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How to run your business like a landscape industry investor

October 26, 2020 -  By

Cash is flowing.

Despite the pandemic, private equity firms continue to invest in landscape companies. Continued investment is good news for the industry because it creates options for owners and attracts more talent to the industry.

The question for owners: Are you ready to compete?

Professional investors like private equity firms buy companies because they think that they can increase the value of the company by increasing the profits of the company.

What do investors know that the long-time landscape business owners do not know?

Professional investors know that investing in “big business” processes, systems, training, accountability, and talent will improve the profitability of a landscape company. One prominent investor believes that they will improve the operating income by 80 percent in 18-24 months.

Some landscape business owners do not think that is possible. Sorry to be blunt: They are wrong.

Big Business: Benchmarking

In the 2019 Herring Group Landscape Industry Peer Benchmark report, 15 percent of the participants had net profit margins greater than 10 percent. The net profit margin of this group averaged 13.1 percent. (Net profit margin is a percentage — revenue less all expenses divided by revenue.)

The net profit margin of the companies in the remaining 85 percent averaged 4.4 percent. That is a big difference.

Which group are you in?

The Herring Group is preparing the 2020 Landscape Industry Peer Benchmark Report. Discover how you can participate and see how your company’s results compare.

One of the most powerful features is that the report shows the net profit margin of each participant —anonymously of course.

If you are in the South, you do not really want to compare your company to a company in the North with snow revenue. If you have construction, you do not want to compare your company to one with just maintenance. Our report shows each company’s revenue mix — maintenance, enhancements, snow, and construction. Each company can customize the benchmark report to see a comparison with truly comparable companies.

Do big businesses benchmark? Absolutely. In the landscape industry, their regions and branches compete. Each region and branch knows whether they are winning or losing.

Big Business: Software

What “big business” software can landscape companies use to increase their value?

Start with an enterprise resource and planning system like Aspire Software. That software allows you to plan, schedule, and track the profitability of every visit to every customer. Let me be clear that no one would want to know that specific information, but the granularity of that data makes it easy to produce many valuable reports and analyses. These reports are essential to optimizing profit margin and life margin.

Another example of powerful software is IPS for payroll services and human capital management. IPS not only synchronizes payroll data with Aspire, but also consolidates other functions like applicant tracking, electronic new hire tracking and benefits enrollment. What does that mean? Fewer systems to maintain and less work for your people — which means you can grow without hiring more people.  Why would you want to hire more people when you can buy powerful software?

Do you think your office employees really enjoy keying data in twice or doing the export/import routine? How much wasted time and rework happens when they move from system to system or track things manually?

Big Business: Accountability and Training

Accountability is just a fancy word for people being responsible for specific results — not “just getting it done.”

People who want responsibility AND want to produce work efficiently are rare. Professional investors know this fact and know that most landscape business owners will not offer great pay for great results. It is one of the reasons The Herring Group is a big proponent of incentive plans assuming the company and the plans meet five important criteria.

Investors also know that many landscape business owners do not invest in employee training. Why training? Big companies know it is essential for quality, efficiency, and safety. Greenius excels at providing cost-effective and valuable training.

How do you train your employees? Have you developed a comprehensive program? Have you translated it into Spanish? Do you test the employees’ knowledge? Did you design a system to track attendance and test results? Is your training program available on mobile devices? Is it available 24/7? There is a lot to do to create a “big business” training program. I suppose if you were looking for something else to manage, you could develop it yourself. Perhaps a more efficient alternative is to use Greenius which provides all of these capabilities in a comprehensive cloud-based software platform.

Big Business: Financial Talent

Big businesses also invest in financial talent. Did you know that the BrightView CFO made $1.5 million in 2019? That is just one financial person out of many in the company. Why would a company pay so much for financial talent? Because financial talent helps owners create more value in their companies.

The Herring Group helps landscape business owners optimize their profit margin and life margin. We want to see business owners and their employees rewarded for the great contributions they make to beautifying and serving their communities.

Said differently, we work with business owners to install the “big company” processes, systems, training, and accountability that the private equity investors will install.

Operating a “big business”

For some reason, most landscape business owners have been reluctant to invest in these items. Twenty years ago, it would have been virtually impossible for small businesses to have access to these big business capabilities. With the power of the internet and low-cost, but powerful computers and mobile devices, even the smallest landscape companies have easy access.

I hope this information resonates with you and encourages you to think about and operate your business as a “big business.” I want you to enjoy the financial rewards of doing so. Simply put, I want professional investors to pay full price. In a recent webinar that Kevin Kehoe and I did, we estimated that the average $5 million landscape company that sells to a professional investor is leaving $2.8 million on the table. If that number does not grab your attention, then let me speak to your spouse!

One more thing, the same big company processes and systems that you can implement to increase the value of your company will also increase your life margin. Life margin is the time and energy that you do not have to invest in the company … unless you want to.

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