The decision to stop accepting large deposits had a ripple effect on the finances of my business in many ways.
The most significant adjustment that resulted was that I was no longer comfortable purchasing paint for my client's projects. It was too risky. Customers frequently change their mind, delay their projects, do it themselves, hire someone else, stop returning phone calls, or are indecisive about colours and sheens.
So with no or minimal deposits, it freed me from purchasing paint. This is a big change for a painting business. Most painting companies include paint in their quotes. This way they have more control over the materials they use and it can make things more convenient for the client.
But does it have to be this way?...
Some challenges first.
When clients request multiple quotes from different painting companies, it makes it more difficult for them to compare which is the best value.
Commercial clients will have very little interest in purchasing supplies for you. So you have to be clear on who your ideal client is and decide if how you will run your business is compatible with your client needs. Negotiation skills are an asset here.
It creates more work for your client. They have to go to the store, or call into the store to pay for the paint. This may be difficult if the paint store is far away, clients live out of town, or if they are very busy.
Some prospects may perceive you as less professional if you are not willing to supply materials.
Now for some benefits of not including paint.
You can explain that you operate this way to minimize the risk to your clients and be compliant with local business regulations. What if they provide you a large deposit and one week later you are in a serious car accident? This open communication builds trust.
Being different than your competition can be an opportunity to stand out. With good communication this can be a positive thing.
It can help you to target your ideal clients, for example - high end residential repaint projects. Running your business this way can help you avoid clients that would add financial stress.
It helps your suppliers because if they are referring you to walk-in clients, they can sell them the paint on the spot. Imagine being a paint store when a client walks in ready to buy, but they need a painter. In many cases the store will hand out 3 or 4 cards of local painters they think will be professional and that they trust will come and buy paint from them. But if those painters are booked for the next 6 months, or have a super deal with a different supplier, that paint store is unlikely to get that paint sale. If you communicate to your suppliers that they can sell the client paint on the spot, it eliminates risk of losing a client for the store and increases the likelihood that they will hand out your card. They may also have the opportunity to make more profit on sales to a one time client than a wholesale painter, also incentivizing them to work with you in this way.
Suppliers also win because they get more traffic into their stores. Even if they sell the same amount of paint, selling it all to you instead of 100 home owners is more risky for them. What if you move away, close your business, change suppliers? Suppliers will appreciate your referrals and may even extend your account pricing to your clients.
Suppliers win by never having to chase you for money. Most paint stores have lots of receivables and have to chase clients for money. Never being in the red with your suppliers helps their business and they are likely to appreciate that aspect of working with you.
The client also wins because they will get better service at the paint store. If they need a colour match, help choosing colours, shopping for other needs like flooring or blinds, they will be best served by trained pros with the tools and more time to work with your client. This frees up your time and eliminates the risk involved with colour selections and matching.
By not obtaining deposits you are also free from being indebted to your clients. One reason many become self-employed is for the perceived sense of freedom. Having $30K in deposits for the coming season means you are selling your freedom and flexibility in exchange for work security. Selling your freedom can cause stress from all the commitments you are now expected to deliver on. Selling your freedom can also cause stress by forcing you to stay in a dangerous or difficult situation. If you don't owe anybody (the client or the supplier) anything, you are free to walk if circumstances become either dangerous or overly unreasonable.
One simple way to implement this change is ask your client to purchase more paint than will be required for the project, but only have on gallon of each colour tinted. This way they can confirm they love the colours, you can get the paint tinted as needed, and extras can be returned.
A final benefit of no longer buying paint is that if you keep your prices the same, you instantly increase your profit margin by 15-20%. That is a huge win!
So to re-cap this win-win-win scenario:
- they receive better service
- exposed to less risk
- access to great pricing
- never pre-pay for work not completed, means more control over the project
- getting more sales
- faster payment
- potentially higher margins
- more clients
- save time
- lower risk
- reduce stress
- higher profit margin
- better relations with suppliers
Next week I'll discuss another aspect of financial reform related to cash flow.