For your plumbing business to stay in operation, you need to have the cash on hand to pay your employees, purchase tools and equipment, and cover the other overhead costs. Focusing solely on sales is not enough. You need to dedicate some extra time to managing your cash flow to keep your business afloat.
Cash flow management is the process of tracking how much cash is entering and leaving your business within a particular time period. If you are cash flow positive, it means you have more money flowing into your business than leaving it. A negative cash flow indicates that you have more cash leaving your business than entering. In this situation, you might not be able to afford your monthly bills and expenses – and in time, your business will not be able to operate.
Ideally, you should aim to be cash flow positive at all times. However, there might be seasonality in your plumbing business or your cash collection process might not be optimal. Finding ways to boost your cash flow should always be a priority. Here are our top tips for boosting cash flow for your plumbing business.
1. Streamline your invoicing process
By making your invoicing process more efficient, you will be able to improve your cash flow significantly. The faster you invoice your clients, the quicker you will get paid.
You can enhance this process by generating your invoices immediately after a job is completed and sending them electronically to your customers so they receive them faster. You can invoice your clients using your management software like Jobber or your accounting software like QuickBooks Online.
Ensure that the invoice clearly states the services rendered, the payment amount, and the currency. The invoice should also include the due date and the required payment methods, such as credit card, pre-authorized debit, or cheque. You can further speed up the invoicing process by including payment links directly on the electronic invoice. This will allow clients to pay immediately.
2. Follow up regularly
Cash that is tied up in your accounts receivables is cash that you could be using to pay your employees and pay your expenses. You need to make sure that you are following up regularly with outstanding invoices, so they get paid instead of becoming bad debt.
Following up on late payments can be awkward and time-consuming. However, you should still dedicate time each week to follow up with clients that are late on their payments. Making this a regular routine can help keep your cash flow healthy.
You can also take advantage of automated payment reminders and have these sent out to clients a few days before their invoice is due and right afterward if payment still hasn't been received.
3. Charge a deposit
If you are working on a long-term plumbing project, you can charge a deposit to your customers to help optimize your cash flow. If you need to purchase parts or tools for the project, charging a deposit upfront can help you offset these costs.
For example, suppose you are waiting for an electrician or general contractor to finish up their work to pass a plumbing rough-in inspection. In that case, this deposit will allow you to have some additional cash flowing into your business during the waiting period.
4. Create a cash flow projection
To have complete visibility of your plumbing business, you need to create a cash flow forecast of the estimated cash receipts (money entering your business) and cash expenditures (money leaving your business) that you are expecting during a specific time period. These forecasts can be made monthly, quarterly or yearly.
These forecasts will give you a good idea of when your business will be cash flow positive and negative. They will allow you to plan in advance for the months where your cash flow might be tight and make arrangements for these situations.
5. Cut down on operating expenses
Reducing your expenses is one simple way to boost your cash flow. You can easily find ways to cut costs without having to compromise your plumbing business.
Reduce expenses through outsourcing
Outsourcing your non-core business tasks instead of hiring in-house can save you a significant amount of money. Tasks like payroll and bookkeeping can easily be outsourced to a third-party firm, just like Enkel. These outsourced teams can provide your plumbing business with the bookkeeping expertise you require at an affordable rate. Plus, you won't have to pay for benefits, deductions, and vacations.
Maximize your tax deductions
You can also hire an accountant to prepare your taxes during tax season. If your books have been kept accurate and up-to-date, your accountant can easily identify tax deductions for your business, allowing you to save money by paying less income tax.
Migrate to subscription based software
Switching from desktop software to a cloud-based program can also help you minimize your expenses. For example, instead of using desktop accounting software, you can move to a cloud-based accounting software.
Cloud-based programs usually charge a nominal monthly fee, while desktop programs require a significant upfront investment. This means that you have to invest much more money up front instead of paying for what you use each month.
6. Negotiate longer payment terms
Delaying payments to your suppliers can help improve your cash flow, but you need to find the balance between paying as late as possible and not incurring expensive interest charges. This requires you to stay on top of your payables and invoice due dates.
You can use a platform like Plooto to schedule electronic payments to your suppliers so that you can hold back payments as late as possible without them being overdue. This will keep both your cash flow and your vendor relationships healthy.
As a plumbing business owner, your services are in high demand. You likely find yourself traveling from job to job, assisting clients with all of their urgent plumbing issues. While you probably don't have a lot of extra time to manage your business's cash flow, neglecting it can cause you to have insufficient funds to pay your employees and expenses.
Fortunately, Enkel can help your plumbing business. We provide outsourced bookkeeping services to help you keep your finances and cash flow in check, saving you both time and money. Contact us today for more information on what we can do for you and your plumbing business.