The cash flow of the business is the metric that tells you how the money flows through your firm. This is an accurate tool to gauge how efficiently you are spending every dollar you earn. In this way, cash flow is also an essential metric if you want to know how to improve your profits and cut down costs, especially unnecessary expenditures. Improving the cash flow helps you utilise finances towards the most deserving areas of your business, thus boosting your capabilities in line with what the market demands.
Tips to improve your cash flow
Use a cash flow tracking tool: The first step is to track your cash flow without fail. This allows you to glean exactly how well you are utilising the dollars you earn. There are many software tools to track cash flow. You can pick one based on reviews from users. The advantage of using a tool is that it keeps working in the background and giving you the data you need. This makes cash flow management an integral part of your operations, and thus, you are able to quickly take action when you see problems emerging.
Focus on hastening client payments: Small businesses suffer heavily from delayed payments from clients. It is necessary for you to track payments, dedicate time and staff to follow up and ensure that payments are given to you on time. A simple way to promote faster payments is to offer a variety of payment methods, both digital and direct, so the client can pay from anywhere, at any time. Be firm about timely payments and structure the payment schedule into the contract you make up for the project so that the client has some accountability.
Review your pricing: This is one key area that may seem very obvious but is often overlooked. Carry out a detailed analysis of your pricing vs the actual cost of projects that your business is exposed to. Remember to factor in more obscure costs like wear and tear of equipment and vehicles, overtimes paid to staff, communication costs with clients etc. These may not be apparent to you, but they do add up to inflate your bill. Check what competitors are charging and why they are doing so. Increasing your pricing by even a small percentage may make a big positive difference to your cash flow.
Negotiate terms with suppliers: Do some comparison shopping when you are looking for suppliers so that you get good quality at the best prices. If you have been using a regular supplier for a good long time, negotiate prices to get a better deal. Check with friends in the industry to identify reliable suppliers who also offer a good price. Reducing your cost of the project in this way is a simple and very effective way to improve your cash flow.
Safeguard your finances with insurance: One surprisingly overlooked aspect is the protection against financial risks. Small business owners, in a bid to cut costs, often decide to forgo insurance cover. It is usually public liability insurance that falls prey to this ill-thought-out cost-cutting strategy. Ironically, this is the insurance that protects your business from the biggest financial drains that can push it to the brink of bankruptcy.
Why public liability insurance?
Public liability insurance covers your business’s financial risk when you face a lawsuit claiming that you or your business has caused some damage or loss. It may be your client or a third party suing you. For example, you can have:
A client claiming damages because they were injured in a part of the house you are renovating
A third party suing you because your delivery van ran into their fence
A potential client sustaining a slip and fall at your office premises and asking you to pay for their medical treatment
In any of these situations, if you cannot fight the case in court, you risk losing your reputation. However, a legal battle involves many costs. Attorney fees, paperwork charges and court fees can sum up to a surprising amount. If you add damages to it, this could well push your business into financial ruin. This fear may stop you from protecting your business repute when you are facing a lawsuit. However, with public liability insurance for tradies, all of these costs are taken care of by your insurer. If you want to be able to wield your right to legal recourse without worrying about financial implications, public liability tradie insurance is among the top priority items for your business.
Focusing on cash flows is critical for small business owners. It helps you identify areas where unnecessary expenses are happening and also pinpoint areas where cash inflow can be improved. To prevent the unnecessary outflow of cash, you should also focus on financial risk protection with the right tradie insurance covers. Do not ignore public liability insurance, which can be your firm’s saviour in the event of a lawsuit filed by a disgruntled client or member of the public.