Trucking and construction businesses, particularly sole traders, face significant challenges in achieving long-term sustainability in Australia. According to the Reserve Bank of Australia (RBA), 25% of small businesses with employees established by June 2019 had ceased operations by September 2023. For sole traders, this figure was even higher, with 40% no longer in business.
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These closures can be attributed to weaker demand, rising costs, and difficulty finding suitable labour, all of which have heavily impacted small businesses in these sectors. However, poor management and inadequate cash flow remain the primary culprits for business failures, according to Leanne Hume, a small business accountant at Sydney-based Simply Numbers.
“You may have an excellent product or service, but if you don’t have enough cash or you’re not managing your cash well enough, you won’t succeed,” says Hume. “Without careful management and planning, the majority of small businesses will fail.”
Predicting your cash flow for the next 12 months is crucial. Here are some tips to help you stay on track:
Cash flow management forecasting
Tracking and forecasting cash flow should be a priority for any trucking or construction business owner. Managing cash flow allows you to estimate future cash availability and determine the funds needed to cover debts. It also helps you spot trends and address cash flow issues before they become crises.
Profit and loss projections
Accurately forecasting your profit and loss over the next 12 months is essential. This involves:
- Keep a close eye on your current financial activity to ensure accuracy in your forecasts.
- Develop achievable sales targets and pricing for future projects or deliveries.
- Use the results of your projections to tweak your business strategies for greater financial success.
Leveraging your existing accounting software
Most accounting software platforms, such as Xero, QuickBooks, and Sage, offer comprehensive insights and tools to help manage cash flow. If you’re only using these tools for invoicing and expense recording, you might be missing out on valuable features.
Most platforms also provide free tutorials to help you maximize their features. A session with an accountant or bookkeeper can set you up with advanced accounting software options.
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Low-tech cash flow management tips
While tech tools are invaluable, it’s important not to overlook the basics of cash flow management. Here are some tips to stay cash flow positive:
- Keep personal and business accounts separate.
- Monitor your expenses carefully, especially for large purchases like equipment or trucks.
- Stay on top of inventory and supply management.
- Maintain a reserve for unexpected expenses, such as vehicle repairs or project delays.
- Keep your books up to date and invoice promptly to ensure steady cash inflows.
- Stay on top of council requirements, insurance, registrations, and taxes.
- Have clear terms and conditions for payments with clients and suppliers.
- Maintain regular marketing efforts to secure new contracts and clients.
- Consult an accountant if you need assistance with cash flow management.
Use financing your equipment and vehicles to your advantage
In addition to effective cash flow management, financing your equipment and vehicles can provide several advantages for your business:
- Preserve Working Capital: Financing allows you to spread the cost of expensive equipment and vehicles over time, preserving your working capital for other essential expenses.
- Financing makes it easier to upgrade to the latest equipment and technology, which can improve efficiency and competitiveness.
- Many financing options come with tax benefits, such as deductions on interest payments and depreciation.
- By avoiding large upfront payments, financing helps maintain a healthier cash flow, making it easier to manage day-to-day operations.
- Financing options often offer flexible terms that can be tailored to your business needs, such as adjustable repayment schedules.
- Fixed monthly payments make budgeting easier and provide predictability in your financial planning.
- Depending on the financing arrangement, you may have the option to own the equipment outright at the end of the term.
By effectively managing cash flow and leveraging financing options, trucking and construction businesses can navigate financial challenges and work towards long-term sustainability. Talk to us today about how Equifund can help you improve your cash flow through financing, staying on top of your finances is key to business success.
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