We sat down with one of our partnership structure clients – Sophie from HRG Tree Surgeons, a business which undertakes the unique and challenging task of maintaining trees. With teams operating costly machinery and managing hazardous conditions, we learned more about how this complex industry operates – as well as gained an insight into what impact our partnership model had on helping them be successful.
A tree surgery business is very much a niche business that involves carrying out anything to do with trees, such as taking trees down, maintaining the well-being of trees, overall tree maintenance, hedge pruning and tree reports. “It’s not construction nor is it landscaping, it’s kind of in its own tiny little niche and it doesn’t quite belong in any other big industries. This has its own benefits and setbacks,” explains Sophie.
Through the years, it’s become clear that the partnership model is especially powerful for businesses specialising in narrow fields and HRG are a prime example of its success. With tree-focused expertise at their core, individuals seek out working with them to share their passion – so much so that after only a three-month probation period, new joiners gain access to all the partner benefits such as profit sharing. Although there is no strict rule around the duration of the probation period, HRG’s three-month probation period stands out. We asked Sophie what was behind this decision.
Sophie noted that there have been cases where the probation period was extended but overall, “it’s a very manual job and people have to work very closely. You’ve got someone who is climbing up a tree, and it’s a 40-foot-tall drop with the only thing between you and the ground is a harness with a rope and your team members. Your life is basically in their hands. It’s a huge amount of trust that’s required from a new team member straightaway so we tend to find out who’s right and who’s wrong quite quickly.”
There is always an element of camaraderie and trust you must have within a partnership business but HRG elevates this concept to another level. The notion behind partnership comradery also stands for shared responsibility. Earlier we mentioned profit sharing, which is a great way to incentive team members, and build a business where everyone shares in its success. But in order to have a profit share, a business must make a profit. We were curious to learn from Sophie what are some challenges when running a tree surgery business and what impact they had on the partners.
“One of the biggest issues or problems as a tree surgery business in comparison to something like a software business is the amount of money that you have to pay upfront in machinery costs, tool costs and fuel costs. You have to buy a chipper which is 20,000 pounds and then you have to buy a truck which is 25,000 pounds and then another piece of machinery,” describes Sophie, “and that’s just for one team”.
Sophie’s comment about set-up costs had us wondering whether the team’s outlook on machinery changed? The way we structure limited liability partnerships is that as long as profits surpass a certain threshold, the excess is shared amongst the partners. This allows the business to retain some profits for internal purposes such as expansions, upgrades or unforeseen circumstances, and share the rest with the team.
“That’s a good question,” sits up Sophie a little higher in her chair, making us wonder what must be going on with the machinery to warrant that reaction! “We had a difficult summer with the bird nesting season halting work and quite a few breakages with the machinery, which meant we couldn’t pay out the quarterly profit share.” Anyone running a business understands that operations tend to fluctuate but one of the benefits of the profit-sharing models is that it can offer greater insight and ensure that everyone is informed, which is something the team at HRG experienced firsthand.
Not getting the quarterly profit share “made them a bit more inquisitive as to how things are going in the business,” explains Sophie, “we showed them the profit and loss statement (P&L) and demonstrated the different things we recently had to pay for. Then all of a sudden, you see them come to the realisation that if they hadn’t left that tool on-site or been more careful with machinery, then maybe we might have had a profit share. But you know, accidents happen and that’s fine, we’re okay with that, however, now you’re able to see the cost”.
Limited liability partnerships (LLPs) offer a unique advantage when it comes to transparency and accountability. One of the key benefits is the ability to explain business decisions and trace their cause and effect. By referring to the profit and loss (P&L) statement with partners, it becomes easier to understand the impact of different actions on the business as a whole. It’s also worth exploring the benefits of forming an LLP in situations where challenges are outside of the partners’ control and, instead our industry-wide, such as the nesting birds season.
Limited companies (Ltd) and limited liability partnerships (LLP) have different ways of paying their team. In a Ltd, employees are typically paid through a system called Pay As You Earn (PAYE), where income tax and national insurance contributions are deducted at source. The performance of the business is irrelevant for the purposes of PAYE, it gets paid no matter what and if it doesn’t, you will incur charges.
If HRG, for example, couldn’t operate for three months because the birds were nesting and made a loss but had a profit the following nine months, the tax bill at the end of the year would be lower because the profits in the LLP overall were lower. So the tax bill is directly linked to how the business is performing. Additionally, Sophie mentions, “when you have an accountant and you’re on PAYE it feels sort of hidden away, detaching you, however, as a partner you are truly aware and feel part of the ins and outs of the business. The guys are tree surgeons, we don’t expect them to be really interested in the P&L but by being transparent and aware of your financials, you do feel empowered.”
In conclusion, our conversation with Sophie from HRG Tree Surgeons revealed the unique advantages of running a tree surgery business as an LLP. The team’s partnership culture has helped them cope more easily with cyclical, seasonal fluctuations and enabled everyone to share in the success of the business as well as ponder the losses. If your business is in a similar situation, it may be worth considering switching to the LLP model. Get in touch to learn more.