Money can be tight when running a trade business.
Supplier bills, payroll to keep on top of, waiting on payments from clients, fuel, tools, insurances, everyday expenses to manage and the list could go on…
Given this, it can sometimes be tempting to use the money that you owe the government for taxes – to help you support the business financially.
But it’s important that you don’t!
As much as you wish it was your money, the fact of the matter is, it’s not.
It’s the governments, and guess what?
You can’t spend it!
Getting into the habit of spending the governments money can quickly lead down a dangerous path of being stuck on the debt treadmill with the tax office, locked into repayment plans.
Once you’re put on one, given the fact that you needed to spend money allocated for tax in the first place, it’s incredibly difficult to not only pay that money owed back – but to actually make any money at all and stay open!
Don’t put yourself through it.
Resolve the heart of the issue…
Cashflow!
If you’re spending the governments money, you’ve got a cash flow problem.
Plain and simple.
So how can you go about sorting this?
First step: speak with your account and bookkeeper.
If you don’t have a good accountant and bookkeeper, get a good accountant and bookkeeper.
Get them to explain the situation and explain your options.
And when you do speak with them – be prepared!
Make sure that you understand the following and can actually present ideas yourself and ask for their opinions!
There are three fundamental ways to improve your business’s cash flow.
- Maximise profit: The most effective way to improve cash flow is to make the operation of your business as profitable as possible (or to reduce losses to a minimum). Running more profitable jobs and reducing costs where you can is the best way to get strong cash flow.
- Increase cash coming in: Maximise as many strategies as you can to increase the rate at which money comes into your business.
- Decrease cash going out: Stopping or slowing down the rate at which money leaves your business from non-operating expenses is also incredibly important.
How do you do that?
Increase your business!
I know this might sound obvious but the key is to understand how profitable each part or product or service of your business is, and the impact increasing it might have. Then dialling in your focus.
Alter the working hours for your team. For example, switch to a 4-day working week (32 hours in total). Or negotiate an across the board pay reduction of 20% for all staff so you can hold staff (better to have a job than no job). Improve your Labour Utilisation. Ensure your jobs, materials, fuel and travel are well organised so employees time is billable to clients. Make redundant any non-essential, surplus or underperforming staff as soon as possible.
Negotiate payment terms with suppliers. Ask for longer terms, reduced prices, onsite deliveries or anything that will boast profit margins and preserve cash. Ask your finance provider for equipment, vehicles etc. for a reduction in repayments and / or a payment holiday. Split level Pricing – offer 2 or 3 options at each quote Negotiate a reduction in lease payments with your landlord.
Eliminate all non-essential costs. Stop spending on items that do not make you money, do not save you more than you spend on them or that do not create opportunities for the future. Calculate your break-even sales point on a weekly, monthly, and yearly basis. Back cost all jobs and stop all non-profitable work immediately.
Conduct low cost marketing such as email marketing and cold calling existing clients. Sell / use existing stock from workshop and van before buying more from suppliers. Offer leave without pay. Focus on delivering great value to clients so you can continue to charge a premium price.
Increase cash coming in! Price for profit and build effective marketing and sales infrastructure to improve your margins across the board, start taking deposits, invoice as soon as jobs are complete, actively monitor your accounts receivable, shorten payment terms and so on…
Decrease cash going out! Re-evaluate and renegotiate your costs with suppliers, cut unnecessary overheads, engineer better office and field efficiency, control employee costs and spending and so on…
Make these changes and do your absolute best to avoid spending the government's money - it will only hurt you further in the long run!
If you're an electrician, plumber, painter, carpenter, or any other trade business owner who is looking to take your business to the next level, click here to learn more about how our team can help!
