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ProStar Cleaning and Restoration Inc. has grown from a maid service and cleaning operation, when company president Jodi Scarlett took over in 2002, into a midsize business with $10-million in annual revenue and nearly 70 employees. (Laura Leyshon/The Globe and Mail)
ProStar Cleaning and Restoration Inc. has grown from a maid service and cleaning operation, when company president Jodi Scarlett took over in 2002, into a midsize business with $10-million in annual revenue and nearly 70 employees. (Laura Leyshon/The Globe and Mail)

THE CHALLENGE REVISITED

Surprising victim of major disasters: the cleanup companies Add to ...

Sometimes you come across an industry where the business is straightforward but the financial side almost defies logic.

Calgary-based ProStar Cleaning and Restoration Inc. does emergency property repair and building cleanup, particularly of condominiums. Think floods, fires, major mould damage and sewer backups – that’s ProStar’s bread and butter.

The company has grown from a maid service and cleaning operation, when company president Jodi Scarlett took over in 2002, into a midsize business that’s now more akin to a specialized construction company, with $10-million in annual revenue and nearly 70 employees.

“We’re just cleaning bigger things all the time,” Ms. Scarlett said.

Yet as the company continues to grow, it’s being hindered by a quirk of the property-damage industry, namely, who is the actual customer? Is it the insurance company? Is it the insurance adjuster? Is it the condo board that owns the insurance policy? Or is it the condo owner or the tenant who lives in the home?

It’s a question that makes securing payment difficult.

“The customer relationship is much more complicated. We have many stakeholders, many masters on a single job,” Ms. Scarlett said.

When ProStar was profiled in The Globe and Mail’s Small Business Challenge feature in August of 2015, the company was facing grindingly slow payment cycles.

It turns out the problem has worsened. It simply takes too long to collect payments from insurance companies, especially now that condo properties are typically insured by a group of insurers, known as a subscription policy model, Ms. Scarlett said. “Six or seven insurers all take a piece of the liability or risk for the building.”

This helps to keep insurance costs reasonable, but it means that ProStar has to wait for multiple cheques.

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In an emergency-damage situation, ProStar must of course respond immediately. That costs the company money. Yet payments from six or seven insurers often don’t come until, on average, 105 to 110 days later, Ms. Scarlett said. Two years ago, it was 93 days. Two years before that, it was 57 days.

ProStar has continued to grow, yet cash flow has been restricted, Ms. Scarlett said. “The payment times just went haywire because it has to go through not one set of administration, but seven sets of administration,” she said.

Ninety-five per cent of the company’s revenue comes from major cleanups. Some of the emergencies have been almost biblical in size, such as the 2013 Calgary floods and the 2016 Fort McMurray wildfires. ProStar worked on the Fort McMurray cleanup for six weeks and earned approximately $2-million in revenue. Around 80 per cent of ProStar’s total business comes from work involving insurance claims.

But floods and wildfires don’t provide windfalls. For instance, the year before the floods, ProStar did $6-million in business. The year of the floods brought $8-million, and the year after was $7-million.

“It expanded our growth, but we were certainly on a growth trajectory anyway,” Ms. Scarlett said.

The advice given by business experts in the earlier Challenge feature was helpful but touched on things the company was doing anyway, she said, such as stretching out the length of time for accounts receivable and diversifying the business.

Where she sees a solution to the billing problem is with the insurance adjusting firms that handle claims. She would like them to be more involved in the collection of insurance payments.

“I would like to see them get into the business of running trust accounting on claims. That’s my big suggestion. That way they could pull the money in from the insurance early in the claims process, and then it would be accessible and available,” Ms. Scarlett said.

By law, a cleanup or construction company can’t do this function, she said. “The money flows from the insurance company to the independent adjusting firm, who then reconciles it and forwards it to the condo company, and the condo company has to pay us,” she said.

“This is my big pitch. This is asking the moon. But I think it’s a revenue opportunity for the big IA [insurance adjustment] firms to handle trust accounting,” she said.

With money funnelling through so many channels, it goes back to the question of who the actual customer is. “The condo unit owner likes to think they are the customer. But it’s actually the [condo property] board that owns the common property of the building,” she said. And it makes billing all the more complicated.

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