Turnarounds, profits and estimating

Below are summaries of three educational sessions at the 2014 Green Industry Conference.

Rise again. What better way to avoid mistakes than to learn about companies that have been down but eventually rose back up. That was the main focus of Jeffrey Scott’s GIC session, Roadmap to Success: 3 case studies in business transformation.

Scott looked at three different companies that were failing before he stepped in and helped them restructure their business.

Scott broke down each company, describing everything they were doing that failed the business, the things they were doing well that could be expanded on and then explained what they changed, and what the final outcome was.

The first case study was Westover Landscape Design, where the owner was working 80 hours a week and was afraid to take the plunge to restructure the company. When Scott came in, they made a minimum cost of $10,000 on all projects, a refundable consultation fee of $100-plus, a design fee of $1,000-plus, sales appointments were only held at certain times of day, and the company prescreened 50 percent of clients with 10 qualifiers.

When it came to restructuring within the company, they held weekly meetings, added a fine gardening service, stopped itemizing invoices and monetized the leads they turned away. Instead of simply turning away those leads, they sent those leads to other sources for a fee. To date, the company has seen great results, with the owner’s income growing 22-25 percent, the average job size tripled, and the company grew in value and ROA.

The second case study was an anonymous landscape company in Minnesota. The company was in a lot of debt via taxes, bank, equity, mortgage and accounts payable. The company didn’t want to file for bankruptcy, lost good workers and lost $125,000.

Leadership was lacking and the sales people were neither ambitious nor experienced. The company did a personality profile of the team and employees were moved around. One manager and two sales people were put in the field. A business plan was also developed.

“When you write a business plan, your client should be able to read it and understand it,” Scott said. “What makes you unique? That’s a hard one to figure out; it’s very hard to be unique. Generally your uniqueness is something you build over time.”

The third case study was Reder Landscaping. The three owners who ran the company did not have specific roles.

Because of this, no one knew who they answered to. There was also no succession plan, and a when decisions had to be made, there was division between the division makers. The company did have good opportunities, a high caliber workforce, good marketing, a good sales team and it had many leads. The biggest change the company made was to define owners’ roles.

They then promoted foremen up to one production manager, one account manager and one shop coordinator. The company also set up career ladders to show employees that it was a growing company and more promotions were possible. They also made sure to give employees help with goal setting, as well as coaching.

“You find employees excel just by you paying attention to them,” Scott said.

“Overall, the company culture was declining and we were starting to lose key people,” said CEO Paul Reder via a pre-recorded Skype video. “All of our people now know what a win is.

Look within. If you company isn’t making a profit, the first thing to look at is if it is its own worst enemy, according to Mark Bradley, founder of the Landscape Management Network, as well as the president of TBG Landscape.
Instead of playing the blame game, Bradley says, and automatically assuming that low bidders in the industry are affecting your ability to make money, look at your efficiency and what that means for your net profit.

“I set out to do this in 2001,” he said. “Between 2001 and 2014 I made this a reality in my company. We brought our efficiency rating up to 94 percent.”

Bradley said one of the most important things you can do to help your company is to be organized.

“When we dig into it, there’s usually a lot of ways to be more organized,” he said. “And being unorganized costs more money.”

To highlight organization, Bradley had the attendees play a game, which is available on the website. The game has the numbers one to 50 randomly spread across the page, and the attendees had to see how many they could find in order in less than one minute. The next step was to sort the numbers and get rid of ones not needed, such the last half of the numbers.

With the unneeded ones gone, attendees were able to find more in order. The second step was to put the numbers on the page in order, which made it easiest to find them all. The game was meant to show how easy tasks can be if everything is organized and in the right place.

“When things are thrown in a heap, they usually get damaged and it’s not easy to see that things are missing,” Bradley said. “When things are organized and labeled and have a place, it’s very easy to tell and know what to restock.”

Estimating. Jim Huston told attendees at his Green Industry Conference workshop all about overhead and job pricing, delving into the details of the six common pricing methods used by green industry professionals and pointing out their flaws.

Huston showed his mathematical equations for proper job pricing, giving tips and pointers for success. Starting off with general and administrative expenses, he made the hard and fast rule that they should never be calculated by percentage. He also noted that gross profit margin for a job is not the same as the margin a company wants to see at the end of the year.

"The gross profit margin is the best indicator of what's happening in the market right now," he said.

Huston's method is what he calls the SMORS equation which takes into account single overhead recovery as well as multiple overhead recovery. "My methodology is a safety net methodology," he said.

Huston said that using factoring to calculate overhead costs is the wrong way to go since the method has never been validated mathematically. Rather than determining overhead allocation by direct cost, Huston recommends basing it on man- or crew-hours. As he says, a one-month job should have a month, or $10,000, of general and administrative cost included in the bid.

"Every labor hour that you're paying for, I'm going to make billable," he said.