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5 Levels of Financial Management: Terrible, Poor, Good, Better, and Best!

Growth Tips, Management, , , ,

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.

Your Challenge:

The challenge of improving your financial management is four-fold:

  1. Make this a priority.
  2. Get the systems in place to operate at Level 4.
  3. Implement the strategies to then raise you to Level 5.
  4. 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.”

Female athletes running towards finish line on track field

The Fourth Quarter Sprint: Seventeen Strategies to Drive Profit by Year-End

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Your performance in the final quarter of 2020 will have an oversized impact on how much net profit your company earns this year.

Weekly Throughput: The main driver of net profit in the final quarter is measured by your company’s Weekly Throughput i.e. the amount of billable production work your company can produce (“put through”) each week.

Here is why this is so important: Even though you estimate for a net profit with each and every sale, starting with your first sale in January, the fact is that all the profit from those sales goes towards covering your overhead (OH) until all your overhead is paid for. Once your overhead is covered, you have reached what accountants call your break-even date.

Once you hit your break-even date – all the profit you then make from every sale goes straight to your bottom line.  Not only the net profit, but also the operational profit (that previously went to pay for overhead) now goes straight to the bottom line.  This date is generally hit right before or in the 4th quarter.

Operational Margin: My high-performing clients are able to achieve an Operational Profit Margin in the upper 30%, some even up to 45% depending on the type of business they are in and how long they have been working with me on continuous improvement. If your operational margin is, for example, 40%, then after you hit break-even, every dollar that gets produced will put approximately 40 cents towards your bottom line, and even more given that some of your operational costs are fixed.

To this end, the more sales that your team can produce and bill in this final quarter, the more net profit you will ultimately earn.

Conversely, if you have too many hiccups this fall, you put your net profit at risk.

Here are 17 ways to increase your Weekly Throughput:

  1. Keep salespeople motivated to continue selling strong up through December. Use situational and year-end incentives to keep up the selling momentum. Having an increased backlog puts positive pressure on the crews, so they have more than enough work to chew through.
  2. Decrease the non-billable time (morning, travel, deli and gas stops, evening) so more time is spent on billable work.
  3. Eliminate the unnecessary go-backs needed to complete a job by ensuring crews are properly equipped and dispatched, with trucks and tools operating smoothly.
  4. Ask crews to be flexible in bad weather, so you can hit your Weekly Throughput goals.
  5. For those who pay overtime (OT), use it to get your extra backlogged work done; the incremental cost of OT will be more than offset by an additional operational profit that will drop straight to your bottom line. Do the math!
  6. Sell more fall and winter add-on services. Remember, enhancement sales can be sold at a much higher margin than your standard work anyhow, so it is a double win.
  7. Avoid lower margin install work, but take it only if you can be guaranteed that doing it will not displace other high margin work.
  8. Walk every maintenance property and sell them services to be done a.s.a.p. (and in the spring.)
  9. Find extra work that can be performed by crews already on maintenance properties.
  10. Sell holiday decor now to be done this fall. This should be very high margin work!
  11. Sell fireplaces and hardscapes to be done now (and during the milder winter.)
  12. Raise your 2021 hourly rate right now, and apply it to your fall work. Who says you have to wait till January to raise rates?
  13. Deliver your holiday presents to clients early (now through Thanksgiving); and they will likely give you more work to take care of.
  14. Incentivize your crews to increase their Weekly Throughput. Make crews accountable for their weekly production goals, and motivate them to be as efficient as possible. Share the winnings when they sprint through the finish line.
  15. Create fun weekly internal competitions for crews to outperform their peers. Use forced ranking each week to show the winners.
  16. Borrow or rent equipment in order to increase the amount of work that can be produced in a given week. Make use of equipment to increase your throughput.
  17. Keep your company vision and purpose front and center. In the end, people are motivated by a higher purpose and not just a paycheck. So show them the greater virtue of following through on your client promises and giving your clients the beauty that only you can provide.

Connect the dots:

Many employees may not immediately grasp how sprinting through the finish will benefit them and their families. Take the time to explain it to them by connecting the dots on how it benefits the company and how it benefits them directly. Using an incentive plan on its own is not enough. You have to explain the details and what’s in it for them.

YOUR CHALLENGE:

Pull everyone together and explain to them which day in your calendar you hit break-even, and how the production during the 4th quarter will help the company hit and beat its year-end profit goals, thus benefiting everyone.

Make it a rally cry, make it fun, and celebrate the wins!

man look at himself in the mirror

Self Awareness is the Silver Bullet to Professional Growth

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A few weeks back I gave a lecture to a packed room at the Green Industry Expo in Louisville on the topic of “Benchmarking for Profit”.

The audience learned my seven key performance indicators that you must benchmark (measure and manage) in order to improve your company’s performance.

Some of the benchmarks were as expected, such as labor, and some required outside-the-box thinking.

Then, I ended the talk with a big surprise…

I shared how you can benchmark your self-awareness (!), and why self-awareness is the single most important indicator of your future success.

Here is what the audience learned…

Self-awareness is rarely discussed in business circles, and yet it tells you everything about your future.

Alan Stein, the author of Raise Your Game, agrees with me on this.

In his excellent book, he tells the story of a young basketball player and how he could predict the player’s future success on the court based on his level of self-awareness off the court. This young basketball player chose to play for a high school team that would focus on improving his weaknesses, and ignore the hype surrounding his talent.

Stein (who has coached 100s of stars) says self-awareness is the single most critical characteristic of high performing athletes. It’s what gets them to the top of their field, and keeps them there every day.

How strong is your self-awareness? And how can you improve it?

As I write this, I’m visiting with an award-winning landscape company in Asheville, NC. They have invited me in to guide the owner and his team to grow from good to great…to extraordinary. I laid out the strategies to fast forward their success and domination of the Asheville market. But it still requires the owner and his team to be open to hearing my direct feedback, and then be willing to act on it.

With high levels of self-awareness, the owner and his team will easily surpass the extraordinary goals they have set!

How about you?

Your Challenge: Try this simple exercise in order to benchmark your self-awareness.

  1. Meet with your leadership team, and ask each person to rate themselves and each other on the following question: “Are you an intimidating leader or an approachable leader?”
  2. Score yourself first, on a scale of 1 to 5. The lowest score (1) means you are a very intimidating leader, and 5 means you are a very approachable leader. And the scores of 2-4 means you are ‘in-between’. You get the point.
  3. And then score everyone else on your team. And then…
  4. Share your scores with each other. And then…
  5. Go around the table and, one at a time, discuss your personal score vs. how others scored you. How similar were these scores? How clearly do you see yourself vs. how others see you?

The scores are not the main point. The ensuing discussion (around your perception of yourself and other people’s perception of you) is what will have the biggest impact. It will raise your self-awareness and that of your team.

Plus, it will foster an open and honest dialogue within your leadership team. And that’s priceless!

FINISH YOUR FINANCIAL YEAR STRONG WITH 12 PRACTICAL IDEAS

Finish Your Financial Year Strong With 12 Practical Ideas

Growth Tips, , , , , , , , , , , , , , ,

“Starting strong is good. Finishing strong is epic.” – Robin Sharma

Your performance in this final quarter of the year will have an oversized impact on your year-end profits. In fact, it’s so important, that you should be reminded of it and think about it every year at this time. 

The question you should ask yourself is how you can persistently stay the course and finish this year with stronger net profits? Here are two critical areas of consideration.

1. Weekly Throughput 

The main driver of your net profit in the fourth quarter is measured by your company’s Weekly Throughput, i.e., the amount of billable production work your company can produce (“put through”) each week.

Here is why this is so important: Even though you estimate for net profit with each and every sale, starting with your first sale in January, the fact is that all the profit from those sales goes towards covering your overhead (OH) until all of your overhead is paid for. Once your overhead is covered, you have reached what accountants call your “break-even” date.

Once you hit your break-even date – all the profit you then make from every sale goes straight to your bottom line. Not only the net profit, but also the operational profit (that previously went to pay for overhead) now goes straight to the bottom line. This date is generally hit right before or in the 4th quarter.

Do you know what your break-even date is? Have you reached it yet?

2. Operational Margin

My high performing clients are able to achieve an Operational Profit Margin in the upper 30%’s and 40+% depending on the type of business they are in (and how long they have been working with me). If your operational margin is, for example, 35%, then after you hit break-even, every dollar that gets produced will put at least 35 cents or more towards your bottom line! That is a lot!

To this end, the more sales that your team can produce and bill in this final quarter, the more net profit you will ultimately earn. Conversely, if you have too many hiccups this fall, you put your year-end net profit at risk.

Thus your drive for additional revenues to maximize your margins should be on your mind all the time, if you want to finish the year strong. 

Here are 12 Ways You Can Increase your Weekly Throughput and Year-end Revenue:

  1. Keep salespeople motivated to continue selling through December, using situational and year-end incentives. Having an increased backlog is good, it puts positive pressure on the crews, so they have more than enough work to chew through.
  2. Decrease the non-billable time (shop time, morning, travel, deli and gas stops, evening) so more time is spent on billable work.
  3. Decrease (eliminate) the unnecessary go-backs needed to complete a job by ensuring crews are properly equipped and dispatched, with trucks and tools operating smoothly.
  4. Ask crews to plan to be flexible in case of bad weather, working late or weekends, so you can hit your Weekly Throughput goals.
  5. Use overtime (OT) to get your extra backlogged work done; the incremental cost of OT will be more than offset by the additional operating profit that will drop straight to your bottom line. Do the math!
  6. Sell more fall and winter add-on services. Remember, enhancement sales can be sold at a higher margin than your standard work anyhow, so it is a double win.
  7. Walk every maintenance property and sell them services to be done now, or in the winter.  Find extra work that can be performed by crews already on maintenance properties.
  8. Sell holiday decor now to be done this fall. For example, how about selling front door arrangements as you see in the magazine Southern Living?
  9. Sell fireplaces and hardscapes to be started now (and completed during the winter).
  10. Raise next year’s hourly rate right now, and apply it to your fall work. Who says you have to wait till January to raise rates?
  11. Deliver your holiday presents to clients early, and they will likely give you more work to take care of.
  12. Incentivize your crews to increase their Weekly Throughput. Make crews accountable for their weekly production goals, and motivate them to be as efficient as possible. Share the winnings when they sprint through the finish line.

Connect the dots:

Many employees may not immediately grasp how sprinting through the finish, and ensuring a healthy net profit will benefit them and their families. Take the time to explain this to them by connecting the dots on how it benefits the company and how it benefits them directly. Using an incentive plan helps them see directly how it benefits them and creates a win/win situation for both of you.

(I love helping companies set up effective incentive plans because it is so win-win when done right!)

Your Challenge: Pull everyone together if you have not already done so, and explain to them which day in your calendar you hit break-even and how the production during the 4th quarter will help the company hit and beat its year-end profit goals, thus benefiting everyone.