This article covers how to finance a new or growing office cleaning company. It is divided into two sections. The first section discusses resources you can use to finance a new business. The second section covers how to fund operations as your business grows.
1. Financing a new business
Financing a new commercial cleaning business is less expensive than funding other types of business. This lower cost is an advantage for entrepreneurs looking to start a cleaning company. The largest initial expense is the cost of the equipment. Supplies, on the other hand, can be purchased as you need them.
However, you should have enough funds in a cash reserve to cover payroll if you plan to have employees. We provide more detail about this topic in the section about financing operations.
a) Your savings
Using your savings is the easiest and most effective way to finance your new cleaning company. It allows you to have a clean start without any debt. However, saving enough funds to cover launching a company takes time and discipline. We suggest you avoid using retirement funds or home equity to fund your business. You risk losing these important assets if things don’t go as planned.
b) SBA Microloans
The Small Business Administration (SBA) has a program to help entrepreneurs launch their small businesses. The SBA’s Microloan program provides loans up to $50,000. This maximum loan amount varies by state.
Microloans are easier to get than conventional loans. They were created specifically to help entrepreneurs who do not have financial resources or credit. Additionally, microloans often come bundled with classes and other services to teach new entrepreneurs how to run a business. We highly recommend this program to any entrepreneur.
c) Lending networks
Entrepreneurs can also consider using a peer-to-peer lending network as a source of financing. Companies such as Prosper and Lending Club enable entrepreneurs to connect with individuals who provide loans. Loans can range up to $50,000, depending on the service and transaction type.
Like every option, this financing has advantages and disadvantages. Individuals will consider your background, story, objectives, credit score, track record, and other details when making a decision. Lending networks provide an opportunity to get financing for entrepreneurs who cannot get a bank loan.
2. Financing operations
Most entrepreneurs prepare to launch their companies, but few prepare to actually run them. Financing operations can be difficult for new and growing janitorial companies. This challenge is often a source of problems for companies that are adding clients quickly.
Many commercial cleaning businesses have only a small cash reserve. Consequently, they aren’t well positioned to handle the inevitable challenges that arise from the business. The main problem for office cleaning companies is covering payroll. Payroll is their largest recurring expense and is due every week or two. Payroll is the one expense that cannot be delayed without significant consequences.
However, most property management companies and businesses pay their invoices on net-30 terms. They require the option to pay in 30 to 60 days in their contracts. Competition in the cleaning business is heavy, and they can always work with one of your competitors if you decline.
The time difference between when payroll is due and when clients pay their invoices often creates cash flow problems. Unfortunately, these problems can get worse as the company grows. These problems can usually be solved with a revolving line of financing. You can use the line to cover expenses while you wait for clients to pay. In this section, we discuss three solutions that can be used to improve cash flow.
a) Invoice factoring
Small and growing commercial cleaning companies that need to improve their cash flow should consider invoice factoring. Invoice factoring allows you to finance your invoices from commercial clients who pay in 30 to 60 days. This solution provides your company with immediate funds to cover payroll and other expenses.
Factoring transactions are not structured as loans. Instead, you sell your invoices to a factoring company in exchange for payment. The factoring company pays you in two installments. The first installment is paid when you submit the invoice. The second one is paid once your customer pays the invoice. To learn more, read “How Does Invoice Factoring Work?”
b) Sales ledger financing
Commercial cleaning companies that invoice more than $250,000 per month should consider sales ledger financing. This solution is used by companies that have outgrown their factoring lines. Sales ledger financing operates like a line of credit secured by accounts receivable. It allows you to draw funds up to a credit limit based on a percentage of your accounts receivable.
Sales ledger financing lines are also called ledgered lines of credit. They are an intermediate product between factoring and a bank line of credit. They have stricter requirements than a factoring line but are easier to get than bank financing.
c) Commercial line of credit
Well-established office cleaning companies that need working capital should consider a business line of credit. Lines of credit offer the most financial flexibility at the lowest cost. However, qualifying for a business line of credit is difficult. Your company needs to have assets, reliable financial statements, up-to-date accounting, and a strong track record of performance.
Are you looking for financing?
We can provide factoring programs with high advances at low rates. For more information, get an online quote or call us toll-free at (877) 300 3258.