Hard times can seem a lot less intimidating if you’ve weathered similar storms before. However, if your business is on the newer side, chances are your company didn’t even exist during the Great Recession.
While the current economic situation isn’t quite as bad as in 2008, some landscape companies are already seeing clients delay enhancements, scrutinize maintenance pricing and rethink larger projects. Thankfully, there are steps you can take to ensure your business is prepared for a serious downturn.
Know Your Numbers Before You Need Them
John Munie, founder and president of Focal Pointe, based in Caseyville, Illinois, says one of the lessons he learned during the Great Recession was the importance of knowing your numbers and having a strong balance sheet.
“Know what your break-even cost is,” Munie says. “If my overhead is $2.5 million, how much work do I have to sell at what margin to get to $2.5 million to cover my fixed costs? That’s your number; that’s what you’re racing to.”
Steve Corrigan, president of Mountain View Landscapes, based in Chicopee, Massachusetts, says because they hadn’t experienced a recession of 2008’s magnitude before, they didn’t know what to expect at first.
“After realizing that new work was going to get tight, we set a goal to find and land projects to generate enough gross margin to break even,” Corrigan says.
Chris Lee, president of EarthWorks, based in Lillian, Texas, says during the Great Recession they began aggressively selling maintenance work and were willing to take lower margins, understanding that was where their revenue was going to come from for the short-term. He says with these lower margins they had to be mindful of their efficiency.
“Because we were about to do a bunch more maintenance, and we didn’t have the money to outfit all these new trucks with $30,000 worth of equipment, we decided it’s kind of silly to have $30,000 worth of equipment that you’re only using half the time,” Lee says. “We structured the crews and the work in a way that there were crews that mowed all day and got all that stuff done, and then there were other crews that went back to do the fine touch stuff, just some hedge trimmers and pruners, and much less capital, and we found, not in all cases, but in a lot of cases, that was a more efficient way to do it.”
Brian DuMont, CEO of Yardnique, based in Morrisville, North Carolina, cautions that even when you’re trying to break even, you shouldn’t just take work for the sake of taking work.
“Not all jobs are profitable jobs,” DuMont says. “Our goal was to not lay on anyone off, but it was also to keep our doors open, and if we just took work on that wasn’t profitable, we’d have a problem. It was about knowing our numbers, where we had to be, and we cast the net maybe three times the number of customers that we got the same amount of revenue for, but we turned down a lot of customers.”
Be Willing to Make Hard Decisions
Times of economic hardship come with the challenge of making tough decisions. What matters is being decisive and standing by your choices. These aren’t just limited to layoffs either. They can also include changing your service mix or admitting a previous strategic move was a mistake.
DuMont says one of the hardest aspects he experienced with the Great Recession was identifying how to proceed. All he knew was he had to make a decision that would allow them to grow and not lay off employees.
“I had an approach of, while others are retreating, we’re going to go forward and make sure that our team was bought into the message,” DuMont says. “The second challenge I had was making sure the team was bought into the mission, and that mission was not only that we were going to come out of this, but we’re also going to have an opportunity to really grow through all the recession.”
In some instances, layoffs are unavoidable. Munie says emotionally it was hard to lay off a team member, but he made the decision by reviewing his expenses and determining who wasn’t mission critical.
“Make that one cut, and be confident in it, and then once that’s done, then have a team meeting with your core team, say, ‘Guys, these are decisions I made, this is why. This is where we’re at. We’ll be fine,’” Munie says.
Corrigan says they had to lay off four key people in management positions who represented 25% of their management team during the recession.
“It was one of the toughest and most emotional decisions I have ever made in my 50 years of business,” Corrigan says. “The decision on who to eliminate was difficult. I had three other people on my executive leadership at that time and we all discussed the pros and cons on what positions to let go based on experience and the ability of others to backfill the roles we were eliminating.”
Similarly, when it becomes apparent you need to pivot your services, you need to do so quickly and be confident in the decision and your ability to execute it.
“Anytime you’re dealing with rough seas, if you’re overly positive, people see through that,” Lee says. “They’re like, ‘Man, I don’t know.’ You have to be realistic about the circumstances, but you have to be very positive about your plan.”
Create a Strong Service Mix
Because different segments of the market are impacted by the economy at different times, Lee recommends having a diverse portfolio of clients.
“The more verticals you’re in and the better you understand those verticals, the better position you are in to just be nimble and be quick,” Lee says.
In Lee’s case, he had just created a construction division in 2006, but one of the best decisions they made early on during the recession was realizing it didn’t make sense and shutting down the division.
“Maintenance is the one thing that we know historically is recession-proof to the largest degree possible,” Lee says. “You can get pricing pressure, but things have to get maintained; grass has to get mowed. It’s not going away. I think a lot of people stood around feeling sorry for themselves going ‘Wow, this is terrible,’ and ‘Woe is me,’ and that was not the approach we took. We took the approach of, ‘Hey, we know something that will get us through this, and that’s maintenance.’”
Lee says while others were reluctant to make a change, by pivoting quickly they were able to replace all their construction revenue with maintenance work. He says that not only did they not shrink in 2007 and 2008, but they exploded in 2009 when customer budgets began to recover.
Meanwhile, DuMont says in 2008 they were 65% construction and 35% maintenance and now the business is 90% maintenance and 10% construction.
“Let’s say we had 20 clients,” DuMont says. “I knew that those 20 clients were going to cut back on the number of jobs that they were going to have for us, so my approach was instead of 20 jobs, let’s go get 60. The plan was when the recession does settle, those 60 clients were going to ramp up, and our business would just scale, and that’s exactly what happened.”
When deciding if you should add maintenance to your services, consider your core competencies.
“Maintenance for sure is more recession-proof, but if you’re bad at it and you lose money doing it, I would be very careful if I were them about that strategy,” Munie says.
Build Financial Flexibility
Another key to weathering economic downturns is to be financially conservative and always have cash on hand.
“You don’t need a $120,000 truck your second year in business; you need money in the bank in case something comes up or in case an invoice doesn’t get paid,” Lee says.
Munie agrees you should resist purchasing shiny new pieces of equipment and avoid being overinvested in install equipment.
“Just imagine if you’re debt free, you own your house, and you lose your job, that’s a totally different stress than if you have a mortgage payment,” Munie says. “Same goes for your business. If you can be debt-free, then it doesn’t hurt you that the skid steer is sitting.”
Lee and Corrigan both recommend having a strong relationship with a financial institution or bank.
“When you need money is not the time to go get a line of credit,” Lee says. “The time to get a line of credit is when you don’t need money.”
Corrigan says even though they were a long-term customer with their financial institution, borrowing on short-term and long-term was more challenging.
“Even though financial reporting became more difficult, the increased reporting and communication with our financial institution got us through 2008 and 2009 until the economy stabilized,” Corrigan says.
Don’t Panic, But Don’t Be Complacent
No one can predict when the next recession will take place, which is why it is always best to be prepared.
Conducting an annual risk assessment as part of your three- to five-year strategy and creating contingency plans is one way to identify areas to address. Lee says it depends on your company makeup, but ideally one client shouldn’t make up more than 10% of your business.
“Don’t become artificially emboldened by the success of the economy rather than your personal success,” Lee says. “Always keep it in perspective and always understand that no matter how well you’re doing, there’s always something around the corner that can take you down significantly. The more leveraged you are, the quicker that fall can be.”
Munie suggests creating a worst-case scenario budget and figuring out how you survive 18 months to two years operating in that worst-case scenario.
“What happens if people stop spending?” Munie says. “If you’re in the design-build business, you might need to look at a scenario where you cut 15% of your revenue. What’s that look like? You’re sitting on 10 skid steers that you owe money on. That’s a problem.”
Corrigan says while you should be prepared to scale back and cut overhead expenses, you should keep doing quality work that others notice.
“You may get an opportunity to pick up new clients when some of your competitors decide to no longer be in the green industry,” Corrigan says.
DuMont encourages others to not be focused on what others are doing during downturns. Just focus on your company and drive forward.
“Be prepared for the worst,” DuMont says. “Make sure you’re confident in all the decisions that you do and clearly define a message to your team and your clients of what you’re going to do.”
Munie says when it comes down to it, whether it’s a good time or a bad time in the market, you have to run a good business.
