There are five levels of financial management in the landscape industry. They range from Terrible, Poor, Good, Better to Best.
Where does your company operate financially?
The following framework will help you identify where your company stands from a financial management perspective and where you can improve.
Read through these five Levels of Financial Management and get clarity on your next steps:
Level 1: Terrible
Companies that do only a year-end review of their numbers are greatly underperforming. This is a Terrible way to manage your business because you are in effect not managing by your numbers at all. Most companies who operate this way are simply so deep in the weeds of their day-to-day operations that they don’t take time to budget, monitor, and course-correct, which costs them double-digit points of profit. They follow the “wing and a prayer” method, which usually doesn’t keep you aloft.
Level 2: Poor
Companies that do a quarterly review of their P&L and Balance Sheet are doing better than Level 1, but it still qualifies as Poor because they leave so much to chance. For example, your company can go off track in July, and you will not find out till October. Companies like this often rely upon outside accounting services to pull this together. If that is you, then upgrade your investment to get monthly reporting, or better yet, take this critical role in-house.
Level 3: Good
Companies that do a formal monthly review of their P&L are doing better than so many unprofessional competitors out there. This is a Good level, but to truly benefit from his, you must make sure you are comparing monthly actuals to a monthly budget. This allows you to do the double comparison of actual v.s. budget, and actual v.s. last year. Once you create budgets, you can implement a Rolling Budget and use this to both steer your performance and teach your finances to your team.
Level 4: Better
Companies that do a monthly review of their divisional numbers, and a weekly review of operational metrics, are doing better than most all landscape firms – professional or not. Managing with divisional numbers (monthly v.s. actual) allows you to empower your managers to run and own their divisions. Using weekly reports (with daily check-ins) allows your production teams to take ownership and steer their own results. This Better level of financial management allows a business to really scale and frees up the owner to be more proactive and entrepreneurial in leadership.
Level 5: Best
Companies that tie their budgets, commissions, and incentives to a high-profit goal are achieving the highest level of profit by not leaving extra monies on the table. This is the Best way to manage because it gives you the consistency and empowerment of Level 4, with the winning strategy of having company goals dialed in to achieve breakthrough results. (20% net profit and above for residential work, and 15% net profit and above, for commercial). Surprisingly, many companies hit level 4 and think they have hit the top, but they still leave a lot of money on the table.
Here are a few questions to consider as you assess your next steps:
- Which of these levels do you operate at?
- How well does your team understand and support your financial goals?
- What do you need to do to get to the next level?
Because so many issues that you face are ultimately tied back to proper financial management, I recently created a Financial Masterclass. You can learn how to master your numbers and implement the tricks and strategies needed to operate at Level 5, where the most profitable landscape firms operate. Check it out here.
The challenge of improving your financial management is four-fold:
- Make this a priority.
- Get the systems in place to operate at Level 4.
- Implement the strategies to then raise you to Level 5.
- Get the buy-in of your team to achieve this high level of performance.
You can’t do this alone; you need your team to support these efforts.
For those of you who want to improve your financial decision-making and actual financial performance, register for the Financial Masterclass now, while the early bird pricing is still valid.
It is a one-of-a-kind event that has never been offered before in our industry. Have your second-in-commands attend as well if you want to improve their buy-in and financial literacy.
According to Kevin McHale, owner of McHale Landscape Design in MD, “Don’t miss this exceptional event run by one of our industry’s most insightful leaders, Jeffrey Scott. He provides an honest and clear path to understanding the financial and management components of the Landscape Industry.”