June, 2024

How Do Your Financials Stack Up? Thoughts on Q2

By Steve Steele

“Good financial management consists of actively controlling what is in front of you, not passively observing what is already behind you.”

When landscapes spring into action with bursts of color and growth, the wheels of the landscape business shift into high gear.

What makes the business of landscaping thrive is often what you don’t see: the soil and the microbes below ground that nourish plant growth is not unlike the behind-the-scenes infrastructure that keeps organizations rooted in best practices.

As we march into summer, longer days give us more daylight hours to audit efficiency and production, recalibrate systems, and be proactive about the rest of the year. Here are a few diagnostics that should be on your Q2 radar:

1. Pulse Check

Jeff Bezos said that “Profitability is not an afterthought, it’s the foundation of business.” I’d add that in a business, like ours, where workload and revenue streams are driven by seasons, maintaining a healthy bottom line is paramount. Active financial management involves monitoring key financial indicators such as gross margins, gross profit per hour and net contribution margin. These metrics are the pulse of our business, providing insights and opportunities to improve operational and financial health, and guide decision-making.

2. Q2 Momentum

By June, business rhythms become more clear. Review your operating budget and sales projections. Are you on track? Are there deviations? If so, analyze variances and adjust course. Be especially diligent in ensuring there is enough backlog to support elevated summer staffing levels, and that sales activity is consistent, focused and sufficient to keep the pipeline full. Q2 is a strategic mid-way point. Perhaps your expenses are higher than anticipated, or sales are lagging. Address these issues promptly to ensure consistent financials ahead, and communicate new targets and initiatives to get your team onboard with what’s next.

Q2 also marks the transition to summer and landscaping’s high season. This affects workload, staffing, and expenses. Be sure to adjust your financials sails to navigate these changes effectively. An influx of seasonal H-2B labor is common at this time for many landscapers. Ensure these new arrivals are warmly welcomed, integrated with your existing teams and properly trained. Effectively managing your field production teams is perhaps the most critical key to a profitable year.

3. The Long View

Every landscape business has specific profitability targets. June’s midway point is early enough in the year to check progress on goals while keeping your eye on a strong year-end finish. If you’re falling short, there are four things to take a look at:

  • Pricing – Is your model competitive and profitable?
  • Labor Cost – Are you using numbers that reflect labor cost reality, or are they based on a guess? Evaluate, adjust as needed and ask for help if you aren’t completely sure how to calculate your actual costs.
  • Opportunity Cost – Upsells, enhancements, and technical services, such as plant heath care, water management, hardscape renovations, and work left over from winter is more easily accomplished when the weather is better. It’s also prime time for association meetings and conferences, when trade groups are meeting and greeting and networking. Conferences are often the best place to learn more about your customer’s industry and the best place to nourish and grow relationships.
  • Operational Efficiency – Use your Q2 window to tidy up processes, reduce waste, and allocate resources to improve functional and overall performance. Spend a week monitoring your morning rollout. Efficiency directly impacts profitability.

4. Metrics that Matter

  • Regular Financial Reporting: Review key financial and operational data daily, build a culture of accountability, and make course corrections as necessary based on the data.
  • Debt Management: Review outstanding debts. Refinance if beneficial, but avoid overleveraging. Carefully consider the impact of taking on any new debt. Consider whether renting or leasing may provide a better option than purchasing.
  • Cash: Yes, cash it’s still King. Over 80% of small businesses fail due to cash flow problems. When you have cash reserves, you have options and greater flexibility to make smart decisions. Build a contingency plan into your budget and maintain a cushion to ensure you have a soft place to land when storms rock the boat. When in doubt, remember this: Noah didn’t wait for the rain before he built an ark.

5. Success Factors: Work Back from Desired Outcome.

In the rush for first mover advantage, there is a growing tendency towards over-complicating things. Remember to keep things simple and focused on key success factors. Neither over-correcting, nor over-feeding and over-watering make the landscape or your landscaping business grow faster.

Use the summer to master skills, recalibrate the many moving parts of your business, and focus on the basics. Dig out your budget, understand and analyze your profit & loss statements, and steer your financial ship toward profitability. Your financials are full of the data you need to make the right turn, avoid the U-turns, and plenty of time to prepare for hazards.

Before the fiscal quarter is over, plan to have a clear understanding of your market, a strong value proposition, a great brand, a solid business and financial plan, a team that can win the race, and a laser focus on the prize—your customers.

One of the most important and easiest things to fix, is service quality and delivery.  If you’re not sure where you stand on expectations with your customers, ask.  And use their feedback to improve it.

Just like landscapes are smartly managed as integrated ecosystems, so, too, is the financial ecosystem of our business. Building a successful, high-performing business requires the same approach as building a successful, high-performing landscape. It takes getting down in the dirt of the details, weeding out what you don’t want to grow, nourishing potential, and planting strategies that will deliver grow a thriving, resilient, enterprise.

Contact Steve at: steve.steele@wilson-360.com