Some companies gain new customers each year to cover for the yearly customer attrition, while others grow at faster rates. Just because a business grows doesn’t mean minimal profits and cash flow will follow. However, there are main reasons that would cause an expanding business to reach lower points of profits and cash flow along the way.
Focusing on profit per existing employee, crew, division, etc. is a great barometer to the financial health of your company. This data can also be used for planning and budgeting as your company grows. Just because one part of your business is growing, doesn’t necessarily mean it should have an effect on every segment of the business. This data will give you the confidence to make major decisions in your company, whether it is continuing to scale a division or cutting a service-line from your mix.
Below are some reasons why a growing company could be facing lowered profits and/or cash flow:
Employee Training
Management, administrative, and field labor training can be a huge investment of time and capital within your landscape business. Growing companies add employees on at faster rates, thus leaving the business with a larger percentage of employees in the training process. It can take weeks, months, and even years for some employees to be fully trained on their role depending on their position and responsibilities. A lawn maintenance employee may require less training than a more technical hardscape employee, while training a management employee may require more time and attention than a secretarial/administrative employee. Your profits will be effected in a growing company where a large percent of employees are training and not working at full capacity or efficiency yet.
Recruiting
A company’s recruiting strategy and resources vary significantly with a growing business vs. a business that’s not growing. This is especially important to track in todays market, since a major bottle neck in most businesses is finding job candidates and retaining quality employees.
Fixed Assets
Fixed asset purchases have major effects on cash flow, and for an expanding business this has even more of an effect. Running cash flow forecasts, and scenario planning will give you an idea of when and how many equipment and vehicles to acquire.
Marketing & Sales
In early growth stages, marketing and sales plays an enormous role. After all, with no leads to contact or prospective jobs to perform, there will be no business and definitely no growth. Expanding companies require a larger investment of time and/or capital to build their brand. Companies that are established and have limited to no growth are typically able to get enough leads and jobs without a significant marketing investment, since their brand and reputation have already spread throughout the community. We have seen some larger companies enter markets and build a customer base fast, but the investment into a sales team and marketing strategy is significantly higher than most of the local players!
Systems & Processes
Systems and processes are part of the backbone of any company, so do you have the systems set up to manage and support your business growth? Don’t wait to build systems until you need them, be proactive! By the time you need the systems, it’s most likely too late to build them. Businesses that grow with outdated systems are setting themselves up for below satisfactory performance. Investing in the right technology and software’s are crucial to staying competitive in your market.
Hiring Ahead of When You Would Need The Employee
Growth is not a straight line, even with an increase in sales and profits there are peaks and low points along the way. Many of the low points in profits along the way may come from having to hire slightly ahead of when you have the sales to support new employees. This timing is not easy, but hiring slightly ahead of when you would need the employee allows you to avoid over-working employees and operating too thin operationally. Be careful not to hire middle management or other staff just to “fill the gap”, instead think about the problem or tasks that need to be handled and the solution necessary. Your problem may be solved by a software, or other cost-effective option.
Debt
Expansion could bring an increased need for debt. Debt that is being managed well is not bad, and could typically lead to faster growth! Debt obligations can be met through consistent sales and cash flow. Keep an eye on your financial KPI’s to ensure you are not overleveraging the business.
Growing your business requires a deeper attention to detail into the financial health of your company. This starts with a solid accounting foundation, and frequent and timely financial reports and KPI’s. Remember, your profits don’t need to suffer as you grow!