The snow removal business is full of challenges: staffing, equipment, insurance, paperwork. But one of the most difficult problems is cash flow. Without a pile of cash in the bank or a very large line of credit, financing a growing snow removal business can be nearly impossible.

The problem of cash flow

Snow removal employees need to be paid within a week and sometimes within just a few days. Subcontractors often sign agreements with 30-day payment terms; but in reality, they need to be paid much faster. Unfortunately, corporate clients rarely pay in 30 days and often average 45- to 60-day payments.

The fact that the snow removal contractor can have a snow event, owe employees and subcontractors tens or hundreds of thousands of dollars within a few days, and then wait 30 to 60 days to be paid by clients can put such a strain on their small business that many can run out of cash and fail to operate.

Suppose you have the crews and the contracts to do $1 million in business in the snow season between November and March. You need to be prepared to pay $500,000 to employees and subcontractors before you receive the first check from your corporate clients. You either need to have $500,000 sitting in your bank account or have a $500,000 line of credit line to draw on.

Both of these scenarios are tough since most small businesses don’t have $500,000 lying around and banks are hesitant to give large lines of credit to small businesses—especially snow removal contractors that can have widely varying revenue streams year to year.

Invoice factoring

One effective way to manage the demanding cash flow requirements of the snow removal business is through a financing technique called invoice factoring, which enables a company to get paid very quickly for work that has been completed. Once work has been completed and an invoice for the work has been generated, that invoice can be immediately sold to a factoring company for immediate cash. This allows you to scale your business quickly since you are not constrained by the cash you have on hand or by a traditional bank line of credit.

Running a snow removal business presents the owner with many challenges. Cash flow is often the biggest challenge and can put you out of business if not managed properly. Invoice factoring can be a very useful financing technique for snow removal companies that can be put in place in a matter of days.

• Fee rates can vary from 1% to 3.5%, and the advance amounts can vary from 70% to 90% of the invoice total so it pays to shop around.
• If possible, use a mobile app to record snow services to expedite the process of turning today’s work into tomorrow’s cash. If you still record data with paper, this technique still works but will be delayed by your paperwork process and how long it takes you to manually create invoices.
• Don’t listen to the banker who won’t give you a line of credit but tells you that factoring is too expensive. Other industries such as retail, grocery stores, restaurants, travel, hospitality, etc. all built their business models around taking credit cards that have roughly the same fees.
  
  

David LaFore is CEO of Colorado Green Pros in Englewood, CO. Contact him at dlafore@dtsisoftware.com.