Although the market for landscaping services has definitely improved, there is still a level of uncertainty out there with respect to things like regulations, health care, fuel and materials costs, and so on. Five successful landscape contractors who recently participated in a financial management webinar hosted by A Better Way 2 Learn Financials offer some tips on budgeting for success in 2013.
There is much debate over the way fuel should be reported; as a direct cost of goods sold or as a part of overhead. Regardless of how you report it, you need to have some historical data in order to make solid projections.
If you know how much fuel you've used in the past, along with the hours you've put on your trucks and equipment, you can get a pretty good idea as to how much fuel you'll use in the coming year based on the work you have booked. Then you can check out data such as the U.S. Energy Information Agency's short-term energy outlook to get a feel for where gas prices will presumably be in the coming year, allowing you to reasonably forecast your fuel costs.
However, it's still a good idea to write surcharge language into your contracts. This way, if there is a sudden, unexpected spike in gas prices as some point during the year, you can recover the added cost.
The challenge with respect to things like hardscapes, fertilizers and herbicides is that they can be cash killers. While buying in bulk to attain discounts can be appealing, it can also backfire on you. Carrying inventory from March through November, for example, can starve your company of needed cash—in addition to leaving you with a lot of waste at season's end.
Overhead Staff Accountability
Take a long, hard look at your work processes and organizational structure. Are you fully utilizing all of your people? Is there accountability?
By making sure important processes are as efficient as possible, and that your managers are actually managing, you could very well be able to reduce the number of salaried support positions in your company. Furthermore, you could very well find that expenditures on things like office supplies and even project materials will decline because of the tighter controls that are put into place.
Investments in Technology
Computers, mobile devices, software and other technological tools cost money. But they can also save you lots of money over time.
Investments in things like business management software, laptop computers for your trucks, smartphones and tablets for managers, etc., can help you reduce the amount of non-billable man-hours dedicated to data entry and other administrative functions. You might even be able to reduce—or at least maintain—head count as a result.
Investments in Marketing
Opinions vary as to how much you should budget for marketing. Some contractors allocate 1-2% of sales, others go as high as 5-8%. Still others boast about "not having to spend anything on marketing" (word of mouth does it all).
You must decide how much your company should spend. This decision should be based on what your objectives are, and what your desired return on investment is. That means you have to measure where your leads are coming from, the quality of the leads, and the close ratio. That's the only way to know if your marketing efforts are working, and whether or not you should consider spending more or less on those efforts.
Investments in Training
Most contractors agree that training is necessary. The questions that come up include: what, when, and how much?
Again, historical data can be your guide. Look at your employees' typical billable vs. non-billable time. If you want to implement additional training, think about how much; maybe another half-hour a week, for example. Then you can adjust your budget for non-billable time accordingly.
Investments in Equipment
During the mid-2000s, most contractors were replacing mowers every two or three years. Many have since switched to a three- to five-year replacement cycle, keeping a close eye on that crucial 2,000-hour mark.