Keep your eye on the money

During go-time in summer, invoicing tends to get pushed aside to make time for production and sales.

Equipment needs shoot through the roof, so the urge to make capital expenditures is hard to resist.

And you can keep your staff busy, so you ramp up your payroll to service customers.

Problem is, when summer winds down and seasons shift into slower times, cash flow can dip quickly, leaving you in a difficult situation. Collections are on the fritz, monthly payments are due for equipment that is not in use and everyone needs to get paid on Friday.

Lawn & Landscape spoke with three firms about how they manage to keep the cash flowing year-round, and what strategies they deploy to make due when times are tough.

Focus on flexibility
 

A flexible workforce is a secret ingredient in the “liquid” at Grant & Power Landscaping in West Chicago, Ill. Cash flow is preserved when the going gets tough or the snow doesn’t fall. That’s because the firm can scale back on payroll, a primary expense for a service business. And if spring rushes in more business than his people can handle, the company builds up the workforce quickly with reliable subcontractors.

A crop of hourly employees works on an as-needed basis. “So in spring, we are swamped and we need help here and there, so we have that extra man-power,” says Jan-Gerrit Bouwman, partner.

On the other hand, if a snow season looks unseasonably mild, “we do lay off a lot of people and cut as many hours as possible,” Bouwman says. And, the budget is adjusted. “We do not take on expenses like equipment. Some preventive maintenance can wait – it can only wait so long, but if there are items that can be postponed, we have done that.”

Typically, Grant & Power employs 100 people from April through November. During a mild winter when snow business is down, the company will trim its workforce down to about 25. If the white stuff falls generously, Grant & Power might keep 150 trucks on the road. “But they are all hourly, and a lot of them are subcontractors,” Bouwman says.

Grant & Power can make important personnel adjustments because management carefully tracks the cash flow each week. “We track the cash flow in and out every week – all the bills and invoices,” Bouwman says.

Weekly reports are submitted, and projects are created and edited to reflect the actual situation: weather, economy, accounts receivables and other factors that affect cash flow are reviewed.

Just in case cash flow gets tight, the company holds a line of credit. In 2009, when the company was hit hard by the recession and laid off 20 percent of its staff members (who were rehired five months later), this bank facility helped stabilize the company. Grant & Power has paid back the debt. “It’s not ideal to use a line of credit, but that’s a decision you have to make as management,” Bouwman says.

Bouwman says the most common mistake landscape operators make is moving forward full throttle without minding the bottom line, cost of sales, margins and other key financial indicators. “Many don’t look at their cash flow on a weekly, or even monthly basis,” he says. “All of that is important to us.”

Working a plan
 

Never take a job that is more than 25 percent of your annual volume. That’s what a mentor told Gary Mallory, CEO of Heads Up Landscape in Albuquerque, N.M. When the company was young, Mallory was tempted by a prize job that became one-third of the company’s annual volume. Big mistake. “They weren’t paying us and it was killing us,” Mallory says. On a smaller scale, there are plenty of companies that feverishly make collections calls on Thursdays to make Friday payroll. They need that money in because there’s no cash in the bank. Mallory offers this logical advice:

Set aside time each week to focus on collections. But he admits that he is guilty of pushing this task to the back burner during the busy season. “We have let a few billings slip through the cracks, and not a large amount of money – cleanups or one-time jobs,” he says.

Collecting long after a job is complete never elicits the same response from clients – there’s no real urgency to pay. And slow collections are a major cause of cash flow drought, Mallory says. Designated desk time to make calls is the best way to get this bookwork done. “A lot of us shy away from receivables because it’s not as fun as selling a new job or designing a project,” Mallory says.

Aside from collections, Mallory says many owners wait to lay off employees until it’s too late and more money is lost than is coming in the door. “It’s best to be open and honest with employees and communicate as far in advance as possible (that you’ll be laying off),” he says. But don’t avoid it all together for the sake of keeping your team on board – especially if your financials are taking a hit from too much labor. “It’s important to review your backlog constantly so you know what work load is coming up and you can plan for that.”

Stretching cash during slower times is possible by working with vendors to secure favorable terms. For example, Mallory had made arrangement with his insurance company to make a down payment in the winter followed by monthly payments to avoid a lump sum hit. “You can negotiate equipment terms and pay within 60 to 90 days,” he says.

And back to planning, businesses that are having a good year should be sure their tax and insurance payments reflect their volume.

Forecasting, budgeting and monitoring that budget will prevent any surprises that could derail a company from meeting financial goals. An unexpected tax bill could mean no employee bonuses – or not enough cash to make payroll. “If you told the insurance company you’d be a $2 million company and then you do $3 million, they will audit you and you’ll get a big, fat insurance bill,” Mallory says. “That can be a real surprise and drain on your cash flow.”

Collecting more cash
 

Kevin Bonin keeps collections and cash flow under control by doing his best not to allow receivables to age even a day after a job is complete. Of course, this is the ideal – reality doesn’t always play out this way.

“It’s all about being able to produce the product, bill it and collect it as quickly as you possibly can so you don’t run into cash flow issues,” says Bonin, president of Bonin’s Lawn Service in Lafayette, La. That’s why Bonin breaks payment into two parts for larger projects like cleanups. Half is collected up front, and half upon completion during the walk-through. “That way, we are making sure the customer is happy, we are asking for a referral for the next job and we are asking for payment,” he says.

Handling the job wrap-up and collections saves time and avoids having to place calls after the fact when payment is missing-in-action. Bonin never allows those jobs to go unpaid.

As for monthly contracts, those bills go out the 25th of each month with a 10-day net due date on payment. By the fifth of the following month, Bonin’s Lawn Service is generally collecting on those accounts. “Sometimes, we get behind on billing,” Bonin says, relating how that can quickly affect cash flow. “Billing is where most people get into a cash-flow crunch.”

Bonin, who works with a consultant to build a budget, says his company hasn’t been in that position for some time. In the early days, he was an equipment junkie. “We purchased machinery that wasn’t being utilized,” he says. Over time, Bonin sold off equipment he couldn’t keep busy. “Rental stores have equipment readily available so you don’t have to pay monthly for a piece of equipment you aren’t using.”

Also, before Bonin brought on a Christmas Décor franchise and boosted his off-season business – landscape maintenance is always “in season” where he operates, but it does slow down in winter – he would take just about any job to maintain cash flow. The holiday decorating business ramps up after Halloween and keeps Bonin’s workforce busy during a time when he typically laid off workers. “That allows us to have a stronger business model because we can keep our high-production, more qualified employees year-round,” he says. L&L