Tips on Starting, Funding a New Business

by
Bubbles with business related images inside floating above a bird view of the city.

Small businesses are being created now more than ever, thanks to people being laid off or furloughed during the COVID-19 pandemic and the advent of online tools aimed at helping budding entrepreneurs. In April 2021, roughly 500,000 people in the U.S. applied for new business applications, compared to just 300,000 in the same month of 2020, according to the Bureau of Labor Statistics.

While the current climate may make the decision to start your own business easier than ever before, it certainly doesn’t mean that starting a new business is easy. While creating your small business from scratch does start with a dream, a great idea and some funding, you’ll probably also need online training, business acumen and an understanding of some basic financial and marketing principles to get going.

Mapping Out Your Business

Whether you are launching a construction business, retail store, business services firm or an eCommerce site, before you even think about funding, you’ll need to produce a business plan.

A business plan is a specific outline of your business, what it will entail and how it will make money. If you plan to seek initial investors for your business, be it angel or venture cap investors or through crowdsourcing, you’re going to need one.

Source: Growthink

There are cost-effective online tools out there that can provide you with a template for a presentable business plan, such as this one from Growthink, that can make it easy for you – all you have to do is plug in the text and the program will do the rest for you. The basic ingredients of a plan for a new business are:

  • Executive Summary

The executive summary should clearly tell the reader what you want to accomplish as a business, and why your business is special. This is often referred to as a mission statement and is extremely important to potential investors. All too often, this is buried in the middle of the business plan but needs to be stated upfront.

  • Business Description 

The business description should include a clear description of your industry, as well as the products or services you are seeking to sell within it. This is your chance to describe why your product or service stands out in the industry and why you think customers will choose it over your competitors. 

  • Marketing Strategy

This part of the business plan requires a meticulous analysis of the market you are trying to sell your product in, and who you want to sell your product or services to. As an entrepreneur, you need to be familiar with all aspects of the market you’re looking to sell in, as well as carefully define your target market so that your company can be positioned to garner its share of sales.

  • Competitive Analysis

Present a description of what your competitors offer, what their strengths and weaknesses are, and how big the market is in which you are trying to sell. Then, clearly explain what gives your business a competitive advantage. Put simply, why do you think consumers will choose your products or services over your competitors? 

  • Design and Development Plan

The purpose of a design and development plan is to provide a description of the design of your products or services, chart their development within the context of production, marketing and the company itself, and create a development budget that will enable your company to reach its goals.

  • Operations and Management Plan

This plan describes how your business will function on a continuing basis. Who, if anyone, is going to be in charge besides yourself? Where will your business function and what kind of equipment and inventory will you need? Who will you need to hire and for what functions?

Put simply, the plan will clearly explain the various responsibilities of your management team (if you plan to have one), the tasks assigned to each person in your company, as well as the capital and expense requirements related to the operations of the business.

If the only employee will be you, you need to clearly spell out what kind of compensation you will need for yourself, as well as the equipment, supplies and space you will need to make your business operate smoothly.

Business Basics

In planning out a new business, you need to learn basic business terms and why they’re important. There are online courses (and many of them are free!) to teach you the basics of managing a business, such as what sales and profit margins are, customer retention and conversion, etc.

In order to successfully launch your business, here are some basic business terms you should familiarize yourself with right off the bat:

  • Sales Margin 

Also known as contribution margin, this metric basically determines what you should be charging for your products or services in order to be profitable. It is the amount of money you charge for your product minus the cost associated with producing your product or service. Those costs include manufacturing costs, advertising/marketing and salaries. 

  • Customer Acquisition Cost

This metric helps determine what each sale costs. Simply add up the cost of marketing and sales — including salaries and overhead — and divide by the number of customers you land during a specific time frame.

  • Customer Retention Rate

Customer retention rate is a key metric that essentially tells you if your customers are happy, and will help you determine how quickly you can grow your business. It measures what percentage of your customers have kept coming back over a period of time, and can be calculated over a weekly, monthly or annual basis, depending on your preference.

  • Customer Conversion Rate

This metric basically tells you whether your marketing and sales efforts are paying off. It is simply the percentage of people who walk into your business or visit your website who end up becoming customers. If the conversion rate is low, you may want to change the way you are marketing or advertising your business. You may want to offer more discounts on your website if your conversion rate is low, for example.

  • Revenue Percentages

If your small business is like most, you probably have more than one source of revenue. Where your revenue is coming from will tell you about shifting trends in your market and what consumers are spending money on.

For example, if you run a small contracting business, you may get revenue from customers who want to build new homes and revenue from customers who want to renovate their homes. If you notice that, suddenly, many more customers are interested in home renovation rather than new home building, you may want to change your marketing efforts accordingly.

Build a Website

Whether you’re a doctor or a plumber, it is virtually impossible today to run your business without having an online presence. When consumers search for your services, the first place they will search is the internet.

Having an online presence means that potential customers can easily find you via a web search, know what products or services you offer, and what makes you unique. You can even set up your website to make direct sales.

Building your own website does not have to be costly, as there are plenty of do-it-yourself website builders such as Wix and SQUARESPACE that can make it easy. In a previous article, Kapitus offered a step-by-step guide to building your own site.

Potential Funding Sources

When you’re looking to start a business, traditional and alternative small business lending sources are probably not an option, since most require years in business. There are funding sources available to you, however, if your personal savings and help from friends and family members are not enough to start your own business:

  • Angel Investors

This option is pretty much what the hit show “Shark Tank” is about. Angel investors are individuals who are willing to invest in start-ups or early stage companies, typically between $25,000 to $100,000, in exchange for a piece of ownership. Their hope is that their investments will pay off big when your company either goes public or when your company becomes big enough so that you can comfortably buy out their pieces of ownership for a hefty sum more than the amount that they originally invested.

Source: Angel List

Angel investors are often successful entrepreneurs themselves and can offer mentorship and business advice, and typically want to see a strong business plan as well as your plans for growth before they invest. You can find angel investors from other entrepreneurs, or search online through sites such as Angel List.

  • Crowdfunding 

Crowdfunding is becoming one of the most popular ways to garner funds for startup businesses. It is the practice of raising funds through popular crowdfunding websites.

Setting up a crowdfunding campaign is relatively easy. In most cases, all it takes is setting up a profile on a crowdfunding site, describing your company and its business, and the amount of money you are seeking to raise. In order to attract investors, your business plan and products must seem compelling and differentiating.

One of the best features of a typical crowdfunding plan is that you usually don’t have to give up pieces of ownership in your business, as people who are interested in investing typically do so in exchange for some kind of reward from your business, such as a discount based on the amount donated, or some form of profit sharing in your business.

Equity crowdfunding, however, is when you are selling stock or some other interest in your company in exchange for cash, and requires compliance with federal and state securities laws. In this form of crowdfunding, you should consult with an investment attorney.

Crowdfunding sites usually charge a fee to list your campaign, which will either be a processing fee or a percentage of the funds raised. Some of the most popular sites include Kickstarter, Indiegogo, Crowd Supply, Crowdfunder and SeedInvest.

  • Grants

There are several private grants available through application for startup and small businesses that could reward you with $10,000 to $150,000 in startup cash, especially if you are launching a woman- or minority-owned business.  Additionally, there are some grants offered through the U.S. Small Business Administration. Some of these grants usually require a business to be community-related or involve mentorship of some kind, so be sure to carefully examine the requirements before applying.

  • Small Business Credit Cards

Since traditional and alternative business loans are not typically available for startup businesses, you may want to apply for a business credit card. These types of cards often require a strong personal credit score – not years in business – so they may be a good alternative funding source. Like with any credit card, interest is only charged on the amount borrowed, and these cards often come with perks such as cash back rewards, airline mileage points and discounts with selected retailers.

In the past year, a number of credit card issuers have offered cards that specifically focus on the small business market and do not require personal guarantees, which means use of the card will not impact your personal credit score. One example is Brex, which offers a small business card for early-stage technology companies with professional funding. The credit limits may be substantially higher than traditional credit cards, and they often provide valuable rewards.

  • Venture Capital

Of course, VC funding is usually thought of first as a funding source for startup companies, but they often have the most stringent requirements. VC managers typically want to see strong business plans, and often require seats on company boards, right of first refusal, anti-dilution protection and high ownership stakes. It is often difficult to obtain VC funding as most fund managers are inundated with funding requests and often only accept pitches through referrals from trusted sources, such as other successful startups and successful entrepreneurs.

Several rounds of funding are often involved, and most VC fund managers are seeking highly profitable exit strategies, such as an IPO or an acquisition, even though most startup businesses do not have any such plans on their horizons. If your startup business does have grand plans of becoming the next Amazon or Microsoft, then VC funding may be for you.

Starting your own business may be a complex, exhausting task that will require hard work and long hours, but in the end, the thought of being your own boss, setting your own hours and not having limits on your compensation to support you and your family may be worth it if you have a dream and a great idea.

Vince Calio

Vince Calio

Content Writer
Vince Calio has been a writer for Kapitus since 2021. Before that, he spent three years operating a dry-cleaning store in Rahway, NJ that he inherited before selling the business, so he’s familiar with the challenges of operating a small business. Prior to that, Vince spent 14 years as both a financial journalist and content writer, most notably with Institutional Investor News and Crain Communications.

Read More Articles >>

Related Posts

Our trending spaces

April 28, 2024 Business Ownership
Operating Your Business

Must-Do Events During National Small Business Week 2024

April 28, 2024/by Brandon Wyson
December 29, 2021 Operating Your Business
Risk Management

How Businesses can Counter the Threat of Deepfakes

December 29, 2021/by Brandon Wyson
December 9, 2021 Business Ownership
Operating Your Business

How to Transfer Ownership in an Existing Business

December 9, 2021/by Brandon Wyson
Load more

How Body Shops Can Increase Profit Margins

by
Increasing a Body Shop's Profit Margins

KEY TAKEAWAYS

  • Body shops can improve efficiency and customer satisfaction by embracing digital services and software solutions, such as digital multi-point inspections and management software, ultimately contributing to increased profit margins.
  • To maximize profit margins, Body shops should optimize labor costs by investing In experienced and efficient staff, offering competitive pay rates, and providing hands-on training to enhance productivity.
  • High customer retention is essential for body shops. Implement clear communication flows, referral incentives, and proactive scheduling of regular services like oil changes to keep existing body shop clients returning.

Body shops and the commercial auto repair industry at large pull in billions annually but often run with staggering operational costs from labor, parts, and general overhead. A body shop’s ability to keep revenue up is a means of survival but healthy profit margins are the basis of growth. To run a successful body shop, owners must keep a close eye on the several dozen avenues in which money both comes in and out of their shop. This article is a collection of tactics for body shop owners to maximize their profit margins without sacrificing quality and service.

How to Take Labor Margins and Staff Management into Account

While parts and facility costs will affect a body shop’s profit margins, staff and labor costs are just as important — if not more so. Having high-quality and efficient staff is the most concrete way to increase profit margins as experienced mechanics and technicians are likely to complete jobs faster and with fewer errors. Be certain that your shop’s pay rates are competitive and attractive to experienced workers and reassess your shop’s training structure to be more hands-on. Find out if your state offers subsidized training for auto workers as you may be able to send your staff for specialized training at a reduced cost; some vendors and suppliers are known to offer similar services. Get a general idea how long common procedures like coolant flushes or even more intensive repairs take your staff and use that information to price your services.

Instead of focusing on products and parts, remember that the knowledgeability and skill level of your staff is the basis of a good repair. According to Body Shop Business, labor profit margins for body shops often range between 50% and 65% while margins on parts go from 20% to 28%. Investing in good labor and maintaining a happy, productive staff is one of the best ways to put a body shop in the direction of better profit margins.

Improve Your Retention Rate

A trend report on customer retention from Invesp found that while businesses have about a 20% chance of pulling in a new customer, they have a 60% to 70% chance of bringing back a repeat customer. This is especially true for body shops as vehicle owners should never be a one-time sale. Cars require regular maintenance, so body shops ought to be certain they are homing in on customers that are already in their shop just as much as potential new sales. There are several key strategies to keeping your current customers engaged and willing to return for future services.

Candid and Clear Communication – Be certain that your staff regularly communicates with clients during a job. Make sure that your shop’s training and onboarding procedures are specific about keeping customers in the loop and being transparent about all steps in a repair.  It’s also important to continually assess your upselling practices – making sure not to upsell them unnecessarily. Defeat the long-standing myth that independent body shops nickel-and-dime their customers by being candid and explaining why each step of a procedure is necessary.

Testimonials and Referral Incentives – Your existing customers have the potential to be your body shop’s best advocate and marketing tool. Consider offering discounts on basic services like oil changes or coolant flushes in exchange for customer referrals. 

As your shop grows, it pays to be on top of your online reviews and to establish processes that help you solicit and respond to them. Consider asking customers to leave a positive review after a successful visit. 

Remember that not all reviews are going to be a ringing endorsement for your company, so be certain to directly address bad reviews. Whether good or bad, give personalized responses to reviews as often as possible. Part of the appeal locally run body shops enjoy comes from the personal touches that can be brought to a customer experience. Overall, make sure that your shop’s personality shines through in your online presence just as well as it does in your physical shop.

Plan Future Appointments for Regular Services – While many body shop visits are specifically problem-based, services like oil changes can and should be scheduled in advance so customers keep your shop in mind when it is time for regular servicing to their vehicle. Capitalize on necessary procedures like annual inspections stickers and coolant flushes to keep regular customers as regular as possible.

Digital Services and Software Solutions

Body shops have modernized in parallel with the vehicles they repair. As car companies continue to integrate increasingly complex computer systems and unique parts into vehicles, body shops have shown continued resiliency in their ability to keep up with consumer expectations. Another consumer expectation that body shops met in stride was the demand for digital services during the COVID-19 pandemic. Digital multi-point inspections and procedures are a win-win for consumers and body shops alike as consumers can clearly see their vehicle’s condition and body shops can more meaningfully demonstrate what repairs are necessary or not urgent.

There are several companies that offer digital interfaces for multi-point inspections; one of the most well-known is Bolt On Technology whose digital inspection program allows easy photo integration and tablet use for technicians and mechanics. Compared to traditional paper inspection forms, digital interfaces provide numerous time-saving benefits for your mechanics  while giving customers a streamlined look at their vehicle’s servicing needs.

Another software solution that body shops looking to tighten their bottom line may want to consider is management software like ProfitBoost, which allows shop managers and bookkeepers to consolidate parts and labor expenditure figures into an easy-to-read single platform. ProfitBoost gives shops the ability to quickly assess their spending and determine where they can expand or retract to help their bottom line.

Profit Margin Overview and Final Considerations

With overhead and parts costs as a constant necessity, it is a relentless balancing act for even the most successful body shops to keep their heads above water. There is no gimmick or guaranteed trick to increase a shop’s profit margin, but a valuable first step is making sure that your shop offers personalized and professional services at the highest caliber possible. When you make business decisions around this primary goal, you can expect profits to follow.  

Brandon Wyson

Brandon Wyson

Content Writer
Brandon Wyson is a professional writer, editor, and translator with more than eight years of experience across three continents. He became a full-time writer with Kapitus in 2021 after working as a local journalist for multiple publications in New York City and Boston. Before this, he worked as a translator for the Japanese entertainment industry. Today Brandon writes educational articles about small business interests.

Read More Articles >>

Related Posts

Our trending spaces

February 6, 2023 Industry Challenges
Trucking

Why a Line of Credit Makes Sense for the Trucking Industry

February 6, 2023/by Brandon Wyson
February 6, 2023 Construction
Industry Challenges

How Does a Business Line of Credit Fit for Contractors?

February 6, 2023/by Vince Calio
July 13, 2022 Construction
Industry Challenges

Construction: Make Sure Your Company is Prequalified!

July 13, 2022/by Vince Calio
Load more

Small Business Acquisitions and How to Finance Them

by
Two Businesses men shaking hands

KEY TAKEAWAYS

  •  When looking to acquire and merge another business, you should consider collaborating with M&A advisors or accounting firms to navigate the due diligence process, evaluate potential targets, and assess acquisition feasibility.
  • Create robust business plans for the merged entity, including efficient management structures, aligned mission statements, debt absorption strategies, and income projections, to secure financing for the acquisition.
  • Generally, the best type of financing for a small business acquisition would be an SBA loan, with the most common being the 7(a) loan. However, SBA loans come with very strict requirements so you should also look into a standard business loan as a back up option.

Acquiring another business can be a complicated task, but one that could very well be worth the effort to ensure the survival of your small or micro business. 

The time may also be right for considering an acquisition, as interest rates are low, making borrowing for an acquisition relatively cheap. Additionally, according to the most recent NFIB Small Business Optimism Index, the net percent of owners raising average selling prices increased 10 points to 36%, the highest reading since April 1981. 

While deal volume is not back at a pre-pandemic level, according to the NFIB, sectors such as liquor stores, home improvement businesses, e-commerce sites, medical businesses, manufacturers, and distributors are seeing high activity.

Reasons to Consider an Acquisition

One reason you may consider acquiring another business is that, now that we are (hopefully) in the waning days of the COVID-19 pandemic, your business may very well have taken a financial hit, and you may need to scale up by purchasing a similar business if you wish to survive going forward. 

Purchasing a similar business would give you an entirely new stream of revenue and a new pool of clients, as well as increase branding in your market – even if you’re a microbusiness such as an independent restaurant or retail store owner. If you’re an accounting or law firm or other type of business services firm or medical practice, it may even increase your client base to other regions of the country, depending on the location of the business you are seeking to purchase. 

Another potential reason to make an acquisition is that you may want to complement your business by offering additional services. For example, if you own and operate a construction firm that specializes in building houses, you may want to purchase a company that specializes in masonry and paving work so that you don’t have to subcontract that work whenever you build a new home.

Due Your Due Diligence

If you’re interested in making a strategic acquisition, your first task will be to work with an M&A advisor or even an accounting firm. While most banks are not interested in M&A advisory work for small businesses, there are several advisors that do specialize in handling acquisitions for small to medium-sized businesses (SMBs). 

Talk to your advisor about:

  1. Why you want to make an acquisition;
  2. What type of company you are seeking to purchase; 
  3. The location of the company in which you wish to purchase;
  4. The feasibility of merging your company’s balance sheet with the acquired company;
  5. The value of similar businesses in your industry and in your geographic location;
  6. A realistic amount you wish to spend on an acquisition;
  7. The logistics of merging your company with another, and
  8. How to fund the acquisition through debt.

A reputable M&A advisor should be able to do the due diligence for you and find you a list of companies in your area that may be a compatible target for an acquisition based on their business models, revenue, management structure and other factors. The advisor should also come up with a fair value of the acquisition target based on the financials of the target business. 

Create a Combined Business Plan 

Once you and your M&A advisor has found an acquisition target that meets your criteria and agrees to be acquired, you will have to produce new short- and long-term business plans for your new, combined entity in order to get financing to fund the acquisition. The basic ingredients of a business plan for a newly combined business typically include:

#1 Creating a New Management Team, Staff

Discuss with the head of the company that you are looking to acquire the logistics of combining your staff. Start with who will oversee the new company, and what functions each of you will have. If you are a microbusiness and the new company will only have 6 or 7 employees, then combining your respective workforces should not be too challenging. If your newly formed company will have 20 or more employees, you may wish to create new departments with new department heads, with each serving a different function.

Staffing redundancies, such as two people from each respective company essentially serving the same purpose, may be a red flag in the eyes of a prospective lender, so make sure your new staff structure is as efficient as possible. These factors will be crucial in the contingency –or 12-month plan– that you will need to present to a prospective lender to finance your acquisition.

#2 Creating a New Mission Statement in Line with Your New Capabilities

Your new company’s mission statement should detail the new array of products that you offer, how employees approach their work to reach goals and why your new company is improved in the way it provides products and services as a result of the acquisition. 

Next, ascertain the capabilities that your new entity has to offer in terms of sales. For example, the company that you are acquiring may offer eCommerce capabilities, while you have more retail locations. Post acquisition, your new company will offer both and your mission statement needs to reflect this. Your new company may now offer business-to-business, business-to-consumers capabilities or combinations thereof as a result of the acquisition. In addition to being a key component of your mission, these factors should be the benchmarks for your five-year business plan.

#3  Showing That You Can Absorb Debt

Typically, the company that you acquire will have some debt that you have to absorb. In order to get financing for your acquisition, you have to convince the lender that you can handle that debt, especially since you are using debt to finance the acquisition. 

Joshua Jones, Chief Revenue Officer at Kapitus, said the ability to take on new debt is key to acquisition financing.

“The [lending] bank is going to say, ‘does this asset (the acquired company) cover the new debt service on that business?’” said Joshua Jones, chief revenue officer at Kapitus. “Because now, you’ve just applied a whole new payment (through the financing of the acquisition) and the best way to show in your business plan that you can absorb that debt and increase your gross profit is either through efficiency gain or scale.” 

#4 Projecting Gross Income of the Newly Formed Company

Work closely with your accountant or M&A advisor to project a 12-month income. There are various ways to project income, and it is typically far more complicated than simply adding the gross income of your company to that of the company you are acquiring, so talk to a financial expert on this. 

“An effective planning tool is through the use of projections,” said Michael Kuru, a CPA specializing in family-owned businesses. “When a business is acquired, there is a strong indication of the gross income that should be generated. The experienced business owner should have an idea as to the underlying cost to generate that income.’

Obtaining Financing for an Acquisition 

Generally, the best type of financing for a small business acquisition would be an SBA loan, with the most common being the 7(a) loan. You may also want to consider a business loan, since the requirements for a SBA loan are typically stringent, require a high credit score, and are generally not easy to obtain. 

According to Jones, however, “An SBA loan will always be the most seamless with the acquisition strategy because it is going to provide the length of payback that’s more applicable to an owner buying a business and having the available profits to pay down the loan as a percentage of profits over time.”

SBA loans are typically offered by two different entities – a brick-and-mortar bank, or an accredited non-bank SBA lender (of which there are only 14). Many alternative lenders such as Kapitus do not directly provide the SBA loan, but have built a wide array of accredited lending partners and uses modern technology to underwrite, approve and manage the loan disbursement and repayment process, often in a timeframe that is much quicker than that of a traditional lender and often has fewer requirements.

Executing an acquisition could be an expensive and extremely complicated task. At the very least, however, buying another small business could help your business survive in the post-pandemic world. At most, an acquisition could help you thrive as it would allow your company to expand, scale up products and offerings, and ultimately pull in new business.

Vince Calio

Vince Calio

Content Writer
Vince Calio has been a writer for Kapitus since 2021. Before that, he spent three years operating a dry-cleaning store in Rahway, NJ that he inherited before selling the business, so he’s familiar with the challenges of operating a small business. Prior to that, Vince spent 14 years as both a financial journalist and content writer, most notably with Institutional Investor News and Crain Communications.

Read More Articles >>

Related Posts

Our trending spaces

April 28, 2024 Business Ownership
Operating Your Business

Must-Do Events During National Small Business Week 2024

April 28, 2024/by Brandon Wyson
December 29, 2021 Operating Your Business
Risk Management

How Businesses can Counter the Threat of Deepfakes

December 29, 2021/by Brandon Wyson
December 9, 2021 Business Ownership
Operating Your Business

How to Transfer Ownership in an Existing Business

December 9, 2021/by Brandon Wyson
Load more

How to Increase Income for Your Commercial Cleaning Business

by
Strategies to Increase Income for Commercial Cleaning Companies

Commercial cleaning companies were not spared from the tumultuous times brought on by the COVID-19 pandemic. As offices closed and in-building personnel-limits began, most cleaning companies had their revenue cut to the bone. There are, however, several strategies that commercial cleaning companies can use to help increase cash flow and profit  to help them recover, while also helping them during future slow seasons. Cleaning companies that capitalize on current customer trends and adopt new methods first are likely to see those changes translate into profit. In this article we will cover a collection of profit-boosting strategies aimed to kick commercial cleaning companies to the next level of profit.

Post-Pandemic Location is Key

As businesses adjust to post-pandemic office life, commercial cleaning companies may consider changing their area of operation to a new business hotspot. A side effect of businesses accepting remote work is an increased rate of headquarter relocation to cities with kinder tax codes or lower rent. Relocating your cleaning company to a post-pandemic tax haven like Seattle or Cincinnati can both help your own bottom line and open you to a new market of post-pandemic modern office spaces.

If you would like to learn more about the best cities for post-pandemic relocation, consider Kapitus’s comprehensive guide showcasing some of the top cities for relocation.

Another aspect to consider when choosing a new location, or when coming up with ways to improve in your existing location is assuring short travel time from your warehouse or office to the client. Working within a certain mile radius and/or using compact vehicles can both decrease your travel time and working in a metro area is one of the best ways to make sure your clients are grouped together in a convenient way for your staff. An added bonus – save some money on gas and other travel related expenses!

Separate Your Company from the Competition

While relocating to a city is one way to increase business, one certainty that comes along with a a move is the fact that competition will increase in parallel. Instead of having potential customers consider your cleaning business one of several options, separate yourself as the only option for a particular type of service. Depending on your company’s region and potential clientele, certain cleaning niche markets may be ripe for the taking.

Defining a niche will also work as a great pivoting tool in your existing location. 

Businesses that specifically service offices may benefit from expanding their window cleaning options as well as offering in-depth restroom cleaning services. Another avenue for commercial cleaning services is to market your niche toward colleges and universities. Another potential niche could even be unattractive cleaning services such as trauma cleaning or post-death services. The COVID-19 pandemic massively drove up interest in intensive sanitation services. Marketing your company as both a cleaning and sanitation service could be a key method to making your cleaning company even more attractive than the competition.

The bottom line is: Stepping into more specialized markets is a key method to making your business more appealing than a general cleaning company.  But, take note: many specialized cleaning fields require specific training and equipment, so do your research and learn what the clients in your community are looking for.

Strengthen Your Bid Customization Based on Long-Term Client Needs

When preparing your bid packet, there are certain strategies to make your company more attractive to long-term clients or those with high square-footage offices. When calculating your monthly rate for cleaning services consider what factors drive your rate. Long-term clients – like universities – may be interested in finding a company that charges by room rather than square footage; while offices with one large room will certainly be interested in square-footage rates. Long-term clients are most often either established businesses or government offices. Being that such offices work standard workdays, it may be effective to play up your company’s ability to work very early or very late hours.

One of the most effective means to impress a potential long-term or high-return client is after your first consultation, find their areas of elevated expectations like – kitchen or restroom cleanliness – and put specific language about their needs in the first draft of a prospective contract.

Is it Time to Reassess Your Rates?

Commercial cleaning companies should regularly compare their rates with local competition to see if they are still competitive. You need to be actively aware of competing prices. You need to also determine which companies offer the same services as you and consider ways to make your company the better deal.

In the event you lose a bid for a cleaning contract, reach out to the prospective customer, and ask which company they chose and what about your package dissuaded them. Your existing customers can also be a helpful resource in determining your rates. Create a customer survey asking which of your services are most and least effective. Rates should be determined on an individual and local level, as depending on the region in which you operate, identical services can have massively varying prices. Regularly watch pricing trends and be certain that your company is as competitive as possible.

Reduce Operational Costs

Commercial cleaning companies have exceedingly high overhead and operational costs. Keeping a steady flow of materials, trained staff and equipment can massively cut down on a company’s profits. There are, however, several methods cleaning companies can employ in order to assess your own overhead and see where profits may be slipping through operational gaps.

Purchase in Bulk: Suppliers that service cleaning companies traditionally offer bulk services at a discount. Determine what materials your staff uses most and invest in bulk purchasing in order to keep long-term profits high.

Increased Training and Management: Consider implementing training regiments beyond initial onboarding. Keeping your staff up to date with new machinery and finding where they work best through personalized training can help you and managers better decide where certain staff work effectively. Putting staff on jobs where they work efficiently is a clear-cut way to ensure materials aren’t wasted and machinery lives longer.

Workloading Software: Efficiency is key in the cleaning industry. There are several software solutions aimed at increasing productivity and in turn reducing expenses. Workloading software considers how long a certain cleaning task will likely take and create simulated schedules with maximum productivity. The most well-known workloading software created for cleaning companies is InfoClean. InfoClean allows users to input their own production rates and also allows easy comparison of staffing plans and cleaning techniques.

Tactical Financing to Increase Cash Flow

Commercial cleaning companies are often paid by invoices from their clients which may not become liquid for 60 to up to 120 days. Cleaning companies with a density of unpaid invoices may consider invoice factoring services. Invoice factoring is an agreement between a business and a lender who, in this case, is acting as a factor. Factors will buy a business’s unpaid invoices outright and pay approximately 95% of the invoice’s value immediately. The factor will then be responsible for collecting on the invoice when the customer eventually pays out. When the customer pays the factor, the factor will then pay a piece of the 5% to the business while also keeping a cut for services rendered.

If a company is doing business with a large number  of unpaid invoices, it is likely that the expedited cash flow of invoice factoring services could be a key part of your business’s growth. For companies who deal with one or two large clients especially, invoice factoring can help fund expansion that would regularly take much longer.

Another financing option to consider is equipment financing. While several cleaning companies choose to rent equipment like iodizers or carpet blowers, buying machinery through financing is an effective way to both get your staff familiar with specific machinery models and appear more prepared to potential clients. Equipment financing can also cover new vehicles or even office furniture for budding companies. A modern piece of equipment quickly becoming a necessity due to COVID-19 is the electrostatic sprayer. Often called ESS, electrostatic sprayers are one of the most effective sanitizing tools for both surfaces and droplets, but the machine itself is exceedingly expensive. By having an ESS in your arsenal, your company can more meaningfully assert themselves as a cleaning company with attention to sanitation as well.

If you would like to learn more about your cleaning company’s financing options, consider getting in contact with a Kapitus financing expert who can address your unique situation.

Final Cash Flow Considerations

Maintaining profitability for a commercial cleaning company is a uniquely difficult balancing act of high overhead costs but equally high returns. There is no one strategy to becoming a profitable business, but a meaningful first step is determining what your business does best and how to do it even better. Consider the strategies above as a check list and see which pieces work best with your unique business.

Brandon Wyson

Brandon Wyson

Content Writer
Brandon Wyson is a professional writer, editor, and translator with more than eight years of experience across three continents. He became a full-time writer with Kapitus in 2021 after working as a local journalist for multiple publications in New York City and Boston. Before this, he worked as a translator for the Japanese entertainment industry. Today Brandon writes educational articles about small business interests.

Read More Articles >>

Related Posts

Our trending spaces

February 6, 2023 Industry Challenges
Trucking

Why a Line of Credit Makes Sense for the Trucking Industry

February 6, 2023/by Brandon Wyson
February 6, 2023 Construction
Industry Challenges

How Does a Business Line of Credit Fit for Contractors?

February 6, 2023/by Vince Calio
July 13, 2022 Construction
Industry Challenges

Construction: Make Sure Your Company is Prequalified!

July 13, 2022/by Vince Calio
Load more