Cash Flow Management Guide for Tradie Business Owners

Many small and medium-sized businesses suffer from cash flow issues, and tradie businesses are no exception.

A poor cash flow can mean you don’t have the funds in your bank account to pay wages and bills on time. It can affect your long-term business decision-making - you might not be able to invest in expansion or new equipment for example.

It’s important to realise that a positive cash flow and profit are not the same thing. You can have a healthy profit on paper and still not have any money in the bank. This is because when you record invoices in your accounting system that you have sent to customers, they are treated as revenue whether the customer has paid or not. The same applies to bills – both paid and unpaid bills for the month are recorded in the accounts as expenses.

There are some exceptions to this – such as sole traders that only record sales and expenses as they are paid. But for most tradie businesses, especially those that offer credit to their customers and don’t pay their bills straight away, this won’t be the case. It’s highly likely in most cases that the profit figure and the bank balance could be quite different.

So how can you improve your business’s cash flow? Here are our top tips for cash flow management for tradies.

1. Send invoices promptly

Delaying sending out your invoices delays money coming in. So make sure to bill your customers as soon as possible after the job is done.

2. Consider charging an upfront deposit

Some businesses ask for a deposit of a certain percentage of the quote (say, 25% or 50%) before commencing work. Doing this helps to ensure you are not running on empty before the work is completed.

3. Chase up overdue invoices

There’s hardly a business in existence that doesn’t have to deal with slow payers! You should keep on top of overdue invoices at all times and not let them get so far behind that they’re out of hand.

4. Tighten up payment terms

If money is too slow coming in, you might want to reduce the amount of time you give your customers to pay.

5. Offer prompt payment incentives

Incentives might include offering a discount (say, 5%) on the price for paying up immediately, or perhaps a smaller percentage for paying within 5 days. You could also offer payment plans to your customers if it’s appropriate.

6. Cut ties with repeat offenders

If a particular customer is repeatedly or constantly making excuses for not paying or they keep fobbing you off, it might be time to refuse to work with them in the future. Even if you feel you need the work, you don’t need this kind of headache!

7. Increase your prices

Are you finding your income isn’t sufficiently covering all your expenses? In that case, maybe you are charging too little and it’s time to review your prices.

8. Cut costs where you can

If your costs are on the high side, check out where you could trim them somewhat. This might involve changing to a new supplier, buying items in bulk or eliminating unnecessary purchases.

9. Stagger bill payments

Rather than paying all your bills in one go and draining your bank account, see if there is a way you could stagger them. For instance, not all suppliers will have the same payment terms so it’s highly likely you won’t have to pay them all on the same day.

10. Negotiate new payment terms with suppliers

Sometimes paying a large bill can make a cash flow ‘lumpy’. If this happens to you, see if you can negotiate new terms – such as entering into a monthly payment plan.

11. Hire rather than buy

Consider hiring equipment instead of buying it where appropriate. Doing so ensures you are only paying for the use of equipment as you need it – which in turn helps to even your cash flow out.

12. Save up for upcoming expenses to avoid bill shock

Consider creating several ‘purpose’ bank accounts – e.g. one for GST, one for wages, and another for bills and so on – and tucking away a set amount into these each week.

That way the money will be there when you need it and you won’t be scrounging around for it or – worse still – resorting to your personal funds!

And a final tip – if managing the accounts really isn’t your thing, get yourself a good bookkeeper. It might cost a bit of money, but chances are you’ll save in the long run!