Article Author Mike Eisenhuth of LandOpt and NALP Consultant Member
It’s no secret – businesses that know their costs and keep them in check perform better over the long term. These businesses remain solvent and competitive in the marketplace, in large part owing to the proactive, mindful stance they take toward cost management.
It seems like a simple concept: manage costs so inflows consistently exceed outflows. So why do so many small businesses go out of business? One reason is because they do not have an accurate picture of the costs associated with expenses that do not directly generate revenue.
In general, billable time is time spent generating revenue, and non-billable time is spent maintaining and growing the business. Both billable and non-billable time are necessary for the successful operation of a business. Defining what constitutes billable versus non-billable time is critical for determining fee structures that recoup costs with non-revenue-generating time and ensuring cash flow is not compromised. Here are 3 ways to lessen the financial impact of non-billable expenses and preserve the bottom line.
Labor is one of the most significant expenses in the landscape contracting business, but it is also one of the most easily managed and controlled. Often, landscape contracting businesses significantly underestimate the costs associated with crew mobilization. Rather than calculating travel time at the crew level, it is critical to track at the individual level and to factor in both departure and return times for each crew member.
For example, imagine you send a crew of three on a thirty-minute trip to a job site. Reason might tell you that mobilization time is thirty minutes, but it is actually sixty minutes times three, or one hundred eighty minutes – three hours – total. From this perspective, it is easy to see how profits and cash flow can be significant impacted by under-calculating mobilization. When in doubt, it is always to your benefit to overestimate. It is far better to allocate for too much non-billable mobilization time than not enough.
Automating and Outsourcing Tasks
Back-office functions like payroll processing, handling customer inquiries, scheduling meetings, answering emails, and other general office duties are undoubtedly necessary elements of the operational and business management mix in the landscape contracting business, but they are also some of the most pervasive profit drainers. Automating and outsourcing these tasks as much as possible without sacrificing the human element so essential to the customer relationship frees up your team members’ time. For instance, you may want to invest in payroll processing software or work with an outside accounting service to help you keep your books balanced. It may be tempting to consider back-office functions billable tasks, as they represent time spent keeping the business operational. But regularly asking yourself whether the task being performed is necessary for providing a service can help you to keep it in the right operational bucket.
One mistake many small business owners make is failing to consistently track how time is spent within the business. Time tracking is necessary for maximizing billable time and preventing non-billable time from eating up valuable profits. One easy way to track time spent on both billable and non-billable tasks is to create cost estimates that calculate the percentage of billable and non-billable time a business spends per month and that allows you to see where extra time needs to be added for unexpected events. The most time-consuming portion of creating a cost estimate is tracking and compiling the data over a period of months, but it is time well spent. Time estimates are valuable for helping owners and managers to strategize, to assist team members with using time more effectively and efficiently and to set overall organizational goals.
Non-billable time is necessary for the successful operation of the landscape contracting business, but it doesn’t have to be a profit drainer. Taking a few consistent steps to reduce its overall impact on net income ensures your business will continue to do what it does best – offer high-quality solutions while making a healthy profit.