A real simple step you can take to help you improve your chances of success is to limit the amount of time a customer can take to pay you. Even better, if you can get paid in advance, that cuts out all the time you might have wasted tracking down late payers. Here is a great story from the Gopher Lawn Care Business Forum, by a long time entrepreneur about the importance of debt collection and staying out of debt yourself.
One lawn care business owner wrote “over the last 38 years I have started several businesses which became successful. The first was a building material company which grew to 200 employees which I sold to the employees 13 years ago. The last business was a home building company which built 44 houses and by the end of it’s last year, it almost broke us.
I got into the lawn care business the following spring by accident. I own a small business park with 9 properties. I was paying my nephew, who has 4 employees and cuts 251 lawns, to maintain my properties but when the economy finally caught up with us and I started losing tenants, I had to start maintaining these properties myself due to cash flow.
One day when I was edging and blowing off one of the parking lots, an older gentleman stopped and asked if I would give him a price to take care of his 2 acre home nearby. I went the next day with my equipment, gave him a price and did the job while I was there. Before the day was over I had done his four neighbors also. By that fall I had 41 yards and by the next year, I had 71 yards.
Even though most are bi-weekly, it is still quite a load by myself. This year I am doing some advertising so I can consolidate and cull the scattered jobs and the pain in the necks.
When I have had the chance to mentor younger businessmen that have met with me the advice I have for them is very basic.
Have a written business plan. A real plan!
- What is your goal. To grow a business or just get by until something comes along?
- What is your purpose? This is a little different that a goal.
- Have very specific benchmarks. Number of clients, gross sales, net profits, and in what time frame.
- What point will make you successful? How will you keep yourself motivated after that point?
This is basic advice you will get from most business managers.
The biggest things I have learned from mistakes I made is to collect your money. 25 years ago, I had a building material company doing $15 million a year in sales and one year we wrote off $1.2 million in bad debt. It almost broke us and it took 6 years to become viable again. In 2005 when Katrina hit, a closet remodeling company I had, wrote off $90,000.00 from customers that disappeared. Collect your money!
Just because financing is available does not mean you need to use it. Credit card companies and banks are in the business of selling debt. That is how they make money. Just because you have a credit card, you do not need to use it. Just because a bank is willing to finance a development does not mean it is the best thing to do. Just because a bank is willing to finance 15 houses does not mean it is the right thing to do. Just because a bank is willing to lend you money for new equipment and expansion does not mean you should.
The best thing I have learned is to listen. Just because you are soaring high does not mean you(me) know everything. You do not. The worst habit I had was to be preparing a response to someone before they were near finished speaking. You do not need to heed all advice but if you are taking the time to talk with someone at least hear them.
In 2000 I started an insulation contracting business. My outside sales team was setting the world on fire. The owner of the largest insulation company in the area stopped by one day for a talk. He told me our prices were too low. I had finished deciding what I was going to say long before he finished talking. Months later when we finished really crunching the numbers, he had been right. Listening to him could have made me a lot more money. Listening is a skill.
As far as collecting on money owed to you, there is no real secret to it. You have to be diligent and persistent. First, you really need a decent accounting system. I use Gopher Lawn Care Software. I print invoices every night for the jobs scheduled the next day. If the owner is home, I collect. If not, I leave the invoice. My wife looks through the schedule several days in advance and let’s me know if a customer has not paid. She will call them to see if they were unhappy with the service, just a polite opening. She will then ask that they have a check on site for the open balance and the new service when I arrive.
If the check is not there I move on. I have not lost any customers yet but I am sure I will. When we had larger operations, I learned that the person interacting with the customer in the field is not the best person to collect the money. I had credit managers and never asked the salesman to collect. Good cop, bad cop. When you are on a job trying to make the customer happy, you are not in the best position to collect, the wife calling for money is much better.
Quick story. A young man that had worked for me for 25 years as a truck driver, started a lawn care company. Last fall he was in a head-on automobile wreck. The other driver was at fault and she was killed. His knee and ankle were shattered. In the hospital he asked me to contact his customers, about 40 of them, and let them know what happened and ask if I could help cover for him so he would not lose his customers. I sad OK. Where was his list of customers? He had no decent records.
I had to ride around several neighborhoods with one of his helpers pointing out houses. I had to knock on doors, tell them the situation, tell them I would perform the same services for the same price until he returned in the spring. I had to then ask what he did, when and how much. I asked them if they owed him money. Most said yes but they did not know the amount but paid something. We do not know how much money he did not collect. Decent records and accounting are paramount if you are going to have any chance at success.”
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