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Columns

EDITOR'S NOTE: Got Cash?

By Rick Damato
February 7, 2006
This year you may need to put a renewed focus on one of the most important ingredients in your roofing business: the cash you need to operate. Roofing contractors seeking to provide their clientele with excellent products and services while maintaining growth and profitability may find themselves lacking in this precious commodity.

This editor is no expert in the field but will boldly make a couple of suggestions and observations just the same.

Sufficient cash flow in any business relies on selling at a profit. In an era of rapidly increasing material and labor costs, it is more important than ever to maintain vigilance over your pricing schemes. Staying ahead of the curve will require you to be aggressive in terms of pricing and collections. Some contractors may benefit from outsourcing collection activities.

Planning Ahead

If you plan to increase your output or enter new markets, you will certainly experience a need for additional capital. This may include new marketing costs, training expenses, and other start-up costs. These may be great investments, but they will create new demand on your bank account. Evaluate your cash needs based on criteria established by your business plan. If you plan to grow your business, how will that affect your cash flow? Even if your plan is to sell the same number of squares as you did last year or the year before, your cash needs may increase significantly. I will wager that they did in 2005, and 2006 is looking like a year in which material and labor prices have the potential of increasing at an even faster pace.

Now ask yourself this question: "Will my current cash reserves and lines of credit support this growth?" Maybe it is time you seek out assistance from those who are experts in this important field.

A primary source of help in this regard is your banker. It really should be bankers. If you do not maintain relationships with at least two banking institutions, you may find yourself on the wrong end of the equation when the going gets tough.

Buying banking services is just like anything else. If you purchase materials and equipment from two, three, or more sources, why would you not consider doing the same with your banking relationships? You are sure to miss some opportunities if you do not keep an eye on this important market, and if you deal with only one supplier, you will only get one view of it. I am suggesting that for many roofing contractors, one is just not enough.

Roofing contractors are typically very independent and not prone to sharing much in the way of information. A great relationship with a banker relies on mutual trust and respect. Like all relationships, it will take some work on your part to get the most out of it. You should seek out bankers that you feel good enough about to share your business plans with them and obtain their counsel in matters of capital needs, investments, and collections.

A great banker is prepared to do more for you than simply provide you with loans and checking accounts. And, in 2006, for your enterprise to succeed, you may need much, much more.

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Rick damato update
Rick Damato is the editorial director of Roofing Contractor. He has held a number of posts in the roofing industry since 1974 and has contributed to the magazine since its inception in 1981. He can be reached at 770-331-7858 or on Twitter @RoofsByRick.

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