Fixing common business problems

This article addresses three problems common to most of our clients and provides advice on how to avoid them

It can never be said that running your own business is easy. For all the perks of being your own boss, it’s a challenging venture.

However, despite the trials and tribulations, if everything goes well, it can be a source of great pride and satisfaction.

While every business and industry is unique, our experience working with the construction industry has shown that the problems they face are often similar to those faced by our other clients.

1. Cash collections

A reoccurring theme is the importance of cashflow. Without it, a business can’t operate – it’s that simple. Yet people often find it hard to chase up payments once work is completed.

Being too busy is never an excuse; if you haven’t been paid, then your top priority needs to be making sure it happens. Having a difficult conversation with a customer is never easy, but it needs to be done.

What can you do to avoid this problem?

Having a strong contract in place is a good starting point. Robust payment terms, alongside a description of what services are to be performed, put you in good stead to claim payments from even the most difficult customer.

Not only are they then legally obliged pay you; if the worst happens, enforcement of the contract should make payment a formality.

By describing the status of progress payments in your contract, as well as your terms of trade (when payments are due, etc) there should be no confusion. It should also eliminate the prospect of completing a job without being paid.

If a customer is missing progress payments, as outlined in your contract, that’s a big clue there could be problems ahead. If this happens, you can take various measures to protect yourself.

2. Project overruns

Nearly every tradie will experience this during their lifetime. A project has gone over, the final progress payment has been received, yet you’ve still got a lot of work to do and not much money to cover it.

What can you do to avoid this problem?

This situation is a case of: how well do you know the project and your customer? If you maintain a strong involvement throughout the project, you’re in a much better position to determine if there is going to be an overrun in the first place.

If the problem comes down to customer changes and other issues that are out of your hands – inefficiency is not a customer’s problem – then there may be scope for renegotiating costs.

If you identify problems in advance, the conversation with your customer is much easier.

However, if you only discover issues at the end of a project, you can guarantee that they won’t be open to receiving further invoices over and above what was agreed.

 

“Having a strong contract in place is a good starting point. Robust payment terms, alongside a description of
what services are to be performed, put you in good stead to claim payments from even the most difficult customer

 

3. Paying suppliers

Paying suppliers is often a product of the two points outlined above. If you’re earning good money, paying suppliers is simply a formality. If you’re not, things can get complicated very quickly.

If you are demanding payment from customers on certain terms, then suppliers have a right to expect the same. If you aren’t going to be able to meet a payment, then something needs to be done about it.

Waiting for the debt collectors to call is not a viable alternative – your reputation will be tarnished and no one will want to work with you.

What can you do to avoid this problem?

A better option is to work through any issues with suppliers. If you tell suppliers that you need more time to make a payment, they are likely to be more understanding and make an allowance.

If you can commit to paying them the following month, then you’re front-footing the issue and keeping the relationship strong.

Suppliers face the same problems with customers as you do, so any form of communication with them is a great first step to manage this problem.

If you have any questions about the points raised in this article, or have any cash worries that are keeping you awake at night, we can help. Please contact Peter van der Heijden at peter.vdh@crowehorwath.co.nz, or your local Crowe Horwath advisor.

 

Free Training!

Crowe Horwath has teamed up with Minter Ellison Rudd Watts and the BNZ to provide a free comprehensive training session to give you and your business the tools it needs, in order to achieve success. The next sessions are in Queenstown, 17 August and South Auckland, 16 November. For further information or expressions of interest, please contact us at Auckland@crowehorwath.co.nz.

For the contact details of your local office, please visit: www.crowehorwath.co.nz/locations or telephone 0800 494 569.