Planning For Profit Through Budgeting For Your Landscape Business
Use free budgeting software to find ways to reduce costs and increase profitability. Create your free account below.
Use free budgeting software to find ways to reduce costs and increase profitability. Create your free account below.
Having a strong budget for your landscaping or lawn care business is the only way to scale for profitability and growth. In a way, a landscape or lawn care business without a budget is like a ship without a compass. Budgets guide business growth through forecasts and historical data, and maintaining a strong budget can help scale up your landscape or lawn care business with insight for hiring, material purchases, equipment purchases or leases, and can help with establishing sales goals to further drive a profit.
Many landscape or lawn care businesses fail because of weak or non-existent budgets that later lead to negative cash flows. Sometimes landscape businesses fail because of estimates that don’t account for particular costs, break even points, or even profitability. We’ll break down all the tips and tricks and do’s and don’ts of how to budget for your lawn care or landscaping business.
In this landscaping budgeting article, we’ll cover:
Budgeting is a lot more than setting random numbers for your business to try to follow. In reality, most landscape businesses don’t budget because they don’t know how to create one that works for them. Businesses can break down making budgets in steps, helping contextualize the results and metrics the business is affected by. In the case of a landscape or lawn care business, the budgeting process can be broken down into 5 different steps:
Budgeting is time consuming, but it’s definitely time well spent. Even when you’re not in front of a spreadsheet, the time you took to know your numbers helps speed up the future budgeting process faster because you know your goals, how much everything costs your business, how much your landscape or lawn care business is making, and if you’re on track. In a way, it serves as a landscaping business plan. You want to be able to forecast your growth to scale up your landscape business, or pump the brakes if you’re spending more than you can make. There are fewer things worse than hearing the ship is sinking before it’s too late to right the ship.
Depending on the scale of the landscaping or lawn care business, budgets are often split into separate sections or pillars.
The Company Budget
A forecast Profit and Loss statement covering your whole company. Your operating budget is a summary of forecast revenue, minus forecast expenses (labor, equipment, materials, subs, and overhead) to create a landscape business plan (forecast) for a profitable year.
The Division Budget
A forecast Profit and Loss statement covering one specific division of your company. Again, it’s a summary of revenue, minus expenses, but in the division budget your goal is to only include the revenue and the expenses for one specific division. With budgets for each division in your company, you are able to clearly see which services are profitable and which services need improvement.
The Crew Budget
A forecast Profit and Loss statement built for one crew. It forecasts revenue and expenses for one specific crew. Revenue is projected by the amount of projects (design-build) or contracts (maintenance) completed by the crew in a year. Payroll expenses are forecast by number of staff (and hours/wages) in the crew, and other expenses (materials, subs and overhead) are forecast using the same percentages as your company budget (e.g. – if your company spends 27% of sales on overhead expenses, then 27% of the crew’s revenue is allocated to cover overhead expenses).
Landscape business owners can only control so much in their budget as far as business growth. Being able to slightly forecast or anticipate great success or catastrophic failure allows for adjustments to be made in the budget. Businesses should still budget for growth, but sometimes budgets need to be adjusted for damage control. Here are some factors that would contribute to a landscaping or lawn care Optimistic or Pessimistic budget:
Understanding how profit margins impact the growth of your landscape business is key to any budget and the variations made. Righting the course with a Pessimistic budget can stop unnecessary spending in a tough time. On the flip side, an Optimistic budget can help inform your business whether or not you should add a new crew or make that major equipment purchase that can help your landscape business scale up and further drive efficiency.
Setting strong sales goals can inform your business which steps it needs to take as far as scaling up operations through added services, expanding your local service area, and who are your targeted customers. By determining the sales goals your landscaping business should make in an upcoming season, steps can be taken to reach those milestones as efficiently as possible. These decisions will impact labor, tools and equipment purchases, marketing spend, local service area expansion, new upselling or cross selling opportunities, and adjusting markups on materials.
Most often landscape business owners are contractors that started a business and not business people becoming contractors that start a landscaping business. The distinction is that there are business costs that most contractors wouldn’t even think of incorporating into estimates. For example, uniforms for your crew are a part of overhead costs, and surprisingly, you can charge for that. It’s all part of how to run a professional landscape business. Cell phones and the bills associated with that are another overhead cost that can be lumped into overhead or operational costs that you should include in estimates.
There’s an extensive list of indirect costs, otherwise known as overhead costs, that add up to roughly 30% of your overall budget if you’re around the landscaping industry average. 30% in overhead costs is a massive number in your budget that you need to cover before you can become a profitable landscaping business.
Types of Indirect or Overhead Costs:
Landscaping equipment recovery costs are important line items in estimates and budgets, but landscapers don’t typically think or know what it means for their bottom line. In short, your landscaping equipment costs you money to purchase or lease, and normally a landscape business would be on the hook for repairs and maintenance. If you budget and estimate correctly, your customers should be covering the cost. Consider it as a rental or kit fee for the use of your expensive equipment.
The idea for equipment recovery costs is to ensure your landscape business builds a budget to pull from when the inevitable landscape equipment replacement or repair happens. Most landscaping businesses aren’t ready for those unexpected costs, and are left in a tough position that will either eat into earned profit or look to alternative financing options to help keep operations moving.
Crew wages typically account for 25% of a landscaping business budget based on the industry average. Break even costs are generally easy to figure out, but landscaping businesses often don’t estimate or budget work for 15% profit. Your landscaping business isn’t a charity, so why should it operate for a loss?
Landscape business owners can have it worse than any other employee in the landscaping startup phase as they’re often not taking a wage. No matter what, you need to budget for a regular owner’s wage so you’re not just taking the scraps at the end of a job or month. Some owners don’t have enough money to live after paying everyone out, so the way around that is to make sure owners should set a salary or wage in the budget no matter if it’s in the actual payroll or if you’re paying yourself out in cash.
Subcontractors need to be separated from other labor costs. While subcontractors represent your company and complete work on your behalf, they are not on your payroll and should be sectioned out in the budget. Use these figures to forecast future job costing and how they impact budgets and estimates moving forward. It’s also possible that proper training can reduce the need for subcontractors, minimizing those costs and keeping more profit within your business.
You have your landscaping business budget and you know how much profit you want to make for the year, but how does any landscaper know what to charge for each job? It’s not like numbers spontaneously appear out of thin air. There needs to be some considerations when creating landscaping estimates and budgets, and job costing is generally where contractors build from to understand their numbers.
Job costing in the landscaping industry is divided into five different sections:
Keeping accurate documentation of past jobs can help inform what to charge for similar work, and steps needed to be taken to help create efficiencies for profitability. Use this train of thought to build out strong and predictable budgets for running your landscape business. While it may take some trial and error to get estimates and job costing in sync for future landscaping or lawn care jobs, it will pay dividends towards building trust with current and new customers, and maintaining accurate budgets. It’s satisfying knowing that your customer can rely on accurate estimates for a 2,500 square foot lawn needing to be maintained, and knowing what it will cost every single time.
Sticking to a budget is a universal experience whether or not you’re living your personal life or owning a landscaping business. The idea of a budget is to be able to predict spending habits and live within a means that your cash flow allows. In the case of a landscape business, you’re not going to make a massive equipment purchase or buy a new yard without reviewing the budget to see if it’s an affordable purchase. Landscaping is profitable if you know how to budget.
Budgets should be realistic, somewhat flexible, and reviewed frequently. To maintain flexibility, put aside some money in the budget for unexpected costs. Maybe there’s used equipment that you can purchase at a discount or there’s upfront costs you’ll need to source for a job that won’t pay until months later. Material costs like salt for the snow season also have upfront costs to begin operations. Financial flexibility is always needed, and landscaping business owners need to make sure budgets can always be shifted elsewhere if not used or financing options, like a line of credit, are accessible to make these upfront or unexpected purchases.
There are key metrics that can help dictate cost or potential profit growth in a landscaping business budget. By setting business goals, you are determining a future you would like to see for your landscape business, and you are going to make actionable decisions to get you to that goal. Learn to love your numbers and start educating yourself on how to read and measure those key metrics that positively impact your budget.
As a quick sample, there are ways to make your crews work with higher efficiency. Monitor your field labor ratio and revenue per labor hour to help guide actionable ways that you as a business owner can impact. Look to adding equipment or getting your crews the training it needs to work smarter, safer, and with better quality. There are always ways to scale and grow your landscape or lawn care business so that you’re putting money in you and your crews’ pockets.
Easy is a relative term and budgeting is a tall task for any landscape business owner. Learning how to scale a landscaping or lawn care business for growth is tough if you don’t know where to start. If you’re new to creating a strong budget, it’s easy to get lost or overlook items that help give a full picture between labor, overhead, materials, and the other costs to run your business. To solve that, LMN has budgeting tools that landscape and lawn care contractors can use to help. LMN Pro users have the digital budgeting tools to make it significantly easier to form actionable business plans and guide landscape business owners towards decisions to boost profitability and growth. LMN Pro users also have the benefit of utilizing our industry experts to give you an analysis of your budget through feedback from one-on-one sessions.
Sign up here for the free version of LMN Pro to gain access to our robust digital landscape budgeting tools.