Travels with Jim follows Jim Huston around the country as he visits with landscapers and helps them understand their numbers to make smarter decisions.
I pulled into the Union 76 gas station in Bakersfield, California, running on fumes. The two pumps in front of me were taken by two cars fueling up, so I waited in line for my turn. Pulling up to the pump as the car in front of me departed, I noticed the black Lamborghini coupe with Florida plates to my right. The young driver was becoming apoplectic. He was whining, crying and screaming at me.
Apparently, he thought he was next in line and he didn’t like being nudged out by my Honda Civic. As my new buddy from the Sunshine State whined and cried, it reminded me of Buck Owen’s 1964 hit song, “Cryin’ Time.” Fortunately, the two cars in front of me left the pumps at the same time and we both got our chance to fuel up.
My three-point mantra.
December is a good time to prepare your budget for the upcoming year. However, for most green industry entrepreneurs, budgeting is something that they either dread or totally avoid. You might say it’s “cryin’ time” for landscapers. I’m convinced the reason budgeting is such a painful experience for business owners is that they simply do not know how or why to do it.
Your annual budget provides an objective and analytical foundation for your business. It also provides a process for you to benchmark the business. It also calculates key numbers used for two of the three components in my three-point mantra for running a successful business. They are:
- Price it right. You have to bid your services and projects accurately.
- Produce it right. You have to produce them the way you price them.
- Produce enough of it. You have to have enough volume to pay for your fixed costs.
Your annual budget calculates the labor burden percentage for marking up field labor and your general and administrative overhead costs used in pricing your work. It also provides your sales goal for each division, allowing you to monitor your progress as you strive to hit the revenue needed to cover all of your costs.
How it works in the field.
Joe’s company is located in the Greater Lake Tahoe region of California. His landscape installation division is comprised of two three-man crews. The two crews generate approximately $720,000 in annual revenue. The six men would produce roughly 1,607 direct-bill man-hours each (9,642 total) during the seven- to eight-month season. Joe wanted to know:
- How much he needed to charge for G&A overhead.
- What his markup for labor burden was.
- If his $720,000 in sales would cover G&A overhead costs and produce a 10 percent net profit.
The G&A overhead costs required to support this division was $172,747 or 24 percent of sales. The G&A overhead per man-hour is calculated as follows:
$172,747 ÷ 9,642 = $17.92
The landscape installation labor burden to include FICA, FUTA, SUTA, workers’ compensation insurance, general liability insurance, crew vacations, holidays and sick days (or paid time off), totaled 26.43 percent.
Joe’s annual budget calculated the above numbers that he would use to bid and job cost his landscape installation jobs. It also told him that if his sales and direct costs for materials, trucks, field equipment and subcontractors were in line with historical trends, he would achieve a net profit margin of roughly 9.7 percent. He thought his crews could easily improve upon the 9.7 percent net profit margin to hit his desired 10 percent.
Joe’s 2018 budget provided the key numbers and tools he needed to bid his work accurately and confidently. His MS Excel bid board and lead tracker told him how much work he needed to design/bid, win, install and bill to achieve his sales goal. Joe felt confident he was going into the 2018 season with tools that would allow him to price and produce his work accurately.
Don’t get caught cryin’ and whinin’ at the station like my fellow road traveler in his Lamborghini. Do your homework and prepare a budget for 2018. This will improve your bottom line and your confidence as you head into the new year. If you do, any tears that you shed will be the ones that hit the ground as you cry all the way to the bank.
To get a free copy of my 2018 Budget & Benchmarking worksheet and 2018 Bid Board, email me at firstname.lastname@example.org.