Taking the burden out of budgeting

For some, the success of a business boils down to the bottom line.

But what can you do to ensure a healthy profit? Three green industry executives say the building blocks for any winning business lies in the budget.

“I can’t emphasize enough the importance of a budget for any business,” says Peter Grandin, president of Grandin Landscape, in Wakefield, Rhode Island. “Whether you’re a $100,000 a year company or a multi-million-dollar company, it’s critical.

“It’s so important for your team, and even your crew members, to understand what you’re trying to accomplish and what it costs to get there,” he adds.

Numbers to know

Grandin, whose company produced about $5 million in revenue in 2022, says the foundation of any budget is knowing exactly what to budget for — in terms of materials, labor and other costs.

“We budget every expense for everything right down to every cent,” he says. “We know what percent our material costs for our construction jobs, for our maintenance contracts and for everything.”

Once all costs are incorporated into the budget, Grandin says that data is then used to accurately establish prices for the season ahead.

“Based on that budget and the average wages we pay our staff and overtime, we can then calculate what our hourly rate is,” he says.

Sometimes, Grandin says it’s also helpful to start a budget by looking at last year’s revenue and what your goals are for the next year. Then, it’s a matter of playing around with some numbers to make that amount happen.

“The first thing I do is look at the previous year’s revenue and then look at where I want the next year’s revenue to be,” Grandin says. “Once I do that, I can use the same formula we always do. We’ve been using a very detailed budget for a long time now.”

While exacting out materials into a budget may sound simple, it can be a challenge — especially when most material prices have been varying.

Tim Austin, president of the Saline, Michigan-based A&H Lawn Service, admits it’s an issue they’ve run into several times these past few years.

“Last year, fuel was about 3.6% of our total sales,” he says. “And two years prior to that it was 1.6% of total sales. So that tells you how much the cost of fuel has gone up.”

Grandin shared similar struggles. “The biggest problem we had last year was we didn’t anticipate the hike in fuel costs quick enough,” he says. “That hurt us for a brief period but got around it by marking up materials an extra 5%.”

And while a budget is a great place to track the fluctuating costs of materials, Austin adds it’s also useful for monitoring KPIs — or Key Performance Indicators.

“Every business has their KPIs,” Austin says. “For me, one of our KPIs is the labor percentage. I know right from that what things look like in the future. We either have to get it under control or make more sales to get that percentage down. That’s probably the number one KPI I monitor.”

Supreme Lawn and Landscaping President & CEO Brian Lahr also says that budgeting labor costs correctly is mission critical, though no easy feat.

“Even after 33 years it’s always hard to nail down estimating labor hours into a job,” he says. “There’s so many variables… Materials are usually always dead on. That’s the easy part of this if you know what you need to complete a job.”

When calculating labor costs, and in hand customer’s rates, Lahr has a special formula.

“Per each division, we estimate how many people we’re going to have in that division…and then we take the number of people and the number of hours plus overtime. Then the next step is how much revenue per hour a person can generate…. We try to hit about $160,000 per man,” he explains.

Lahr’s Waite Park, Minnesota, company also evaluates material cost increases when establishing rates. It worked out well in 2022, when the company reached $1.8 million in revenue.

“We went through our budget about a year ago and put all those increases in there and estimated what employment would be and all that, and we’ve raised prices quite a bit drastically across the board,” he says.

“And we haven’t lost any customers because of it. Their thought process is probably, ‘Who else is going to do the work?’ There’s really nobody out there.”

Lahr notes some of the biggest increases were in labor costs, equipment and fuel. He adds companies shouldn’t be afraid to ask for more.

When determining what to budget for, Lahr points out it’s also important to remember about the unexpected, or often forgotten, costs of doing business.

“Make sure you’re budgeting in upkeep on your building, office furniture, computers, building maintenance and those other things people might not think of,” he says. “Some people think they might just need material, labor and equipment in a budget and will overlook stuff like that.”

Streamlined software

A&H Lawn Services generated $4.3 million in revenue in 2022 due to strategic budgeting. Austin credits using a software designed specifically for the green industry. The company has been using the same business management software for many years.

“So, our budget always starts from the previous year’s budget and then at the end of the year, I get all my numbers form my office manager — our field labor costs, our sales, subcontractors, materials, etc. together,” Austin says.

“Then I just go through the data and project what next year is going to look like and what our overhead should be.”

Austin says having a budgeting software that does the majority of the legwork for you is great.

“That is an amazing budgeting tool and you’re not recreating the wheel every year because you’ve already got it started,” he says. “You just have to update some stuff.”

But to get a good ROI on the software, you have to be willing to use it to its full potential — something Austin says A&H has been trying to do more of recently.

“I don’t think we use it fully because there is so much to it. This year I got much more in-depth with it — especially in the equipment area — just to understand how much fuel each piece of equipment is using so we have a better way of capturing that fuel cost, because I think that’s where we didn’t do as good a job in year’s past,” he says.

“It’s not cheap but it’s worth every penny in my mind.”

Treasured guidance

Lahr uses software, too, but adds working with an industry consultant has also made his budgeting process better.

“I’ve been working with him for over 20 years,” he says. “Knowing to do all this has come from years of working with him and being in the business.”

Lahr says meeting with the consultant helps him avoid budgeting at the last minute which can be stressful and overwhelming.

“I meet with him every six months and he’s usually with me for a full day,” Lahr says. “We just met a couple weeks back to know what our prices should be for the spring and will meet again in July to start setting our budget for 2024.”

Grandin also sings the praises of working with a consultant.

“The success of our budgeting has been hiring a consulting firm 15 years ago that helps me create this budget every year,” he says. “The first time we did it, it was very difficult, but now that we’ve been doing it for so long, we’re able to figure it out faster. It’s basically plugging numbers in at this point.”

Each year, Grandin says the budget gets rolling first between him and the consultant. They hash out the major details before he brings the rest of the team in.

“The budget process starts with myself and my business coach,” he says. “Then we hold weekly operations meetings where I roll out the budget in small chunks. I make sure my team buys into what I’m trying to accomplish.

“The meetings are companywide — we have our maintenance division, design/build, nursery division sales, office managers all together,” Grandin adds. “We talk about it as a whole and then I dive independently into each division.”

Tracking progress

Austin, Grandin and Lahr note that budgeting isn’t a “set it and forget it” practice. In order to do it successfully, it needs to be reviewed regularly.

“We’re benchmarking weekly and having discussions on if we’ve met our goals, what we can to do meet our goals and all that,” Grandin says.

Though he’s looking at the budget weekly, Grandin doesn't adjust throughout the year.

“We have it down to a science,” he says. “We might make modifications for expected fuel costs or something but that’s about it.”

Austin says he isn’t adjusting the budget once it’s done either.

“Monthly, my office manager prints me a profit & loss statement and some other supporting documents, and I’ll go in and do a break-even analysis every month,” he says. “I want to see how we’re fairing based on our break-even.”

One of the most common factors in this break-even point is labor costs, Austin says.

“That break-even analysis is set up through the budget,’ he says. “For example, if our labor costs are over 32% in April, I know I’m going to have cashflow issues in May.”

Austin adds that since the company pays weekly, if labor costs are outweighing things, it’ll cause cashflow issues the following month.

Lahr is also utilizing the budget throughout the year to track various things and how it’s being reflected in the field.

“We do job costing after each job we perform and see if we overestimated hours or underestimated them and where we’ve come in at,” he says.

And while Lahr says having a detailed budget is a great tool, it’s no guarantee of growth.

“You just hope and cross your fingers that by the end of the year you’ve made a profit,” he says.

“You’re going to win some and you’re going to lose some,” he adds. “It’s like throwing darts at a dart board. You want to hit as many bullseyes as you can.”

The author is assistant editor of Lawn & Landscape magazine.