Cash Flow Management Tips For Tradies

Management of cash flow is vital for everyone who runs a business, but it may be especially challenging for tradies because they frequently have to wait weeks or months between projects. The following are some suggestions that can assist you in maintaining control of your financial situation. First things first, compile and strictly adhere to a financial plan. Make sure that you take into account all of your costs, such as those for the supplies, the tools, the advertising, and the transportation.

Second, check to see that you are charging an appropriate amount for your services. Do not be hesitant to request additional compensation if you believe that the value of your job justifies it. Last but not least, you should meticulously keep track of both your revenue and your expenses in order to locate any potential sources of cost reduction.

Cash flow is one of the most essential components of every successful enterprise, and the construction industry is no exception. It may be challenging to maintain the health of your company if it does not receive a regular flow of incoming income. The proper management of cash flow can be made easier with the following suggestions.

First things first, check that you have a solid understanding of the state of your finances at the moment. Learn how much money is flowing into and leaving your business, and monitor this data over time to spot any patterns that may emerge. Because of this, you will be able to improve the decisions that you make regarding the distribution of your resources.

There is no denying the fact that working in the trades may be an arduous occupation at times. In addition to balancing the many responsibilities that come with your job, you also have to keep track of your money and ensure that you are being compensated appropriately for your work. Continue reading this article if you want some advice on how to properly manage the cash flow in your business. You're going to love the guidance that we have for you!

Cash Flow Management Tips for Tradies

If you’re looking to increase cash flow within your trade business, there are a few key tips to be aware of. These tips will allow you to increase revenue for your business and ensure you always have enough cash on hand at all times.

Common problems like delayed payments and improper accounting can be fatal for a construction business. So, to make sure you avoid either of these perils and more, check out our top cashflow management tips below!

Request A Deposit

One of the easiest ways to increase cash flow is to request a deposit from your clients before the work begins. This will ensure that they pay a portion of the bill beforehand, freeing up some cash for you to use elsewhere in your business. This also minimizes the damage that can result from clients not paying the rest of the invoice on time, as some cashflow is always better than none at all!

Manage Your Accounts Effectively

Inefficient accounts management is a sure-fire way to limit your business’ cash flow and its growth. Make sure you send out invoices immediately and ensure you follow up on them to make sure they’re paid on time. You can even set up automatic reminders, or issue progress invoices. Ensuring you get paid on time will go a long way towards increasing cashflow.

Review Your Pricing

One of the ways you may be limiting your cash flow is through your pricing. If your clients aren’t paying you on time, it could be that your prices are a little too high. So rather than simply lowering them and losing more money, you should check your supplier network, and see if you can’t get materials for cheaper prices, allowing you to lower your prices without losing out on any income.

Negotiate Better Payment Terms

A great way to increase revenue is to speak to your clients and try to negotiate shorter payment terms. While most building companies work around a 30-day payment term, if you can cut this down you will be able to get your money sooner, at no extra cost to your customers. Getting paid faster will increase cash flow, but you can also try to negotiate longer terms with your suppliers. Being able to bring money in sooner while sending money out later is a great step towards increasing cashflow.

Negotiate With The ATO

Negotiating with the Australian Taxation Office (ATO) is the final way to increase cash flow within your trade business. Try to negotiate flexible payment terms on all of your tax obligations. If you can pay your taxes later (or if you can pay less tax altogether!) you’ll be able to once again increase your cash flow while slowing down the rate at which money flows out of your business. If you don’t want to deal with this yourself, or if you simply don’t have the time, building a strong accounting team is a great way to take advantage of any potential tax benefits.

Cash Flow Management Tips for Tradies

When you set out to learn a trade and start your own business, the satisfaction of working with your hands and building great relationships with your clients probably sounded like a dream. You might not have anticipated unexpected challenges associated with running a small business. 

Many small business owners admit that they regularly struggle with cash flow issues. However, it’s not an unsolvable issue. Want to learn how to best manage the financial aspects of your business? Keep reading for some handy tips.

Request a Deposit

Requesting an up-front deposit is common practice for many tradesmen, and for good reason: if you allow clients to delay paying your fees, they will, and half-done jobs don’t pay the bills.

Getting a deposit upfront protects you from spending money on equipment or materials before you know that your client is serious. Once people have placed a deposit, it’s in their best interest to see it through. This reliability allows you to be confident that there will be a profit at the end of the job.

Choose your Equipment Wisely 

It may be a cliche, but a bad workman really does blame his tools. If you know you need particular tools or equipment in order to produce the quality of work, your clients expect, investing in anything else will be setting yourself up for failure. Plus, high-quality tools generally come with extended warranties, which is great for your peace of mind.

On the other hand, if you find that you’re spending too much on tools, you have two options: investigate similar options with lower prices, or raise your prices to cover your costs.

You’ll find that even the most budget-conscious customer is keen to make sure the job is done properly and will be willing to pay a fair price for work that lasts.

Create a Reliable System 

There’s no such thing as total stability in business, a steadfast system can change the whole game.

If you ask Sue Hirst from CFO On Call, the organisation is the key to just about every element of your success, from arranging supply deliveries to organising quotes and anticipating payments.

“Have a system so that you know your materials, overheads and labour for each job. This will help you determine the profit you will make when doing the quote,” Sue says.

“At a minimum, you need a cash flow spreadsheet, but if you want something more user-friendly and convenient, invest in cash flow software.”

Any business owner will agree that learning to manage business finances is a process, but it doesn’t have to be painful – in fact, it can be surprisingly profitable.

Get Invoice Intelligent

When the time comes to send an invoice and actually get paid, you would think most business owners would be stoked – but if you have been in business for a while, you will know something amateurs don’t. Sending, checking, and chasing after invoices can create the kind of headache that no hard hat can prevent.

Try creating a regular schedule for sending your invoices. For example, you might declare the last day of each month to be invoice day, and stick to it.

Consider changing your invoice payment terms. If you want to even out your cash flow and keep your bank balance above zero, a new fortnightly schedule might be in order.

Incentivise Early Payments 

So you changed your payment terms and you’re still waiting on overdue invoice payments from last month?

Think back to all the times you’ve received a bill for your car registration or your insurance. Often, there will be an amount listed for people who pay on time and another (larger) amount for people who pay late. The idea of paying extra is usually enough to get most people over the line on time, and your customers are no different.

Once you start offering a “discount” for early payments (or raising the prices for late payments), you might be surprised at how many people begin to pay on time.

Sort Your Workflow 

A business budget that works is a great thing, but it won’t do you much good without a thorough understanding of your workflow. Whether you’re operating solo or employing a team of contractors, everything you do should be geared towards managing your workflow.

The bottom line is, you need to know how much work you have coming up. This will allow you to plan ahead, and reduce stress.

Spread Out Costs 

The secrets to building wealth and managing spending for positive cash flow are one and the same: it’s all about diversification.

Buying business supplies with cash might seem like a good idea because you’re avoiding interest charges – and it is, at least until you find yourself in need of a cash injection to cover  unanticipated costs.

The solution? Don’t be afraid to take out loans or use credit to finance your everyday equipment purchases, and save your cash for when you really need it.

In most cases, the difference between successful and unsuccessful cash flow management for tradies comes down to what and who you know. With the right people in your network and a few basic tools for understanding the numbers, it won’t be long before you’ve got cash flow under control.

The Tradie’s Guide to Accounting and Cash Flow Management

It is critical for the typical owner of a trade business to acquire knowledge of the fundamentals of accounting for small businesses. Not only does it keep you grounded in the health and profitability of your firm, but it also goes a long way towards ensuring that your business is in compliance with all of the applicable tax laws.

Similarly, having a comprehensive understanding of the financial facts of your company leads to much more informed decision-making. When you start to recognise the trends and patterns in both your income and your expenditures, you'll realise that you have a far better ability to make accurate predictions, preparations, and plans.

Through astute forecasting, the owner of a knowledgeable tradie business can anticipate peaks and dips in activity, and strategies such as cash flow analysis can assist in identifying areas that can benefit from improvement and optimisation. This tutorial was put together with the intention of assisting you in becoming an accounting and cash flow expert for small businesses. When it comes to the management of your tradie firm, it should serve as a comprehensive instructional and reference resource for you. Of course, it can't replace taking classes in accounting.

Capital Expenses

Capital costs are defined by the Australian Taxation Office as "assets that have a longer life."

A good rule of thumb to follow is to consider a purchase to be a capital expense if the advantages to your company from making the acquisition will accrue over a long period of time.

Some examples of this would be your vehicles, your equipment, and the costs associated with establishing (but not maintaining!) a website.

You are probably aware that the majority of the costs that your company sustains over the course of an accounting period are eligible to be deducted from the taxes that they owe. When it comes to the time of year when taxes are due and you have the option to keep more of the money you've worked so hard for, this notion of accounting for small businesses is essential.

When you are making purchases for your company, it is to your advantage if you are able to differentiate between expenses that are capital in nature and those that are operational in nature. Your spending decisions can and should take into account the potential tax effects, thus it is important to be conversant with the notion.

Becoming familiar with the kinds of things and costs that can be classified as belonging to either the operating or the capital expense categories will help you hone your ability to distinguish between the two types of expenditures.

Once you have a solid understanding of what belongs to whatever category, you can utilise this information to plan your purchases and create accurate projections for your future cash flow.

It is not always easy to tell the difference between operational expenses and capital expenses, which is a topic that will be covered in the following section. There are manuals that explain the distinction that may be found on the internet; but, as a general rule, it is advisable to trust your accountant when the classification isn't clear.

Operating Expenses

Operating expenses are defined by the Australian Taxation Office as "the expenses you incur in the day-to-day functioning of your business."

To put it more simply, these are the expenses that are documented in small business accounting and that are made in order to keep your firm productive and operational, without adding anything new to how your business is set up.

A good example of an operating expense would be the cost of buying fuel for a company that has a fleet of trucks. On the other hand, the acquisition of a trucking fleet would be considered a form of capital expenditure.

Other typical examples of running expenses include the payment of rent for office space, the costs of marketing, the purchase of stationery, payroll, and legal bills.

When it comes time to file your taxes, you have the option of deducting both your capital expenses and your operating expenses from the amount of income tax that is owed to the state. If you are aware of the difference, you will be able to perform accurate calculations (or validate the figures produced by your accountant) and save money in the appropriate manner.

Operating expenses, much like capital expenses, are a consideration in your planning, and it is advisable to employ operating expenses when you have gained some experience differentiating between the two categories. In the same vein as with capital expenses, it is recommended that you put your faith in the conclusion reached by an experienced accountant.

Revenue, Profit, And Costs

A company's total revenue for a specific time period is the sum of all of the money produced through the sale of goods and services. Your company's revenue can be calculated by tallying up all of the cash that has been brought into operation as a direct result of the sales that have been made.

The monetary cost of producing the goods and services that are a part of your trade is referred to as costs. Costs are exactly what their name implies. It's possible that they'll include things like the price of raw goods, hourly labour, or even rent.

Last but not least, a profit, also known as a net income, is the amount of money that is retained after deducting all of the essential costs associated with running a business, including the cost of providing goods and services, other operating costs, and debt payment obligations.

If a company had a revenue of AUD 280,000 in a given year and AUD 200,000 in expenses during that time, then the following would be true:

Revenue = AUD $280,000

Expenses amount to AU$200,000.

Earnings are equal to [AUD 280,000] minus [AUD 200,000]. approximately AUD $80,000

The distinction between revenue and profit is easy to understand, and it is highly likely that you are already aware that the sum of your company's expenses is equal to the amount of money it earns. It is important to keep in mind, however, that each of these indicators is helpful in its own right.

The ability of your company to attract new clients and consumers is directly correlated to the amount of money it generates. The fact that your revenue is low is an indication that you most likely have troubles with your cash flow. This indicates that it is time to step up your marketing efforts, try out some different pricing strategies, or expand your consumer base in some other way.

In spite of what some people may believe, one of your primary responsibilities as the owner of a tradie firm is not to cut your expenses to the absolute minimum feasible. After all, you owe it to your employees to pay them wages that are competitive in the market, and you owe it to your customers to use high-quality equipment and supplies.

Instead, you should take a more granular approach and determine which areas of your expenditures could be minimised without negatively impacting the quality of the services you provide or the wellbeing of your staff.

From the point of view of accounting for small businesses, your company's profit or net income can be viewed as a statistic that can provide insight into the state of the business as a whole. Your hardware store is probably doing well if it shows signs of expansion over time. Consider the fact that it is moving in the direction of a declining trend to be an indication that your company might use some improvements.