Landscapers need all four kinds of money. The problem is, they often ignore the “invisible money”. I’ll explain why this “invisible money” is so important and how you’ll find more of it in your future.
And…if you read to the end, you’ll never ignore your “invisible money” again.
First, I need to explain about the four kinds of money:
- Cash Flow
When you look at this list of the four kinds of money, you might notice that “sales”, “gross sales”, “income”, or “revenue” is NOT mentioned at all. But for some reason, landscapers often define financial success with growth in sales. Unfortunately, top-line revenue seldom makes a landscaper wealthy.
However, Profit (also known as the bottom line) can make you very wealthy…that is…if your company produces enough of it year after year. The pursuit of bigger Profits is a wealth habit worthy of your attention.
How do you get more Profit?
You start by understanding the simple math that defines this important kind of money.
Sales – Expenses = Profit
Profit can’t grow if you don’t control expenses. In lawn and landscape companies, labor cost is the biggest part of expenses. If you build systems that help you better predict, forecast, and track labor costs, you’ll be able to find bigger, more predictable Profits.
On the other hand, if you don’t accurately learn how to predict labor costs, you’ll always struggle growing Profits. I don’t care how hard you beat up your suppliers for a better price on materials or equipment, your Profits will seem elusive.
If you feel like Profits are invisible in your company, there’s a problem. It must be fixed. Tiny bottom lines and negative profit destroy landscape companies and the families they serve.
Salary is the money you earn for doing a JOB inside your company. Each and every business owner SHOULD be collecting a paycheck for the work they do in their business every single time they pay their employees.
If you have been told to only take “draws” when you have “enough” money, I suggest you find a new advisor.
Look, you and your company should have separate bank accounts. You and your company have completely unique uses for money.
Your Salary is your personal money. Collect it! Invest it! Enjoy it!
Cash Flow is the money that keeps many landscapers up at night and working all weekend.
Here’s a very important description of Cash Flow:
Profit + Salary = Cash Flow
Making payroll on Friday requires you to finish enough work and collect enough money to pay your people on time. Making your payroll tax deposit in a timely manner prevents expensive penalties and keeps the taxing authorities off your back.
Cash Flow is the movement of money into and out of your company. To improve Cash Flow, you’ll need to speed up income and slow down expenses.
Financing equipment, setting up a line of credit, using credit accounts, improving your collection efforts, and collecting pre-payment deposits can help you improve Cash Flow almost instantly.
Let me share a little secret about Cash Flow….
If your company is growing more than 20% per year AND your NET PROFIT is less than 10%, your Cash Flow will be NEGATIVE! That is…you’ll be spending MORE than you’re bringing in to support the growth.
So, slowing your rate of growth can help you improve Cash Flow.
If you would like to instantly improve Cash Flow, we recommend the digital home study guide called 24 Quick Cash Strategies. If you have big growth plans for this year, or you need to build your bank account, follow this guide to improve Cash Flow.
Nothing can be more crippling for Landscape Contractors than poor Cash Flow.
Sadly, the vast majority of landscape contractors ignore the most important money in your business. It’s called Equity. It’s the value of your company.
You may have noticed a line on your balance sheet that is labeled Equity…but I bet you put very little thought into how you could improve your Equity this week.
The value of your company, your Equity money, is determined by your Cash Flow. Here’s a description of the POTENTIAL Equity of your company:
Cash Flow x I-B-M = Equity
Be careful with this formula. If your accountant gets ahold to it…they’ll likely try to confuse you and tell you it’s not that simple. They will be correct…but it doesn’t matter today…because you’re not trying to unlock your Equity today. You’re simply trying to UNDERSTAND your Equity a little better.
I-B-M is the Invisible Buyer Multiplier. Your best chance to unlock your equity is for you to find someone who wants to buy the FUTURE Cash Flow of your company.
My next statement may surprise you…so…get ready.
You’re NOT IMPROVING YOUR EQUITY when you pay off a loan for equipment.
You improve the Equity in your company when you grow your Cash Flow or make it more predictable!
I began my professional career as a consultant to owners of lawn and landscape companies in 1998. In the past 23 years, I’ve had ONE – THAT’S ONE – NOT TWO – JUST ONE contractor call me up and say, “Tony, I’d like your help improving my Equity“.
Here’s why I call Equity the Invisible Money.
- Most contractors are not looking for it.
- Very few contractors know how to increase it.
- Less than 5% of landscape contractors will deposit their Equity into their personal checking account…95% will squander it…failing to unlock it in their lifetime.
- For the handful of landscapers who unlock their Equity, they will receive far less than they could have.
- If you die BEFORE you unlock your Equity, it may be lost forever.
- You have not given much thought to finding the Invisible Buyer.
- You have not given much thought to improving the I-B-M over the next few months or years.
To unlock your Equity and transform it from Invisible Money into cash in your personal checking account, you’re going to need to start thinking about it. You’re going to need to learn how to measure it, track it, grow it, and collect it.
Unlike the 24 Quick Cash Strategies that can unlock cash in days or weeks, growing and unlocking your Equity takes one to five years.
I want you to think about this…
Your company could be your biggest and best source of retirement funds in your future…or it could be the biggest burden you leave for your family.
If you are like me…
Getting a little bit older every day…
You’re going to have to think more and more about your Invisible Money…
If you want to unlock your Invisible Money one day and deposit it into your personal bank account.
If YOU would like to get started on this journey, my team and I are here to help.
Send me an email to Tony@TonyBassConsulting.com and put “Invisible Money” into the subject line.
Then we will connect with you.
Tony Bass, founder
PS – The highly acclaimed Profit Builder Training Event helps lawn and landscape business owners learn the skills to build a budget, control costs, improve estimating systems and grow your equity. These small-group events are limited to just 12 non-competing business owners and their partner. Details are found here.