Sound Familiar? When you train and spend your working life in the numbers world it is easy to forget that those who are experts in other fields may not have the skills or understanding to analyse the business’s finances.
This is particularly relevant to the trade services industries. There is no shortage of work for trade services and with the addition of current government incentives most trades are booked up well in advance.
This, however, means that every owner, employee and subbie is out on the tools more, “doing” rather than managing.
As the construction and maintenance world ramps up those on the tools have little time to analyse their own business and as contracts come in with the bigger dollars attached it is not unusual to find a business owner with little clarity as to their success or otherwise. The common measurement of success is the dollars in the bank, but this can be a huge mistake.
As the business increases in size so does the liability of the less obvious figures sitting in the balance sheet and these are often forgotten about. Cash flow is at a squeeze as jobs come in, staff have to be paid for around 6-8 weeks and materials have to paid for prior to the tab being settled at job completion. Items that are rarely front of mind include:
- GST owing
- PAYG Withholding owing
- Loan repayments and leases owing
- Creditors owing
On the plus side there may well be enough assets to counter this including outstanding sales invoices. However, how fast and often are the customer’s paying and can the business afford to take on a large client with a pre requirement to outlay thousands of dollars in parts and materials. Not to mention contractors, staff wages, superannuation and tax.
So What Can These Businesses Do?
Step one is to ensure you have accurate figures. Then ask yourself:
- What systems are you using to run the business?
- Are they running as you would like them to?
- Are you getting regular accurate reports on the things that you really need?
- Is everything up to date?
- Is there a funding facility available and ready to go if needed at any time?
These questions are commonly asked and it is important to address them. The process can be daunting but when actioned, business owners can be more confident that the next job that comes in is going to be profitable enough to cover the outlay. They are basing this on real numbers and not just a jumble of income and outgoings to satisfy the EOY tax compliance.
Clarity and confidence in the numbers is essential to growth and successful trading. I have worked with and a lot of businesses think the job of sorting this out can be an internal job. But, as many of us that are experts in numbers and job management systems wouldn’t attempt to install security systems or electrical cabling into a multi storey building, trade services could benefit from the expertise that other professionals have been trained for.
Setting up reliable systems and processes is essential to the growth of any business, especially trades services who have so much outlay at stake. With this in place you can rely on extracts across your systems to produce reliable cash flow forecasts and “what if” scenarios.