Helping a $700k Painting Business Manage Debt and Cash Flow

We look at why a high-revenue business can still feel cash-starved and why a new loan often masks the real issue. We lay out a simple cash buffer rule, a debt payoff order, and payment terms that protect cash flow without cutting margins.
• identifying owner distributions as the main cash drain
• setting a $40,000 minimum cash balance before extra payouts
• using a debt schedule to target the most expensive balance first
• improving contractor cash flow with deposits and progress payments
• structuring subcontractor terms so you get paid first
• considering a business line of credit as a backup, not a fix

This episode was originally recorded as a video for YouTube.

If you hear me say things like “in this video” or reference visuals, don’t worry —
the content still works perfectly in audio form.

And if you ever want to watch the video version, you can find it on the
 Profitable Painter YouTube channel.

https://www.youtube.com/@BookkeepingForPainters

Transcript

SPEAKER_02 0:00

Cool. Well, just we only got about 20 minutes. You mind if we jump right into it? Okay, great. So uh first off, I just wanted to make sure is it okay if we use this recording for marketing purposes?

SPEAKER_01 0:14

That's fine.

SPEAKER_02 0:15

Okay. Awesome. Well, just to jump into things here, uh, I know

Quick Setup And The Debt Goal

SPEAKER_02 0:21

your your question was you've been carrying a lot of debt and would like to know some strategies to relieve those debts, uh, like business loan options, and when is it a good time to apply it to a loan? Um, was there any other context that you wanted to provide to that?

SPEAKER_01 0:37

Um I think um I think it's sort of tied into cash flow too, you know. And I think um so we've been carrying this debt for a number of years and we we do fairly well with um um our revenue and our our margins. Um sorry, just I I I think in my head, and I don't know if this is the right strategy, but I think in my head, if I could get if we could just get a loan for like 50 grand about 50 grand, it would help us out in terms of moving ahead. And um, because I've always wanted to um have about 20 grand in our account to help with cash flow. I don't know if that's the correct strategy, but that's sort of what I wanted to run by you.

SPEAKER_02 1:20

Yeah, great question. So yeah, so like you said, your revenue last full months about 700k, gross profits at 55%, which is really strong, and discretionary earnings at 27. So you're you have strong margins, uh, but the the cash is low. And yeah, so the the primary reason

Strong Margins But Low Cash

SPEAKER_02 1:43

for the cash being low is basically there's you know two two owners, and so you guys are taking out most of the profits that are coming into the business. That's so that's that's where the cash is going. Um now, like like you said, uh definitely recommend to keep the cash balance to 40 40,000 at a minimum is kind of the torque of what I recommend. And so what I would recommend uh is I wouldn't start with looking for a loan first to to fix that because the the core of the issue is that the owners are taking out more money, yeah. That so if if we take out loan a loan and then make you end up distributing that that money that could hurt you on the tax side of things, gotcha.

SPEAKER_01 2:37

So so let me let me ask you this question. Um, what should our percentage be of taking money out for for our revenue for where our revenue is? Is there I mean, is there a standard?

SPEAKER_02 2:47

Yeah, so what I would recommend is get to $40,000 in the bank. Yeah, once you have $40,000 in the bank of cash in the bank costs, yeah, then you can take a look at allocating that money towards debt or taking out distributions, okay. But keep it a minimum of 40k, and then anything that's above that, then

Build A $40K Buffer First

SPEAKER_02 3:10

you can start to distribute distribute or uh apply towards tackling the debt.

SPEAKER_01 3:14

Okay, so so basically just work on saving that 40 grand.

SPEAKER_02 3:18

Yes, sir. Yeah, uh that would be my first approach. And uh and then once once you have that 40k in the bank, then you can take a look at your different debts that you have and do a debt, a debt schedule.

SPEAKER_01 3:33

Reduction, yeah. Okay, yeah.

SPEAKER_02 3:34

So look at each debt debt that you have and what the interest rate on that debt is, yep, yep, and then figure out which which one should you tackle first.

SPEAKER_00 3:44

Uh sure.

SPEAKER_02 3:45

Basically, the one that has the most interest and the highest principal that you're having to pay the most interest on. Yep. Tackle that one first and just knock that out, do minimum payments on the other ones, and that would be a way to prioritize things. Um great. Super. Now to to improve cash flow. Uh I know you're in um Massachusetts, right? Yep. So you guys have the 33% limit for deposits. Are you taking 33% the maximum?

SPEAKER_01 4:20

Uh we we usually we usually take 50%.

SPEAKER_02 4:23

Oh, you're taking 50%?

Deposits Progress Payments And Subs

SPEAKER_01 4:25

Yeah.

SPEAKER_02 4:26

Okay.

SPEAKER_01 4:26

Well, well, um, but I well actually I shouldn't no. Let me let me back check. On some jobs we take 50%, on some we just take a third, and then we try to get a payment on the first after the first day.

SPEAKER_02 4:39

Okay. So you're doing into your your interior jobs, you're taking 50%, and then exterior you're taking 33. Is that right?

SPEAKER_00 4:46

Yeah, yeah.

SPEAKER_02 4:46

Okay, yeah, because they have that uh exception for interior. Okay, gotcha. That makes sense. Okay, cool. So you're taking the maximum amount right. Are you doing a progress payment for the the the jobs are doing a third down? Yep. Okay, exactly.

SPEAKER_00 5:02

Yep.

SPEAKER_01 5:03

The other thing we've done is um we've looked at um we've looked at um working with some subcontractors to do our exterior work and then just have our staff do our interior work where they're specialized at. So I think that will help with um some of our tax payments.

SPEAKER_02 5:20

You know, okay, yeah, that that makes sense. And then for the subs, are you going to put in their contract to pay that they don't get paid until after you're paying?

SPEAKER_01 5:30

Exactly. Exactly. Yep.

SPEAKER_02 5:32

Okay. Well that would that will also help with the cash flow to make sure you get paid first, then they get paid. So that makes sense. Right. Plus, it aligns their incentives, like yes, they're they only get paid once you're paid, so they want to make sure that job is done right.

SPEAKER_01 5:48

Yep, and we and we um we price that out um basically at 50% gross profit on them. So that works out pretty well.

SPEAKER_02 5:58

Nice. 50% gross profit. Okay, sounds good. Um awesome. Now, as far as applying for a loan, when to do it, I would say, you know, what I said before, which is focus on improving the cash flow situation for you. If you did want to have some sort of loan or line of credit as a backup, uh I especially like lines of credit, because you don't have you don't have to draw

When A Line Of Credit Helps

SPEAKER_02 6:26

on it, you could just in case as a backup. Yeah, that way if something does happen and you for whatever reason you do go through all of your cash, emergency cash that you already have stored, that 40,000, you do have another backup for the line of credit, right? Um, right, but I would I would try not to use it, but I would but it's there if you need it.

SPEAKER_01 6:47

Yeah, okay.

SPEAKER_02 6:48

And and I know you have uh a long-term relationship with a a bank you've been banking with for a while.

SPEAKER_01 6:54

So yeah.

SPEAKER_02 6:56

I would start with them and ask if they have a line line of credit options for businesses.

SPEAKER_01 7:00

Okay, okay.

SPEAKER_02 7:02

But I I would uh I would first try to get the cash balance in your your business up um before asking for that. You have really good you have really good profit margins. I would just uh keep some cash in there so they don't you know question that and then and get your that's a good idea.

SPEAKER_01 7:20

I think that's a real good idea. I think I think if we get our debt down with that cash and then we go to them, I think it would be a lot easier, right? Okay, okay, that makes sense. That's good. Yeah, good, good, awesome.

SPEAKER_02 7:34

Cool. Any any other uh questions or anything you want to dig into?

SPEAKER_01 7:40

A little bit of time, not right now, but I'm sure I'll have more. So I really appreciate you doing this. This is excellent. Yeah, absolutely.

SPEAKER_02 7:46

Glad to do it.

SPEAKER_01 7:47

Yeah, yeah. You headed to did you say you're headed to Peru?

SPEAKER_02 7:50

Yes, sir.

SPEAKER_01 7:51

Yeah, nice vacation.

SPEAKER_02 7:53

Yeah, my son and I I have a eight-year-old son.

SPEAKER_01 7:57

Yep.

SPEAKER_02 7:58

And so I feel like it's like the last opportunity we can do something cool before he turns into a teenager and might doesn't want to hang out anymore, you know.

SPEAKER_01 8:06

I used to do that with my

Wrapping Up And Peru Plans

SPEAKER_01 8:08

son when he was young. I took him fishing all the time. About that same age.

SPEAKER_02 8:13

Yeah, I feel like I'm running out of time, so I gotta make sure I do something cool. Um, but yeah, we're going to Peru, gonna go to Machu Picchu and all those cool sites and check it out.

SPEAKER_01 8:25

So that's awesome. Well, have a great trip and safe travels.

SPEAKER_02 8:28

Uh thank you. I appreciate it.

SPEAKER_01 8:30

Yeah.

SPEAKER_02 8:31

All right.

SPEAKER_01 8:32

All right, good. Well, thanks for all your thanks for all your help and all your work. Um, we're we're working with Min and he's been great, so really appreciate it.

SPEAKER_02 8:40

I'm happy that it's it's working well with Min.

SPEAKER_01 8:42

Um hang on to him.

SPEAKER_02 8:49

Yes, sir. I will do my all right. All right, all right, cheers. Have a good one, take it easy.

SPEAKER_01 8:55

Bye.