Are you making any of these five mistakes in your trade business? Read on more to find what you can avoid.
1. Business Structure
It is critical that the businesses have the correct structure from the very start. Often starting out as sole traders, trades business owners overlook the importance of getting the right business structure in place. As the business grows, this leads to purchasing assets, vehicles and offices, plus extra employees. Here is when the structure is especially important so that businesses can remove personal risk from business risk, and the best business structure will minimize tax risks as well.
Same day invoicing is often overlooked as a major part of keeping cashflow flowing. Being so focused on the job means that the bookwork can take a backseat yet closing the delay between completion date and invoicing date is an easy way to ensure early payment and better cashflow.
3. Charge-out rates
Have you considered that your charge-out rate needs to cover holidays, sick days, overhead costs and paying your staff, plus make a profit at the same time? Most trade business owners undercharge as they have not fully calculated all the expenses. Customers will pay for a great service so there is not much to be gained from undercharging for your services. If your goal is to make a profit, have you worked out your charge-out rates and the jobs you must complete every month to exceed your break-even point?
4. Keeping the records straight
As with cashflow, keeping financial records is just as important, yet time on the job means downtime is not always for ‘bookkeeping’ and keeping records in order is often left in a box for ‘later’. Yet, how can you make decisions about your business without correct data or the means to gain a clear picture of how your finances are performing? Keeping your accounts in order has huge benefits for business planning and when talking to your bank about loans and getting your taxes straight.
5. Reviewing your financials
Money in the bank is not a good indicator of how well your business is running. If you do not keep track of all aspects of your finances, you can lose your way on decision making. Have you thought of a cash buffer by building cash reserves for risk management? How can you make projections and forecasting if you have no regular grasp on your financial management and where to make changes to grow profits?
At Fortuna, we have accounting tools and systems which we can recommend in order to help your businesses run better. In fact, we have helped one of our clients, Peter, an electrician, starting out as a sole trader after working for many years under another electric business establish a solid business. From issuing hardcopy invoices and being overwhelmed with paperwork of invoicing and debt collection after a hard day’s work on the field, Peter has now systems on his phone and iPad where he can quote with the right costings almost immediately after a client meeting, invoice and get paid in just a few clicks. Today, he is running a very successful business with multiple employees and projects, where he can schedule and plan resources from his desk, using the right seamlessly integrated tools.