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5 essential strategies for better contractor cash flow

A savvy business man once said “No sales, no company.” We can think of a more accurate way to phrase this business axiom: “No cash flow, no company.” Even if you’re growing and making sales steadily, if you don’t have sufficient cash flow, your business could be in serious danger.

Fortunately, there are ways to improve the way you manage your cash flow to ensure it works for your business, not against it. Here are five of our top tips for getting better at managing your small business cash flow so you can focus on growing your business.

Set payment deadlines based on the client and job

Every small business has a slightly different roster of clients and projects. Some contractors work cash flow.jpgwith many customers that each have smaller jobs, while others have just a few clients that request high-dollar work. If you are working on a large job that’s tying up a lot of resources, you’ll probably want to ensure you get paid from it sooner rather than later, and always consider asking for a portion of it up front before the job begins. On the other hand, smaller jobs that don’t require much time or resources can be put on the backburner when prioritizing your collections. 

Create a reserve pool when cash flow is steady

Every business has ups and downs – it’s the nature of business but especially a smaller one. To help smooth out these swings, you should create a cash reserve that you can dip into when things are slow. Likewise, when you have plenty of business and cash is coming in at a good rate, be sure to set some aside to fund that reserve. Dipping into your own reserves is much more desirable than taking out a loan when it comes to solving your contractor cash flow management issues.

Look into other forms of work

If you have been concentrating your business on one specific type of service, consider diversifying your offering. This is especially true if your main focus is on seasonal work like roofing or HVAC. You could offer guides, evaluations, audits, questionnaire forms, or complementary services to your main offering. Giving your business the ability to sustain cash flow all year is a great way to even out the up-and-down roller coaster of a seasonal business.

Keep accurate records and update them often

At minimum, you should know how much money you’ve brought in, what you owe, and what you’ve spent on a daily, weekly, and monthly basis. There are plenty of free and low-cost software tools that make it easy for small businesses to handle their bookkeeping, but if you really dread numbers and accounting, consider outsourcing the task to a professional who specializes in running the books for companies like yours. Local bookkeeper associations and your local Chamber of Commerce can be good resources. Your best resource, however, could be to get referrals from people you know who have small contractor businesses like yours.

Work with a home repair plan company

Companies that sell home repair plans or home warranty plans have a consistent need for reliable contractors who consistently do good work. If you become part of a home repair plan contractor network, you could receive steady work that will help improve your cash flow. Since many companies pride themselves on paying contractors quickly, you would unlikely have to worry about delayed payments negatively impacting revenue streams.

Cash flow is a key element of any good business plan.  In the coming weeks we'll be publishing a Special Report with even more tips for managing cash flow, so be sure to watch your email.

If you want to look into working with the nation’s premiere home repair plan contractor network, visit HomeServe USA’s contractor portal to fill out the short application.

 

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