Strengthen your trade business in a shaky economy
Experts are telling us the economy is on shaky ground. With this uncertainty in the air, how confident are you that your trade business will weather the downturn? Do you have a game plan?
Many of us are in cruise mode when the going’s good. We’re ticking along okay, doing the same-old thing every day – until tougher economic conditions kick in. What happens when the phone stops ringing?
If your world is feeling rocked by economic factors that are out of your control – tightened lending criteria in Australia, plunging global financial markets, and political scare tactics – have panic stations set in?
In a perfect situation, you would have a plan in place to navigate the ups and downs of the economy. The reality is, it’s caught us off guard.
Here are 3 steps to strengthen your business in a sluggish economy.
Step 1. Know your numbers
If you’re eye rolling that knowing your numbers is a no-brainer, we’re not talking about turnover. The money generated from your net sales is only part of the picture. Profit is the bottom line.
The purpose of knowing your numbers is to allow you to stay in control, regardless of the financial drama unfolding around you. Foreseeing and planning for a potential rainy day is a must.
Get started by working closely with your accountant and bookkeeper to better understand the following reports:
- Profit and loss statement
- Balance sheet
- Gross profit and timesheets
- Forward forecast
Step 2. Diversify your client base
If the public gets caught up in the headlines on a cooling economic climate, this can have a knock-on effect. Mostly, it will have an impact on confidence, and in turn, the willingness of your clients to spend money.
If all your eggs are in the one basket from a client profile perspective, how will that play out in a fickle financial environment? Will your workload dry up, leaving you and your business high and dry?
Whatever your trade business speciality, strategically diversify your client base. For example, if your plumbing business typically serves residential maintenance clients, could you secure strata work?
Step 3. Perfect your game plan
When there’s a possibility of a rocky road ahead, it’s your responsibility as a trade business owner to perfect your game plan. Your focus should be to get to the other side unscathed.
There are two ways to achieve this: prevention and cutting costs. Before you make any drastic moves, here are some practical actions you can take that’ll reduce your costs and boost profit margins.
- Increase your average dollar sale. This involves your tradies bringing other things that may need servicing (if any) to a customer’s attention while they’re already at their house.
- Be aware of wastage. Split your labour and materials in your Profit and Loss Statement (P&L). Identify what materials you have purchased, what you have billed out, and what’s unaccounted for.
- Negotiate with suppliers. You can leverage off your financial statements when negotiating with suppliers. Use your P&L statement to renegotiate the prices of particular items or overall.
As trade business owners, complacency is never our friend. Whether it’s the economic climate or a new competitor on the block, it’s always important to stay on the front foot.
Losing your grip on your trade business? Visit Next Level Tradie for our schedule of live events in 2019.