How to tell if your numbers add up

September 18, 2019 -  By
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I’ve talked a lot in this column about the importance of culture, leadership and exceptional customer service. But the truth is you can get all those right and still lose if you don’t get your financials right, too. I’ve seen many hardworking folks in our industry not realize the gains they should because they don’t understand or monitor the financial side of their business.

At The Grow Group, the consultancy and coaching firm I lead, we work with the business owners in our ACE Peer Group program to track and manage 13 numbers that we know landscaping companies need to monitor closely if they want to succeed. By establishing benchmarks for those numbers and comparing results, we help our ACEs see exactly where they stand — within their group and the industry as a whole — and where and how they need to get better.

Unfortunately, I can’t cover all 13 of those metrics here, but I can address the top three you need to watch every month:

Gross margin. To calculate this percentage, take your total revenue, subtract the cost of goods sold and divide the result by your total revenue. The industry goal is 50 percent, depending on the type of work you do.

Gross margin essentially measures how your production costs relate to the revenue they generate. If your gross margin starts to fall, you may need to look for ways to cut your labor costs through improved efficiency or to dial back on the costs of materials you’re using. Alternatively, you could increase your prices, but do that carefully or you risk losing customers; convey the value you deliver to your clients and the investment it requires on your end to do that.

Profit margin. To calculate this percentage, take your profit (your total revenue minus costs and expenses) and divide it by your total revenue. Ten percent is considered the new breakeven in our industry, so use that as your goal.

Profitability is the ultimate financial metric. Without it, you can’t reinvest in new equipment, get the best people to join your team or give back to your community. If you’re not netting 10 percent, look for ways to increase your sales volume, reduce your costs of goods sold, rein in expenses and/or raise prices.

Days receivable. To calculate yours, divide your accounts receivable balance by your annual revenue and multiply the result by 365 (the number of days in the year).

This metric tells you the average number of days that a customer invoice is outstanding before it is collected. In the green industry, anything below 30 days is great — the more you trim this number, the faster you have cash on hand.

What gets measured gets improved

Since our industry is seasonal, when you compare your metrics, it’s important to measure them against the same month. This will provide you with a much more accurate and useful picture of where you stand and where you need to go.

It’s important too to ensure you’re capturing your financial data correctly — it does no good to run these calculations if you’re not working with accurate numbers from the get-go. Find a trusted CPA to help you get set up. Ask successful business owners in your area whom they use.

Last, if you’re an owner, don’t be afraid to share your financial metrics with your leadership team. You can’t expect them to help you win at business if they don’t understand how your company actually makes money or how well the company is doing. You may be surprised to learn of all the ideas they have for trimming costs and boosting profits.

This article is tagged with , and posted in Business, September 2019
Marty Grunder

About the Author:

Marty Grunder is president and CEO of Grunder Landscaping Co. and The Grow Group, based in Dayton, Ohio.

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