Where Most Landscapers Lose Money: Cash Flow Problems

Hey everyone, it's Mike Endes and you're listening to the Landscape business course podcast. Today we're going to be talking about cash flow and it's gonna be a segment of a webinar that I did several months ago. But before we jump into that, a big thank you today's sponsor, which is Jobber. If you haven't already, go check out getjobber.com im andy's a n d E s my last name and you're gonna try out their software completely free. We're talking about cash flow today and one of the things we talk about to help your cash flow is to get payment faster. The number one fastest way to do that is to charge with credit. Let your credit cards be accepted form of payment from your customers. They can pay directly from the invoices that you send right directly from Jobber and within a matter of minutes you can have payment instead of waiting days or weeks and usually even months to get payment on your jobs. So check out getjobber.com im andys and I promise you, you won't regret it. Alright, so today we are talking about cash flow. We're going to be talking about several different ways that you can help your cash flow. I recorded this webinar several months ago for Proplus and I just cut this little piece of it out about this cash flow part that I thought I could share with everyone here. And this is not an exhaustive list. You there's probably five other things but I wanted to kind of cut this piece out for you guys to listen to thinking about your cash flow. And keep in mind, when I recorded this, this was in spring, the middle of the spring rush. And that's usually when most landscapers have the worst time with cash flow because you have all this work coming in and yet your receivables are growing and not cash in the bank. And so how do we reduce the amount of receivables and the time it takes to get paid? We're gonna be talking about that today. Several different creative ways of doing that. And so I' looking forward to it. I'm going to go ahead and share this with you, but I do want to make sure that everyone has signed up for Landscape Business Course Conference, also known AS Landscape Summit 2020. It's coming in January, it's three days long. And the new big announcement is that on Friday, the second day of the conference, we are renting five buses and we're going to take everyone from the conference over to Augusta Lawn Care, the shop, our shops like maybe a 10 minute, 15 minute drive from the hotel and we're going to give you a tour of the whole. So really looking forward to it. You know there's gonna be a lot of people, but you'll at least be able to see all around the shop, you know, all the trucks, how we have everything set up out next to the roads. The whole shop's like 2 acres or so where we dump our debris, the offices and all of that good stuff. So really looking forward to showing that to you and I love to have you at the conference. It'll be a lot of fun too. Just kind of like taking a field trip. It's the middle of the second day, which is a Friday on that Friday and that Friday is when we're talking all about P4P pay for performance. It's going to be pret thick dense day of just lots of heavy material. So it's gonna be perfect. Right after lunch we'll take all the buses, head on over to the shop and show you around the place. So really looking forward to it. Make sure you sign up for that conference. Just go to landscapebusinesscourse.com, click the conference tab and sign up there. So without any further delay, let's go ahead and jump into this segment of the webinar about cash flow.

Cash flow problems. Several of you have been email me, send me voicemails, etc. About cash flow issues. And like I said, this is the time of year for that. So many people have that. I try to make this quick. So I'm under two hours total, but I'm just going to do a quick crash course on it. I'd recommend, I'd really recommend you doing two things I know I mentioned on the podcast, but go to LMN Software, LMN Landscape Management Network, LMN Software, fill out their budget. You can start a free account with them. You don't need to use their software, but you can start a free account and make a budget. And I'm not a huge fan of the budget per se, but it gives you a lot of good metrics like percentages of the industry versus your company existing. And so you put all your numbers in, you compare it and contrast it with the industry. See where you're at in terms of like labor rates, things like that. Super useful. Really like that. Another one that isn't as detailed and you don't need to set up an account for is just lawnandlandscape.com benchmark and you kind of benchmark your numbers versus the industry averages in your market. So they kind of like the country broke up in, like, five or six different locations. And based upon those markets, you can benchmark your numbers. But I'd really, really recommend LMN software. It takes, like, a couple hours, but it's really, really great stuff. You get to know, like, you know, your dollars of overhead per hour, which I think is really valuable. And so check that out before we jump into this. So cash flow problems. I'm just gonna go through this quickly. I can go more detail if you have questions, and I'll answer that in the Facebook video next week.

So number one way you can do this is reduce your billing time. All right, I know I talked about this with Colton last week, but you can do net 30. Most people are net 30. That means that once someone gets their bill, they are. They have 30 days to pay it before it's overdue. You want to be on bill. Like, the smaller you can make that, the better. Make it net 10, make it daily. Like, whatever you got to do to where people are. They don't think they have 30 days to pay their invoice because especially if you're accepting checks, if they get an Invoice on the 2nd or let's say, the 1st of March, and they know they have till April 1st to pay it, they're not gonna, like, have any sort of desperation to, like, open up the invoice, write out a check, and send it now. If they know it's due within a couple days, they're gonna do it right away. And so you want to make sure that that's happening. So decrease. Reduce your billing time.

Reduce your billing cycle. And so if you have net 30, go to net 10, try to make it daily where you actually are charging someone's credit card every single day. Like, that's super ideal. Colton did it weekly where he billed out weekly. But your billing cycle time, that's like, how long you give them to pay the bill. You want to reduce that. What I am really, really interested in right now and something we are going to play with probably in 20, 21, is prepayment, okay? Like, you prepay so much stuff, like your rent for your house, things like that. Why can't we get prepayment for people if we're doing it on a contract basis? So we're gonna talk about contracts in a second about cash flow. But if you're doing contracts, why not prepay? Like, if they're paying for services, why not have them pay May 1 for all their services? They're gonna get in May, like we do that at the gym. Like everyone like a lot of companies do this where you prepay for your Internet, all these things you gotta pay before the first day that they perform services or give you that product. And so you want to ideally get to prepay. But if you're at net 30, go to net 10, try to get to where you're billing weekly. Try to get to where you are, you know it's due upon receipt, the invoice is due upon receipt. And then make sure you have an automations. I'll go in a second. But that's kind of tying the next one is just reduce your collection time. If you don't have an automated system that follows up with people based upon their overdue date, that's really important Service Autopilot has this. Lots of other software packages can do this where invoices that are overdue are automatically being sent to the customer with notices of like hey, you're five days overdue, you're 10 days, you're gonna be going to collections. Now we need payment by X date or else it's being sent like and warning them and making sure. And that should be all automated so you don't have to spend time doing it. But it'll dramatically reduce your collection time if you have an automated system. Another way to do that obviously is accept credit cards knowing that you're going to have a percentage that you have to pay to the bank. But that is the cost to getting the money right away. And that's how you should look at it. It's like okay, either A I'm going to be the bank and hold someone's invoice for two months or I'm going to pay 3% to the credit card company in order to get that money right away. It reduces collection time. So to reduce collection time I number one, look at automation automating your collections process and two, accept credit cards and make sure that you are also.

Something I didn't actually bring up in this is like on installed jobs, why not have them prepay if it's a $400 cleanup, why not have them prepay if they're an existing customer, they're gonna trust you. And it's a good way to weed out people that aren't gonna pay soon if they don't wanna pay prepay. At least take 50% down on larger jobs over a couple grand. Like at least you gotta take 50% down. That'll cover your costs. That will make you not have to run into the hole and Completely change your business. No one will ever blink an eye if you make out a system. Like I still remember like years ago, probably three and a half years ago, when I made it where we went from no money down to 50% down for landscape jobs, like no one even cared. I thought it was gonna be a big issue. And I always thought it was such a selling feature that you could like tell the customer, oh yeah, don't worry about it, we don't want you to pay until it's done and you're completely happy. But they didn't care when they had to put 50% down and they didn't change the schedule two days before the job, when they had booked it a month before, when they've already put 50% down. So 50% down locks them into the schedule and then they pay the rest when they're done. Really big jobs. I'd do 25, 25, 25 or sorry, 25, 25 and 50 and try to break it up more. So you can get like 75% of the of the money before the job starts. But at the end of the day you want to reduce your collection time. So on landscape projects, get at least 50% of your money before you start the job. And on mowing, try to collect as fast as possible, if not prepay. And how would you set up prepay if you can't do a 12? This is what I'm interested in selling. I'm interested in selling a nine month contract, not 12, because 12, it's harder because you're amortizing their services over the course of the winter. For us, when we have three months of no mowing, that gets difficult because you have to make them provide value in some way for the winter months. Now if they do a nine month contract, they at least they are seeing us always on their property on the months in which they're paying. But we can prepay it because we can just take Those number of MO's, amortize across nine months, have the exact same monthly payments every single month and make them prepay. It's so much better. So that's something we're really interested in. And instead of selling by the MO price, I'm going to sell by the way, monthly price. So instead of saying, hey Mr. Jones, it's gonna cost you $40 a week, I'm gonna say, Mrs. Jones, $149.99 per month to get your lawn service. Nine months, we're gonna service it. There's no contract. And the reason I can say no Contract because they cancel. I don't need them to pay out the stuff that I'm taking account for the winter. Like it's different, right? So it's not even.

A contract. I say, hey, we mow nine months out of the year and you're gonna. We're gonna mow you from March to November and each month and on the 1st, prior to the services, you're gonna be charged $149.99. Get your credit card and all of a sudden you're getting paid for services three and four weeks before you even do them. That's super cool about cash flow. Something we're gonna be starting, like I said, 20, 21 is we're gonna roll it out because right now we're raising prices and other stuff, but anyways, reduce collection time. Number the last.

Whatever it is. Number three, raise mowing prices to make a profit. So many people in an industry are not making money on mowing. And the reason for that is because it's super high. Lots and lots of money to buy a trailer. Like I think I said this at conference. You have a $20,000 truck pulling a $5,000 trailer with a $20,000 zero turn mower and $5,000 worth of other miscellaneous blowers and weed eaters. And you're mowing a lawn for 25 bucks, and the guy on the crew is making 20 bucks an hour.

Like, it's very hard to make money. Very low profit margin as you scale. And so how do you like. One of the ways to help your cash flow is make money on mowing. Because money on mowing is the, like every single. This is the beautiful thing about raising prices on mowing is that if you take someone from A$30 MoW to A$35 MoW, you've increased their price by 1/7. That's like 14%. You've basically increased your profit margin on that job by 14%. And for some people, that means going from like a 5% really skinny margin to a 19% very profitable service just by tacking on the extra 5 bucks per mile. So what we've recently done is we raised prices on a hundred and something of our customers. Mowing customers. Guess how many we lost? Two. Okay, so if you've heard me talk about prices increases before, that's last year we did that and we lost one customer just this past week. Starting May 1, we raised prices on 130, I think 130 customers. And on all those people, we are going to make really good money now because we've increased our profit by between 10 and 20% on every single job. And that's like five, 10 bucks here. And so when we did that, now we're just gonna make money on those services. And so when we're doing a ton of mowing in the spring, we're actually gonna make money on it and not just be crossing our fingers, holding our breath and hoping we get through the time when the grass grows super long and the lawns take twice as long to mow. And so raising your prices to where actually your recurring maintenance services make money is super important. Build value with your customers, make sure they're customers for at least a year, and then raise their prices. And you can tell them, look, we've never raised your price. And just be really honest with them. If you don't have the letter, the letter that we use, and we still used this last time is in the course. Go to the templates and documents section and you can see the exact letter that we use.

Use it word for word if you want. It just explained, look, we've mowed your lawn for a while because of increasing labor cost and fuel and expenses. Like in our market, in our state, we have to pay this extra sick leave pay. Like it's super expensive to be employed, to have employees in Washington state. And so.

And so we just explained that to the customer. You haven't had a price increase. We're going to have to do this. We will not do this every year. We're not going to do this all the time. We just explain it. And I'm able to increase my margin from like 5 and 6% to 20%, make it profitable.

And like I said, 1, 2% of people will have an issue with it. And they're usually the ones that are always giving you problems. So I really increase my. Like, if there's anything, like, I get scared a lot more when I hear a competitor, I don't get scared. Like, I know that they have a better potential of hurting my business if they're raising their prices versus lowering it. If they're lowering their prices, I know they're not going to be around in 10 years. I know they're not going to have money to market. I know they're not going to have money to hire good people. I know they're not going to have money to brand their trucks and update their equipment. Like, I'm afraid when people raise their prices because I know that they are only going to lose a couple of their customers and they're going to make a bunch more Money. And so I guarantee you, so many of us are afraid to raise prices. But my goodness, if you raise your prices, people like it would change your business. Raise your prices on mowing, raise your prices on maintenance, on the people that you've done services for a year plus, and you will be amazed how few of them you lose. And if you lost, I was willing to lose 20% of these customers. I was like, hey, look, if we lose 30 of these customers, I'm totally fine with that because they're all the customers we're making hardly any money on. And it's going to take away all those low profit margin people that we've been servicing for a long time. And it's going to make room for a bunch of new customers that are high profit margin and we're charging higher prices on. So I really, really encourage that. I don't really like raising prices by like 2 and 3% every year. I'm not a big fan of that because every year you got to sell them on your value. Whereas if I can do it once every three years, but like make big jumps and big jumps on mowing route is like 5, 10 bucks. It's not a big deal. Like if you create value for them, they're not gonna want to go change over the $5. So I really encourage you to, to raise prices. I'm trying to wrap this up quickly.

Last slide. This is something a lot of us don't even think about. Yeah, that's my last slide. Good. Supplier terms negotiations. All right, if you have a mulch supplier, if you have a brick supplier, if you have any supplier that you work with, you can get negotiate terms like, you don't need to pay right away. You can set up an account and pay at the end of the month, the same way that you as a business owner have customers that pay you 30 days later. You can do the same thing to your suppliers if you set up an account. So go to your local mower shop and say, hey, can I set up an account? So whenever my guys come in, my crew, they can just charge the account. They're gonna be like, yes, great. And they're gonna like that. You, on the other hand, are gonna like it because you don't have to charge your credit card every single time. You can wait to the end of the month, get charged once, and have another 30 days on your credit card to pay that off. So again, the same way that we're trying to cut back our customers billing time, you should be thinking, how can you increase it with your suppliers, your equipment suppliers, your material suppliers, fuel. You can get a fleet card and pay it off at the end of every single month and thereby float the expense to the end of the month. These are all things that we really gotta think about. So I hope the cash flow course kind of crash course kind of helped. That 15 minutes there kind of gave you an idea or two to kind of rethink the way you collect money.