You need to spend money to make money. We’ve all heard it said and it’s easy to brush it off. There’s a reason we hear it so much, however, it’s because it’s true.
If you’re working in the water damage restoration industry and you don’t have a health cash flow, your business simply can’t survive or thrive.
The cash you have on hand is so much more than a cushion. This is the money you will use to pay your employees, fund new work while you wait to get paid, and pay the vendors you rely on for supplies and equipment. Because of this, a healthy cash flow has to be a top priority in your business. It has to be one of your main considerations each and every time you make a decision. Here are the seven habits every business owner should practice to keep their cash flow healthy.
#1. Keep Track of Your Cash
Start with the basics. In order to keep your cash flow healthy enough to support your business between client payments, you have to know where you stand.
Meticulous records that detail your incoming and outgoing money, as well as an accurate picture of the cash you have on hand, are the backbone to avoiding a cash flow crisis.
#2. Plan for Future Spending
One essential element of tracking your cash is knowing how much you need on hand to fund upcoming business. In any industry that has a high upfront cost for getting work done, it’s a bad idea to rely on clients paying their bills to keep you afloat.
Instead, we recommend making spending projections. By predicting what upcoming business will cost you, you can determine if you have enough cash on hand to cover those costs while you wait for invoices to be paid.
#3. Come to a Formal Payment Agreement
When you run a business, your success relies on invoices being paid. This means that, when it comes to payment terms, a relaxed approach isn’t an option.
Entering a formal payment agreement that outlines a schedule for invoice payment should be a foundational financial principle of any small business. Before work begins, each homeowner (or the insurance company representing them) has to agree to these terms.
#4. Stop Work on Delinquent Accounts
In some cases, homeowners might happily sign the payment terms but then fail to honor the schedule. No one wants to be the bad guy, but a small restoration company simply can’t afford to keep working if they’re not being paid.
In this situation, keep the lines of communication open, letting the homeowner know you are excited to complete the job but need them to honor the payment schedule so you can fund the job. Stop all work and only resume once they’re all caught up paying for the work.
#4. Keep Extra Cash Handy
A healthy cash flow is so much more than having just enough to cover your expenses. In order to truly thrive, businesses need to have extra cash handy. The general rule is that a company needs to have 20 percent of their gross annual sales on hand if they want to avoid a cash flow crisis, as explained by Restoration and Remediation Magazine.
For brand new businesses, this will likely mean an investment on the owner’s part as well as funding from a bank. For growing businesses, this will mean making sure that your a putting your profits back into your business each and every month.
#6. Don’t Manage Your Money Alone
One trait of a strong business owner is understanding when to outsource. We believe that managing the finances of a small business is essential to healthy finances. Hire a qualified CPA from the birth of your business. Your accountant will serve as your honest third-party, with their sole job being keeping your business on track and helping you avoid a cash flow disaster.
#7. Make it Automatic
If tracking and managing your finances is a tedious, requiring a lot of time from you or your team, it is more likely to be neglected. The easiest way to make sure you stay on track is to make managing your money automatic. This can be done through the implementation of systems and processes that keep your team on track with the day-to-day tasks that are a part of smart business practices.
At More Floods, we’ve developed the operational systems that help small businesses in water damage restoration thrive. If you’re looking for help managing your finances, click here or call 1-866-667-3356 to learn more about the More Floods network.