Debt, Debt ratios, growth

Discussion in 'Business Operations' started by Nebraska, Jan 14, 2002.

  1. Nebraska

    Nebraska LawnSite Senior Member
    Posts: 525


    I like that ratio...when I look at things with that ratio a barometer of how well I'm doing then it looks like I'm on the MOON!
    How does someone who is money savy read a cash assets vs. receivable ratio that fluctuates(other than it shows seasonality of the business)? What do you mean bills and not loans?
  2. HBFOXJr

    HBFOXJr LawnSite Bronze Member
    Posts: 1,712

    Bills as in current stuff (short term liabilities, generally stuff due in les than 90 days) like gas, fert, mower shop, nursery, hardware store etc.

    Any thing you have a loan on is probably a depreciable item falling under production eq expense or general overhead like computer, phone system etc.

    I like to have my equipment expense 8-11% of sales and overhead 15-20% of sales.
  3. Nebraska

    Nebraska LawnSite Senior Member
    Posts: 525

    Thanks for the input. Much better input over here than other boards!

    Are those %ages something that you think a business 5 years or younger can maintain? Without posting it am I reading the profit margin there right?

    Would appreciate any other barometers that others are using too.
  4. HBFOXJr

    HBFOXJr LawnSite Bronze Member
    Posts: 1,712

    Don't have a feel on the young business thing.

    No profit % implied. It seems that the way I do my accounting and use accounting terminology is a lot different than many folks here but I'll tell it my way.

    I like direct costs (production labor, equipment, materials and subs in the 60-65% of sales range. Indirect costs (overhead of phone, nextel, advertising, business licenses, office supplies etc) of 15%-20% of sales leaves me with a profit of 15% to 25% of sales.

    I have years of records through all kinds of sales volumes and economic ups and downs t6hat show me that my method, which IS NOT UNIQUE shows stabil and predictable trends. No matter how good or bad the year the direct costs will stay in that 60-65% of sales range. Overhead that you can only control but so much can really fluctuate as a % of sales on those years because the dollar amount will remain pretty much the same, good year or bad.

    Example 50k$ in overhead on 200k in sales is 25%. The same 50K OH on 325K sales is 14.3%. Since production labor , equipment, materials and subs will be a fairly stabil 60-65% of sales if your pricing right, the difference drops right6 to the bottom of your pocket as profit.

    200Ksales - 50K oh - 120K (60%)lab,eq,mat,subs = 30k profit
    325ksales - 50k oh - 195k (60%)lab,eq,mat,subs = 80k profit
  5. Nebraska

    Nebraska LawnSite Senior Member
    Posts: 525

    Thanks for the info HB...obviously you have good control of the process or you would not have been in business as long as you have.

    Anybody in the young stages of their business, less than 5 years, growing in excess of 40-50%?

    What are some of the tools methods that you've used to continue the growth, manage the debt, and are willing to share?

    Marketing? How about multi-prong, multi-dimensional approaches that encompass all aspects.
  6. HBFOXJr

    HBFOXJr LawnSite Bronze Member
    Posts: 1,712

    Ah, marketing, my weak spot. It seems I know less now than ever before. Seems like word of mouth is the only thing that has a big impact and the word has to be you the cheapest guy going. If your the best guy going and your prices are fair, word of mouth takes a big drop in effectiveness.

    Maybe when your really small 4-50% growth is real OK but once you get into 6 figures in sales, 15-20% is about all you can stand.

    15-20% on 200k is another 20-40k in sales to generate and then produce. Think what you have to do and add in eq and man hours for that growth. Sometimes growth has to be planned and executed in stages that make it feasible and practical to add a man, a crew, truck, certain eq or whatever. Gotta fully utilize resources to remain profitable.

    OBRYANMAINT LawnSite Senior Member
    Posts: 555

    i will be entering my forth year of lawn maint and finishing my 11 year in plowing

    lawn --in the first two years 40-50 % growth was about it
    after that i would not be able to handle much more than 15-20% at most---i am at or around130k in lawn only with one crew and will stay there ,i am comfortable

    plowing--i can grow a bit more each year because there is an abundant pool of subcontractors so i dont really add overhead per say....plowing i can do 30% easily and its not limited to my costs of doing business, but to how many people will pay my price

    i have a very good relationship with my bank but rarely need to borrow to grow , but have in the past

    when i do borrow i put that loan on a first priority to get paid off and always pay it off early and usually in half of whatever period it may doing this i have shown my bank that the money i do borrow has been put to good use and will always be a "good" risk in the future
  8. Nebraska

    Nebraska LawnSite Senior Member
    Posts: 525

    I guess I have lofty goals? But we are growing in excess of 50-40% each year. And it's not by being the cheapest....we are middle of the road and sometimes higher...If your growth is based upon being cheap your retention will be low; someone is always going to be cheaper.

    Another aspect of marketing that I have considered would be the Certified Lawn Care Profession....No one in my area has this....I think that's what it's called..Gathered bit's and pieces from another board...Anybody know about this.
  9. HBFOXJr

    HBFOXJr LawnSite Bronze Member
    Posts: 1,712

    The application end is about the only area where peopleseem to give a rat's butt what you know. usually it's because they have had so many unsatisfactory experiences and are fed up and want some hope that someone can really deliver.

    I have a B.S. in horticulture and a life time of growing experience. I know what it takes to grow turf in my area and why others fail to produce. That is my leg up. If you don't have a science degree of some kind then the professional certs in turf or plant culture may sway the skeptics.

    Same for irrigation. Nobody gives a s... what you know when they are shopping for an install. It's price, price price. When they are ticked off about not getting repaired right, brown spots, operational ignorance etc., all of a sudden it's real important what YOU know. And I get paid well for that.
  10. Stonehenge

    Stonehenge LawnSite Bronze Member
    from Midwest
    Posts: 1,277

    Well, it appears that where HB is strong, I am weak, and dare I say the reverse is also true. I'm going to be printing off this thread and comparing my numbers to it.

    As far as marketing, I'd like to think I can do a decent job at it. What's more, I don't like using most of the typical, usual (expensive) methods of marketing.

    Oh yeah, but first, I'll go over % growth for my biz in specific.

    Year 2 we did 300% better than year 1. That's less about how well we did in year 2, and more about how poorly we did in year 1.

    Year 3 we did about 120% better than year 2.

    Year 4 we did about 25% better than year 3.

    Year 5 (y/e 12/2001) we did about 25% better than year 4.

    May sound crazy, but I expect 50-100% growth next year. Our numbers are still not that big (year 6 we will still likely be a shade under $.5M, even with 100% growth over year 5). But there are some economies of scale it's taken awhile for me to master, as well as getting better at landing the biggies and throwing back the small ones. Getting more efficient with my time and the time of my people, and doing better at retaining good folks, which short term looks more expensive (paying more $/hr), but long term is not.

    You should learn about press releases, learn to make friends with media people in your area. These are really powerful things. I can give you more insight via e-mail if you'd like.

    But I also use yellow pages. Good for my kind of biz, but I battle the same voices in my head as everyone else: 'how big an ad, color or b/w, etc.'

    But I use other homespun, simple things that get us results. But just like all the fatty commercials - 'Results not typical. Your results may vary.' Thet take hardly any $$, but do take time.

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