Five cashflow strategies you need to know

In other words, 69 percent of those businesses failed, not because they were making losses, but because they ran out of money to pay suppliers, wages, and other expenses to keep going. With better cashflow many of those businesses likely would have survived.

Doctors know that without oxygen, water, and food you cannot survive. Without oxygen, the average human will last around three minutes, without water for three days and without food, three weeks. It doesn’t matter how fit or healthy you are now; without these three essentials you will not survive.

Cash is the oxygen that keeps your business going. Not convinced? How many days would your business last without cash in the bank? 

Here are five proven cashflow strategies all tradies need to keep the bank account full and stress levels low:

1. Watch the canary in your coal mine

Coal mine workers would always take a canary in a cage into the mine to see if it was safe. This was their early warning sign, if there was a lack of oxygen and or dangerous gases the canary was the first one to be affected. If the canary died or looked unwell, they would drop tools and act immediately while there was still time.

The canary for you might be that you’re behind with bills every week, have too many overdue accounts, or get a warning letter from IRD. These are signs that need immediate attention. It might mean calling the IRD, chasing overdue invoices, or getting more work. But don't leave it, act now before cash flow gets out of control.

With our clients, we always equip them with our tradie dashboard. This gives a snapshot of their business and identifies early warning signs where cashflow may need attention.

2. Ensure your rhythm supports cash flow

In music, rhythm is defined as ‘the underlying structure that all the other elements of music are held together by’. In business, you have a rhythm for cash flow. But is it one that supports or hinders your business?

Are you always scrambling to pay wages, chasing the next dollar to stay ahead? Waking up at 3am realising you forgot that your GST return is due tomorrow?

Or is it a symphony where your business is predictable with a steady flow of cash to pay all the bills and then some? Where large jobs have payment terms structured with cashflow in mind, invoices are always sent out on time, a team member regularly follows up payments and there is a healthy cash buffer in both your cheque and tax accounts.

With the right systems in place, you can have a predictable rhythm with less stress and a healthy cash buffer.

3. The numbers are your guide

Your numbers show you how much cash you have available and what is required in the future.

You should be watching your cash position (what’s left after you’ve collected all money owed and paid everyone), cashflow forecast (what your bank account is going to look like over the next few weeks/months), overdues, profit and loss (are you making money or digging a hole?).

Make sure your numbers are accurate. I often see builders who have profit figures that look great one month and terrible the next. This can be a timing issue when deposits are taken or invoicing stages on larger projects and can skew your figures, big time. We usually have a work in progress calculation added to the profit and loss to allow for this.

Over 50% of the time, I find new clients’ numbers are wrong. Wrong information leads to bad decisions. You don't want to be buying that new ute and then discovering there’s not enough to pay the taxes due next month.

4. Make sure you have the right map

Once you have the numbers, identify your location and where you want to go - a map will show the way.

If you are travelling from Auckland to Dunedin by car, and you only have a map of Canada, that's not going to help. Many tradies are using the wrong map, or no map at all, for their cashflow.

One of my clients had plenty of work on but was worried about increasing the team, even though the work was profitable. The problem is they were using an old roadmap, which was ‘grab anyone who is available and hope it works out’. It didn't.

This time is different; they have the right map now, which is a system for attracting and identifying the right team members and a cashflow forecast so there are no surprises when payroll comes around. They have identified the best and most profitable jobs and are building a cash buffer for a few weeks while new team members get up to speed. It is all geared to optimising cashflow.

The right map will guide you on the direct path, without all the wrong detours in between.

5. Don’t let your emotions tank your bank account

Do you go into a tailspin every morning when you check the bank account and get crazy frustrated at having to follow up with the late payers yet again? That voice in your head starts playing again. It's just not fair… we work so hard! Why us?

Or maybe you know you need to get into the office and do that invoicing you’ve been putting off all month but decide to stay on the tools instead. You get home and argue with your partner (who pays the bills) about why there is no money in the account and then feel guilty for the rest of the night that you still haven't done the invoicing.

Procrastination kills momentum, splits your focus, and creates emotional thinking rather than being strategic.

The bank account doesn't care how you feel or how hard you work, ultimately it's just a reflection of the choices (good and bad) you have made in the past, the systems you have put in place for collection, the clients you decided to work with, the overdraft facility you arranged or the types of jobs you took on.

When you replace emotion with strategy, cashflow gets much simpler and less stressful. Master this game and your business and bank account will improve significantly.

Many things can disrupt short-term cashflow as the last couple of years have proven, with shifting schedules, material shortages, losing or adding key team members, holidays, lockdowns, sick leave, or maybe you are in a growth phase. These all affect cashflow. With the current uncertain environment, it's essential to have plans in place to handle cashflow.

One of my largest clients is very profitable and has grown significantly over the past few years. At times, they still struggle with cashflow. But because of these principles and systems we have put in place, they have been much better equipped to handle the surprises that have come their way.

Cashflow is the oxygen of your business, make sure you get it right and your business will thrive.