Anyone ever had problems with payroll and cash flow?

Discussion in 'Business Operations' started by bwanderson79, Aug 9, 2013.

  1. Bryan27

    Bryan27 LawnSite Member
    Messages: 152

    I'd suggest anyone who has employees or is thinking about having employees talk to an Accountant first. I'm terrible at accounting, I don't like accounting, I only do accounting as a necessary evil. But since your problem is in cash flow, a CPA will be the one to formulate a plan to get you on the right track. As a business owner, your job is not to always have the solution to the problem. If we were all freaking experts on everything we wouldn't be doing the jobs we do for a living, we'd be pushing the red button that launches rockets to Jupiter and smoking Cuban cigars in Tahiti. As a business owner, your job is to know were to find the solution to the problem, guide your business, work your business and profit from your business.
  2. CL&T

    CL&T LawnSite Senior Member
    Messages: 493

    Well said!
  3. Pietro

    Pietro LawnSite Senior Member
    Messages: 855

    I Had the same problems before. To the original poster here are a few things I used to do to help with the cash flow problem. All work other than mowing requires a deposit, then paid in full when completed. The early season landscape jobs helped fund the first few weeks of mowing labor/fuel. Offer clients a slight discount for paying up front for the seasons mowing. Maybe ten percent off or a free cut or 2.
  4. dlandscaping

    dlandscaping LawnSite Senior Member
    from mass
    Messages: 835

    you need to budget as if you are not going to be paid at the end of the month. Basically have a reserve at the beginning of the season to take care of payroll etc. We do mostly commercial work and alot of the accounts require cleanups mulching fert etc in early april yet are on monthly payment schedules that mostly begin Mid May onward. Therefore we need to have a full month of reserve built up to cover payroll mulch fuel etc. Do we get tight with cash flow sure and I do get a little uneasy when there are payments 30-90 days late but its the nature of this business. I know alot of guys that will dip into a credit line in order to cover the increased payroll spring usually brings I tend to shy away from that but at times it would make things easier. Before you hired this employee you should have had at least 6 months if not a years worth of payroll saved in reserve. What happens when that big job's check never comes or a client screws you does happen dont let it bankrupt you. Like the others have said either you don't have enough work or are charging too little or managing your cashflow terribly wrong.
    We have 6 full time employees at this point
  5. bwanderson79

    bwanderson79 LawnSite Member
    Messages: 74

    Currently my labor expenses are roughly 25% of gross revenue every month. My biggest problem is that I bill once per month, at the end of each month. Roughly 50% of my customers pay immediately. The other 50% trickle in during the next few weeks. I pay my help at the end of each week, and the end of the month is often the most difficult. I am currently looking at ways to shave minutes off here and there, but it still seems as though the labor is too high as a percentage of revenue.

    What is the standard percentage in this industry? I tried finding some information on this and it varies greatly from one industry to another.

    Thank you all for your input.
  6. cpllawncare

    cpllawncare LawnSite Silver Member
    Messages: 2,659

    We started invoicing twice a month on the maint accounts when we noticed a cash flow issue, The 15th and the 1st. It helped a LOT! Next! we got rid of our slow pays if they consistently were late or we're trying to finance their services, we contacted them and ask for more prompt payment, if they responded great if they didn't great! we got rid of them! it's the best thing you can do for your business guys. It still gets tight, but it's wayy better then it was, and we make our payment terms VERY CLEAR up front with new customers! They are very aware that we have a collection agency in place to deal with slow and no pays.
  7. seabee24

    seabee24 LawnSite Senior Member
    Messages: 619

    Ok, Good info. here is what I know for my area, this applies to me, but may not to you.

    If you look up industry benchmark reports you can find out more information about general averages and percentages. You do need to keep in mind that some of the numbers will not make any sense for a small business. If you make less than 250k, it claimed that shop rent would have to be less than 300 per month, and frankly thats not a reality as fare as I know, so take it with a grain of salt.

    25% labor - does that include burden? are you doing maintenance or construction? 25% actually sounds good , maybe even a hair low

    Labor typically makes up 75% of the direct expenses for lawn maintenance, with fuel being the next biggest.

    So that leads me to believe

    1. that you have to high over head costs and need to cut those down.

    2. You are not charging enough to cover those costs and that the only reason your labor percentage isnt higher, is because your labor payouts are low as well.

    SO you need to cut the costs and save money in one way shape or form. It seems like you could have a profitability issue, rather than a cash flow issue.

    If you still believe you have a cash flow issue, change your billing terms or change what work you are doing each week. I bill clean ups, and bush trimming with completion of the job. They often have high costs, and there is no need to wait until the end of the month. If you haven't though about auto charging credit cards, Id think about it...helped me a ton.

    Try other things. Used wisely, a credit card for fuel. Or get a fuel card. Some gas stations will even start a tab if your a professional business. Each one of my crews burns close to 750 per month in gas. So not having to pay for that until the end of the month might help you out. Just remember it only helps if you keep your word and pay the bill. its pretty tempting to put it off when things get tight, and that only makes your situation worst.

    I pay my guys every other week. If they had their way I think they would want it every week. This strategy helped some with cash flow, I did it because I travel frequently and so not having to run it as often saves me time.

    Of course changing pay out terms will only temporarily help the situation if you are not profitable.
  8. Mark Oomkes

    Mark Oomkes LawnSite Fanatic
    Messages: 15,285

    I'm confused.

    All this talk about budgeting, CPA's, deposits for work, billing bi monthly or upon work completed, labor percentages, etc and nothing about what kind of equipment and types\sizes of accounts.

    bw: 25% is actually a little low, but not out of the realm of possibility.

    Are both you and your employee working 40 hours\week? Are you billing him out for all his work?

    Assuming you're both in the field 80 hours--give or take--is that what you have sold, including travel time?

    Another thought, go to bi-monthly payroll, it helped me quite a bit. The other big thing that helped was billing at the beginning of the month for work that would be performed that month. Just like the insurance company, phone company, etc.
  9. seabee24

    seabee24 LawnSite Senior Member
    Messages: 619

    so i noticed a lot of guys are "stuck" in their mind about billing out once per month. Let me explain a few things related to that. long time ago, when residential lawn care started, it was normal to be paid weekly, after you mowed each house. Alot of the "johnny fly by nights" still do this, and is a partial reason they are still in business, they have positive cash flow. they get cash or check the moment they complete the job. Well that's great if the customer is home, and soon many realized that monthly billing was a better option, especially when you had employees mowing instead of you.

    Monthly billing just became excepted. and as an industry we were the driving force (speaking in terms of residential)

    Plumbers, HVAC, and many other trades that do RES work, expect to be paid before they leave the site, so why are we so different? - its because we allowed them to.

    There is nothing wrong with asking for your money as soon as you complete the work. So on major items like clean ups, as long as the customer knows your terms, there's no problem. Related to mowing, it will get confusing trying to bill out weekly, and it will get under your customers skin asking to leave a check at the door. however if you have a good payment system, and good invoicing system, you can do weekly billing with out the burden.

    Biling once per month is old school thinking that began prior to having technology based systems.
  10. Mark Oomkes

    Mark Oomkes LawnSite Fanatic
    Messages: 15,285

    I agree except that plumbers, HVAC, etc are not performing services on a weekly basis.

    If a business--not a solo guy--has 500 or 1000 customers, weekly billing is going to cost as much in overhead as it is going to help cash flow.

    As for billing once a month being old school, I completely disagree. Try invoicing commercial (I know, we are talking residentials) weekly or per service.

    And, depending on how a company is set up--separate mowing\pruning\bed maintenance crews and you and the customer will be overwhelmed with paperwork.

    It is perfectly viable if one manages cash flow properly.

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