Creating an Emergency Fund

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Don’t get caught short if COVID strikes back

Many contractors are reporting an upturn in business now that states are starting to open back up, but these same painters are worried about having enough money to get through a potential downturn later in the year. So especially now when we’re uncertain about the coronavirus’s plans for Thanksgiving, it’s a good idea to stash some money in the bank. We consulted some painters – and a painters’ accountant – for tips in building up cash reserves.

Morgan Ray, COO of Bookkeeping for Painters, makes a career out of helping contractors manage their money. “One thing I discuss with painters frequently is the idea that the simple act of receiving or having money influences the way we decide to spend it,” she said. “Economists have noted that just the perception that you will be receiving money can change the way that you make purchasing decisions – that thinking you’ll be receiving money makes you purchase things more freely, even if the dollars haven’t hit your bank yet.”

Therefore, she advises, don’t spend what you don’t have. “It’s important to run your business by the adage ‘a bird in the hand is worth two in the bush’ or in this case... a dollar in the bank is worth two in your receivables,” she said. “Essentially, do whatever you can to budget and spend frugally based on the money actually in your account, including thinking of the way that you use credit. Credit is betting on that dollar down the line.”

When that money does land safely in your account, scoop some off the top for taxes and profit/savings, and put it in one of those “hard to reach” areas. “If you put these funds somewhere less visible and less easy to access, like separate bank accounts, it will curb your willingness to spend those funds freely,” said Ray.

Finally, up your profit by upping your estimating skills. “This means knowing what your job expenses are going to be as you head into the proposal and creating an accurate markup on the services to ensure you can pay the bills and still set some aside for yourself (and emergencies),” said Ray. “Just selling work will never get you ahead if you're simply breaking even. All businesses technically ‘live on the margins,’ so make your margins great!”

The $100 difference

Eric Barstow, owner of Foothills Painting, Fort Collins, CO, reminds us that spending is hard to stop if you don’t know where it starts. “See where you are spending and identify expenses that you can eliminate,” he says. “For every expense you eliminate, put an equal amount of money each week into a savings account; otherwise you’ll end up spending it somewhere else. If you cancel $100 of expenses, replace it with a $100 deposit into your savings account each week.”

Another way is to slightly raise your prices, even if it’s $100 a job, then put that hundred into savings. “This might not seem like much, but it adds up quickly!” says Barstow.

And Some Quick Tips:

Michael Craine, Craine Painting: Open an extra savings accounts at a credit union and don’t download its mobile app. Deposit a percentage of each job into it and ignore it until you or your accountant needs it.

Bridget Ingram, Richard Ingram Painting: We take a portion of our weekly invoices and put it into a money market so that it’s able to grow instead of sitting in a savings account. 

Aaron Moore, Precision Painting & Decorating: Pay down debt when you can, establish lines of credit when you don’t need them, and rollover some profit (pay taxes) rather than spend all your money to avoid taxes.

Take away tips:

  • Know where your money is going so you can redirect it.
  • Small changes in pricing and spending can add up to big savings.
  • Save your money!
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