Financial planning for landscaping companies: Painting a clearer picture with data

Phil Key acknowledges that financial planning for landscaping isn’t exactly exhilarating. There’s so much more to landscaping than sitting behind a desk crunching numbers, and most in the green industry who start their own businesses did so because they enjoy being outside.

But Key also acknowledges the importance of a strong financial plan. Whether it’s a small company just getting off the ground or it’s a $10 million business that’s operating for a decade, Key says learning how to budget is a pivotal step in developing a company designed to last.

Take it from Key: As Ruppert’s CEO, he oversees a company that reached No. 12 on Lawn & Landscape’s Top 100 list with $402.2 million in revenue last year.

“We’ve always started with either a three- or five-year plan,” Key says. “When I say plan, just sit down (and) kind of figure out: What goals do you have for the year? Do you want to grow? Where do you want to grow? Do you want to add any positions? Any key positions? That kind of thing.”

From there, Key says it becomes easier to take numbers throughout the year and hold them up against the goals laid out well before the season starts. He says this financial plan becomes a sort of circular reference where business owners can go back and see how their numbers hold up against the goals they planned for.

Budgeting is a beast

The ultimate tool in financial planning for landscaping is a budget. But all those numbers can be a beast to project, especially for landscapers who’ve never tackled so many numbers in one sitting.

Key suggests breaking down the budget into subsets. One tip he recommends is charting out all of the company’s major accounts in important segments for the company. So, if the company wants to strategize for more landscape maintenance, those accounts should be closely monitored and scrutinized for opportunities to bolster the bottom line. But if the company aims to move away from maintenance and into irrigation, Key says it’s important to look at those existing irrigation accounts and comb through the data more than the maintenance numbers.

Plus, if there are some who have historically come in reliably for the business, it’s good to take a look at whether that account has grown over the years or if there needs to be a new approach.

“We’ve got really good definitions of what you want to charge to each account,” Key says. “It sounds simple, but I think it’s the kind of the foundation for the whole budget to spend time on a chart of accounts.”

From there, Key says it’s important to also understand the revenue element of the budget. Being too optimistic on revenue is a one-way ticket to a disappointing budget, so Key suggests getting hyper-specific on where the revenue is coming from in each account. Projecting too much growth without looking closely at the overhead expenses associated with that growth is a bad move.

“If the revenue doesn’t come in and you’ve already got these expenses set up, you could create a problem. So, I would say be conservative on your revenue,” Key says. “You know there’s downside of that, too. If you’re too conservative, maybe that means you don’t buy a truck that you really need and it slows your growth down. So, you’re really looking for a balance.”

Trust the process

Key suggests inviting multiple key leaders in the business into the budgeting process. For true budgeting newbies, starting with a simple Excel spreadsheet is his advice, laying out the budget month by month using templates as a guide. Starting to understand cash flow at this stage is important.

“You’re going to need to make choices — the right choices around equipment that you want to buy or not buy this year, or people that you want to add,” Key says.

Don’t forget to account for expenses, big and small. Utilities should be relatively easy but Key says labor is typically the most time-consuming part of the budgeting process. “A lot of times, we look at everything as a percent to revenue,” Key says. “Any account, we go, ‘Hey, this is what we know we can spend on labor because these are how our jobs are built.’”

Key says looking at the percentage of labor against each revenue dollar is a good benchmark for the company. For instance, if labor makes up $0.35 per dollar earned, then building 35% of labor into the revenue you want to earn on that job helps you price it out accordingly. This labor percentage can vary from service to service, so be mindful of that during the process.

“So then you’re like, ‘Hey, here’s how many people I’m going to have here, (here’s) how many hours I can work, here’s my average labor rate,” Key says. “Build it up from the bottom and then it should match historically what you’ve done from a percentage standpoint.”

Follow the path

Key says one thing landscapers need to do once the budget’s built is actually apply it throughout the season. For example, if your five-year plan is to grow by 10% each season, you can dive deeper into the numbers to see where growing 10% is possible.

One common mistake Key sees is companies not building in customer attrition. Knowing your retention rate is important because not accounting for that in projecting growth is a recipe for missing the mark. Take, for instance, a $1 million company with a 90% retention rate. To grow by 10% the next year, they’ll need to book $200,000 worth of business — not $100,000 —because there’s going to be some accounts that don’t renew.

“Keep backing into that,” Key says. “What’s your average job size? How many? What’s your close rate? How many jobs do you have to bid in order to win $200,000 worth of work? Do you have resources dedicated to do that work?”

Key says it’s important to reevaluate your financial planning for landscaping pretty consistently throughout the year. Maybe a 30% growth projection is stretching the team too thin because you don’t have ample resources to actually do more jobs or increase efficiency on existing jobs.

“It really goes back to, what do you want to achieve and how are you going to achieve it?” Key says. “As you’re working, numbers ultimately tell the story, right? They’ll lead you to, ‘Wow, this is going to be hard’ or ‘Hey, this makes total sense.’ I can pull it off.”

The author is digital editor with Lawn & Landscape.