One of The Top Reasons New Businesses Fail – Cash Flow

An estimated 82% of small businesses fail because of cash flow problems. But often, cash flow isn’t the real problem – it’s merely a symptom of a bigger issue: poor cash flow management.

The great news? There are several steps you can take to start improving your cash flow management and avoid becoming another statistic.

Work with the Right Customers

Are you working with customers you should not be working with? If so, you could be hurting your cash flow.

Many construction businesses make the mistake of accepting jobs that are 50 or 100 miles away just because they fit their average ticket amount. 

But have you taken the time to cost the gas, wear and tear on your vehicles and other expenses to travel that far? If the job is in another state or jurisdiction, did you account for:

  • The liability that comes with different codes that may be in effect there?
  • Differing insurance requirements?
  • Contract legality that may not be valid there?

Overlooking these additional costs and concerns can hurt your cash flow. You may find that these jobs are costing you more than they’re worth.

Traveling far distances for work isn’t the only issue here. When construction businesses are struggling for work, they will often accept jobs with clients they know will be difficult. Is the job worth it if you have to rework the job twice to make the client happy?

Working with the right clients will help you maintain a steady, healthy cash flow. But if you really want to give your cash flow a boost, you need to take a closer look at your expenses.

Check Your Expenses

In any business, it’s easy to overlook expenses that are eating away at your cash flow little by little. When was the last time you looked at the transactions that are flowing into and out of your account? 

Take the time to review your expenses carefully.

  • How much are you paying in merchant fees from customers who are paying with credit cards?
  • Are you still paying for subscriptions that you thought you canceled years ago?
  • Are there any suspicious charges? Fraud is more common than you think (63% of businesses were victims of check fraud in 2022), and you don’t know if you’re a victim if you’re not looking.
  • Are there any other expenses that are unnecessary? 

Take an honest look at your outgoing transactions and see if you can find areas to cut back on. You can’t eliminate all of your expenses, and there will be areas of your business that you don’t want to skimp on. But even for necessary expenses, there may be room for negotiation with vendors or providers to reduce these costs.

Reducing your expenses will instantly free up cash flow.

Streamline Your Job Costing

Is your pricing where it should be? Could your job costing process be streamlined and improved?

If you’re not looking at all the different aspects of a job, you may be hurting your cash flow.

Take a look at your last job. Ask yourself:

  • How much were the supplies and labor?
  • How much did I charge the customer?

Did you underbid? Did you ask for enough money upfront (with a cushion) to cover the cost of supplies and materials before the next payment? 

Improper costing of materials and labor is just one potential problem. What about project management? 

Poor project management can delay projects, lead to cost overruns and leave clients feeling unsatisfied. All of these outcomes can impact your cash flow. 

If you haven’t done so already, take the time to optimize and improve your project management to ensure it covers all stages of the project:

  • Planning
  • Execution
  • Monitoring 

Efficient and proper project management will help keep your projects within budget and timeline constraints.

Focus on Recurring Revenue

If you’re in the construction industry, recurring revenue may not be the first thing that comes to mind when thinking about improving your cash flow. But, there are so many opportunities to improve customer lifetime value and generate revenue on a regular basis.

For example, let’s say that you put in a new deck for a client. Could you offer to do ongoing maintenance for that deck? Maybe you could offer complementary services like mowing, landscaping, or snowblowing. 

These are great opportunities to generate recurring revenue while providing value to clients and improving customer satisfaction.

Prioritize Customer Service

Neglecting customer service and communication can ultimately have a negative effect on your cash flow. How?

When your communication and service aren’t on-point, there’s a higher risk of:

  • Dissatisfaction
  • Misunderstandings
  • Disputes

Unhappy clients aren’t likely to return and may wind up costing you more in the long run.

On the other hand, high-quality customer service and clear, consistent communication will create a positive experience. Clients will be more likely to refer you to others, and they’ll be more likely to hire you for their next project.

Repeat business and referrals can help you maintain a healthy cash flow.

Prioritizing customer service is essential, but don’t overlook the importance of getting reviews. An estimated 86% of consumers read reviews for local businesses. If you have just a few reviews or, worse, none, then clients may reconsider hiring you.

Keep in mind that even if you prioritize customer service and do everything in your power to provide a great experience, you may still have unhappy clients. When clients are not satisfied, do your best to make things right, find out what went wrong and see if you can find ways to fix things.

Final Thoughts

Cash is king, but many businesses fail because they overlook the importance of proper cash flow management. While cash flow issues are often a part of a bigger, more complex problem, there are steps you can take to prevent cash gaps.

Start by working with the right clients. Rein in expenses, streamline your job costing process, find ways to generate recurring revenue, and provide clients with a great experience. If you adopt these strategies, you can start improving your cash flow immediately.

To learn more about how Blue Dove Consulting Group can help you with cash flow management, schedule a call here

Ready to take control of your financial future?

Contact us today to learn more about our expert financial planning services and to schedule a consultation with one of our experienced planners.
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