Biznostics' Business Empowerment Series | Part 2 - Improving cashflow
Cashflow is the lifeblood of your business. Your business needs cashflow to survive as it is with cash that you will pay suppliers, pay your employees and pay yourself.
Your job is to make sure your business always runs at a positive cashflow. To help you, here are 5 common mistakes that could be costing you cash, and what to do about them.
1) Running your business from your bank account
Too many electricians run their business from their bank account. If money is there they will spend it, and if there is none they won’t. The problem with this is that you can spend money that is needed down the track e.g. to pay a materials bill at the end of the month or a tax bill at the end of the quarter.
Start by learning how to read financial reports to give you an understanding of what money you are making and what you can afford to spend. Start making decisions on the facts rather than how you feel.
2) Not collecting money off people who owe you
Many electricians don’t prioritise collecting outstanding debts until they need the money. The problem is that the longer you leave it to collect any money owed to you, the less likely it is that you will be paid. In a worst case scenario, your customer goes under and you never get paid.
Remember the squeaky wheel gets the oil, so make sure you are on top of any money owed to you. After all, you've done the work, so you deserve to be paid. You were never designed to be a bank for your customers.
Start by putting some time aside each week to review who owes you money and make sure you follow up any amounts owed. When you do, be firm and fair and you’ll start to see more money in your bank account instead of your customers'.
3) Not setting aside money for tax
Have you every been caught out with a big BAS or tax bill that really puts pressure on your cashflow? This catches a lot of businesses out because your customers have paid you the GST on your invoices and you end up spending it instead of setting it aside for tax.
A simple way to deal with this is to set up a ‘tax account’ – a bank account you use to put aside money each week or month for GST, PAYG and any other tax. By putting the money aside as you go, you will be sure to have enough to pay for your tax obligations when they are due.
4) Not planning the cash needed for big jobs
Big is not always better. Most bigger jobs require a greater investment upfront. This can put pressure on your cashflow. If you get paid long after a job is complete and have already paid for materials and wages over the course of the job, then this can cause a ‘cash gap’ which you’ll need to cover. This can put enormous pressure on your cashflow.
Try and match payments from your customers with your outflows as best you can (or better still, get cash from your customer before you have to pay it out). You can do this by asking for upfront deposits or progress payments over the job so that you are not carrying the full cash burden.
5) Not invoicing regularly
The sooner you invoice, the sooner you’ll get paid. When you invoice late, your customer is still going to take the 14 days, 30 days or 60 days they would to pay you, so invoicing sooner improves your chances of being paid sooner.
Make it easier on yourself by having a great system, which will make invoicing easier to do. Consider using technology to help you out as there are a number of great apps and software that make it simple for you to input the information at point of enquiry which can then be turned into an invoice at the point of completion or delivery.
Also set aside dedicated time to invoice (each day or a certain day of the week) and make this time not negotiable. Remember - good cashflow comes from regular invoicing and this is good for your business.
By avoiding these 5 mistakes you’ll start to free up more cashflow and have better peace of mind when it comes to managing your cashflow.
Do you have people who owe you money? Members can access a Free Cash Collection Tool Kit from Biznostics that gives you 5 simple steps to make cash collection easier. You can access your free tool kit here.