<b>Benchmarking Your Business:</b> I'm stuck at...

There are times when a business goes through a growth spurt – sales ring up revenues, crews work like well-oiled machines, you beat the budget. But inevitably, after that climbing, a business will land on a plateau. For some, that “flat” time might seem more like a desert – nothing ahead, no end in sight.

You’re stuck.

But there are ways businesses can push past the doldrums and reach the next revenue level. “An owner’s ability to morph and evolve directly affects the revenue stream,” says Jim Huston, green industry financial consultant and owner of J.R. Huston Enterprises, Englewood, Colo.

Owners must keep a sharp eye on the budget (see our charts on page B14) and begin building a high-performance team, Huston says. “Between zero and $5 million in sales, a contractor has to reinvent him or herself five different times,” he says.

Here, Huston shares the common revenue blocks where businesses get stuck and how to break through challenges that hinder growth.

$0-$300,000:
Keeping All Hands on Deck
The business: At this stage, a design/build firm generally consists of an owner and two employees, and everyone’s working in the field during the day. At night, the owner is estimating, designing, crunching numbers – taking care of everything admin.

The block: An owner who thinks like a technician rather than a team leader. “The biggest factor preventing growth at this stage is the vision of the owner,” Huston says. “The owner needs to start building a team.”

The breakthrough: Step one is to hire a few good crew leaders who work with minimal supervision. “If you have good crew leaders, you’ll be more profitable,” Huston says, pointing out that owners of firms that net $2.5 million aren’t showing up on site to babysit crews. “They hand their leaders a set of plans and they manage it,” he says.

To grow to the next level and generate $600,000, a firm needs a total of six people in the field (including those leaders). This means spending more time marketing and selling services, so owners should hire a part-time office manager to offload some of the administrative burden, Huston says.

The real budget-busters at this stage are the owner’s lifestyle and labor costs. “If the owner is living big, they can drain the company of any capital,” Huston says. “And at this stage, if you don’t have the right labor, your costs will get out of control.”

Referencing the benchmarking charts on page B14, labor costs should be 20 to 35 percent of sales, depending on whether the business is maintenance, lawn care or design/build. Equipment costs are not generally a problem at this stage, unless a firm decides to invest in a significant piece, such as a skid-steer loader. Don’t let a single contract that demands higher-caliber equipment wipe out your profit.

 
$300,000-$600,000:
Manning Up for Growth
The business: Give or take, the owner has two solid crew leaders managing a total of six people in the field (for design/build); or four crew leaders and up to a dozen field workers (for maintenance). A part-time office manager handles billing, returns phone calls and takes care of other administrative odds and ends. The company is big enough to need systems, but small enough that the owner is still in the field and managing operations in a hands-on way.

The block: The owner needs more help in the office, more manpower in the field and systems to hold the business together so it can grow smoothly to the $1 million mark. “The owner’s mindset needs to be focused on building a high-performance team that maintains a high level of customer service,” Huston says.
 
The breakthrough: For the owner to continue as a visionary, more leadership is necessary to manage tasks, including: sales, field operations and office duties. The business needs a chain of command. “That really gets down to an owner’s ability to delegate, build and manage a team,” Huston says.

The owner shifts from a role of managing tangibles to overseeing big-picture goals – from ensuring that a project is installed correctly to building and managing a team. Huston relates an observation from a James Dean movie: What is essential is invisible to the eye.

“What’s happening is the owner is making a transition from dealing with extremely tangible items – laborers, product, etc. – to something much more nebulous,” Huston says.

Create more structure during this transition by developing an organizational chart that illustrates that chain of command. Get that budget on paper and work on long-term strategy. “If you can see your costs, you can make decisions based on more ‘tangible’ information,” Huston says. “A budget will allow you to see that if you hire an employee and bring in an office manager, how much in sales do you need to bring in to make that work?

“As a company grows, that budget is more and more important as a control document,” he says.

$600,000-$1 million:
Painting a Bigger Picture
The business: With an established staff of managers, crew leaders and field workers, a chain of command is set and systems are developed so the owner can step back and work on the business rather than in it, as the saying goes. A full-time office manager lifts daily paperwork from the owner’s desk, allowing more time to focus on big-picture growth.

“The owner needs to be thinking business development, which is basically getting enough work to keep everyone busy while maintaining quality control and keeping customers happy,” Huston says.

The block: Quality control becomes a focus as the company grows and systems are put in place. Meanwhile, the overhead is expanding along with the company, and sales must continue at a level where overhead costs don’t sink the budget. Getting to the next level is all about boosting sales.

The breakthrough: Sales should be four times the overhead costs – no more. “If your overhead starts creeping up past 30 percent of sales or higher, you need to work on marketing,” Huston says. “And if overhead is too much below 25 percent, think about getting more personnel in the office.”

Also keep an eye on these overhead costs while expanding the business: Labor for a design/build firm should be about 20 percent of sales, plus or minus 2 percent. For maintenance firms, labor should be about 35 to 40 percent of sales. Equipment for both types of firms should run about 12 percent of sales – and that includes equipment repairs, fuel, depreciation, insurance and mechanics’ salaries. 

Minding the numbers is critical at any stage of growth, while thinking beyond the minutia of daily field work is critical to growth at this stage.

“It’s so easy for an owner to get wrapped up in details,” Huston says. “He has to develop a high-performance team that takes care of the details as he manages them.”

$1 million-$2.5 million:
Networking to the Next Level
The business: The business has reached critical mass and it is staffed with high-performance managers, crew leaders and employees. A strong office staff helps carry out administrative duties. The company is a strong market competitor with growing sales, a good reputation in the community and a growing client list.

The block: The owner is stressed, especially if certain divisions are performing below their gross profit margin targets. If effective managers aren’t in place to carry out systems, a business will suffer in the quality control arena. And speaking of systems, consistency is critical when a business expands beyond the point where an owner’s hands are in daily operations.

“When a company gets to this stage and can’t figure out how to grow beyond that, it’s usually because the business doesn’t have strong managers,” Huston says. “It’s important to hire high-performance managers and it’s really critical that these managers have budgets and understand them. I see a lot of companies that tolerate mediocre managers, and that’s death.”

The breakthrough: First, the owner must continue focusing on hitting key benchmarks. Labor and equipment can spiral out of control at this growth stage, Huston says. Keep an eye on the chart of business accounts.

“You need to constantly measure where you are making and losing money,” Huston says, emphasizing that owners tune in to the gross profit margin of each profit center in the business: maintenance, lawn care, irrigation, snow, etc. Also, carefully track sales revenue. “Really measure what’s in the pipeline,” Huston says.

Delegate budgeting for each profit center to managers and guide them through the exercise. Compile these budgets into an overall plan for the company. While doing this, lean on external advisers – owners who don’t have them should draft a team. “You need a good CPA, attorney and consultants,” Huston says.

Networking groups, such as Kiwanis Club and local, state and national industry associations provide networking opportunities for owners to share ideas, develop an external team of advisers and make sales contacts.

Above all, no business can afford to tolerate leaders who aren’t high-performance players, Huston says. “If managers are proactive, they’re engaged and they’re setting goals and making contacts,” he says.

$5 million and beyond:
Growing Key Leaders
The business: Only about 6 percent of landscape firms make it past $2 million a year. They’re multi-division firms with several managers and a good-sized employee roster. The firm might have acquired another company to grow, or added services along the way to expand.

The block: Challenges really depend on the region, market, business model and personality of the owner. But weak managers are generally the culprit of a business this size that feels “stuck.”
“Owners cannot tolerate weak managers,” Huston says, reiterating advice he provided for lesser revenue categories. “They need managers that are aggressively pursuing sales and doing what they need to do to grow their division.”

The breakthrough: These companies need a controller to manager their accounting, human resources and IT. “It’s a hard position to fill,” Huston says. “You need someone who doesn’t take any nonsense – someone who is meticulous and detail-oriented.”

Also, a strong accounting software system will work wonders for a company this size, Huston says. “That and a controller can take a tremendous load off of an owner so he or she can go out and build the business,” he says.
 

The author is a frequent contributor to Lawn & Landscape.