For our sixth installment of the Contractor’s Survival Guide, partners Ryan, Founder of SumoQuote, and Danny, Founder and Managing Partner of Breakthrough Academy share their knowledge and experience with managing money. Previously, we discussed following through with production from home. As a recap, we went into depth about being respectful and practicing social distancing, digitizing your process with software and integrations, and how automations make things easy. In this segment, we’ll focus on managing money when it comes to customer interactions and collecting payments from them, as well as internally managing your cash flow.
One of the first things you should do right at the beginning of the sales process is, guide your customers through the process and set clear expectations. Plan out a project schedule to let them make sure they know what’s coming up through every step including the payment side.
You should also be documenting everything for your own benefit and for the benefit of the homeowner as well. You can use photos to tell a story, track change orders, upgrades, and store e-signed documents in the same place.
At the end of the job, you should be able to present what was completed. Communicate the work that you did with a project summary report. You can build a project summary report in SumoQuote. It’s valuable for showing the homeowner the work that you’ve done when asking them for an invoice. You can layout all the things that you completed for the customer then collect your final payment just as according to the schedule.
Use Available Tools
Financing is important for the customer to be able to manage cash flows, but also an interesting tool for contractors to win more jobs and upsell to win bigger jobs.
You can use this opportunity to offer financing and e-payments to your customers to one, avoid having face-to-face contact, and two, save time so you’re not having to chase checks and deal with the hassle of accounts receivable.
Some other tools that are available to customers and contractors alike are government programs such as stimulus checks, and insurance.
For internal management, understanding how cash flows in and out of your business will help you make strategic decisions if you need to cut costs. In a time like this, it’s more important than ever to understand what options you have as a contractor to ensure that the cash/cost of the jobs you’re doing is held by the customer. When it comes to cash inflows, you need to take deposits on a sale. By collecting 10-20% of a job upfront, you can use that money to go and buy the materials, start the job, and pay for maybe the first week of labor.
Progress payments are very similar. These are for longer-term jobs that are over a month. These are where you say when progress payments are due (once a month on X amount of date with X amount of dollars) so that you’re not paying for the job upfront but the customer is paying it for you.
Completion payments are another big one. Having some sort of incentive or penalty for having completion payments paid on time so that when a job is done, you can expect payment by a specific date and ensuring that you have some sort of ramifications and incentive for the customer to be able to pay on-time.
It’s so important that we have some level of accountability and insight on what the AR of AR collected actually is. If there was ever a time to collect AR, now would be it. You should have some sort of accountability around this, such as a tracking file that shows you what customers owe and someone in the company who’s directly accountable for collecting AR that is reviewed weekly.
The other option you have for cash inflows is asset sales. Some of us may have equipment or vehicles that haven’t been used in over a year or don’t get much use. If we’re going into a bit of a slower period, look at what you can relinquish on your asset books to be able to make a sale of so you can bolster up your cast positions.
The final thought for cash inflows is government incentives. Regardless of whether you’re good with your cash flow position or not, take advantage of these government incentives. You don’t know what the next three to six months are going to look like, and it’s better to be cash-rich than cash-poor.
We all have to spend money to have money. We have variable costs, fixed costs, non-profit and loss items, and owner withdrawals.
Variable expenses are by far the most important area for you to make up for lost cash. These costs include labor payroll, subcontractors, materials, rentals, deliveries, disposal, and more. If monitored properly and driven properly, variable costs can be a huge asset for you to make a better profit on a job, even by 1%.
Fixed costs are expenses that stay equal no matter how much work you do. For contractors, these costs typically include office expenses, vehicle leases, marketing expenses, etc. If you’re going into hard times, know what costs are dead weight and what may cost you a bit more but is ultimately the right tool to take with you through rough seas.
Non-profit and loss items are something a lot of us forget about such as loan repayments and taxes. Know when your taxes are due or use a tax deferral from the government to help you.
As for owner withdrawals, pay yourself for what you need, not what you want right now. Take care of the business to make sure it thrives, but also don’t completely stop paying yourself because you also need to have a normal life and stress-free so you can make good decisions.
To watch the full webinar on managing your money, you can view it here. Our next webinar of the Contractor’s Survival Guide is our final one. You can watch on April 16th at 9 AM MST and learn about JobNimbus solutions to your business problems and strategies for technology that you can use from home.
If you are interested in learning more about JobNimbus go here: https://bit.ly/2yl5ekR
For the Breakthrough Academy Playbook go to: https://www.btacademy.com/download2020/
Use code: JN0414
For more about SumoQuote: https://www.sumoquote.com/