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Profit Power: 5 levels of financial management

November 18, 2020 -  By
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There are five levels of financial management in the lawn and landscape industry. They range from terrible, poor, good, better to best.

Where does your company operate financially?

The following framework identifies where your company stands from a financial management perspective, and thus where you can improve.

Level 1: Terrible Unlucky results

Companies that do only a year-end review of their numbers are greatly underperforming. This is a terrible way to manage your business because you are in effect not managing by your numbers at all. Most companies who operate this way are simply so deep in the weeds of their day-to-day operations that they don’t take time to budget, monitor and course correct, which costs them double-digit points of profit.

Level 2: Poor Hit and miss results

Companies that do a quarterly review of their P&L and balance sheet are doing better than Level 1, but it still qualifies as poor because they leave so much to chance. For example, your company can go off track in July, and you will not find out till October. Companies like this often rely upon outside accounting services to pull this together. If this is you, then upgrade your investment to get monthly reporting, or better yet, take this critical role in-house.

Level 3: Good Semiclear results

Companies that do a formal monthly review of their P&L are doing better than so many unprofessional competitors out there. This is a good level, but to truly benefit from this, you must make sure you are comparing monthly actuals to a monthly budget. This allows you to do the double comparison of actual versus budget, and actual versus last year. Once you create budgets, you can implement a rolling budget and use this to both steer your performance and teach your finances to your team.

Level 4: Better Proactive results

Companies that do a monthly review of their divisional numbers and a weekly review of operational metrics, are doing better than most (or all) landscape firms professional or not. Managing with divisional numbers (monthly versus actual) allows you to empower your managers to run and own their divisions. Using weekly reports (with daily check-ins) allows your production teams to take ownership and steer their own results. This better level of financial management allows a business to really scale and frees up the owner to be more proactive and entrepreneurial in leadership.

Level 5: Best Highest profit results

Companies that tie their budgets, commissions and incentives to a higher-profit goal are achieving the highest level of profit by not leaving extra money on the table. This is the best way to manage because it gives you the consistency and empowerment of Level 4, with the winning strategy of having company goals dialed in to achieve breakthrough results (20 percent net profit and above for residential work and 15 percent net profit and above for commercial). Surprisingly, many companies hit level 4 and think they have hit the top, but they still leave a lot of money on the table.

Assess your next steps:

  • Which of these levels do you operate at?
  • How well does your team understand and support your financial goals?
  • What do you need to do to get to the next level?

Because so many issues you face are ultimately tied back to proper financial management, I recently created a Financial Masterclass for the landscape industry. Learn how to master your numbers and implement the tricks and strategies needed to operate at Level 5 — where the most profitable landscape firms operate.

Your Challenge:

The challenge of improving your financial management is four-fold:

  1. Make this a priority.
  2. Get the systems in place to operate at Level 4.
  3. Implement the strategies to then raise you to Level 5.
  4. Get the buy-in of your team to achieve this high level of performance.

You can’t do this alone; engage your team to support these efforts.

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Jeffrey Scott

About the Author:

Jeffrey Scott, MBA, author, specializes in growth and profit maximization in the Green Industry. His expertise is rooted in his personal success, growing his own company into a $10 million enterprise. Now, he facilitates the Leader’s Edge peer group for landscape business owners—members achieve a 27 percent profit increase in their first year. To learn more visit www.GetTheLeadersEdge.com.

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