Jane Betschel has some tips for tradies, to keep your money moving.
Inadequate cash flow is one of the major reasons construction companies fail. For smaller businesses or self-employed tradies, managing your finances can be challenging if it’s not in your natural skill set, but it’s vital for business success.
Poor cash flow has real implications for your business, including an inability to pay staff, provide services, order new materials or commit to new works. So how can you improve your own cash flow and stay afloat? Here are some tips to avoid a cash crisis and make your money work for you.
1. Understand the basics of cash flow
Cash flow tracks the money moving through your business, including where the money enters and exits. Cash flow indicates the relative health of your business, helping you identify operational challenges and areas for improvement. Cash flow is especially important to sole traders and small businesses, who often have minimal capital to fall back on when times get tough.
Business health and planning rely on having an accurate picture of your cash flow to tell you your liquid cash position (what assets are held in cash), how much money you will need to meet your GST obligations, and what amount of money you can expect to have owing or available at any point in time.
2. Create good money habits and processes
If you don’t invoice people, they can’t pay you. It’s as simple as that. Regularity is key in terms of both invoicing and payments. Bill your customers in a timely fashion to set their expectations. Working to shorter timelines with frequent billing also results in smaller invoices, making it easier for your customers. You might even like to incentive early payment (with discounts).
Technology can automate the invoicing process and it can also help you to avoid uncomfortable conversations around what you’re owed. Your cash flow depends on getting paid in a timely manner, so you can’t afford to be shy about asking for the money that’s due to you. An end-of-month statement summarising outstanding amounts is a good way to gently remind your customers of their obligations and automated processes reduce the claim on your time and take the emotion out of the request.
As a tradesperson, quoting is also essential for building a steady pipeline of work. As the saying goes 'When you need a customer, it’s too late to find one'. Estimating software can help facilitate professional quoting on jobs of all sizes. Creating a replicable process saves time and you’ll feel peace of mind knowing you have a number of irons in the fire.
3. Make informed decisions
A clear picture of where your business stands allows you to make better, more informed decisions to increase your likelihood of success. For example, oversight of finances helps you to identify and rehabilitate (or reject) repeat offenders who continually pay late. With this knowledge, you might decide to contract different payment terms for repeat late payers.
Accurate cash flow projections can also inform decisions around growth and recruitment, allowing you to forecast the amount of work in the pipeline against the cost of hiring a new team member. Can you cover obligations like super, work cover and payroll tax? A system that clearly tracks cash flow and gives you an ‘at a glance’ view will help you understand the true cost of an additional employee.
Part of making informed decisions is also knowing when to call in the experts. Outsourcing for expert advice can save you time and money in the long run. A trusted financial adviser can review your cash flow and help to identify areas of exposure and opportunity, also ensuring planning and cash flow align. If you have an online financial platform, your advisors will also be able to access the same information in real time - rather than having this critical information hiding away in a shoe box or filing cabinet.
4. Maximise efficiency through technology
Digital payments provide a range of benefits – from saving you time and money on manually processing payments, to increasing security of payments and reducing the human error involved. One of the biggest benefits to tradies in digitising your business is shortening the time between invoicing and getting paid.
Research shows Australian small businesses rank late payments and cash flow among the highest sources of business pressure – with 38 percent of business owners stressed by late payments and 43 percent citing cash flow as primary concerns. Electronic payments don’t just save you stress or time on paperwork: people who use online invoices get paid faster than traditional paper-based processes. Online invoicing also allows the details to be integrated directly into your accounting platform, eliminating further manual payment data entry and reconciliation.
Digital integrations can also save business owners time and reduce error. MYOB has partnerships with Bunnings, Reece and Officeworks, common suppliers to trades. Invoices from these providers can be automatically added into the software and assigned job numbers to ensure you won’t forget to charge a customer or track parts from a job again. Technology allows automation, taking the mental load off and giving you time back to focus on finishing jobs, creating new leads and growing the business.
Technology can give you better visibility over your cash flow, and tracking your finances digitally means the heavy financial lifting can occur in the background, allowing you to focus on the parts of your business where you add the most value. With the right advice, processes and technology, you can gain a better picture of your business health and keep your money working for you.
Jane Betschel is head of marketing and digital at MYOB.