The financial side of running a trade business can be challenging and complicated, but it’s important to get it right, otherwise you could end up losing money.
Research by ElectricalDirect found that almost three-quarters (74%) of UK tradespeople don’t feel confident handling their company finances, and many have ended up making a loss on jobs because of pricing errors (25%).
With this in mind, the electrical retailer has partnered with Rick Smith, Managing Director at Forbes Burton, to share five pieces of expert financial advice for tradespeople as we head into 2023.
Be stricter with invoices
Rick says, “As a small business owner, your income depends on the payment you get from your customers. However, getting funds from your clients on time can be difficult, and this can cause a strain on your mental health and wellbeing.
“To avoid this problem, it’s best to try and implement a ‘50% up front’ policy. Doing this will help maintain a steady cash flow. It will also help you identify genuine customers interested in your product or services. Thus, you save time, resources and money.”
Look after your cash reserves
Rick continues, “Your most important asset as a business owner, is your savings. You can rely on your savings in difficult times or when you need to handle unexpected expenses. Besides that, you can also take a break when you need or want one. It is crucial that you have cash reserves as they allow you to handle these expenses.
“If you want to be comfortable, it is advisable to save 30% of your earnings each month.”
Pay your taxes on time
Rick comments, “Tax returns are usually put off for a long time, and you will find this last on the to-do list for most people. Voilà, it’s another year, and you are rushing to submit your tax returns with just a few days to go, which may turn out to be larger than your expectations.
“The easiest solution is to prepare your tax returns as early as possible after 6 April. Doing this will help you handle this critical task on your to-do list efficiently and quickly. Also, it informs you of the amount to pay the following January. Therefore, you get to avoid any horrible surprises, and you have a lot of time to save if the need arises.”
Try to think ahead
Rick concludes, “We’ve learned from the previous few years that the financial landscape is anything but predictable. Thus, you need to have plans for different scenarios that may happen in 2023 as a business owner.
“How much money have you saved for possible eventualities? What kind of help or options are available? There is no such thing as being over-prepared.”