Contractors that own and operate small landscape companies have challenges running their business. In most cases, the largest challenge is that they are working in their businesses more than on their businesses. Each of us is only given 24 hours each day.
Even so, most of the generally accepted best business practices that larger and more established companies use to manage their businesses are exactly what smaller operations should be using. Where the owner is also the operations manager and crew supervisor successfully administering these management tools is far from easy. But it can be done. The owners of many small companies manage just fine because they recognize that by doing the following five things they can start off next year with a larger, more profitable company.
Start your planning and begin allocating your time in favor of those responsibilities that are most vital to your company’s survival and success and you’ll see positive results this coming spring.
Follow these five tips: Make plans to succeed, know your cost of operating, set realistic goals, solve labor issues and appraise your equipment and vehicle fleets.
1. Fall planning
Most small company owners don’t have a written plan to guide them in operating their business. The fact that you have several hats to wear is no excuse for lack of planning. Start by deciding where you want to be next year and then in three to five years. It’s equally important that you build a plan to make it happen.
Profitability is most important, if you’re not profitable or only marginally profitable, fix that first so you maintain profitability as you grow.
If you’re operating out of a very confined location, you might plan to eventually move to a larger facility. If you have a partner, make sure you’re both on the same page. Profitability, physical location and key management like-mindedness are important factors in successful businesses.
2. Know your costs
All too often contractors have difficulty tracking their cost of operations. Design/build and installation margins are usually higher than landscape maintenance. Many times maintenance is the growth segment and provides the reoccurring revenue you need to operate.
Try to limit the number of service segments you record and track in your P&L statement. This simplifies your cost attribution for each segment. You should plan for a 48 to 50 percent gross margin and to hit that number you must understand your costs. Calculate margins by segment, so you know what service is most profitable.
Larry Perry, an accountant and lawyer friend, recommends using a cost accountant rather than a financial accountant. A cost accountant can help you determine your costs per service segment, while a financial accountant reacts to your results. Either type accountant can prepare your financial statements, but a cost accountant is more focused on your cost of operations.
3. Set goals this fall
If you’re $350,000 today and want to grow your business to $550,000, what do you have to do to accomplish that?
First, set up a simple tracking matrix for annual revenues that will conservatively reach your goal. Growing from $350,000 to $550,000 over five years requires 12 percent growth annually. Make your goal realistic and achievable. It’s always better to under promise and over deliver, especially on projections. Develop your goals this fall and begin tracking your progress; you’ll be surprised how easy it is.
4. Tackle unruly labor
Labor is your largest expense and in small companies it’s easy to lose track of who’s doing what and how long it takes. Too often some of us are just happy that jobs get done. Make a commitment this fall to increase productivity. You know how long your jobs should take to complete as you’ve probably done your fair share of them yourself. Stay on top of this. Review all jobs and assign a time allotment to each job. Once you’ve done that, look for ways that your people could complete the jobs in less time.
Large contractors do this and they’re finding labor time available to do more jobs without increasing their payroll. Set up work processes so employees know what to do, and when to do it. At large regional and national companies all employees know how important productivity is, be sure your people know. Employee training helps create an atmosphere of efficiency and productivity and it’ll result in more profitability.
Every successful business today is working to increase employee productivity because you can’t add labor expense to generate income until you are confident you’re current labor force is performing efficiently.
5. Manage your equipment fleet
Fall is a great time to evaluate your vehicles and equipment to be sure everything is ready to start next season. If you’ve been spending more each year on repairs and maintenance, maybe it’s time to retire older and more costly machines or vehicles, and gets some more reliable units.
Larger companies know that newer equipment produces more work faster and is less costly to maintain. You can’t expect to increase a crew’s productivity if they’re constantly returning to the shop to fix older machines. Your annual cost of equipment is low compared to your labor expense, and new more efficient equipment will help increase productivity and employee moral.
Take the time now to set up next year to be your best ever. Planning your work and working your plan makes for a successful business.