What are some common cash flow problems, and why are they important to you? Simply put, a business encounters cash flow problems when they’re unable to pay for their liabilities.
It’s not uncommon for businesses to experience cash flow issues every now and then. That’s simply how it goes. Cash flow problems are common enough that every one in four businesses fails to make it past their first year because of them.
Luckily, there are three concrete steps you can take in order to pull through a cash flow issue.
Diagnosing your cash flow problems
It’s a simple cardinal rule: be on the lookout for any telltale signs of an impending problem. The sooner you spot the symptoms of a cash flow problem, the more time you’ll have to find adequate and efficient solutions.
Sometimes these issues creep up on you, so it’s best to stay aware and observant. Here are some warning signs that show that you’re having some serious cash flow problems:
1. Problems with paying your dues on time
For any good tradie business, the end of each month shouldn’t be dreaded. You have to be able to pay for everything that needs to be paid without issue. If you’re unable to settle all accounts by the time those deadlines roll around, it’s either you need a crash course on time management—or you may be experiencing a serious cash flow problem.
When all you can hope for is to break even, it’s time for some serious damage control.
2. Problems with unpaid invoices
You may be the most efficient tradie business owner that ever lived. You’re delivering on your promises, your product and/or services are top of the line, you have a great business strategy you rely on, you have fantastic team managers –but you have a stack of unpaid invoices staring you right in the face.
If you don’t have the money for your expenses, how can you be expected to pay? It’s time to consider that this delay could be could be killing your cash flow.
3. Problems with emergency payments
When you don’t have money set aside for those metaphorical rainy days, you won’t stand at a chance of surviving a financial hurricane once it hits.
An ideal tradie business should be liquid in terms of emergency payments. However pretty and well-built your office may be, you’ll eventually be needing some repairs and replacements.
If you’re willing to let leaky roofs or damaged pipes slide, because you’re running low on money, then you may have a serious cash-flow problem.
Common causes behind cash flow problems
Now that you’ve seen the signs and accepted the fact that your business may be in jeopardy, you have to ask yourself, “why is my business experiencing a cash flow problem?”
Knowing the why allows you to address the root of your issue head-on. There are plenty of reasons your business could be having cash flow problems. In particular, these four factors are some of the most common and most risky reasons.
1. You lack financial awareness
It’s true: not everyone can be a good accountant. Not everyone can master the ins and outs of cash flow statements (it’s a really tricky thing!), but everyone should at least aspire to be more financially savvy.
The best business owners have trouble keeping track of and remembering all the must-know financial tips and tricks –but at the very least, all good tradie owners possess a baseline knowledge of finance and accounting. When you’re not as well-read and aware as your competitors, you’ll not be able to make wise choices to get you ahead of the game.
2. You lack a good strategy
Before your business can run itself without constant supervision, you’ll have to create your own business strategy. This includes concrete plans on everything– particularly, your vision, your mission, your goals, and most importantly, your financial strategy.
A tradie business is not something you can wing. Constant vigilance is an absolute must, and growing lax can serve as a major interruption to your cash flow.
3. You’re overspending
It’s time to stop and think: maybe your office doesn’t need that stainless steel cappuccino maker.
If you’re shelling out more money then you can handle, your business won’t be able to last long. Not only does it up the overall cost of running your tradie business, but it also makes your business model less sustainable than it should be. This becomes difficult, especially when you want your cash flow to be consistent.
4. You’re underspending
On the flipside, your tradie business will also suffer if you underspend. There are some things that are worth the extra money– office renovations, facility repairs, team manager raises, and the like. Investing in them now, when the overhead cost is relatively low, may lessen the chances of serious and expensive damage control in the future.
Solving cash flow problems
Now, having a cash flow problem is not the end of the world. As we said earlier, young businesses suffer from this well within their first year. It’s not an uncommon occurrence, even for the smartest tradie business owners. What matters now are the steps you take to overcome this hurdle.
It’s important to note that recovery is not a linear process. You’ll need to be flexible enough in your approach, so as to maintain good and steady cash flow. What works for you today may not work for you in a year’s time, but here are three solid and easy steps you can take in order to minimise the damage of faulty cash flow.
1. Get paid on time
When push comes to shove, you have to stop being Mr. Nice Guy. Dealing with clients is difficult. Some are eccentric, some are demanding, and some are just plain lazy. However, a tradie business owner still needs to buckle down, prioritise their needs, and secure payment for services rendered.
At the very least, you should insist on being paid on time. Try to implement a strict thirty-day deadline for all those you do business with. If you can, you should also insist on having a fifty percent deposit.
When late payments are the number one reason for poor cash flow, it’s best to nip that problem in the bud before you reach the point of no return.
2. Price reasonably
Once you spot a serious cash flow problem, you may feel the urge to up the prices of your product –or, on the flipside, you might feel the urge to drastically drop them in order to entice more customers. While adjusting the price may seem like the most logical response, it’s a sad fact that the wrong pricing scheme can lead to big losses for your business.
Walking the fine line between raising prices or dropping prices is a difficult one. You have to ensure that you’re responding to both the needs and wants of your client and your business.
If you have to raise or drop your prices, do it– but do it wisely. You have to factor in your current competition, the quality of your product, and the socioeconomic atmosphere your customers are living in. This is a decision that requires awareness and good judgement. It is also something that shouldn’t be done for the sake of doing something to address your cash flow problems.
3. Boost your sales
It’s easier said than done, but more sales means more cash to redistribute –which in turn makes it more feasible to maintain a positive cash flow. However daunting it may sound, boosting your sales is not an impossible feat.
If you’re able to market your services well and find your competitive edge, then you’ll start to see an increase in numbers. Of course, the concrete steps to improvement you’ll need to take are far more complex than that, but just remember that it’s a slow and steady process that will eventually pay off once your cash flow starts getting better.
Needless to say, cash flow problems are a part of running a tradie business. Most of the time, they’re unavoidable. It requires a lot of tenacity, wisdom, vigilance and good judgment to take these issues head-on.
Since there is no one-size-fits-all solution to a cash flow problem, tradie business owners have to remain flexible. The best thing to do is to assess the situation first and find something which is both feasible and smart.
Remember: it’s hard but not impossible. With a little sacrifice and hard work, you’ll soon see improvements in your business’ cash flow.