Tradies are an essential element to our lives as we know it. Highly skilled, they have spent a lot of time and energy building up their skills and technical knowledge.
Not all tradies have their eyes on starting up their own show, many are happy doing their trade, learning and making some friends along the way. For others, their long term goal was to do things their own way and be their own boss.
What many people (not just tradies) don’t realise, is that business isn’t just always about doing the job. There is a whole new side administratively that needs to be taken care of. Unfortunately, doing an apprenticeship gives you very little experience on this side of things, so for those tradies that do venture out on their own, without the right practices and support around them, they find themselves in a vicious cycle of never having enough time.
In addition to actually doing the job, owning a business means that you have to start wearing many hats. You have to look after your customers, pay your creditors, find new work opportunities, build relationships with suppliers, manage your time, keep on top of education and regulations and you have to do all this while keeping yourself sane and making sure that all your efforts result in the cash coming in steadily.
… but that won’t happen to me, right?
Many businesses fail within the first few years and often leave large gaping amounts of debt that the business owner (and family) have to deal with. The ramifications of this can last for many years. Of these failures, studies suggest that almost 50% of the failures are a result of inadequate cash flow!
Things happen, you can’t predict everything, but you can take steps to avoid or minimise the impact of many of the ‘risks’ of being your own boss. It’s a hard slog and can take years to build , but it will never be effortless. Slacking off on managing your cash flow for a prolonged period of time can land you or your business in debt, it can stress you out, suck your passion away from you and even force you to abandon your dream of dominating and being your own boss.
It CAN happen to you - so, let’s focus on some things you can do, right now, to make a positive impact on your cash flow.
Invoice Your Customers
No brainer, right? You want to get paid, so of course you will invoice your customers. The truth is, many tradies are so busy doing the work that their customers want done, that actually sending your customers the bill gets pushed further and further away.
TOP TIPS:
If you aren’t already, get yourself on the cloud. Even if you aren’t using a dedicated CRM yet, or if you’re solo, a good cloud package like Xero (+/- CRM Add-ons) will allow you to invoice as soon as jobs are completed. Remember, a prompt invoice = prompt payment. Set aside time to invoice. it could be as soon as the job is done, it could be while you’re sitting in the car before going to the next job, or it could be at the end of the day. Do what works for your business, but make sure you set aside the time.
Ditch the paper. Paper invoices get lost. Paper invoices create excuses for slow payers. Using the cloud means you can keep a paper trail. In Xero you can set automatic reminders for invoices that remain unpaid, keep track of at which stage of your collection process your debtors are and keep a record of phone and email communications. This is helpful if you have to send the delinquent account to a collection agency.
Take payment on the day. I usually suggest to tradies to set a magic number or a magic job. Depending on the status of your business, you might implement a rule where if your job is just a call-out then payment is on the day, or if the job is under $200 then payment on the day. Of course there is flexibility in creating your rules, it’s your business, but you deserve to be paid for the work that you do - don’t undervalue yourself!
Offer multiple payment options. Let’s be real. Cash is not our preferred payment method these days. From a management perspective, cash is harder to trace. For tradies, I usually recommend a transfer option (with fast payments now in action, many will see their payments straight away) as well as the ability to pay with a card (bonus: many of these will connect with your cloud based system, further reducing your admin time - win!).
When Your Customers Don’t Pay
Even if you take many payments on the day the job is done and you invoice promptly, there may be the odd customer who is slow to pay or flat out doesn’t pay at all. After your customer has received their invoice plus their reminders, you then have a choice to make: Write it off or pursue it.
TOP TIPS:
Write yourself a policy check list for managing your debtors.
Research external debt collection companies and their prices and link in with one that you can use when you need to. Ensure that your terms and conditions include a clause ensuring that the customer pays the collection costs if their account goes that far.
Write off invoices only where it is absolutely necessary, as a last resort. Don’t put it in the too hard basket.
Price Yourself Correctly
Don’t undervalue your efforts and your skill. Setting your prices too low can often drive business away or attract the customers who don’t value the work. On top of that, make sure that your margins are sufficient to run your business and pay the bills. Undercutting just to get a job will more often than not cause you more headaches and results in little to no gain for you.
TOP TIPS:
Talk to your bookkeeper or business advisor about pricing your business properly.
Get training about submitting tenders or quoting if you need to. Don’t just wing it.
Doing Too Much Too Quick
Keep your overheads as reasonable as possible for as long as possible. Don’t take on too much structure at one time. Markets run on a rise and fall schedule. Know your business intimately and what you can cut when you need to if the market shifts and things slump.
Credit Terms
Offering generous credit terms is great for your customers but can impact your cash flow in a negative way, especially if they ultimately don’t pay or they pay late. Accepting great credit terms from suppliers is great for your immediate cash flow, but then what happens at the end of the month when you have a huge bill and no money to pay it?
TOP TIPS:
Don’t bite off more than you can chew. Avoid buying more supplies than you can afford. You don’t want to be late in paying your suppliers.
Try to pay at least the majority of your supplier bills well before the due date.
Where you offer generous credit terms, keep a close eye on them and their payment habits. It might be all good when the bills are low but as the relationship grows and the bills get larger, are they managing these terms?
Look at the health of your business, can you afford to offer extended credit terms?
Get Your Basics Sorted
It’s cliche, but so many business owners don’t value the role of a basic business foundation. Many of these supports can be outsourced and you can call on the support when you need it.
TOP TIPS:
Surround yourself with good support: Interview a good bookkeeper who understands trades as well as an accountant.
Ask your bookkeeper to give you some training in the basic bookkeeping principles - you need to know what is going on in your business, not just take some else’s word for it!
Write all of your plans, policies and procedures down - need help? again, there is someone who can help with that.
These are just a few of the reasons that your cash flow could be impacted and gives you a general idea of what to look out for. You should always seek advice on your business’ situation.
What to do Next
If you feel that your business would benefit from a look over or you want to chat about making sure your business has the right support behind it, why not book your free Zoom consultation with us. VV aims to combine general bookkeeping with advocacy and training to help you get the best results and link you in with supports so you can reach your goals.
Contact us online or give us a bell on (03) 9515 3690 if you would prefer book your complimentary zoom call over the phone.