“Am I really making money?”

May 12, 2016 -  By

 

work-flow-chart

Click to enlarge. Photo: GIE+EXPO 2015

Can you really trust your numbers? That depends on how you manage your workflow and transactions. I spoke about this challenge at the GIE+EXPO 2015 and the response was, “Wow, my numbers are only as good as my management system? That’s scary!” In simple terms, the numbers accounting turns out are only as good as the numbers provided by sales and operations. And we know how good that can be in an industry that values getting the work done versus diligence in paperwork.

Transaction management

Starting with the end, your P&L reporting by profit center is driven by transactions—all of which are linked in a common flow. You want reports where revenues (both earned and invoiced—more on this in a future article) are properly matched with the cost of goods sold (COGS) to produce reliable gross profit performance. This job cost flow (see bold arrows in chart) is different from the accounting flow because transaction timing is different for the two, meaning open jobs don’t conveniently end at month end and billing cycles don’t match the work. That’s not to mention vendor bills that arrive long after the work is done or changes to payroll that
happen weeks later.

As a result, your financials can provide a distorted picture of your gross profit at the same time they’re providing little in the way of useful information for sales and operations. This explains why, despite all the time invested in accounting, many sales and operations people keep their own numbers.

Only job cost reporting can provide the useful information we need. The best way to get there is to manage work by the ticket. A job may have one or several tickets. The ticket originates with the estimate (price, hours and materials), which targets a desired gross profit. It’s the ticket that tracks COGS (labor and materials) applied to the job through the daily time sheet kept by the crew and by the purchases made by operations to the job or by allocations from yard inventories. Get any of these transactions wrong and, yep, you get inaccurate job costing. And since job costing for any period must end up on the financials, you get numbers that don’t reflect reality.

Yeah, I want to throw up, too. It takes so much work to get it right. And people say landscaping is an easy business, which is obviously not true from an accounting point of view. But managing transactions is essential to good numbers. Yes, it takes staffing to do it and that’s overhead. But if you don’t do it, the cost of “bad numbers” are bad decisions and reduced gross profit.

Work flow management

What can you do to get you numbers right? I suggest conducting aninternal audit of your paperwork flow, comparing it to the chart below. Identify the weakest links and fix those with a new process (procedures and responsibilities—more about this in a future article). Do this before you think about any software purchase. Take my word, it’s better to fix what you do before embarking on an integrated software system, even one that can manage your transactions more fluidly without all those spreadsheets.

About the Author:

Kevin Kehoe, a longtime landscape industry consultant, is managing partner at Aspire Software.

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