Managing Your Finances
It’s one thing to win business and even deliver a service, but being profitable also means managing your finances properly. You need to make sure you keep track of who owes you money and how much. You also need to ensure you issue invoices in a timely manner, track payment and follow up on any late payers. If you don’t do all this, you won’t make any money.
Keep Accurate Records
During the first few months of operation, you are going to be very busy running around cleaning, maintaining and preserving properties; producing estimates; and chasing contractors. However, you should never overlook your paperwork. If you are organized, you will find it much easier to keep on top of things. Regardless of how tired you are after a busy day on site, take care of things in a timely manner. File receipts, update invoices, download and save photographs, sort inspection logs, etc. It will make your life much easier in the long run.
Make sure you open a business bank account and that you handle all business and personal expenses completely separately. Don’t be tempted to use your business account to pay for personal items. Pay yourself a monthly sum from the business and avoid shuffling money from one bank account to another. If you do not do this, and your accounts are later audited, you may find yourself in trouble with the authorities.
While you may not be able to do so immediately, as soon as possible, you should hire the services of a professional bookkeeper and/or an office manager. Someone with experience in this field will be invaluable and will help you to keep on top of your records and paperwork.
There is a wide variety of accounting software available for small- and medium-sized businesses. Most of the accounting programs for small businesses will do a great job helping to keep you on track of your accounts and invoices. However, as soon your business is running well, and you are turning a profit, hire an office manager or bookkeeper. This will help to relieve the pressure you’re under and make sure you keep on track of your finances. This will, ultimately, help you to remain profitable.
Property Audit Trails
In addition to your accounting, you will be also required to keep a detailed audit trail for every property you work on. In some cases, this may even be a basic requirement of your contract. To do this, simply keep a basic folder for each property that contains all photographs, paperwork, receipts and checklists related to the work you have performed on that property. This will be handy if you are required to produce any evidence of the work you have completed or if your activities are audited. Store your files in alphabetical order according to property name so that you can find the relevant records easily, as and when they are required.
If you are using an accounting software package, you should be able to track the expenses and expenditure on a property-by-property basis. When you have time, you can analyze all the data to identify which projects were profitable and which were not. This will help you to make strategic decisions as to which projects to bid on in the future, which to avoid, and which you may need to up your price on.
Invoice Accurately and On Time
Once you have commenced work on a project, contact the customer and request details of how they would like to receive the invoice. Some customers like to be invoiced via email, while others require invoices via snail mail. Whatever way you ultimately sent the invoice to the customer, make sure it is complete and contains all relevant photographs, receipts, and paperwork.
Invoice every job as soon as you finish it. If you use accounting software, such as QuickBooks, this will make your life easier and will allow you to update estimates into invoice form at a click of a button. Once invoices have been sent, you need to monitor payment on a weekly basis. You can do this by running a report on your accounts receivables. This will contain a list of all the outstanding invoices. As soon as the due date passes, get in touch with the customer and give them a gentle nudge to request payment.
Every organization runs different payment processes, so don’t expect invoices to be paid immediately. Some businesses pay within 30 days, while others like 60 days. If you are not willing to offer delayed payment terms, please note “payable on receipt” on the invoice.
It is also worthwhile learning about how companies structure their payment schedules. For example, some asset management companies may operate a cut-off and specify that invoices need to be received by the 15th of a given month for payment in that month. If this is the case, you will need to get your invoice in by the 15th or be prepared to wait longer to receive the payment. In some cases, this may mean you won’t be paid until almost 90 days after you actually performed the work, so bear this in mind when you’re planning your cash flow.
Staying On Top of Your Clients
It is not in your customers’ best interests to pay you early; they will want to keep their own money in their own bank for as long as possible. It is your responsibility to monitor who has paid and who is yet to pay. I use a number of policies to manage my cash flow, consider implementing some of these in your own business:
- If you are providing a service for a private individual or investor, consider requesting a deposit of 50% up front to secure the booking;
- Do not offer credit terms to private customers. Request payment immediately upon receipt of the invoice.
- Request a credit card number before work commences. If a private individual does not pay the invoice within 1-3 days of it being issued, bill the credit card instead.
- If, for some reason, the credit card cannot be billed, phone the customer immediately and request payment. Contact them every other day thereafter until full payment is received. If the customer still hasn’t paid within 30 days, send in the collection people.
- Find out corporate customers’ payment cycles so that you know the date by which invoices should be paid. If the payment isn’t received by the expected day, phone the customer immediately and request payment. Contact them every other day thereafter until full payment is received. If the customer still hasn’t paid within 30 days, send in the collection people.
- Send statements to corporate customers every 30 days.
Collecting Overdue Invoices
Bill collecting is an essential part of any business, and your foreclosure cleanup enterprise is no exception. Foreclosure cleanup involves clearing up the interior and exterior of the building, and repairing and maintaining homes that have been foreclosed upon. If you have outstanding invoices in your foreclosure cleaning business, simply follow our advice on how to collect the money that is owed to you.
Standard Bill-Collecting Tips
Here are some standard bill-collecting tips that can help you collect outstanding monies for foreclosure cleanup work:
- Contact your clients as soon as the invoice(s) are late. Give them the benefit of the doubt – it might be a genuine oversight. Present them with another copy of the invoice(s) via fax or email as quickly as possible so they can act on it straight away.
- If the client still does not pay the invoice in good time, start calling them regularly to remind them, always keeping legalities in mind. (Remember, some clients may request that you only contact them in writing.)
- Be firm and consistent, but always remain professional in your dealings with the client. Remember: the squeaky wheel gets the oil.
- Where appropriate, you can offer the client a payment plan. Keep in mind that your goal is to get your money, and although it’s not ideal to be paid in installments, it’s better than not getting paid at all.
- Tell the client you won’t do any more work for them until the overdue invoices are paid. You may lose the client, but it beats working for free.
- If you still haven’t received the money, you can always think about handing the account over to a lawyer or collection agency.
Keep it Legal
Remember to only use legal tactics when collecting on overdue invoices and try to preserve your company image if you are still working for someone who owes you money. This is not an easy thing to do when you’re threatening to sue someone. Ultimately, keep the end goal in mind: collecting your money for work performed. Real estate is a tough business, and you can’t afford to work for free.
Learn from Bill Collecting
Always turn experiences like bill collecting into a positive. Look at why you ended up in the position of having to chase bills in the first place and maybe tweak your industry contract to reflect this (our foreclosure cleanup contract has been revised several times). Examine the client and how you came to work for them – were there any clues that they may not have been prompt payers? In short, scrutinize the bill-collecting scenario and ask yourself what you could have done differently to avoid overdue invoices. It probably won’t have been your fault, but the savvy entrepreneur will examine all aspects of a negative situation and become stronger and better at business as a result of the experience.
How to Handle Business Growing Pains
Too often small businesses get caught in the trap of growing pains. This can include too much work, too fast. Learn how to handle this situation.
Cash Flow Hurdle
One of the characteristics of growing too fast is the lack of cash flow. If you’re a small business owner, you may have performed four or five jobs for a company, and your financials may look great — on the books. But in reality, you may not have ample cash on hand to tide you over until you can collect on those invoices.
If you’re working with larger companies, it’s not uncommon for these larger businesses to take one to three months to pay. As a small business owner, what do you do in the meantime? There are a couple of effective solutions.
One solution to the cash flow hurdle is factoring. You can factor your invoices. This entails selling your invoices to a company who will pay you the monies owed on those invoices, for a percentage of the amount you are slated to collect.
Advantages of Selling Invoices
The advantage of factoring is the factoring company will pay your company within days for the monies owed you by your client. That finance, or factoring, company, in turn, will wait to get paid. You will be paying the factoring company with the percentage they will collect off your invoice.
There are various pros and cons to factoring, so choose carefully when researching these types of companies. Some companies will want you to factor all of your company-s invoices through them — even the tiny ones that you may not want or need to filter through their financing. I advice you to stay away from these companies. Using a factoring company can be expensive so you want to factor only the invoices you need to factor.
Some companies try to lock your business into a contract for a certain period of time. Try to avoid this as well.
Do your research and choose your factoring partner carefully.
Turn Down Work
A second solution to growing too fast is to simply turn down work. While this is not ideal for many new companies, it may be your best bet in the long run. Why? Because it really you’re your company no good to accept all the work that comes in if you’re too busy to handle these jobs effectively.
You may ultimately complete all work orders given to you — but you may not do a good job. And if this happens, you will have lost a potential long-term client and stream of referrals after your first foreclosure cleanup job with that business.
It sounds much better to tell a company you are simply too swamped to take on more work right now. This sends a signal that you do “good work.” After all, if you’re swamped, you must be good, right?
Referring Jobs Out and Hiring Subcontractors
Third solution, so you don’t have to ultimately turn away work, is to use other companies to do the work for you. You can still earn from these jobs.
To make money from jobs you don’t do yourself, you can farm work out. You can send work out to other small businesses using one of these two methods: referring jobs out or hiring subcontractors.
Method number one, referring work out, can be done by using a formal referral agreement. When you pass along job information to another company (that you were initially contacted to handle), you can earn a percentage of the gross or net of that job. (The terms of the referral arrangement can vary and will depend upon the consensus of you and that other company.)
Use a formal referral agreement, or small business referral contract, to help ensure you get paid for the job — and perhaps paid for any future work that business gets from that company as a direct result of your initial referral.
You can also choose to hire subcontractors as option number two to earning from jobs you farm out to other enterprises. In a subcontracting scenario, your company will ultimately get paid for the work at hand in total, and you will pay the subcontracting companies you bring on to help out with the job.
Your schedule is almost as important as your accounting, especially if you are managing multiple projects and workers.
You can keep track of your schedule using the simple calendar tools that are available in Microsoft Outlook or Gmail or through a spreadsheet like Microsoft Excel. I prefer to use a calendar because I can color code activities and then choose to view each category individually. These tools also allow me to schedule recurring jobs, such as once-monthly maintenance cleans.
The other advantage of using an online tool to plan schedules is that you can grant access to the calendar to multiple team members. This can help your team to keep track of one another. Furthermore, these calendars can often be accessed via mobile phones and devices, so you can check the schedule at any time, from anywhere.
Handling Unexpected Situations
In this job, you will come across the strangest things. Sometimes shocking, sometimes amusing and sometimes outright dangerous. Sometimes, you may be confronted with a situation that knocks you for six and leaves you asking: “What should I do?”
While you can’t prepare for every eventuality, you can think through a few scenarios in advance to make sure you are prepared and have a basic plan of attack. Develop a number of policies to handle potential scenarios and make sure all your team members are fully aware of what they are and what actions they should take if certain things happen. A few examples of situations you may encounter are listed below:
1) The damage to the property is extensive and potentially dangerous (e.g., a ceiling is about to fall down).
2) The property is infested by pests.
3) There is excessive mold growing on the walls.
4) The original occupants are still in the property when you arrive.
5) There are squatters in the property.
6) The property has been used as a drug house or meth lab.
7) A member of your team sustains an injury while in the process of the job.
8) An action taken by a member of your team results in an injury to a third party.
9) You cause damage to the property or to a third-party property in the process of completing your task.
Of course, the list of difficult situations is endless. You should teach your staff that, in the event they are ever unsure as to what action to take, they should immediately leave the property and contact you. You can then make a decision and contact the relevant people. If the situation presents an immediate risk of danger, or someone has been seriously injured, they should contact the appropriate emergency services.
You will often find that an empty property has been inhabited by homeless people. If you or your employees come across a house that is being used as a shelter in this way, remain calm and tell the inhabitants, “I’m only here to clean.” This will help to avoid them getting aggressive because they think you are there to evict them. Leave the property and contact the realtor or asset manager. You should never attempt to evict people. This is solidly beyond your remit.
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