Ever sit around and chat with fellow lawn maintenance owners and operators? Sure you have. Do you remember some of the hot topics? If the discussion turned to, "Where do you want to be five years from now?" long-kept secret goals probably came running out of the closet. "I want to be a million dollar operation. I want to employ 80 people. I want to be the biggest landscaper in the area. I want to graduate to sitting behind a desk. I want, I want, I want..."
The truth is, over time, all any landscaper or lawn maintenance professional should ever want is to be more profitable than he or she was the year before. Period! Because profitability is the only real goal worth a plug nickel when you're in business for yourself. It's nice to talk about volume, reputation, new equipment, acres of lawn mowed, etc. But when all is said and done, if you don't make a profit, all other goals are meaningless - since you'll soon be out of business, anyway.
Defining The Problem
In a similar way, manufacturers are finding terms such as efficiencies, volume, inventory and throughput are nice to throw around at monthly meetings, but if they don't have a dollar sign attached, they offer little substance to a discussion. If new robots, higher production figures, higher inventories and more product out the door don't add to the bottom line - then the factory, any factory, isn't making money. The same can be said for anyone selling products, or selling services as is the case of people in the lawn maintenance business.
Part of the answer to setting reasonable goals, goals that translate into profitability, rests with terms used to define your operation. Imagine a typical discussion with a group of friends. The term volume would probably come up often, either in respect to the number of clients, number of yards mowed or number of acres cut. But by itself, volume means little unless it can be tied directly to an economic indicator of your business.
Begin to think of volume as a way of generating money through sales and less as a way of describing how much lawn you mow. Try to put a gross dollar figure on every lawn you mow.
The same holds true for your equipment lineup. It's easy to get caught up thinking how great it is to have one of the largest inventories of lawn mowers and trucks in the county. But if you begin thinking about inventory as the money you spend generating income, then the high number is suddenly less glamorous. The more you spend, here, the less you have later. And later is what counts.
And don't forget employees. You're probably already very much aware that employee cost is one of your biggest operating expenses. In fact, by most estimates, the costs associated with hiring, training and paying employees (benefits included) eats up one-third of a lawn maintenance company's sales volume.
With this in mind, try taking the thought process one step further and think of your employees as what you spend to keep your inventory (mowers) running, and producing sales.
Putting It Together
If the goal of your business is to produce profit, every business activity should be analyzed as it relates to producing profit. When analyzing your business activity, it is helpful to think in terms of three measurements of your business: 1) Sales, income from the sale of goods and services; 2) Inventory, goods and equipment used to produce sales and 3) Expenses, costs associated with turning or using inventory to produce sales.
In a simplified way, every business activity should be viewed in terms of its effects on these three measurements. It is obvious to produce profit, business activity should be directed toward increasing sales while decreasing inventory and expense.
Let's see how this works. You are planning to buy a new mower. This is an increase in inventory. So to produce a profit the purchase should increase sales more than expenses. If a new mower reduces expenses (labor and maintenance) while producing sales, it is increasing profit. In another example, when you hire a new employee, you increase expense. If the new employee doesn't increase sales (directly or indirectly), then profits are decreased - simple ideas that often are overlooked in growing and operating a business.
Your long-term goal should be to improve net profit. That might not necessarily mean mowing more lawns, or buying more equipment or having more employees. It might mean doing less more efficiently, or, better yet, doing more, more efficiently. The key, no matter where your business takes you, is to make sure inventories (your equipment) and employees (your largest operating expense) are kept in line. To say your long-term goal is to get bigger is really not saying much at all. But to say your long-term goal is to be more profitable says a lot more.
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