcott@njlca.org (along with pictures if applicable) and I will include them in this column in future issues. Thank you all for brightening our days with some of your tales from the landscape side! ~ Gail Woolcott, Executive Director

You Grow It, We Mow It Submitted by Anthony De Feo, Lifetime Member

One of my first customers when I started De Feo Landscaping, Inc., was Mr. and Mrs. Smith in River Vale, NJ. They were a middle-aged couple with a new house, no children and no pets.

They signed up with me to care for their property with a full serviced agreement. They never complained and paid each invoice right on time. Needless to say, they were both lovely people, friendly and always happy. They spent their winters in Florida and some summers in Highland Lakes, NJ.

One day in May 2001, Mr. Smith came out while we were doing the weekly maintenance. He wanted to see me by his front door. Usually when he needed something, he would come up to me when I was riding on the Walker, cutting the lawn and tell me what he wanted. But this time was different. I though maybe I had screwed something up.

I was completely shocked when he started to read a Proclamation that he made up praising me and De Feo Landscaping for 25 years of excellent service. He presented me with the Proclamation and 12 t-shirts he had made for us that said:

De Feo Landscaping You Grow It We Mow It

I was surprised and the feeling of pride was overwhelming. I have saved the Proclamation and t-shirt for all these years.

One Crazy Summer Submitted by John Raffiani, Raffiani's Automatic Sprinklers

Two crazy things happened in 104-degree heat in the same week during the summer of 1977.

Day of the “Turf Blob”

On Garrett Mountain in Paterson, NJ, I had as a client the NJ Bank (now PNC) and the building was across the road from a pond. The turf was lush and thick having grown into 4 inches of top soil sitting on top of rock. The main line to the irrigation system was pressurized to 160 psi. It burst overnight, but did not cause a visible leak, as the turf simply rose up like a giant boil filled with water. When I arrived, the “water bubble” was 30’ x 30’ and 8’ tall. I shut the water off and I and my helper climbed up on it and laid down like on a water bed-it was bizarre! After having our fun we took shovels and punctured a slice 3’ long at its lower base, allowing it to drain into the pond. We climbed back on top so our weight would help push the water out. It took an hour to drain.

Flooding Mercedes Benz US Headquarters

The same week, I was installing a 3 HP booster pump 30’ up in the ceiling of the basement of Mercedes Benz in Montvale. They insisted on using their plumber to connect into the 2.5” copper pipe, over my objections. The main line was looped and had two shut off valves. However, their plumber neglected to shut both valves off. Four o’clock comes and he just leaves-also leaving the piping open as he had not finished. Then the maintenance staff turned the controller back on, after I had turned it off-they thought the plumber was finished. At 3 AM an irrigation cycle kicks in and fills the first floor with water at the rate of 150 GPM. It ran until 6 AM when the maintenance staff came back. They tried to blame me until the facts came to light-their people caused the flood. Not a bright bunch.

Water Ways

Know Before You “Blow”!

Blowing out an irrigation system for the colder fall/winter months is critical in avoiding split, broken or cracked pipes that will unearth themselves in the spring/thaw months.

But not everyone knows how to do this properly.

The first step is to choose the correct air compressor for the job. Depending on the number of heads on each zone and the length of the lateral lines feeding those zones will determine what size cfm compressor is needed.

Locate and turn off the valve inside the home that leads to the outside irrigation system.

Connect your air compressor to the hose bib that’s installed in line with your back-flow preventer (usually on a heal tee as shown in the picture below). Do NOT hook up to the test ports or test cocks of the back flow. They are meant for quick pressure tests and readings and not for sending air or water thru (besides, it will take you much longer thru a 1/4” hole than a 3/4” hole. )

Manually open one valve using the clocks single station manual run setting or by turning the solenoid of the valve counterclockwise until the valve opens. Turn on the air compressor and allow the air to “blow out” the water from the lines. An easy test to know if a line is fully empty is take a sheet of white paper and hold it up to a sprinkler head while the air is still going thru. If it is dry, then it’s done, and you can move on to the next line.

When completed, make sure to leave the back-flow valves open to allow air to escape during the cold months.

Don’t wait too long to perform this service or the temperature might drop and freeze the lines. Be safe and healthy this season and enjoy your holidays and happy new year!!

Joe Bolognese is a customer service and sales rep for SiteOne Landscape Supply in Mahwah, NJ. He is a past Vice President and an Associate Director of the NJLCA. He is also Chair of the Education, Scholarship and Licensing Committees. He has over 20 years experience in the landscape and irrigation supply industry and can be reached at jbolognese@njlca.org.

Most banks today do not want to send you a copy of the checks. Pay more for this service and have the banking and credit card statements sent to your house. There are lots of ways for employees to steal, but writing checks and charging items to your credit card is the easiest way to take advantage of you.

Look to crew size and don’t over staff jobs. A few years ago, we had a customer roof identical apartment buildings and track costs. The only factor that impacted production costs was crew size. The smaller the crew, the fewer hours it took to roof the job. We have contractors who join our networking groups that have 6 or 7 people in an install crew. We tell them to drop one person and the production tends to take the same amount of time.

Have a monthly financial meeting each and every

month. At the meeting review a profit and loss statement, a balance sheet, your accounts payable, your accounts receivable, your sales, closing ratios and your backlog. Want better accounting records? Then use them. As you ask questions and explore the data, it will become more and more accurate.

Financial discipline and understanding is imperative to running a business. Just because you don’t like to do something, don’t have an excuse not to do it. I don’t like to go to the dentist, but I still go.

Monroe Porter is President of PROOF Management and PROSULT Networking Groups for landscapers. For free business help by phone, call him at 804 267-1688.

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