For most tradies, running your own small business is seen as the ultimate dream.
But when it finally comes to being out on your own, managing finances can feel more overwhelming than using several power tools simultaneously.
In fact, trying to juggle being on the tools with the money side of running a company can throw a spanner in the works for even the most business-savvy tradespeople.
That’s why managing costs effectively is a key foundation of operating as a sole trader, with financial planning essential to building a successful business.
So whether you’re just getting started as a sole trader or have been in the game for years, build-it has compiled these financial planning essentials every solo tradie must know.
Budgeting
Laying down an accurate budget is as essential as getting your levels correct. A proper budget becomes the blueprint for any successful trade business, which helps to know where your money is going and ensures you don’t get caught in a cash flow demotion.
Whether you’re planning to start your own business, trying to plan out expenses or tackling your next tax return, a solid budget keeps your finances as safe as houses (and we’re not talking about those dodgy new builds).
Managing taxes
Doing your tax return is the overtime no tradie wants.
As a sole trader, you’re responsible for everything regarding your business —including reporting your income on your tax return.
Keeping track of deductions, such as equipment costs, management software, travel expenses, and super contributions, can reduce your tax liability significantly.
If you’re running your own show, Build, it says it’s essential to engage a good accountant to ensure you’re hammering out the correct numbers at tax time.
Cash flow management
Managing cash flow is another key pillar of strong financial planning.
Use a consistent system for tracking cash flow and keeping on top of your business ingoings and outgoings. This could be anything from an Excel spreadsheet to cash flow software, and it will help prevent any large losses.
Another easy tip to use to manage cash flow is to separate your personal account from your business bank account. Letting everything go into one account is just like mixing up your screws and drill bits – it only makes things harder when you need to find something specific later.
Insurance musts
Having the ‘that won’t happen to me’ attitude is one the quickest ways to see your business wind up in hot water.
That is why having the correct insurance is one of the most must-have tools when starting any trade business.
Good business insurance acts as a safety net for your workmanship, giving you a financial shield if you make a mistake that damages your client’s property or land.
Income protection insurance is also essential because you don’t get sick or personal leave as a sole trader.
If an injury or event prevents you from working, income protection ensures you can still put food on the table.
Even if you are insured, sometimes compensation can take a while to process – so Build-it advises you to set aside money for emergencies just in case any unexpected expenses arise.
Invoicing importance
Don’t let unpaid invoices slip through the cracks in your business.
Ensuring you get paid on time is the fuel that keeps your business running, so it’s essential to have a management system to keep track of outstanding owed payments.
Making sure your invoices are clear, accurate, and sent out in a timely manner is the best way to ensure you get paid on time and avoid any unnecessary delays that could bite you later on.
Build-it advises ensuring clients are aware of clear payment terms before larger works commence and promptly follow up on any overdue invoices.
A great way to do this is by purchasing invoicing software, which can help automate the process. Alternatively, invoicing and payments can be offloaded to a management company that can handle this headache for you.
