Landscape Management, October 2012

BEFORE AFTER 35 OCTOBER 2012 LANDSCAPEMANAGEMENT NET The third assumption called on stable gas prices and minimal equipment purchases based on tighter route management to reduce drive time and better emphasize minimizing equipment abuse As a result our overhead spending for this expense increased 13 percent 225000 from 200000 This change was reasonable and in line with the 15 percent revenue increase We believed we could improve these expenses but erred on the side of caution The fourth assumption called for no additional overhead spending for staff The 15 percent sales growth was based on an increase of the return on overhead dollars by only 6 percent This number was well within reasonable high proft benchmark performance and no more unnecessary overhead spending We kept salaries fat and installed a bonus system based on gross proft dollar performance at years end when the staff could earn much more than a standard 3 percent raise At the same time we barely raised the new sales goal for the salesman from 250000 in 2011 to 252750 for 2012 The salesman felt it could be accomplished with the more focused approach and pricing model outlined in the table The tables below tell the story of Company Xs planning process from where we started in 2011 to where we wanted to end in 2012 Given tight access to capital we had to show a near 10 percent proft to drive cash fow This was the ultimate goal of the planning Everyone understood how critical it was to achieve this The key to making the plan was based on sweating the numbers involving managers and getting buy in to the strategy and ownership of the result The same type of planning can be used this year when you lay out your goals for growth and proft for 2013 Keep in mind theres no such thing as the perfect plan General Patton famously said No plan survives contact with the enemy He also said An average plan aggressively executed is far better than a perfect plan never completed Therefore focus your plan and see if you dont have a prosperous 2013 LM Kehoe a Landscape Management columnist is a consultant with 3PG Consulting Contact him at kevin@ 3PGConsulting com TABLE 1 COMPANY X ACTUAL RESULTS PROFIT AND LOSS 2011 Revenue 1000000 Labor 400000 40 Material 150000 15 Gross proft 450000 45 Overhead 400000 40 Net proft 50000 5 OVERHEAD Supervisory 50000 5 Fleet equipment 200000 20 Rent offce 40000 4 Marketing 20000 2 Insurance 75000 75 Computer 15000 15 TOTAL 400000 40 Paid production labor hours 30000 RATIOS 2012 Sales growth 11 Contract revenue retention 85 New sales made 250000 Average wage rate hour 1333 Adjusted revenue earned hour 2833 Return on labor dollar paid 213 Return on overhead dollars expensed 250 Revenue includes contract and extras invoicing Labor dollars and paid production hours include all payroll expenses taxes too for foremen and crews Material includes subcontractor costs Contract retention percentage is based on dollars The average wage rate equals labor divided by paid production hours The adjusted revenue earned per hour equals revenue minus materials divided by paid production hours Return on labor dollar paid equals adjusted revenue earned per hour divided by average wage rate per hour Return on overhead dollars equals revenue divided by total overhead The last two ratios are the most consistent ones used to plan and compare companies because they remove regional and local differences in unit labor costs and market unit pricing TABLE 2 COMPANY X BUDGET PLAN PROFIT AND LOSS 2012 Revenue 1152750 Labor 435483 378 Material 172913 15 Gross proft 544354 472 Overhead 435000 377 Net proft 109354 95 OVERHEAD Supervisory 55000 48 Fleet equipment 225000 195 Rent offce 40000 35 Marketing 20000 17 Insurance 80000 69 Computer 15000 13 TOTAL 435000 377 Paid production labor hours 31106 PLANNING RATIOS 2013 Sales growth 15 Contract revenue retention 90 New sales made 252750 Average wage rate hour 1400 Adjusted revenue earned hour 3150 Return on labor dollar paid 225 Return on overhead dollars expensed 265