landscaping accountant

Financial Considerations when Starting a New Division

As Tony Robbins said, “if you are not growing, you are dying.” What does “growing” in business mean to you? If it means starting a new landscape division, lets take a deep dive into some key points to consider:

Business plan & market

When creating a business plan for your new division there will be numerous aspects within your market to research. First, you will want to perform market research to identify your target market, market pricing for the services, and other competitors in the area. Running your business profitably is not all do to internal operations and efficiencies, it is also due to market factors.

You can also evaluate the industry by conducting PESTLE Analysis, which stands for the political, economic, social, technological, legal and environmental factors. Identifying these different areas will help you answer questions like – if the market is viable, determine your ideal clients, and determine if you are solving a real problem to help establish your value proposition. For example, a growth plan in a small town may consist of offering more of a variety of green industry services, since there are limited customers. For your business plan you will outline a description of the new business division and what it will do. You will also want to identify staffing and management needs that the new division will require; this is key in today’s labor shortages. Layout what tools, equipment, and machinery you will need, and the financing needed.

Structuring the new division

Adding a new division to your business could be simple, depending on how your business is structured at the moment. If your business is structured as an LLC, then you may want to add the division under the same LLC. If you are going to have shared expenses between the divisions, have the same target market, or are in the same industry, then it may be advantageous to structure your new division into your existing LLC. For example, if you currently offer maintenance services and are looking to expand into irrigation services then you would want to structure your new irrigation division within the same organizational structure. You will also want to update your operating agreement if there is going to be a change in ownership/management, which may also lead to a change in taxation.

Set a realistic goal

Set realistic milestones, budgets, and deadlines. Creating a budget for the new division is key for monitoring the profitability, especially if the new division contains a new service-line. It’s important to outline shared expenses in the budget to set realistic overhead costs for the new division. Monitor the budget on a monthly basis to analyze growth, trends, and profitability. Keep management accountable to this budget and their goals within operations. Keep in mind that growth in the new division may not happen immediately, and don’t expect the first few months to be highly profitable or bring in high revenue numbers. Be conservative with your plan, and be willing to pivot if needed.

Separate your new division’s profit and loss

It’s important to separate your profit and loss by divisions and by service-lines. Having separate profit and loss statements for each division will allow you to see which divisions are profitable. If a division is not profitable, then a decision has to be made to improve or drop it. You will need to have a method of tracking and separating your labor and material costs based on the different service lines or divisions. You can match material expenses to a particular service line by utilizing the below methods:

  • Each employee gets a credit card
  • Each department or service line gets a credit card
  • Receipts are manually noted

If you run payroll through a software you can set up departments in the general ledger, and when it syncs with your accounting system it will get posted to the correct department. If you’re paying a subcontractor you can write the service line in the memo, or have a list to reference which shows the names of subcontractors and service line they work in.

These are only a few ways to separate each department’s expenses. If you need profit and loss statements by divisions, we can help you with that.

Marketing & advertising for your new division

Marketing and advertising your new service is key to generating new revenues for that service line. It is important to invest time and money into marketing your new service so that the revenues could begin to recoup your initial cost investment. The earlier you can start generating revenue and therefore a profit, the better your return on investment (ROI) will be for that division. There is a variety of different paid and free advertising methods you’ll want to get started with. Some examples of paid advertising such as Google and Facebook ads are common methods that our clients use. You can also offer the new service to your existing clients, and even decide to give them an exclusive discount. Offering your new service to existing clients is one of the easiest and most cost effective ways to build your new division.

Do you remember the mindset you had when you first started your company? Every dollar counted, and you made sure you were setting up your company in a successful and profitable way. Take this same attention and focus into each new division that you start within your company. Being consistent and keeping your focus will ensure your company stays around for years to come!

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