Mike Andes breaks down a lawn care P&L: $300K revenue, $23K profit, $106K wages. The owner works 60-70 hours weekly for minimal pay. A 20% price increase could triple profits. Don't hire aggressively without cash reserves, and the owner should work in the field until hitting $500K revenue.
Hey everyone. My name is Mike Andes, founder of Augusta Lawn Care. We have over 150 locations around the world. But today we're looking at a real profit and loss statement from a lawn care business that isn't making enough money to be able to pay the owner. I really didn't know what to do. You know, with $2,000 in the bank account and not being able to pay myself a paycheck. Let's look at their real profit and loss statement from last year and see what the problem is. Dr. Diagnosis is on the case. Alright, so when we look at a profit and loss statement, the very first thing we're going to do is look at the top line revenue. We got almost $300,000 in annual revenue. Nice little business. Then I look at the bottom line.
$23,000 in profits. Not so great. Why? Because it's about an 8% profit margin. Now 8% profit margin can actually be decent on a bigger business where the owner's taking a salary. But I know that this owner is not taking a salary. And, and only $106,000 every single year is going to wages. Which means he's paying his employees with 106,000. He's not getting any money. I can do basic math in that. Ok, if he's working out in the field or helping the team, let's just say on average someone can make $100,000 per year. Well, that would mean approximately two to three full time employees. I haven't gone to this location and I'll be able to tell that there's about two to three full time employees. Plus the owner might be taking some money, but I consume that based upon the $106,000 in wages. This is where it gets a little alarming because at this size of business, $300,000 is in what I call the wilderness of the lawn care, landscaping and home service industry. What that means is you're over here at zero, then you're over here at 200,000 in annual revenue and then you jump all the way up to $500,000 in annual revenue. I call this the wilderness. Between 200,000 and $500,000 in annual reven. Most people give up, quit, or go back to being a solo operator when they made about 150 $200,000 in annual revenue. Why? Because between 200,000 and 500,000 you need to hire employees and during that period your overhead goes up and yet you don't make any more profit. Like actually taking home more money doesn't happen. And that's why a lot of times people at this size of business, Cobb's career, they go back to being solo. Why? Because I'm only making $23,000, and I'm putting myself through the headache of growing a business that has employees and $23,000. I'm not even making minimum wage. Why would I not just get a job and make 30 or $40,000 and not deal with all this headache? This owner specifically was working 60 to 70 hours a week in the business. They were stressed out of their mind. They. They weren't making any money yet. How do I fix this? First and foremost, can I raise prices? Because if the business is struggling to the point where we are not profitable enough, I'm not taking any money home. Can I raise prices? Is my first question. Now, the reason this is my first question is because if I can raise prices by, let's just call it 20%, I am going to be able to add $60,000 of revenue by just increasing prices by 20%. The question is, how many of your customers are going to leave? If all of your customers leave, you aren't going to be making no $60,000 extra. You'll be making a big fat goose egg. Now, if I can raise prices by 20% and all my customers stay, now, all of a sudden, Instead of making $23,000 in profit, I'm going to make almost $90,000 in profit. Once I add the price increase of 60,000, I can triple the profits. Triple the profits of this business if I can raise the prices. Guess what? If I added $60,000, I'd almost be almost. I'd be almost $400,000 in annual revenue also, which gets me closer to getting out of this wilderness. And the profit that comes with the 200,000 to 500,000 range, which I don't like it very much. Now, if we can't raise prices or the owner is like, well, that's nice that we could raise prices, but I want to keep growing, and I have lots of cash. This isn't necessarily a bad situation. If last year the business only did 50,000 in revenue, this year they did 300,000. Next year they're on pace for 600 or 700,000. If you're growing really fast, it's very normal to have either low profits or even lose some money because you're growing so fast and growth sucks cash. But if you don't have a bunch of profit or a bunch of cash sitting in the bank and. And a bunch of reserves, you're going to need to Be able to provide for your family. And you're not going to be able to live on $23,000 a year despite working 60, 70 hours per week. You might as well go flip burgers at McDonald's, because doing that for 60 to 70 hours a week, you'll make more than $23,000 in profit. And so my recommendation for this is, number one, can we raise prices and immediately fix the profitability issue? Number two, if you want to stay in growth mode, you got to have a bunch of cash. So because right now we are running an unprofitable business, we can't even afford to buy another truck, hire more employees, upgrade the shop space, because we simply are running too low of a profit margin business. Ideally, I want to be shooting for 15 plus percent profit for my home service business. The best businesses and home services that have typically been in business for five to 10 years and been in profit mode can get above 20%. And that's where the real money is made. Now how are we going to do this? The owner should really make sure that they're in the field more often. Because the big problem I saw with Cobb's Care is the owner spending a lot of their day working, quote unquote on the business news alert. Until you're over 500,000 annual revenue, you should not be working on the business. Work in the business so you're not having to pay so much in wages and then be able to take more profits home because the revenues are higher and your expenses for wages are lower. The problem with having only one or two employees is and the owner being out doing estimates all day, driving around. Until you're over 500,000 annual revenue, you can't afford an office person. You can't afford to be doing estimates and sales all day long unless you have massive amounts of cash behind you and reserves that allow you to stay in growth mode. This is Cobb's Care. If you want to see what actually happened when I went to this business and how we turned it around to make it more profitable, watch this video right here.
