How to begin creating a financial reserve.

Saving money is not something the newer lawn care business owner tends to focus on. Usually there are so many things going on that cost money to get the business up and running, saving it, is the last thing on their list. At a certain point though, you need to rethink your priorities and start moving that issue up higher and higher until it becomes just a standard operating procedure. As we will see in this discussion from the Gopher Lawn Care Business Forum, there is a method to making this happen.

“After a number of years running a lawn care business, I am slowly and painfully coming to the realization that I need to learn something about saving money. The whole financial reserve concept is so foreign to me. Don’t get me wrong, I don’t blow money on consumables like expensive food, one time use items, etc. But when I have free money I find it easy to spend it on tools or equipment. I am trying to get my banking a little more straightened out to the point where I don’t use the same checking account for both my personal purchases and my business purchases.

I am trying to get my business to where I can see that it is self sufficient. Where the only money going into it is coming from profits and where the only money I spend for personal things is from my salary. My plan is to not pay myself anything from the business for a while. Basically I want to let the bank account grow itself. But I have not yet figured out how to get my personal financial reserve built up without paying myself. Right now I can get my business to have a small financial reserve because of the work load I have now.

As I am slowly changing the way I operate, I see I the need to learn from more experienced business owners. Among the things I am changing is not working on jobs that are not profitable to me. Certain services make me more profit than others and I have to focus on those that give me the biggest return for my time invested.”

A second lawn care business owner said “having a financial reserve is hard to set up! Once I figured out how to do it, I now have a strict budget for my personal expenses. I total up all my living expenses (mortgage, electric, water, phone, insurance, etc.). All the regular monthly bills. Then I budget the variable bills, the ones that change due to inflation and price swings. The goal is to have enough set aside to cover all living expenses for 6 months. Included in this are expenses like medical insurance and auto insurance deductables.

Now say I have an accident and can’t work, there is enough money set aside to cover all bills for 6 months even with no income coming in. Having this set up has really helped me sleep better at night.

The key to doing this is you have to live by a STRICT budget. Have the 6 months total expenses plus deductibles (health, homeowners, and auto) set aside and use it only for emergencies when you have a plan to reimburse the balance.

Getting to this point was very difficult for me, although it was much easier after the kids moved out. There is a feeling of great accomplishment when you achieve this. Financial fears vanish, and once you get to this point you will actually fight to maintain it. This does not include retirement investments. For 30 years now, we have matched our Social Security expenses (deductions) and invested it (not in individual stocks but in S&P spiders and have not touched them). The recent downturn in the markets have cost us some, but overall it was a sound investment.

I don’t think I will ever stop working, I have to do something or go crazy.”

A third business owner said “although it seems so simple to do it does takes discipline. With my previous history in the investing world, I have helped many people set up a nest egg and some avoid going under just by changing their lifestyle a little bit, and perhaps their way of thinking.

Lets use a fix my chainsaw as an example. I bring my chain saw to a dealer and he provides me a quote of $100.00. His overhead costs amortized over the income of the month let’s say would be $25.00, so he should put this in money in his operating bank account.

When I use the word amortized here, I simply mean spread out. If I know my basic costs are for example $2000.00 a month and I work 20 days a month then it’s $100.00 a day to keep the doors open. If I know I can fix and I have the work to fix four chain saws a day then I need $25.00 from each repair to cover my overhead. Anything over and above is gravy so to speak and can be split between my capital account and my savings account.

Say parts to fix the saw will run $50.00, so this will go into and come out of the inventory account.

The rest of it is to cover your time and or profit.

Set up two more separate bank accounts somewhere where they do not charge monthly service fees or their service fees are very low. Put 1/2 of that profit in each account and do not touch it, even if a smoking deal comes along.

Now make a plan. What is it that you need to expand your business that will bring in more revenue? Let’s say for this example it’s a chain sharpener that costs $300.00. This would save you time and increase profits.

Put $12.50 of that job into what we will call the capital account.

Put $12.50 into what we will call the rainy day account or savings account.

Stick to the plan and watch it grow, I think far too often we expect immediate results. It takes time but the money will grow. Don’t dip into it unless you are in a state of emergency.

Many years ago I discovered, I bought 6 coffee’s a day for me and my crew. Five days a week and then a few on the weekends. I forget the cost but let’s say $9.00 with a tip. If I had cut out the five coffee’s during the work week and made it at home, that would be $180.00 a month! I bought groceries three times a week, afterwards I cut that to once a week to save fuel.

Point being this, start the first of next month and make a list of everything you spend money on during the month, even that coffee once in the while. I am by no means saying don’t have a coffee with friends, the goal here is education or educating yourself to see where every dime is going. Put each item in a category, take each category and multiply by 12 at the end of the month. That will give you an annual cost. Then ask yourself, is there any savings to be had? If so, do it and put that savings in your rainy day account and watch it grow.

Reward yourself a little from time to time for doing a great job saving. Perhaps a movie or something else you like to do that will not cost an arm and a leg.

I have a Capital/Asset account and keep it invested in very low risk mutual funds. I average a 16.3% return on that money. I understand not everyone is able to pick which fund to invest with. But your bank can educate you for free. When I have to buy something, my rule of thumb is this. If the interest rate is 7% or less, I borrow and leave my capital account alone but payments on the loan are paid from this account. With the new piece of equipment, I put 35% of every cent it makes into this account until it is paid for. If the piece of equipment will not pay for itself within 9 months I don’t generally buy it.

I could go on and on however we all need to start somewhere, give it some consideration.”

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Lawn Care Business Books And Software.
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The GopherHaul Lawn Care Business Show Episode Guide.
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