Starting and running a successful business is always a challenge, but especially in the current economy, costly mistakes are even more devastating. Mark Bradley of TBG Landscape knows first-hand the pitfalls of starting and running a landscape contractor business.
About 13 years ago, my wife and I decided that I would quit my comfortable project management job and take control of our own destiny. I'd been landscaping since I was 14, I had a passion for the trade, and she was a talented landscape designer - starting a landscape company was a natural fit. With no money, no real experience, and nothing to fall back on, we dug in our heels and started The Beach Gardener.
Fast forward to present-day and things have sure changed. Sales have grown to more than $17 million, we do everything from garden-bed maintenance to large municipal and commercial projects; we employ more than 100 people, and we've been profitable.
According to Bradley, most small businesses do not fit the lending requirements of the bank, unless the company has a great track record and the owner has a really high personal net worth. The banks are simply not helpful. Some times a business can find itself doing well while simultaneously suffering a cash flow issue. In this circumstance Bradley advises, ''If you find yourself in a bind with vendor accounts, communicate the situation clearly, and never break a promise once you have made arrangements to pay your debt. The best solution to this problem is to ensure you don't out-grow your working capital - you need at least 10 to 15 percent of annual sales in cash to manage your day-to-day operating requirements, or you will struggle and make bad decisions as a result of cash flow shortage.''
Despite what we've achieved, I often look back at all the opportunity we missed over the years by learning lessons the hard way. And to that end, for any landscape contractor who is starting new, or wants to grow their business, I'd like to share the seven biggest mistakes I made when growing TBG Landscape.
1. Starting The Business Without Enough Investment Capital
With a pickup, a wheelbarrow and absolutely no money, I started our business from our tiny apartment. However, starting the company on a shoestring budget was a mistake - we actually came close to losing our newly purchased home. We were not prepared for how hard the first five years of business would be. We had huge obstacles to overcome, namely purchasing equipment and maintaining adequate cash flow to support our projects without enough working capital. Had we spent more time on business planning before starting, we would have understood the actual capital needed in advance.
I believe that landscape companies need 15-20 percent of annual revenue in liquid cash made up of its own cash and/or a line of credit. We found that the bank was not helpful until we were in business for five years and showed three consecutive years of positive financial statements. It's no accident that ''technicians'' start landscape companies - anybody with a business background would run for the hills if faced with the variables in this business!
Lesson learned - start with a budget, and stick to it!
Some times the landscape contractor takes on projects where they need to subcontract to specialty trades. A common one is the pool contractor. Bradley advises, ''Never hire subcontractors based on price; always work with reputable companies when collaborating even if there isn't much room for markup.''
2. Growing The Company Before The Systems Were In Place
You cannot become a great landscape contractor without great systems to follow. With great systems, your company has the means to add additional full-time crews, grow, and still produce optimum results.
The transition from being hands-on owners to becoming business owners that hire people to design and create projects at the same quality (while still allowing us to earn the same profit margin that we had made as owner) proved to be more stressful than it needed to be.
Creating systems by trial and error, while still managing day-to-day operations and problems, was almost impossible. We should have built the systems first, then grown into them. We found out the hard way that the secret to success in business is being prepared to do the work before you get the work!
Lesson learned - become a planning organization.
3. Growing Too Fast
We started in a neighborhood where the real estate values were skyrocketing. We simply didn't have the working capital to expand at 30-50 percent each year. Our growth curve continued at such a high pace for the first nine years in business that we continually struggled with cash flow, despite earning double-digit net profit margins every year! We could have gone out of business many times had our suppliers not been so supportive during times of cash-flow shortage.
Being forthright, and explaining our financial situation to suppliers made a difference. If you find yourself in a bind with vendor accounts, communicate the situation clearly, and never break a promise to pay your debt. The best solution is to ensure you don't out-grow your working capital - you need at least 10 to 15 percent of annual sales in cash.
Lesson learned - never outgrow your working capital.
4. Not Identifying Superstars Soon Enough
We have had a few outstanding people leave our company over the years simply because they couldn't see how this industry or the company would be able to support their future financially. We could have kept these people, and capitalized on their capabilities together, if we had the right system in place. I developed a way of keeping these Superstars - again, unfortunately, by trial and error! By leveraging these people and providing a more entrepreneurial environment and pay structure, we have expanded the company beyond my expectations while reducing my personal workload.
Lesson learned - create an entrepreneurial environment or forever be surrounded by employees that work for a paycheck.
Mark Bradley is the president of TBG Landscape (www.tbglandscape.com) in Toronto, Ontario and the president of the Landscape Management Network (www.landscapemanagementnetwork.com) - a collection of software, systems and processes to help great landscape contractors become great landscape business professionals.
5. Trying To Operate Without The Right Equipment
In the first few years of business, I was deathly afraid of monthly payments. When we really started to watch our spending on labor and equipment as a ratio to gross sales it was a scary state - we were spending 36 percent on labor and 6 percent on equipment. Most of our equipment was old, we didn't have a mechanic on staff to maintain the equipment, so we had a lot of downtime, and often we were working harder, longer hours than we should have with more people than we needed. I started turning out the older gear and leasing newer versions of the right equipment to ensure labor savings. We found we could do more work in less time with fewer people. We were on to the next project sooner, our sales revenue increased, labor spending dropped to 22 percent of gross sales within 18 months, and equipment increased to 10 percent of gross sales.
The result was an increase of 10 percent in net profits, and better yet, our revenue had increased by 82 percent with the same number of people! That meant we could pay better wages to staff, pay ourselves more, run a more professional company and attract larger more complex projects with this modern fleet of equipment!
Lesson learned - being cheap is really expensive!
6. Doing Complicated Work Without The Right Skilled Trades
As landscapers we have a short window to make hay. Customers are often buying with ''instant gratification'' in mind. We all have crews that are best suited for specific types of work - be realistic about this. I remember one year we had two supervisors, one was incredible, the other not so good. We had two complicated projects to work on at one time. I made the mistake of spending my day with the superstar supervisor setting up a new job. Meanwhile at the other site, the mediocre supervisor was pouring a concrete pad for a flagstone patio three inches too high - that was expensive! I have had more of these situations happen than I care to remember. Lesson learned - do not overbook your company's skills, and never take work that is outside of your skill set. Instead, consider a great subcontractor to manage the work outside of your expertise.
Lesson learned - Understand how many hours of work you are selling - and don't sell more than you have available, level the workload if you want to work efficiently.
7. Hiring The Wrong Subcontractors
Before we started building our own gunite pools and spas, we hired subcontractors. I had a great opportunity to build a landscape project, but it included a concrete spa. I decided to hire a ''start-up'' pool company who quoted a price $5,000 less than the others. And, he could start right away - he was basically a man and a pick-up, and I should have known better. He built a concrete shell, but in the process he must have either forgotten to install some plumbing lines, or he may have broken them while pouring the concrete. I had paid him $15,000 of $22,000 and he disappeared. I had to jackhammer the spa out and start again. That's how I started building pools and spas.
Lesson learned - never hire subcontractors based on price; always work with reputable companies when collaborating even if there isn't much room for markup.
Summing It Up
It may seem tough in these times to build and grow a profitable business. Just remember - in every type of economy, some businesses are growing while others are collapsing. Change is opportunity disguised as a threat.
Find your opportunities, avoid the big mistakes, and seize every ounce of potential your business has to offer. You'll be glad you did.