Running a profitable landscaping business may seem simple enough: just make more than you spend. However, the formula is much more complicated than it appears, and the development of revenues and control of expenses arent simple matters, according to landscaping experts.
Write a Business Plan
Entrepreneurship and business programs teach that one of the critical elements in running any profitable business is having a business plan. You can start with something as simple as a single page and let the plan evolve as the business does.
According to the U.S. Small Business Administration, a business plan provides the owner with a written business strategy to guide him. Another reason to have a business plan is that you will need it before a bank will approve a business loan or line of credit, which you may need to grow the business.
A business plan allocates resources and measures the results of your actions, helping you set realistic goals and make decisions. Lack of planning leaves you poorly equipped to anticipate future decisions and actions you must make or take to run your business profitably.
The process of putting a business plan together, including the thought you put into it before you begin to write it, forces you to take an objective, critical, unemotional look at your business project in its entirety.
Part of this focus will be on costs and revenues.
The first thing landscape contractors have to determine is their costs, says Steve Glover, who operates Symbiot Business Group, Salt Lake City, Utah, a company that provides consulting and other services to the industry. Glover is former co-owner of L&L Landscape Services, San Jose, California, which he and his partner sold in 1999.
You need to track your expenses, Glover adds, echoing the sentiments of many others. You cant make any money if you dont know what your expenses are.
The reason is simple, but is often overlooked by newer landscape contractors and other entrepreneurs: Profitability isnt simply the money one collects revenues its revenues minus expenses.
Many unprofitable or barely profitable landscape contractors dont have a budgeting and estimating system that enables them to project expenses a year in advance, according to Tony Bass, president of Bass Custom Landscapes, Bonaire, Georgia. Such a budgeting and estimating system enables landscape contractors to recover their expenses and still have money left over for profit.
Knowing ones costs will help avoid getting hurt in bidding wars. A landscape contractor with low expenses can do some jobs profitably that landscape contractors with higher expenses would lose money on.
In calculating expenses, consider not only obvious items like labor, telephone, utilities, gasoline, etc., but also downtime, the landscape contractors own time and equipment repairs and depreciation, Glover advises.
Downtime is important because it represents an opportunity cost. If a crew is on the clock, but not actually working due to poor scheduling, unscheduled breaks (i.e., extended lunches), equipment failures or other reasons, its costing the landscape contractor money. Even if theres no labor expense during downtime, idle equipment doesnt do the landscape contractor any good. Additionally, overhead costs like utilities and rent still accumulate even if there is no business. So, minimizing downtime helps ensure revenues are coming in while expenses are being incurred.
Similarly, its important to know the time the landscape contractor puts in on each job, whether as an active participant, someone who oversees the work, in bidding the job and collecting money, or in other facets. The landscape contractors compensation, including salary, benefits, etc., need to be factored in when bidding a job.
Another opportunity cost is taking on low margin (profit) jobs rather than higher margin jobs. Its better to spend $20,000 to make $30,000 (50 percent margin) than to spend $100,000 to make $110,000 (10 percent margin). Theres always the risk of additional, unforeseen costs than can turn a low margin job into an even lower margin job, or even a loss.
Managing the Labor Supply
Labor will often be a landscape contractors largest expense, and biggest headache, according to landscape contractors.
Having qualified staff is an endless topic, says Kurt Kluznick, owner of Yardmaster, Inc., Paines-ville, Ohio. Some landscape contractors take on the work, but dont have the people to handle it. You have to have good, talented labor and an ample supply of it.
Attracting and keeping labor, particularly good labor, is a problem throughout the industry, according to Kluznick and many others.
James River Grounds Manage-ment, Inc., Richmond, Virginia, can fill only about 10 percent of its annual labor needs through local hiring, according to Maria Threadgill, vice president. There-fore, the company turns to the governments H2B program to bring in foreign workers on temporary visas to fill the 90 percent companys labor needs.
Thats scary, particularly in an immigration-unfriendly world, Threadgill said.
The government program requires that a landscape company aggressively try to attract local labor before requesting the 10-month visas. Most of James Rivers foreign workers come from Mexico, though an increasing number are coming from South Africa (meaning no language barrier). In order to handle possible language barriers, the company employs a bilingual office staff.
Its not cheap labor, either, Threadgill added. The government sets the pay rates, currently $8 an hour, which is higher than workers can make in some fast food restaurants, and for other unskilled positions.
On the other side of the employment coin are the ambitious workers who have an eye on owning their own business some day. These workers and managers are a concern because they can become the landscape contractors competitors. One way to prevent that from happening, according to Glover, is to compensate top employees well, enable them to take on additional responsibilities (with additional compensation) as they progress, and explain some of the challenges of running ones own business.
Build a team that works together synergistically and fits with the culture of the company, Threadgill adds. You might hire the best irrigation person in the world, but if he doesnt fit with the company, its not going to work. Its more important to hire people that fit the culture and train them than to hire experts who dont fit the culture.
For example, upper management controls much of the decision-making at some companies. Some potential employees, those who want to make many of the decisions themselves, wont fit in at such a company.
The companys culture may also change as the firm evolves. This change should be reflected in hiring decisions as well. If a company exits one part of the business to specialize in another, for example, it will need to look more aggressively for people competent in the new specialty.
Marketing Aids Growth, Profitability
In addition to the labor challenge, landscape contractors must deal with the challenge of building and growing a business. Marketing is critical.
If you count on the Yellow Pages alone for your marketing and promotion, youll die a quick and ugly death, Kluznick says.
Potential customers who use the Yellow Pages to find contractors are typically price shoppers. If they buy at all, they buy on the lowest price, which may result in a loss for the landscape contractor who keeps bidding lower just to get the business.
Though it often comes to mind first, price isnt the hook on which to sell a job, Kluznick said. You need to have the ability to sell on value, not on price. There are always lower prices.
Part of commanding higher prices is running a professional business, a concept the landscape contractor can relate to the consumer directly and indirectly by the way he dresses when bidding a job, the use of preprinted forms, and the appearance of a vehicle with the companys name on it, etc. Everyone is a self-proclaimed expert. But some of the landscape contractors offering low prices arent responsive. They dont return phone calls, may not finish the job or may not show up at all. Its easy to check references, Kluznick says, adding that potential customers should be urged to do so.
Some customers have been burned by unprofessional landscape contractors in the past (i.e., someone not finishing the job), so professionalism is important to help assure them that they will be making the right decision this time.
To sell on value, a landscape contractor must be able to offer something different than his competitors. Some landscape contractors specialize in water features. Others specialize in design. Others specialize in maintenance. Still others specialize in other areas or in a combination of services.
Its hard to be an expert in too many areas, Kluznick says. That makes it harder and harder to develop a brand. For example, weve started doing fewer services. We dont do any residential maintenance. We outsource things like carpentry and irrigation.
Glover points out that while the landscape contractor might be a specialist in a particular area, one way he can grow the business is by hiring people with expertise in different areas, whether its in different types of landscaping, or in different areas of business (e.g., accounting, marketing, sales).
If the community is loaded with qualified, top-end guys, you need to look for other opportunities, Kluznick points out.
Rather than relying on the Yellow Pages for those opportunities, market your company by using referrals, signage on ongoing or just completed work, fliers to new homes and print materials showing samples of your work and testimonial letters. Build the referral base by sending thank you letters to customers. That simple courtesy may prompt them to recommend you to a personal or business associate in need of landscape services for his home or office.
A landscape contractors fleet of trucks can be one of his best marketing tools, Bass said. He recommends making sure trucks are all well-maintained, showing company signage.
Use Good Equipment
Invest in top-of-the-line, high productivity equipment, Bass adds. The higher the productivity you can get from the equipment, the more jobs you can complete.
If a landscape contractor thinks he can go out with equipment thats not cutting edge, hes setting himself up for a big disappointment, Bass explains.
Once the work is completed and the customer is satisfied, there are still no profits until you receive payment. Any money collected in advance or while the work is in progress helps make sure you have the money to pay ongoing expenses of labor, etc., while also helping to ensure receivables are kept to a minimum. Bass requires a deposit, typically 25 percent of the bill, for any work. If its a small project, he collects the rest upon completion. For larger projects, ($20,000 and up), Bass also looks for progress payments during the course of the work.
Bass added that its important to bill immediately. Too many landscape contractors wait for a while after completion before presenting the bill. Glover recommends being very aggressive in collecting any money due.
Dont let people string you out, Glover adds. Many times people are shy, theyre afraid to ask for their money. Youve got to have the cash. If you have deadbeat customers, get rid of them.
There are some finer points to expense and revenue control, labor management, marketing, collections and other facets of operating a profitable landscaping business. Some smaller landscape contractors may benefit from the Associated Landscape Contractors of Americas (ALCA) Trailblazer program.
The program, which debuted in January, enables landscape contractors who have been ALCA members for two years or less and who have less than $2 million in annual sales to apply to have one of 15 Trailblazers experts in different areas of the landscaping business mentor them for one day on running a profitable operation. The only cost to the successful applicant is transportation cost for the Trailblazer.
The Trailblazers were helped as they were growing, now they want to give something back, says Judy McCloud, ALCA membership manager.
Following these suggestions, and generally educating yourself in good business skills will go a long way towards making your landscape company profitable.