Ross says his top clients are working extra hard to stay on top of cash flow. Some of the best contractors he works with have aging of less than 40 days. There are two reasons they are able to collect this quickly:
- They do great work and have happy clients
- They educate their clients as to what the expectations are
"Most companies that have a receivables issue right now can point to the fact that sales or admin staff are inhibited about saying to the customer, 'Here are our credit terms, this is how we invoice, and this is how we expect to be paid … and is that OK with you?" Ross explains.
Profit is not a dirty word
When asked what an average, fair profit is in landscape contracting today, Ross says it's too across the board to pinpoint. However, one thing is clear: Top contractors are now shifting their focus from profit margins to profit dollars.
"Let's say we have an overhead structure of $1 million," Ross begins to illustrate. "It used to take $2 million in revenue to cover that overhead and make a decent profit. Today, because prices have collapsed, we might need $2.5 to $3 million in revenue. So percentages move around a lot.
"What we're interested in is 'the new math,'" Ross continues. "It's no longer a 10% profit. We're talking about how many sales dollars you need to generate in order to maintain cash flow. You now have to measure profits in real dollars. A contractor should sit down in his planning process and plan how many dollars he needs to retire debt, refurbish fleets, support working capital, pay taxes and reward employees. Add all of that up—because that's your end game."