Overhead is the Silent Killer

Hey, everyone, it's Mike Andes over@landscape businesscourse.com today I'm just going to make a short episode about the silent killer of many landscaping businesses, and that is overhead. So when we talk about the silent killer, we're talking about overhead. It's something. When you look at the three major components of a landscaping business, the three different cost, different cost sectors or cost areas of a business in the landscaping and lawn care industry is labor, materials. And then you have this other thing called overhead. So you got labor, materials, and overhead. And it's easy to talk when we. When we talk about efficiency, which we talk a lot about on the course and the episodes that we've had on the show, it's easy to talk about how do we get more efficient with our labor? How do you save a few minutes here and save time on routes and save time on fueling up and save time on washing the trucks and save time. All these different areas of the business route size, route density. Looking at how many people are on a job site, instead of, you know, should we have two people on a mower out versus three or one or, you know, so again, that's all efficiency and optimization of labor. Then you have optimization and efficiency of materials. How are we using our materials? Are we using them effectively? Are we having a bunch of waste? Are we having 20, 30% extra material after a big landscaping hardscaping job, where can we be more efficient with our materials? But the third one is something that trips up most landscape business owners and is really to the demise of many landscaping companies as they go out of business, as they're on their way out, and I'm talking to them, I'm asking them some questions, and a lot of times I can trace back their financial woes to the overhead of the silent killer. So what is overhead? Most people can kind of easily kind of sum it up. It's not very difficult. It's the things that aren't, in my opinion, that aren't driving direct revenue to your business. So this can be anything, everything from your shop. You know, people build. I have seen people build hundreds of thousands of dollars, put hundreds of thousand dollars into their shop, and go into massive debt, not realizing that every month now, two, $3,000 a month is overhead just to keep that shop alive. Overhead is something that cost you money regardless of whether or not you stop using it. What I mean by that is if you have a labor, if you stop working, you stop paying them. If you have materials and equipment and things like that, sorry, if you have Materials. And you don't use those materials on a job site. You don't have to buy them. So they just. You don't have. That's not a cost anymore. In other words, as your sales rise, labor and materials expenses are going to go up. However, with overhead, regardless of whether your sales go down up, they do go zero. Regardless, overhead still costs you money. Alright, so this is the big shop that you want to build that is far beyond your budget, is going to have a massive mortgage and you're going to have to go into debt for it. This is the trucks, this is the equipment, this is everything that if you don't do any work tomorrow, still cost you money. And you might be saying, well, I've already paid for this truck in full, it's paid off. Well, it costs you insurance and it cost you maintenance. If you annualize those costs and expenses, you know, when you count oil changes and tires and brakes and then the time it breaks down once or twice a year, like whatever those things are, if you annualize that every single month, that truck might be costing you 2 or $300 just if it sits there. That means if it's doing absolutely nothing. So obviously it comes back to efficiency. When it comes to overhead, we're talking about overhead. Efficiency is a big thing that we can bring up, is like, okay, we have overhead of trucks, but how can we be more efficient with our trucks? How can we make sure that on a daily basis we're using maybe eight or nine out of 10 trucks and not having three or four go out and having six or seven sitting there doing nothing? Because those six or seven trucks are still costing you money. You still got to pay insurance on them. You're still going to have to pay maintenance on them for oil and ongoing maintenance. You're going to have to pay for all of those things. You have to store those trucks somewhere. You're probably going to have to buy some land or a storage facility. You're not going to do that at your house with eight, 10 trucks. And so we start looking at what is the real cost of a truck. For instance, when people think about trucks, they usually think about growth. When someone has, you know, talking to a new landscaping owner or another fellow business owner in our industry, a big question is how many trucks do you have? How many crews do you have? How many people do you have? And those are all great metrics to kind of gauge where a company is financially as far as revenue wise. But it has nothing to do with the efficiency of the business. And the bottom line. And so the cost of a truck might be $10,000 up front, but then you have to really think about is it 2, $300 a month, that that's going to cost you by time insurance and you have general liability of good insurance policy. And then you have maintenance and storage of that truck. It's probably costing $300 plus a month. So then the big question is, is that truck just sitting there half the time? Are you using it two or three days a week? Or could you go from five trucks to three trucks? But those three trucks are being used every single day, all the time. And you might say, well, I need a couple trucks just in backup in case one goes down or something like that. Okay, so if that is the case, I would do one of two things. I would either get a very cheap truck for those backup trucks, or I would just accept the fact that you're going to have to rent out a truck for a day or two every year when a truck goes down because you don't have that backup truck. However, you're going to save hundreds of dollars every single month by not having that backup truck. So it's something to think about is do you have backup trucks? And I'm just talking about trucks right now, but you can talk about this for zero turn mowers, for aerators, Thatchers, snow blowers, slice seeders, top dressers, all the fancy equipment that we talk about in our industry that people are buying that sits there so much of the time. And I'm not saying that I'm perfect in this regard. We literally bought a snowblower a couple years ago and have hardly used it. And, and it just sits collecting dust. And what we should have done is realize, okay, we're either gonna have to forego a couple contracts that we really haven't made any money on from snow blowing. And so we have to forego those and not buy the equipment. Or we're gonna rent this piece of equipment out during the winter so that we do have it and we can go after these contracts instead of buying a few thousand dollar piece of equipment, a snowblower, and then it not even being used. Cause when it's not being used, it's still costing us money. We, we still have to do oil changes, we have to store it in our facility. And that takes up square footage and square footage costs money. And that's why we have to lease property and lease and buy a storage container and build a shop and all those things. So overhead is the silent killer. It's the Thing that keeps chipping away your business every single month. And it's the thing that you have to keep an eye on. Another overhead is labor that is not out in the field. So this is office staff, estimators, project managers, people, people that are not actually making money on the job site on that dollar per hour basis. That is your labor rate. So this is people in the office and things like that. This is usually not the area I see the biggest weakness in our industry. Most people should be getting another office person, they should be getting a project manager, they should be getting an estimator. But usually I see the biggest overhead expenditures when it comes to equipment and when it comes to trucks. And people are forgetting the fact of how much these, these items are costing them even when they're not out producing income in their business. And so there might be three, four months out of the year where you go slow in the winter and that truck is still costing you money, regardless of whether or not it's going out and making money every single day on a job. So I'd really, really take a look at three different areas of your business. Three different cost areas of your business. Number one, your labor. Look at your labor. See where can we make this more efficient? Can we go from 10 people to 8 people by trimming out, making our day more efficient? Then I would be looking at, okay, trucks. How many trucks do I have now? We're talking about equipment efficiency. So we talk about labor efficiency. Now, equipment efficiency. How can you reduce the number of trucks you need? Should you increase how many people are on the job site in order to not have to buy another truck?

Should you allow your. There's that fine line of letting your equipment go so long, maintaining all the issues with it versus buying a new one. Some people need to buy new equipment because they're spending more money on maintaining their old equipment that breaks down every single week. And they just need. It'd actually be more efficient if they just went out and bought a brand new mower. Equipment efficiency is a big deal. Do you really need a 52 inch zero turn, a 36 inch walk behind, and then two stand on 48 inch mowers on one trailer that has two people driving in the, in the truck? Probably not. That's probably way too much overkill for the size of the crew that you're running. For instance, we on our cruise, if we have two people in their trailer, they're going to have a 52 inch zero turn, they are going to have a push mower, they're going to have two weed eaters and they're going to have two blowers. That's it. And you might say, well, how does that work? Well, it works for our market and our size of properties. If you have bigger equipment or bigger properties, I should say you might have two zero turns on your trailer. But for the far majority of landscapers, I find they put too many large zero turns on their trailers in comparison to the number of people they have on their cruise. If you have two people, you do not need four zero turn mowers on a 16 and 18 foot trailer. That trailer costs you money too. Because that massive trailer, you have to store that trailer, you have to maintain that trailer. That trailer costs money to tow in terms of gas, you have to insure it, you have to license it with the dol. So like there's so many different ways that you can really trim up your business and reduce the impact that the silent killer has on your business. Now this is what I encourage you to do. Look at all your expenses, look at all of your revenues and, and when you look at your expenses, see what percentage of revenue they are costing you. When you look at your labor, what percentage is the expense of your labor compared to Your revenue? Is 30% of your revenue going out in labor? All right, now let's look at equipment, the expensive equipment. What percentage of your revenue is going towards the expense of equipment, I.e. trucks, trailers. And then figure in all of the maintenance and all the things on those trucks, those trailers, the equipment, the hand tools, all the little tools and supplies that use equipment, supplies, all of the different materials that you need, material costs. So we got labor, materials. And then the third one we're talking about is overhead. So the overhead is going to be the things like insurance and the gas and all the other things, all the different expenses in your business. What percentage of that is eating out of your revenue is 20, is 30%. And then really focus on each one of those things separately and figure out a way to squeeze out the efficiency. And so if you're spending 30% of your revenue is going towards labor, and then 30% of your revenue is going towards materials, that second category. And then your third category is taking up 20% as far your overhead is taking 20% of your revenue as far as the cost. That means you have 20% profit. I'd try, if I was you, to try to reduce Your labor by 5%, reduce your labor or so your material cost by 5% by creating efficiencies within your business. And then really look at that overhead and see what you can do to reduce that by 5%. And that's all of a sudden going to make your, your business a 35% profitability type business. So I'd really encourage you to look at your numbers, look at your labor, look at your materials, and then look at your overhead. That overhead is going to be all that equipment and all the other stuff that you got to take care of of on a day to day basis that cost you money. Regardless of whether or not you're out doing business, whether or not you're out on the job site, whether or not you're mowing lawns, installing landscapes, it costs you money. Just sitting there, it costs you money. And so really look at that, look at that overhead cost of the office people. All the things that are not generating revenue is your overhead. And I know those are very broad terms of how we break down overhead and, and then materials and then labor. But if you think in that broad perspective and then break all your expenses in one of those three categories, look at the percentages in your business and figure out a way to really squeeze down those numbers. I promise you the silent killer will not come knocking on your door and overhead will not put your business out of business. So check out landscapebusinesscourse.com for more information on the course. And and big thing coming up is the conference. So really I want you to check it out. And big announcement right now, today is, in just a couple weeks we are releasing our first video of when I go out to another landscaping business and we stay there for 48 hours and we look at how we can improve the efficiencies, improve their performance, improve the profitability and the scalability of their company. And so it's gonna be coming out in the next couple weeks, It'll be coming out on Facebook, it's gonna be coming out on YouTube. So check it out, subscribe there and make sure you see it's be gonna be a couple hour long video for the first one and then a few couple weeks later we're going to do another different business where I go in and we try to help them improve their company. Check it out today. Landscapebusinesscourse.com I'm Mike Andes. We'll see you next time.