Rooting out the Causes of Low Gross Margin

The root cause could be in the estimate, performance or execution.

Click Podcast #23 in the orange side bar to the right — >
as you follow the outline below

This podcast will focus on Making More Money with The Gross Margin Trouble Shooter Process. This process will help root out the root causes of low Gross Margin.

First, a quick review of the most common ways gross margin is too low or goes down:

• Turn over of personnel
• Having the wrong customer
• Increase in costs without a price adjustment Insufficient increases
• Scope of work change without price adjustment
• Extra work performed without being billed
• Inaccurate job costing
• Basic administration or lack thereof
• Lack of mind set
• No system or processes in place
• Operational execution

And, our topic for today, inaccurate or no estimating process. Is it an:

• Estimating Problem/Issue
• Expectation Problem or an
• Execution Problem

1 — Review the Estimate

• Is there an estimate? Is it in writing? Is it in the job file? If there was an estimate, see what was estimated originally to get this job done.
• Are there job specifications? Review the job specs and see if there any unique areas that need addressing or are they pretty much normal specs.
• Look at the estimate and determine:

o   Do the estimated hours match up with the hours being spent on the job?

o   How far over the estimated hours are you?

o   Are there any obvious omissions or mistakes? Like travel time, scope of work change etc.

o   Are you recording the time spent on this job accurately?

• Look for simple errors first, then go to the next step and look at the job.

2 — Review the Job: Expectations

• Bring the estimate and specifications with you if they exist.
• Go to the job site: track your travel time to get to the site.
• Review the job preferably when the crew is performing the work.
• What does the job look like quality wise?
• Are you performing at a satisfactory level and meeting internal expectations and more importantly are you meeting the customers’ expectations?
• Are you doing tasks that are not part of the scope of work? For example, parking lot sweeping or blowing. Sometimes the client’s expectations have changed and that has increased the hours needed to accomplish the work; like extra trash pick up or fix the sprinklers as part of the contract etc.
• Again look at the original estimate and see how the estimate matches up with reality both with tasks being done and how long it takes to complete them.
• Have the expectations changed from the original estimate? If so, then you need to figure exactly how much time these expectations have cost you.
• Next, decide how you can go about either offsetting these additional costs by increased efficiencies, or perhaps you need to make a legitimate cost increase proposal to the client.

3 — Review the job: Execution

• Review the bigger time components like mowing, detail, flower care, clean up.
• Observe the crew when they are working and see how they are performing the tasks, and how long it’s taking to perform the tasks.
• Look at vehicle set up. Where are they parked?
• Mowing, edging, clean up, etc. Is the right equipment being used and in the right order?
• Are you executing the job within the estimated times and if we are not, why?

4 — Re-estimate the Job

• Do a new estimate using all of the info gathered on the job and with your observations.
• Be specific with times to complete the tasks both regular routine work and the non-routine type of work.
• Here are the most common areas that are not in the estimate or not estimated accurately or where we just get it messed up.

o   Travel time and loading and unloading time.

o   Mowing and turf detail – either missed some areas or not using the right sized equipment.

o   Hand watering pots or color beds.

o   Large amounts of leaf drop that was unaccounted for.

o   Misunderstanding of what is included in our scope of work or not included.

o   The route sheet says to spend four hours here so that’s what the crew will do whether it needs it or not. The supervisor has not adjusted the schedule to what actually is needed to perform the job.

• You need to determine if the low gross margin is a result of:

o   The Estimate

o   Performance

o   Execution (and adjust accordingly)

• If it is an estimating issue you need to adjust the procedure to take into account what we have learned.
• If it is an expectation issue, you need to adjust the expectation. If the cost to meet the changing expectation is significant then you need to talk with the client about a price adjustment.
• If it is an execution issue, you need to adapt, change and innovate.

These mistakes can cost you time and money…lots of money.

Click Podcast #22 in the orange side bar to the right — >
as you follow the outline below

This podcast will focus on another key driver of business potential – your human resources plan. Steve Cesare is The Harvest Group’s point person to help companies improve their human resources programs. He is also writing a monthly series for Lawn & Landscape magazine identifying the “Top Ten Most Serious Human Resources Mistakes” that companies typically make.

The Grow Show will highlight those topics each month as part of its continuing podcast series. The first begins with the “Tenth Most Serious Human Resources Mistake” that companies make – the I-9 Form.

Why is the I-9 Form is so important to landscaper contractors?

Compliance with federal immigration laws is a top priority for many landscapers.  The I-9 form is the primary document used by U.S. government to determine if an employee is authorized to work in this country legally.

What are some of the common errors that landscapers make with their I-9 Forms?

• First, landscapers must have an I-9 Form on file for every one of their employees who was hired after November 6, 1986.
• Second, they must make sure they correctly complete the I-9 Form within three business days of the employee’s first day of work with their company.
• Third, they must retain the I-9 Form for 3 years after the date the person begins work or 1 year after the person’s employment is terminated, whichever is later.
• And finally, I-9 Forms must never be kept in an employee’s personnel file.  Instead, they must be kept in two separate binders, one for active employees and a separate binder for terminated employees

Severe fines and even jail time could result due to I-9 noncompliance. What are some of the consequences related to noncompliance?

• An employer must pay a fine of at least $110 but not more than $1,100 for every mistake made on a single I-9 Form.  So, three mistakes on one employee’s I-9 Form could lead to $3,300 in fines. That’s why the employer must make sure the form is completed accurately. The same fines are also applied if the I-9 Forms are not retained in the correct manner or for the proper length of time.
• Additionally, if a Department of Homeland Security investigation reveals an employer has falsified any document associated with the I-9 Form, the employer can be ordered to pay up to $6,500 for each fraudulent document.
• Next if an employer has any personal knowledge of employing unauthorized aliens, the employer can be fined up to $3,200 for each unauthorized alien as a first offense, up to $6,500 for each unauthorized alien for a second offense; and up to $16,000 for each unauthorized alien for all subsequent offenses.
• And finally, if the Department of Homeland Security determines that an employer has engaged in a pattern of “knowingly” hiring or continuing to employ unauthorized aliens, the employer faces a criminal penalty of paying a $3,000 fine for each unauthorized alien, and/or serving six months in federal prison.

Common questions about I-9 Forms:

1.    Can employers accept photocopies of documents (e.g., passport, social security card, permanent resident alien card) to satisfy Section 2 of the I-9 Form?

No.  Only original documents can be submitted, reviewed, and approved.

2.    Do employers have to make photocopies of the documents submitted by employees to complete Section 2 of the I-9 Form?

No.

3.    If an employer’s entire workforce is Caucasian, does he still have to complete the I-9 Forms on them?

Yes.  Every current employee hired after November 6, 1986 must have a completed I-9 Form on file.

4.    If a company only has a small number of employees, does it still have to complete the I-9 Forms?

Yes.

5.    If a company uses E-verify does it still have to complete the I-9 Forms on all of its employees?

Yes.

6.    If a company has an employee who has been with them for 15-20 years, does the employer have to have an I-9 Form for him?

If he was hired after November 6, 1986, the employer must have an I-9 Form for him.  Also, his I-9 Form must be checked periodically to ensure his documents have a current expiration date.

7.    Can a company fire an employee who does not produce the required I-9 documents or a receipt for an I-9 document within three business days of his start date?

Yes.  As long as the company applies this same practice uniformly to all employees.

8.    Does a company have to complete I-9 Forms on employees who will only work for them during the snow season and then be terminated in the spring time?

Yes.

9.    Can a company make a photocopy of an I-9 Form?

Yes. The company should always copy both sides of the I-9 Form.

10.If a company thinks it has some unauthorized aliens working for it, what should the company do?

If the owner has any “personal” knowledge of unauthorized employees, the owner is at considerable risk.  The owner should contact the corporate attorney or qualified human resources professional to discuss appropriate action immediately.

What should landscapers do to avoid making this serious human resources mistake?

• First, “Best in Class” companies train all appropriate staff (e.g., administrative, human resources, supervisors) on how to complete an I-9 Form correctly.
• Second, they have a formal written policy declaring the company’s compliance with all immigration laws and I-9 Form procedures. This same message is clearly presented in their company’s Employee Handbook, staffing procedures and New Employee Orientation Program.
• Third, they retain I-9 Forms according to the law. I-9 Forms must never be stored in the employee’s personnel file. They must be kept in a separate file. All current employees’ I-9 Forms should be kept in a single three-ring binder while a separate three-ring binder is used for all inactive employees’ I-9 Forms. Both binders should be alphabetized by employee last name.  This two-binder solution enables the company to track each group by its unique retention criteria:  one year post termination or three years post date of hire, whichever is later.
• Fourth, “Best in Class” companies have an external human resources professional or employment attorney review their I-9 Forms each year.  This objective review can highlight omissions and errors, while demonstrating a clear commitment to self-maintenance and quality control.  This proactive effort may save the company significant money if it is ever audited by a governmental agency.
• Fifth, “Best in Class” companies compile a spreadsheet that contains the expiration dates of every employee’s Section 2 documents. This spreadsheet can be sorted and reviewed periodically to ensure that ample advance notice (i.e., 90 days) is given to each employee so s/he can renew any document that will expire during that timeframe. Once the documents are renewed with a new expiration date, Section 3 of the I-9 Form must then be completed by the employer.
• And last, to reduce the liability associated with potential national origin discrimination, “Best in Class” companies make sure that the I-9 process is always administered consistently across all employees. They do not treat any employee differently, for any reason.

If you have any questions about your company’s I-9 Forms, or any human resources related question, send an e-mail to Steve Cesare at Steve@Harvestlandscapeconsulting.com.

Next month, Cesare will share the “Ninth Most Serious Human Resources Mistake Companies Make” when he shares some valuable insight about how to manage various types of employee leaves of absence.