Turf Magazine - August, 2008

CENTRAL FEATURES

Creating a Lawn Care Business Plan

The first step to a successful company
By Spencer Gregory

Before writing a lawn care business plan, a definition of a business plan is in order. A business plan is a document to identify an opportunity, research why this opportunity is profitable and the steps needed to capitalize on the opportunity.

If you don’t know anything about business or finances, this is a good time to begin learning, as the chances of your business being successful will be limited without this knowledge. Statistics from the Small Business Administration claim that over half of new businesses fail in the first three years, and the common factor is poor planning or undercapitalization.

Getting started

The first step in creating a business plan is just getting started. If you break the plan down to bite-sized pieces and work on one section at a time, it won’t seem as daunting. Begin with what you know first and describe your business and your product or services. Work towards the more difficult subjects, such as marketing, operations and financials. Don’t worry about it being perfect, just get the concepts on paper as you can expand and refine later. Free resources to help with your plan are available from your local Small Business Development Center www.asbdcus-us.org and the Service Corps of Retired Executives www.score.org.

You need to keep in mind who your intended audience is and why you are writing the plan. A plan for the bank will be less interested in the exit strategy and return on investment than one for equity investors. A plan written for internal use will be different than one looking for financing.

Structure

Business plans tend to have a lot of elements in common. The “Business Description” is aimed at painting a picture of your business and why it will be successful. The “Marketing” and “Management” sections are researched, and a strategy of how your business will compete and operate is developed. “Financial Projections” show in numbers what you explained in the business plan for the sales and expenses. Breaking these three major sections down even further, a business plan consists of the following key components:

  • Executive Summary
  • Business Description
  • Marketing
  • Management and Operations
  • Financial Projections

A business plan should also have a cover, a title page and a table of contents.

Outline

Executive Summary
The executive summary is critical. It is the first part of the plan, but the last to be written. It gives the reader a quick glance of what your business proposal is about, and what you are asking for. The executive summary should typically be about a half-page long and include what you would cover in an elevator pitch.

  • The condensed version of the business concept
  • Product description or service proposition

This section should emphasize any unique features or benefits over what is currently in the industry or area, or why would someone buy your product/services over the competition. You should include:

  • The demographics of your market
  • The management team
  • The anticipated start date
  • Your equity position
  • How much you are asking for

Business Description
The purpose of the business description is to objectively describe and justify what the business concept is and often includes:

  • Mission
  • What the business does
  • Description of services and/or products
  • Industry information
  • Business organization
  • Status of the business (start-up, expansion or purchasing)
  • Current and future goals

Any facts or figures should be noted and sources included in the business plan. The business description is where you are trying to paint a picture of the potential of your business, along with the facts of why you believe it will be successful. Try to get the reader enthusiastic about the idea, without going overboard.

Describe the products or services your business is selling. Keep in mind that it is important to show how your product or service is better than the competition. If you don’t have a good answer, then you should rethink your strategy. What is it about your lawn care business that is going to get the customer to change doing business with the competition?

Marketing
An important part of your business plan is the marketing section. Regardless of the quality of your product and your service, your business will be lost in the clutter of advertising. If you don’t know your customers, how will they find you? All of this begins with you doing some research.

Who is your market?—The first step is to determine who you are going to sell to by identifying common characteristics of your market such as age, income, interests and/or geographic locations. How are you going to effectively advertise and still make a profit? You are trying to generate a positive return on your marketing dollars, so use them wisely.

Competition—In today’s ultracompetitive marketplace, there is going to be competition, no matter how creative your business concept is. Attempting to run a portion of your business better than the competition may be a challenge, so it is often better to focus on being different and competing with them less directly. Can you position your services differently? Can you serve a particular market niche that isn’t being served? Can you add more value than the competition? Even if you are lucky enough to not have direct competition in your area, you will have indirect competition from the homeowner doing their own yard work.

If you indicate in your plan that there is no competition, it will be viewed that there is either no market for your product or that you have not done your research. Optimally, you will want information on at least three, but no more than five, competitors. List information about who they are, how long they have been in business, location, services offered, perception on pricing, quality, etc., and compare your advantages and disadvantages.

Promotional strategy—The promotional strategy is where most entrepreneurs fail, as they use the blanket statement that they are going to advertise in the newspaper, on the radio and/or television without thinking through the process or the customer. The promotional strategy provides a map of how you are going to reach your market in the most efficient manner possible.

Sales projections—One of the more difficult areas of the business plan is coming up with sales projections. This number is probably going to be wrong and that’s OK. What you want is a figure backed up with justifiable data. Just grabbing a number out of the air saying you will make $300,000 won’t work. Sources to help come up with this number include industry journals, trade groups, industry experts, etc.

Seasonality—The effects of seasonality are greater in the lawn care business than many others. Seasonality is important because you need to see if you made enough money during the good months to cover your overhead and personal expenses in the winter. If you find after doing the projections that you won’t have enough left over, you need to get more sales, reduce expenses or both.

Pricing—Pricing plays a large role on how your product is perceived in the marketplace. Price too low compared to the competition and your product could be perceived as cheap and unreliable. Price too high with the features and benefits of your product and few customers will come through the door. This is a complex issue. Here are a few things to keep in mind.

  • Make sure you can make a profit at whatever price you are selling at.
  • If you want to lower costs and “get your foot in the door,” it may be better to offer discounts or coupons until your business is better known.
  • Don’t be afraid to charge more for your lawn care services than the competition if you have more or something better to offer.
  • Pricing is the easiest of the marketing mix to change.

Management and Operations
In this section, describe who is going to manage the business on a daily basis, and who will provide strategic direction (if these positions are separate). Each of these people needs to have a brief biography included, as well as a résumé in the appendix. Try to show how the experience and education of these people will be able to successfully execute the strategy in the business plan and succeed. Many times, the owner may not have the specific experience for this business, so it is important to pull their other professional experience in and explain how it will make for a successful operation. Next, a brief explanation of the employees is in order, including:

  • What positions need to be filled
  • When they need to be filled (This is important in developing financial projections, as you may have some employees come on after you start)
  • How much they will get paid (be sure to calculate payroll taxes as well, estimate 15 percent if not sure)

It is also recommended that you add the professional and advisors to your business, including the board of directors, consultants, accountants, attorneys, bankers and mentors.

Financial Projections
Financial projections are placed at the end of the business plan, before the appendix. It is a critical piece of the plan. The three must-have financial statements are a cash flow statement, a profit and loss statement and a balance sheet. The information already provided in the narrative portion of the business plan must match the financial projections. Most financial projections are three years in length. It is a good idea to include a “Notes and Assumptions” to the financial projections page to help make sure all of your numbers come through and to provide an itemized list for clarity.

Notes and assumptions to financial projections:

  • Loans
    Break out each loan (building, equipment, inventory)
    Amount and interest rate
    Length
  • Any monthly costs not discussed in the business plan narrative
    Cost of goods/inventory
    Advertising
    Employee wages
    Insurance
    Licenses and fees
    Miscellaneous
    Professional fees
    Rent/property taxes
    Repairs and maintenance
    Supplies
    Telephone
    Utilities
    Vehicle expense
    Etc.
  • Anything else that needs to be explained in the financials that is not in the narrative

Financial Projection Section
Start-up expenses—These are the expenses you will incur prior to opening your business. It is recommended to have quotes available or in the appendix for the larger items. It is also recommended that you pad your numbers some, as there will always be unexpected expenses that were not accounted for.

Sources and uses of funds—This section details how the loan money will be used (inventory, furniture, fixtures, equipment, machines, repairs and improvements, working capital, etc.) and who is providing it (bank, investor or owner). You will likely need to be injecting 20 percent of your own money, and maybe more, depending on the risk assessment of the business and your personal finances.

Cash flows—The cash flow statement is one of the most important pieces of your business plan. It shows a schedule of the money coming into the business and expenses that need to be paid and whether you have enough cash to sustain the business based on your assumptions. Every part of your business plan is important, but none of it means a thing if you run out of cash. Should this number be negative, you either need to raise sales, reduce expenses or have more cash. Your cash flow statement will typically be three years in length, with the first year analyzing the monthly figures and later years by quarter.

Profit and loss—This statement, while similar to the cash flow statement, is illustrated annually and adds the effects of noncash charges such as depreciation and amortization to get an accounting overview of the operations of your business.

 Balance sheet—The balance sheet is a summary of the value of all assets, liabilities and equity for an organization at the end of each year. A balance sheet is often described as a “snapshot” of a company’s financial condition, and will show the value of the business over time.

Personal Financial Statement - If you are looking at bank financing, every person who will have a 20 percent or more ownership position will need to provide a personal financial statement to show how effective they are at managing money. This statement will show your assets (checking and savings accounts, CD’s, IRA, 401K, valuables, home, vehicle, etc.) as well as liabilities (mortgages, credit card bills, installment accounts, etc.).

Appendices
Appendix items are pieces of information that help make your case. Include details and studies used in your business plan—for example:

  • Quotes for items over $500
  • Résumés of the management team
  • Industry research
  • Demographic data and trends
  • Maps/floor plans/blueprints of location
  • Leases and contracts
  • Letters of support

There is a lot to creating your lawn care business plan, but it will definitely make your business stronger. By writing your business plan you will have a better understanding of your business and strategies for success.

Spencer Gregory is a consultant to business owners in the lawn care industry. More information on starting a lawn care business can be found at www.StartingLawnCareBusiness.com. For assistance with developing business plans and business plan reviews visit www.TheBusinessPlanFactory.com.