Does it seem like each new landscape year brings a roll-of-the-dice when it comes to figuring out how much start-up cash you’ll need and if you’ll have enough to get things going at the beginning of your peak season? If this sounds like your landscaping operation, then we need to discuss how to ensure that you’ll have enough cash on hand when you start to generate expenses.
The fundamental solution to cash flow issues is to get your clients to pay when you need the money the most. That means getting predictable deposits for all of your renewal clients and for any new projects that are planned for the upcoming season.
Yes, it can be uncomfortable asking for upfront money, but with a little explanation, it becomes a lot easier for good clients to agree and support your process. It’s important to let them know that you have expenses even when you’re not mowing their lawns or fertilizing their grass. There’s insurance and materials you need to purchase in advance of the season to get the best pricing, perhaps some salaries for year-round personnel, and you - the leadership of the operation - you are always working.
A deposit also represents a relationship commitment on everyone’s part. For maintenance services, the client is assuring you that they’ll use your services in the upcoming year and is willing to pay for them; and by receiving their deposit, you’re committing to providing those services on a timely basis. Same goes for projects, clients want to have a scheduling commitment, you want to give it to them: a deposit locks this in on both sides.
Here are four valuable tips for building cash in your bank that will ensure you’ve got what you need when those expenses come rolling in.
When your current season ends, chances are pretty good you’ve got some money in the bank. If you’ve been diligent in your accounts receivable work, followed up on all delinquent bills, and collected not only any old invoices due, but got paid on time from your best clients, you’ve got some cash on hand to close out your year. The last thing you want to do is collect money in advance for next year’s work and have that cash on your books right now instead of during the year you’re earning it.
For recurring maintenance services, the trick is to collect a deposit prior to the new season, but not in your previous fiscal year. In other words, close out your year, THEN renew for the coming year IN that year. This is good for your tax return. You likely run a calendar year business – January through December - so you don’t want the credit on your books until you’re close to ready to deliver the service. Once the first of the year rolls around, start getting your ducks all lined up in a row.
For projects at the start of your season and even throughout the year when you feel flush, consider getting your deposits several weeks or months before your schedule project start date. The point is you need to lock this work in, you may need to lock in subcontractors, and secure materials that have several weeks of lead time. You need funding in addition to regular cash flow from billable work. This deposit ensures that your cash flow stays robust AND that you can submit your own deposits to subs and vendors to lock in your project planning.
When the New Year has passed, it’s time to get to work on contacting your maintenance renewal clients. Hopefully most if not all of them have accepted a renewing contract, so all you have to do is fire off a friendly email reminding them that peak season (spring for the majority of us) is right around the corner and you are raring to go. Request your deposit, ask if there are any new projects or service additions needed, and you are set to sit back and watch the dollars roll in as clients happily lock you into another year of service.
For those not on a renewing contract, get their commitment letters and seasonal service outline delivered early – as in four to six weeks before the season starts. This gives you time to resend, review, and revisit the site if necessary. You need to do all this work BEFORE the peak-season-crazy hits.
If you’ve got some lucrative landscape projects lined up – say, a new patio, front foundation reno, or any other labor- and material-intensive projects – get them locked in as early as January. Tell these clients that you start scheduling contract work as soon as the deposits are in and they’re done in order of receipt. This will often encourage clients to get those payments in early. And because of the nature of these projects, those deposits can be large and vital to your seasonal ramp up.
Upfront payments are not a sign of fiscal weakness. They’re a demonstration of good business planning and responsibility on your part to ensure that all parties involved are committed to the project and the relationship. As the old saying goes, “money talks, people mumble.”
Again, a little explanation goes a long way. Most clients are happy to comply when they understand that there is an outflow of cash on your part to gather the necessary resources for their maintenance services or for their project and therefor some upfront money is required to execute that contract.
It’s important to remember that you’re a landscaping contractor, not a bank. There is nothing that says you have to bankroll any client’s project until they feel like paying you. A good client understands that and is more than willing to pay their deposit on a written contract and receive your trustworthy commitment of service in return.