The Cash Flow Crunch

Maurice Dowell used to purchase equipment like “a kid in a candy store.”

This year, “there is an air of caution and concern,” says the owner of St. Louis-based Dowco Enterprises.

Even though more contractors talk about being a bit more watchful when it comes to spending, 53 percent of landscape contractors answering the Lawn & Landscape survey increased their equipment budgets this year, and 61.7 percent plan to increase their equipment budgets next year.

This is more positive compared to the general small-business community. Twenty percent of small-business owners reduced, postponed or cancelled planned investments or reinvestments in the last six months, though 11 percent increased plans, a recent National Federation of Independent Business study says. “A slowing economy is the primary reason for the curbed investment in more than half of the cases,” the research reports.

Additionally, over the past six months, small-business owners have become more attentive to their cash flow and inventory status, NFIB says. Two-thirds now watch their cash flow more closely with 60 percent of that group attributing their action to the slowing economy. Of those with inventories, 52 percent are watching them more closely – with nearly half of this group (46 percent) attributing this increased vigilance to a slowing economy.

UP, UP, UP. Most contractors have a hard time trying to list what business costs haven’t increased today.

“Rising fuel, fertilizer, pipe, wire and other materials costs are definitely impacting our business,” says Richard Sperber, CEO, ValleyCrest Landscape Cos., Calabasas, Calif.

“Nurseries and suppliers delivering products and plant stock have increased prices 30 percent or more across the board and they all blame higher distribution charges,” says Rich Walker, owner of Dreamscapes Unlimited in Bethel, Ohio.

To describe fertilizer price increases in the past couple of years, contractors use the term “quadrupled” and the phrase “gone up astronomically.” The increasingly expensive lawn need is No. 6 on landscape contractors’ top concerns list – the first time this concern has made it to the top 10. In a recent five-month period, Dowell says fertilizer went from $150 to $162 per acre.

Fertilizer fees are rising right along with the other escalating cost no one can stop talking about – fuel prices, which ranks at the top of landscape contractors’ concerns list.

“It seems gas will raise at times 10 to 15 percent in a day and then it takes weeks to drop a few cents,” Walker says, adding fuel costs used to make up 2 to 3 percent of his company’s total sales, but now exceed 12 percent.

Sure, when fuel increases 30 percent but is only 3 percent of total sales, “it’s not the end of the world,” points out Todd Williams, vice president and regional director of Denver-based American Civil Constructors. But when fuel prices start to grow as a percent of sales, profits sink.

Dowell’s fuel costs are up 35 percent this year, which were up 20 percent last year. “It’s taking a bigger portion of our budget to keep equipment running,” he says.

Fuel costs have cut into profits so much at Chris Hurlow’s company that “we have to be very tight with our routes,” says the lawn care manager of Fast Eddy’s in Mount Vernon, Ohio, adding that 80 percent of the company’s estimating is now done outside of a truck. “We use cars and motorcycles to cut down on fuel costs.”

Bob Keyes checks prices in town and plans service routes to pass the cheapest gas stations. “We’re working longer days and fewer days of the week,” says the president of The Keyes Group in Langhorne, Pa.

In addition to increasing route density, Lee Helmberger, owner of Lee’s Lawn Service, actually turned down jobs that were further from his Omaha, Neb. headquarters or were less profitable as a result of fuel prices.

David Frank now includes a clause in his multi-year contracts, allowing him to increase prices if crude oil exceeds a certain level to protect Germantown, Wis.-based David J. Frank Landscape Contracting from gas hikes.

While 37.5 percent of contractors conserved fuel use and 27 percent raised prices to cover rising fuel costs, others added or increased fuel surcharges – 8.5 and 6.2 percent, respectively. But these solutions, albeit necessary, leave some wondering how much of this customers can take going into 2009.

“Many other costs have increased as well – where do you draw the line?” questions Todd Reinhart, owner of Reinhart Grounds Maintenance in Bloomington, Ill. “You could add a health insurance surcharge, a fertilizer surcharge, a vehicle surcharge, a wage surcharge, etc.”
“I think surcharges are annoying – I won’t do it,” agrees David Bennett, cofounder and principal of Atlanta-based Bennett Design & Landscape. “The bottom line is everyone is paying more for fuel – run your business right and deal with your costs of doing business.”

EQUIPMENT EXPENSES. While 27.3 percent of contractors tried not to buy any equipment that was unnecessary this year or opted to say, “we can get another year out of it,” the majority still purchased necessary tools.

Mike Biskup, president of Medina, Ohio-based Greenkeepers Lawn Service & Landscaping, spent 40 percent more on equipment this year, while Frank made a 10 percent equipment investment in 2008 and plans for another 10 percent in 2009.

While Walker tried not to buying anything unnecessary, “even in bad times it seems you always have needs,” he says.

“Our capital expenses will be down if we’re not growing,” Williams explains, adding his company grew 5 to 10 percent this year. “We’ll do belt tightening within reason to make sure everything matches up. It’s the nature of this industry. You do everything you can so when good times come, you’re positioned to be successful and take advantage of that. You can only play so much defense and so much offense.” SOI