Your Materials Supplier Will Happily Put You Out of Business: Here's How
August 10, 2023

Your Materials Supplier Will Happily Put You Out of Business: Here's How

Matt Fruge
Matt Fruge
Founder and CEO

As the owner of a roofing company, you probably have a great relationship with your material supplier. You could be buddies from a prior life, or maybe you just enjoy the great perks like lunches and free trips. That's definitely the stuff that makes a business great! 

But hey, we want to give you a friendly heads-up—your supplier can be your best buddy one moment and a potential headache the next if you lean too heavily on their credit line.

Managing the finances for your roofing company is no small task, especially with added complexities brought on by the notoriously slow process of collecting insurance claims and the never-ending quest to track down checks. Reaching your supplier's credit limit when your cash flow is sluggish can put your entire business at risk.

But fear not! In this article, our goal is to help our fellow contractors gain some valuable insights to avoid the pain and stress experienced by a seasoned roofing contractor over the course of 15 years. When it comes to financial stability for your contracting business, proper planning and strategic decision-making are the key ingredients.

Credit Limit Crunch: The Danger of Relying on Credit Lines

Let's talk about that dreaded credit limit crunch. As you probably know, the checks don't magically arrive the second you've finished a roofing job. Depending on your revenue split between insurance jobs and retail jobs, you likely often find yourself in a real cash crisis waiting for claim checks, which can sometimes take two to three months to arrive.

To compensate for this waiting period, many contractors rely on their material suppliers' credit lines to cover operational expenses. This seems fine as a short-term solution, but it's a risky and inherently unsustainable way to run a business day in and day out, like building a house of cards in a wind tunnel…

Borrowing against your future income to pay your current debts—i.e., robbing Peter to pay Paul—is a tightrope walk that can get out of hand quickly.

Sales Fluctuations and Cash Flow Risks

The roofing industry, like most industries, is subject to seasonality on top of other ebbs and flows. It can be a rollercoaster between the busy season when sales are through the roof (no pun intended) to the quieter periods when the phone never seems to ring.

Other factors can affect your sales unexpectedly, too. You may lose a top performer, have staffing issues, or some other run of bad luck. Whatever the case, low sales, and delayed insurance checks can make it challenging to cover operational costs. In turn, maxed-out credit lines with your suppliers can lead to distrust—not to mention a disgruntled crew that you're struggling to pay on time.

To put it briefly, this scenario creates a house of cards that can come crashing down at the slightest financial headwind. Many smart, diligent contractors have found themselves at the edge of a financial abyss where they struggle to keep their businesses afloat.

In my 15 years in the roofing industry, I've even encountered multiple breaking points where the music stopped due to bad decisions relying on cash flow from material supplier credit. 

Thankfully, I was able to claw my way out of the situation and am able to share my advice on how to avoid such an obstacle. And I’m going to do it right now, because I’m feeling generous!

Two Tools for Stability: Diversification and Financial Planning

We’ve talked a lot of doom and gloom so far, but fear not! There is a solution. It’s not a magic bullet, but it’s the next best thing. 

In order to avoid the inherent cash flow difficulties of insurance jobs, it's crucial to ensure your company doesn't rely exclusively on them for working capital. Diversifying your revenue streams by offering services like repairs, extended warranties, maintenance work, and other sources of income can keep your cash flow stable and predictable.

Another key part of maintaining a healthy financial outlook is keeping cash reserves or a "rainy day" fund. These reserves provide you with a safety net in case that slow period is slower than expected or the insurance check doesn't arrive on time. Trust me, having cash on hand when things go haywire can be a lifesaver.

Keep a close eye on your credit lines, too. Avoid maxing out your business line of credit and prioritize paying your debts promptly. Most suppliers only give net 30 payment terms, which isn't a lot of time, especially if funds are tight. Paying on time avoids financial repercussions and helps build your reputation as a reliable person to work with—something that often pays dividends in the future.

Build a diverse stream of revenue, keep your financial strategy in order, and you'll stay BFFs with your materials supplier (free lunches and trips included!).

SquareDash: Your Solution for Cash Flow Health

Having a crisis involving a lack of available funds despite doing great work is a common reason why otherwise solid businesses go under. While it's not unique to the roofing industry, its frequency and severity caused by insurance jobs is why I created SquareDash.

You may be thinking, 'This all makes sense, but I'm already in trouble. What now?' It’s time to stop the bleeding. SquareDash gives you the ability to pay cash for materials and get out of the troublesome cycle so many contractors get wrapped up in. You can create a line in the sand of old jobs that are cash deficient and new jobs that are fully capitalized.

Upload your approved insurance scopes, send payment links to customers, and have the ACV and Depreciation proceeds deposited directly into your bank account in 1-2 business days. 

Say goodbye to running your finances like a high-rise tightrope walk with no safety net! 

Built For Roofers, By Roofers: Contact SquareDash Today for More Operations Funding Information

SquareDash is built for contractors, by contractors. We are in this business with you and understand how difficult it can be to manage your accounts payable when your operating expenses diminish your cash reserves. You need more money to make ends meet.

Our number one goal is to help you focus your cash flow to get to profitability. Regardless of your business's financing activities, remember that you will only see growth if you focus on your cash flow.

Contact the SquareDash Sales Team at 214-740-6148 to learn how SquareDash can revolutionize your cash flow and account management and propel your roofing business forward.

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