Poor cash flow killing your trade business?
Has the current health and economic crisis exposed cash shortages in your trade business? You’re not alone. Like most trade business owners, until recently, you’ve probably been under the pump handling other more ‘important things’, right? Tracking your cash flow got pushed down the list.
Even the most profitable businesses can be undone by cash flow. If you don’t have enough money to pay your tradies, suppliers or purchase product and equipment, everything will grind to a halt. A cash flow forecast provides a cash flow ‘crystal ball’ to signal issues ahead of time.
Up until recently, money was probably coming in, which is why cash flow forecasting hasn’t been a priority. Now this time of uncertainty has hit, with no real end in sight, it’s time to start tracking your cash flow like a hawk. If you’re not currently forecasting your cash flow, here’s why it’s a problem.
You’re not forecasting your cash flow
You’re pulled in a thousand different directions and forecasting your cash flow hasn’t been a high priority. Without a cash flow forecast:
- You won’t have an understanding of where you’re headed financially
- You’re increasing risk of a crisis and, at worst, business failure.
- Your business is losing money through the leaks in your processes.
So, wouldn’t it be helpful if there was a way to look forward and to predict the cash inflows and outflows for your business? You can protect your cash, keep your employees in jobs, and make better business decisions based because you’ll know your cash status.
Key cash forecast budget considerations
Your cash forecast budget will take sales projections into consideration. We recommend you prepare sales forecasts one year in advance, if possible. A cash forecast budget will help prevent a temporary cash shortage.
When setting your own sales, there are a number of factors to consider — weather, seasonal demand for your services, public and school holidays, rostered days off and long weekends, can all impact your sales.
Here’s what a recent year looked like
- January was a holiday month, with 19 working days. Cash flow is often poor because holiday wages were paid before Christmas.
- February always has 20 working days, with the exception leap years
- March had 22 working days, though in some years it can have 23.
- April had only 20 working days – with a three-day week, three four-day weeks, and only one five-day working week because of Easter and Anzac Day.
- May had 21 working days. Some states have special holidays with a long weekend. This is usually one of the best sales months.
- June had 21 working days – with a long weekend. Traditionally, June is stock-take month, which can affect businesses buying stock.
There was not a single 23-working-day month in the first half of the year! That’s why sales projections are included in your cash forecast budget.
What if my cash flow is tight NOW?
While cash flow forecasting is all good and well, if you’re struggling to get money in the door as we speak, here are four steps you can implement today to improve your cash flow moving forward.
Step 1. Invoice quickly. Ideally, you want to invoice on-the-spot.
Step 2. Collect payment on-site. Get money in the bank faster.
Step 3. Deposits and part payments. You won’t be out-of-pocket at the end.
Step 4. Chase your debt. Always chase your debt, to get it paid sooner.
Experiencing bumpy and unpredictable cash flow is probably causing you pain, limiting your ability to survive when tough times suddenly hit — and they always do. Knowing what you’re in for ahead of time, helps you prepare to ride out the waves and protect your hard-earned cash.
Next Tuesday, we’re launching a Cash Flow Guide for Tradies, plus the EXACT cash flow template we use on our own trade business. Keep an eye on your inbox and Lifestyle Tradie’s Facebook page for details.