"*" indicates required fields
"*" indicates required fields
"*" indicates required fields
It’s a familiar story and it goes like this: A few people haven’t paid you or you’ve had a couple of slow months. Your bank account is looking empty and you still need to pay staff and suppliers. Things are getting stressful; the heat is starting to rise and the business is feeling a little […]
It’s a familiar story and it goes like this:A few people haven’t paid you or you’ve had a couple of slow months. Your bank account is looking empty and you still need to pay staff and suppliers. Things are getting stressful; the heat is starting to rise and the business is feeling a little out of control. It’s bothering you to the point you’re waking up in the middle of the night with your mind racing. Worried if there will be enough money to pay everyone this week. Then you have trouble getting back to sleep again — now you’re tired — it’s going to be a long day. Thing is, every tradie business goes through cashflow problems at some point. It’s part of being in business. But if the situation keeps coming up often, then it’s a sure sign cashflow management is a weakness in your business that needs fixing. Having coached a lot of trades businesses with cashflow problems, I see many of them making the same mistakes. These top seven mistakes are the ones which cause the most damage and stress. Not necessarily in this order.
Letting clients pay you when they want, instead of when they should Giving too much credit for too long can be dangerous and is one of the biggest downfalls for trades. Many have gone broke because their biggest client didn’t pay them. Or at the very least, have been sweating it out with strangled cashflow at the end of the month looking for enough to pay bills and the bank, while waiting for overdue amounts to come in. How much have you lost in money and time through late payers and bad debts? The fix is to set expectations right up front with clients, have strict credit terms, take deposits at the beginning of jobs, progress payments on big jobs, and be prepared to stop work if the account is not paid on time. Only when you are paid can you say the money is yours.
Not billing everything out on time, or at all Often, especially on complex jobs, bills are sent out months later. Or some details are forgotten, so not everything is billed. Or worse, the job is not billed out at all. Make sure you have a good system for your team to record all details including extras (materials and labour) on the job. Then make sure you invoice everything on completion. Pay special attention to cashflow when your trade business is growing. If you aren’t getting paid all you’re due, you are going to feel the squeeze. And it’s not going to be pleasant.
Not allowing enough margin in your jobs It doesn’t matter how big your jobs or sales are – if you’re not making enough money to cover all your costs, overheads and profit on top, you won’t ever have the cashflow you need. This is all about quoting the job with good margins at the start. And then controlling it. So there is healthy profit at the end of each job.
Not understanding what is yours I call this your cash position which is simply what you would have left if all your receivables were collected and all suppliers, wages, credit cards, bank, and taxes were paid. Is there some money left? Or will you have to chip in the difference from your back pocket? Unless you have a positive cash position (money after everyone is paid), you won’t have good cashflow. It’s math. Also, you want to be improving this figure over time, so check this calculation at the end of every month to make sure you’re on the right side of things.
Surprise tax bills you didn’t see coming Unexpected tax bills (due now) will kill cashflow dead, believe me! Make sure you keep in touch with your accountant and know what is due and when. Then put the money aside in a separate account early so it’s there when you need it. Remember it’s not your money. So if you spend it, you’ll have problems with
the IRD. You have to pay it all back and that’s stressful. If you are caught short? Don’t bury your head in the sand. Phone the IRD and make an arrangement. If you don’t, the penalties and interest charges are brutal. Yes, I have seen some businesses who left it too long. The extra costs were almost as much as the original amount!
No cash buffer Construction is cyclical. In other words, it has highs and lows. In the good times, it’s important to be putting cash away for when times are not so good. If you have been around a while you’ll have already been through this cycle a number of times. It’s all part of the fun. Have enough in the bank to cover your overheads for a few months if things get tight. But the bigger buffer you can accumulate, the better.
No planning Many tradies wing cashflow and it gets them into trouble. Completing a budget and cashflow to know what money you need to pay to who and when is essential to running a good business. It’s an easy template which I give all my clients. It only takes 15 minutes. Think of it like this. If you are in the middle of the road and a bus is about to hit you and you only have one second to react, this means you have big problems. But what if you have a whole 10 seconds? Way more options – you can wave it down, move to the side, or simply get the heck out of the way. Same with cashflow in your business. If you have time and you can see what’s going to happen, you have a greater level of control of the situation. Poor cashflow is actually the main reason businesses fail. So be proactive.
If you need a hand with your business and cashflow, book a time with me and let’s chat about how I can help. http://nextleveltradie.youcanbook.me/.
Daniel Fitzpatrick
Next Level Tradie
www.nextleveltradie.co.nz
You must be logged in to post a comment.
