Q. What numbers are important to watch on a financial statement?
A. In every business, there are key financial indicators that reflect what is happening in the business. Landscape contractors must learn to use them to project the financial health of their companies. The indicators that tell the best story are the labor numbers and percentage, material costs and percentage, days outstanding and revenue numbers. Why these and not other numbers?
The labor numbers tell you what the labor to produce products or services is costing the company. There are benchmarks that can provide industry averages for any type of service line, plus you should have historical data with which to compare current numbers. PLANET produces a cost study guide, a tool for business owners, every few years. Labor is the heart of any landscape business. Whether the number goes up or down, labor is a signal that something is happening in your business. Know the labor average for your business.
Material costs are the same as labor numbers. If the number spikes, you need to investigate to determine what is happening in that month. You know that there are seasonal highs and lows in the business. In maintenance, if you are doing a fertilizer application, your cost will go up. That is predictable, and you should know that from the budgeting process or in the install world if you have a big project that requires a lot of plants, the cost goes up. Watch for the big swings and understand why they occurred.
Days outstanding are the number of days your receivables are not paid. This is a very good indicator that a customer has a problem and is not paying on a timely basis. You need to collect your receivables on a timely basis and not allow anyone to get past 60 days without a phone call to ask why. Without cash flow, you are placing your business at risk with your vendors and suppliers. This indicator is a key issue that is missed by most landscape contractors.
Revenue is the last key indicator that I look at in a business. If your sales begin to slump, you need to take action to get back to budget or have a good reason this problem exists. All too often, we dismiss a poor sale month as it happens, but the truth is that we can't afford a bad month in this economy. Revenue is the lifeblood of any company. Watch the sales number closely.
Financial key indicators can help you spot an issue before it becomes a problem. Every business has bad months, but understanding what created that issue will help prevent it from happening in the future.
Richard Wilbert, Landscape Industry Certified Manager, SiteSource Business Coaching
Q. Our budget for pay increases is practically non-existent this year. But I had one employee who was clearly the best performer in the department. I didn't want to risk losing her, so I privately told her that by squeezing the budget I was approving an increase just for her. I told her that she was to tell no one and specifically reminded her of the policy in our employee handbook forbidding employees to discuss wages, bonuses or incentives. Two days later, I had three employees in my office complaining about how unfair this was. I reprimanded the employee and rescinded the raise. I considered terminating her, but I may just remove her from the list for the annual conference. My boss feels that her actions constituted a serious violation of company policy and thinks she should be terminated. But isn't termination too severe a penalty in this matter?
A. Oh yes! Actually any penalty, even the reprimand, could set you up for a labor violation charge if she chooses to file it. The National Labor Relations Act (NLRA) gives employees the right to discuss wages, benefits, job conditions and other terms of employment freely. By refusing her that right, you are in violation of the NLRA. And even worse, rescinding her raise because she carried out that right is considered retaliation, usually a far more serious charge.
It might be best, at this point to resolve the issue with her, re-instate the raise and remove the policy from the employee handbook.
William Cook, PLANET HR Consultant
Have a question for the experts? Send it to firstname.lastname@example.org.