A lack of adequate cash flow is one of the things that causes many small roofing businesses to struggle and fail. Even the savviest and most skilled business owners may not be able to stay afloat if they don’t have the money they need to pay for things like overhead expenses, payroll, advertising, and supplies.
At Select Funding, we have many roofing business clients and cash flow management for roofing companies is a frequent topic of conversation. Since it can be difficult to manage and sustain cash flow, particularly when business is seasonal, we’ve created this cash flow optimization guide to help you make sure you have the money you need for your roofing company to thrive.
Why Is Cash Flow Important for Business Owners?
Cash flow is an essential element of business success. It’s important to differentiate cash flow from profits. A business that is profitable on paper can still have negative cash flow. For example, if you have customers who are delinquent paying their roofing invoices, you may not have the cash you need on hand to pay your regular monthly expenses or meet your payroll.
Positive cash flow indicates that a roofing company has enough money coming in to meet its financial obligations. A company is far more likely to be in good financial health with positive cash flow than it is with negative cash flow.
Here are a few of the ways that healthy cash flow is good for small roofing companies:
- It allows you to keep up with debt. Taking on debt can be worthwhile if you use borrowed money to fuel your business growth. With adequate cash flow, you won’t need to worry about making on-time payments and keeping your business credit in good standing.
- It decreases stress. Running a roofing company can be stressful, particularly if you operate in any area where roofing work is seasonal. Maintaining a positive flow of cash can help to minimize stress and leave you free to focus on other aspects of running your company.
- It allows you to pursue opportunities. Business growth almost always requires some amount of cash on hand. With positive cash flow, you can take advantage of bulk purchasing discounts for supplies, invest in roofer marketing, and take on more work than you could if your cash flow weren’t reliable.
Cash flow is the life’s blood of your roofing business. With it, you can pursue your most important business goals and increase your profits. Without it, you are unlikely to grow your business and beat out your competitors.
What Are Cash Flow Statements?
Cash flow statements are business reports that summarize where your cash is coming from and how you are using the cash that comes in. By providing an overview of your cash flow management, they provide useful information to help you optimize your cash flow.
Your roofing business cash flow statement should include the following things:
- Cash flow from operating activities, including receipts from work performed, interest earned, payroll distributed, and so on.
- Cash flow from investing activities, including the purchase or sale of assets, and all changes in equipment, investments, or other assets.
- Cash flow from financing, including loan funds or other money you receive from lenders, debt payments you make, and dividends.
If you use generally accepted accounting principles (GAAP), you may also need to disclose certain non-cash activities. Your cash flow statement is useful because it provides you with an overview of your cash flow, which you can use to evaluate your spending and collections and optimize your cash flow.
How Do You Improve Cash Flow in Roofing?
Improving your cash flow isn’t difficult and it doesn’t need to be time-consuming. Here are some things you can do to help with cash flow optimization for roofing contractors.
Send Invoices Immediately
One of the most common cash flow mistakes that roofing companies make is not sending out invoices in a timely manner. It’s common for homeowners and business owners to take a while to pay their invoices, so it’s essential to get them out as quickly as possible.
We suggest having a system where invoices are entered into your account system within one business day of a job being completed and mailed the same day. You can also email invoices if you want them to get to customers quickly, or print them up ahead of time and hand them to the customer directly. You’ll reduce the time it takes to get paid and improve your cash flow.
Negotiate Bulk Discounts
Buying roofing materials and supplies can be expensive and impede your cash flow. Even small roofing companies may be able to work with suppliers to negotiate bulk discounts for certain products and materials.
While a small discount might not seem like much, every little bit you can do to move your cash flow toward the positive end of the spectrum is helpful.
Negotiate Rapid Pay Discounts with Suppliers
In addition to negotiating bulk discounts, you can also talk to your suppliers about rapid pay discounts. Your suppliers may give you 20, 30, or even 60 days to pay your invoices. You can help with their cash flow and yours by asking if you can get a discount if you pay quickly.
Many suppliers will offer a 2% or even a 5% discount if you agree to pay within 10 days. You have nothing to lose by asking and these small discounts can add up over time, giving you better cash flow and allowing you to use what you save to pursue your business goals.
Make Digital Payments
One of the things that can be challenging when trying to optimize cash flow is knowing when a check will clear. Typically, you’ll need to print and mail a check up to a week before a bill is due to make sure that the payment gets to its destination on time.
You may be able to streamline your cash flow by paying online instead of using checks. That way, you can pay your bill on the day it is due instead of doing so ahead of time. Here again, there’s a small advantage to your cash flow because you can hold onto your cash for a few extra days.
Review (and Raise) Your Prices
A common explanation for negative cash flow is that some roofing companies simply aren’t charging enough for their services. It can be scary to think about increasing your prices, but if your prices aren’t allowing you to optimize your cash flow, it may be time to think about raising them.
You can determine whether your prices are high enough by calculating your profit margin. The average profit margin in the roofing industry is 15%. If you’re earning less than that, you may need to increase your prices—and it may also be useful to find ways to decrease your expenses, as we noted above.
Create Invoice Collection Guidelines
Sending out invoices quickly may not be enough to streamline your cash flow. A related strategy to use is to create a written policy for invoice collection and stick to it. For example, you might shorten the payment terms for your customers. Once the invoice is sent, you can:
- Make a follow-up call a few days after the invoice is due
- Send a written follow-up a few days after that
- Have a strongly worded collection letter ready to go, and send it if you haven’t been paid within 30 days
It’s best to keep the initial phone call light and friendly. You want your customers to take your calls, and you should be willing to negotiate a payment plan if that becomes necessary.
Apply for Small Business Financing
For some roofing companies, the methods we have already mentioned may not be enough to optimize cash flow and give you the money you need to grow your business. When that happens, you may want to consider applying for small business financing.
Select Funding provides small business financing and equipment financing to roofing contractors. You may be able to qualify for up to $250,000 in financing if you meet our simple requirements:
- You own your own business
- You have at least $100,000 in annual deposits
- Your FICO score is 525 or higher
The only verification we require is six months’ worth of business bank statements, which we’ll use to verify your deposits. We will review your application using our automated system and approval may be provided in just a few hours. In most cases, you will receive your money within one business day of approval.
You can use small business financing to pay your overhead expenses, pay your employees, purchase tools and supplies, and to fund marketing campaigns to attract new leads and grow your business. In other words, it’s available for anything you would use traditional cash flow to do!
Optimize Your Roofing Business Cash Flow with Small Business Financing
Optimizing your roofing business cash flow is necessary if you want to stop worrying about money and start focusing on growing your roofing company. The suggestions we have included here can help you improve your cash flow and achieve your most important business goals.
Do you need small business financing to optimize your cash flow? Select Funding can provide up to $250,000 to give you the cash flow you need. Click here to learn about our financing options and apply today.
