Understanding your lawn care business finances is a key success factor in operating your business. As a busy owner or manager of a lawn care firm you have to juggle operations, management, marketing as well as customer service and several other functions. So unless you have someone on staff who has all the requisite skills to manage the finance and accounting function many times this important function can be a huge source of frustration. The key is to stay organized.
The following are 6 important things you can do to get organized and get your finances under control.
- Talk to a CPA – When most people think of a CPA they think of taxes. However, there is a lot more to the accounting function with respect to the service firm owner or manager than taxes. A competent CPA should be able to file your taxes and prepare financial statements for banks, creditors and other stakeholders in your business. The overall goal of your accountant should be to help you accumulate and preserve wealth. Saving taxes is just a small part of this overall task. A competent accountant recognizes that he/she needs to be a valuable member of his/her client’s management team and is able to provide many more added value services than just tax preparation. The growing lawn care business needs help with many of the financial aspects of their business and the well rounded CPA can provide most of these services.
- Look at your Business Entity structure – There are a variety of ways to legally organize a lawn care company and while choice of business organization should be one of the earliest business decisions, it may be advantageous to change the legal structure as you grow. For the most part, there are three business structures that may be set up in different ways. The three basic structures are Sole Proprietorship, Partnership or a Corporation. A fourth choice that is an excellent fit as to the way we carry on business would be a Limited Liability Company (LLC). For accounting purposes an LLC can be set up like either of the first three and taxed accordingly. Under the current law, S-Corporations in most cases will minimize your federal taxes. You should consult your accountant or lawyer as they are in the best position to make the assessment as to federal tax consequences as well as consider your state tax laws and how this fits into your overall picture.
- Separate Your Personal and Business Finances – Seems obvious – right? For legal purposes and to keep tax records straight you want to make sure that both are separate. This starts with tracking your business expenditures accurately without comingling your personal expenses. The easiest way to do this is to maintain separate bank accounts. Make sure your business expenses and revenues are transacted in your business account. Personal items like home mortgage and other personal items should be transacted using your personal account. Another very simple idea that will keep you and your business separate is to get a personal credit card as well as one for business and make sure that you separate your credit card purchases using the proper card.
- Set up your chart of accounts to match your objective – Financial Statements are the culmination of the accounting process. They are used to convey a concise picture of the profitability and financial position of your company. The two most important financial statements that allow you to get an accurate snap shot of the results of your business are the Profit and Loss Statement (P/L) and the Balance Sheet (B/S). The P/L shows how much profit or loss your firm made for a given period. The B/S shows what you own, what owe, and how much accounting equity you have in the company. But more importantly financial statements show how the profit or loss was derived and how the assets, liabilities and equity are categorized by category. The categories are defined by the chart of accounts that is set up when you begin your business and is constantly updated in order to provide useful information. It is extremely important that the person setting up the general ledger chart of accounts not only understand accounting concepts but also understand the lawn care industry so that items like direct labor, material percentages, marketing and sales expenses are tracked properly.
- Use QuickBooks to get organized – QuickBooks is the most widely used general ledger program used amongst small businesses. It is particularly well enjoyed by non-accounting types as it insulates the user from having to understand accounting concepts while allowing them to perform accounting tasks using a graphical interface that reminds them of using a checkbook and other familiar documents such as checks and invoices. QuickBooks is extremely powerful allowing the business to manage revenues, expenses, payroll, cash flow and budgeting. Having accurate and timely information is paramount to success in the lawn care business and QuickBooks simplifies this process.
- Set up a Budget – Budgeting is nothing more than formulating a coherent financial plan for some period in the future, usually one to two years. As the plan is implemented we are able to rate our efforts compared to the budget that we created. Budgeting allows us to predict the amount of technicians, vehicles, equipment, etc. that we will need in the future based on our revenue projections. During the budgeting process we determine the areas of spending that we can reduce. Revenues are analyzed to determine which are the most profitable and if there are other sources of revenue that can contribute profitably to the bottom line. Budgeting should be done annually and actual results should be compared to budgets monthly.
Understanding your lawn care business finances is a key success factor in operating your business. The more you know the more effective you will be at guiding a profitable ship. Financial visibility helps you guide the ship through seasonality, growth and times of difficult cash flow. Staying organized is key to this clear visibility and working on the six items discussed above will help you maintain this financial visibility.