Cash flow is one of the four levers that need to be mastered in order to build a successful high-performing trades business. For something so simple, cash flow is one of the hardest things for many business owners to manage (confession: I was one of them who got it wrong too!) but it can also have the biggest impact upon your success, especially if it’s not being managed well.
So, what is cash flow, why is it so important, and what can you do to make it better?
Put very simply, cash flow is the movement of money in and out of your business. Money comes in when customers pay for the work you’ve done for them, and it goes out to pay for the things you need to run your business.
Cash flow is important because you need to be able to access money to keep your business running. If cash flow is positive, it means invoices are being paid on time and you have enough money coming in (from customers) to pay your outgoings. On the flip side, if customers don’t pay on time, cash flow will be tight and you won’t be able to pay your own bills.
Perhaps the most frustrating aspect about cash flow, it really doesn’t matter how hard you’re working and or how much you’re billing out each month - as if those invoices aren’t getting paid and there’s no money coming in you won’t survive very long. If you start missing your own bill payments, it won't be long before your suppliers put you on stop-credit, new jobs will stop coming in because you won’t have the materials you need to do them, and paying your staff will become increasingly difficult too… It’s a harsh reality, but a real one that I had to learn myself on the road to success.
I read this saying somewhere a few years ago which rings true: “The pen is mightier than the sword." You might be wondering what that has to do with cash flow, or running a trades business for that matter, but think about it this way. You can spend all day working on the tools or "wielding your sword", but until the paperwork is signed and delivered it isn't worth anything. Yep, let me say that again: the work is worthless until the invoice is sent. The lever that releases cash flow is simple, it's triggered when the data is entered and the invoice is sent. The recurring cash flow problem I had in my business stemmed from this issue, and I know plenty of others who have been in this position too.
So, if cash flow is a problem and you need to make some changes fast, my number one tip is to get invoicing!
Invoicing daily is vital to maintaining positive cash flow and it should be one of your main priorities.
If you’re slow getting the invoice out to the customer you can bet they will be slow in paying it, which is bad news for cash flow. Getting the right systems and processes in place to make it happen isn’t always easy, but the effort is worth it and the impact will be huge, I promise!
For inspiration on effective invoicing processes, check out our tips on how to invoice like a pro.
Fergus helps thousands of trades businesses knock out their invoicing and get paid faster. If you want to learn more, start a free trial today!