Lawn company owners and landscapers typically prefer to focus on bidding jobs and knocking out a day’s work as opposed to dealing with “business stuff” like keeping up with the books. You know it’s necessary, but it’s a drag, and sometimes you don’t know if you’re doing everything right. This is a frequent complaint from small business owners who have never had to tackle their bookkeeping. And quite frankly, you have better things to do with your time!
Common pain points for lawn care companies and landscapers, when it comes to their ongoing accounting needs, include:
differentiating where your income is coming from
knowing in which categories to classify expenses
keeping up with receipts
invoicing and collecting customer payments – and maybe even chasing payments from customers who’ve ghosted you 🙁
accounting for materials costs that are passed to customers
understanding depreciation of equipment
dealing with customer deposits or prepayments
handling payments to employees and/or contractors, and sending W2s and/or 1099s in January
We will address each of these in this article to give you a better idea of bookkeeping fundamentals and accounting concepts for your lawn and landscape business. It may clarify the items that apply to your own business, and if not, you may decide to look for a knowledgeable bookkeeper who can help you out so you focus do what you do best.
Your lawn care company probably earns income in at least a few ways. While you could throw all of these under “Lawn Service Income,” you would be best off creating different income accounts to separate each service you offer. When I say “accounts,” I am referring to how your Chart of Accounts is set up so you can see different streams of revenue and expenses on a P&L. For lawn care businesses, this might look like:
Lawn Service Income
Residential Cuts
Commercial Contracts
Cleanups
Landscaping Jobs
Materials Resale Income
This helps you to see exactly where your income is coming from and which services are really your bread and butter. Dividing things out like this also serves the very-important purpose of helping you spot trends over time when you run a P&L month-over-month or year-over year.
Similarly, this is how your expenses will be structured. For tax purposes, you want to have your expenses divided out into certain categories, but you can have sub-categories in each of those that help you pinpoint which items might be costing you more than they should be, for example. You also can name these whatever makes sense for your specific business, giving you concrete insight into things as opposed to looking at categories with generic names that don’t really apply to you.
Common expenses for a lawn service or landscaping business include:
repairs and maintenance on your equipment
fuel expenses for the equipment
supplies expense (trimmer line, oil for equipment, chain for your chainsaw, new mower blades – think items that are consumable)
small tools and equipment (everything ranging from hand pruners to string trimmers and blowers)
insurance
marketing and ad fees
uniforms for employees
fees for the dump
software fees if you use a CRM or accounting software like QuickBooks
Side note about QuickBooks Online: One of the best things about it is that you can upload an image of a receipt, bill, check (or whatever other documentation you think should be kept). This gets attached to the entry for the expense, making it super easy to keep a digital paper trail that backs up what you’re claiming.
Let’s talk again about income. You might wonder about the best way to invoice your customers, and there are quite a few online apps that can do this now. Sometimes you have customers who pay each month or quarter and other jobs might be just one-time gigs, and the proportion you have of each of these will depend on your specific niche. A few niches that lawn and landscaping companies might specialize in include:
residential cuts (often ongoing)
commercial contracts (almost always ongoing)
landscaping projects for new construction or refreshing existing landscaping (can be ongoing if you’re hooked up with a developer)
one-off lawn cleanups (as the name implies, this is a one-time thing)
bush hogging jobs (often one-time, but may be ongoing)
For one-off jobs, a handwritten invoice or receipt might work just fine. But when many of your jobs might be ongoing residential customers, or with professional clients such as developers or commercial property owners, you will want a way to send a nice invoice itemizing what they are paying for and give them a way to easily pay it. This is perfect for their records and also yours, and when you combine your invoicing with QuickBooks Online, the entire process is streamlined.
The great thing about using QuickBooks or any of the apps that integrate with it (such as Melio) is that you can send a digital invoice to your customers and they can pay it with ACH or card. On this invoice, you will use the correct income categories for the services rendered, and you can itemize any materials the customer is purchasing such as plants or mulch. This not only gives you a way to deliver the invoice to the customer and receive prompt payment, it accounts for it in your books exactly in line with your business model and Chart of Accounts you have set up. And if you ever have problems with collecting payment, you can continue to push new invoices to their email, or print them and mail them out. The point here is that this system can drastically reduce the time you spend on this activity!
One area that can be tricky for landscaping business owners is purchasing materials like plants, mulch, soil, and rock that will be installed at a customer’s home. What I recommend is getting a sales tax exemption (see: Florida Resale Certificate ) to use for purchases at nurseries and mulch yards, etc. This allows you to not only not pay sales tax on your purchase, but oftentimes, they will allow you to get wholesale pricing just by showing them your certificate. This assumes that you will collect sales tax on the products by reselling them to your own customers and remit that to the state – this is very important! You don’t want to be in violation of the law here.
When you are invoicing your landscaping customers, you have a line for each product and its quantity and price, and in QuickBooks, there is a box to check if those things are taxable and it will add the correct amount to the total. You also would list a line for each service you are providing, which usually would not be subject to sales tax. You then have one tidy invoice to send to customers to pay, with sales tax properly allocated.
The resale of these products represents a COGS (cost of goods sold) situation in your books – the cost you paid for each product is an expense on your P&L. You’re presumably charging retail price for these materials as part of your landscaping quote, rather than passing them on at your wholesale pricing (although, that is certainly your prerogative). This is why I structured the income section shown above to have “Materials Resale Income” as an revenue account. The gross revenue from these products goes into that category, which is then offset by the COGS expense, thus reducing the amount of income you owe taxes on.
Alternatively, you can simply apply these all into the category of “Landscaping Jobs” and you will still offset the income with the COGS expense. It just depends how much detail you want to see on your P&L! That’s the beauty of customizing your Chart of Accounts – you determine exactly what you want to see and how far you want to drill down.
A lawn company typically has quite a lot of equipment, but not all of it is considered an asset on your Balance Sheet. Your most expensive equipment such as your mowers, your trailer, your vehicle (if paid for by the company) would be capitalized over a period of time instead of being expensed at the time of purchase.
The typical dividing line between asset versus expense is $2500 along with an expected life of at least two years. This means you most likely will expense your smaller equipment purchases such as your trimmer, edger, hedge trimmer, pole saw, chainsaw, blower, that kind of thing (in your small tools and equipment category). They may have a lifespan of at least a couple of years, but they do not meet the threshold for cost.
Either way, your assets will be depreciated over a number of years depending on what the item is. This represents an expense as well, and decreases your taxable income, but these are referred to as “non-cash expenses” since there is no actual money transfer. Depreciation simply reduces your tax burden.
As for other assets and liabilities that a lawn business might have, the first thing that comes to mind is related to when payment is received versus when the work is performed. We have two options to consider here:
The customer prepays for work that is not done yet – this represents unearned income and is considered a liability until the work is performed. We will talk more about this in the next section.
The customer is invoiced for work after you complete it – this represents accounts receivable, which is an asset. I always advocate putting ongoing clients on ACH auto-draft for before the work is done so you’re not having to chase down those who don’t pay, but with lawn services, it is certainly not uncommon to invoice after the fact, which should always be booked to A/R until they pay you.
Additional liabilities that lawn services might incur include accounts payable (e.g., you ordered supplies on account and didn’t pay yet), credit cards, and notes payable for longer-term loans. Any interest you pay on these, by the way, is another expense you can write off.
I mentioned that prepayments for lawn or landscaping services are considered a liability. For big jobs like major cleanups or landscaping projects, these deposits are liabilities as described above; they don’t represent actual income yet.
There are three scenarios here that could happen after a customer accepts your quote and pays a deposit:
You begin work and fully execute the agreement. You make a journal entry to reverse the deposit liability and credit it to income. Any additional balance is invoiced and paid as agreed.
You begin work but you decide to part ways before the deposit is used up.
If your deposit is refundable, you reverse the liability and issue a refund for whatever balance that has not be used up.
If it is nonrefundable, you reverse the liability and credit the full amount to income.
You do not begin work because the customer backs out. The same applies as above as far as reversing the liability.
A refundable deposit would be returned to the customer, less any cancellation fee you might have included in your contract.
If the deposit is nonrefundable, that is all income to you.
You may also receive payment ahead of time, say, if you bill quarterly. This should be recorded as unearned income, a liability, and each month you would reverse a portion of it and put it to income.
Understanding unearned income can be tricky, but the rule of thumb is that the money is not yours until you have completed the work and earned the income. It’s a good reminder to ensure that your contracts are solid and spell out what will happen in these instances where a customer may cancel on you while money is in limbo.
There are three options for paying your workers but this is going to largely boil down to how much control you exert over the worker. This is a particularly important aspect for lawn company owners to understand in order to avoid IRS penalties and possibly some at the state level , too (e.g., if you are audited for worker’s comp compliance).
If you are controlling how the worker works, when he works, what order to do the jobs, having him use your equipment…you have an employee on your hands and you are responsible for contributing to his FICA payments. You could still pay by the job, but an hourly rate is much more common.
You can absolutely operate a lawn care business with independent contractors, too, but you will have to be sure that you are allowing them to exert control over how they work. Most importantly, they are choosing when and how to perform the work. It is imperative to track these workers’ payments for 1099 (super easy in QuickBooks, by the way). Have them fill out a W9 when you start working together, and they should be paid by the job and even possibly submit an invoice to you each week for the jobs they have completed and what they are charging you for their labor and expertise. In a nutshell, they are self-employed and you are sending work their way. It is a different type of relationship.
The last option I’ve seen is using a day labor service. This might not seem ideal at first because you are paying a higher rate per hour to the labor company, but they are in turn the employer of record and responsible for FICA payments, worker’s comp, and all that good stuff. If you work alone and can handle your volume except for big jobs, this can be a great choice as it’s less work for you and less cost as far as handling payroll.
Overall, bookkeeping for your lawn service can be pretty straightforward. If you’re a sole proprietor who does residential lawn care on the side while you build your business, your needs may be limited to invoicing one type of service income and keeping receipts for your expenses. But as you grow, or if you have already grown, you may need a full-charge virtual bookkeeper to help you keep track of it all. Choosing to use an outsourced bookkeeper for your lawn or landscaping business can help ensure that you’re staying on top of invoicing and receiving payments, accounting for any accruals and depreciation, keeping your books straight when it comes to categorizing income and expenses, and making sure your workers are paid properly and on time.
If you are interested in how Six Arrows Business Solutions can help relieve some of your pain points, let’s talk! You can set up a free consultation – you’ll schedule a 15-minute call with me, and in the meantime, fill out a form to give me a better idea of how you’ve structured your business before we talk (the link is provided when you schedule your call). This will streamline everything and we can focus on if we are a good fit!
Schedule today and see how a virtual bookkeeper for your small business can help you shoulder the load.
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