15 Nov Guest Blog: 4 Strategies To Help Trade Businesses Deal With Cash Flow Issues & Maximise Margins During The Covid-19 Pandemic
What I hear most often while working with clients is Emma, “I’m making plenty of profit, and have plenty of work, but we never have any money. As soon as money comes in the door it gets packaged up and sent right back out.”
I don’t know about you but working for good money only to not keep any is very frustrating. This is why I started The Trade Accelerator. My goal is to give you clarity on your business numbers. In this article, we are going to cover the frustrations and common challenges trade business owners experience, and then give you 4 strategies that you can implement today to start keeping more of your hard-earned money.
You’re already really busy, so busy that you just don’t have time for anything other than working. Surely if you’re working these long hours, you should be seeing the money. However, bank balances are low or even negative all month. To fix that you go out and get more clients. With more clients comes more work. Now you’re even busier and since you have more jobs you need to pick up more materials, buy more tools, and equipment, just to service all these new clients. This challenge becomes a profit chasing cycle.
You start asking yourself:
- Why hasn’t our revenue increased?
- Why aren’t we able to pay ourselves now?
- Why are we still in the overdraft?
How did we get here?
There are 2 main reasons. The first is that you haven’t found your niche in the market, and the second is that you don’t have 100% clarity on your costs.
In the past the market was a big pond full of lots of customers and only a few competitors. It was pretty easy for you to get work and be profitable. Now it’s a lot more complicated.
Now, the market is crowded. The pond is the same size, but there are loads of fish (competitors). With this saturation, your competitors are willing to drop their prices just to win jobs. The customer now expects the cheapest price. You probably hear “I found someone cheaper” quite a bit.
Many businesses will start to diversify by adding additional services to win more jobs. Between us, customers don’t know who to choose. They just pick the cheapest option and go on their merry way.
This casting a wide net strategy does not work. You need to swim somewhere less crowded and stand out by being specialists in your niche. Customers are willing to pay a premium for specialists.
You have to know exactly what is making you money. When you price low you often forget to include additional expenses that need to be paid from the gross profit on your jobs, such as liabilities like taxes, debt payments, and sales tax. Suddenly you’re in the negative and your income isn’t covering your outgoings.
The only way you’re going to know these numbers is by doing a cash flow plan. Negative cash flow is a direct result of picking up cheap jobs without having clarity over the costs. What’s the point of fighting over all of those potential customers if you’re not even making money?
I have four strategies that you can start implementing into your business to combat this issue. As a disclaimer, this is for people who are willing to be open-minded and who are willing to change what they are doing to see results.
Strategy #1: Time Management
Before making any strategic changes, you need to take time to implement changes and then find additional time to execute these changes. Like I said before, many of you are just in the cycle of working long and hard without turning a profit, trying to figure out where the money is going. Like this quote says. Lack of direction, not lack of time is our problem. We all have 24 hours in a day. How is it that in that time some people have profitable businesses and others don’t?
The solution that I found to be the most effective is planning your week in advance to open up time to work on the strategy of your business. This might sound really simple, but sometimes we need to get back to the basics. Time management creates time to implement change. We feel more in control and realistic about what we can actually do in a day and having a plan makes us feel less stressed and less overwhelmed.
How do you do this? Start by breaking your daily to-do list down into hourly chunks. Planning your time highlights what is taking up too much time and discover what is causing distractions. Common issues include not pre-qualifying leads which results in spending all of your time quoting jobs, trying to multitask, job inefficiencies, not delegating, and poor team communication.
Let’s talk about multitasking. How often do you shift gears or find your head in the wrong place for an activity? Studies show that when your brain is bouncing back and forth between tasks you become less efficient and more likely to make a mistake. In fact, researchers say task switching actually lowers productivity by up to 40%. Single-tasking is the new multitasking.
I always recommend grouping similar tasks together. For example,
- Checking and responding to emails. Something that I learned from another business coach is to only check my emails twice a day. If someone has to wait 24 hours for a reply, it’s not going to be the end of the world.
- Block out time and go through a list of everyone that you have to call, everything that you need to order, and everything that needs to be organized.
- Another block of time could be marketing because anything really creative requires a different mindset. I know when I’m creating content, I have to block out quite a few hours to do this efficiently.
- Then another block could be anything to do with the numbers like accounting, quoting, and invoicing.
Another thing that can take up your time is not delegating. There are three reasons business owners don’t delegate.
- Fear of failure
- We find it really hard trusting our team members because we put so much effort and love into the business.
- We’ve always been involved in every detail.
If we focus on perfectionism we’re never going to be happy. Nothing can match our highest standards, we really need to strive for excellence, but not perfection because it will never be achieved.
You need to learn to let go and trust your team. Set up processes to keep track of what’s happening, review progress and make yourself available to support your team members. Set really clear expectations. I’ve seen many leaders complain about a team member not completing a task properly or completing it badly. The irony is that often the employee never had clear expectations in the first place.
How can we support our team without micromanaging?
- Weekly team meetings or calls.
- Decide what form of communication works best for you and your employees.
- Do a really quick end-of-day summary.
- What’s been completed today?
- Any challenges that they faced?
- Anything that they need help with?
Strategy #2: Know your numbers
Many business owners make decisions about their business based on assumptions which by definition is a thing that is accepted as true or certain to happen without proof. Making decisions based on assumptions without really understanding the numbers is folly.
A lawyer would never turn up in court without having done their research. If they went to court and presented their side of the case based on assumptions alone, they would lose the case. They spend time understanding the situation and gaining clarity on facts.
It’s exactly the same thing in business. Most businesses focus on the Profit and Loss report. Unfortunately, it doesn’t give us the full picture, it misses the liabilities, tax savings, and any employee payments. None of this is shown on the profit and loss statement plus it covers past information. You need to be looking at the future and what’s coming and only reference the past.
Using numbers can identify where your business is leaking money. You’ll see which products and services are making the most and the least money. You have a better understanding of how your business can meet objectives.
Numbers-based decisions can increase your profits without making any additional sales. You are also able to identify who is making you the most profits. Some jobs go really well and we gain good profits, other jobs are not so good. We need to start separating the good from the bad to help us make decisions on what jobs to pursue.
Strategy #3: Specialising
Specialisation leads to more narrow expertise, which makes it easier to market a business and attract the right customers who are willing to pay a premium for your expertise. If you identify with a group of people or businesses in a specific niche that has a solvable problem, and that’s all we do day in day out, then we become the specialist, and people pay more for that.
Why specialise? Let’s say you just bought your dream house, a new car, and all new furniture. You live there with your wife/husband and 2 kids. You have worked hard to get to this point and want to protect all of your assets.
So, now I’m looking for someone to come install an alarm system at my new home. Do I choose the electrician who does residential, commercial, and alarms?
Or would I be better off choosing a home alarm specialist who specialises in that daily? I know who I would choose.
Here are 5 great reasons to specialise:
- Stronger Value Proposition – Providing a unique solution to a specific group means you have added value to that consumer.
- Smaller learning curve – Doing the same or similar tasks on a daily basis will increase your efficiency and you’ll make fewer mistakes resulting in more profit.
- Higher perception authority – Customers will see you as the expert which allows you to charge more and take on fewer clients.
- Higher Conversions – Your specialty will be sought out by customers. They won’t google plumber, but rather stormwater or bathroom renovation specialist. This automatically gives you an advantage.
- Better Networking – When you specialise you will interact with a lot of professionals in the same areas of work, and then they will be able to refer your services to those who ask.
The more we do the same type of work and create a targeted offer, the easier it will be for clients to find us and need our services. Start to think of what jobs you do the most or you get the most referrals for. This can be turned into your unique offer. If you need help figuring out what it may be, please reach out.
Strategy #4: Get your message right
Many businesses are just shouting at the market, but all the market is hearing is noise. Your message needs to resonate with your ideal clients. It needs to be perfectly tuned to be able to cut through the noise and get the attention of those willing to pay a premium.
There is a mindset required for this, and it’s important to be open-minded. Lots of businesses say ‘I can’t charge more than x amount per hour because that’s the going rate in the market’ or ‘Our customers want us to provide lots of options for them’. This is close-mindedness. There’s an alternative to following what everyone else is doing.
Consider popcorn, you’ve got the raw material popcorn which is just kernels at 52 cents. Then we’ve got movie theatre popcorn, which is more expensive because it’s a delivered solution. It’s a finished offer, costing $4.55. You’re providing the materials but also the expertise. You need your offer to be movie theatre popcorn, the solution to a problem.
How do you communicate this? At the end of the day, people really don’t care if you’re an industry guru or if you have 5000 Facebook followers. All they want to know is that you can solve their problem. All your messages need to communicate this solution. First, establish exactly what the problem is. Then communicate how your service solves the problem. Remember people don’t buy a shovel to have a shovel, they need a hole. Even if this creates less work, bigger profit margins means that you need fewer jobs to be profitable. Specialising increases your efficiency.
If you identify a problem that needs to be fixed, there may be several new audiences who need your services. All companies specialise in something, maybe you don’t really think about it but they do.
Now that your message is crystal clear, where do you need to be sharing it? As a former bookkeeper, I specialised in helping builders to increase their profit by having the right tech to analyse job costs. If I were to go into a market and shout out my message and what I did to just a random bunch of people, I would probably not get any attention.
If I went into a room full of builders, then the result would be completely different. Specific solutions require specific audiences. If you implement these four strategies together, it results in increased profit, time saved, and better clients. This makes clients more rewarding and you can get back to enjoying both your job and your life.
Do you still need help doing this? Let’s connect to discuss financial business coaching where I guarantee you will really understand exactly where your money is going. Once this is done you’ll save time, fix cash flow issues, and get clear on your ideal client and how to properly market to them. I can’t wait to work together! You can email me at [email protected]