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Stay Focused On Net Profit

by Frank Ross on May 27, 2014 · 0 comments

Stay Focused On Net ProfitThe following post is adapted from Frank Ross’s Landscape Management post back in 2010. Eager to hear more insights from Frank? Sign up today for his June 9 Mid-Year Financial Checkup webinar, presented in partnership with Landscape Management.

In my mind, there are two reasons we are in business: profit and fun. Profit is our scorecard, and the fuel for our life-blood: cash flow. And fun? That’s the fire in the belly, the passion that keeps us doing what we do 24/7. If we don’t enjoy it, we shouldn’t be doing it!

“Okay, got that…and your point is?”

We are at the mid-year mark for most of us outdoor contractors. When was the last time you checked how you were progressing toward your annual profit goal. You do have an annual profit goal, don’t you?

How Are You Progressing?

Have you generated your mid-year financial statements? Are they generated by profit center (each type of work you perform)? Have you compared the mid-year performance to your budget?

You do have an annual budget, spread by month, don’t you?

So, how do you measure up?

If you don’t know, that means you do not have a scorecard for the most important financial standard in any of our businesses: net profit.

If you don’t trust what you see, you don’t have an effective information system that tells you where you are at any given time. Either way you are flying blind and what net profits you have will only materialize because you are just plain lucky.

I play golf, so I know all about lucky — I’d much rather be lucky than good — lucky wins every time. But, in business, luck is what we make for ourselves. In business, we have to be good to succeed.

When we discussed profit performance for some 80 of the industry’s best and brightest companies, we saw that in our sampling, average levels of profitability on revenues of between $5 million and $45 million ranged between 8 percent and 12 percent. Not bad, though I am certain each one of those companies would like to improve upon that performance.

So, how did you do stack up to that “standard”?

Do you see any room for improvement? Thought so.

Track Your Net Profit!

Here is a test for you. Take a look at the average amount of profit % you put on each job you bid last year. (You do know how much profit you have on each job, don’t you?)

So, at the end of the year, how much profit did you make? Is your year-end net profit percentage the same as what you put on jobs, or is there a disconnect?

I dare say, for many of us there is a disconnect. Why? The answer is principally because profit is simply not something we track. It’s simply not a focus.

Edwards Deming said it best: “If we do not track it, we cannot control it!” Truer words have never been spoken.

Take The 8 Next Steps

Where do you go from here? There are eight things you should do.

  • First, I need a commitment from you that net profit is the most important financial standard you have in your company. It’s not sales, it’s not margin… It’s your bottom line, your net profit.
  • Second, I want you to realign your internal systems of information to focus upon how you are performing on the bottom line by profit center.
  • Third, I want you to commit to generating an annual budget by profit center that is spread by month such that you can track how you are performing each month throughout the year.
  • Fourth, I want your budget to be flexible enough such that you can reforecast the coming months at will as you march through the year (the 90-Day Scrub).
  • Fifth, I want you to have a comprehensive estimating system that defines the three primary financial elements of any proposal: direct costs, overhead and profit.
  • Sixth, I want you to have a job tracking system that tells you where you are making profits and where you are not in such a fashion that you will know what to do to fix it the problem areas.
  • Seventh, I want you to give your principle managers specific and measurable financial goals to achieve.
  • And finally, I want you to build an internal system of information and reporting such that you can report back to your managers how they are doing, hold them accountable, and coach them to achieving — if not surpassing — their goals.

Commit And Be Patient

So, you see, maximizing profits is not hard – but, it’s not easy either. If you commit, if you focus on profit, if you build your systems, if you involve your people … profits will come!

Sign up for Frank’s Landscape Management webinar today to reserve your spot! Enter the discount code “ABW14” on the registration page. We’ll take $20 off the price, and you can attend for $79.

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