Let’s begin by addressing the elephant in the room. What exactly causes cash flow problems?
Why do most small (and large) businesses have these problems and most importantly HOW CAN YOU HAVE A HEALTHY CASH FLOW?
We work with electricians on a daily basis among other trade business owners. Those that had dire cash flow problems mostly had a pattern that got them in that position and our business advice for electricians hasn’t proved inefficient.
In order to support our beloved electricians we occasionally like to leave cash flow tips (such as this one) that can help them before they ring us for a consultation.
Before you’ve finalized the decision that you’ve failed at your electrician business, we ask that you look through this cash flow advice and try it out. Give us a call if you need help with any (or all) of the steps.
Let’s detangle your business dilemma.
The Cause of Cash Flow Problems Revealed
A cash flow problem is what happens when your business expenses outstrip revenue . How do you end up here? Perhaps not too many people are seeking out your electrician services. An inventory could be stagnant or you’re slacking on collecting all those debts owed to you. There are a plethora of reasons that could be unique to your electrical business but chances are they are somehow connected to these three. Let’s scrutinize them for a second.
1. Dip in Sales
This has to be the most common culprit. It goes beyond a bad day of sales or a couple of slow work days.
A dip in sales literally means people aren’t asking for your services enough to keep your business afloat.
The practical question to ask then becomes “Why aren’t people looking for an electrician?”
Sales issues can range from (1) failing to reach your target audience(who are usually residents or commercials), (2) your service prices may be too high or (3) you’re in a neighborhood full of people who don’t need electricians at all. The latter is quite unlikely but this is a reality regardless.
Whatever may be true for you, the sooner you figure out what is stalling your sales, the sooner you can fix it.
2. Inflated Expenses Dilemma
If your electrician services are too highly priced, you’ll likely find yourself in a dilemma of more expenditure than income.
It won’t make much financial sense to own the best truck and latest tools if your potential clients don’t think your services are worth how much you’re charging for them.
You could also ask your accountant to take a look at your expense sheet to make sure your expenses aren’t just inflated.
If payments are coming in but the budget isn’t loosening up then you likely have too many expenses.
3. Poor Debt Collection
Listen, your sales are likely pretty good.
People love your services, they believe you’re the only electrician for them but there’s one flaw. You don’t follow up on payments. Chances are you’re busy trying to catch up with jobs but you deserve payment.
Your business NEEDS these funds to continue existing.
The sooner you invest in a debt management system, the better you can bring money that is supposed to be in your pocket where it belongs.
Fixing Cash Flow Problems
Fixing a cash flow problem effectively requires first deducing what prompted it in the first place. We’ve listed solutions that definitely bring about change but especially more when they are used in the relevant context.
Chances are if you’re having problems collecting money, you have problems sending out invoices. This not only makes your bookkeeping records complicated but it ruins the state of your business financially.
Xero is a software that can easily help you create invoices as well as send reminders when payment is overdue. This will help you have a better relationship with your clients too!
Outsource as needed
The state of your finances easily shows that you don’t have the right team for accounting.
Instead of having an in-house employee that isn’t managing to bring order to your bookkeeping and compliance, you could take the option of outsourcing an accountant. It will not only be cost-effective but thoroughly healthy for your budding business.
Other times, you don’t have enough time to check the state of your finances between moving from client to client servicing their electrical systems.
Tradies Accountant makes sure your finances are well managed and your business stays compliant in order to keep you out of trouble.
You’ll be left with plenty of time to deal with critical matters in your business.
Job costing analysis
Depending on what your costing situation is, you might need to either charge more or less. How have your clients been responding to your services?
Are they complaining about pricing and re-thinking hiring you for a service job or are they ‘too’ happy with your pricing? If it’s the latter, you might want to tweak your prices higher up a bit.
Yes, you might lose a couple of clients but you’ll gain more permanent ones in the process.
If this move makes you nervous, you should consider consulting a tradesman accountant. They’ll help you make effective financial decisions as well as help you in your pricing scheme.
Are you still paying for services that aren’t actively helping in the overall value of your electrical business?
Whether these are unnecessary subscriptions, insurances and sometimes even employees, drop them. Rather pay employees as per the hours that they are actually being productive.
An electrician’s work is mostly done outside of the office except for administrative work, of course. You can’t afford to pay for employees to sit around waiting for walk-in’s.
Rather allow them to spend time with their families and come in at designated hours then let your clients know that the office is only opened as per appointments. This could reduce office costs such as electricity charges, and even rent if you can open a home office.
Again this is entirely dependent on what your business needs are and what exactly is eating on your cash flow.
If you’re not quite sure where to begin looking for solutions, book an appointment with us or give us a quick ring. We’ll be glad to help you sort out your cash flow problems