For some areas of the country, like the south, spring landscaping projects don't need to wait until spring. For a large portion of the United States, however, we are just now in the midst of the spring project season.
For landscape architects, designers and related fields such as masons, lawn irrigation companies, and arborists, the Green Industry has officially entered the busy season. Your small to medium sized business (SMB) growth may rely on these large design projects, however, completing within a shorter window of time puts stress on your company. It requires a company to scale its work force, battle weather constraints, and select the right projects for your team and resources.
Many companies faced with this perennial battle try to do the best they can with their existing resources. Equipment may be dated, or in need of in repairs and maintenance. But investing in new equipment to upgrade your SMB may seem unattainable. Think again.
Say Yes to New Business
The landscape business is big. The growth in the housing sector over the last few years has led to increased demand for those in the landscape industry. Statistics from the
July 2016 IBIS World market report show that the landscape services industry has annual revenues of $78 billion, annual growth of 3.9%, employs 969,257 people, and represents 474,237 businesses.
Investing in newer, more powerful, or even additional equipment can add to your business speed, capabilities, and level of professional results. Whether you're looking to grow your existing business, or expanding your business into commercial accounts, growth could happen virtually overnight with the right equipment and team in place. Do you subcontract out certain jobs and pay the overhead? This puts pressure on your gross margins and profitability. Wouldn't it be better if you could skip subbing out those jobs to someone with the right equipment? You should think strategically about which investments would bring the best type of business to you and how best to achieve the acquisition of the machinery. The return on investment can be extremely fast when weighing the gain in business productivity and potential to generate additional business while in season.
To set yourself apart from the competition, think about what your business could acquire to increase client satisfaction and improve efficiency:
- Commercial mower
- Tractor
- Compressors
- Backhoe Loader
- Excavator
- Truck/Dump Truck
- Skid Steer
- Track Loader
So, now that your already mentally making a wish list, let's take a step back and cover three important tips before you buy.
Tip 1: No one wants to be a one-hit wonder.
Before you start picking out the colors or additional accessories – make sure your investment isn't a one-time shot. This isn't to throw water on your idea – although watering the seeds of an idea will help it grow – it's just a practical matter to make sure that you invest wisely.
- Look at your given market. How competitive is it? Is it saturated or do you see opportunity for growth with new types of equipment?
- Will the equipment you want to purchase set you apart in your market or just keep you in the game? Is now the right time to think beyond just replacing old with new and instead think strategic expansion?
- Have you had indications that you are missing bids based on ability to service the whole job or contract? Do you get requests all the time for in-ground pools that you refer out to someone? Perhaps you can leverage those relationships and stop turning business away.
Poke at your business plan and make sure you are doing this for the right reasons: to build your business and be more competitive. What does not make good business sense is to invest in a new piece of equipment to handle just one job. This is an investment, and you want to put it to work for you.
Tip 2: Get out your calculator.
The ROI for a given piece of equipment or vehicle may not be as cut and dry as it used to be. Today, it's not just about cost effectiveness and capacity; competitiveness plays a big piece of the equation.
Sure, as we just discussed, you could broaden your offerings or take on larger scale commercial work with new equipment and become more competitive in your field, but how do you measure the ROI? There are many cost justification methods that businesses use including internal rate of return, accounting rate of return, net present value, and other types of discounted cash flow analyses. To factor in competitiveness, build a model that focuses on capabilities-based ROI.
The basics of a ROI analysis are:
- Determine the initial cash outlay. Include all costs – not just the equipment. Shipping, installation, training, etc.
- Forecast the cash flows. This is the most challenging, but critical to estimate the net cash this will generate. Include in your thinking the competitiveness factor.
- Decide on the minimum return required. This is the “hurdle rate”. This is determined by looking at the cost of capital, at the project risk, and at the opportunity cost of forgoing making other investments.
- Evaluate the investment. There are four ROI calculation methods: payback, net present value, internal rate of return, and profitability index. Select the one that makes the most sense for your project and the results will tell you whether the proposed investment offers a return more or less than the hurdle rate.
Tip 3: If You Don't Have Money to Burn . . .
And who really does? Your SMB may be profitable, but that does not necessarily mean self-financing a capital expense makes good business sense. You do not want to deplete your cash reserves or create a cash flow issue during the typical ebbs and flows or seasonality of your business. So, you need to determine if a lease or financing option makes the most sense for your business.
Work with a lender that understands the SMB market. One that can offer flexible financing options that match your business needs, can deliver buying confidence with pre-approvals, and the customer experience ease of simple applications, fast credit decisions, and low-to-no upfront costs. Your lender should have a variety of programs from financing and leasing to
working capital loans, to help with acquiring equipment or support your advertising and payroll needs.
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Ascentium Capital supports the Green Industry with business financing, and leasing, small business loan and cash flow programs to help drive growth. Give us a call today to talk about where you want to take your landscape business and learn more about
finance options as diverse as your business.
