Do You Take Deposits? And If Not, Why Not?
I personally coach many Trades Hub Members to build and grow more successful businesses. And one of the questions I always ask, especially for those working in the domestic market is – “Do you take deposits?”
And the resounding answer I get back is “No”. This frightens me for several reasons.
In this article I will explain the main objections why business owners, just like you, don’t and won’t take deposits for their projects. And I will also share with you the reasons why you must start doing it. This is really important stuff and potentially a massive turning point for your business.
Why People Don’t Take Deposits
Now I know the reasons why you don’t take deposits….yet. And these are:
- You don’t think your customers will pay it
- You don’t want to come across as a cowboy builder
- You can’t be bothered with the extra paperwork
- You’re a good judge of character……aren’t you!!!
- No-ones NOT paid you yet
- It’s what you’ve always done
Why You Must Take Deposits
If you don’t take deposit, it’s got to change because you’re leaving yourself wide open and actually preventing your business from growing. These are the main reasons why:
1. Why Should You Fund Their Project?
It’s not your responsibility to fund somebody else’s project. If they want that extension, or that new kitchen or whatever, why should your business and ultimately your family, fund it? Why should you put yourself at risk? You have to invest your money into buying the materials and labour needed to fund their project. It should be your responsibility to ensure that those funds are always available, by getting the money off the client up front, not to fund it for them.
2. It Allow Your Business To Grow
If you build an extension at £8k let’s say, and you need to get credit to complete that project, then that’s fine. But what if you got 5 or 10 of those projects in at once? How would you survive? And the answer is, you couldn’t. So by funding your customer’s projects, you are limiting the number of projects you could possibly do, because whilst 10 new projects might sound amazing, it would actually cripple your cashflow. Getting cash up front, puts you in a positive cashflow and allows you to scale and grow your business.
3. It Commits The Client to The Project
How many times have you had work booked in, and then at the last minute, the customer pulls the plug on the project? Not happened yet? It will. And you’ve had to buy materials and book labour for that project. It puts you in a right pickle. By getting a deposit, you are getting that commitment so you can properly book in secured projects.
4. It Make You Look MORE Professional
Rather than making you look like a cowboy builder, if you turn up with a properly produced proposal, with your payment terms all laid out, it makes you look MORE professional. It makes you look MORE trustworthy. It shows to the client that your in control and that you know what you’re talking about.
How To Structure The Payments
As well as taking a deposit, we would also suggest structuring the payments in such a way, as to not leave yourself vulnerable as the project progresses. Here is an example of a payment structure we might advise for a £20,000 project, lasting 4 weeks.
- Deposit | £2,000 | 10% | Required to secure the start date of the project
- 1st Installment | £8,000 | 40% | Required 2 weeks before the project starts
- 2nd Installment | £8,000 | 40% | Required 2 weeks into the project
- Final Installment | £2,000 | 10% | Required on completion
Can you see how something like this would put you in a stronger position?
Overcoming Your Objections
Now we get our Trades Hub Members to do this time and time again, so we know that it works. So just to help convince you further, here are the answers we give to your other objections.
- If your proposals are professional enough, your customer WILL feel comfortable to pay you.
- If you use simple accounting systems such as FreeAgent of Xero, then the paperwork and invoicing is a doddle and automated.
- Just because you’ve always done it this way and it’s worked up until now, is not a good enough reason to keep doing it this way.
- If you want to achieve different results in your business, you’ve got to be prepared to do things differently.
Do You Need Business Coaching?
If you feel that this is an area which you need help with. Or do you have other challenges in your business which need sorting. If so, then perhaps Trades Hub Coaching can help you.
Let us know what you think? What are your experiences? What works for you?