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How to Squeeze More Profit and Cash Flow Out of Your Cleaning Business
When an entrepreneur takes the plunge and starts his or her own cleaning company, the first concern is how to get clients. Once up and running, the day-to-day tasks take over and the goal of owning a business - making a profit - is sometimes lost. But your cleaning business cannot survive and grow unless there is more money coming in than going out.
When an entrepreneur takes the plunge and starts his or her own cleaning company, the first concern is how to get clients. Once up and running, the day-to-day tasks take over and the goal of owning a business - making a profit - is sometimes lost. But your cleaning business cannot survive and grow unless there is more money coming in than going out. Unless you are an MBA or CPA, the numbers game can get quite confusing. It is not just a matter of paying bills and balancing a checkbook. To know if your cleaning business is clearing a profit you have to look at accounts receivables, accounts payables, deductions, and depreciation, and then take a close look at your balance sheet. An MBA is not needed to understand the financial part of your cleaning business. However, it's a good idea to have a basic knowledge of accounting so you can decipher if your business is in the "red" or in the "black". A business owner needs to keep in mind that profit is not the same as cash flow. Calculate your profit by subtracting expenses from net income. An example of profit is a cleaning job in which you charge your client $500 and your expenses are $200. The profit from the job is $300; however, until the client pays the bill you do not really have that $300. Cash flow is another way to measure your cleaning company's financial health. What is cash flow? It is the cash receipts minus cash payments over a certain period of time. Paying attention and tracking the cash flow of your business is an important management task that you should not overlook. A positive cash flow means that you are bringing in more money than you are paying out, so your cash flow is often a more accurate financial picture of your business. Another area businesses need to pay attention to is their profit margin. A profit margin is how much out of every dollar of a sale a company gets to keep. To calculate your profit margin you divide income by revenue or net profit by sales. For example, if you have $10,000 in sales and $1,000 in profit, your profit margin is 10 percent (1,000 divided by 10,000). Another way to look at this is if you charge $20 an hour for services and your expenses are $17 for labor, taxes and expenses, your profit margin is 15 percent. Profit margins vary depending on the geographic area of the country and market conditions. With rising labor costs, profit margins are shrinking. To increase what your cleaning company is bringing home, you can work harder or smarter. Working harder means more clients and longer hours. But working smarter means finding ways to cut expenses and sell more services to your current customers. Cutting expenses means taking a close look at your current expenditures. Are there tasks that you can outsource? Can temporary agencies provide employees for large and occasional jobs? Look to see if you have services such as internet and telephone, that you can get from one provider. Many service providers offer discounts to customers who buy their bundled services. It is also important to keep up-to-date on new products, equipment and procedures. New and more efficient machines, time-saving cleaning products and faster procedures can free up employees' time to work on other tasks. Once your cleaning company is earning a profit, what do you do with that money? Growth will only occur if you reinvest in the business. This may mean new equipment or bonuses to employees. Another place to invest profits is a rainy day fund so your company is prepared for unexpected events. These events can be anything from a double-digit increase in insurance to a natural disaster to losing a major account. Without a rainy day fund, many small companies are not able to survive when the unexpected happens. Financial reports might not be your strong point, but keeping an eye on your business' cash flow and paying attention to profit margins are essential for the success of your cleaning company. Once you understand the basic principles it's easier to keep a positive cash flow and increase your profit margins -- and that means your cleaning business will stay in black ink! Copyright (c) 2006 The Janitorial Store