Seven Commercial Painting Mistakes That Drain Cash

Commercial painting can unlock bigger jobs and steadier revenue, but the cash flow rules change fast and they can punish anyone who treats it like larger residential work. I break down seven common financial mistakes and the simple systems that keep payment delays, retainage, and billing rejections from turning growth into stress. 
• commercial work as a different business model under a GC 
• no-deposit reality plus 30 to 90 day payment cycles and retainage 
• building cash reserves and setting up a business line of credit early 
• running accounts receivable with a real tracking and follow-up system 
• using AIA billing formats and preventing rejected invoices 
• switching from cash basis to accrual accounting for job profitability 
• reading the statement of cash flows to explain where cash goes 
• preparing for prevailing wage and certified payroll compliance 
• keeping a residential repaint mix to fund payroll and overhead 
• real-world story of a six-figure job creating cash flow stress and the fixes that made commercial manageable 
If you get value from this type of information, grab a free copy of my book, Profitable Painter. Click the link in the description to grab a free copy, just cover the shipping. 

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 Profitable Painter YouTube channel.

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Transcript

Why Commercial Work Changes Everything

SPEAKER_00 0:20

In this video, I'm breaking down seven mistakes painting business owners make when they start doing commercial work and how those mistakes can wreck your cash flow, delay payments, and create financial stress fast. If you clicked on this video, you're probably wondering the answer to these three questions. Is commercial work actually more profitable? What changes financially when I move from residential to commercial? And how do I avoid getting crushed by slow payments, retainage, and cash flow problems? If we haven't met, I'm Daniel Honan. I'm a CPA and former painting business owner. I've helped over 500 painting businesses from startup to 20 million in revenue, know their numbers, and save big in tax. Commercial work can absolutely open doors. It can lead to bigger jobs, more consistent revenue, and fewer seasonal slowdowns. But a lot of painting business owners make one big mistake before they even get started. They assume commercial is just bigger residential. It's not. If you're doing commercial work, especially under a general contractor, you need to think of it almost like launching a second business model because the rules change, the cash flow changes, the billing changes, the risks change. And if you don't prepare for that, commercial work can create a lot more stress than profit. So let's walk through the seven biggest mistakes I see. Mistake number one, assuming you'll get a deposit. One of the first mistakes owners make is assuming commercial jobs work like residential repaying jobs. In residential, you may be used to getting a 50% deposit up front. In commercial, especially when working for a GC, no deposit is common. On top of that, payment may come 30, 60, or even 90 days after invoicing. And sometimes 5 to 10% is held back as retainage until after the job is done. That means if you don't plan ahead, you could be funding materials, labor, and overhead out of your own pocket for months. That is not a small difference. This is a business model shift. Mistake number two, not building enough cash reserves or credit before taking the job. The second mistake is taking on commercial work without cash reserves or a line of credit to survive the payment lag. A lot of owners get excited about a big commercial contract, but they don't realize that payroll still has to run every week. Materials still have to be purchased, and the check may not come for months. If you want to do commercial the right way, build cash reserves before you take the job. If you don't already have one, get a business line of credit in place before you need it, not after. Mistake number three, treating accounts receivable like an afterthought. In commercial, accounts receivable is not optional. It is mission critical. You can't just send an invoice and hope for the best. Many GCs require AIA billing formats. You need to track what has been invoiced, what is unpaid, what retainage is still outstanding, and when follow-up needs to happen. Because a late follow-up often means late payment. If you want to stay healthy and commercial, you need a real accounts receivable system, not a sticky note and a vague memory. If you get value from this type of information, grab a free copy of my book, Profitable Painter. Click the link in the description to grab a free copy, just cover the shipping. Mistake number four, staying on cash basis accounting. Another huge mistake is trying to run commercial work on cash basis accounting. Here's the problem. Let's say you incur a bunch of job costs in March, but you don't get paid until June. On cash basis, March looks terrible and June looks great, even if that is not what's actually happened economically. That makes it really hard to understand job profitability. If you are doing commercial work, you need accrual accounting so you can match revenue and costs properly and actually see how the job is performing. Mistake number five, ignoring the statement of cash flows. Once you move to accrual accounting, your PL still doesn't tell the whole story. That is why another mistake is ignoring the statement of cash flows. The statement of cash flows helps you understand why you can look profitable on paper and still be short on cash. It shows how accounts receivable, accounts payable, and credit cards are impacting your cash position. If you want to survive commercial work, you need to stop asking only, am I profitable? and start asking, where's my cash going? Mistake number six, underestimating payroll compliance. If you get into public sector or government work, payroll compliance gets more complex fast. Now you may be dealing with prevailing wage requirements and certified payroll reporting. And not every payroll provider is set up to handle that properly. So if you jump into that work without checking your payroll systems first, you can create compliance problems you didn't see coming. Mistake number seven, dropping residential work too fast. One of the smartest things many commercial painters do is keep a healthy mix of residential repaint work while they grow commercial. Why? Because residential repaint work often gives you faster cash flow, healthier upfront payments, and quicker turnaround. That cash can help you fund payroll and overhead while you wait on commercial checks. A lot of stable companies maintain a mix of commercial and residential for exactly that reason. Commercial may help you grow, but residential often helps you breathe. Here's what this can look like in real life: a painting business owner built a solid residential company and landed a six-figure commercial repaint job. Sounds great, but he paid for materials up front, had no deposit to fund payroll, his invoice was rejected because it was not in the right format. The GC took 90 days to pay, and 10% was withheld as retainage. By the time he finally got paid, he had piled up credit card debt and created massive cash flow stress. What went wrong? He assumed his residential systems would carry over into commercial and they didn't. The good news is once he built better billing systems, better AR or accounts receivable tracking, line of credit, and accrual-based reporting, the commercial side became much more manageable. So here's a quick summary. If you want to move into commercial work, avoid these seven mistakes. Don't assume you'll get a deposit. Don't take the job without cash reserves or a line of credit. Don't ignore accounts receivable. Don't stay on cash basis accounting. Don't ignore the statement of cash flows. Don't underestimate payroll compliance and don't drop residential work too fast. Commercial work can be a great growth move, but only if you treat it like a different financial model, not just a bigger paint job. And in the next video, I'm going to break down GP to catch and show you why it is one of the most important numbers to track if you want to scale your painting business profitably.