Does your painting business never have enough cash to pay your suppliers, employees, and bills regularly? If this is the case, you are not alone.
The primary reason for small businesses failing is blockages in their cash flow. Effective management of cash is critical in any business. Even more important is their ability to make more money in the business.
So, what can you do about your cash flow? We’ve compiled 5 tips guaranteed to transform the state of your cash flow. If you are not sure if these are appropriate for your business, we also offer consultation services.
Whilst we’re still on that note, let’s look at the five strategies for increasing your cash flow.
1. Delay Expenses
Keep money in your pocket for as long as you can. Delayed expenses ultimately delay the time you must payout from your painting business. This tip comes in handy if you haven’t received the payment for a job that you’ve done. If you are not able to use your credit lines, you end up paying cash to your suppliers before you’ve received cash from your clients.
A cash gap follows, which restricts you from making payments for other critical expenses such as bills or buying equipment.
Ensure that you set up lines of credit with your suppliers so that you’re on the loop on whether they charge interest or not. There are a couple of credit line options out there. A simple way to compare which one would work for you would be to look at:
- The interest rates – You must know how it is calculated. Making sure that the interest applies to the funds that you have withdrawn, and not the total balance.
- Repayment terms – There are two types of lines of credit. One allows you to pay back what you owe within three months. The other allows you to keep the loan open just as long as you continue making repayments monthly.
- How accessible your funds are – It’s critical to read the terms carefully. Accessing the funds through an ATM can incur more charges. Make sure you’ve understood what fees will be incorporated depending on how you choose to access your funds
Citi offers ready credit as an alternative to a personal loan. Credit24 is also another excellent option. Negotiations with suppliers on favorable terms of payment can bring about massive changes. Getting the vendor to agree to payments for supplies after 10 or 20 days gives you enough time to collect payments from clients so that you can arrange your finances before bringing payments to vendors.
This eliminates the cash gap mentioned above.
2. Unsubscribe from the unnecessary
This can be in the form of insurance, unnecessary painter magazine subscriptions, clubs, and even excess labor. It might not seem like much but cutting off monthly or perhaps even annual subscriptions can help you save a lot of money that can be used in other aspects of your painting business.
If you happen to have employees that stay in the office waiting for walk-in clients, you might want to reconsider that arrangement. Instead of paying employees for sitting in the office, you could resort to paying them for the time that they are being productive.
In that case, you’ll pay for actual work done and this reduces the stress of expenses and simultaneously drops off dead weight. If your accountant charges fixed monthly fees for their services, this is more in the favour of their cash flow but not for yours. Talk to us about a pay as you go option.
3. Collect payments for work done immediately
Invoice quickly every time. Depending on your relationship with your clients, you might find it difficult to ask for payments promptly before or after painting. An easier way to tackle this problem is to invoice before doing the job. This can be done by incorporating an invoice software system that can create estimates invoices as well as issue receipts after the client has made a payment.
Invoicing software (such as XERO)can be quite handy because it takes care of numerous tasks in activities that would have taken you time in a single second. Your clients will also commend you for your professionalism plus efficiency when doing a job. After you’re done with a job, you won’t have a cash crunch because you would’ve already received the payment.
4. Separate bank accounts
Setting up separate bank accounts not only organizes your transactions, but it also separates two aspects of your life. If you are like most business owners, the state of your bank account confirms if you can purchase more brushes, paint buckets, or any other tools for your business. Whilst this method seems fine it often leads to overspending, which later translates to cash flow issues.
Setting up different bank accounts meant for specific purposes gives you a better idea of what to spend on and how much. This also lets you know how much money you have set up for tools, transportation to a painting job, or personal purchases. It also helps you to set up or allocate money that you use monthly, for example, salaries, taxes, overhead expenses, and even revenue.
When setting things up for tax season, it is easier to know how much deductions you can claim because you will be required to show proof of your income. You can imagine how difficult it will be to arrange this if your personal and business incomes are joined up.
5. Job Costing Analysis
Assess the state of your pricing and how your clients respond to them? If your clients seem content with your rates for paint jobs, you might want to raise your prices a bit. As anxious as it might make you feel, you can easily be making more money for the same working hours.
On the same note, if clients are constantly complaining about your prices, consider reducing them. A competitor might be painting for much less which is why your business is low. Whatever your case may be, your service prices might help you fix that cash flow problem in your painting business. Experiment a little.
Below is a video from the CEO of Tradies Accountant, Bryn Harwood, giving some insight into how you can better your cash flow.
Already tried the above tips? You probably require an accountant to handle the job. In as much as this sounds like an expense, an accountant will help you notice other potential avenues of revenue that your business is overlooking. Contact us to get started.