A Cautionary Tale
How a New Roofer Destroyed His Business With Deposits
Meet Jake, a new roofer eager to build his business. He just landed his biggest job yet and pocketed a hefty deposit upfront. Feeling on top of the world, Jake splurged on new gear and a truck upgrade. But he didn’t realize how fast that deposit would vanish.
Jake couldn’t afford materials for the job. He started juggling funds from other projects, thinking he could catch up later. But the problem only snowballed. His cash flow became a tangled mess, and he had to delay payments to his suppliers. Word got around, and soon, other clients started to lose confidence in his reliability.
Jake’s mishandling of the deposit didn’t just hurt his current job – it triggered a spiraling effect. It got him unhappy customers, negative reviews, and a tarnished reputation. Within months, what started as a promising venture was on the brink of collapse.
Jake’s story is a reminder that mishandling cash can destroy your business. It’s among the top mistakes new roofing contractors make.
That’s what this guide is for. It’s to give you the knowledge to make deposits work for roofers.
The Advantages of Taking Deposits
A deposit is a chunk of cash you take upfront for a roofing job. It’s sometimes called a downpayment, too. You know in movies when hardboiled detectives ask for a cash advance? “50% now, 50% once it’s done?” It’s the same concept but for roofs instead of cheating spouses.
Deposits serve a few purposes in the roofing industry. They act as a commitment from the customer. Ever heard the story about the roofer who showed up at a job site only to see a competitor’s truck out front? Customers sometimes sign your quote but hirer a competitor behind your back. You buy all those supplies only for the job to fall through. It’s rare, but it happens.
That’s where the deposit can help. The financial commitment helps lock in the job.
Deposits also give you a shot in the arm of cash. That cash makes a huge difference for buying supplies if you’re in a pinch.
Imagine you’ve just signed a contract for a sizable residential roofing job. You collect a 30% deposit, which immediately goes towards purchasing materials. Without this deposit, you’d be fronting the costs yourself. You might even have to take out a loan, increasing financial risk. Instead, you have the customer’s commitment and the cash flow to get started ASAP.
A Word of Warning About Deposits
But deposits aren’t all sunshine and rainbows. You’ve got to do some research before you start charging them.
Some states regulate contractor deposits. For instance, in Colorado, it’s illegal for roofers to take deposits. California restricts deposits to $1,000 or 10% of the total job cost before work starts. Skirting these regulations can result in hefty fines. Always check the laws of your state before implementing a deposit policy.
Deposits might be a red flag for some customers. They’re sometimes used as a tool by scam artists. The scammer gets your deposit and then vanishes into the ether. You should never, ever charge more than 50% of the jobs total cost as a deposit.
Discipline is another crucial factor. Deposits aren’t bonuses or finders fees. They serve a specific purpose in your business process. Mismanaging deposit money can lead to financial disaster. Using deposits for anything but job supplies is a fast path to bankruptcy.
Listen, it makes sense. You’re out on roofs working your butt off. You’re hustling. You’re closing sales. You see all that deposit money pop up in your bank account and you think, “Finally, my hard work has paid off!” But it hasn’t, not until supplies get bought and the job’s done.
Remember, plenty of successful roofers don’t accept deposits. They pay for supplies outright with profits from previous jobs. But that’s not everyone. And if you’re new to this business or under a cash flow crunch, deposits can make or break your business.
Here’s how to use deposits responsibly!
How to Make Deposits Work for Roofers
To manage deposits, you’ll need a structured approach and discipline. Here’s a simple system to make sure you handle deposits like a pro…
- Open two separate bank accounts – one for deposits and one for labor costs.
- When you receive a deposit, place it into the first bank account. Use this money exclusively to pay for materials.
- Drop the final payment into the second bank account. Use this account to pay your labor costs. Any remaining balance is profit.
Keeping those funds separate helps you keep track of your deposit spending. That first bank account is for deposit money only. Clean and simple!
Here’s the key. Only spend that deposit money on supplies. That’s it. It’s not for commission. It’s not for marketing. It’s not for another job. It’s only for supplies.
Always outline your deposit policy in your contracts. Make it clear how much is due upfront, what it’s used for, and when the remaining balance is due. This clarity prevents misunderstandings and builds trust with your customers.
Another good move is to include exclusions in your quote. These cover what you’ll pay for and what you won’t. They can keep you off the hook for emergency repair supplies that pop up mid-job.
Conduct regular audits of your deposit account. This keeps you disciplined and ensures the funds get used correctly. Set a schedule – maybe once a month – and stick to it.
How Much to Charge for Deposits
The amount you charge for a deposit can vary, but a common range is between 30% to 50% of the total job cost. This ensures you have the funds to cover the initial supplies. If this percentage doesn’t cover your costs, you need to increase your prices.
Remember: never, ever charge more than 50% of the jobs total cost as a deposit. That often raises red flags for customers who see it as a scam tactic.
Pricing too low is a trap many new roofers fall into. They think undercutting the competition will get them more jobs. Instead, it causes razor-thin margins and constant headaches. We’ve all heard the stories. Your buddy starts his roofing business with lowball prices. He gets a lot of work but struggles with cash flow. Everything from the customer service to the roofs sucks. He loses money on every job until he decides, “Forget this” and quits or cranks up prices.
Don’t be a cautionary tale. If deposits aren’t covering supplies, it’s time to increase your prices. You’ll need to find a competitive edge besides price to keep the sales moving.
Conclusion
Remember, deposits should make your business easier to run, not harder. And for that to work, you’ve got to come up with a system. Try the two-bank account approach and see if that makes a difference. If it gets you 80% there, you’ll be in good shape!
And please, for the love of God, don’t ask for deposits if they’re illegal in your state.
If you need help adding deposits to quotes or managing your cash flow, check out ProLine. Our tools can simplify the process and help you run a more profitable roofing business.
If all this talk about deposits has your head spinning, don’t worry – you’re not alone. Managing the financial aspects of a roofing business is challenging, but you don’t have to do it alone.
Tools like ProLine can help streamline your processes, from quoting to invoicing. And the follow-up automation can help you close higher ticket jobs.
Schedule a demo to see it in action!
