Chartered accountant GAIL FREEMAN applies some financial pruning and fertiliser to get a couple of gardeners’ businesses growing again.

I want to tell you about two gardeners – Bill and Ben – who both run similar businesses, but with very different results.

Bill was concerned that although he was doing more work and employing more people, he felt he was going backwards financially. So I asked him, when he costs his jobs, does he have an hourly rate? He said “no”. I said I would analyse his figures so that we can determine an appropriate rate.

Bill said he struggled to pay his BAS and couldn’t understand why. So I analysed his income and expenses and noticed he had recently put on an additional staff member, but he didn’t have sufficient income to warrant it.

So the new gardener’s costs were coming out of Bill’s pocket. The only way that he could pay his way was for Bill to get more work.

I suggested increasing his charges, but he told me he had done that twice recently. As his work is all contract and he has the same clients regularly, it can be difficult to increase charges too much.

I suggested that instead of putting on a new staff member, it might be better to put someone on contract part time. Bill agreed to give it a try and also to review his client base to remove some of his unprofitable customers so he has the right number of good clients.

I said: “Perhaps you could suggest to your last employee, who I believe is surplus to requirements, that he take on these surplus clients and set up his own small business to service them”.

Bill thought that was a “great idea”.

I also recommended that we prepare quarterly accounts so that we can actually see how the business is tracking.”

Fellow gardener Ben has a different approach. With a turnover of a little more than half of Bill’s, he manages this on his own, with only the help of a part-time contractor. His profitability was much better than Bill’s, although he had made losses in recent years.

I asked Ben what his hourly rate was. He said – like Bill – he just charged the same as a similar job and didn’t really know how he costed jobs. But he did seem to be mainly profitable.

So we started preparing his BAS returns and providing quarterly accounts, which he had not had before.

His clients wanted less visits in winter, which seems reasonably obvious but, of course, that affected Ben’s cash flow. So we looked at what other services he could provide in winter when gardening is not so regular and concluded he could do other minor maintenance for his clients.

We also looked at Ben removing some of his non-profitable clients so he could run a more streamlined business. We are currently in the process of doing this.

Ben knows not to put on staff as the costs can be prohibitive and he will continue to use his contractor for additional help.

I also recommended putting up his fees because while he might lose a client or two, in general he may end up better off. I told him about a client who put up his fees by 25 per cent expecting to lose 20 per cent of his business and he only lost 5 per cent.

Bill and Ben run similar businesses yet they have very different profitability. As their accountant, I helped them by suggesting improvements, bit by bit, and providing quarterly accounts so they have an indication of the business quarter by quarter. They both found this very helpful and were grateful for a fresh pair of eyes on their businesses.

If you are concerned about your business profitability contact the expert team at Gail Freeman & Co Pty Ltd on 02 6295 2844, email info@gailfreeman.com.au or visit gailfreeman.com.au

Disclaimer
This column contains general advice, please do not rely on it. If you require specific advice on this topic please contact Gail Freeman or your professional adviser. Authorised Representative of Lifespan Financial Planning Pty Ltd AFS Lic No. 229892.