Helping a $500k Painting Business with Profitability and Exit Planning

Daniel provides a roadmap for a business owner looking to optimize his painting company for an eventual sale and retirement in 12 to 14 years. The discussion focuses on immediate strategies to improve cash flow by increasing job deposits and long-term tactics to boost net profit from 11% to 30%. Key recommendations include refining the sales process by presenting in-home to increase close rates, implementing a "good, better, best" pricing model, and introducing an "on-time, on-budget" guarantee to justify higher markups.


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Keywords: painting business profit, increase painting margins, sell a painting business, painting contractor cash flow, painting sales process, painting business coaching, business exit strategy, painting estimate close rate

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

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_00 0:20

You mind if we jump right into it?

SPEAKER_01 0:22

Yeah, let's go for it.

SPEAKER_00 0:23

All right, awesome. Uh got your question. Uh just to restate what you said already, which is six years in, doing do my numbers look like a biz headed in the right direction? 50 years old, you got about 12 to 14 years left of working

Goals And The Exit Plan

SPEAKER_00 0:41

time, and you want to sell the business and potentially retire overseas. So are you are your numbers looking good? Is basic the basic question. Is there any other context you want to add to that?

SPEAKER_01 0:52

I mean, that's the ultimate goal. So yeah, I think just keeping it right there is is a good spot.

SPEAKER_00 0:59

Okay. Cool. So just to cover some basic numbers here, uh, revenue last 12 months, 500K, gross profits at about 38%, customer acquisition costs, which is marketing plus sales, is um about nine percent when you when we consider you the salesperson. And so you have a uh a decent gross profit

Revenue Margins And EBITDA Reality

SPEAKER_00 1:20

to customer acquisition cost ratio of 4.2 to 1, because your your gross profit is 38%, and you're you you work mostly off of repeat and referral work, and so you have very little marketing spend. Um now the thing that's kind of working against you, so to speak, is you you do have the franchise fees, which kind of cut into your margin. So that that's a challenge to work with. Your overall take home is around 11% based off the roles that you play, because you're the salesperson and production manager and the owner, yeah. You really should be netting about 30%. So we need to get your take home from 11% to 30%. That's the the main thing. Um, that because to sell your business, it's all based off of what your EBITDA is, which is your net net profit, basically. So in order to get the the most amount from a sale, we want you want to have a decent amount of EBITDA. So that's the main focus of what I would say we would want to do. Um, we can definitely talk about that. The other piece is um cash is a a little a little on the lower side. Uh I would it's not terrible, but it's I would prefer you to have around $30,000 minimum in the bank at any time, just so if something unexpected happens, you have that to fall back on. Um, but we'll we'll talk about that too. The two main things I want to focus on the short term, what to do in the short term, and what to do in the long term. So the short term, I'm gonna focus on cash because uh I think getting the cash up in the business will just provide some you know stress relief for you, and then also give you some uh flexibility

Cash Buffer And Why It Matters

SPEAKER_00 3:11

in what you can try to improve profits in the long run. But that first for sure, uh cash. The best way to improve cash flow is to get paid faster and then slow down payments to others. So what is the what is the deposit that you're taking right now for jobs that you close?

SPEAKER_01 3:33

20%.

SPEAKER_00 3:34

Okay. So an easy way to improve cash flow is to get paid

Raise The Deposit To Get Paid Faster

SPEAKER_00 3:38

faster. And so if you just simply take that from 20% to 30, 33%, 40, 50%, whatever, um, that can have a really profound impact on you'd be surprised on how much cash you'll end up getting. And I think just that one tweak will very quickly get you to that $30,000 minimum if you just raise it from 20% to 35%, let's say. Um that will just get you a lot more money in faster and should increase your cash balance. Um and uh been recommending this for a while. I haven't really had many people come back and say it it meaningfully impacted their close rate or anything like that, especially when you're only moving from 20 to 35 percent. It's probably not even noticeable for most people.

unknown 4:28

Sure.

SPEAKER_01 4:29

Okay.

SPEAKER_00 4:30

So that would be like a simple short-term kind of recommendation to solve the slightly low cash in the business. Um, and I I would even go farther to because you're in um Chicago, so there's no limit on deposits. You could take a 50% deposit if you like. Um, but you could test that out and see how that goes. But now for the medium to long term, I want to dig into a couple things for that. It's basically increasing profitability because increasing cash flow in the short term is nice, but it's not gonna solve the over the underlying overall problem, which is low, low margins. So we need to get margins up. Uh, a

Pricing Markup And Close Rate Targets

SPEAKER_00 5:13

couple of questions. What is the current markup that you have set in in a smart quote? Is it a hundred percent markup on labor and materials or is it a different one?

SPEAKER_01 5:23

It's a hundred on it's a hundred on um labor and seventy-five on materials.

SPEAKER_00 5:31

Right, and then what's your close rate?

SPEAKER_01 5:33

Right around 45%.

SPEAKER_00 5:36

Okay. 45%. And then I know you do a lot of repeat and referral work. Are you presenting in the home and trying to close on the spot?

SPEAKER_01 5:46

No, I'm not.

SPEAKER_00 5:47

Okay. Your close rate is actually pretty pretty high for not actually trying to close on the spot. Uh so you you've clearly you have a very good amount of trust with your previous customers. Because I know you've been in business for a little while, so you have good referrals apparently and and a good customer base that trusts you. So you have a lot of things to be like proud about in the business. I think just with a few tweaks, we could really open up the margins a lot. What the bottom line thing that we need to do is we need to increase prices. Now, obviously, that can be hard to do, but to make it easier, we can tweak a couple things. One, we want to start presenting in the home and doing that full process and the sales process so that uh doing that alone, presenting in the home and just asking for the job will increase your close rate. Just that simple thing of presenting in the home and asking for the job. And so you could get your your close rate probably from 45 to like 55 percent just with that one change alone. Um and then the second thing we can look at to help increase the price is to look at the offer. What are you offering to your your customers? Like, why do they sign up with you versus somebody else? Um what is your offer? Do you offer a certain warranty, guarantee? What does that look like?

SPEAKER_01 7:23

Yeah, I offer 100% customer satisfaction guarantee. So we'll we'll we

Stronger Offer With Better Options

SPEAKER_01 7:29

stand by our work, uh, we will come back. You know, I don't I don't broadcast this, but if if there's anything wrong, we automatically head back and correct it. But I I share that with the client and says we guarantee your 100% satisfaction.

SPEAKER_00 7:45

Okay. A warranty?

SPEAKER_01 7:47

Yep. Um and then as far as warranty, I believe in my contract it says a one-year warranty, but it's based on like product failure and that sort of thing. Okay. I don't I don't lean into that all that much, but it's it's in my it's in my contract.

SPEAKER_00 8:03

Okay.

SPEAKER_01 8:04

Uh and then as far as service-wise goes, I'm like, we we can schedule your project within two weeks. Um and and and I pride myself in not you know sticking by what I originally quoted. So my my proposals are very transparent uh and very dynamic. So you'll I'm not gonna be raising the price on you midstream.

SPEAKER_00 8:30

Yeah, so it's gonna be on on budget. Um, this is good. Uh I think this offer definitely it just it differentiates you from Chuck on the truck, right? Folks that don't have insurance, they don't have a warranty, they don't have a guarantee. They're not doing these things. So you can charge more than Chuck on the truck for sure. I think the the challenge is this type of offer is pretty standard for other professional painting businesses. Like they're offering something like this for the most part. Like the warranty, one, two, three, five years is pretty standard. Um, having that 100% satisfaction guaranteed is used a lot. Uh the the two-week scheduling is is a little bit unique. I don't see that all the time, but um, and then having accurate proposals on budget is uh that's good. Do you if you don't, if it's not um, is there any kind of risk reversal that you incorporate? Like if we don't, if we don't, if we're not on budget, you get a certain thing back or something like that?

SPEAKER_01 9:40

No, I just yeah, I mean I didn't go as far as because every um room and every surface is line items, and so they can pick and choose their own adventure. And I'm even as lenient as if they sign up, if they sign my contract and then they decide midstream to not do the powder room, then we'll we'll eliminate it. So I'm not holding them to anything. I'm just very flexible and very customer friendly with them. One thing I've thought about there's somebody in my BI group that owns a cleaning service, and I was just talking to them about this, and maybe on certain clients offering a uh you know, a deep clean after, especially if it's like a brand new home that they're going to be moving into, like building that into my offering and offering a professional cleaning um at the end of the project. I'm I'm thinking about doing that. Maybe not for all my not all my projects, but you know, the big double-digit projects, you know, where they're spending $10,000. Uh and uh it's yeah, and so I'm thinking about leaning into that and putting that into my sales pitch.

SPEAKER_00 10:40

Yeah, absolutely. Um, a certain is a common thing is a good, better, best, and then the best option has that cleaning portion included, you know, that you do a cleaning at the end. So they could so offering a good, better, best good would be like kind of your baseline, you know, one coat, you know, we're we're in and out, very standard, and then that's the good one, better. You add something a little bit of something else that way. You give them a couple different options so that instead of choosing between three different bids, they're just choosing between three different options that you provided to them.

SPEAKER_01 11:19

Yeah, that's a good idea. Yeah, I've always lead into just paint upgrades, but yeah, I didn't think about maybe an experience upgrade, which we could we could come up with some other experiences too at with height product. Okay, I'll think about that.

SPEAKER_00 11:35

Yeah, so the uh I think for the markup, the bottom line, we need to get to I think the overall goal, and this I'm not saying to do this immediately or anything, but over the next couple years, try to get the the markup in smart quote to 110% for labor and materials. I think that's like the ultimate goal. Obviously, not do that overnight. We're gonna inch it up over time. So the way that we can do that is one uh improve the sales process by presenting in the home and asking for the job um on the spot, and that will improve your your your close rate. And then that will also, once you improve your close rate, we can then start increasing the pricing. Because ideally we want to keep keep your your close rate between 30 and 40 percent. That way we're we have an optimal um, we're getting enough profits, but not taking the low, like the uh, you know, we know that we're charging enough, but not wasting our time going out and doing estimates. So keeping our close rate between 30 and 40 percent. So getting our close rate to 50, 55 percent, you could probably raise your prices by 10, 15 if you have a 55% close rate, and then and keep it uh between 30 and 30 and 30 and 40 percent. So closing on the spot, presenting in the home, and then the offer, I would maybe consider the good, better, best, incorporate the cleaning piece if if you'd like. Also, I would look at a risk reversal guarantee, um, which is basically where you say, hey, and it's kind of using the piece that you've already talked about, which is you you have accurate proposals that are on budget, right? So that's great, but let's add some risk reversal in there where you say, Hey, you

Risk Reversal With A Real Guarantee

SPEAKER_00 13:23

know, I promise to be on time and on budget. So I anticipate this project to take no more than two weeks to complete. And also, this proposal I'm giving you is an accurate proposal, and the price will not change. Um, if if we do end up taking more than two weeks or we come back to you for more money for the same job, same scope, then you get a 10% refund on the total job price. That's our on-time, on budget guarantee. So you're basically saying, hey, you're not just saying, hey, 100% satisfaction, but there's no teeth to it. You're actually saying, hey, if we if we screw up, we're gonna literally give you 10% of the job price back. Okay. Okay. Now the the risk to you is relatively low because you can control how much time you say. Like if you know it's gonna only take a week, you can say two weeks to give you that uh buffer time. And then you can also add conditions to the on-time, on budget guarantee. You can say weather permitting, right? If it's exterior, you don't control the weather. Uh, you have to have access to the property. So they can't say you can't you have to stop painting, you can't come to our house. Well, obviously you can't paint while you don't have access to the property. Also, if there's other contractors there that are impacting your ability to paint, that's not on you. So you can put those conditions into the guarantees to kind of protect yourself. Um, but adding that that into your offer can uh one, it differentiates yourself from other painting businesses because they they're probably not doing something like this, right? And and then two, um, it will allow you to increase your prices because someone might be willing to pay 10, 5, 10 more when they have that peace of mind that oh, they have an on-time on budget guarantee. I want these these guys in and out, and I want to go on with my life, so I'm willing to pay a little bit more for that.

SPEAKER_01 15:25

Got it. Yeah, actually that makes sense to me. And it's a little skin in the game on my part with them, so it's like, yeah, holding me accountable too. But yeah, I like that.

SPEAKER_00 15:37

Cool. So to sum it up, we we talked about taking a 50% or up to a 50% deposit. Right now, you're taking 20%, so either 35, 40, 50. And if you add this on time on budget guarantee, it might make it easier to actually take the higher deposit as well, because it's a it's a more

Step By Step Plan And Benchmarks

SPEAKER_00 15:59

compelling offer. They might be okay with more okay with that. But taking a higher deposit to to get more cash in faster, and then for the medium to long term, uh, we want to start increasing the markup for labor and materials, especially um materials to try to get it to 110% markup for both. And we're gonna do that by uh improving the sales motion. So we're gonna start presenting in-home and asking for the job on the spot, and then also improving the offer with maybe a good, better, best and also a on-time, on budget guarantee to make a more compelling offer for folks. And with that, with those pieces in there, that should get your close rate up pretty high. You know, it's already at 45%, it's probably gonna go up 55 or maybe 60 percent, and then we can start increasing the prices, you know, by 10, 15, and keep your close rate between 30 and 40 percent. And then if it ever goes over 40 for an extended period of time, a few weeks, increase prices again. Uh, and then that if we can keep your your gross profit to more like 50% gross profit instead of 38%, that's gonna create a five to one GP to CAC ratio. And uh your your discretionary earnings will go from 11% to about uh 20, 25 percent, which is a good a lot, you know, that's over double of what you're making now. So I think that will have a big impact.

SPEAKER_01 17:39

That would be yeah, that'd be wonderful. Okay. All right, really helpful. Thank you. I appreciate the the time that you've spent.

SPEAKER_00 17:47

Yeah, absolutely. Cool. Well, I appreciate your your time, Todd. Um, unless you got anything else for me, I'll let you go here, sir.

SPEAKER_01 17:53

That should be it.