Improve your cash flow: Recognize the power of recurring revenue

March 24, 2015 -  By

This post is part three of LM’s “5 ways to improve your cash flow” series. Read on to part four, “Get paid consistently,” here.

Most landscape professionals agree that a recurring revenue stream makes good business sense. But not everyone understands all the ways it can help to better manage cash flow.

Most importantly, recurring services provide predictability. Smart owners know with certainty what each month’s revenue will be. And there’s peace of mind in knowing this is revenue under agreement with clearly defined departure terms. That means that if a customer should choose to terminate the relationship, he/she is bound by the agreement terms to provide what’s typically a 90-day notice, effectively giving a business owner three months to respond and/or prepare for that departure and a potential change in cash flow.

Predictability also pertains to the nature of the services. Agreements are structured around services that typically are repeated multiple times throughout the year, affording a high degree of certainty about the cost of delivery and greatly reducing risk. Crews are efficient simply because they’re familiar with the clients and their properties, leaving few variables that could hurt profitability.

From a cash-flow perspective, having recurring services eliminates the guesswork about anticipated costs and revenue because the business owner has a long-range view of both. A residual benefit is the ability of the business owner to better negotiate terms with vendors and suppliers. His long-range cash-flow view allows him to negotiate terms that will help control disbursement during those periods (often late spring and early summer) when cash flow is expected to be tight. As well, the company can align the orders for resources and supplies with need, and there’s more opportunity to take advantage of quantity and advance order discounts and payment terms.

The other reality is with a balanced portfolio of recurring and project work, such as a 50/50 split, no more than half of your revenue is at risk. Services under agreement provide business security that one-time project work simply can’t. By replacing risk with predictability via recurring services, landscape business owners will find themselves much better positioned to control cash flow instead of letting cash flow control them.

Smith is president and CEO of LandOpt, a licensor of business systems and processes to more than 30 landscape companies across the U.S.

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