If you’re running a business – big or small – you could be losing money in places you haven’t thought about. PTP Partner and business advisor, Joe Seccull, shares three things to look out for.
Are you monitoring work in progress?
How much work do you have on the go at the moment? If you have plenty of work underway but it’s going to be a while before those projects are finished, it may mean that you won’t be able to invoice for the foreseeable future. This puts a real dent in your cashflow.
Our advice? Carefully track all your work in progress so you can accurately monitor costs along the way. You can use your accounting software if it has that capability, or an Excel spreadsheet that captures time and materials costs is fine. If you are juggling multiple projects, or they are becoming more complex, it might be time to upgrade to a specialised job costing software. This kind of software means you’ll have a clear idea of how close to completion each project is and when you can get each project over the line. You’ll know when you are going to be able to invoice and to reinvigorate the cashflow that is your business’s lifeline.
Does your invoicing take too long?
The cashflow cycle is king – that’s the time from when you start a job to when you finish and collect payment. For some businesses, like retail where payment is usually made on the spot, the cashflow cycle is quick. But for a lot of other businesses, the cycle is longer.
For example, you might quote a job, then do the work, and then submit an invoice and await payment. One area where businesses lose money is when they complete a job or project but don’t submit an invoice immediately after they have provided the service or product.
This tends to happen a lot in trades-based businesses. You might be a plumber who’s busy juggling jobs and you’re so focused on completing one job and moving on to the next that you don’t put time aside to think about invoicing. This affects the amount of money you have available in the bank. So make sure you are invoicing regularly so you don’t compromise your cash flow.
Are you underquoting?Let’s say you’re an electrician and you quote a customer $500 for a job. But that job actually costs you $600 in labour and parts. However, because you are concerned more about securing further jobs and getting them done to keep your business going, you keep quoting $500 even though your costs are rising.
Over time, you lose money and miss out on potential profit, but you won’t know this unless you track your job profitability.
Our tip? For the next three months, keep a manual spreadsheet, or use a specialist job tracking software to track the cost of each job versus what you actually charge, taking into account your material and labour expenses. Then review the numbers. Do they add up? Are you making as much money as you think you are? Or are you going backwards?
If you don’t want to charge your customers more, you either need to source cheaper materials to reduce your costs, or get quicker at doing the job to increase your profitability.
When you’re running a business, there are lots of areas that you need to closely monitor to ensure your business runs smoothly and successfully. But keeping a close eye on these three key areas can certainly help your business performance and profitability.