No one goes into business with the intention of failing. Sometimes a company owner is the victim of sheer bad luck, having been hit by a disaster beyond his control, such as a flood, a tornado or a deep recession. Usually, though, it happens because of a cascade of small (and not so small) miscalculations in running the business that destroy profitability until it becomes apparent that the only way out is to shut the doors.
Though a landscape business may be one of the easiest types of small businesses to start, sustaining it is another matter. Tony Bass, a green industry consultant and educator, owner of Tony Bass Consulting, Fort Valley, Georgia, and co-author of the “E-Myth Landscape Contractor” (E stands for entrepreneur), says the reason many contractors struggle is a lack of financial education. “Hardly a week goes by that I don’t have the chance to talk to someone who says, ‘I’m a terrific contractor. I can sell work, but man, that business side of it, keeping track of accounting and record keeping, is kicking my butt.’”
Not having the needed financial prowess can spell disaster, no matter how good you are at landscaping or how much equipment you have. “I don’t care how many lawn mowers or skid loaders you own,” says Bass, “the failure to be able to read and understand a profit-and-loss statement and a balance sheet is sheer financial illiteracy. Unfortunately, there’s a tremendous amount of it in the contracting industry.”
Bass says that may be rooted in the way in which many green industry businesses get started, with the thought: “Because I’m a competent technician in the landscaping field, that means I am instantly qualified to run a landscaping company.” That’s a bit like saying “I’m a good eater, therefore I should open a restaurant.”
Beyond the bushes
The experienced technician, builder or installer soon finds that the responsibilities of running a business are very different than his previous roles and responsibilities. The burden of dealing with insurance, doing advertising, marketing and accounting, maintaining banking relationships and managing and hiring others takes up a tremendous amount of time.
“Virtually every landscape company struggles to a certain degree,” says Bill Arman, a green industry consultant with The Harvest Group. He agrees with Bass about the need for more financial literacy. “It’s a tough business, and that lack of business knowledge can really hurt,” especially as companies grow.
Hal Pruitt discovered this. He’d had no trouble running Cumming Lawn Service, Cumming, Georgia, a company he’d started in 2000, when it consisted of one truck and two to five employees. “But when we grew up and got to where we had three, four trucks and 10 to 12 employees, I realized I didn’t know as much about management as I thought.”
“I could sell the work, handle the office, the finances, but managing the people was what I had a really hard time with.”
Jarrett and Kristin Culverhouse were in a similar boat. They started Care Free Lawn and Sprinkler LLC, Rapid City, South Dakota in 2001. The company does mowing, fertilization, installs irrigation and also does some hardscaping, and snow removal.
Things went pretty well until the Great Recession of 2008 hit the company hard. “We’d used credit cards to pay off some debt, to pay our suppliers,” Jarrett says. “Then the interest rates went up.” Even though they never made a late payment, they nearly went bankrupt. Things were so bad he thought about getting out of the business and getting a job.
About five years ago, the couple decided they needed help. They’d read Bass’ “E-Myth” book and attended one of his seminars.
“The year before that, we’d grossed $280,000. That sounds like a lot, but after paying expenses, it was barely enough to live on, and we hadn’t grown, we’d gotten stagnant,” Jarrett says.
The seminar taught the Culverhouses how to bid.
“How to come up with a number, after you figure out what your overhead is and what your basic wage is going to be. That really set off a light bulb in my head, because while I knew how long it took me to do certain things, I never really knew how to put everything down on paper and make it work,” says Jarrett.
Bass also put the couple in contact with other contractors that had the same problem and some others who were “much better businessmen than I was,” says Jarrett. “I had to swallow some pride and take a look at what I was doing wrong.”
The very next year after the seminar, they turned “a very good profit, clearing $380,000. Now we’re pushing over $700,000 gross, and my wife and I can pay ourselves salaries.”
Rick and Nicole Longnecker married Jan. 1, 2005, and seven months later started Buds and Blades, a maintenance-focused company in East Olympia, Washington, with a mix of 80 percent commercial and 20 percent residential contracts.
They reached out to Harvest when they realized, as Rick puts it, they “knew where we wanted to go but didn’t know how to get there. It just seemed like we were always chasing our tail.”
Where they wanted to go was to have from $750,000 to $1 million in sales. “At the time that Bill (Arman) came and talked to us, we were at about $300,000. He helped us get the right people and systems in the right places, systems for estimating, for tracking our gross margins. Budgeting — my wife and I sat down a million times to do a budget and weren’t sure we ever got it right. Now we have one that works for us,” Rick says.
It sure did. Following Arman’s advice enabled them to buy out another company. By the end of January 2016, they’d hit their goal of $1 million in sales.
Both Bass and Arman agree that two main ingredients for success are sales and the people you hire.
Ironically, the same two things, flipped to the negative side, are also the main ingredients for failure.
The price isn’t right
Bass says the number one reason most landscape businesses fail is because they price their work incorrectly. “Pricing right is the first skill,” says Bass. “If you price right, it’s easier to keep your promises to your customers, employees, vendors and tax authorities. If you don’t keep promises to any one of those four groups, then you’ll be out of business before you know it. One of them will come and get you.”
You have to price so your company earns a profit, says Bass. Maybe you never used to have trouble with this, but the cost of labor went up between five and 10 percent in 2017, and another 5 to 10 percent this year. If you’ve been using the same pricing methodology for two consecutive years without increases, says Bass, your costs have probably gone up somewhere from 10 to 20 percent in labor alone. You can see how much this could hurt a company whose profit margin is only around 10 to 20 percent.
Bass got Jarrett Culverhouse to see that he needed to change the way he did job costing. “I used to track everything that I bought and how long we were on a property, and just put an hourly rate on it,” Jarrett says. “But sometimes that figure isn’t right, and if you undersell a job it means you didn’t quite recover your overhead. You need to be able to put a number to paper so that before you bid a job you know exactly how many hours it’s going to take to do it and how much your materials are going to cost. You come up with your equation, then add your profit to it.”
The first thing Bass had Pruitt do was go through his GPS records and look at the total time his crews spend on each property. He did a job cost for every site he maintains and discovered that he either broke even or lost money on over 50 percent of them.
Clearly, a price increase was called for. This prospect terrified him, but to his relief, most of his clients stayed with him even after getting the increase letter. This single move alone added $23,000 to his bottom line.
Hiring the wrong people If you’ve seen the movie “Glengarry Glen Ross,” you may recall the famous “A-B-C” sales anagram: “Always Be Closing.” Arman’s version is “A-B-R” for “Always Be Recruiting.” To be successful, you have to be able to attract, keep and develop the right people. At the same time, he realizes that right now, that’s as difficult to accomplish as it’s ever been in the history of landscaping.
“Eight years ago it was an employer’s market,” says Arman. “Now it’s an employee’s market, and the guys that haven’t adapted to that are struggling.”
Pruitt admits he had no idea how to hire, saying “I’d just run an ad and the first person that showed up, I hired. That first year, in business, I probably went through 35 people. Most of them worked a day or half a day and walked out on me.” What he needed was a process that would weed those people out.
With Bass’ help, he created a 71/2 minute video listing everything required to work for him. It makes it clear that he’s looking for high-quality people and that he does random and pre-employment drug testing. That screens out a lot of applicants who wouldn’t have worked out anyway.
Rick Longnecker changed his hiring approach, too. “In this economy, you’ve got to be creative,” he says, and the Longneckers are, using Facebook and Indeed.com as resources. “Bill (Arman) says ‘Always Be Recruiting,’ so we’re always looking for people. He also said, ‘look for people who are hungry, humble, and honest.’”
Where Rick used to hire mainly by “gut,” with mixed success, he now looks at an applicant’s attitude. “In the interview, we look at how they carry themselves. Were they on time? What do they say about where they worked before? What do they like, and dislike about landscaping? Can they work in the rain? In the heat? We’re not looking so much for skills and aptitudes because we’ll train them. But first, we want to see that they are trainable.”
We hope that shining a light on some of the things that cause landscape companies to fail will help yours avoid that same fate. Knowledge is power, and by learning from the experiences of others we can hopefully sidestep some of their mistakes, as well as benefit from what they did right. Good luck.Help is out there
Can’t afford to hire a consultant? There’s plenty of free or low-cost help out there for small business owners.
SBDCs, Small Business Development Councils, typically work through universities in conjunction with the SBA, the Small Business Administration. You could have someone with a Master’s degree in accounting take a look at your books.
SCORE, the Service Corp of Retired Executives, is the organization through which former C-suite executives make their experience and advice available.
State and local landscape contractors’ associations have programs and seminars that are invaluable. You might need to become a member to take advantage of them. Why not join? You’ll meet veteran contractors who may have been where you are now, and benefit from their advice and mentoring.
Local chambers of commerce can be very helpful, as can community colleges where you can learn the basics of bookkeeping, accounting and business management at minimal cost. Many courses are held at night and on weekends.
The author is senior editor of Irrigation & Green Industry magazine and can be reached at firstname.lastname@example.org.
Other reasons landscape companies get into trouble
Poor pricing and hiring practices aren’t the only things that can trip up your business. Here are some other pitfalls.
Lack of good systems
Jarrett Culverhouse, co-owner of Care Free Lawn and Sprinkler, LLC, learned that every minute you’re not making money, you’re losing it. “It comes down to even the amount of time it takes an employee to come in, get what he needs, and go to work. We narrowed it down to where they need to be out of the yard in 10 minutes – boom, they’re gone. If it takes them 30 minutes, I’m losing money.” To expedite this, all his trucks are preloaded with needed equipment before the workers arrive each morning.
Too many accidents
Successful companies are safe companies, with good training programs in place. “Worker’s compensation premiums have gone up,” says Bill Arman, a consultant with The Harvest Group. “If you have an accident-prone company, that alone can take you out. You’ll have to price your work higher to cover those additional costs.” If you have too many accidents, you may lose your coverage altogether and not be able to get a replacement.
Paying cash for everything
Green industry consultant and educator Tony Bass says many small contractors think they must pay cash for equipment or they won’t make money from it. “But I’ve never worked with any five-million-dollar-per-year contractors who buy their equipment; they lease it. Lease payments tend to be lower, which improves your cash flow. Big companies understand this concept, but smaller, younger ones struggle with it.”
Finally, if your business is failing, look in the mirror. “One of the biggest reasons businesses fail is because their leaders lack leadership skills,” says Arman. “They’re so busy working in the business instead of on it, that they have no time for strategic thinking.” Rick Longnecker, co-owner of Buds and Blades, had to see how his leadership role needed to change, from having been the boss of three to five people to being the boss of 16, virtually overnight after purchasing another landscape outfit. “I had to learn that I’m not the guy who has to get things done anymore; now I’m the guy that has to make sure things get done.”