From time to time, On the Level will feature experts in a particular field or specialty contracting service. Here, Mark Bradley of The Landscape Management Network – a member-based suite of software, tools, systems and education to help landscape contractors increase productivity and profits – reveals the 7 biggest mistakes he’s made in business, so you can avoid repeating them.
1. Starting the business without enough investment capital
With a pickup, a wheelbarrow and absolutely NO MONEY, my wife and I started our business. Luckily it paid off. But starting the company on a shoestring budget was a mistake. We came close to losing our home that first winter and we were not prepared for how hard the first five years would be. We had to overcome huge obstacles, including purchasing equipment and maintaining cash flow without enough working capital. Had we spent more time on planning, we would have understood how much capital we would need. I believe that landscape companies need 15-20% of annual revenue instantly available in cash or through a line of credit. Our bank wouldn’t help us until we were in business for five years and showed three consecutive years of positive financial statements. That’s why most landscape companies are started by “technicians” and not people with business degrees! Lesson learned: start with a budget, and stick to it!
2. Growing the company before the right systems were in place
We started without the education or experience we needed to operate an efficient business. We simply wanted to be great landscapers. The problem is, you can’t become a great landscape contractor without great systems. Great systems will enable you to add more full-time crews, grow, and still produce optimum results. Our transition from being hands-on owners to becoming business owners, who hire people to design and create projects of the same quality and maintain the same profit margins, was much 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 ready to do the work before you get the work! Lesson learned: become a planning organization.
3. Growing too fast
During our first nine years in business, we continually struggled with cash flow despite earning double-digit net profit margins every year! The banks were no help, and we could have gone out of business many times had our suppliers not worked with us. Being forthright and explaining our financial situation to suppliers made all the difference. 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 is to ensure you don’t outgrow your working capital. Always keep 10-15% of annual sales in cash to cover day-to-day operating expenses or you will struggle and make bad decisions as a result of a cash flow shortage.
Lesson learned: never outgrow your working capital.
4. Not identifying superstars soon enough
Over the years some outstanding people have left us because they couldn’t see how this industry or my company could meet their financial goals. If we’d had the right systems in place, we could have kept these people and all would have benefited. I have since developed a way of keeping these superstars – but again, unfortunately, it was 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 who only care about a paycheck.
5. Trying to operate without the right equipment
In the first few years of business, I avoided monthly payments at all costs. But when we looked at our labor and equipment expenses as a ratio to gross sales, we discovered that we were spending 36% on labor and 6% on equipment. Most of our equipment was old and we didn’t have a mechanic on staff, so we had a lot of downtime and often worked harder, longer hours than we should have. When I started leasing newer versions of the right equipment, we found we could do more work in less time with fewer people. Within 18 months our labor spending dropped to 22% and equipment had increased to 10% of gross sales. The bottom line was a 10% increase in net profits and, better yet, our revenue had increased by 82% with the same number of people! As a result we could pay better wages, pay ourselves more, run a more professional company, and attract larger more complex projects with our modern fleet of equipment! Lesson learned: being cheap is really expensive!
6. Doing complicated work without the right skilled trades
We all have crews that are best suited for certain jobs. I remember a situation where we had two complicated projects going at the same time. One of my crew supervisors was great, the other not so good. I made the mistake of spending a day working with the better supervisor. Meanwhile, back at the other jobsite, my mediocre supervisor poured the concrete pad for a flagstone patio 3” too high. Talk about expensive! Over the years I’ve had more of these situations 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.
7. Hiring the wrong subcontractors
Once I had a great landscaping project that included a concrete spa. I decided to hire a start-up pool contractor because his price was $5,000 less and he could start right away. I should have known better. He built the concrete shell, but in the process must have either forgotten to install the plumbing lines or broke them while pouring the concrete. I had already paid him $15,000 of $22,000 when he disappeared. I had to jackhammer the spa out and start again. That’s how I got into building pools and spas! Lesson learned: never hire subcontractors based on price—always work with reputable companies even if there isn’t much room for mark up.
What are the most valuable lessons you’ve learned in business? Please share your comments below.
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