Business Plan Development - LONG POST

Discussion in 'Business Operations' started by br1dge, Aug 15, 2006.

  1. br1dge

    br1dge LawnSite Member
    Messages: 49

    Kind of a long story that I wont get into just yet, but I am considering getting out of the Corporate world, and buying / building a Lawn Maintenance Business. Pls spare me with "Redmax Rules," and "It's a lot of hard work."

    As any successful business person will agree thagt any new business discussion, first and foremost, needs to address the opportunity for profitability, it doesnt matter if you are making doughnuts or changing tires. Product based business are certainly different than services businesses, of course; but at the end of the day you can use similar techniques to plan for and manage them.

    The assumptions I have listed below are actually variables in a spreadsheet I built . Fill these assumptions in, and you automatically get an annual and monthly view of Cost of Goods Sold / Gross Profit Margin, SG&A Expense, Operating Margin, EBITDA (Earnings before Interest, taxes, depreciation, and Amortization,) Corporate Tax, Net Profit, Average Labor Rate, Labor as a % of Revenue, Revenue per hour of labor, and profit per hour of labor, and a few other odds and ends. I very well may be missing several, and maybe the way I use them in calcualtions are wrong. I think I am pretty close though, the tool models 12 different scenarios (based on # of accounts) each time any assumption changes. Many of my "results" end up on the high end of Industry Averages (whch is where I want them.) I am ending up with 35 - 48% Gross Profit Margins, 17 - 25% SG&A expenses, and net profits from 12 - 26%. I should add that none of these include a Salary for me. "My take" would be the "net profit." Also assume I will go with LLC business structure (although I have just begun to evaluate my options..)

    My goal is to 1) get some feedback for the listed assumptions (at the bottom of this post) i.e., how many yards per employee per day would YOU assume, based on your experience or planning, and 2) Get some input for more assumptions that we can develop that would help in the modeling.

    This spreadsheet assumes only Mowing and Chemical treatments. I may add Lawn Renovation and a few other things later. One of the biggest deficiencies this tool currently has it that it bases everything on an annual work schedule; meaning that it does not take in to factor that most of our work happens in 30 - 40 weeks out of the year. The tool doesnt know that yet, so it "figures it's figures" based on a 52 week year. I suspect this overstates profit potential quite a bit, since you would have to work a ton of overtime to compress the work into a shorter year. I'd like to implement a weighting system that would more accurately represent the workload across the months the business demand is present, but I havent figured out how to perform all the calculations yet. This will be particularly important when and if I take this to the next step to evaluate cash flow. (As I am in the South (and a fairly affluent area,) I hope to increase the scope of work to include Perrenial Rye Overseeding (its all Bermuda here.) This will be a big profit maker from several perspectives.)

    Anyway, remember this limitation as the discussion progresses.

    The most surprising thing I have found is that a small change in these assumptions can make an enormous difference in end results.. For example, as I have played with it and modeled different scenarios. It is surprising to see the profound impact making seemingly small changes can have. Here is one... 616k revenue, 117k net profit, 19.8% or so profit margins, assuming 12 lawns/chems per day at $12 per hour. Drop it to just $10 per hour, and assume 10 yards per day per person, and you end up with $135k in net profit, or 22% margins! Not what you expected right? Well, it is a complex web of dependencies, but again, all derived from these base assumptions. i.e., how many yards a laborer can do in a day directly influences how many laborers you need, which in turn influences the number of foreman and landscape trucks you need, which in turn influences how many mower and blowers you need and how much garage space to store the trucks. Then of course insurance, payroll taxes, vacation, etc, etc, etc) <You get the point, there is a lot of stuff> Another extreme example (according to this model) is how your net profit can be cut in 1/2 (literally) by ADDING 10 new accounts. Think about it. You add one account, but cross that threshold where now you need one more laborer, which could also mean one more foreman, and one more truck, and 2 more mowers, etc....

    I have provided some of my numbers to give you an idea for the business I am considering. To all of you that say you can do 36 yards a day with 2 people - Volumes are important, yes, but I need to delivery extremely high quality, and to do it consistently. I would like to be a little bit conservative (but at the same time not leave anything on the table.) Along these same lines, I have included what I think is a pretty attractive compensation package; good rates, Vacation and Health Insurance for Foremen,

    I have assigned "price years" wherever possible (to facilitate using formulas) meaning if a mower cost is $5k and I planned on using it 5 yrs, then it costs $1k per year.

    OK, enough yabbing...
    Scenarios & Assumptions
    If I have X # of mowing (total) accounts, I have assumed 50% would also get Chemicals. ( I really, really want to go after annual accounts, not week by week jobs.)
    # of mowings per year per customer contract 40
    # of Chemical Treatments per year per customer contract 8
    Average Size Yard 8,000 sq ft
    Avg price per mowing $50
    AVG price per Chemical Treatment $50
    Laborer Pay Rate $11
    Foreman Pay Rate $18
    (1) Foremen per this # of Laborers 4
    Yards per day per Laborer- Mowing 12
    Yards per day per Laborer- Chemical Treatment 12 (Resources needed for Mowing and Chemicals calculated sperately, so dont assume 12 of each per person per day)
    Business Income Tax Rate Assumption 25.0%
    Payroll Taxes (FICA, SS, UEMP) 28.0%
    Fuel Price per Gallon $3.00
    Auto Miles Driven per mowing 15 (this sounds high, but is meant to include all trucks, including foremen and owner)
    Mileage Re-imbursement Rate 0.35
    (Efficiency) Maximum # of Laborers per Landscape Truck 3.00
    Average Materials price of Chemical Treatment (Fertilizer, pre-emergent, etc) $20
    Fuel Usage per Yard (in Gallons) - Trucks AND Equipment (1)
    Emplyee Health Insurance Cost per year (100% Funded) $2,676
    Worker's Comp / Insurance as % of Sales 3%
    Advdertising Budget as % of Sales 0.40%
    # of Accts a Business Manager can Support 250
    Business Manager Salary $40,000
    Labor Days per week (10 hour days) 4
    Price per Mower per Year -(Normalized) Example - 8k mower, 4 yr lease $2,000
    Price per Management Truck Per Year (Same as above) $4,000
    Price per Full Service Landscape Truck per year (Same as above) $6,000
    Parking Space / Workspace Cost per Landscape Truck per year $4,800
    # of Office Computers per Landscape Truck 1
    Price of Computer per Year $1,500
    Number of Cell Phones per truck 1
    Number of Cell/PDA's per foreman 1
    Price per Cell/PDA per year $900
    Price of Cell phone per year $600
    Weekly Uniform Allowance per Employee $20
    Foreman Vacation Days per Year 5
  2. MMLawn

    MMLawn LawnSite Gold Member
    Messages: 3,569

    I have been in business a long time and here are a couple things that jumped right out at me in your plan assu. and I point these out because they are in my opinion very important because as you said "the most surprising thing I have found is that a small change in these assumptions can make an enormous difference in end results"

    # of Chemical Treatments per year per customer contract 8

    Your location only says "Southeast" so not sure exactly where that is, but myself aslo being in the SE I doubt you'll actually get 8 CT per year, more likely 4 CT per year on normal lawns and maybe 6 in some cases, bu 8 in very few if any.

    Average Size Yard 8,000 sq ft
    Avg price per mowing $50

    NOWAY. 8K SF is less than a 1/5 of an acre. I assure you the going rate in anywhere in the SE on that small of a lawn is half that at $25. People in the SE get an acre cut for $50.

    Emplyee Health Insurance Cost per year (100% Funded) $2,676

    First, very few if any LCO (even the corp biggies) provide Employer Paid Health Ins to employees. Next if you do that amount will cover maybe 50-70% of the year per employee. As you will find out "Group Plans" are actually more expensive than indv plans.
  3. BSDeality

    BSDeality LawnSite Silver Member
    Messages: 2,849

    I would be interested in seeing some of the formulas you use. I'm attempting to generate a capacities/potential spreadsheet for a similiar yet unrelated business and I've been scratching my head on how to do it with Excel. Do you have the ability to "scale" the business in the spreadsheet as you were describing when you push the capacity to those extra lawns per week where you need to hire another guy/truck? However a few things jumped out at me right off the bat.

    $50 for 8K sq ft lawn? sounds very high to me. $35 might be a more accurate guesstimation.
    5 days vacation per year is pretty light, might want to triple+ that to 15-20 days off.

    Numbers never lie except when you lie about the numbers. You might make more conservative estimations on # of accounts for the first year or two unless you bump that advertising % way up.
  4. br1dge

    br1dge LawnSite Member
    Messages: 49

    Again, I am targeting "high-end" customers. 4 Ferts, 2 pre-emergent, 1 Iron, and a "spare" based on need (ants, grubs, fungicide)

    Maybe I mis-stated this.. The lots I am talking about are 4-5 thousand sq ft houses sitting on .75 acres. 8k was the average area of the actual turf. My lot/lawn is of similar size, and 3 or 4 times a year I get mailbox quotes, all in the $42 - $48 range. My service (in theory) would be of more value.

    I actually got this figure from an industry consultant. It is one of the weaker points, I admit. I have read quite a bit that most workers "at this level" would rather have the cash. I want someone who sees this as a longer term relationship than "get my check and not show back up." I mean, I have to justify those prices somehow!

    Thank you for your feedback - I really appreciate it.... jeff
  5. DFW Area Landscaper

    DFW Area Landscaper LawnSite Silver Member
    from DFW, TX
    Messages: 2,116

    As for EBITDA, I have figured out that with equipment...trucks, trailers, mowers, either pay depreciation or you pay repair bills. There is no getting around this expense.

    In this business, there is no ignoring the D in EBITDA.

    As for the spreadsheet: I made one too before I jumped into this business.

    Honest advice: I am in year 4 of this business. When I started, all I wanted was to have a source of income that no one could take away from me. I wanted to do the labor myself and possibly have a helper or two. I created a spreadsheet before I jumped in. Looking back, the numbers I put in that spreadsheet were pie in the sky. That was because I simply had no experience.

    Then my back went out in August of '04. Rather than fold tent, I decided to expand and throw good money after bad. I bought 3 F-150s and two more trailers and started advertising like mad in the spring of '05.

    Today, I am finally starting to make money. But I have invested $100K in this business and 3 years of my life. Looking at what I will make this year, any investor would classify this as a HORRIBLE investment. If I can continue to grow my income, it may turn out to be a good investment, but it will never be a GREAT investment.

    If you are looking for a GREAT investment, this in not the industry you need to be in.

    DFW Area Landscaper
  6. Az Gardener

    Az Gardener LawnSite Gold Member
    Messages: 3,899

    Some things that jump out at me are I see no $$ budgeted for anything but mowers and nothing budgeted for service and repairs, on a 5 yr old machine you will probably spend 1-K on repairs in a season. Nothing for trailer, hand tools etc. on the other hand you have some over kill in other areas. You can use laptops and Pdas but you will probably have more luck with pen and paper for the crew.

    I do provide full health care for my employees it runs about 100 per month through a state program for small businesses. It will make a tremendous difference in the labor you are able to attract.

    If you are in an affluent area I would suggest full service, including pruning, irrigation repairs, changing low voltage lights, Christmas decorations, plant replacements, seasonal flower change outs, gutter clean outs, anything you can do to keep other contractors away from your clients. They really like just having one go to guy. So not so much coordination is required and once you have gained their trust they could care less about price if you handle things for them.

    It sounds like you would be a prime candidate for a franchise purchase. Not that you should actually buy one but you could shop them and get a good business education on the industry and margins etc and get some insight to how they do things.
  7. br1dge

    br1dge LawnSite Member
    Messages: 49

    I can share with you some excel ideas. I can scale (albeit only in a linear fashion) by simply dragging a few cells. Right now, my total account #'s are (the scenarios) are (20 40 60 80 100 120 140 160 180 200 220 240 280 320 360 400 480 560 640)

    One thing I had to consider (and accounted for through the (ROUNDUP) function,) was that "1.1 trucks", or "1.6 people" really equals "2."

    Like I responded in a prior post, I see this all the time (from quotes I have received for my own property) The lots are actually much larger. The turf area (8k sqft) is how I sized these. My next door neighbor was paying "a 4guy in a truck with a 21" murray) $45. He jumped when I offered to do his @$50.

    Interesting... I was thinking any vacation for an hourly worker was "something." I will take your advice and estimate 3 for the models.

    This is the question of the day.. I think the only way I am going to be able to get that number of accounts would be to acquire an existing business. Based on where I am so far, it looks like I would need ~300 accounts.. 700k revenue, 115k net profit. Interestingly enough on the lower end of the scale (using the same assumptions as the one just mentioned,) 140 accounts generates $308k of revenue, but carries a net profit of negative $50k

    I can't afford to give up my Salary to start "knocking on doors," and I certainly can't afford to have 140 accounts.. ;-)
  8. br1dge

    br1dge LawnSite Member
    Messages: 49

    I agree, "D" sucks.. BUT..... I would argue that leasing, not purchasing equipment is the way to go. I mean, it is a dollar for dollar tax write-off. So you buy a $6k mower, lease it for 3 yrs (@ $2k per year plus interest.) Each year, you write-down your income $2k (not sure if the interest is deductible or not.) Nonetheless, at the end of the lease, just replace it with a new one (thus avoiding expensive repair bills) when your lease expires (or use it for parts or as a backup.) This is one of the biggest missed opportunities I see discussed on this board. Am I missing something really basic here? Last point

    That is exactly why I am hoping to get to the point where the numbers are reasonable. I must say, I really think I am being realistic here. The biggest issue is gaining this customer base. Like I mentioned above, using the exact same assumptions, I loose my a$$ at 140 accounts (12% Gross Profit Margin,and negative net profit) but double that number to 280 accounts, and the model is pushing 100k. Would you say that my assumptions are more "pie in the sky" or yours, or vice-versa. I mean, did you plan for 500 per month for new trucks, an $18/hr foreman for every 4 laborers, etc?
  9. br1dge

    br1dge LawnSite Member
    Messages: 49

    I did include (but maybe it didnt show) maintenance expense. I assumed $2 per mowing would go towards repairs. BUT, the plan calls for leasing, which would keep me in warranty most of the time, allowing me to replace mowers before they started breaking down. I also have .5 trailers per landscape truck (minimum of 1, and in increments of 1.)

    I also do have line items for rakes, brooms, blowers, trimmers, backpack sprayers, etc... Its just the numbers were insignificant (in the big picture) so I didnt add. I basicallt said 2 of everything for each truck.

    Thank you for your confirmation here. Some people may not "get this one," but to me, it says something about the person's commitment to the business as he has more "skin in the game."

    Very good ideas. Thank you very much
  10. DFW Area Landscaper

    DFW Area Landscaper LawnSite Silver Member
    from DFW, TX
    Messages: 2,116

    As for leasing equipment, I am not aware of anyone that leases this stuff. Trucks, yes. Mowers and 2-cycle stuff...never heard of it.

    I would seriously encourage you to look at other industries before you make the decision to go into lawn care. I'm convinced there are a lot better industries to get into.

    A few questions: What will your role be in the business initially? Will you be pushing a mower to start out or will you be managing laborors or will you be watching the manager? Will you keep your present job? How long can you go before you must draw a salary? How much capital will you invest initially?

    DFW Area Landscaper

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