April 14, 2025 • 23 mins
Daniel, a CPA who works exclusively with painting businesses, and Richard Dunton, an enrolled agent, discuss the financial considerations for commercial painting as a way to smooth out seasonal dips in business. They explore the differences between direct B2B commercial relationships versus working under a general contractor, highlighting the challenges and opportunities of each approach.
• Two types of commercial painting: direct B2B relationships and working under general contractors
• Cash flow challenges in commercial painting compared to residential work
• The importance of managing accounts receivable and following up on payments
• Understanding AIA invoicing formats and progress payment schedules
• Special payroll requirements for government projects including prevailing wage certified payroll
• Using accrual basis accounting to properly match revenue with expenses
• The importance of reviewing both profit/loss statements and statements of cash flows
• Setting up financing and lines of credit before you actually need them
• Building relationships with banks when your financials look strongest
If you have any questions about this episode or ideas for future episodes, join the Facebook group "Grow Your Painting Business" - request access and we'll get you in to join the conversation.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
This is Daniel, the founder of Bookkeeping for
Painters.
I'm a CPA that worksexclusively with painting
businesses and today I am herewith Richard Dunton, enrolled
agent.
How's it going, Richard?
Speaker 2 (00:12):
It's going great, daniel.
We're recording this on.
I think it's the first officialday of spring, so things are
starting to warm up.
We're heading into betterweather, which is great for our
listeners too, because so manypainting businesses, especially
in colder weather areas, arecyclical.
(00:33):
The winters are rough, and sofolks are telling me that their
phones are ringing more, they'rebooking more jobs and they're
looking to bring on moreprojects, so it's a good time.
Speaker 1 (00:46):
Yes, and a lot of.
Especially if you're aresidential painting contractor,
one of the things that oftencomes up is like trying to make
your calendar less seasonal,adding in some commercial
painting, and that can sometimeskind of smooth out those dips
that you often see fromresidential.
And so we're going to do anepisode today just on the
(01:10):
financial considerations forcommercial painting, because
it's a lot different withcommercial painting compared to
residential.
There's a lot of financialthings that you need to keep in
mind and be ready for beforediving into commercial painting.
Speaker 2 (01:24):
Keep in mind and be ready for before diving into
commercial painting.
Yeah, so you're saying it candefinitely fill that need, but
we want to be prepared becauseit might not be as
straightforward as it seems.
Speaker 1 (01:33):
Yes, sir, yes sir.
So the way I think aboutcommercial painting is there's
kind of two different types, atleast in my mind.
There's the B2B type, whereyou're you're as a painting
business, you're going out andengaging another entity, another
organization, so maybe anotherbusiness like you're going out
and painting an ihop, like I didthis when I was running a
(01:56):
painting business, we went andgot some commercial work, got
and started painting an ihoporOP or a university or maybe a
government agency directly andyou had that relationship, you
own that relationship.
So that's the one type ofcommercial painting.
The other type is general.
You're working under a generalcontractor doing commercial work
(02:18):
, so you're like a subcontractorand you're sort of a cog in the
wheel working under the generalcontractor.
And so the, from my perspective,the more preferable one is the
direct relationship, becausethen you have more control over
the payment schedule and it'sit's easy, usually a little bit
(02:42):
easier on the cash flow, whichwe'll cover here in a second.
But those are the two differenttypes.
The more preferable one is whenyou own the relationship,
because you have more control.
And then you have that othertype which is GC, working under
a general contractor, which canbe okay if you have a really
good relationship with a generalcontractor, it's just usually
(03:03):
the payment schedules are notgreat.
I've heard in some cases theyare okay.
It kind of depends on whoyou're working for.
But just speaking ingeneralities, usually B2B, that
direct relationship is better.
Speaker 2 (03:18):
Yeah, usually when you're working for a general
contractor, you're, like yousaid, a small part of a larger
project, so you're just notgoing to be able to, you know,
control things as much as ifyou're working directly with the
business owner.
So, you know, keeping in mindthat you might have to work
around other trades or work at,you know, weird hours, like you
(03:42):
said, accept payments on theirschedule.
Weird hours, like you said,accept payments on their
schedule.
There might be some retainageor I don't want to get into it,
we're going to cover this lateron, right?
But yeah, they both can be good, but I think either one,
whether you're doing B2B or GCwork, you're going to require
strong financial systems to makesure that you don't run out of
(04:04):
money.
Strong financial systems tomake sure that you don't run out
of money.
You're keeping track of whetherthis is actually profitable or
not, and just you know.
If you plan it, you should beokay.
But if you go in without a planand without understanding what
the challenges are going to be,that could be rough.
Speaker 1 (04:20):
Yes, yeah, and the first item is you mentioned
already is cash flow.
This is kind of the biggestfinancial consideration.
Is that in, for the most part,commercial painting is a lot
harder on your cash flow becauseon the residential side
oftentimes you can go book a joband then you can get up to 50%
(04:45):
down payment for the project,which oftentimes covers your
labor and materials, and thenyou do the job and get the final
payment and so that the cashflow situation is pretty good
for residential.
However, on the commercial side,oftentimes you might not get
any money down.
You have to start working,paying people, payroll, paying
(05:07):
for the materials, and youhaven't got paid at all and
you're not getting paid foranother 30 days, 60 days, 90
days, and then they pay you butthen they withhold money, like
you said, the retainage at theend of the project for six
months or a year or somethingcrazy like that.
So the and then that retainageyou know it could be 10% or or
(05:31):
maybe more, and that might justbe your profit, basically that
they hold on to.
So it's it can be verydifficult from a cashflow
perspective.
So you have to make sure,really, that you have some
either some capital like thatyou've saved up for from maybe
(05:52):
your residential side.
You have a good amount ofcapital set aside and your bank
account saved up, or you youline up some, some financing or
some line of credit to beprepared for those times where
you're having to pay payroll andnot get paid from your
commercial work.
Speaker 2 (06:11):
Yeah, depending on the circumstances, you might be
able to break up your invoicinga little bit.
This is probably going to beeasier if you're doing B2B and
maybe get some progress payments, especially on the larger jobs.
But yeah, it's definitely goingto be harder than with
residential.
(06:32):
And it's such a shame too,because I think we've all seen
people who are super busy.
They're working like 60, 70hours a week, but they're also
broke and we're like how doesthat happen?
How do you work so hard and nothave money?
It's due to cash flow.
Cash is king.
It's the lifeblood of yourbusiness and you may be making
(06:56):
money, but if you're notreceiving cash to keep things
going, you will go out ofbusiness.
So, carefully monitoring that,understanding what your needs
are, having a plan in place,like you mentioned, daniel,
whether it may be lines ofcredit or getting progress
payments or whatever you need todo to make sure that you can
keep the lights on is superimportant.
Is super important, yeah.
Speaker 1 (07:23):
So the other key component here, before getting
into commercial, is that youneed to be familiar with what
accounts receivable is and howyou're going to manage the
accounts receivable.
With commercial painting.
So accounts receivable is justa fancy way of saying people owe
you money.
You got to have a way to trackwho owes you money and you need
to have a system for followingup with those people.
(07:43):
In this case, you know thesecommercial painting clients,
whether it's a GC or a businessor government, whatever it is.
So for accounts receivable, insome cases you'll actually have
to set, have a certain format ofyour invoice to send to them.
Like, if you work for a GC,they might require you to use a
(08:05):
certain format so that they canproperly process your payment.
So you have to.
In some cases they require AIA,billing or invoicing, and
that's just a specified formatthat you'll have to use and be
familiar with to submit to toget paid, um, you know.
So that would be something tobe aware of.
(08:27):
I'm familiar with noify.
Noify does aia invoicing um,it's a.
It's a software that you candevelop those aia invoices and
it syncs with quickbooks online.
So if you're using quickBooksOnline, quickbooks Online does
not have AIA invoicing in there,but you can stack it with
NOAAFI so that might be helpful.
(08:49):
In other cases, if you're justdoing direct relationships with
businesses, they're not going torequire AIA.
That might be something ifyou're working with a GC.
But even in the cases whereyou're just working with
businesses, you might have apayment schedule that's like a
little bit upfront.
And then the progress payment,especially if, like you
mentioned, like if it's a longerproject, it's going to take,
(09:09):
you know, several weeks ormonths.
You know you want to make surethose the contract has some
progress payments in there.
The more frequent and the morethe larger the amounts is better
for you because that againhelps your cash flow, because
cash flow is all about gettingpaid faster and slowing down
(09:30):
payments to others.
So if you can get paid faster,that's better on your cash flow.
But you get to have thatprocess on creating those
invoices and then not justsending an email with an invoice
and saying, okay, my job isdone, but also having someone
yourself or someone in theoffice to follow up and like say
, hey, I just want to make sureyou received our invoice.
You know this is due per thecontract, it's due today.
(09:53):
So, uh, be great if you couldgo ahead and pay that, because
getting paid like a day or twoearly or a day or two, you know,
within a day or two when theinvoice was submitted, that can
be the difference between makingpayroll and not making payroll
(10:23):
you may be scheduled for aprogress payment but if you
don't have enough of the jobdone to have earned that payment
for example, you're going toget a progress payment when 30%
is complete.
Speaker 2 (10:30):
If you only got 25% complete, the GC is going to
resist making that payment.
So it's getting the job doneplus following up on the billing
.
And I'm glad you mentioned that, daniel, because I think a lot
of commercial paintingbusinesses miss out on like
retainage, because it happened along time ago.
(10:51):
We've moved on and we forgetthat.
Maybe you know this GC owes usfive or 10% and we they're not
going to show up at your doorand offer it to you.
I mean, I have family memberswho are general contractors so I
can talk a little dirty aboutthem, but you're going to have
to take the initiative and be onthem and if somebody owes you
(11:15):
retainers, don't let that go.
That's money you've earned.
Follow up on it.
Speaker 1 (11:19):
Yeah, the saying is, the squeaky wheel gets the oil.
Yeah, yeah, it's definitelytrue in commercial painting and
making sure you're getting paid.
It's not just about sendingthat invoice.
You gotta fall have a processfor following up and ensuring
that gets paid in a timelymanner.
So accounts receivable got tohave that process, got to have
(11:44):
that the format, the way to sendit out, the way to follow up
with it.
The next one to consider is yourpayroll.
If you do certain governmentwork certain, so this is kind of
going into government.
Certain government work certain, so this is kind of going into
government.
Some sometimes when folks acommercial, they also are
encompassing like governmentcontracts as well.
(12:06):
So just a note for payroll ifyou're working on certain
government projects, a lot ofthem do require prevailing wage
payroll, certified payroll, andso that is a a beast that not a
lot of payroll providers do.
So you got to be really carefulon who your payroll provider is
(12:26):
to make sure that they actuallycan do prevailing wage
certified payroll.
And again, this is oftentimes arequirement for government
projects.
They want to make sure thatyou're paying a certain amount
of money to your workers andthey require a certain format so
that they can verify that youpaid that wage in a certified
(12:48):
payroll format.
Speaker 2 (12:50):
It's not just paying the prevailing wage, it's also
submitting the reports to thegovernment so that they can
verify.
So that's where working with acompany like ADP or maybe one of
the bigger payroll companiesthat provide the service is
important.
You can't, I mean you may paythem very well, but you also
(13:13):
have to prove it.
What's the same like Pixar?
It didn't happen.
Is it the Davis-Bacon Act?
I think it is.
That requires all this.
So the government's involved.
There's going to be red tape,there's going to be regulations.
Speaker 1 (13:29):
So just one more thing to think about when you
work on those public projectsyeah, Another big one, another
financial consideration that'sreally important is using the
accrual basis for your books.
So when you're doing commercial, oftentimes it's a longer term
(13:49):
projects, so they're spanningmonths in many cases, and so the
problem is, if you're justdoing cash basis financials
meaning that when you receivemoney from customers you book it
to revenue and when you payyour team or for materials you
(14:11):
book it as an expense theproblem with that that's called
cash basis accounting.
When you're just cashing cashout, you record it when the cash
transaction happens.
The problem with that and thatcan be fine for residential that
can work fine for residentialbecause they're short-term
projects Usually when you'regetting paid from the customer
and residential, you did thework in that same month.
(14:34):
The problem with commercial isthat you're doing work for
months and then not getting paiduntil months later in some
cases, and so it's called thematching principle.
In accounting, your income's inanother period than where you're
expenses on the project are,and so when you look at your
(14:58):
profit and loss, you might see amonth where it's just like a
bunch of expenses but no income,or a bunch of income and no
expenses.
So you want to have thatmatching up and that's where the
accrual basis comes in.
It's using that matchingprinciple to say, okay, if we
did work in a month, we need tomake sure there's revenue, even
(15:20):
though we didn't receive thecash for it.
We want to record the revenueby creating an invoice and
record that revenue in thatmonth so that we're matching up
the income of what we producedbut maybe not got paid for yet.
We produced it, didn't get paidfor it, but we need to
recognize it as produced incomeor revenue.
And then so it matches up thelabor that we did.
(15:42):
And so so our financials makesense when we're looking at them
.
And this is really key forcommercial, because oftentimes,
like we were talking about, youknow it's going to be hard on
your cashflow and so you want tomake sure that you're being
profitable, because there arecases where you are being
(16:03):
profitable but it doesn't feellike it because you don't have
any cash.
And so the financials will beif you're setting them up
correctly and doing that accrualbasis.
They'll be able to tell you oneway or another if you're being
profitable and just having cashflow issues because of the
payment schedules, or are younot being profitable and you
(16:26):
also are struggling with cash.
It will be able to answer thatquestion for you.
But again you get to have thataccrual basis set up and doing
that matching principle that Imentioned.
Speaker 2 (16:37):
Yeah, and it's hard because this is not intuitive.
You know we have an emotionalreaction when we see the cash in
our bank account go down.
That tells us you know whetherthings are good or bad, but with
accrual like, we can't rely onthat.
So that's where we need to.
We need to have these reportsreports, specifically, the
(16:57):
profit and loss report, orsometimes called the income
statement, is going to help usknow whether our income, the
revenue we brought in, isgreater than our expenses and
whether we're actually makingmoney.
And then the other report thatwe would like to focus on is the
statement of cash flows, whichis one that a lot of people
(17:19):
haven't heard of.
It kind of gets ignored in thebig three financial statements,
but that's how we're going toknow whether we're going to have
enough cash to keep thebusiness going Because, like we
mentioned earlier, you can bevery, very profitable and all of
that revenue can be sitting inaccounts, receivable and you
haven't picked it up yet, andyou can run out of cash in a
(17:39):
profitable business, and thatwould be a very uh, that would
be a shame, that'd be a terriblething.
Yeah, um, so having a goodaccountant who can help you
understand these reports and seethe health of your business is
going to be important, becauseit's not something that you're
going to be able to like.
Just kind of look at youraccounts and get a feel for, um,
you're going to need a littlebit higher end um bookkeeping
(18:03):
and accounting there.
Speaker 1 (18:04):
Yeah, I'm glad you brought up the statement of cash
flows.
This is super important forcommercial uh painting companies
.
Because as a commercialpainting company, if you're on
the accrual basis, you'relooking at your profit and loss,
You're like, uh, okay, myprofit and loss on the accrual
basis is telling me that I wasprofitable this month, but I
have no cash.
So what happened?
(18:25):
The answer to that question ison your statement of cash flows.
So the statement of cash flowswill say, okay, here's your net
income and then let's do all theadjustments for cash.
Where did the cash go?
And it tells you, okay, oh, wedidn't collect any of our
invoices.
We invoice people but we didn'tget any money from those
(18:45):
invoices because nobody paid theinvoices.
So that was a big chunk of cashthat we didn't get.
Maybe we paid a bunch ofpayroll, we paid off some credit
cards.
It's going to tell you line byline where your cash went and
why you may have net income onyour profit and loss on the
accrual basis but you don't haveany cash is because it will,
(19:11):
line by line, show you where itwent.
Speaker 2 (19:14):
Yeah, the credit cards are a big one because we
incur those expenses on thecredit card and we show those
expenses in that month.
But we eventually have to payoff that credit card and that's
where the cash comes in.
So you can have a month withlow expense, but if you're
paying off your credit cardsfrom things you bought months
ago, that can strain your cash.
(19:35):
Yep.
Speaker 1 (19:37):
All right.
Speaker 2 (19:38):
Go ahead.
Yep All right, Go ahead.
Speaker 1 (20:00):
So if you are strained on cash, you know we
tend to look to what financinglines of credit, loans, things
that can serve as a stopgapmethod while we're trying to
collect that AR that's been outthere.
Get those retainage paymentsthat we're waiting for.
Yeah, and this is the last itemon the list, but it's really
probably the first thing youshould consider to start working
on, because you want to ask thebank for financing before you
really need it.
So if you're a residentialpainting contractor right now
(20:22):
and your cash flow is prettygood, you have healthy
financials.
Now would be a great time to goahead and line up a line of
credit and financing so that youcan start exploring commercial
painting.
Get it lined up ahead of time,before you need it, because you
want to ask the bank for moneywhen you have money, which is
counterintuitive, but they wantto invest or, you know, give
(20:45):
their money to, to someone whothey feel can actually pay it
back.
Speaker 2 (20:48):
So yeah, the bank doesn't care how many hours you
work a week, right, like like,you can walk and be like, hey,
man, I am, I am swamped, I ambusy, I'm exhausted, I'm working
seven days a week and they'relike, cool, show us your profit
and loss.
They're bankers, right?
So you want to have, like youwere saying, daniel, you want to
(21:09):
make sure that you have a good,clean set of books, that you
are recording everything, thatyou've got timely filed tax
returns that accurately reflectwhat your business is doing.
These are the things that thebankers really care about and
that are going to allow them tohave enough trust in you to
repay the loan so that they'reactually going to give you that
(21:31):
line of credit.
So, like you're saying,preparation is key here.
Get that set up before you needit.
You do not want to walk in andshow the last three months of
yeah, we've been losing moneythese last three months and
that's why I need a loan.
They're going to tell you toturn around and walk out the
door.
Speaker 1 (21:51):
Yeah, yes.
So those are a few financialconsiderations for if you're, if
you're considering commercialpainting, those are some things
you definitely should look atbefore jumping in, because those
are some big pain points thatwe've seen a lot of folks
struggle with.
So hopefully that that helpsand it's definitely possible.
(22:14):
There's a lot, plenty ofpainting businesses that do just
commercial or a mix ofresidential commercial and make
it work.
You just need to be on top ofthose issues.
Speaker 2 (22:26):
Yeah, and if you are going to, if you're going to
take on a commercial, just a fewquick recap tips.
I'd say definitely reviewingyour accounts receivable.
You know we do a lot of.
We do monthly financialplanning and analysis with our
clients where we are looking attheir accounts receivable.
We do monthly financialplanning and analysis with our
clients where we are looking attheir accounts receivable, we
are looking at the statement ofcash flows, we are helping them
(22:47):
understand where their businessis.
Additionally, you're going towant to make sure that you have
your tech stack right.
So if you need NOAA-FI to beable to do those AIA invoices or
a payroll company that can docertified payroll, that you've
got that in place.
And then, lastly, I'd say, makesure you have a good
relationship with your localbank.
(23:08):
Getting that line of credit setup before you need the money,
before you're in that cashcrunch, is also gonna be very
important.
Speaker 1 (23:18):
Awesome, cool.
Well, if you have any questionsabout this episode or have some
ideas for future episodes, loveto hear from you.
If you go to Facebook and typein grow your painting business,
go ahead and send us an inviteor, I'm sorry, request access.
We'll grant you access.
Love to hear your thoughts inthe in the group and, with that
said, we will talk to you nextweek.
This is Daniel, the founder of Bookkeeping for
Painters.
I'm a CPA that worksexclusively with painting
businesses and today I am herewith Richard Dunton, enrolled
agent.
How's it going, Richard?
Speaker 2 (00:12):
It's going great, daniel.
We're recording this on.
I think it's the first officialday of spring, so things are
starting to warm up.
We're heading into betterweather, which is great for our
listeners too, because so manypainting businesses, especially
in colder weather areas, arecyclical.
(00:33):
The winters are rough, and sofolks are telling me that their
phones are ringing more, they'rebooking more jobs and they're
looking to bring on moreprojects, so it's a good time.
Speaker 1 (00:46):
Yes, and a lot of.
Especially if you're aresidential painting contractor,
one of the things that oftencomes up is like trying to make
your calendar less seasonal,adding in some commercial
painting, and that can sometimeskind of smooth out those dips
that you often see fromresidential.
And so we're going to do anepisode today just on the
(01:10):
financial considerations forcommercial painting, because
it's a lot different withcommercial painting compared to
residential.
There's a lot of financialthings that you need to keep in
mind and be ready for beforediving into commercial painting.
Speaker 2 (01:24):
Keep in mind and be ready for before diving into
commercial painting.
Yeah, so you're saying it candefinitely fill that need, but
we want to be prepared becauseit might not be as
straightforward as it seems.
Speaker 1 (01:33):
Yes, sir, yes sir.
So the way I think aboutcommercial painting is there's
kind of two different types, atleast in my mind.
There's the B2B type, whereyou're you're as a painting
business, you're going out andengaging another entity, another
organization, so maybe anotherbusiness like you're going out
and painting an ihop, like I didthis when I was running a
(01:56):
painting business, we went andgot some commercial work, got
and started painting an ihoporOP or a university or maybe a
government agency directly andyou had that relationship, you
own that relationship.
So that's the one type ofcommercial painting.
The other type is general.
You're working under a generalcontractor doing commercial work
(02:18):
, so you're like a subcontractorand you're sort of a cog in the
wheel working under the generalcontractor.
And so the, from my perspective,the more preferable one is the
direct relationship, becausethen you have more control over
the payment schedule and it'sit's easy, usually a little bit
(02:42):
easier on the cash flow, whichwe'll cover here in a second.
But those are the two differenttypes.
The more preferable one is whenyou own the relationship,
because you have more control.
And then you have that othertype which is GC, working under
a general contractor, which canbe okay if you have a really
good relationship with a generalcontractor, it's just usually
(03:03):
the payment schedules are notgreat.
I've heard in some cases theyare okay.
It kind of depends on whoyou're working for.
But just speaking ingeneralities, usually B2B, that
direct relationship is better.
Speaker 2 (03:18):
Yeah, usually when you're working for a general
contractor, you're, like yousaid, a small part of a larger
project, so you're just notgoing to be able to, you know,
control things as much as ifyou're working directly with the
business owner.
So, you know, keeping in mindthat you might have to work
around other trades or work at,you know, weird hours, like you
(03:42):
said, accept payments on theirschedule.
Weird hours, like you said,accept payments on their
schedule.
There might be some retainageor I don't want to get into it,
we're going to cover this lateron, right?
But yeah, they both can be good, but I think either one,
whether you're doing B2B or GCwork, you're going to require
strong financial systems to makesure that you don't run out of
(04:04):
money.
Strong financial systems tomake sure that you don't run out
of money.
You're keeping track of whetherthis is actually profitable or
not, and just you know.
If you plan it, you should beokay.
But if you go in without a planand without understanding what
the challenges are going to be,that could be rough.
Speaker 1 (04:20):
Yes, yeah, and the first item is you mentioned
already is cash flow.
This is kind of the biggestfinancial consideration.
Is that in, for the most part,commercial painting is a lot
harder on your cash flow becauseon the residential side
oftentimes you can go book a joband then you can get up to 50%
(04:45):
down payment for the project,which oftentimes covers your
labor and materials, and thenyou do the job and get the final
payment and so that the cashflow situation is pretty good
for residential.
However, on the commercial side,oftentimes you might not get
any money down.
You have to start working,paying people, payroll, paying
(05:07):
for the materials, and youhaven't got paid at all and
you're not getting paid foranother 30 days, 60 days, 90
days, and then they pay you butthen they withhold money, like
you said, the retainage at theend of the project for six
months or a year or somethingcrazy like that.
So the and then that retainageyou know it could be 10% or or
(05:31):
maybe more, and that might justbe your profit, basically that
they hold on to.
So it's it can be verydifficult from a cashflow
perspective.
So you have to make sure,really, that you have some
either some capital like thatyou've saved up for from maybe
(05:52):
your residential side.
You have a good amount ofcapital set aside and your bank
account saved up, or you youline up some, some financing or
some line of credit to beprepared for those times where
you're having to pay payroll andnot get paid from your
commercial work.
Speaker 2 (06:11):
Yeah, depending on the circumstances, you might be
able to break up your invoicinga little bit.
This is probably going to beeasier if you're doing B2B and
maybe get some progress payments, especially on the larger jobs.
But yeah, it's definitely goingto be harder than with
residential.
(06:32):
And it's such a shame too,because I think we've all seen
people who are super busy.
They're working like 60, 70hours a week, but they're also
broke and we're like how doesthat happen?
How do you work so hard and nothave money?
It's due to cash flow.
Cash is king.
It's the lifeblood of yourbusiness and you may be making
(06:56):
money, but if you're notreceiving cash to keep things
going, you will go out ofbusiness.
So, carefully monitoring that,understanding what your needs
are, having a plan in place,like you mentioned, daniel,
whether it may be lines ofcredit or getting progress
payments or whatever you need todo to make sure that you can
keep the lights on is superimportant.
Is super important, yeah.
Speaker 1 (07:23):
So the other key component here, before getting
into commercial, is that youneed to be familiar with what
accounts receivable is and howyou're going to manage the
accounts receivable.
With commercial painting.
So accounts receivable is justa fancy way of saying people owe
you money.
You got to have a way to trackwho owes you money and you need
to have a system for followingup with those people.
(07:43):
In this case, you know thesecommercial painting clients,
whether it's a GC or a businessor government, whatever it is.
So for accounts receivable, insome cases you'll actually have
to set, have a certain format ofyour invoice to send to them.
Like, if you work for a GC,they might require you to use a
(08:05):
certain format so that they canproperly process your payment.
So you have to.
In some cases they require AIA,billing or invoicing, and
that's just a specified formatthat you'll have to use and be
familiar with to submit to toget paid, um, you know.
So that would be something tobe aware of.
(08:27):
I'm familiar with noify.
Noify does aia invoicing um,it's a.
It's a software that you candevelop those aia invoices and
it syncs with quickbooks online.
So if you're using quickBooksOnline, quickbooks Online does
not have AIA invoicing in there,but you can stack it with
NOAAFI so that might be helpful.
(08:49):
In other cases, if you're justdoing direct relationships with
businesses, they're not going torequire AIA.
That might be something ifyou're working with a GC.
But even in the cases whereyou're just working with
businesses, you might have apayment schedule that's like a
little bit upfront.
And then the progress payment,especially if, like you
mentioned, like if it's a longerproject, it's going to take,
(09:09):
you know, several weeks ormonths.
You know you want to make surethose the contract has some
progress payments in there.
The more frequent and the morethe larger the amounts is better
for you because that againhelps your cash flow, because
cash flow is all about gettingpaid faster and slowing down
(09:30):
payments to others.
So if you can get paid faster,that's better on your cash flow.
But you get to have thatprocess on creating those
invoices and then not justsending an email with an invoice
and saying, okay, my job isdone, but also having someone
yourself or someone in theoffice to follow up and like say
, hey, I just want to make sureyou received our invoice.
You know this is due per thecontract, it's due today.
(09:53):
So, uh, be great if you couldgo ahead and pay that, because
getting paid like a day or twoearly or a day or two, you know,
within a day or two when theinvoice was submitted, that can
be the difference between makingpayroll and not making payroll
(10:23):
you may be scheduled for aprogress payment but if you
don't have enough of the jobdone to have earned that payment
for example, you're going toget a progress payment when 30%
is complete.
Speaker 2 (10:30):
If you only got 25% complete, the GC is going to
resist making that payment.
So it's getting the job doneplus following up on the billing
.
And I'm glad you mentioned that, daniel, because I think a lot
of commercial paintingbusinesses miss out on like
retainage, because it happened along time ago.
(10:51):
We've moved on and we forgetthat.
Maybe you know this GC owes usfive or 10% and we they're not
going to show up at your doorand offer it to you.
I mean, I have family memberswho are general contractors so I
can talk a little dirty aboutthem, but you're going to have
to take the initiative and be onthem and if somebody owes you
(11:15):
retainers, don't let that go.
That's money you've earned.
Follow up on it.
Speaker 1 (11:19):
Yeah, the saying is, the squeaky wheel gets the oil.
Yeah, yeah, it's definitelytrue in commercial painting and
making sure you're getting paid.
It's not just about sendingthat invoice.
You gotta fall have a processfor following up and ensuring
that gets paid in a timelymanner.
So accounts receivable got tohave that process, got to have
(11:44):
that the format, the way to sendit out, the way to follow up
with it.
The next one to consider is yourpayroll.
If you do certain governmentwork certain, so this is kind of
going into government.
Certain government work certain, so this is kind of going into
government.
Some sometimes when folks acommercial, they also are
encompassing like governmentcontracts as well.
(12:06):
So just a note for payroll ifyou're working on certain
government projects, a lot ofthem do require prevailing wage
payroll, certified payroll, andso that is a a beast that not a
lot of payroll providers do.
So you got to be really carefulon who your payroll provider is
(12:26):
to make sure that they actuallycan do prevailing wage
certified payroll.
And again, this is oftentimes arequirement for government
projects.
They want to make sure thatyou're paying a certain amount
of money to your workers andthey require a certain format so
that they can verify that youpaid that wage in a certified
(12:48):
payroll format.
Speaker 2 (12:50):
It's not just paying the prevailing wage, it's also
submitting the reports to thegovernment so that they can
verify.
So that's where working with acompany like ADP or maybe one of
the bigger payroll companiesthat provide the service is
important.
You can't, I mean you may paythem very well, but you also
(13:13):
have to prove it.
What's the same like Pixar?
It didn't happen.
Is it the Davis-Bacon Act?
I think it is.
That requires all this.
So the government's involved.
There's going to be red tape,there's going to be regulations.
Speaker 1 (13:29):
So just one more thing to think about when you
work on those public projectsyeah, Another big one, another
financial consideration that'sreally important is using the
accrual basis for your books.
So when you're doing commercial, oftentimes it's a longer term
(13:49):
projects, so they're spanningmonths in many cases, and so the
problem is, if you're justdoing cash basis financials
meaning that when you receivemoney from customers you book it
to revenue and when you payyour team or for materials you
(14:11):
book it as an expense theproblem with that that's called
cash basis accounting.
When you're just cashing cashout, you record it when the cash
transaction happens.
The problem with that and thatcan be fine for residential that
can work fine for residentialbecause they're short-term
projects Usually when you'regetting paid from the customer
and residential, you did thework in that same month.
(14:34):
The problem with commercial isthat you're doing work for
months and then not getting paiduntil months later in some
cases, and so it's called thematching principle.
In accounting, your income's inanother period than where you're
expenses on the project are,and so when you look at your
(14:58):
profit and loss, you might see amonth where it's just like a
bunch of expenses but no income,or a bunch of income and no
expenses.
So you want to have thatmatching up and that's where the
accrual basis comes in.
It's using that matchingprinciple to say, okay, if we
did work in a month, we need tomake sure there's revenue, even
(15:20):
though we didn't receive thecash for it.
We want to record the revenueby creating an invoice and
record that revenue in thatmonth so that we're matching up
the income of what we producedbut maybe not got paid for yet.
We produced it, didn't get paidfor it, but we need to
recognize it as produced incomeor revenue.
And then so it matches up thelabor that we did.
(15:42):
And so so our financials makesense when we're looking at them
.
And this is really key forcommercial, because oftentimes,
like we were talking about, youknow it's going to be hard on
your cashflow and so you want tomake sure that you're being
profitable, because there arecases where you are being
(16:03):
profitable but it doesn't feellike it because you don't have
any cash.
And so the financials will beif you're setting them up
correctly and doing that accrualbasis.
They'll be able to tell you oneway or another if you're being
profitable and just having cashflow issues because of the
payment schedules, or are younot being profitable and you
(16:26):
also are struggling with cash.
It will be able to answer thatquestion for you.
But again you get to have thataccrual basis set up and doing
that matching principle that Imentioned.
Speaker 2 (16:37):
Yeah, and it's hard because this is not intuitive.
You know we have an emotionalreaction when we see the cash in
our bank account go down.
That tells us you know whetherthings are good or bad, but with
accrual like, we can't rely onthat.
So that's where we need to.
We need to have these reportsreports, specifically, the
(16:57):
profit and loss report, orsometimes called the income
statement, is going to help usknow whether our income, the
revenue we brought in, isgreater than our expenses and
whether we're actually makingmoney.
And then the other report thatwe would like to focus on is the
statement of cash flows, whichis one that a lot of people
(17:19):
haven't heard of.
It kind of gets ignored in thebig three financial statements,
but that's how we're going toknow whether we're going to have
enough cash to keep thebusiness going Because, like we
mentioned earlier, you can bevery, very profitable and all of
that revenue can be sitting inaccounts, receivable and you
haven't picked it up yet, andyou can run out of cash in a
(17:39):
profitable business, and thatwould be a very uh, that would
be a shame, that'd be a terriblething.
Yeah, um, so having a goodaccountant who can help you
understand these reports and seethe health of your business is
going to be important, becauseit's not something that you're
going to be able to like.
Just kind of look at youraccounts and get a feel for, um,
you're going to need a littlebit higher end um bookkeeping
(18:03):
and accounting there.
Speaker 1 (18:04):
Yeah, I'm glad you brought up the statement of cash
flows.
This is super important forcommercial uh painting companies
.
Because as a commercialpainting company, if you're on
the accrual basis, you'relooking at your profit and loss,
You're like, uh, okay, myprofit and loss on the accrual
basis is telling me that I wasprofitable this month, but I
have no cash.
So what happened?
(18:25):
The answer to that question ison your statement of cash flows.
So the statement of cash flowswill say, okay, here's your net
income and then let's do all theadjustments for cash.
Where did the cash go?
And it tells you, okay, oh, wedidn't collect any of our
invoices.
We invoice people but we didn'tget any money from those
(18:45):
invoices because nobody paid theinvoices.
So that was a big chunk of cashthat we didn't get.
Maybe we paid a bunch ofpayroll, we paid off some credit
cards.
It's going to tell you line byline where your cash went and
why you may have net income onyour profit and loss on the
accrual basis but you don't haveany cash is because it will,
(19:11):
line by line, show you where itwent.
Speaker 2 (19:14):
Yeah, the credit cards are a big one because we
incur those expenses on thecredit card and we show those
expenses in that month.
But we eventually have to payoff that credit card and that's
where the cash comes in.
So you can have a month withlow expense, but if you're
paying off your credit cardsfrom things you bought months
ago, that can strain your cash.
(19:35):
Yep.
Speaker 1 (19:37):
All right.
Speaker 2 (19:38):
Go ahead.
Yep All right, Go ahead.
Speaker 1 (20:00):
So if you are strained on cash, you know we
tend to look to what financinglines of credit, loans, things
that can serve as a stopgapmethod while we're trying to
collect that AR that's been outthere.
Get those retainage paymentsthat we're waiting for.
Yeah, and this is the last itemon the list, but it's really
probably the first thing youshould consider to start working
on, because you want to ask thebank for financing before you
really need it.
So if you're a residentialpainting contractor right now
(20:22):
and your cash flow is prettygood, you have healthy
financials.
Now would be a great time to goahead and line up a line of
credit and financing so that youcan start exploring commercial
painting.
Get it lined up ahead of time,before you need it, because you
want to ask the bank for moneywhen you have money, which is
counterintuitive, but they wantto invest or, you know, give
(20:45):
their money to, to someone whothey feel can actually pay it
back.
Speaker 2 (20:48):
So yeah, the bank doesn't care how many hours you
work a week, right, like like,you can walk and be like, hey,
man, I am, I am swamped, I ambusy, I'm exhausted, I'm working
seven days a week and they'relike, cool, show us your profit
and loss.
They're bankers, right?
So you want to have, like youwere saying, daniel, you want to
(21:09):
make sure that you have a good,clean set of books, that you
are recording everything, thatyou've got timely filed tax
returns that accurately reflectwhat your business is doing.
These are the things that thebankers really care about and
that are going to allow them tohave enough trust in you to
repay the loan so that they'reactually going to give you that
(21:31):
line of credit.
So, like you're saying,preparation is key here.
Get that set up before you needit.
You do not want to walk in andshow the last three months of
yeah, we've been losing moneythese last three months and
that's why I need a loan.
They're going to tell you toturn around and walk out the
door.
Speaker 1 (21:51):
Yeah, yes.
So those are a few financialconsiderations for if you're, if
you're considering commercialpainting, those are some things
you definitely should look atbefore jumping in, because those
are some big pain points thatwe've seen a lot of folks
struggle with.
So hopefully that that helpsand it's definitely possible.
(22:14):
There's a lot, plenty ofpainting businesses that do just
commercial or a mix ofresidential commercial and make
it work.
You just need to be on top ofthose issues.
Speaker 2 (22:26):
Yeah, and if you are going to, if you're going to
take on a commercial, just a fewquick recap tips.
I'd say definitely reviewingyour accounts receivable.
You know we do a lot of.
We do monthly financialplanning and analysis with our
clients where we are looking attheir accounts receivable.
We do monthly financialplanning and analysis with our
clients where we are looking attheir accounts receivable, we
are looking at the statement ofcash flows, we are helping them
(22:47):
understand where their businessis.
Additionally, you're going towant to make sure that you have
your tech stack right.
So if you need NOAA-FI to beable to do those AIA invoices or
a payroll company that can docertified payroll, that you've
got that in place.
And then, lastly, I'd say, makesure you have a good
relationship with your localbank.
(23:08):
Getting that line of credit setup before you need the money,
before you're in that cashcrunch, is also gonna be very
important.
Speaker 1 (23:18):
Awesome, cool.
Well, if you have any questionsabout this episode or have some
ideas for future episodes, loveto hear from you.
If you go to Facebook and typein grow your painting business,
go ahead and send us an inviteor, I'm sorry, request access.
We'll grant you access.
Love to hear your thoughts inthe in the group and, with that
said, we will talk to you nextweek.
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