How To Have Better Cash Flow In Your Contracting Business

Why is cash flow important to your home-service company?

To answer that question, we first need to make sure we are on the same page about what cash flow actually is.

Cash flow has nothing to do with how much money you make on a project.

Cash flow is the movement of money.

How much comes into your account, and how much flows out of your account each week.

And I’ve seen a ton of contractors struggle with this.

“The money is coming, I just don’t have it yet”

“I made $5k last week, I just need to collect it”

When should you collect payments from clients?

Let me lay out two scenarios.

Contractor 1: Books a job for $20,000. Collects $5,000 on day one of the project. Collects $15,000 ten days after the project is complete and the client is happy.

Contractor 2: Books the same job, but collects $5,000 up front. $5,000 when they start the project. $5,000 half way through. And on the day the project finishes collects the final $5,000.

Contractor 1 will be out of pocket for the majority of the project. The only time the contractor will sleep well at night is ten days after the job is complete and the payment is received.

Contractor 2 on the other hand will have peace of mind the entire time.

By collecting $5,000 as a deposit, and another $5,000 when the job starts, he’s got more than enough to pay all of his expenses. He will never be out of pocket for the project. Once the job is 50% complete, now he starts to collect profit.

The key to having good cash flow is to have a solid collection process.

You should never be paying for an expense out of pocket. You should always be using the clients money to pay for labor and materials.

This is how I was able to start my business with $0.

I started by just doing marketing, sales and hiring for the first 3 months of my business.

Every time I booked a job, I’d collect a 25% deposit.

By the time I was ready to start doing the work for clients, I had over $25,000 in deposits.

I used the deposits to pay for all the equipment and materials I needed to finish the jobs.

I always made sure that I was cash flow positive.

I made sure that I would never be in a spot where I was using money from the next project to pay for materials on the current project.

So here is generally what I would recommend:

• 25% when you book the project (to pay for materials)

• 25% when you start the project (to pay your people)

• 50% when you finish the project (to pay yourself)

Depending on the size of the project, and the kind of work you do, you may want to adjust the last 50% so that you are collecting the money in more stages before project completion. . Always look for ways to collect more money, more frequently.