July 29 2020 06:00 AM

Take control of finances and evaluate customers as businesses reopen.

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As businesses reopen and states relax pandemic guidelines, landscapers are getting back to servicing customers. The shutdowns gave many landscape professionals a reason to take a hard look at finances, both in terms of recovery and preparing for future emergencies.

Much of the landscape and irrigation industries fared decently especially compared to markets such as hospitality and restaurants, considering the shutdowns and pandemic, says Ken Thomas, principal at Envisor Consulting, Alpharetta, Georgia. Landscaping was considered essential business in several states throughout the shutdowns, and many companies were eligible for Paycheck Protection Program loans.

But the potential for widespread shutdown was an eye-opener for many landscapers who quickly realized how vulnerable their companies were, he says.

“Most of the industry is fairly optimistic that they’re going to survive, but they’re still anxious about their finances,” Thomas says.

Being able to plan quickly is a key quality for businesses recovering from the first half of the year, says David Wagstaff, founder at Entrepreneur’s Network, Philadelphia.

“Some businesses are going to come out of this in a very, very strong position, and some are going to struggle,” he says. “I think the biggest distinction is those that can plan rapidly and make changes.”

Contractors who were able to recognize the potential impacts of COVID-19 quickly and looked at ways to either shut down briefly or move business to a digital space were best situated, Wagstaff says. For many, the shutdowns were an incentive to do more customer contact via telephone or videoconferencing.

Embracing a more robust digital strategy for connecting with customers can give contractors a leg up on those who don’t as businesses start to reopen, Wagstaff says. It also gives those contractors the ability to go back to work with new digital capabilities in place, which could make new markets and customers available.

“Today, many landscapers still produce a paper invoice, and it’s sent to the customer or the customer sends a check,” says Wagstaff. “But a lot of this can be digitized.”

Landscapers need to have a solid understanding of their current finances on a regular basis, says Matt Roberge, CEO and sales for SLC Bookkeeping, Holladay, Utah. That means having a bookkeeping system that provides regular updates, from a daily to weekly basis. Though monthly reports can be helpful, shorter updates will help you make better-informed decisions quickly.

“We all know the numbers are important, but many are so intimidated by it or it’s not in their wheelhouse,” Roberge says. “I think you need a regular cadence of at a bare minimum twice per month, but I’d really love to see a weekly bookkeeping routine.”

If a landscaper doesn’t want to handle the numbers on a daily or weekly basis, try outsourcing to an employee or bringing on a bookkeeper, and keep them accountable to that update routine, Roberge says. When planning, he tries to look ahead about three months, where he feels he can be accurate in estimating expected sales and expenses.

That way, he’s not caught off guard by problems like cash flow.

Building a budget

One of the helpful aspects of the landscaping industry is that much of the pricing doesn’t have heavy fluctuation, which gives business owners some stability to build budgets around, Wagstaff says. Managing a lawn is likely to cost about the same this year as it did the year before. Be aware of which expenses are increasing and by how much.

Planning this year’s budget is a good opportunity to look at your own costs and pricing to customers to make certain they’re appropriate for the level of work your team does. Increasing prices by even a small amount, around 10%, can boost income significantly, Wagstaff says. With many fixed expenses, much of the increase will go straight to the bottom line. Increasing prices can cause concerns over potentially losing customers, but start by comparing the level of service and relative costs to other local businesses. It might also be worthwhile to offer longtime customers a deal for extending service in advance at the lower price.

Being proactive with customers right now in discussing pricing and the right scale of work for what they can afford can win them over for life, says Thomas. If a customer comes to you in need of help and you’re able to find a plan that fits well for both of you, it creates a lot of goodwill for future work.

“That shows your sincerity and your partnership with that customer,” Thomas says.

Business owners should look beyond just the basics of profit and loss when budgeting to think more in terms of a percentage of income, says Roberge. Keep those percentages in mind when considering new work and overall development. For example, bringing on new employees or a new job should be justified by additional growth in the company’s profit margin percentage. If that’s not the case, the company might be better off staying smaller and more profitable.

“Understand what is most likely going to happen in your business in the next 2-3 months, and make the necessary adjustments to keep your profit margin healthy,” Roberge says.

Considering customers

At least in the short term, think hard before bringing on new, large contracts, Roberge says.

“It’s really a golden rule in my business,” he says. “Large customers are very risky, no matter what stage you’re at.”

As a guideline, no single customer should make up more than 5% of total revenue, he says. While it might look impressive to have a client that makes up 30% of the annual revenue, it can also be dangerous. If you lose the client when a competitor underbids the contract, it has a huge impact on your company. Also, service to other customers could suffer as you spend more effort making certain the large client is happy with your efforts.

“This might be a really good time to take a look at your customer list and see who might be a trouble point for you,” Roberge says. “It really comes back to understanding your target customer and what you’re trying to accomplish.”

Taking the time to consider your customer isn’t just limited to size, but also market spread, says Thomas.

“We’re recommending that everybody rethink and rebalance their portfolio of maintenance accounts,” Thomas says. “Not that you’re going to make any big changes, but there are certain segments that are more vulnerable to shutdown.”

Depending on your company makeup, consider whether maintaining a shopping center that’s struggling to bring shoppers back is the right fit for recovery, he says. Consider what the trickle-down of reorganizing customers might be, because it might change the overall direction for your company. Rank maintenance contracts like a stock portfolio, and aim to have a balance that will provide stability even if one segment isn’t doing well. If your customer list is heavy in retail locations or hotels, it might be time to think about replacing some of those customers.

“A lot of times when we consult with people, they have accounts for businesses they’ve been doing for years, but it’s really not making any money. But they’re afraid to let it go,” Thomas says. “It’s OK to cull nonperforming business so you open up the opportunity for better business models.”

It’s also a good time to inspect operations for efficiency, he says. If your company is doing less work overall, that work should be bringing in more money. Make certain good labor management and job estimation systems are in place to be as accurate and effective as possible.

Future planning

Most customers aren’t likely to look for an increase in services in the upcoming year, so plans should take that into account, says Thomas. Make sure client relationships are solid, and stay in contact as you develop next year’s budget. Plan for some customers to come back asking for reductions in scope and services, rather than just reducing prices for current services.

“I don’t think our industry can give up very much margin anymore,” Thomas says. “We don’t have that luxury. It’s got to be a two-way negotiation.”

Going into the next year, as other industries that landscape and irrigation professionals rely on are still recovering, decreases in spending will likely continue, Thomas says.

“Next year, going into budget season, I don’t think we’re going to see a lot of budget increase in existing accounts,” he says. “New business is going to come from new growth rather than customer increases.”

Wagstaff says business owners shouldn’t just be thinking of how to make it to the next year’s budget. Instead, think about how you’d run your business if it were 10 times larger than it is now.

“It totally shifts your mindset,” Wagstaff says. “You have to think about more than about how you’ve always done it.”

Thinking in terms of long-term planning is a way to work toward your own personal business goals as much as it’s a way to safeguard your business in the case of an emergency, Wagstaff says.

“If you’re thinking about these things ahead of time, then it’s not a scramble when something happens,” he says.

Coming out of this first wave of shutdowns, it might be a good time to invest in your infrastructure if possible to make sure you’re positioned well for the future, whether it means a pandemic or economic slowdown, says Thomas.

“There is no better time to rethink how you do business and to make sure that you eliminate some of the waste in your organization,” he says.

This year might not be the time to invest 100% of your profitability in new trucks and equipment, Wagstaff says. Though no one can predict a future shutdown or emergency, it helps to make sure you have a cash reserve available.

“When things do happen, you can ride the storm out a little bit,” he says.

Cash savings are important, but so is overall access to cash, says Roberge. Look for ways to establish recurring revenue throughout the year, even if the majority of your contracts are finalized before the start of the season.

Business owners need to treat a line of credit responsibly, but every business needs to have one, says Roberge, preferably for the highest amount the bank will authorize.

While a line of credit can make sense for a lot of landscapers, make sure that the business is fundamentally profitable before pursuing it, Wagstaff says.

“You don’t want to take out loans to make it profitable,” he says.

“If you understand what’s happening with your numbers, there can be times when you need this line to just get us through these two months. But what I’d rather see a business owner do is figure out if they can change billing practices to cover that rather than a loan.”

A savings program will go a long way to helping endure problems in the future as well, says Roberge. Though it might not always be possible, aim to have 2-3 months’ worth of average expenses held back in case of emergencies.

“If you have that, and a line of credit, you are so much more versatile,” he says. “You would have so much more confidence in your business. I know it’s hard, but it should be a goal.”

The author is editor-in-chief of Irrigation & Green Industry magazine and can be reached at kylebrown@igin.com.