Financing for a cleaning service business
Thursday 6th January 2022
Due to the pandemic there is an increased demand for cleaning services. With employees gradually returning to the office, it is more important than ever to ensure they are returning to a Covid safe environment. Meaning that now might be a good time for smaller companies looking to expand, or even for new start-ups to take a share of the market.
There are a lot of things to think about, and one of them is financing. There’s equipment that needs to be purchased, staff that need wages, and general overheads to consider. The most successful businesses will be those that are adaptable; keeping their costs low and being in a position to take advantage of an opportunity at any time.
How you can use traditional finance to your advantage
1. Loans
If you’re just getting set up, then naturally a bank loan, or a specific business loan, is going to be a good option to get you started. Put your plan together, get it in front of the business team at your bank, and you should be able to get a decent rate. There are also loans available if you need to rapidly expand or there’s equipment you need to purchase. The downside of course is that these loans aren’t always as flexible as other options - they’re generally fixed in place and there can be fees to settle early.
2. Overdrafts
Overdrafts are a good option for flexibility, because you can dip in and out when needed. They shouldn’t be relied upon as a long-term type of finance for larger purchases as they can be expensive, but they’re an effective tool if you need to quickly expand to take on new staff or buy new equipment for a contract. In this regard they’re fairly useful at combating irregular cash flow. Their only real downsides is that costs can vary quite considerably, and it’s not always straightforward to negotiate an extension.
3. Hire purchase and lease schemes
Depending on the type of cleaning you’re going to be doing, you may require certain pieces of expensive equipment or machinery. It’s always a good idea to consider how you can best finance these for the biggest tax and depreciation benefits. Often, sellers will themselves offer hire purchase and lease schemes which should always be investigated as they can prove to be low cost methods of finance.
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How you can use alternative finance to your advantage
1. Crowdsourcing
If you’re just starting up, then you might want to consider some of the more modern methods of fundraising. Crowdsourcing might be a tricky sell for a cleaning business, but if you can put together a stellar business plan that shows you’ve spotted an opportunity in the market, then you may well be able to attract investment and finance from one of the many online services that connects start-ups with potential investors.
2. Invoice Finance
If you’re already established, then invoice finance may well be a good option for businesses that want to be able to expand quickly. This type of finance is not well understood by all businesses, but is fairly straightforward.
In short, as soon as you submit an invoice to a client, the finance company pays you most of the value of that invoice straight away, and then you get the remainder less a fee when it is paid.
Why is this useful? It means that you don’t need to be as concerned by the lead times on invoice payments, which in turn allows you to be a lot more flexible. If you know that money will be with you rapidly, then you can take on new staff and win larger contracts without the concern of waiting for your cash flow to catch up with you. This won’t be a solution for all businesses, but it’s certainly one to consider.
Start-ups may also benefit from certain types of invoice finance that look after all credit control processes. If you want to run a very lean business with only a core of staff, then it may be effective to essentially outsource all of the chasing of invoices and leave it to a more experienced company. You can find out more about how this work on Novuna Business Cash Flows factoring page.
