In the fourth quarter of this fiscal year, landscape contractors must plan for 2016 and critically evaluate their success in 2015. This planning and evaluating goes beyond the balance sheet. Contractors need to break out of the pattern of creating a plan, letting things happen, reviewing what happened at year’s end and hoping for improvement next year. Meaningful and measurable change can’t be achieved if contractors are using just a balance sheet to determine business performance. The approach must include three critical steps:
1. Create a plan;
2. Manage the plan; and
3. Achieve results.
To create a plan for 2016, contractors must look back at 2015 first and analyze key indicators.
Financial performance
There’s more to understanding a company’s financial performance than bottom-line numbers. Start by analyzing sales volume. How does your revenue compare to your sales activity? Were your sales generated proactively or simply via inbound, reactionary customer activity? What was the average transaction size? Did you generate work that was an even mix of project and recurring services? Understanding these factors will help you best understand how to make adjustments and plan for next year.
Just as importantly, a business owner needs to know what’s flowing out. How does your balance sheet compare to your fixed assets? What’s your debt load? If your company operates with a credit line, do you know how much of it has been spent? Look at your year-over-year balance, and pay attention to how much of that is financed. In certain cases, contractors are simply just servicing the debt load.
The human element
Just as the human element is a crucial part of your ability to provide service to customers, understanding its impact on your strategic and financial plan is just as important. Looking back at the year, you should be able to determine revenue per man-hour generated by your operations crew. Looking at those numbers more closely, be sure to understand what the crew’s capacity is compared to what was delivered. More specifically, look at the crews’ skill sets and distill capacity in that way. Are your crews busy with project work or recurring services, which, given their repetition, yield more efficiency?
Analyze compensation, and make sure it’s aligned with the defined roles within your business. Does compensation match effort and output?
Not to be overlooked on the human side is safety. In 2015, what was employee downtime due to injury or sick days? Ensure your company remains vigilant about a safety-first culture and you’re in alignment with the Occupational Safety & Heath Administration and insurance provider requirements. Just as importantly, offer all the necessary tools for employee success by training your team and providing safety equipment.
Strategic elements
Finally, create your own scorecard to accurately evaluate your company’s performance. Where do you stand compared to where you should stand? Where are the gaps between the two? Most importantly, what’s the standard for each element? The standards are the leadership-mandated performance levels necessary to achieve success. Certainly, you can look to the industry norms as a way of determining standards and where you might fall short. But a better place to start is by looking at business performance standards. There are business-driven benchmarks that are often more accurate in terms of what you should expect of your business than simply looking at your industry peers alone.
While reviewing past performance, don’t make the mistake of basing standards on history. It shows consistency of performance and improvement, but it doesn’t necessarily yield a realistic baseline against which you can set expectations. For example, let’s say you increased profit 6 percent during this past year, a marked improvement compared with the previous year’s results. But despite that increase, your company still may be losing money and isn’t profitable overall. So, while history shows how well you’ve performed, you don’t want to use this past year’s results as a company standard because you still need to improve to achieve a higher level of business performance and your desired baseline.
Measurement is the only way for your company to achieve continued growth and success. Every employee needs to understand your standards and how you measure success. They also must be part of the measurement itself. It’s not possible for an owner to be the only person managing and measuring a business. If your crew is aligned around a common goal, it’s a much easier task for everyone to look back at this past year’s performance, critically evaluate results and build on those efforts to be successful in 2016.
Photo: iStock.com/olivierlemoal
Tim Smith is president and CEO of LandOpt, a business systems technology company. Reach him at tim.smith@landopt.com.
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