Just like every individual, every landscape company is developed and operated differently. Each company uses different methods and techniques to survive, and sometimes thrive in today’s business environment. Instead of a right and a wrong way to certain decisions, many strategic moves come down to managing risk. Some landscape businesses may try to avoid debt at all costs, while others use it as way to grow faster than others in their market. Another example of risk is hiring a management employee before there is revenue to warrant it. The hope is that the manager will lead their respective team to gain more sales, but there is no guarantee. This could be risky, but may help you grow faster than another company that is taking less risk and waits until there is more revenue to cover the extra labor expense. Out of the over 150 green industry businesses we work with, each takes a slightly different path. These differences excite us, because it means that there are always ways to optimize and better manage risk.
The market, outside conditions, and unexpected situations will happen that are outside of your control. Focus on what you can control, and then you will be better setup for combating the unexpected. Three main parts of financial risk are:
- Compliance risk: Timely financial reports are necessary for filing timely federal and state tax returns. Properly paying employees & contractors, sales tax, etc., the list goes on! Procrastinating with these to focus on other parts of your business increases risk substantially.
- Credit risk: This is the risk that a company incurs by extending credit to clients. Not getting paid for work upfront increases risk. Can you implement progress payments where needed? The other side of this is making sure your company is able to handle its own credit obligations, so there is enough cash flow to pay accounts payable bills.
- Liquidity risk: Asset liquidity is the relative ease with which a business can convert its assets into cash should there be a sudden need for additional cash flow. The seasonality of this industry makes this a hot topic, and something to be prioritized. How will your decision effect your business’s ability to pay the basic expenses necessary to continue functioning?
One of the main questions to ask is, what risk choice will most likely lead to profit for the company? Taking risk is necessary in a growing company, so which risks provide the best return? Closely tracking financial data is the foundation of this part of the decision-making process, and in itself helps to reduce financial risk. Focus on expanding from just data-entry and standard accounting functions, to include the analysis. A large part of risk management is being realistic. Having unbiased data available on a frequent basis will help to highlight risks, while taking the emotion out of it.
Your financial team doesn’t know all the answers. Multiple departments may need to be included in certain decisions to reduce risk. The whole company needs to be involved with risk management. Leverage the skills, expertise, and knowledge of each team member. There needs to be an awareness of what the potential risk is, plans in the event of a negative outcome, and placing the right team members to manage the situation effectively and timely.
Keep a system in place which allows for free flow of information between each team member and department. This will reduce the likelihood of information and data being stuck in one department, which can be detrimental. This free flow of information can be done through meetings, software’s, etc.
Align your risk management strategy with your business goals. A company with a goal of 25% growth year over year may have a different risk approach than a company looking to double year over year. Remember, many decisions can be approached based on how much risk you are willing to take, not based on if its “right or wrong”. In a landscape business there will always be risk. As a business leader and/or owner the net profits you make are a reward for the risk you take.