The Importance of Financial Literacy When Running a Cleaning Business
Financial literacy sounds like a matter for bankers or administration students to engross themselves in, but it’s also dreadfully important to a successful cleaning business. You are providing an essential service that heavily depends on your own physical labour (or that of your employees). It’s critical that you are able to ensure fair compensation and protect your assets. Here are three key ways financial literacy helps with that.
It helps you set your prices properly
Perhaps the very first financial decision you will have to make is how much to charge for your cleaning service. You need to consider several factors in making this decision, such as:
- Cost of tools and equipment
- Cost of materials and supplies
- Time investment
- Area of service
- Cost of travel
- Residential income bracket
Keep in mind that there will be many expenses cutting into your base earning, such as administration, taxes, any necessary licences, rent and/ or upkeep of your business space, etc. You
want to set your prices low enough to attract and keep a steady stream of customers, but also high enough to cover everything you need to cover and turn a sensible profit.
Financial literacy empowers you to navigate all these calculations and account for any unforeseen factors as well. When you’re educated in your local market rates, competition trends, expenses of living, tax legislature, etc. you can set a balanced price right away. You avoid working for underpayment over a long period and start turning profit much sooner.
It protects you from junk insurance
Any new business will want to look into insurance policies. You need to protect your equipment, space, employees, and yourself from damage, injury, etc. However, many insurance providers take advantage of the lacking financial literacy of the populace to push junk policies.
Junk insurance refers to various additional clauses and “just in case” scenarios that you’re spooked into buying, but which will never really come to pass. They come wrapped in legalese that sounds reasonable, but is fundamentally empty.
With your personal financial literacy up to par, you can detect these fiscal traps in time. You can also learn how to find unclaimed money that might have escaped your notice. This way, whether you’re signing with a new insurance provider or revising your contract with your currently chosen financial institution, you can protect your business from unnecessary expenses and maybe even reclaim some of your funds.
It informs your long term business plan
Any good business plan will take long term finances into account, you need to project your target earnings and expected losses, as well as leave space for any unforeseen circumstances. Financial literacy factors into this in terms of your current rates and their long term results.
If your prices at the moment aren’t sufficient to reach your goals, that means your fiscal strategy is hurting you instead of benefiting you. In a worst-case scenario you may not even be able to keep your cleaning business afloat. Cheap rates almighty attract customers, but there’s no point if your cleaning service won’t survive long enough to keep them and thrive.
Educate yourself on the following financial aspects of a business plan:
- The cost of individual jobs
- Supply purchase to usage ratio
- Costs of travel
- Costs of transportation maintenance
Add all those to the profit you need to stay afloat, and then add the profit you wish to make for a gain. Depending on what your competitors are doing, you may have to adjust that number to some extent. Still, it will give you a good basis for your business plan and how to go about achieving your fiscal goals.
In addition to these three essential business aspects, financial literacy plays a role in negotiations and record keeping. Some clients may want to discuss shifting prices and striking bargains. If you deal with third-party partners, such as suppliers, you will need to negotiate with them as well. Being financially literate ensures that you can keep your ground and not get cheated out of profit.
