View Full Version : Expanding Business
03-23-2002, 09:33 AM
May be a difficult question to answer, but any advice would be appreciated. How difficult is it to expand a business from a 2 person operation (owner & 1 worker) to the next level-say 2 more employees? Hubby's situation: jobs keep coming in. He does no advertising at all - just word of mouth, so the work is there. Works longer days and weekends to keep up when necessary. (Kids & I would like to see him during the summer tho!! :)) He is a perfectionist and would have a hard time not being directly involved on the job. How do you other small businesses do it??
03-23-2002, 09:43 AM
First off...he will have to learn how to delegate. If he cannot do that he may as well not grow. If he truly has to have his hands in everything(just like the rest of us!) it will be hard but he must learn.
He will also have to learn to accept that the "guys" won't do it exactly like he does. That will result in some loss of perfection. The clients might complain a little, he might be unhappy about that but if he wants to grow it will happen. Cannot get around that.
He will have to get used to doing paperwork and talking on the phone / radio.
Lastly, but not the last thing, just tired of typing....he will have to get used to the larger paychek. That's the toughest part!
Good luck, I'm sure with a wife like you that cares, and helps, he will do fine!
03-23-2002, 01:16 PM
If he is worried about Quality, do a follow up survey after a job.. There are tons of services out there that you can use. If you get large enuf, hire a QC person. He is going to have to let the production side go and focus on sales/marketing/image and operations.
03-23-2002, 04:18 PM
If he's a perfectionist, it makes it more difficult.
The next logical step would be to have 2 guys mow (or other production) and your husband to work by himself doing detail work, customer service and such.
03-23-2002, 06:48 PM
If work is too easy to come by maybe he could charge more and do less and then have more time for family. Willing customers would still have the same attention.
Also You can just say No to more business. We say no all the time to debt, drugs, alcohol, chocolate cake, crossing the street with out a parent, not running red lights etc. Saying no isn't that hard after the first time. Actually feels kind of good and way better than fussing over how am I gonna get all this done, keep everyone happy etc.
03-23-2002, 07:14 PM
You say no by raising prices. :)
03-23-2002, 08:19 PM
Another landscaper (operating a $3 mil plus operation at the time) said to me when I mentioned being too busy, "You're not charging enough."
Let price weed out some of the potential customers. If you'r already charging top dollar and you'd feel guilty about charging more and it's all coming to you word of mouth (what a problem!), then sure, hire one more person. Expand slowly and ad only at the pace at which you're comfortable. Wait until the new person is trained to meet your standards and then hire the next. Go slowly if control is needed. But it sounds like one of two things, turn down more work one way or another, or hire people to fill the demand.
03-23-2002, 08:20 PM
Thanks for all the input! He does turn down some jobs, I just meant that he is a hard worker doing quality work, honest, reliable etc. He is considering going to the next level (hiring maybe 2 more guys). I guess my question should be... is hiring just 2 additional guys, buying another truck, extra equipment, additional paperwork, etc... worth it, or do you have to go much larger to benefit financially? How do you small guys do it? (or should I say "small businesses" :blush: )
03-23-2002, 08:36 PM
You're going to find a tough growth point. You experience it along the way at various times. Just going from a one man operation to a two man operation is a jump.
To justify the move to four guys means that you have to keep making your sales and profit goals. Adding new equipment will mean a significant investment in capital. As well, as the business grows, your husband may not be able to spend as much time actually doing the work. He'll be training/managing the other guys and selling work to keep them busy. Early on this may only be 20% to 30% of his time, while he can work the other 70%. However, this will be a big deparature from his normal routine.
Where sales for two guys before might have been $100 to $120 K, now you'll need to turn $200 plus K if you add two new employees, assuming they're just seasonal. $50 K per guy isn't a lot. If you're able to pull $70 to $80 K plus per guy (or 2,000 hrs), you're moving in the right direction. So making a jump by adding two guys means almost doubling the business, if not more so. You will naturally have more overhead with four guys. Just adding people to add people may not be wise. Just make sure you're meeting your profit goals.
As well, as you begin to add employees, some productivity will drop as you get used to the new systems and methods of operating at a larger size. You'll have to carefully examine your pricing to make sure you are recovering all of your overhead and profit requirements. Do you have money for benefits (which they may ask for or "require" to stay with you), uniforms, employee manual, etc. As you begin to grow, so will the expectations of yoru employees to some degree.
You'll really have to spend time thinking about standards, training, systems for managing the new employees, and on and on. You'll be constantly learning and never figure it all out up front. Just prepared for the investment you'll have to make to grow. I think it's worth while - so good luck with your business and growing it.
03-24-2002, 09:04 AM
here is a quick check:
if both these guys make 30k that is 60k
if your GROSS profit margin after wages,supplies and related is 45% which is quite normal. (this ought to open a can of worms!)
then you do an extra 200k worth of work
gross profit would be 90k
I would say this would be about the bare minimum to consider doing to make it worth it.
If your NET profit margins are around 20%, again quite normal (more worms)
You would make around 40k extra.
Can you do another 200k with 2 more guys? I can in the irrigation biz, but can an LCO? I don't know, help us out lawnlad.
03-24-2002, 05:58 PM
When I'm using numbers as a generality I shoot from the hip a little. My numbers certainly are not where I want them to be, and we're only pulling $70 K per 2,000 man hours, or $35.00 per hour across the board. The number is way too low for us to keep operating our business in this fashion. For the same 2,000 hours my goal this next year is $42 to $45 per hour with some changes we're making. For comparison sake, how you calculate the cost per hour to get a true cost for an apples to apples comparison means setting the same accounting standards. Since we aren't all on the same page, my $35.00 may be $30 or $40 per hour with someone else's formula.
We dont' want one revenue source propping up other services that might be lagards. We have not yet separated out design and installs from maintenance - as two separate businesses. We are taking snow plowing into another company so that snow does not prop up the landscape numbers. As we disect our numbers some more, this might be eaiser to define on tighter terms after we've made a little more accounting progress.
Regardless, my goal this year would be $85,000 plus per 2,000 hours (one full time year round employee), less material costs, for landscape installaiton and maintenance. We don't have high material costs, but it's easier to get your true revenue by looking at your revenue wihtout "artificially" raising it with materials - so I back the materials out thereby focusing on labor hours.
Next year if we meet our goal, that number will be getting closer to $100,000 per employee. Efficiency, organization, etc. will allow us to make the goals. Keeping in mind, profit has to be in place all along. Just trying to do more with less with increased profits. Isn't that the game we're all in?
03-24-2002, 06:52 PM
Tony.. are you including owners pay/withdrawl increase out of your numbers. Net profit margins in the 20's seems high from what i am hearing.. dont want to take this conversation off course.. curious on the numbers
03-24-2002, 08:46 PM
hey grassman......owner's salary is included before the margin was quoted....but owner makes peanuts....
disbursments are usually the profits..........
yes 20% would be a little high and I shot from the hip a little.......it is actually a little less.....sometimes a lot less....depends of course on lots of stuff that we don't need to disclose, right?
point was...you have to do more business to cover the new guys salaries than just the amount needed to cover their salaries. some guys think "well this guy is going to cost me 30k so I need to do 30kmore in business to justify him being hired. That is simply not so. Same thing happens when guys buy equipment or new trucks. It is a trap that we have all fallen into and I was trying to help the MRS.
03-24-2002, 09:02 PM
In other words, he will have to 'manage' and operate like a business instead of working for wages (albeit good wages now)...
It's really a tough jump for some people, and one that take planning. But it can be done.
03-24-2002, 10:24 PM
I have a question for you guys,
I'm trying to really expand my bus and was wondering what a realistic goal in gross $ would be. You hear about these co's turning millions of dollars a year. Do any of you have a set up like this. What do the owners of most of these large co's bring in?;)
03-25-2002, 12:31 AM
Tony.. Thanks for the clarification.. I agree totally with you. I did not mean to digress too much off topic. This business plan has me seeing numbers in my sleep. I will be "accounting" the same way that it appears that you are.. thanks for the thoughts..
I agree, if you are only covering salaries and burden with bringing in new employee's, why bother..
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