Travels with Jim follows Jim Huston around the country as he visits with landscapers and helps them understand their numbers to make smarter decisions.
In January 2016, I conducted several estimating workshops in Colorado. At one workshop, I asked a landscape contractor how 2015 wrapped up for him. He responded that he didn’t know because his financial information was with his CPA and the CPA hadn’t analyzed it yet and gotten back with him.
It might be too late to fix problems for 2015, but he needed to see his P&L statement moving forward. Essentially, the P&L statement is a snapshot of how well the business is doing at making or losing money at any given point in time. It’s an essential tool for entrepreneurs to use if they are going to understand their businesses. Click here for a downloadable P&L statement.
Formatting the profit and loss statement
Income or revenue.
First, we identify the income for the company and its sources. Larger companies usually break down their revenue into divisions or profit centers. For instance, you might have installation, maintenance, irrigation and snow and ice divisions. If an activity accounts for at least 20 percent of company revenue, I recommend tracking it and its expenses in its own division. If the total income for the company is less than $500,000, I’d recommend having just one division.
Next, we have direct costs. These are the costs that can be directly attributed to projects or services provided by the company.
- Materials and sales tax: This is the pre-markup cost of job materials (and the related sales tax) used and includes such things as plant materials, fertilizers, hardscape materials, irrigation parts, etc. It does not include fuel.
- Direct field labor: This is the cost of the crew working in the field. It usually does not include project or account managers.
- Labor burden for direct field labor: Labor burden includes FICA, FUTA, SUTA, workers’ compensation insurance, general liability insurance, 401K costs, vacations, holidays and paid time off expenses. It ranges from 20 to 30 percent of direct field labor.
- Field equipment and truck costs: This category usually runs 12 percent of sales +/- 2 percent and includes: fuel, auto and inland marine insurances, repairs and parts, mechanics, depreciation, leases, etc.
- Subcontractors: This is the cost of subcontractors used by the company on projects and services.
- Rental equipment: This is the cost of rental equipment used on projects and services.
- Miscellaneous: This category includes such things as dumpsters, Porta-Potties, etc.
Gross profit margin (GPM).
Sales revenue minus total direct costs gives us the gross profit margin (GPM) for a company or division. This is a very important calculation as it tells us how profitable the company or division is before subtracting general and administrative (G&A) overhead costs.
GPM is also the report card for a division manager when compared to the company’s annual budget and national benchmarks.
Indirect or general and administrative (G&A) overhead costs.
These costs include everything that is not directly attributable to the cost of specific projects or services. It includes such things as rent, advertising, utilities, owner’s and office salaries, etc.
For companies under $5 million in annual sales, G&A overhead costs usually run about 25 percent of sales. It drops as a company grows beyond the $5 million mark.
The owner’s pre-dividend and office salaries account for approximately 50 percent of G&A overhead costs.
Net profit margin.
Once you subtract G&A overhead costs from the gross profit margin, you have calculated the net profit margin (NPM) for the company or division.
This is what I call the pre-tax and pre-dividend/bonus NPM. The NPM is calculated after all bills are paid and owners receive a pre-dividend salary.
Ten percent NPM for a green industry company is good, 15 percent is excellent and more than 20 percent is superb.
The final calculation is for over and under billings. If you have work in process that is completed but not yet billed, you are under billed and you would add this amount to the NPM.
If, on the other hand, you have revenue in income that you have not completed (or earned), you are over billed and you should subtract this amount from NPM.
Jim Huston runs J.R. Huston Consulting, a green industry consulting firm.
Hire Power helps you recruit, hire and retain the best talent for your company. We’ve got a rotating panel of columnists ready to advise you on staffing.
We are just two months into 2017 and we have a new leader in our country, ongoing discussions about Brexit and how it will affect our markets, continuing uncertainty about H-2B programs and ongoing questions about how the general economy will fare. Despite all of this uncertainty, we can define multiple hiring trends that promise to give clarity in the process of finding talent for organizations no matter what happens next.\
Boomerang employees are those who terminate employment with your company then return at a later date. In the past, HR Today reported that more than 50 percent of companies had a “no rehire” term so employees who left were not permitted to return.
Now, less than 33 percent of companies report discouraging rehires, noting that boomerang employees require less training, already know the company and culture and can still bring in a new perspective that might be valuable.
Millennials as managers.
Millennials (usually born between the 1980s and the 2000s) are gaining experience, learning what is required to be successful in your organizations and becoming managers. Millennials are managing as the Baby Boomers (born between 1946 and 1964) are beginning to reach retirement age.
There has been much discussion about how to manage Millennials, employees who tend to need regular feedback and appreciate technology. They also expect to understand how their personal work adds value to the organization as a whole, and they embrace virtual learning opportunities.
Understanding what this group prefers can help managers understand how to structure jobs and feedback to use the strengths of these employees.
A new generation.
As Millennials move up the employment ladder, Generation Z (born between 1994 and 2010) started entering the workforce in 2016. This group of individuals also expects on-the-job mentorship, are even more connected to technology (and social media) and say that they are deeply affected by the Recession (as they watched some of their parents struggle with finances, housing and credit card debt). Most also report that they suffer from the weight of student loans and don’t expect to be able to afford traditional housing.
Working off the clock.
More than 66 percent of managers expect their employees to be reachable off hours, according to the Brighton School of Business and Management. This means that managers must also provide work-life balance opportunities as employees say that they plan to make decisions to change jobs based upon work-life balance and flexibility.
With technology becoming more advanced, we can automate some of the design, estimating and invoicing processes. So, companies are outsourcing some jobs. Ensuring that all of your employees (even those who aren’t great with technology) are trained and understand how tools, technology and equipment might assist them in their jobs can alleviate some of their concerns.
Last year, we saw that many Millennials turned away from the traditional job market, sought part time work or preferred to start a new business venture. Can you alter the hours of your business to accommodate the changing needs of your employees and customers? Be sure to listen to your employees and consider whether adding some flexibility to your environment is worth it to retain your team.
Considering these hiring trends can shed some light on the changing requirements of your work force, allow you to plan for your staffing needs and help you attract the best candidates possible.
Juan Torres is the president of the National Hispanic Landscape Alliance.
Seven-year-old Sawyer Granger wanted a battery-powered edger for his birthday, and his father, Brandon, was proud to let him unwrap the wish. The boy put on safety glasses and made rounds on the family’s Florence, South Carolina, property.
The Facebook video showing Sawyer’s day in the field went viral and quickly got nearly 4,000 hits.
“He loves to go to our jobsites,” says Granger, who started the business full time in 1998, after spending time studying horticulture at North Carolina State University.
For Granger, capturing Sawyer’s excitement and drive for the outdoors and landscaping is like revisiting his own start in the green industry. “When I was young, I would for hours be outside, pull weeds, and that is how my business started – mowing neighbors’ yards when I was a teenager,” he says.
A real-life business education.
Today, Granger Landscapes is a design/build and maintenance firm that has grown sales by 20 percent the past several years. In 2016, Granger broke the $1 million revenue mark.
But, for every heartwarming story about a business, there’s the lesson-learned situation that makes a company grow stronger. Even during the toughest times, Granger has persevered.
“Closing the business was never an option for me because this is what I love to do,” Granger says, relating how a developer’s bankruptcy in 2009 put his company in a grave financial situation.
The developer owed Granger $30,000 for a landscape installation job that included a subdivision’s common areas and entranceways. Granger still owed vendors about $20,000.
No matter how carefully you vet a client, there are market forces you just can’t control. “This guy did the (subdivision) project on good faith, but he got caught up in the Recession and it was one of those times,” Granger says.
For a small business like Granger’s at the time, the $30,000 loss was significant. “It took us three to four years to recoup,” he says. The process began with calling vendors and working out payment plans with them.
Then, Granger sold some trucks and equipment the company wasn’t using to pay off debt. “We stepped back and re-evaluated,” he says.
“Do what you say you are going to do when you say you are going to do it.” Brandon Granger, Founder
Before the developer filed bankruptcy, which made him financially untouchable in terms of collections, Granger says he did all the right things, including file a lien on the property.
But ultimately the loss resulted in expenses Granger had to eat.
Granger Landscapes still works with some developers today and while there was no way he could have anticipated the fallout from that recession-year deal, he says he carefully reviews a developer’s track record before entering into any agreement.
“But you really don’t know,” he says, reiterating that the previous deal was never supposed to end that way. Running a stronger business will protect Granger Landscapes from a hit like that.
Keeping service promises.
“Do what you say you are going to do when you say you are going to do it,” Granger says, reciting the customer service mantra businesses often hear but don’t always practice. At Granger Landscapes, delivering on the promise goes deeper than the company culture. It’s how Granger lives his life.
For example, Granger Landscapes completed a total overhaul on the Florence Baptist Temple property, including lighting.
The business administrator, Ryan Caudill, says, “Brandon is true to his word. He did exactly what he told us he was going to do, and that’s very important.”
Commercial clients Granger serves include the local Veterans Affairs office, where the firm installed 30,000 square feet of sod, and business sites like a cookout restaurant chain in Summerville, South Carolina, where it put in new landscaping. Residential design/installation is its “sweet spot.”
That includes projects on new home sites and renovating existing properties.
Granger loves working with a blank slate. “We come in and create people’s backyards,” he says, noting that those projects take about two weeks and are a higher profit margin (30 to 40 percent) than maintenance work, which is closer to 15 percent.
On the residential side, Granger says a consultation process and ongoing communication is in part responsible for all the referrals his company gets.
“We meet with clients on site, talk about their goals and draw up a plan to present,” he says.
When projects take longer to complete – some larger design/build efforts could take 60 to 90 days – Granger keeps clients updated with weekly meetings. “There are no surprises,” he says.
In the future, Granger sees opportunities to continue expanding geographically and from a service perspective.
Granger will continue to grow that strong landscape core business – and pass the love of working outdoors to his children, particularly his son, who is so interested in the activity.
“He’s definitely following in the footsteps,” Granger says.
Whether it’s a bubbling fountain or a winding stream, water features add lasting interest and beauty to the landscape. Knowing how to create and maintain these features is a way to expand your offerings, keep clients happy and add a dynamic aspect to your designs.
“People are attracted by the sound and the motion of water,” says Chris Horwath, landscape sales and designer with Weiss Landscaping in Nevada City, California. “Years ago, ponds were incredibly popular, but ponds just sit there. Most clients have different expectations nowadays.”
Water features are often installed as part of a larger landscape design or drawn up as a part of a project that can be installed over time as budgets permit. Most residential features take a few days up to couple weeks, and the most commonly requested element, the pondless waterfall, typically runs about $8,000 to $15,000. More elaborate projects, such as a small stream with boulders, cost $20,000 to $30,000.
With a thorough examination of the site and proper planning, water features can work in most locations. “I don’t recall ever telling a client we couldn’t do a water feature, but factors that drive up the challenge and cost include steep hills, boulder outcroppings and difficult access,” Horwath says.
One of the most important aspects of the design process is communicating with clients from the beginning. “Clients may not really know what to ask for when they initially call,” says Kelly Ogden, director of revenue with Michael Hatcher & Associates in the Greater Memphis area. Another crucial aspect of communication is ensuring you and the client are talking about the same thing. “I need to know what a client expects when he says ‘waterfall’ to me,” says Tom Wambaugh, owner of Waterfall Gardens in Mohnton, Pennsylvania. “Does he want Niagara Falls or a meandering brook with small spills? There’s a huge difference in planning and budget, and I have to be able to describe all the options.”
Choose placement carefully.
“It all starts with the site,” Horwath says. Where he works in the foothills outside Sacramento, terrain is rugged with sloped back yards that have natural elevation. Yet, what the homeowner thinks is ideal for a waterfall, such as between two large existing boulders, may be inaccessible. Clients also may want a low spot in the yard filled in because they think it’s a natural place for a water feature. “But in the winter, that low spot may be a creek which can flood out and cause your work to settle or fill with silt,” Horwath says.
There’s also the dilemma of a flat site, which may require more work to create elevation. “A level yard can be an issue because you don’t want a waterfall rising up out of the lawn like a volcano,” says John Kenna, owner of Water, Color & Stone in the Greater Atlanta area. “Blend it with appropriate plant materials and mounding so that it appears to be part of the topography of the landscape. Work with nature, not against it.”
As far as installing koi ponds, the overhead canopy plays a role in the health and appearance of the pond. “Shade can be helpful for preventing algae, but too much means your water lilies won’t bloom, for example,” Wambaugh says.
A canopy also helps prevent predator issues like blue heron attacks by breaking up their flight paths so they’re less likely to swoop in and dine on your client’s fish.
Be aware of common pitfalls.
Not knowing what’s underground is the biggest bump in the road when building water features and constructing plumbing and electrical components. “We prepare clients up front by explaining there may be unknown challenges, such as unmarked irrigation lines or a chunk of bedrock right where we need to dig so that costs may be impacted accordingly,” Kenna says.
Size is also a consideration when it comes to ponds. “It’s far easier to balance a large ecosystem than a small one. We generally stay away from anything smaller than about 9 feet by 12 feet,” Wambaugh says. “Balance in a natural pond can be achieved by the proper ratio of aquatic plant materials, a little shade from overhead or plant selection, and a few fish. But a small body of water heats up faster, leading to algae blooms.”
Leaks are another issue. Even a hole the size of a ballpoint pen tip drains water constantly, which adds up, especially in places experiencing drought. Watch for sharp points of rock in the ground, and pad with scrap liner or underlayment beneath the liner such as a geotextile-type fabric.
“I need to know what a client expects when he says ‘waterfall’ to me.” Tom Wambaugh, Waterfall Gardens
More commonly, leaks occur if the liner is cut too short. “Most leaks are not going through the liner. They’re going over the liner,” says Horwath. If the ground is not compacted, it settles and the liner settles with it, causing water to spill over.”
Don’t cut close trying to make things too neat. Instead, allow an extra four to six inches of liner to overhang so you can make future repairs, if necessary.
All the landscape professionals we interviewed say education through classes, trade show seminars, vendors, and websites is helpful. “Sometimes contractors think, ‘Oh, this is so easy. It’s a hole, a liner and some rocks,” Horwath says. “But it’s a mistake to become serious without the education. It’s your reputation, and there are too many variables that can present challenges if you’re not educated.”
Expand your services.
Some contractors offer water feature maintenance plans, charging a few hundred dollars per service call. Annual plans usually include a spring cleaning and a winterization in colder climates. “About half of our clients opt for our maintenance plans, while the rest – typically, the younger 20- and 30-somethings – prefer DIY,” Ogden says. Other contractors subcontract out repairs and maintenance to specialty companies because it’s time-consuming and less profitable than the design/build part of the project.
If your clients are DIY-ers, recommend they clean out organic materials on a regular basis, which may be weekly depending on the volume of leaf litter. Ponds and streams require more intensive maintenance, which most homeowners cannot perform themselves. Proper care includes draining the pond every few years, flushing dirt and debris, and power washing boulders. “A pond that’s neglected causes stress on the mechanical parts as well as the eco-system,” Kenna says.
The author is a freelance writer based in the Northeast.