By the end of January — halfway through the winter season in many regions — if the snow and ice precipitation is low, this usually means professionals are only generating roughly as low as 30 percent to as much as 60 percent of their planned revenue. But, in many cases, snow and ice management professionals don’t adjust their snow budgets at this time to reflect the seasonal shift. This is a big mistake, says Steven Cohen, principal of GreenMark Consulting Group with more than 25 years of landscape/snow industry experience. Adjusting snow budgets each month to reflect actual revenue against what was projected is smart business. Here, Cohen shares some success stories from snow and ice pros who are doing this right.
Should I adjust my snow budget midseason if the season produces below-average precipitation?
By the end of January 2016, many Midwest contractors had only generated 25 to 30 percent of their projected winter income. In the Northeast, in spite of the huge late-January blizzard, contractors’ snow revenues were still only 50 to 60 percent of their seasonal snow budgets. Many were concerned about meeting the budgets they established preseason. This can happen during any snow year.
In January, I asked contractors if they were going to make adjustments to their snow budgets. Most responded “No.” Several contractors, however, said they were adjusting their budgets each month to reflect actual revenues against what they projected.
Jeff Hahn, president and owner of Groundscapes in Dayton, Ohio, carefully watches expenses and pinches pennies when low snow totals happen in his market. Ninety-five percent of his revenue is based on per-inch or per-storm billing and only 5 percent on fixed seasonal contracts.
Because of the seasonality of the snow business, budgeting carefully so you don’t overspend or extend yourself financially is crucial. Overhead expenses, labor, equipment maintenance, equipment financing and taxes all need to be based on a 12-month year. You need to know you’ll have enough funding to cover those expenses during the time you have limited or no cash flow.
Having good credit, and building up some cash from the landscape season is a necessity in the snow business, he adds. Even so, you must carefully manage your budget.
Managing a snow budget is more than gambling that it will snow, or, during a light December and January, you will catch up later in the season. Developing a good budget is based on having the correct balance of contract types. Each type of snow management contract has its own advantages and disadvantages. While many snow markets drive the types of contracts that are used, you still must educate clients on types of contracts that best suit their particular properties.
In order to achieve a balanced winter income stream, as a general rule, you should have 60 to 70 percent seasonal fixed contracts, which typically offer amortized payments monthly and even retainers for seasonal startup. We suggest balancing your seasonal contracts with 20 to 30 percent per-event contracts, where you get paid either by the storm or per-inch increments. Consider rounding out your snow revenues with 10 percent time-and-material contracts. Relying on a mix of contracts gives you a better chance to maintain cash flow in light winters and garner additional revenue during heavy winters.
Philadelphia contractor Dale Tucholski, president and CEO of The North Coast Environmental Group Inc., says his snow operations are based on 80 percent fixed snow contracts and 20 percent per-inch and per-storm contracts. He says that per-storm contract billing helps offset the expenses of servicing his fixed contracts for major storms such as record-setting blizzards.
A blizzards’ severity can provide his company with substantial extra billing via his per-storm contracts and snow stacking. This can help him recover the increased operational overhead and equipment repair costs associated with a blizzard.
Managing cash flow is a huge challenge for almost all small business owners, and especially contractors that rely on snow management revenue, which can be particularly tricky when winters deliver less-than-seasonal averages.
Many landscape business owners in the northern part of the country count on the revenue earned from snow to fund their spring startups. Bad planning and hedging on a potential good winter can create major cash shortages and can even, in the worst cases, business failures.
Always be aware of the ebb and flow of your seasonal snow business, and review your budgets often to help maintain cash flow throughout the offseason.