It’s not enough to track data. In fact, it’s easy to be overwhelmed by the amount of data you have at your fingertips.
In a session at the GROW! 2019 conference in Denver, Vince Torchia and Jim Cali shared which financial reports landscape companies have a handle on in order to grow their companies.
“What’s the point of looking at your finances if they’re wrong?” Torchia, vice president of The Grow Group, said.
There are plenty of software tools for landscapers, but companies can do a lot with a simple Excel sheet. What matters is the data, Cali, an executive coach for The Grow Group, said.
“If you’re a high-level CFO or an owner and you think anyone cares as much as you about finance, you’re dead wrong,” Torchia said.
Owners need to know where they can find this information and how to pull it themselves, Torchia said. “If you’re thinking about cash flow at two in the morning because you’re worried about payroll, you don’t want to have to wait until 8:30 for that person to come in and see your email,” he said.
Cali and Torchia broke down which data owners should be looking at and how frequently.
Daily financial reports
Daily reports should include the business’s cash position, shooting for an average of twice the amount needed to make payroll. That includes employees and any subcontractors. Torchia pointed out that “cash” and “cash available” are often different numbers, and cash available is the number that matters.
Directly related to cash is accounts receivable, which the speakers said should never be higher than 15% of sales.
“It’s your money. It’s your team’s money, and this is how you’re going to make payroll,” Cali said.
He recommended examining accounts receivable at least twice a week. “We lose our focus on receivables so fast,” he said.
Putting one person in charge of accounts receivable can help companies keep focus, and can help preserve good relationships with customers who aren’t being hounded by their sales contact for bill payment.
Cali recommended billing customers on the 25th of the month for payments that are due on the first “so that you’re five days ahead of the game and getting that cash flow on the first.”
Getting recurring customers on credit card payments can also help with cash flow. “Why not make it like a gym membership,” he said. “Dependable cash flow is priceless.”
Weekly financial reports
Current accounts payable and payroll are important metrics for weekly reports, but Torchia urged owners to include payroll taxes in that report.
Payroll taxes can add 25% to payroll, Torchia said.
A comparison of sales to date to what’s budgeted is another useful weekly metric to understand the health of the business.
Finally, make time to measure the hourly efficiency of the jobs that have been completed in the last week, Torchia said.
Profit and loss statements are your monthly dashboard, Torchia said. While owners and CFOs are most likely to care about finances, this is the information that should be shared with the rest of the company. Action items for department heads and their teams are built around data from the PNL statement.
Torchia recommended studying 12-month trailing data to smooth out seasonal impacts.
“You capture all 12 months of the highs and the lows. It doesn’t matter if Mrs. Jones’ job was done in April and billed in May,” he explained.
Budgeting is a forecasting exercise, Cali said, but trailing 12-month reports allow small companies to use that time to sell instead.
Once a year, landscape companies should compare their annual and projected revenue.
That information “speaks volumes to your team,” Cali said. “It shows where you’re going, where the ebbs and flows have been.”
Sharing data with team members
Cali encourages owners to focus on net profit instead of gross profit because it’s less confusing to team members. “If you start talking about things in terms of gross profit, they’re going to think you’re the richest person in this earth.”
Some owners might be concerned that net profit gives their team members an impression that the business is underperforming.
Owners can’t grow their businesses alone, Cali said. “Individuals I’m sharing the PNL with are the only ones who can help me fix it and if they’re not on board with the truths, where trust is being built” about the financial health of the company, it will be harder to make necessary changes.
What if employees hear the net profit and suddenly feel like they’re being underpaid? Cali recommended structuring bonus systems around the bottom line. “I’m a true believer in profit sharing,” he said. “If the company’s winning, the team’s winning.”
He added, “if they’re getting bitter, you probably don’t have the right culture in place.”