Why Tradesmen Have Bigger Cash Flow Problems
Updated: Nov 6, 2018
No matter how busy you are, sometimes getting those invoices paid in a timely manner is close to impossible.
It happens all too often. A local tradesman works 24/7 delivering quality work in a timely manner, but the bills keep stacking up.
Why doesn’t there ever seem to be enough available funds when you need them?
Save your #business from bankruptcy by avoiding these 7 common cash flow mistakes.
Selling Yourself Short Believe it or not, you may be underestimating your own worth. It’s easy for small businesses to get caught up in a bidding war with local competitors but being realistic about your quotes is more important than getting the job. Tradesmen who undervalue their services and don’t build in enough margin end up barely breaking even or worse, covering the costs when things go over budget.
Billing Too Slowly It’s simple but true: a client can’t pay a bill they haven’t received. Not only does faster billing mean faster cash for you, but clients are more likely to follow through on payments when billed immediately. Invest in an automated invoicing system or download a mobile app that allows you to take care of payments on your phone. Either way, your clients and your #wallet will thank you for your promptness.
Turning Business Into Charity #Smallbusinesses are members of the community and tend to form strong connections with their clients. It’s perfectly OK to help out a customer in need with payment plans, discounted service or “freebies” as an investment in your ongoing business relationship. The problem comes when customers start to expect these practices and take advantage of your kindness in ways that are unsustainable. Just remember that owners who run their companies too much like charities won’t have much to offer when the bills are due.
Forgetting Uncle Sam With supplies, payroll, rent and utilities to pay, there are tons of monthly #expenses businesses need to consider. That’s why one common mistake owners make is to forget their less frequent obligations. They’re so caught up in covering their month-to-month #debts that when that big, fat quarterly tax bill is due they’re almost caught by surprise. Avoid large, sudden outflows of cash by setting aside money each month as if your taxes were any other bill. This practice also works for upcoming one-time expenditures such as the purchase of new equipment.
Mindlessly Paying Your Bills You’ve probably heard that the best way to never miss a bill is by paying it right away. While that’s certainly the attitude we want customers to have, the same mindset might actually hurt a business owner. Before you mail out that check, consider your bank account. Would you be accruing interest by holding the payment in your account until it’s due? Consider your other expenses, too. If you pay this one today will you be able to cover the rest of the month’s bills? On the other hand, perhaps you could save money by being prompt if your biller has incentives for early payment.
A good business owner seriously considers every inflow and outflow of their business and applies the best strategy to each situation.
Inefficient Payment Options As a business owner, you have a few different options to consider when determining what #payment to accept. For example, credit card payments provide more immediate income as compared to standard checks. If your business can’t handle high credit card fees, though, you may look into a commercial prepaid card which provides same day cash for checks. Whichever makes the most sense for your business, it’s important to know that how you get paid is just as important as when you get paid.
Not Shopping Around Every now and then we all pay a little more for the sake of convenience even though we know we could save money somewhere else. However, this is a dangerous habit to fall into when it comes to your suppliers. Often, you can save some cash by bundling orders of raw materials from a single supplier, but that’s not always the case. Periodically shop around for better deals from new partners and see where you can cut down on costs. Since raw #materials and supplies are ongoing business expenses, your cash flow could be greatly influenced by even a few dollars saved per order.