Owner Confidence Climbs

Focusing on profit and efficiency drives landscape contractors’ confidence levels.

Nicole Wisniewski | November 03, 2009

Causes for Concern
Though average fuel prices in the mid-$2 range have been reasonable considering the past few years of more extreme fluctuations, contractors still rank high fuel prices highest on their top concerns list. This is the fifth year in a row fuel prices top the list. However, low-ball competitors, consumer confidence and the new presidential administration aren’t far behind.

To further delve into this question this year, Lawn & Landscape asked contractors if they could fix one economic problem, which would it be, and consumer confidence ranked highest, followed by tax concerns, giving more emphasis to the Nos. 3 and 4 spots on this year’s Top 10 List.

If landscape business owners thought they were stressed in 2008, these feelings reached a new level in 2009. Though in roughly the same spot as last year on contractors’ top concerns list, overworked/stressed owners are expressing their stress more freely this year. To make this year work, “it’s taken more hard work by me – the owner and president – and more focus,” shares Scott Boyles of Arbor Design in Ohio. In 2010, he says his focus is business commitment.

“You’ve got to get down and dirty and focus and get efficient. We spent more in marketing in 2009 than combined in the last five years. It’s been tough without a doubt – a lot of sleepless nights,” he says.

The general small business community feels the same. According to the American Express OPEN September Small Business Monitor, as business owners work to navigate their firms through the current economic climate, they are plagued by cash flow concerns and the overall stress a challenging economy creates. Nearly seven in 10 entrepreneurs (68 percent) are “stressed out” by the economy and three in 10 (31 percent) say the current economy has caused them to question their decision to become entrepreneurs.

The top 10 concerns landscape contractors have about business in 2010 are:
 

1. Rising fuel prices
2. Low-ball competitors
3. Consumer confidence
4. New presidential administration
5. Generating quality leads
6. Overworked/stressed owners
7. Inflation and interest rates/Health insurance increases
8. Delinquent client payments/Workers' compensation costs
9. Customers cancelling services
10. Rising fertilizer prices

No one has ever said landscape and lawn care business owners weren’t a confident, optimistic group. And during a challenging year like 2009, that confidence is playing a big role in how these contractors are reacting to economic pressures and business challenges.

Approximately 87 percent of contractors are confident the landscape industry will rebound in 2010 compared to 78 percent last year, with 32 percent of them feeling very confident (also an increase from last year’s 25 percent).

Only 10 percent of landscape contractors lacked confidence going into 2010, down 5 percent from last year. This coincides with national small business figures. According to Discover Small Business Watch’s August survey, economic confidence among small business owners jumped to its highest level in 18 months, and 30 percent of small business owners see economic conditions for their businesses improving.

The National Federation of Independent Business September survey reported small business optimism rose for the third time in the last five months, and this is also consistent with the steady increases happening in Moody’s Economy.com’s weekly survey on business sentiment.

And, finally, more than half (55 percent) of entrepreneurs have an optimistic outlook on near-term business prospects, up from 45 percent in March 2009, according to the American Express OPEN Small Business Monitor’s September survey. One quarter (26 percent) even report expanding opportunities for their businesses, up from 15 percent one year ago.

One reason for businesses’ more upbeat view is the quickly improving profit picture. Decelerating compensation growth, combined with strong productivity growth, is leading to falling unit labor costs and high profit margins – one reason to expect an improving trend in profit growth, along with GDP growth and a better revenue picture, according to Aaron Smith, a senior economist for Moody’s Economy.com.

“Improving profits and revenue give firms a signal to start hiring and investing,” Smith explains. “This is important since slower wage growth, while positive for profits, is negative for households. It is also important to realize that wage growth is not the same thing as household labor income growth, as the latter also depends on hours worked. Thus, the pickup in GDP helps labor income strengthen even in the face of slowing wage growth. This is starting to happen, with the rise in earnings thus far this quarter nearly matching a smaller drop in hours worked, implying stable total wage income.

“This is how a virtuous circle begins,” Smith continues. “As labor income grows, it provides a sustainable base for consumer spending and makes it less dependent on support from the government stimulus. This circle is becoming more entrenched as the manufacturing rebound and the recovery in financial conditions gather steam, reinforcing our view that growth can be sustained in 2010.”

Moody’s Economy.com chief economist and cofounder Mark Zandi agrees with Smith.

“Business sentiment generally reflects economic conditions and does not drive them, save at turning points in the business cycle,” Zandi says. “Recessions occur when businesses lose faith that their customers will purchase what they produce; they respond by cutting their investment and payrolls. Recoveries begin when that faith is restored.”

 

Focus on Service Businesses

Today, owners of service businesses like landscape contractors are more optimistic than their manufacturing and retail counterparts. Fifty-eight percent maintain a positive outlook vs. only 51 percent of manufacturers and 47 percent of retailers, according to the American Express OPEN September Small Business Monitor. Here are some other ways service businesses compare to their manufacturer and retail counterparts:

  • Retailers are more likely to have hiring plans, due to the upcoming holiday season (27 percent), when compared to other industry sectors (22 percent of manufacturers and 17 percent of service businesses).
  • Services businesses are more concerned with cash flow issues (63 percent) versus other industries (60 percent of retailers and 61 percent of manufacturers).
  • The services sector is more likely than other industry sectors to have capital investment plans (39 percent compared to 36 percent of manufacturers and 34 percent of retailers).
  • The manufacturing sector is more likely to say that the worst of U.S. economic woes are not over compared to other industry sectors (64 percent of retailers and 56 percent of services).
  • Manufacturers and retailers are the most likely to be willing to take a financial risk (each 55 percent) when compared to service businesses (40 percent).


 

 

The author is editor of Lawn & Landscape. Reach her at nwisniewski@gie.net.
 

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