Cash is king when running any business. Here are 5 tips to help manage your cashflows when running a tradie business:
1. Manage your debt
Debt is a fact of life for many businesses and very few are running debt-free. If the cost of the money you borrow is lower than the return generated by putting that money to work, it makes sense to borrow.
It also makes sense to keep an eye on your borrowing costs. Particularly variable rate loans, which can change due to any number of reasons, some of which might only be in the small print of the loan contract.
Assess your debts on a regular basis. Look at repayment costs, see whether your circumstances have changed, and decide whether you need to reduce – or increase – your debt funding. And don't forget to shop around. Shifting your debts to a different lender can sometimes save you a lot of money.
2. Chase the money you're owed
Understand the importance of collecting money on time so that you don’t leave cash on the table. Clearly display your invoice payment terms and the payment due date on every invoice. Keep a close eye on late payers, and be persistent with your follow-ups until the cash hits the bank.
Unfortunately, the construction industry has the highest rate of insolvencies in comparison to any other industry so be vigilint.Those who shout the loudest get heard first when it comes to payment.
3. Separate Personal and Professional Finances
It's important to keep a close eye on your business expenditure and keep your personal and professional finances separate: use a separate credit card and bank account for business-related expenses. That makes it much easier to keep track of your company's costs and also identify business tax write-offs.
Items such as rent can be tax deductible if your business has a "home office". Costs are apportioned based on the square metres of your home and a good accountant will help you calculate and deduct the costs accordingly.
4. Beware when bidding for big contracts
If you're given the opportunity to bid for a big new contract, stop and ask yourself some questions before you bid. Do I have the staff? Can I service my other contracts at the same time? Can I afford to buy the materials associatied with the job? Can I manage the extended payment terms of the bigger contractor? If yes, go for it, but if weary, don’t take the risk.
5. Have 3 – 6 Months Cash on Hand
Easier said than done, but where possible you should have enough cash on hand to last you approximately three to six months. That way, if you have a rough month or two it shouldn't have a major impact on your business.
Finding work and hiring contractors on ConX has never been more transparent. You can check how other contractors have rated guys based on “Speed of Payment”, so you can avoid those nasty late payers that will put your business in difficulty. Join the network for free today.