5 x CashFlow Killers Every Tradie Must Control NOW!

Ange
Yeah. Look, talk about stress. Thankfully we didn’t go bust. But we were pretty strapped for cash. 

Andy
Like literally we’re making great profit, but we often didn’t have enough money in the bank to cater for all of our expenses that we had. I remember having to take money from our home loan to pay the team on many occasions, which you didn’t know about by the way. And that’s why I want to discuss this topic of cashflow today because I don’t want any other trade business owners out there in this same situation because it’s a really terrible feeling.

Ange
You know what Andy, when it comes to being a tradie boss, cashflow is literally the lifeline of your business. It can be the difference between you being in complete control. 

Andy
First complete chaos with you running around like a chicken with its head cut off. 

Ange
Yeah. No one wants that kind of stress in their life.

Andy
Absolutely not. So let’s talk about how to avoid the big cashflow killers in your trade business. Let’s go. It’s time to get stuck in.  

You’re listening to The Tradie Show. This is the podcast for trade business and contracting bosses like you, who want to lead with confidence, make more profit and create a better lifestyle.

Ange
We’re your hosts, Andy and Angela Smith, husband and wife team and co-founders of Lifestyle Tradie. Are you ready to have some fun? 

Andy
Hell yeah! 

Ever feel like your trade business is running you instead of the other way round? Like you’re stuck on a never ending job with no exit plan? 

Ange
Yeah, the endless quoting, the cash flow juggle, missing family barbecues because you’re buried in invoices? 

Andy
Yeah, it can be a bit of a shit show sometimes, but What if I told you there’s a way to nail it down to finally take a breather and actually enjoy your business again?

Ange
Well, that’s where Andy here can lend a hand with years in the trenches and plenty of battle scars to show. He’s got the know-how to turn your chaos into smooth sailing. 

Andy
Hell yeah. Let’s have a talk. I’m setting aside some time for you legends about getting your trade business in ship shape. We’re talking about real solutions and no fluff.

Ange
Spot on, Andy. Just a relaxed, no pressure chat, like having a cold one with a mate who’s got your back. 

Andy
Let’s get you out of your business blues and book in a free strategy call with me. Visit lifestyletradie.com.au to book your slot today. Let’s get you back into the driver’s seat.  

Cashflow management may not be the most glamorous aspect of running a trade business, but if you like money, and I sure do, then you better listen up. Managing your cashflow is the backbone of your business. And today we’re going to cover the top five things that are killing the cashflow in your business. But let’s start with defining what cashflow actually means. 

Ange
Okay. So I’ll take over from here. Cashflow in its simplest of explanations can be described as the money that comes in and goes out of your trade business. So incoming cash includes revenue from your customers who are buying your products or services. And outgoing cash includes paying for materials and wages for the team. Plus all your operating expenses, stuff like petrol for the vehicle, your marketing expenses and stuff like that.

Andy
And you’re experiencing positive cashflow if you have more money coming in than leaving your business during a specific period of time. And you have negative cashflow, which means you have less money coming in than is expected to go out in a specific time period. The reality is a lack of cash in the business is super stressful to manage when you have all these bills to pay.

Ange
Yeah, you hear it often, don’t you Andy? The fact that from the outside, the business looks incredibly successful. But in reality, the business owner is struggling to keep the business operating simply because they actually just can’t keep up with the cashflow problems. You never really know the truth about what’s happening behind the scenes. And that’s tricky. 

Andy
Yeah, it is tricky. And I remember one of our last live events we did. I was chatting to this concreter, His name was Jim. He was in his early thirties and he was in this exact situation and he was telling me how much work he had and how he was struggling to keep up. 

Ange
Oh, I remember this bloke, he was hiring his mates, his cousins, his nephews, just to stay on top of the demand. They all thought he was an absolute king. 

Andy
Yeah. But what everyone didn’t see was just how stressed out he was. He was telling me how much pressure he had and he was under mounting pressure day in, day out and he just couldn’t understand where all his money was going. And the actual sentence was, money is going out faster than it’s coming in. I don’t know what to do. 

Ange
Oh, it’s the worst feeling. 

Andy
Yeah, and he was just telling me how overwhelmed he was because he just didn’t have any time to stop and scratch himself. Let alone sit down with the brain space to work out, where the hell is all this money going and where am I going wrong? Or even what could he do to fix it.

Ange
Well, this is where you need to have the right mindset and systems in place for managing your cash flow situation. So you’ve got to literally get this under control no matter how much money you’re making. Let’s touch on the mindset part of this first because having a crappy mindset around your numbers and your money is what I would class as cash flow killer number one.

Andy
Yes. And this was me once upon a time, you know, I thought it wasn’t really my responsibility, so I was happy to put my head in the sand thinking everything will all work out just fine, but it was a bit like out of sight, out of mind. 

Ange
Yeah, but if you’re having cash flow issues, it’s not going to miraculously just go away. And the reality was our cashflow was shocking. At one point, I remember having about 188, 000 outstanding, and we actually had no control over when our starter companies were going to pay. 

Andy
Yeah, I agree. And we got to remember that it was almost 20 years ago. So that was a lot of money back then. And the business otherwise at that time was looking amazing, I thought, but that was a lot of money for a maintenance plumbing business to float and we were a growing business and we just weren’t prepared to be able to float that money and we’d invested in new vehicles, all of them had jettas and cameras, like we had heaps of outlay. And the cash in the bank was so lean and I just started digging into our mortgage to pay for our team and I was just really struggling and I was just hopeful the strata companies would pay and I chased and I chased as hard as I could.

Ange
Yeah, but living on hope is not going to get the bills paid, right? In fact, by ignoring things like your cashflow, you can unintentionally dig yourself into a hole when it could have actually easily been avoided. 

Andy
100 percent  Ange, I couldn’t agree more these days. And I also know many people don’t like talking about money. It’s such a loaded topic and dealing with cashflow issues can be quite daunting and confronting if you haven’t been taught or brought up the right way to have a healthy money mindset. Like what if you have a customer who’s not paying their invoices or what if you’re struggling to pay your own bills? These are very uncomfortable conversations to have. 

Ange
Yeah, it is. It’s not always easy changing your mindset around money and cashflow. When you’ve been doing things the same way for so long, change can actually feel really hard. 

Andy
Really hard. 

Ange
But here’s the thing, a positive and proactive mindset around your cashflow can actually change everything really quickly.

Andy
Definitely. And for starters, you take more of a vested interest in your money. And instead of being focused on the problems you’re facing, you can actually switch to finding solutions. And it’s what we tradies know best is, finding solutions. 

Ange
Yeah, true. I reckon, acknowledgement is actually a really good place to start.

Andy
Yeah, that’s exactly right. And starting with the facts, is a great idea. You are where you are. 

Ange
Yeah. Agreed. 

Andy
And if cashflow is a problem for you, at least, you know, and with a reality check, you can make a plan to turn that around. 

Ange
Ah, but I guess that leads to a question that lots of tradies could get stumped by, which is what if I don’t know how to turn things around?

Andy
Well, that’s true. And when we face this same problem, the first thing we did was look into our business at the profit and loss statement. And I couldn’t believe it. I literally cut out about $300, 000 worth of expenses overnight. Now, not every business can do that. And we did have a team of 17. So we were a bigger business, but $300, 000 overnight.

Ange
Yeah. Pretty amazing, right? All because we decided to actually look into our cashflow issues. 

Andy
And this is something we do with our Lifestyle Tradie members in our coaching program. We help them find the hidden money in their business. And sometimes this quick chop of expenses is simply just a band aid slapped on top of what is really causing the cashflow issues. And more often than not, you don’t know what to look for. And I know we’re going to cover some of these things in this episode today. 

Ange
Yeah, exactly. It’s important to acknowledge that there is a cash flow problem, and then it’s important to actually ask for help. 

Andy
Exactly. And the fact is, we were taught this stuff ever. No one taught us this stuff. So today I give you permission to stop beating yourself up about what’s happening in your business at the moment with cashflow. 

Ange
Exactly. There’s just no point. 

Andy
So the trick is you’ve got to remove the emotion and switch into solution mode. You need to look at it like any other job that you do as a tradie because the alternative scenario is you’re just burying your head in the sand and working until a crisis hits your business. And I’ll tell you what, it will hit your business.

Ange
Uh, and we don’t want to face that like ever. 

Andy
No. 

Ange
We would much prefer to be in a really stable cash position so that if the shit does hit the fan, you’re actually ready for it.

Andy
Essentially, if you face your numbers and you know them, you can change them and you’ve got to change that mindset. And if you don’t, potentially you could be screwed. 

Ange
Ouch.

Andy
Just being honest. 

Ange
That’s true. Okay, so now that we’ve tackled that, let’s move on to cash flow killer number two, which is actually understanding the cash gap. So Andy, how about you explain what the cash gap actually means? 

Andy
Okay, let’s put it in simple terms. Imagine if you’ve just completed a job and you’ve done the work and you build the customer and in a perfect world, the customers paid you immediately. So maybe you have a 14 to 30 day term on paying your materials, which means there’d be no gap between the time you were paid by the customer and the time you were due to pay for your expenses, like the materials that you have and, and also the team wages. But in the real world, that gap exists and that’s what we call the cash gap. 

Ange
Yeah, exactly. And the reality is there are lots of trade business owners who pay for the materials before they get paid in full by the customer. Think landscapers, builders and even big maintenance jobs for us, plumbers and Sparkies. You guys may have collected maybe like a small deposit, but what it means is you are covering the difference until the final payment from the customer comes in, which might I add sometimes is not being collected on completion and it could roll into days, weeks, or maybe into months.

Andy
And that’s why understanding this concept is crucial because it’s the key to keeping your cash flow healthy and it’s the undoing of lots and lots of trade business owners out there and you need to know when your money is coming in from customers and when money is going out to cover your costs. 

Ange
Yeah. So the beauty about knowing this in advance means you can identify problems in your cashflow early and take proactive measures. Let me give you an example about that. If you notice that there’s a significant gap between you paying suppliers and receiving payment from your customers, for instance, you might want to maybe negotiate some better payment terms with your suppliers. Like maybe instead of paying for them when you purchase, then set up a 30 day payment term.

Andy
Or you could request larger deposits from your customers up front as well. 

Ange
Well, there are some rules around that state to state and between different trades. 

Andy
I’m happy to break rules. 

Ange
But, uh, see what you can request. 

Andy
Yeah, that is true. And the obvious one, if you can, you need to start taking payments from your customer as soon as you finish the job and before you leave the site. We’ll, we’ll talk a bit more about that later. 

Ange
Exactly. But here’s the magic of understanding the cash gap. You can prevent a cash flow crisis and you can anticipate and plan for times when cash flow is going to be tight. 

Andy
Yeah, it’s just like having a financial roadmap that allows you to navigate the twists and turns of your business journey.

Ange
Yes, agreed. So, let’s move on to cash flow killer number three, which is invoice management. You know what guys, we get it. You’ve got a lot on your plate. You’ve got jobs to complete, customers to satisfy, and a never ending to do list. 

Andy
And to be honest, it’s a short story. If you want to control your cash flow, then you need to make sure More money is coming in every day than going out. And how do you do that with some customers? Well, you got to get them to pay on the completion of the job if you can. And at the end of the day, I always say this, the day you don’t get paid is another day that potentially you won’t get, hey! 

Ange
Well, to be honest, I’m actually shocked at the number of tradies that we speak with that tell us that they haven’t actually invoiced jobs that were completed months ago, regardless of the style of the work they did.

Andy
Yes. And have I got a story for you? 

Ange
I love stories.  

Andy
And I remember a few years back I was having a beer around Christmas with this tradie and he just finished a 25 grand job. And he said to me, Oh, my good prophet. And he, and I commented, well, that’s a great way to finish the year. And he said, yep, it certainly is. And I said, great. Did you collect your money? He goes, no, I didn’t because I want to send my invoice at the end of January. Uh, and I thought, why is that? And he said, because if I send it now and I get the money now, I’ll spend it. And I know that I’m going to have a quiet January. So I need the money at the end of January to pay for my bills. I just looked at him and almost spat beer in his face and said, are you serious? But this is the mentality of some tradies out there. That is absolutely crazy. You’ve got to get the money now when they know they have it to pay you. Not after Christmas when they’ve spent all their money and the next thing they’re gonna say is, Oh, can you wait a bit later? I’ve got cash flow problems myself.

Ange
I’m so flabbergasted. That’s weird ass thinking. Right? 

Andy
It is crazy.

Ange
I’d say it’s pretty obvious to say, invoice as soon as you finish the job because the faster you invoice, the faster you get paid. 

Andy
Yeah. There’s nothing more important than pulling in the money that is owed to you, especially when you work with strata and commercial industrial customers, builders, you name it. Because with those guys, you’re just not seeing your money for at least a month or two or three or whatever negotiations you have had with them. 

Ange
Ooh. Well, this actually gets us to cashflow killer number four, which is not following up debt. 

Andy
So question, why invoice a customer and then not follow up at all? Like I’m talking regularly, emails, phone calls, SMS, something like that. I don’t know why us tradies think it’s okay to be a bank for our customers. Like, I can’t remember a day when all our tradies, we all got together and we said, Okay, guys and girls, this is what we’re going to do. Tradies are going to be a bank! And we’re not going to ask to be paid for months on months on end. I mean, how stupid is that? You can’t go to McDonald’s and pay later. You can’t do a lot of things and pay later. It’s your money, get it in as fast as possible. 

Ange
Well,  slight little rant, I guess this is one of those jobs that gets put into the too hard basket. You just don’t want to be seen as a pest, I suppose. 

Andy
But everyone, it’s your money, it’s your money. You need to get it in as soon as possible. You want it to be systemised,  you want it to be like a well oiled machine, that money just constantly comes through the door. 

Ange
Yeah, that’s right, you do. You know what? We too actually worked for the customers in this space. Like we were doing a lot of work for Strata and real estate where you had no choice, but to invoice after the fact and then chase payment. So we get it. 

Andy
Yeah, we do get it. And that is okay. It comes with the territory of working with this sort of market segment, commercial builders, industrial, that stuff it’s all the same type of customer. 

Ange
Yes, we actually even set up an eight step invoicing and debt collection system so that it was like a streamlined, systematic way of how we collected money. We’ll add a link in the show notes so you guys can download a copy.

Andy
And for bigger jobs with residential customers, this all starts with setting clear payment terms right at the start of the job before you get the go ahead and you’re going to make sure they understand how you work and when you’re expected to be paid. And don’t be afraid to set up reminders to go out with payment deadlines that are approaching. 

Ange
Great. Awesome. All good stuff. So this leads me to cashflow killer number five, which is having way too many customers that are pay later customers. Let me just explain what I mean by that. We’ve just been talking about different market segments. So, these are examples like builders, real estate, residential, industrial, strata. That’s what we talk about when we say market segments. So, some are classed as pay now customers like the residential market because the best way to collect money from them is to have them pay on completion of the job. While you’re still on site, there are plenty of circumstances where you can’t collect payment on site, such as real estate, your industrial commercial. And these guys are all what we call, pay later customers. 

Andy
Yeah. And the cashflow killer here is being two top heavy with these pay later customers. Think of it this way. Pretty much every day you’re paying for material bills, wages, and even sometimes months of operating bills for the business when you haven’t even been paid a cent yet and a measly deposit of 5 percent or whatever you can get if you get one is simply not enough and no wonder more money is going out of the business before anything is coming back in. And as we mentioned, this is super stressful and a major cashflow killer. 

Ange
Yeah. Well, sometimes it’s not even the problem that you aren’t chasing payment because maybe you are. Perhaps you’re totally on top of it, but maybe the customer simply has a 30 day payment term or the expected payment date falls after your materials bill is due, for instance, and there’s nothing you can actually even do about it. You’re actually just stuck waiting. 

Andy
Yeah. And then the customer forgets to put your invoice in that month’s pay run. And now you’re looking at 50, 90 days later and you’re still chasing. You know, you could have paid out 50, 100, 200 Ks of expenses in this time. I’m obviously depending on the size of your business, but you are still waiting to be paid. That is not a comfortable position to be in. 

Ange
So then, You’re faced with a new issue. How do you even float that much money? Do you even have a buffer that you’ve saved with profits from other jobs over the years? And is it even enough? Do you have a business line of credit? It just opens up all these extra questions.

Andy
Yeah. And it is a tricky one, Ange, because more often than not, the business owner has ended up servicing this much pay later work out of default. And, I remember back in the day when we catered for about 90 percent of our business was strata work. And I certainly didn’t actively say that I wanted only strata customers. It just happened that way. And it was a problem, but I didn’t know it until it was too late. And it was a problem.

Ange
Well, interesting. It’s a great example of why we actually teach our Lifestyle Tradie members the power of three versus one principle. Because every trade business owner needs to really see what’s happening inside their business, literally to help them understand the truth about where their market segments are split and the impact this actually has on their business and actually how to fix it.

Andy
Yeah, and this is the thing with tradies, you got to remember, you just can’t guess. And when you’re super, super busy, most tradies think they’re making all the money in the world, but it just doesn’t work like that, does it? And quite often this cashflow killer Is a super silent killer, right? And you don’t even know it’s there until it’s too late. And all of a sudden you’re in a world of hurt and it’s quite hard digging yourself out of that hole from there. But moving on, Ange, we can’t talk about cashflow killers without mentioning job profitability. And this is the cashflow killer number six, because each job you take on should be a good cashflow booster, not a drain to your business. And when you have jobs that are profitable, it means you’re not just generating revenue. You’re generating healthy profits that become the cashflow that fuels the growth of your business. 

Ange
Yeah, that’s true. So if you think about the basics, every time you invoice, you gain, call it, twenty percent of profit, then not only have you covered your costs or broken even, you’ve actually made money. You’ve made actual profit to put in your pocket. 

Andy
Wow. You’re a poet and you didn’t even know. I tell you what, it must have been, it’s been a long day. Hasn’t it been talking that rubbish?  

Ange
You’re showing your age, Andy. 

Andy
Oh, yeah. Anyway, 

Ange
So back to the topic, money that you’ve collected as fast as possible is now accumulating in your bank account, giving you a kitty to use to support your cashflow, money in and money out.

Andy
And you know what? That’s just the way it should be. It basically means you need to look into whether you are building your quotes accurately. And if you’re using the right hourly rate to make sure you’re a hundred percent and you’re making good profit on it. every single job. And please out there don’t fall into this trap of underpricing jobs just to win a job. Yeah. Oh, that does my head in. 

Ange
That’s a surefire way to sink your business and constantly have those cashflow problems. 

Andy
Okay. So we’ve gone over the cashflow killers and what you need to do and focus on if you want to change things like this in your business, but it still feels like there’s a lot to do.

Ange
Yeah, I suppose it is a lot, but you aren’t expected to just know this stuff, right? Most tradies weren’t taught it. However, it is your responsibility to fix it. 

Andy
And like my accountant said, I’ve seen better businesses than yours go bust because of their poor cashflow. Please, crew, don’t let that be you. 

Ange
So the good news is after having listened to this episode, you are armed to be asking yourself some pretty intelligent questions like, do I have the right systems to invoice on completion of every job? Do I have a tight and consistent debt collection process? What does my split of market segments look like and am I too heavy with pay later customers? And are all my jobs profitable? And with this, we can make the decision to fix this today. 

Andy
It’s time for our Tradie Dilemma of the Week. 

Ange
This is your chance to let us know what’s going on in your world, ask your burning questions, and hopefully we can solve a few issues for you.

Andy
So today we have a question from Jenny. Jenny’s from South Australia and writes, I heard you guys talk about awards and how they can help you stand out in business. Yes, they can. And we actually won a local business award for their plumbing business in South Australia. And we’re super proud of this because my husband and our boys have worked so hard, but what do we do now? How do we maximize this award for our business? Great question. 

Ange
Oh, I love this question. First of all, Jenny, huge congratulations. Well done to you and your team. 

Andy
Yes, well done. 

Ange
So what’s really important here is to literally not sit on your hands. You want to communicate to your customers, immediately. You need to send them an email with a photo and use this opportunity to thank them for being your loyal customers. 

Andy
Don’t just thank them. Make sure you put a call to action into the email as well. Something like PS, if you need blah, blah, blah service or work done, call us today. 

Ange
Yeah, I promise you this will definitely bring in work. It has plenty of times. 

Andy
And the next thing you want to do is write a press release to your local newspapers, TV stations or local online news site. And what you need to do here is think about who wants to write about you the most. 

Ange
Well, for example, we had our business on the northern beaches of Sydney, so we approached our local paper with a story that talked about the local Mona Vale plumber, for instance.

Andy
You’ve gotta make the press release really exciting though, and you can’t just say local Mona Vale plumber wins award , you’ve, you’ve really gotta put some interesting spin on it as well. 

Ange
Well, let me give you an example. So one of our members, Stacey from JDY electrical in Goulburn, who’s a long term member of Lifestyle Tradie, she and her partner have won like tons, nine awards, let’s name it, uh, for herself and the electrical business and was featured in her local paper after winning the latest one, which was the New South Wales women in energy award with NECA. So Stacey’s angle was to talk about the lack of women in the trade industry and her desire to turn it around. That got lots of press cover. 

Andy
It did. And it was a great story. And Stacey and her husband, Jack, have recently covered their two shop front windows with images of all of their awards. So it’s front and center when you drive by. And I just want to point out that their actual commercial space is in the biggest dead set in the middle of town and everyone sees it. 

Ange
Well, they’re going to have to get a bigger window. 

Andy
I think they’re going to have to get a bigger window. That’s for sure. We are super passionate about entering awards to help your company profile and build trust. And we talk a lot about this with our members of Lifestyle Tradie. And you know what? We’ve had thousands of these guys have been winning awards. Countless awards, which has been really good. But to help you out, Jenny, here’s a quick checklist that will help you get started. 

Ange
So Jenny, get access to the award image, like literally the logo of the win if they have one, and the professional photo of you holding your award on the night. Because when you contact your local paper, you include these professional images. You literally save them time and it actually increases the chance of them running a story on you because you’ve actually made the life easier for the editor. Trust me, it works. 

Andy
It definitely does. And then you can use these images and this logo on absolutely every piece of marketing that you do. And customers seeing a business that has won awards, it immediately builds trust in the eyes of your potential customers. You want to put this on your website, your socials, email signatures, your credibility packs when you quote for jobs, your invoice, just about everywhere. 

Ange
Yeah. Everywhere. The benefits of this isn’t just about building trust with potential customers though. It does the same thing with potential new employees too, because if they’re going to go to interviews with say two or three other potential businesses, your award win could literally be the thing that makes them pick you over the others. Who doesn’t want to work with an award winning business?

Andy
So we hope that helps Jenny. Let us know how you get on. We would love to hear.  Hey guys, I just wanted to ask you a quick favor. We’d love it if you could rate and review this podcast. It really helps more tradies find us. And at the end of the day, we created the show to support tradies, just like you build profitable businesses that you love. As always, we appreciate your support.  

Subscribe to  The Tradie Show, wherever you get your favorite podcasts, rate and write us a review or for more information about Lifestyle Tradie, head to lifestyletradie.com.au.