What are the most common financial mistakes new restoration companies make?

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The number one mistake is spending money you have not collected yet.

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The number two mistake is not knowing your numbers well enough.

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Most restoration companies that fail do so in year one or year two.

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They do not fail because they could not get jobs.

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They fail because cash coming in follows a different schedule.

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The cash going out follows a completely different schedule too.

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The owner has no benchmark to measure any of it against.

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This narration covers real KPI benchmarks for restoration businesses.

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It shows where cash actually disappears inside your operation. It tells you what to do before the problem puts you under.

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Let me give you some context before we talk mistakes. The restoration industry is large.

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In my experience, industry ballpark estimates put the U.S. property restoration market well north of $20 billion a year.

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water damage alone is the most common claim type in residential property

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insurance which means demand is not the problem for most operators the guys

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searching for how much do restoration companies make or is restoration

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business profitable are asking the right question the answer is yes it absolutely

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can be profitable but profitable on paper and profitable in your bank

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account are two very different things and that gap is where most new owners

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get destroyed. Here is the core mechanism you have to understand. You take a job and buy equipment,

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supplies, and labor. You invoice the insurance carrier and then you wait. Sometimes that wait

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stretches to 30 days. Sometimes it reaches 60 days. Sometimes it even reaches 90 days.

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Meanwhile, your crew needs to be paid this Friday. Your equipment payments do not pause for anyone.

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Your fuel costs do not pause either. This is called a cash flow gap. In restoration, this gap

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is structural. It is built into how the entire industry works. A lot of new owners look at their

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revenue projections. They think those numbers mean they are fine, but they are not looking

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at the timing. Timing is absolutely everything here. Revenue is what you invoice. Cash is what

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sits in your account. These are not the same number. In restoration, they can be separated

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by 60 days. Sometimes the gap stretches to 90 days or longer. Supplement disputes can push that gap

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even further. I've seen companies carry $200,000 in open receivables. Those same companies could

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not make payroll. That is not a revenue problem. That is a cash management problem. The fix is

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simple to say and hard to do. Track your day sales outstanding every single week. Most people call

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that metric your DSO. DSO measures the average number of days between two events. The first

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event is when you invoice the second event is when you actually collect

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industry ballpark in my experience starts around 45 days for insurance work

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the upper end of normal sits around 60 days if your DSO is creeping past 70

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days take notice you likely have a collections process problem on your

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hands address it immediately the search is around how much does it cost to start

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a restoration company are extremely common and for good reason the answer is

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more than most people think in my experience a legitimate water and fire restoration operation with proper equipment a vehicle

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Licensing and working capital is going to require somewhere between

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75,000 and

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$200,000 to launch properly. That's not a franchise fee situation

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That's the base cost of being able to say yes to jobs

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The mistake new owners make is they launch under capitalized they buy one piece of equipment

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they take a job they collect they buy another piece of equipment that works

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until you get two jobs at once or until one payment is delayed or until a piece

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of equipment breaks you need working capital reserves before you need revenue

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gross margin is your revenue minus your direct job costs divided by revenue

See also our guide on Restoration Company Financial Benchmarks and KPIs.

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direct job costs include labor materials equipment depreciation subcontractors

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and disposal fees. Industry ballpark, in my experience for restoration, is a healthy gross

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margin somewhere between 40% and 55%. If you're below 40%, you're either underpricing, overspending

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on labor, or both. Most new operators don't track this by job. They look at the total at the end of

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the month and wonder where the money went. Track gross margin per job every single job. That's how

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you find out which job types are making you money and which ones are eating you alive.

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gross margin only accounts for your direct costs net profit margin accounts for absolutely

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everything else that includes overhead insurance marketing and admin it also includes your own

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salary as an owner a well-run restoration company targets 10 net the upper range of that ballpark

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is 20 hitting 20 means your business is performing well falling below 10 signal something structurally

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wrong. Falling below 5% is a serious warning sign. You would be working extremely hard for

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very little safety. New owners often see gross margin and feel reassured. Then overhead quietly

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eats through all of that comfort. Map out every overhead cost before taking your first job.

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Know the exact dollar amount you must earn monthly. That figure is the revenue needed

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just to break even. Your break-even number is one of the most important figures you will ever

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calculate. Equipment is one of the biggest capital expenditures in restoration. Desiccant

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dehumidifiers, air movers, negative air machines, thermal imaging cameras, moisture meters. The

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mistake is financing too much of it on high interest terms before revenue is consistent.

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Your equipment payment is fixed. Your revenue in year one is not. If you finance $80,000 in

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equipment at a high rate on a short term, you may have a payment that exceeds your gross profit on

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the jobs that equipment is producing. The math can go sideways fast. In my experience, the benchmark

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to watch is keeping your total equipment debt service below 15% of your projected monthly

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revenue. If you're above that, you're over leveraged on hard assets and you're going to feel it the

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first slow month. Let me walk through a simplified example so these numbers feel real. Say you launch

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and your first year revenue is $400,000. At a 45% gross margin, your gross profit is $180,000.

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Now your overhead, let's say you're running lean, one office admin, insurance at roughly $12,000 a year, marketing at $2,000 a month, equipment payments at $3,000 a month, vehicle costs at $1,500 a month, and your own salary at $72,000 a year.

For the bigger picture, see our restoration company SEO guide.

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That overhead stack is roughly $162,000.

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Your net is about $18,000 on $400,000 in revenue.

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That's 4.5%.

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You are not in trouble, but you are not building wealth either.

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now add a 60-day DSO and realize that in month three you still haven't collected

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on month ones work that's where operators start using credit cards to

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make payroll that's where the spiral starts let me be direct about day sales

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outstanding because it is the single biggest hidden killer in year one if you

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do a hundred thousand dollars in revenue in January and your DSO is 60 days you

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won't collect that money until late March but you paid your labor in January

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you paid for materials in January, you paid your overhead in January and February,

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you are funding 60 to 90 days of operations out of your own pocket before the insurance company

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writes the check. This is why the searches around why restoration companies need working capital

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are so common. It's not a mystery, it's math. Your working capital line needs to cover at minimum

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two months of operating expenses. In my experience, three months is safer. Insurance companies push

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push back on invoices, adjusters, low-ball line items, supplements get delayed or partially denied,

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new operators often budget their revenue at the full invoice amount, then they collect 83 cents

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on the dollar after a supplement dispute, and they never adjusted their cash flow forecast.

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In my experience, plan for a collection rate somewhere between 85 and 93 percent of your

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invoiced amount on insurance work. Budget conservatively. If you collect more, great.

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great. If you don't, you're not surprised. Referrals feel free. They're not. A referral

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from a plumber, a realtor, or a property manager has an implicit cost attached to it. Dinners,

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gifts, relationships, time. More importantly, referrals don't scale predictably. The operators

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searching for increasing restoration company sales are usually sitting at a revenue ceiling

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because they're entirely dependent on a referral network that won't grow past a certain point.

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organic search Google business profile and targeted local SEO are how you build

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a lead source that compounds budget for marketing as a line item from day one

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industry ballpark is somewhere between 5 and 10 percent of revenue if you're at

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zero that's a mistake with a long delay before you feel it here are the numbers

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you should be reviewing every single week day sales outstanding gross margin

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by job type breakeven revenue for the month working capital balance equipment

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Equipment debt service as a percent of revenue.

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Collection rate versus invoiced.

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These six numbers will tell you whether your business is healthy or bleeding before the bleeding gets serious.

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Most new operators look at their bank balance.

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That's the last thing to change and the last thing to trust.

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If you're serious about building a restoration company that lasts, you need two things working together.

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A clean financial operating system and a consistent lead flow.

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because a company with tight KPIs and no leads is just going broke more slowly we

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put together a resource specifically for restoration operators that covers

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financial benchmarks KPI targets and what the number should look like at

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different stages of growth you can find it at the link below this video and if

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you want us to look at your specific situation specifically how you're

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showing up online and whether your SEO is actually driving calls go to SEO dot

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www.pushleads.com slash audit or call 828-348-7686.

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Free visibility teardown will tell you exactly what we see.