Should You Grow Your Lawn Care Business? OR NOT?

Hey, everyone, it's Mike Andes and you're listening to the Landscape Business course podcast. Today we're going to be talking about should you grow, should you keep growing your business or should you slow down the rate of growth, fix the systems and the profitability before you continue to scale. Before we get today's show though, a big thank you to everyone that has been joining lawn carewebdesign.com at that website is where we can build your lawn care website for you. It's custom to your business. You can actually see three or four of the different designs that we've built on the website now. So check it out. Go to lawncarewebdesign.com there's no upfront big fee. You just pay a monthly fee and there's no contract. So I appreciate everyone for doing that. That is how I am able to kind of keep doing what we're doing here. And in a couple weeks, because of lawn care web design, we've been able to afford having a full time person doing filming for me. So hopefully next couple weeks we'll get more content for you and more interesting sets than just the studio. So really looking forward to that and I appreciate everyone for helping me in that regard and supporting the channel. All right, so today we're talking about should you grow your business? Because I talk a lot about growing your business and I'm a big advocate of scaling your business to the point where it can grow and run without you. And in order for a business to be sustainable without the owner, there needs to be management in place. And in order for management to be in place, there needs to be a certain size so that you can afford to pay managers. And usually that doesn't happen until after a million in annual revenue. Before that, the owner's going to need to be involved and maybe they'll be less involved, but it will usually come at the detriment of the profitability. Whereas after you hit a certain scale with good management and position, you as the owner should not have to be there. You might be there if you like to or want to be, or you enjoy it, but you don't have to be. And the business will continue to be profitable and grow. And so the big question is, should you grow? Maybe you're at 300,000, maybe you're at 50,000, maybe you're at 500,000. Should you grow? See, these are some of the questions that I would ask if I could sit down with every single one of you one on one. All right? And these are the questions that I go like the kind of questions I look at when I'm talking to the franchisees and determining whether or not they grow. And the reason I'm actually making this episode is because yesterday I got a couple emails about it. There was a text message to me about it from our texting platform and someone on the landscape business course, Facebook group, made a question about it. But then I had two phone calls with franchisees. One of them I told them they should wait and continue to make money the rest of the year, keeping the profit, and then next spring really expand. And then the other franchisee, I was telling them like, hey, foot on the pedal, let's go. We still are only halfway through 2020, let's get up and go and keep growing and scaling. And it seem seems like almost different messages after I look back at it, but it was because certain questions I asked and certain things I saw in the business that determined whether or not I should encourage them to grow or encourage them to scale back growth for the sake of being really profitable, saving cash and then growing down the road. So here's some of the questions I would ask. Number one is actually, I didn't even write it down. It literally was something that just came to me and that is, do you have systems in place? Because as you grow there's gonna be more and more stress. It's like a bridge. A bridge is pretty easy to build until you start putting stress on it, you start putting weight, you start having a bunch of semi trucks and trains and cargo being transported across it. Now all of a sudden it has stress on it and it really determines whether or not it has strong foundation and is built correctly. And if you don't have systems and procedures and everything is simply weighing down on you as the you, it's just not going to be able to sustain more and more stress, more and more weight systems, if I can make it sound like this, basically it's like a bridge that keeps building its foundation because the system, as you need more weight on the bridge, continues to build out. Whereas you, if you, the owner, the personality, are the foundation of everything in your business, it's hard to kind of scale you, it's hard to make duplicates of you or clone yourself. Whereas a system, whether it be technology, whether it be a pay for performance system, whether it be management positions, whether it be an estimating system, whether it be a pricing system, those things should scale regardless if there's 10 employees or 500 employees, doesn't matter. And so that is what allows the bridge, the business to get bigger is when it can sustain more and more stress. That is more customers, more new hires, more complaints, more. More phone calls, more emails. That's all stress on the business. So systems are gonna be a big part of whether or not you grow, but it's not a huge part, because like I said yesterday, I talked to two different franchisees, both using the same systems, and one I told to grow, one I told not to grow. And a lot of times that number one system is what I point to. But I wanna dig a little bit deeper today and ask some specific questions that go beyond that surface layer and really see if you should grow your business or not. Number one, if I was talking to you and you're like, should I grow my business? I really want to scale it up. Should I grow or should I put some money aside and grow a little bit later? Number one is, is your growth all the new leads coming in organic, or are you paying for all of your leads? What I mean by that is, are you paying 15, 20% of your revenue going into getting new leads and that's causing you to get busy and now you're feeling like you need to grow, or are you paying 1 or 2% of your revenue going into advertising, maybe in the form of some simple ads or just some uniforms, or like you're doing really, really basic stuff, not spending a lot of money, like less than 1% of revenue, depending on the size of your business, but you're not spending a lot of ads, you're not paying for a lot. They're just organically coming to you. The phone's ringing off the hook. You're not necessarily putting ads out there. You're not paying for ads. You don't have expensive billboards or expensive mail campaigns that you've been sending out every week. It just is coming to you organically. People are seeing your trucks, people are hearing you word of mouth, people are finding you online. Your search engine optimization is on point because lawn care web design built your website for you and you're ranking well in Google and you're getting leads organically. You're not paying for Google Ads, you're showing up in the search results. Is that happening organic leads, or are you having to pay for your leads? And a lot of times the first six months to a year of a business in the lawn care industry, you're having to pay for most of your leads because you are, regardless of how good your website is, you don't have enough traffic for Google to put you up high in the organic reach. As well as you don't have enough brand awareness in your local market because you don't have a lot of trucks, you don't have a lot of employees, people don't see you all over the place. And so you get less organic growth. But now we're talking about year two and three and you've been around for a little bit. You have some trucks, you've got some employees. Should you grow? Are those leads coming in from your Facebook ads, your Google Ads and everything else you're paying for? And when you send, you only get really, really busy and behind when you send out 5,000 mail pieces, or is it just every single day the phone's ringing, emails are coming in, estimate request forms are coming in from your website and you're not spending anything for it. If it's the latter, if most of your leads are coming in from organic sources and you're not spending all that is an awesome sign that you should go and grow. You should get another employee, you should get another truck, you should begin to expand and grow the business because you're not paying for the growth. It's not like some startups where they put in $5 in marketing and they get $4 back in revenue. That's the last thing you want to be doing in this business. You want to be doing as little in ad payout as possible while still generating that growth and lead flow and, and consistently flow. By the way, that's the hard part about organic leads, is that you can't just put more money and get more leads out. It's organic, it just comes when it wants to. And so if you have consistent organic lead flow that is consistently putting you behind and you're running behind, that's a great time to grow. Cause you're not paying for the extra growth. Next thing I'd be looking at is your close ratio on your estimates, alright? And the reason I say that is because if you're closing 85, 90% of your estimates and you're so proud of that, I would be very cautious to tell you to grow. I would rather you get around 50 to 60% or even less, maybe 40 to 50% close ratio in your estimates, but increase your prices, alright? Because as you grow, as I've always said, growth sucks cash, you're gonna need that extra profitability, extra margin on every dollar and in order to sustain that growth, it's very expensive to grow. And so if you can raise your prices before you go into hyper growth mode, it'd be much better. And so if you're closing 80, 90% of your estimates. It's not something to brag over. It's basically advertising the fact that you're probably too low in prices. Like 90% of the time. When I see businesses that are doing 90% plus closing, they're closing every single estimate, their prices are way too low. I would get that number around 50% simply by raising my prices. And I do that before I grow because then I have the profitability and the margin to actually grow sustainably. Alright, so that's the first thing. The next thing I'd be looking at is looking at your percentage of close ratio. How many estimates did I send? How many estimates were one, what percent? If I sent 100 estimates out and 60% of them were one, that's a 60% close ratio. If that's above 50 to 60%.

Especially if it's over 70%, I would start thinking about increasing your prices, therefore increasing your profitability on every dollar that you make before you begin to grow. Because it sucks cash. Next thing I'd be looking at is your profit margin. There's a lot of different factors that go into whether or not I think you should grow your business. Next thing is profit margin. If you're running a really, really thin profit margin, I don't want you to grow, I want you to get the profitability numbers higher. Now, the one time that this is different is the first year. Usually when you're pouring a bunch of money in, you're buying a lot of equipment, you're hiring new people, you're not going to have really good profit margins. And when I say these profit margins, I'm talking about business that's doing a million revenue. In business, if you're just getting started and you're doing all the work, and you've been in the field for a year or two, you're doing all the work yourself and you have maybe like a helper, you're going to be like 70% profitable. Like 70% of your money is gonna be profit because you don't have a lot of overhead, you don't have employee costs, labor, all the rest of it. So when I talk about 15% profit margin, I'm talking about a million dollar business, alright? And that is anything under that, I start thinking again. Should you raise your prices? Are you inefficient? Should you fix those holes before you start dumping in more water? Because growth is like adding water to a bucket. But if there's holes in the bucket, you're gonna lose a lot of the water. Growth is great, the amount of water in that bucket will rise. But if there's holes in the bucket, you're gonna constantly have to regrow, but stuff is gonna keep falling out. So that comes in the form of inefficiencies and not enough profitability in the business. So if you're under 10% net profit at the end of the year on a million dollar business, I would highly recommend that you don't grow yet because you're running your margins too thin to be expending all of that cash on new trucks. Hiring people, developing systems, buying software, all the stuff that's needed to scale takes cash. And if you're not running a profitable organization, it's going to be very difficult to do that sustainably because if a virus hits or if something crazy happens in the economy or you lose employees or whatever it might be, some unexpected black swan event happens in the middle of growth, you're gonna be left with your pants down and you will not have cash, you will not have the profitability that you need to sustain that growth. So I encourage at least a 15% profit margin. At least 15%. I'm really encouraging people to try to shoot for 20% at a million in revenue. That's like a good goal. But I really encourage you to try to get to at least 15%. 15% is sustainable in this industry. And, and you're able to keep growing anything under 10, I start getting a little bit worried in terms of profit margin. All right? And I'm talking about that before you get your paycheck as the owner. All right, so if I make a million dollars in revenue, I expect there to be at least $150,000 in profit before.

My salary at the end of the year. Alright? That's when I talk about 15% net profit. I'm talking about before you take your paycheck. All right. All right. Next thing is cash reserves. How much cash do you have on hand? I always recommend you have at least one month's worth of operating expenses. I know for some people they're going to think that's really low. For other people think that's really, really high. It's going to depend on the size of your business, right? So like I know some businesses that have almost a million in monthly operating expenses by the time they pay people and all their rent and fuel and truck expenses and equipment loans and all the rest of it. So like that number can be really high the bigger you get. If I say a month in operating expenses. But it's a good kind of benchmark for Most businesses between 300,000 and 1.5 million in revenue is like have a one month at least of operating expense. And when I say at least, I mean like, at least it's going to get you through the times that are unexpected, that are hard economically. You lose a big customer, you lose a bunch of employees, something crazy happens, an insurance claim, there's stuff that's weird and you don't want to have such low cash reserves that you lose out on. You know, you have to close down or go bankrupt because of just some crazy event happens. So and when I talk about operating expenses, I'm talking about like if you're operating at full capacity, what is your total expenses for the month? I'm not talking about like if you shut down operations, what's your fixed expenses, like rent, insurance, I'm talking about like operating expenses, everything, all of the wages, everything. You want at least a month of that set aside. And again, if you're in hyper growth and you're just starting out in your first year, that's not going to be possible probably because you're putting so much money into growth and growth and growth. But you're growing like 100% every single month. Like this is what we're seeing in Mount Vernon, 100% every single month growth that's not sustainable when you're at a million in revenue, you're not going like 1 million a month and then 2 million a month and then 3 million a month when you're a big business. So at the beginning though, when you're going 100% year, month over month growth and you're doubling every month, yeah, you're not going to be able to keep that much cash reserves because it's just all going into growth. That being said, you're really small. So the liability of something really big happening and wiping you out is less. As your business grows though, and as you have a more sustainable growth pattern between, you know, 30, 10 and 30% growth each year, that's when you really want to make sure you have a good cash cushion and at least one month of operating expenses in your pocket. I know some people that they want three months of operating expenses in the bank and that's when they feel comfortable to grow. And again, it's going to depend on your risk tolerance and what you feel is right for your business. But I really expect you have at least one month's worth of operating expenses. That means if nobody pays you, there's not a single penny that comes into your business. You can operate for an entire month completely without changing anything, you know, without cutting wages out, cutting expenses, anything. And usually even if something crazy happens in the economy, and let's say your, your revenue got cut by 25%, that means that you'd have 24 months of time to buy with your cash reserves. Because if your revenue goes down by 25%, you'd still have four months. 25% times four is 100%. That's one month's worth of operating expenses. So these are things I think about, I just say at least one month's worth of operating expenses if you can. All right. The last thing should you grow is gonna come down to your team. Do you have a high turnover? High turnover when you're growing is very, very hard to sustain. It costs a lot of money. But to turn people over. And when I say turnover, I mean people coming and then they leave two months later and they come, you hire someone, you train them up for a month and they leave the next month like that. Massive turnover is very difficult on a business. Another thing is how experienced and skillful are your current employees? Are you adding a bunch of services and therefore increasing the amount of skill that's needed. It makes it very hard to scale that business because you need more skilled laborers. If you've simplified things to where it's lower level skills, where like McDonald's, where they can get a 15 year old in there and make them profitable pretty quick, flipping burgers and making milkshakes. The more and more you can simplify your services and simplify the level of experience or skill you need, the easier it is gonna be to scale the business profitably. And reducing that turnover is very important as well as making sure you don't have a whole bunch of newbies. If I'm talking to you and you ask me if you should grow your business, but you've just hired half your workforce in the past month, it's gonna be very difficult to grow your business because they're not familiar with your customers, they're not familiar with your systems, they're probably inefficient still if they're learning how to use your software, learn how to service your customers, or just fit within the system that you've built in your business and operating as a cohesive team. And so usually there's gonna be a lot of inefficiencies and unprofitability. If your team is unexperienced, hasn't been with you for a long time, if there's a big turnover and they don't have any sort of stuff skill in the type of work that you do. So those are all a whole bunch of questions I wanted to kind of just give to you all today. And those are the questions I'd be asking you if you asked me if you should grow your business. So hopefully that was helpful for you today. Thank you so much for listening. Watching wherever you are on YouTube or on Facebook, make sure you hit the like button. Helps out with the YouTube algorithm. I don't have a lot of subscribers because I don't do a lot of collaborations or like Talking with other YouTubers or Facebook people in the industry. So I really do appreciate it. If you like it, if you share it, get this message out to as many landscapers as possible. I'd really appreciate it. Thanks so much for listening to Mike Andes on landscapebusinesscourse.com until next time, Be great because nothing else pays.