Why Your Tax Return And Take Home Pay Don’t Match

This video explains why there is a discrepancy between your tax return and take home pay.

When it’s time to pay taxes and you get back your tax return from your accountant, does it ever feel like your tax returns said you made a whole lot more money than you actually put in your pocket? If so, I’m going to give you a really elementary example to show you why. And again, like so many of my other videos, if you judge the video based on the accuracy of the numbers in my examples, you’re not going to like what I have to say.

I didn’t put a lot of thought into this. I put some quick numbers into a spreadsheet. They’re solely for example purposes. Don’t get caught up on anything else. Let me show you why a couple things happen in your business that just frustrate the heck out of you and then have you asking why in the world am I not making as much money as my tax return says. Let’s use this example to set it up.

You did $200,000 in revenue. You had a $110 in expenses, and again fake numbers. Don’t make any assumptions based on these numbers about what you might be able to or not be able to do within your business. In this year at different times throughout the year, you had to buy some trucks and equipment. So, you buy your first truck for 20 grand, your second truck for 12 grand, and you had to buy $15,000 in equipment. If you look at this on a cash basis and let’s say paid cash for everything, that means you should have about $43,000. So, just imagine you didn’t take a cent out of the business all year long.

In December, you should have about 43 grand sitting in your bank account, okay. For my examples, let’s just imagine you don’t get paid a cent until year-end, okay. Now, let’s talk about this. Here’s how your tax return looks so much better than your actual bank balance. We’re a year 1 business, and just imagine that magically on day 1, January 1st, you started to accrue revenue, and as a result by the year end, you had made $200,000 in your first year. You had a $110 expenses, same as I showed a moment ago, but here’s what really happens.

You go out and you … oh, let’s jump over here to the right. If you can see versus 20 grand, you go out and you buy a truck for 20 grand and you buy another truck for 12 grand and you buy equipment for 15 grand. Please keep in mind this is throughout the year. It doesn’t all have to be January 1, but you had enough cash to pay cash. At the end of the year, we’re talking my same example as on the other sheet I’ve just shown you, you have $43,000 leftover theoretically in your bank, and actually that should be the case.

However, when your accountant does your tax return, you’re shocked to find out that you should have made $82,000. The reason for that is because when you go to deduct your trucks and your equipment, your accountant has to depreciate these assets over time. She can’t fully depreciate them. If you’re thinking about the $179 deduction, just forget that for the moment and follow me here if you’re familiar with that.

What happens is, your accountant has to classify these three things as fixed assets, and she has to depreciate them on an IRS depreciation schedule defined by the IRS, and the stuff changes over time. As a result, let’s just … I can’t remember the depreciation tables but let’s just say a truck is depreciated over 7 years and equipment over 5. I doubt that’s exactly accurate. If that were the case, then in year 1 you would only be able to deduct $2800 and then $1700 on truck 2, and $3000 on your equipment.

As a result, you spent a lot of cash leaving you with $43,000 in the bank. And maybe you paid yourself that $43,000, and that salary took all the money out of the bank to pay yourself. That was your salary. But, your tax return now says you made $82,000. That means that you have to pay taxes, and again my magic goal made up 25% tax rate. You would have to pay 25%, again not accurate, on your $82,000 which would be the equal amount of $20,000 in taxes.

You’re paying $20,000 in taxes, but you only took home $43,000 so theoretically that 20 is going to come out of your 43 and you’re going to make about $22,000 for the year. That’s highly frustrating. That’s the first example of how you make far less than what you actually take home. Yeah, you make far less than what your tax return says. It’s because depreciation will get you over time.

Now, let’s continue on with the second example. Now in year 2, nothing in your business gets better. You do the exact same accounts for the exact same revenue with the exact same expenses, but you now own your trucks and equipment, so you don’t have to actually buy anything.
Now in year 2, you have the same exact depreciation as year 1 because you’re depreciating in the second year of your fixed assets, so your tax return should show that you made $82,429. And so you think, oh great, I should have $82,000 left in the bank this year. Well, actually no. Because what happened is on April 15th of the second year of your business, you did your taxes and you did your taxes for year 1. You owe $20,607 and so you had to pay the $20,000 out of the company.

The reason I use this example is, a lot of times many companies in their first couple of years don’t actually report their income as payroll, so they don’t pay payroll taxes. So then what they do is, they take the money out of the company to pay the taxes. So you’d have to take out $20,000 to pay your taxes for the prior year because, remember you took $43,000 the first year which depleted the accounts and then the second in which your tax return showed $82,000. Now, you got to pay tax on year 1 of $20,000. In year 2, you were actually doing really good except, oh, you have to pay the $20,000 from the prior year, so you only got to take home $61,000 that year. Again, all fictitious, but this is the effect of depreciation and this is the effect of taxes.

Most companies, even if you are on payroll, you might be getting some form of distributions, or you have sort of phantom profits. That’s really the wrong word to use, but you have profits that you never actually put in your pocket because you’re investing in trucks and equipment, or you may be paying cash for those things and so things never line up between your tax return and how much money is in the bank and how much money you have. These are two examples of why.

Now, the inverse of this would be an alternative, and I used this approach for many years. Now, unfortunately the IRS is really making this difficult because tax laws changed quite a bit in the last many years, but what I did in the years priors, I used the Section 179 deduction.
In early years of my business under President Bush, they had really made the 179 deduction generous. I don’t remember the number now, but you could depreciate up to like 500,000 in fixed assets in one year.

Let me explain. Using our same example, what I did is instead of paying taxes, I made payments. Actually, let me rephrase that. Instead of paying my trucks and my equipment in cash, I financed them. What happens is, at some point in year 1, I bought a truck and I made about $1600 worth of payments. Maybe on this $20,000 truck, that’s 3, 3-1/2 months of payments. Then, on my $12,000 truck, I made some number of payments. Let’s call 6 or 7 months. Then, on my equipment, I made some number of payments. Let’s call it 6 months as well of payments. So, on a cash basis if you were to look at my bank account, I’ll have about 82,000 leftover within the year because I didn’t pay cash for these things. Remember they are 20, 12, and 15,000, but I didn’t pay cash.

I actually have $82,000 dollars left in the bank. But, thanks to the Section 179 deduction, I was able to fully depreciate 100% of my trucks and 100% of my equipment. On my tax return, I only showed that I made $43,000, when in fact I actually made 82 because I had 82 left in the bank. As a result, the difference between these two numbers saved me $9857 in tax. So, had I paid cash for my trucks and not been able to fully depreciate them, I would not have saved this $9800 in taxes. But, I was able to save the taxes because I was fully able to depreciate them this year.

Now in the year 2015, when I’m recording this video, these deductions have been severely pulled back. I mean, there’s a lot of limits placed on how much you can straight line depreciate under Section 179, so it’s changed drastically. But, in years prior, I was able to use something like this.

If your business is relatively small, you’re not depreciating much. You still may be able to take advantage of quite a bit of depreciation on a truck or a couple trucks under Section 179. But, it’s nothing like it was 5, 6 and 7 years ago.

Again, in summary, these are a couple examples of why your taxes and your cash balance in your bank account or your take home pay will never line up. They’ll never match. This is a great example why.

1 Man vs 2 Man Mowing Crews – Which is Better?

Watch this video and learn how to decide if you should run 1 man, 2 man, or 3 man lawn mowing crews.

This question is from Joshua.

“I’m getting to the point where I need to expand. I have about 45 residential lawns and five commercial accounts. I am wondering if I should invest in better equipment like 32 inch Scags and just run one man crews. With my current density, I can get about 10 to 12 lawns done a day by myself or 15 with a helper using 21 inch mowers.

Please help me understand the pros and cons of this. I always see single man crews with fertilization but never in lawn maintenance. I know a guy in my city who does 75 by himself because he has the right equipment and density. It seems like the money I save in labor would well cover the equipment cost. No accountability and morale would be an x-factor, but it seems like one man crews are more efficient and a better way to go. Your thoughts?”

My thought is no. You should not do one man crews. I’m certain of that. I do not think one man crews are the way to go. I think you should consider two man crews. I actually run three man crews at our company for residential, but I totally see why two man crews are better.

Here are some things to consider. You could build out a new crew with one man, but I don’t think the angle is to run one man crews. The reason for that is, if you just look at human behavior and how we operate, there’s a level of accountability that’s created with a team.

This is even for us as owners. If you happen to have a business partner, your business partner brings a level of accountability to what you get done, what you do, at least if you have any desire to be a performer and hold up your side of the deal within that business. You’re going to work a little bit harder and you’re going to do a little bit more because you’ve got a business partner.

If you have one person working by himself, short of being measured into job costing and GPS data, really they don’t have anybody to hold them accountable. The guy could make an excuse for being late, for example, the customer came out to talk to him. They don’t use that excuse if you have two people on the job.

Also, I think there’s some value in simply having somebody to work with. Working in isolation is not that exciting. Now, if you put two guys together that hate each other, that’s worse. But, if you put two guys together that work well together and sort of thrive off each other, they can motivate each other when they are tired.

When you think about stuff like that, teams are better. I really believe in the team concept in general. I think teams need to be small. I believe in teams outside of just talking about lawn mowing, lawn care, or landscape crews. I just don’t think a one person crew holds up over time. You may see a spike in the beginning and some benefit in the beginning but they don’t hold up.

I also believe that you can get very close to the same level of efficiency with a two man crew. For example, if one guy can do 10 properties, two guys should be able to do about 20. That’s my belief.

The third guy is where I think you start to see less efficiency and less production value. I think two tends to be the magic number, depending on what you’re doing. If you run a scenario where you actually mow and trim bushes and pull weeds and do a number of different things all at the same property, then I think you can get more efficiency out of three guys.

I also think if trained and managed properly, you can get efficiency out of three guys because you can have that third guy do extra things. If you have super tight density, the third guy can move on to the next lawn and just roll his mower, or take his weed eater or whatever down to the next property versus sitting in the truck.

Your business will evolve. What might work today, won’t work in five years or might not still be the best and most efficient approach. Think about these things.

It doesn’t matter if you have one guy or four guys on the property. At the end of the day, equipment matters. You could have one guy and give him the wrong equipment, he’s not going to be productive.

Equipment, doesn’t in my mind, play a factor here. Whether you have one guy or fifty guys, you still have to give them the most efficient equipment. Equipment is a non-factor in this conversation, in my mind.

Also, a lot of times you might look around at most marketplaces, there’s a tremendous number of guys out there that are the owners doing the work. The owner may get 75 jobs done a day, but he has different motivation than a guy that’s getting paid by the hour, maybe even by the job.

The owner has to do this if he wants to feed his five month old baby and his wife and keep up with the rent. He also in most cases can’t just walk away from this thing tomorrow and get another job down the street. That wouldn’t be in the best interest of him and his family.

Whereas, a guy that you’re paying x number of dollars an hour, or by the yard or whatever, he’s got all these options in many cases. He doesn’t have the pressure that the guy that owns the business has. For example, if he slacks off tomorrow, he could probably go get another job in this industry. There’s a great need for people.

I’m simply saying that the business owner is completely invested in his business. You probably won’t find another guy to hire to do those same 75 yards. If you do, he may not be able to maintain that number after 3 years and he is tired and burned out. Will that hold up over time is my question. I don’t think you want to build your business assuming that an employee can accomplish as much as an owner, where all the weight is on that guy’s shoulders.

The other thing that I think you need to think about is as the business scales, asset utilization becomes a challenge. If you’re going to run one man crews, you have to agree with me first and foremost that you could actually make a two man crew almost as efficient as a one man crew.

If you can buy into that, then asset utilization is an absolute consideration. For every additional crew that you start, you have to buy another truck, another truck, and more insurance. With that, you have greater risk. Meaning, for every additional truck you put on the road, there’s a higher probability that somebody’s going to have an accident or something will go wrong that may harm the business.

You start to think about things like that. How can you reduce the number of trucks on the road? How can you reduce the number of trucks you have to buy? How can you reduce the number of pieces of equipment you have to buy? And on, and on, and on.

Then, you start to realize that a two man or three man crew starts to make a little bit of sense. In my company, I think we’re at 40 trucks or something like that. I don’t know the exact number. Let’s say I had to go to all one man crews. Does that mean I need 120 trucks and 120 pieces of equipment?

Well that would be crazy and I’m not going to do that. I need some asset utilization because there’s a lot of hidden cost that comes with each additional truck and each set of equipment that I put on the road. I need to utilize my assets as efficiently as possible.

Also, I believe that one of the absolute biggest hindrances in growing any business is money. It’s cash flow. If you are ready to add another crew but you don’t have the money to buy a truck, the equipment, or all the other things that come with that, then it’s going to slow down the growth of your business. Asset utilization becomes critical as the business starts to scale.

Also I’m going to leave you with this one. If you build your business around one man crews, then you have the real risk of when one of your guys quits. You have a little less risk when you have two or three guys on a crew because if one guy doesn’t show, the other two can carry the slack. Maybe they finish at 6:00 normally, but now they finish at 9:00. But, at least the work got done. Or, maybe they don’t complete the jobs that night, but you take a couple properties from that crew and you spread them out among other crews. The work can still get done.

From the standpoint of service autopilot, the software company that I have, one of the things that I notice is that we have a set of customers that seem to have a level of peace in their life and in their business. Then we have a set of customers that the world is burning down around them every single day.

Everything is a disaster and the world is going to end at any given moment. That’s the basic take I have on how a group of our clients live their life. I understand it and I get it. The difference is, in most cases, how they manage their business. If you organize your business in such a way that you look at all the potential bottlenecks, you look at all the potential failure points and you say, how do I mitigate this risk, how do I eliminate this risk, that brings a level of calmness to your company and it brings a level of calmness to your life.

The reason I just said that to you is, imagine that you create your business around a lot of one man crews. Things happen all the time. When guys don’t show up, it screws with everything. Now you’re really screwing with your business. If you don’t have a guy show up, you’re scrambling and everything is a mess.

You have to reroute everything. You jeopardize customer service. And now, you’re screwing with your other employees because you’re having them take on the extra jobs. You’re having everybody scramble to help you get out of this bind which then makes your employees’ lives miserable as well. Everything they do for you becomes a burden because they are constantly helping you put out one more fire in your business because you’re not on top of your game.

Contrast that to a guy that has multiple crews with multiple people with backup people in place. If a guy doesn’t show, that’s ok because you have a backup plan. You already know what you’re going to do.

I guess that’s maybe one of the best arguments for not having a one man crew. What I see are, most successful clients have their stuff together. They have thought ahead and solved the potential problems. They’ve created backup plans.

When things go bad, and they go bad every single day, they can make quick changes and the world doesn’t fall apart on them. They don’t become stressed out. I think if you went with the one man crew, you’d create that. I think you’d constantly be in the state of scramble.

For that reason alone, don’t go with the one man crew. Go with two, and eventually you can reconsider everything and look at three. The way to do that to run a test. You measure it, you track times, you see how you perform, how much money you make per day per man when you’re doing a two man crew. Then, throw in a third man and see how they do.

Don’t just assume that they’re going to do everything right. Get out there and see what they are doing. Teach them how to be efficient. Take a look at density. If you sold a couple more yards, would that solve the efficiency problem the three man crew was facing?

You go through this set of questions and try to figure out why you can’t make three man as efficient as two, and you see if you can solve it.

If eventually you’ve asked yourself a series of 15 questions and nothing you’ve tried fixed the problem of efficiency, then you know.

Everything is a test. Everything is a trial. As your business evolves, you have to retest everything and that’s a lot of work. It’s hard but that’s how you create a highly profitable business. Two men, don’t go with one. Eventually test three and see if it works for your company. Periodically reevaluate as your company completely changes as you grown over time. Good luck.

Top 3 Tips For Purchasing Landscape Equipment

When purchasing landscape equipment for your lawn care business what are the top considerations on your checklist?

1) Most business owners put price as a top consideration.  Money matters, but learn what your top money consideration should be.
Hint: resell value plays a part in the cost of your lawn care equipment
2) If you have two nearly identical pieces of equipment but one is considerably cheaper… learn how to choose between the two.
Hint: you are in the business of selling time
3) Many lawn care companies buy too much equipment or spend too much money on landscape equipment before they really need it.  This consideration will allow you to buy less equipment.
Hint: renting equipment isn’t the solution… when you need a piece of equipment fixed or repaired during peak season what matters most?

 

Video Transcript

Hey, it’s Jonathan.

The question is what should I consider when buying equipment, so I’m going to give you the top three considerations that I think about when buying a piece of equipment. They are not necessarily in order, production speed and I’ll go through each and explain, your cost of ownership and the speed at which you can get replacement parts or that you can get the equipment fixed and back into production, back into service. Notice, I did not mention the cost of the equipment or the initial purchase price or if that piece of equipment is cheaper than a competitive piece of equipment. That’s really a non-issue and so let’s talk through a couple of these things and let’s start with the production speed.

Production speed to me is probably the top one, it’s definitely the consideration here because in if I’m comparing two pieces of equipment, let’s use something that’s a little bit expensive. Let’s say I’m comparing a $6000 piece of equipment to an $8000 piece of equipment. At first glance, yeah 2000 bucks, I’d like to save that. I don’t want to spend $2000 if I don’t have to, so I’d rather buy the $6000 piece of equipment. However, at the end of the day, I’ve got a guy running that piece of equipment that’s probably making between $10 and $18 an hour, totally depends on who they are and what they’re doing in the business.

Now, let’s just say that they make $14 an hour, every hour that they move slower because we went with inferior piece of equipment, costs me money, every hour that that piece of equipment is down, every hour or every moment, every minute that it takes to load that piece of equipment or maintain that piece of equipment or lower the height of it if it’s a mower or whatever the case may be, every minute of convenience on that piece of equipment is costing me as a company money. Production is what matters.

Again, if the equipment’s $2000 dollars more but with that piece of equipment, I can move just a little bit faster, I can change the height again using a mower example just a little bit faster, I can get it on or off the truck a little bit quicker, I can change the blades when I’m sharpening them every day or every week I can do that little faster, the air filters are a little easier to maintain. You can think of a whole list of 50 different factors that go into that piece of equipment. Take another one, the majority of the employees that I might hire are trained to use that piece of equipment already.

They’re more comfortable with it, so they move faster or the piece of equipment’s a little lighter or a little easier to maneuver, therefore after a 10 hour workday, they wear out a little bit slower as an employee. Therefore, they continue to move just as quick, really consider that one. Does this piece of equipment wear them out, does it beat them up because that affects how fast they’re still working come the end of the day, especially come the end to the week on Friday. All of that matters that’s production speed that is in my opinion the most important factor.

Now the next factor will be this cost of ownership, so it really doesn’t matter what I buy the equipment at. What really matters is eventually when I sell that piece of equipment, the spread. If I buy a $10000 piece of equipment that I could later sell that equipment, let’s say after four years for 5000 then with no additional cost going into this piece of equipment, maintenance or repair, then that I have got a $5000 cost of ownership on that piece of equipment. I bought it for 10, I sold it for 5 four years later, cost me $5000 to run it for four years, roughly 1250 a year. $1250 a year is my cost of ownership. Now you got to put into that repairs and maintenance and all the other things that really go in ownership, but that’s something, consider it just like when you buy a truck.

If you’re buying a Ford F150 and you’re debating between that and a Toyota Tundra, you’re probably considering, okay this Toyota Tundra tends to have better resale value, so should I buy a Tundra? It’s going to cost me more money up front, but later when I sell it, I am going to get more back and that’s just an example, but you do typically when you buy a vehicle, a truck, a car or personal vehicle, you think about that kind of stuff. What might this thing be worth down the road? The exact same scenario is true with this piece of equipment, what’s my ownership cost going to be?

That’s a factor, so for example in small equipment’s a pretty big deal because we sell off our equipment every year, so we want to be able to buy it, keep it really well maintained and then sell all of it at the end of the year and just buy new equipment. We want to have a good resale value on that piece of equipment, we want that equipment to be desirable. Cost of ownership is a factor. I actually, as I’m talking here, I almost made it my third factor, production is one, my second factor is the speed at which I can get parts for this equipment. Now on a cheaper piece of equipment, this is less important, so as an example, it’s not as important that I can get a replacement head for a weed eater in 30 minutes.

The reason I say that is let’s say the weed eater costs 300 bucks, I could have an extra one on hand, I could just buy an extra weed eater. If one goes down, we’re not going [inaudible 00:05:23] weed eater head, we’re just going to pull out another weed eater and get the job done. We’ll get another head for that weed eater down the road, another day. We’re not going to send a crew to go get that head today. That’s stupid, we have an extra piece of equipment on the truck because it’s inexpensive, it’s hardly any money when you think about the broad scheme of things and the cost of payroll. Now, if you’re talking about a $10000 piece of equipment, well I don’t have a bunch of those just sitting around as a backup. That would be stupid.

If that $10000 piece of equipment breaks down, now if I’m a big company and I depend on a bunch of these $10,000 pieces of equipment, I do have backups. But if it’s a piece of equipment that I don’t fully utilize it all the time, I’m not just going to have another one sitting there all the time. I need to know that this piece of equipment that I just bought is common in my marketplace that I can at any moment go to my parts supplier or to the vendor that we bought it from and immediately get parts or quickly get it repaired. I need something that’s popular in my market, something that’s common, something that I can easily get fixed. I cannot afford for this piece of equipment to be sitting in their yard five days, while I am waiting for to be repaired. This is a huge factor.

As you’re thinking about you purchase, think about how fast can we perform with this equipment and it’s way more than just production speed in the field, think about all the different things that go into utilizing a piece of equipment, think about your cost of ownership, what’s it going to cost me to buy it, how much might I sell it for in four years or five years, how much do I think it might cost to maintain this overtime, how much do I think it might cost to put new parts on this thing over time that’s your cost of ownership. You might compare that to the other piece of equipment that you’re considering and then finally how fast can I get parts for this. I mean you need them pretty much immediately and then if I have to have somebody else repaired, how quickly can I get it back?

I realize that there could be unique scenarios where on a piece of equipment it is some obscure part that hardly ever breaks and they don’t have it in stock, but 80% of the time when this thing’s going to break, can I get the parts that I would need, 80% of the time, when it’s going to break, could I get it repaired immediately? Take that into account.

Mistakes To Avoid: Advice on Buying Equipment & Lawn Care Marketing

02:14 – Lawn Care Equipment Advice
03:05 – Remember: You are In the Business of Selling Time
04:20 – Marketing Campaign / Direct Mail Advice – Tips to consider
08:50 – How To Know when you absolutely should not buy a new piece of lawn care equipment
13:32 – Snow Plowing Business Advice (should I be in the snow business?)

Video Transcript

This question is from Matt.  It’s a long question.  I’m going to read it, it’s about five questions in one and then I’m going to break it down.  The gist of it is, he’s new in business, he’s about to do his very first marketing campaign, marketing mailer, he has small mowers but he’s thinking about buying some bigger equipment so that he can mow some bigger properties and he’s also asking about snow plowing.

Let me read the question and then I’m going to break it down.  I started a lawn care business in July of 2013, by the way, I’m recording this in January of ’14, I have 22 inch Toro self propelled and love it.  I took your advice, I have five or so properties, not very big.  A fellow landscaper friend has a 31 inch mower for $300, he’s going to sell it to me.

However, I got Dan Kennedy’s magnetic marketing and from that I have got a first of three letters written and I have contacted a mailing list agent and they are charging $150 for 3,000 names.  I’m going to mail 100, maybe 200 out on February 12th.

My friend who owns a two acre lot said he would like it if I took care of him. I can’t take care of him with the mowers I have, the guy who has the 31 inch mower said I should stay away from small lawns now.  Excuse me, stay with small lawns now.

If I got a bunch of great properties that would be financially to get the bigger mower, the 48 inch mower, but really not until then.  I have someone that would help me financially, however 7,000 or more for a new mower seems steep.

Jonathon, I’m really excited about the upcoming season, I want to take advantage of the beginning of the season rush, do you know anything about snow plowing with you living in Texas, I would think not.  It’s snowing like crazy here and I wish I had a four wheel drive with a plow, maybe next year.

I would appreciate any information you can send my way.  Matt.

2:00:00  –  All right, so I wanted to read the question so you got gist, this video is going to be just a bit longer but I want to break this down into pieces, moving from the top to the bottom.  Matt says he’s got five properties, he’s using small equipment and he’s got a friend that will sell him a 31 inch mower for $300.  I can’t really comment on that, $300 is not much money so assuming that that piece of equipment isn’t going to constantly breakdown on you then go with it.

I’ll say this to you that with our small equipment, this is something we’ve done as we’ve become a bigger company.  With our small equipment, we sell it off every single year and just buy brand new equipment because the real cost is in the breakdowns and the loss of productivity.

Your biggest expense in your business because keep in mind you’re selling time, is your labor, the people you’re paying or if it’s you by yourself, it’s your time.  You’ve got to value your time, it’s worth a lot.  Because with your time, you’re going to build your business.  If you eat up all your time doing dumb, small little things, you aren’t going to grow your business because you’re not going to have any time.

Think about production, you’re selling time.  Every dollar, every minute, every hour you lose.  Let me say that again, every minute or every hour you lose is money you’re losing.  You can buy a $300 mower, that’s cheap today.

Tomorrow, next week when it breaks down, you’ve got the repair bills, you’ve got the parts.  You’ve got the time that was lost, you have the client that you made unhappy that now might not recommend you to someone else.  There’s all kinds of invisible little things that happen downstream.

The game is we’re selling time.  You want to maximize the amount of time you can sell, so you have minimize downtime.  I’m not saying that a $300 mower for 31 inches is short sighted, I have absolutely no idea.  I’m just saying make sure it’s one that will hold up, it will last.  Otherwise, you’re better saving your money and buying something better or buy it, use it just as long as need while you’re building money.  Sell it and then buy a better piece of equipment.

There’s several strategies here, but just remember the business you’re in.  You’re selling time, production is everything and downtime is a killer.  That’s called unbillable or unproductive time, it will ruin a business, sucks all the profits out of the business.

You bought Dan Kennedy’s magnetic marketing system, that’s great.  That was something that Dan built back years and years ago and it’s all still applicable.  A great little lesson there.  Some of the stuff that’s 20 years old, I’ve gone back and read marketing books from the early 1900’s and I’m amazed that they read very similar to the marketing books that I’ve read that were written two years ago.

Guys are regurgitating information.  People are still people.  All the same selling techniques to some degree work, it’s all still based on psychology so on and so forth.  Don’t ever discount the fact that something’s older, such as Dan Kennedy’s  magnetic marketing, I don’t know how old it is, maybe 20 years but great system.

Also recommend you buy all of his books on Amazon, especially all the ones that say “The Ultimate something” or “No BS”.  When you look on Amazon, you’ll know what I’m talking about.

You’ve built your first three letter campaign, you’ve never done this before so you’re probably not going to do a very good job at it.  No shot against you, you went through Dan’s stuff, you’re writing your first series of letters.  They may or may not work.

A couple of points here on this one.  You’re going to mail 100 to 200 of these on February 12th.  First thing I think of, February 12th so what does your letters say.  All right, so does your letters say, “I’d like to mow your lawn.”  Let’s just assume it does.

On February 12th, is the grass growing?  Are there any weeds popping up?  Is anybody sitting inside their home watching the Super Bowl thinking, “Man, I need to get out there and mow my grass” because if they’re not, don’t send those letters yet.  They will work best when your prospective client has pain.

When he gets up in the morning, goes out, gets in his car, pulls out of the driveway and looks at his yard and says, “I’ve got to do something about this today or my wife’s going to be all over me” or whatever the case might be.  He’s got pain, that’s when you want  your letter or your door hanger or your whatever to show up in his mailbox, on his front door, whatever.

Make sure for maximum results that you get this piece to him when he has pain.  No sooner, no later.  Timing is a challenge in direct mail but that’s the key.

You’re also starting out, doing your very first campaign.  If you mail too early, mail too late, mail to the wrong people, it doesn’t work, you might think, “You know what, this marketing thing doesn’t really work for me.  Jonathon, his company, they’re just getting lucky over there.  They’re Texas market, that’s different.  Not as much competition, plenty of employees”, who knows what you might imagine.  You’ll be wrong.

Everybody makes this mistake or most people do.  They think that because it doesn’t work for them, somebody else is lucky.  It works and I’m not saying that you’re thinking this way at all.  I just want to give you a little encouragement here, especially starting out.  Right now, it is critical, critical that you get some wins and you get some success that will build your confidence and you’ll keep plowing money into it and you’ll keep going.

I want you to be super successful with this.  Mail it when they have pain.  If that means you can’t time these at first then walk to 200 doors and put them on the door.  Get them out at the right time.  Two hundred is a very small number.  Two hundred could potentially yield you zero results.  I know that’s not exciting to hear but when you’re mailing, there’s so many factors in play.

Are the people that you’re sending these to really buyers?  Are you sure that these are people that buy lawn care service?  Of the 200, you’re mailing might 150 not really even be buyers, only 50 really hire out your service.  That’s critical because if you mail 200 and only 50 are really buyers then you only have an opportunity to sell at best case, 50 of these people and of those 50, only so many even need you right now or are even thinking about it or are even unhappy with their current company.

You’ve got to be really careful in this area.  Make sure the timing is right, make sure it’s going to the right people that are potential buyers and make sure that you’re saying the right thing.  You don’t know if you’re saying the right thing and you won’t know that until you try a few things.  I like that you’re doing a small amount, a couple of hundred but then you want to tweak it maybe a bit and do a couple hundred more.

Focus first on your headline, but you’ve learned a lot of that from Dan Kennedy, I’m sure.  Keep that education going, buy the rest of his books.

Then you go on to say that I have a friend who owns a two acre lot, he said that he could take care of me or I could take care of his property.  The problem is you need a 48 inch mower, I know very little about the situation here but my first thought is do not do that.  Bad idea.

Your advice that you got from another landscaper that says focus on the small properties.  I don’t know your market, I think he’s right.  It is by far the best, best, best, best scenario is to focus.  I’ve been incredibly guilty of not focusing in the past and what I’ve learned in every business system, the more you are focused, the more money you make.

The less focused you are, the less money you make.  Happens 100% of the time.  I believe it without question.  I’ve gone down the wrong road to know so focus is everything.  In my market, I’m 5,000 clients and my market, I have everything.  I have acre properties, two acres properties, huge commercial, small commercial, big residential, small residential, you name it, we’ve got it.  We’ve got a lot of it.

We’ve got a million competitors but we have decided to focus on very specific residential properties under a certain size and ignore everybody else and I am a bigger company.  Focus is still absolutely critical to my business.  Imagine how critical it is to your business, you have five clients.  You’re just getting started.

When you have 100 or 200 then think about maybe going to a different market.  I call a different market, bigger properties, different type of clientèle.  It’s not a totally a different business but it’s quite different.

Here’s the dilemma.  You’re going to go out and drop thousands of dollars on a piece of equipment to mow one lawn.  Let’s say that one lawn pays you $150 a week and that’s probably being generous.  How long is it going to take you mowing that one lawn to get back your 7,000.  Hypothetically, 7,000 because you mentioned that in the message.

Now that 7,000 could have been put to all kinds of other use.  It could have bought you a couple more small mowers, it could have when your truck breaks down get you out of a bind so you can keep the truck, the company running.  It could have done a bunch of marketing.

Let’s just focus on marketing.  What if your 200 mailers you sent out work but you went and bought a 48 inch mower to mow the one property you’ve got and now you have no money to send out 200 more mailers.  Now that’s a bad plan.  You just screwed up your whole season.  You really want to focus on optimal use of your money, which is how you’re thinking about this and the recommendation you’ve got from your friend was dead on.

Focus on the small stuff that way you can keep your equipment small, you can keep your costs down.  You can really learn how to do those properties just right.  You can learn how to exactly bid them, you learn all the new onsets, you know what those kind of clients care about, what they worry about, what they want and you can talk their language and you can get in and get out fast on those jobs because you know them.  Instead of being all over the board.

Get a bunch of those and then one day you say, “You know what, I’m so confident in my marketing and I’ve got a base of money that’s coming in that’s financing my business.  Now I’m going to get into the bigger stuff and I’m so confident in my marketing and my ability that I know that I can go get a bunch of big stuff to keep this $7,000 piece of equipment I bought running all the time”.

There’s nothing worse than buying a $7,000 piece of equipment to run it for two hours a week.  That is a horrible use of money.  You want that piece of equipment running eight hours a day, 10 hours a day, every day of the week.  At least five days of the week.  That way you’re totally utilizing your asset, your piece of equipment.

If you’re not utilizing it, you’re burning money, you’ve wasted money.  You might as well go rent that thing once a week somewhere and mow that property and then turn it back in because that would be a better use of $7,000.  Think about it that way.  I’m saying don’t do it, focus on the little stuff, go crazy with that.  Market to those clients, blow that business up then think about diversifying.

Moving on.  I’m looking at your notes here.

I made the point use your money to grow.  I think that’s a big, big point.  Anytime you can avoid spending the money, delaying the spend on the money, putting it off into the future that gives you flexibility, that gives you freedom and that’s what you’re trying to buy because you’ve limited capital.  Keep your money free because you never know what opportunity might show up.

If you put that money into a $7,000 piece of equipment unnecessarily, tomorrow a big opportunity shows up maybe a guy wants out of the business and he’ll sell his accounts for $30 an account, you can’t buy them, you have no money.  You want to always be liquid enough with your money that you can take action on opportunity and so delay expenditures to the last minute.

It’s easy to run down the street and buy a piece of equipment.  You can buy it in an hour so hold that money to the last minute.  That gives you the most opportunity.

Your last question, snow plowing.  You’re totally right.  I know virtually nothing about snow plowing.  However because of service autopilot, we have a lot of clients that plow snow.  I’ve spent a lot of time talking to them, even have been to Chicago and flew … Or brought a bunch of companies in, flew in some clients, put them up in hotels, spent a weekend with them and learned about the snow business so that we can build snow portion of our software.

I’ve learned about snow but I’m in no way a snow expert.  What I’ve learned, it’s a hard business.  Most everybody I talked to hates the business but it makes them money.  Almost everybody I’ve talked to would love to not be in the business but it provides consistency throughout the year.

You have your mowing season then you have your dip, snow provides consistency.  Huge value but a hard business.  I would say to this one, it’s the same answer to everything I said before, focus as long as you can.  When you start building employees, you’re going to have to find something to keep them busy so you can retain them.  Snow might be that thing.

If you’re going to have to go out and buy a bunch of equipment, four wheel drive truck, a plow.  How many accounts can you realistically sell?  If you can’t sell a bunch then don’t do it.  Here’s what else could happen to you.  You could go out and spend all this money on this truck and this equipment, you can only sell a few of your own accounts so then you subcontract to somebody else to keep yourself busy and then you start living on that income that you’re getting as a contractor.

You start depending on it and then the next thing you know, you are practically an employee because they keep you so busy, you don’t have time to build your own business that’s a trap.  Be careful on that one but you should probably put off the snow for a bit, a period of time.  Focus on the lawn side and then diversify into snow when you’ve got some capital and you’re ready.

Hope that helps you out and I will also send you my ebook on how to start a business, a lawn care company.  I think that will give you some more clues here on what you might want to do.

Thanks Matt, good luck.

Best Lawn Care Truck Stand to Mount Laptops and iPads

 

I think the best stand to hold your laptop or iPad in your lawn care / landscape truck is a Ram Mount stand.

I’ve been asked many times if we use iPads, mobile phones or laptops in our trucks.

The device we use depends on what the crew / tech / manager does in the field.  Many of our trucks are fitted with (and will be for a while to come) inexpensive refurbished Dell laptops.

They are inexpensive and give us a lot of power.  Most important they have a full keyboard that is fast to type on.

It is much easier and faster to type notes, call details, estimates, etc. from a full keyboard than it is from a small iPad keyboard.

We use a Ram Mount laptop stand.  You can visit their site at www.ram-mount.com.

Over the years, we have tried inexpensive stands but they have not been worth it.  Ram Mount stands are the best.  The laptop stays still while driving and does not bounce while typing.  They are very much like the stands used in police cars.

If you want to mount your iPad in the truck they have a stand for it as well…
http://www.ram-mount.com/NewProducts/AppleiPadMounts/tabid/2614/Default.aspx

Can a Thief Pick Your Trailer Lock with Ball Point Pen?

This video I recorded demonstrates how careful you must be when selecting trailer locks for your lawn care business. This $50 trailer lock can easily be opened with the back of a 50 cent ball point pen. Trailer and lawn care equipment theft is common, be careful to pick the best trailer lock, a trailer lock that is hard to pick. The locks we use are about $130 each.

Why do you use custom truck beds and what do they look like?

 

We had a few of our trucks at the shop this morning so I recorded 3 minutes of video to show you the custom beds we put on our trucks that service residential properties under 20k gross sq. ft.

These beds hold 3 21’ inch Toro’s, 3 blowers, 2 stick edgers and 2 line trimmers.  Normally, we only keep one stick edger on a truck because line trimmers can act as a backup if necessary.  Likewise, two backpack blowers are adequate.

A few things to note…

  1. Look at the floor of the beds – the mowers roll into position so they do not move around – no tying anything down
  2. Place for water jug
  3. Place for line trimmer line
  4. Place for 5 gallon gas cans
  5. Box behind cab for tool box, additional gas cans, blowers, bags and misc supplies– lifted so mowers can roll under it
  6. One of the trucks has a folding drop gate – we don’t like it.  Non-folding drop gates are better – not as attractive but faster to use with less chance of pinching a finger.  Less moving parts – less maintenance
  7. 4 positions to hold stick edgers and line trimmers.  They can be locked down on each side by rotating one bar
  8. Drop gate and slanted tail of bed make one man loading quick and easy – minimal chance of injury
  9. These things cost us 1800 to 2000 each installed.  We sell the original truck beds on Craigs list
  10. These beds hold their value.  You will be able to get back the majority of your money if you need to sell the bed someday.  They are a true asset.  And one that retains most of its value.

Some very conservative math…

    • a custom truck bed will save you a minimum of 15 minutes per day per crew
    • assuming a crew works 5 days per week
    • 40 weeks per year
    • That equals 50 hours per year in savings
    • Multiplied by 3 men per crew
    • Equals  150 hours per year saved (minimum)
    • Average cost per man per hour of $11 (very low – there are lots of other costs that should be considered in this calculation – but not all of them – not all of your overhead cost)
    • This is how I arrive at a very conservative $1800 per year in savings per crew

However, I look at it this way…

    • we save more than 15 minutes per man per day
    •  the money we save is not on the front end – it’s on the backend – meaning we are saving over time payroll dollars.  So, if your average worker is $11 hour when he’s into overtime  you’re paying out $16.50 an hour.  This bed is saving me $16.5 per man per hour not $11/hr.  the minimum calc was based on $11
    •  no trailers equals better safety and less risk
    • trucks can maneuver quicker when not pulling a trailer
    • trucks stop faster without trailers – SAFTEY
    • less training of workers  to pull and back up trailers
    • easier to park in front of homes – especially tight streets – don’t have to block mail boxes – less surface area covered to potentially hide and therefore leave behind hidden lawn clippings not cleaned off the concrete
    • no trailer tires to replace
    • no trailer to pull equals better gas mileage
    • there’s more – you get the idea

Worse case, I save $1800 a year and get all of the above benefits.  It’s a no brainer.  Again, I believe $1800 is a very very conservative number.

Trucks depreciate, lose value, break down and cost you money.  Trucks are lousy assets.

Trailers and custom truck beds hold the majority of their value.  They may be depreciated down to near zero in value overtime on your books but reality is they carry true value.  Should you eventually sell your company or need to liquidate your assets your trailers and truck beds will have retained significantly more value than your vehicles and equipment.

If you need to sell them you will get back most of your money.  The math…

    • You buy the bed for $2000.  Use it 5 to 7 years.  Sell it for $1800 after a fresh $200 paint job to make it look brand new again.  (this is realistic – nothing breaks – it’s made of metal)
    • Cost of ownership over 5 years — ($2000 + $200 paint job  + $100 in misc repairs over the 5 years =$2300 total invested in the custom bed over 5 years
    • Assuming you sell it for $1800
    • $2300 invested – $1800 sell price = $500 cost of ownership over 5 years
    • $500 cost of ownership divided by 5 years of ownership equal $100 per year cost of ownership

Would you pay $100 per year to save a minimum of $1800 per year plus get all the other benefits I mentioned?

Again, I save more than $1800 per year per truck.

This is why I use custom truck beds.

I believe there are 3 keys to success…

  1. Get the foundation of your business in order (your computer systems and procedures)
  2. Get the right people doing the right tasks consistently
  3. Optimize your business

This topic falls under optimization.  It’s not your first priority.  If your young in business I highly recommend you stay out of debt and optimize your business later when you have the cash.

By the way, for commercial I recommend Isuzu NPR box trucks.  However, a 16 to 18ft trailer is a great way to start when you are trying to keep your costs down (avoid debt).

Also, we now use Isuzu NPR’s with custom designed box beds for our spray trucks.

I prefer enclosed over open for commercial 1) because it helps prevent theft and 2) you can offset the cost of a mini storage or warehouse by leaving the equipment in the truck and 3) you can reduce payroll hours by leaving the trucks loaded.

Regarding theft, enclosed (truck or trailer) will not completely eliminate this problem.  Our last major loss was from a job site.  They took the truck and trailer (everything).  Enclosed only helps prevent theft.  Also, storing your equipment in the truck or trailer only makes it easy for your equipment to be stolen (you have preloaded your trailers for the criminals).

If you’ve got a friend in the business (anywhere) that this might help – forward it to them now before you forget.

Switching Fom Scag To Toro Zero Turn Mowers

 

Hey, it’s Jonathan. I get the question over and over again about what kind of lawn care equipment to use. I want to give you an update on what we’re using and what changes we’ve made in our landscape equipment.

I hear this question literary a hundred times a year. First and foremost, we use Scag. But, now we’re using Toro as well. We’ve looked at everything from Scag to John Deer. John Deer actually flew one of our guys up to Ohio, I believe, for a while to try to get us to buy their equipment and we did find that experience interesting.

I know some other guys are running them, but we don’t. We just don’t have any personal experience with them. We’ve always been loyal to Scag because it’s easier to have one type of equipment. Scag and Toro have big product lines for the riders and the zero radius mowers.

This year we acquired our first Toro. We were allowed to take it to use for a while to test it out. Thus far, we are very impressed! We think that it has a lot of potential and it may become the new product that we will use long term.

We also use a lot of Red Max for weed eaters and line trimmers. If we could, we would probably use Stihl, but our vendor continues to give us incredible pricing and we want to remain loyal to them since they have been great to work with. They just don’t carry the Stihl brand. We also do not use Eco.

For all of our push mowers and small equipment, it’s all Toro with Honda engines. We don’t use a lot of walk behinds. We pretty much use small mowers, or go ahead and jump to riders just from a production standpoint.

Because the question is so prevalent, I wanted to give you a quick update on what we are using and what we are liking. Those are the brands that we will be with for a while.