Keep on top of your cash fl ow with Rick

Rick Smith is managing director of Forbes Burton Bring in the money Ensuring you get paid on time is an increasingly vital part of the job for any electrical contractor. Th e trick is eff ective bookkeeping and early intervention with late-payers, says Rick Smith

Cash fl ow stumbling blocks are all too common, especially within the electrical contracting sector. The sad reality is that more than half of SMEs don’t survive longer than fi ve years, and poor cash fl ow is a very good early indicator of things going downhill.

Taking a step back and considering your options for improving this situation can work wonders. Cash fl ow problems usually exist because of those niggling debts that can’t be recovered. Unfortunately, many contractors and those starting out in trades have to seek help to avoid defaulted payments, and things can quickly spiral out of control if action isn’t taken. The following tips can help you protect yourself.

BOOKKEEPING BASICS

Bookkeeping, although an arduous task, is often an area where businesses trip up. Many directors simply feel that they don’t have enough hours in the day and assume that they can catch up with this later. This is often the root cause of cash fl ow problems.

It is so important to put a few hours aside to work on your company rather than in your company. As long as you have caught the issue in time, there are things that can be done.

NEGOTIATE PAYMENT TERMS

Recent high-profi le collapses of companies such as Carillion, as well as warnings being issued for other big names, should be enough to warn anyone off accepting contracts that aren’t signed, sealed and promised to be delivered.

In the case of a smaller company, this doesn’t mean having to refuse custom if credit records are poor, but you should always put measures in place – such as deposit requests or partial invoices – to avoid problems further down the line. The nature of electrical contracting means the latter option should be acceptable as clients and customers see physical, tangible progress on projects.

EFFICIENT CREDIT CONTROL

It might sound obvious, but you should always have credit control systems in place to collect any money that is owed from customers. Prioritising the effi ciency and eff ectiveness of this system is important, especially if your company is in its early and most vulnerable stages. This is often the time when your reputation doesn’t precede you, yet contracts are hard to acquire and funding is critical.

As long as you keep your books up to date – which you always should – the process is usually straightforward. However, this is not always the case. Many companies simply need to set aside time to administer reminder emails and letters, and to pass anything that is overdue to recovery fi rms quickly. The sooner this kind of action is taken, the better.

SPREAD THE RISK

It’s important not to keep all your eggs in one basket. Getting a lot of work from one source is great, but if that source collapses you need to have your back covered. The same goes for your suppliers. Have multiple suppliers that you can fall back on, should your primary supplier go under. Planning for the worst eventuality will ensure that your business won’t share the same fate as others that have failed to prepare for the future.

As long as you are aware of these issues, you can tackle them head-on. Having this under control means you can focus on what’s important: running your business, doing a great job and exploring new ways to diversify or innovate.

Running a small business can be massively stressful and hugely rewarding – often both at the same time. We always recommend seeking professional advice if you’re unsure how to move forward with your business fi nances. Catching problems early and treating them can save you thousands, and allow you to keep growing into the future.

‘Have multiple suppliers that you can fall back on, should your primary supplier go under’