Forecast Management – Doing the Math Part 6

Managing future risk and people are essential to business success. That’s why Doing the Math is so important. To accomplish this, you want to build a culture that does more than react – one that looks forward in preparation. You can do this using a combination of landscape business management software and a proactive forecasting process that:

  • Holds people to a high standard of preparation
  • Gives them feedback on performance and results (kudos and tough love)
  • Involves them taking ownership of their work (preparing for customer service and delivery)

Success relies, to a large extent, on planning – the ability to anticipate resource requirements like time, labor, materials and equipment. In my last few posts, we have reviewed the elements of a business management reporting system including: (1) financial budgets, and (2) reporting practices for Sales and Customer Management. In this post, we’ll establish best practices for planning.

We start with a Forecast KPI, drill down to function reports, and finally design a dashboard to drive preparation activities and accountability (see the graphic below – Forecast Management Reporting).

Forecast Management Reporting

Forecast Management (KPI):

This KPI allows you to assess whether:

  • The work and services currently sold and proposed will achieve your budget goals
  • You have the labor and equipment required to deliver those services when they were promised

It also manages your primary risks – too little revenue and/or too little or too much labor to meet your budget. By adding this Forecast KPI to your management practices, I hope you can see the strong connection to the Sales and Customer Management KPI’s. Together, these three provide the essential information for making plans today that produce financial benefits in the future – not to mention the benefits of improved employee morale that naturally come with proper preparation. (It’s not much fun to be a figurative firefighter every day – it gets old).

Forecast KPI

The Forecast KPI is based in dollars. The blue segment of REVENUE bar shows revenue sold, but not yet delivered. The orange segment shows potential revenue – bids in the sales pipeline. The REVENUE BUDGET bar shows the budget for that same time period – month, quarter or year. The LABOR and LABOR BUDGET bars show the dollars and hours required to deliver the services associated with the revenues. Sweet! Now at a glance you can make a pretty solid forecast of your future P&L compared to your budget P&L.

The next step is to forecast and plan at a more granular level by “drilling down” into:

  • Sold Service Work
  • Proposed Service Work.

These two reports do more than answer the basic question, “Do we have enough work and enough people to do it?” They outline specific types of work promised and when they need to be done. Total hours and dollars don’t explain the “devil in the detail” requirements that various services require – like different crew talents and unique equipment and material needs.

Forecast Reports

A Sold Service Work outlines sold work by service type. This is essential information because individual services types may have unique requirements for labor, materials, subs and equipment. It also accounts for specific seasonal timing requirements (i.e., the customer wants flowers installed in April not in May).

Sold Service Work (Pivot and List versions)

Proposed Services outlines those services that might be sold. These should be included in your planning as a “what if.” As in, “what if” we sell all that stuff in the pipeline? Could we get it done when the customer wants it done, considering all that we have already committed to?

Proposed Service Work

Now that we have this information, we have to make it available to the people who do the work and make decisions about preparation… and keep it current to maximize everyday awareness and personal accountability. That’s where dashboards are most useful as reports… in order to:

  • minimize the risk of customer dissatisfaction (services behind schedule), and
  • maximize efficiency (materials, people or equipment available/ready)

Here are a few essential dashboards:

Work Last Week – the services (revenue and hours) scheduled over the past week – were all scheduled services delivered?

Work This Week – the services (revenue and hours) to be delivered this week – are all forecasted services (mulch, clean-ups, flowers, etc.) now scheduled?

Work Behind – a list of services forecasted and scheduled (revenue and hours) that are past due dates.

Work not Billed – a list of completed services that are “un-billed” (these are typically enhancement, T&M, and per-service work).

CLICK HERE to see those four dashboards.

These are the best Forecast Management practices. Using a cascading reporting structure for landscape and snow business management, you can minimize surprises, build efficiency and increase your customer satisfaction – all while creating a culture of accountability where winning becomes the norm. This is landscape business management in real-time, as it should be.

Next up: the Profit Management KPI.

KPI’s in a Landscape Business – Doing the Math Part 3

KPI: Sounds pretty important, doesn’t it? That’s because KPIs (Key Performance Indicators) are important. They are the first level “drill down” in the reporting cascade for a good Landscape Business Management Software (see below).

BIG PICTURE

Rolling Budget

Business KPIs (Key Productivity Indicators)

Functional Reports (Sales, Client, Production, Finances)

Process Dashboards

LITTLE PICTURE

KPIs are used to identify the sources of the variations in your rolling budget so that you can make the adjustments needed to reach your goals. There are six critical KPIs: overhead recovery; client management; job – service and profit center margins (P&L); labor efficiency; sales management; and work forecast. Let’s briefly look at each one and why they are essential.

Key Performance Indicators

Overhead Recovery – If I am the boss, I want to know: (a) I am generating enough gross profit to cover fixed expenses, and (b) whether I can “flex” my pricing because I have it covered.

Client Management – I want to know (a) how much recurring contract revenue we have under management, (b) what we have lost and why, (c) what is at risk of non-renewal, and (d) how much upsell revenue we are generating as a percent of current contract revenue . I want to know if our client revenue will achieve the budget goals.

Job – Service P&L Management – I want to know (a) where I make and lose money, (b) the nature of my gross margins in detail, and (c) whether my labor rates and projected labor spending dollars are within budget. As I discussed in the last post, no cost variance will cost me more than poorly trending labor. I can tell you this from a client experience last year – a very painful and costly experience at that. The lesson learned: When it starts to trend badly, don’t wait. Act!

Labor Efficiency – I want to know (a) where we are over or under on job hours, and (b) whether that over/under is due to field performance and/or estimating accuracy. I also want to analyze these trends down to individual crews and the jobs.

Sales Management – This is major variance problem #1 (labor is a close second).  Therefore, I want to know where my new sales are coming from: (a) is there sufficient pipeline activity to meet the revenue budget, and (b) if we are bidding the right stuff at the right margin, and closing at an acceptable rate.

Work Forecast – Finally, I want to look forward and play sensitivity analysis (a.k.a. “what if”). Specifically, I want to know, based on what has already sold and some of what is currently proposed, whether (a) there will be enough revenue to achieve the budget, (b) if we have too many or too few production crews to match the revenue budget, and (c) if the combination of these two will produce the gross profit dollars required to pay for my overhead.

 

Bringing It All Together

Budget variances point me to where the problem is and the KPIs tell me what it is. And dipping back into my bag of the clichés, “a problem well-defined is a problem already half solved.”  I learned this at the same time I learned to always do the math.

Why do the math and go through all this reporting and analysis? Because everyone has an opinion and a rationale. This is fine by itself, but opinion and a rationale are no substitute for facts. When it comes to smart budgeting, only numbers matter. So I listen to the opinions and rationales, then ask, “Can you prove it to me with the numbers?”  That’s why we do the math.

The next level in a cascading business management software reporting system is a drill down through the KPIs – otherwise known as Functional Reports (e.g.;  Detailed Sales, Client, Production, and Cost reports). These reports will provide real insight into actual transactions (the “scene of the crime” details) essential to correction, action, accountability and ownership of problems/solutions.

I will discuss these reports next time.

If you have questions or need more information about any of these KPIs, please feel free to contact me at kevin.kehoe@youraspire.com.

Budgeting: Doing the Math Part 2

To make money, you must manage effectively. To manage effectively, you need to employ a cascading reporting structure that starts at the top of your company (big picture) and drills down to the bottom (little picture). There is no other way to maximize visibility and accountability.

BIG PICTURE: Rolling Budget

Business KPI’s (Key Productivity Indicators)

Functional Reports (Sales, Client, Production, Finances)

LITTLE PICTURE: Process Dashboards

There is a right way to do this. Let’s start with the big picture – the budget – in this post and move down the cascade in future discussions.

The budget is a working management tool that operates at the biggest picture level. Once you create it, you need to use the budget by “rolling” it monthly. This reporting process forces you to identify variances (problems) and identify/re-forecast your plan (solutions) to ensure you make the budget or make the necessary adjustments to secure your net profit.

Make the Budget (The Original)

Build your budget from the bottom up: Start with net profit, add overhead expenses, determine cost of goods (labor, materials and sub-contracts) and labor costs. Then, calculate the revenue required to get you the gross profit dollars you need. You always keep this original as your standard of comparison. It is your goal. See an example of a simple condensed budget below:

 

Roll the Budget (Re-Forecast)

Rolling the budget simply means “dropping in” actual results monthly where the original budget numbers were. Then, conduct a detailed review of the variances from the original budget. You do this to identify problems and define solutions – to make sure you make the budget. See an example of the rolling budget below:

 

Variability vs. Control

There are typically three key areas that vary in any budget year. These are overhead expenses, labor and revenue. There are usually two numbers that really matter – those you can control in the short term: labor and revenue. I am not suggesting that overhead is not important, only that it is harder to control in the short term. You don’t budget “fat” into the overhead, and most of those expenses (rent, equipment, insurance, etc.) are fixed. This leaves only staffing cuts to reduce overhead. Ouch!

Problems and Solutions

When you look at this rolling budget above, is there a problem? There certainly seems to be…

Revenues are running behind – that seems pretty important. So, here are the questions: Is it possible to catch up and close the revenue gap? If so, how?

Labor may not be over budget dollar-wise, but it is over budget as a percentage of revenue. The average wage rate is higher than planned. Is it possible to bring this cost back into line?  If so, how?

The answer to these questions requires a system of cascading reports that allows readers to “drill down” into the variances – because from the rolling budget view alone, it is hard to pinpoint the causes. Cascading, expandable reports provide an understanding of the source of the problem, allowing for the development of a solution. What are these reports? The first level is called Business Key Productivity Indicators (KPIs)…

…and I will discuss those in the next post.

Reporting: Doing the Math, Part 1

This is the first in a multi-part series about the importance of business calculations and reporting in the green/snow industries.

“Do the math!”

This was my mantra for 23 years of consulting for clients. What I meant was any business plan should be based on information that is mathematically sound and identifies the key activities required to achieve success – be it in sales, margins, hours or profits. And whether you’re planting shrubs or pushing snow, doing the math behind the work is how you stay in business.

For example, in creating a sales plan for a salesperson, do the math. Start with the goal: let’s say it’s to sell $1,000,000 in new contracts. Consider the likely close rate – maybe 20%. That will require that you bid $5,000,000 in prospect volume.

Now, start asking questions.

“How big is the target prospect job size?” This is a very good question. “Whom should the salesperson pursue?” Let’s say the target size is a $25,000 annual contract (which, in my experience, seems to be the national average for many contractors).

Now we know that we need to bid 200 landscaping/snow management job sites. But how many prospects must be contacted to get the 200 opportunities to bid? Let’s say that 50% of the time, a salesperson calls a prospect who is open to a bid (This raises another good question – what is a qualified bid? But more on that later.) Now we have a number we can use: the salesperson needs to have a list of at least 400 prospect job sites that average $25,000 annually in land/snow contract value.

Math > Goals

Does the salesperson have this list? If not, how in heaven’s name can he/she sell $1,000,000 in new business? The simple answer is, it’s probably not going to happen. This is not a bad plan, it’s worse – it’s no plan. In doing the math, we realize that the key to success is not setting the goal. The key is determining what matters in the sales process and where to start. That is why we do the math!

Let’s add one more calculation: Let’s assume it takes eight calls to get a chance to bid. Now we know another important number: that 3,200 touches will be required to meet the goal. Divide that by 250 working days and we get 12 touches every day. Now we have marching orders: The salesperson will have to reach out an average of 12 times to prospects every single day.

Is this too detailed? Not really – but it is essential. Can the salesperson hit that goal? Absolutely – I’ve done it!

Math + Accountability = Reporting

Now that we have a plan of action, we need a reporting structure to monitor and hold the salesperson accountable. Our reports will likely include the following (from big picture to small – with an emphasis on managing the small picture):

  • Sales dollars closed
  • Bid dollars proposed
  • Bid number proposed
  • Average job size proposed
  • Number of prospects contacted
  • Number of touches (email, call, task, appointment)

These reports could be reviewed every day, week or month. Why would anybody want to do that? Of course, for accountability, but mostly to re-assess activity and coach for the right tactics. This is something every sales manager must do, no matter the industry. Reporting provides the information essential to achieving success.

Do YOUR Math

So it must be for running your entire business. What is the math essential for your company’s success? At the big-picture level, it will be measured (per my prior posts) in terms of growth and profits. How many properties are you caring for? How much are they paying you to do it?

And just like the salesperson, you need to do the math and create a reporting structure from big picture to small. The big picture provides the vision. The small picture provides the traction.

Here’s the reporting structure for running a green/snow/contracting business – from the BIG to SMALL picture (more on this in future posts):

  • Rolling Budget
  • Business KPI’s (Key Productivity Indicators)
  • Functional Reports (Sales, Client, Production, Finances)
  • Work – Process Management Dashboards

In these next blog posts, I will do the math starting with the Rolling Budget and drill all the way down to Work Process Management Dashboards. I call this process of creating a reporting structure “cascading.” We start high atop the waterfall and cascade it down to the river below where the actual flow of work happens.

Next: Tune in for Part 2 of Reporting: Doing the Math.

Future Vision: Visibility and Accountability

You can’t blame the office anymore.

Garbage in, garbage out – it’s cliché but true. Sure, information is great, but only if it’s accurate and in a report that people can use. We all know that inaccurate reporting creates problems – the biggest of which is distrust. It’s not just distrust of the numbers (the report is useless), it’s distrust of management (see bottom: KITD FOHS). That is a far worse problem.

Accurate reporting provides visibility (you can’t manage what you can’t see), but visibility is useful only when the data is accurate. Reports are based on information. Information is based on data. Data is based on data entry. This is where distrust in reporting starts – at the data entry source.

How Data Entry Can Kill Trust

In traditional “accounting-centric” software systems, the office has to integrate spreadsheets, paper, and often a few unconnected applications to generate the data that becomes information for reporting. It is the office that deciphers, interprets and re-enters data created by others. And even when they are not the data source, they can be held accountable for reports nobody seems to trust. This is very frustrating for them because it is not easy work and often leads to a situation where everyone else maintains their own data and information from their own trusted reports. Not a recipe for teamwork – as you have probably experienced.

Can this situation be changed? Today’s integrated software systems can change this by removing the office from most of the data deciphering, interpreting and data-entry steps. With this software, sales and operations (the field) are instantly doing the data entry with every transaction they create, review and approve, like these basic transactions:

  • Estimate
  • Time sheet
  • Work order
  • Purchase order, etc. (See chart below.)

Fewer Touches

This is one reason why you invest in mobile-integrated software: less administrative data handling delivers more accurate information. Information becomes the responsibility of the field, not just the office. This is a big change for many companies, and the transition can be painful.

Another reason you invest in mobile-integrated software is to build teamwork – the kind where everyone takes responsibility for what shows up on reports. This is essential to realizing the strategic promises of better service and more efficiency that integrated software provides.

Visibility (reporting) requires accountability (transaction management) so information on reports can be trusted. It is the common responsibility of the field and the office to make this happen. If the numbers seem incorrect, look no further than the way data is being managed in your company. That’s where it starts.

Is it as simple as that? Yes!

Trusting numbers and management starts with integrated workflow and data discipline – this is best practice. Otherwise: Garbage in, garbage out.


KITD FOHS

During the Vietnam War, there was an American Air Force intelligence unit that believed they were providing critical battle plans to field commanders. In fact, they were providing disinformation over open channels for the Viet Cong to intercept – feeding them bogus information during the lead-up to the Son Tay Prison raid. There’s no problem with this tactic in war, but the odd part was that the unit was completely unaware that the intel they were relaying was fake. Of course, when they found out, they were not happy. Responding to their situation with humor, they designed a special unit patch for their uniforms (a pair of eyes looking up from under a mushroom cap) to describe their specialized mission:

KITD FOHS – Kept in the Dark, Fed Only Horse Sh**.


 

Should I Make A Landscape Business Software Investment?

It’s something of a tradition in baseball to put your hat on backward and maybe inside out when your team is behind and needing a rally to win. It’s called the rally cap.

The November election changes everything.  The question is…  should you expect more upside or downside?  If you believe like I do… expect more upside and invest in the coming “rally” for your landscape business.

So where do you invest in your landscape business?

Trucks? Equipment?  People?  Yes, of course…  but these are required investments necessary to operate a landscape business.

  • Trucks and equipment are a depreciating investment, with short life spans, high maintenance costs, and ultimately they have be to retired and repurchased.
  • People are an expense that have a relatively short lifespan (people come and go easily) and they are expensive.

Landscape Business Software Investment Should Do More Than Help You Operate.

What you really want is an investment that does more than help you operate, but helps you manage. Because it is management we lack… and most need.

What is that investment? ERP software.

ERP software is a high ROI investment that helps you manage your landscape company.

It appreciates in value, has a long life, low maintenance costs, and if you choose the right ERP partner, eliminates retirement and future re-purchase.

New technologies have made ERP Cloud and Mobility affordable for anyone in the Green Industry.

At the same time it provides “real-time” information, embeds best practices in the software, and puts it all on a smartphone or tablet so anyone can use it from anywhere – from the owner to the crew leader).

What Is ERP?

ERP:  Enterprise Resource Planning is the integrated management of business processes, often in real-time using software and technology.

For landscape companies, these business processes include:  marketing, sales, landscape estimating, scheduling, purchasing, time, payroll, invoicing, job costing and accounting in a seamless flow…

Where before these processes operated independently of one another (Think many spreadsheets and redundant data entry).  ERP brings them together.

 

How Your ERP Software Investment Pays Off

The result is greater personal productivity and better customer service…  while reducing the cost of doing business.   Just ask those who have made the ERP investment how much more productive people and equipment become when they are “managed” – not just “operated” – efficiently.

Aspire Landscape Software Rally HatThe Green Industry is entering into a new era where management is the real game changer.  Yes..  It’s time to put on the rally cap.

NOTE:  Every week from now on I will be publishing a blog discussing (1) what it is, (2) HOW TO BUY IT, (3) how to use it, and (4) how to avoid making mistakes and get the best ROI from your investment.

So if you are thinking about improving your top and bottom lines subscribe to my “Aspiring Business”blog here…..

How To Buy Landscape Business Management Software Part Two: Cost

This is the second, in a five post series written to help landscape contractors buy landscape business management software.  You can see part one here.

What Should Your Landscape Business Management Software Cost?

The cost of software is not just the quoted price tag.  Without knowing all the cost details, you can pay too little as easily as you can pay too much.  That’s because software is relatively inexpensive to write, but very expensive to support for the software company.  Your cost is like an iceberg; most of it is below the surface.

“Price is what you pay.  Value is what you get.”  – Warren Buffett

Questions you should ask during your selection process.

  • What is included in the quoted price, and what is extra?
  • What additional costs might I incur for hardware and servers?
  • money costWhat additional costs might I incur for support?
  • Are there additional costs for upgrades or new releases?
  • What is your product plan for upgrades over the next two years?
  • Will I need to add staff to manage your system?
  • What set-up costs might we experience in addition to the quoted price?
  • Will I be charged for on-site training visits?

It’s Important You Understand “The Real Price” Of Your Software

Every software company must price for current staffing to support the software, as well as future costs to keep up with client needs and changing technology.  Make certain you understand the real price.  

Finally you need to consider the Opportunity Cost of not purchasing… 

Ask yourself, How will this landscape business management software help my landscape company make more money?”

Besides the expenses, also get a handle on the return on invest you might expect.  Any vendor must justify their price in terms of dollars gained for dollars invested.

Can Landscapers Trust Their Numbers? Part Three.

This is the last post in a three part series on business process and financial management for landscape contractors. (Read Part One.  Read Part Two.)

Stop mismanaging your paper workflow by abdicating all paperwork management to your Administrative staff.

You must have Sales and Operations staff involved in managing the key business transactions: 

  1. Estimate
  2. Work order/ticket
  3. Purchase
  4. Time-sheet
  5. Invoice   

You Just Can’t Leave This To The Administrative Staff.

Here’s why.  Your Administrative staff has very little to do with the creation and execution of any of these transactions.  There is so much information they DON’T have that it almost impossible for them to manage the numbers without responsible Sales and Operations staff involved daily.

It Takes A Team.

Salesmen and Account Managers initiate the estimate and create the work ticket.  Operations Managers make the purchases and manage the time sheets.  Sales and Operations people usually must cooperate to get the invoicing right.  What does the Administrative staff know, except that which they are given?

Yes, I’m saying your Administrative staff needs more respect and the best way to give them that is for Sales and Operations to manage the paperwork for these transactions.  I think just made some friends (Administration) and some enemies too (Sales and Operations)!

It’s Not Complicated But You’ve Got To Execute To Get Trusted Numbers

Aspire_Financial_Systems_For_Landscape_Flow

Click to enlarge

When you think about it …  it’s a pretty simple process.  

  1. For each transaction someone must initiate it (with proper and complete information),
  2. Someone must review it while it is in progress (with real-time reporting on transaction/ticket status), and
  3. Someone must correct, complete, approve and finalize it (by producing accurate estimates, work tickets, purchase orders, time-sheets, and invoices).  

Who?  Together both Administration and Sales / Operations must every day to keep the numbers right through IN PROGRESS reporting on ticket status…  or else you will have a mess at the end of the month.

What Happens If You Don’t Have A Trusted System For This Work?

Transactions won’t be corrected and financial reports will suffer accordingly because their is no time to do all the research to fix all the mistakes that naturally get made every day and if not corrected within 2 – 3 days they often become permanent.

Put Down The Bucket.  Pick Up More Profit.

Yeah, I want to throw up too…  so much work to get it right…  and people say landscaping is an easy business…  But managing transactions is essential to good numbers…  and yes it costs money.  But if you don’t do it, the cost of “bad numbers” is reduced Gross Profit.  So get everyone involved in managing the paperwork flow as outlined here.

 

Can Landscapers Trust Their Numbers? Part Two.

This is the second post in a three part series on business process and financial management for landscape contractors.

Your “Ticket” To True Numbers.

The only way to get true financial accuracy is to adopt a “ticketing” system.  You can manage a ticketing system with spreadsheets but it is time consuming and prone to human error as data must often be re-entered from one spreadsheet to another.

The other problem with this approach is timing as to when transactions are recorded to the job and when they are recorded to the financials.  This means…  yes job cost and financial numbers may not match at any point in time.

Remember, The System Is The Solution.

Aspire_Financial_Systems_For_Landscape_Flow

Click to enlarge

A ticketing system manages revenue and costs on a TICKET.  A job might have one or multiple tickets, but the basic concept remains…  no ticket, no work and revenue is earned as the actual costs are incurred – not as the revenue is invoiced and the labor and materials are paid.  

If your system cannot do this then your financials will provide a distorted picture of Gross Profit and provide ripe ground for internal arguments about expense “allocation”.  (This explains why your people keep track of their own numbers.)  

The Ticket Works So You Don’t Have To

The ticket originates at the Estimate/Contract.  It is slotted on the Schedule Board.  The crew puts time to it on the Time-Sheet, and buyers apply materials though a Purchase Order or allocation from Inventory.  At the end of every day every ticket unless it is complete is IN PROGRESS and only has earned revenue to the extent that costs were incurred.

No More Assumptions

In a ticket system there are no expense assumptions about what labor and which materials get “allocated” to the profit center. So instead of hiring people to manipulate spreadsheets, let the ticket do the work.  If you do this, you can trust your job cost numbers completely and they can be easily reconciled with the “accounting numbers” using an Over/Under revenue account and labor and material Holding accounts.

Make Sense?

Yes, you need a ticket based software system…  there are just too many transactions every month to be tracked any other way without making assumptions.  Stop making assumptions and your numbers will be accurate.

In the third and last part of this series, I’ll tackle dealing with paper.  Stay tuned…