Business Toolbox: Finance

Business toolbox: finance tips for electrical contractor businesses

As a small business, it’s essential you pay as much attention to the finances as you do to the tools. Here, our experts answer questions posed by electrical contractors, just like you.

Our Finance expert:

Adam Espie, Chartered Accountant and Director at Shoreline Advisory

Q: How can we improve cash flow management within our business?

Adam Espie, Chartered Accountant and Director at Shoreline Advisory, says:

We find most businesses we work with can be better at cash flow management, which can sometimes be an afterthought, particularly for small businesses without internal finance teams. Great cash flow managers typically implement some of the following processes.

Forecasting, forecasting, forecasting!

This is the most important aspect of effective cash flow management. Having a really sound understanding of your incomings and outgoings during a certain period is vital. Reviewing prior year bank statements and financial accounts can be a great place to start.

Get the invoices out

Don’t sit on your invoices. The quicker they are in your customer’s or creditor’s ledger, the better. Some businesses have a rigid monthly payment cycle for creditors regardless of your terms. If you miss the deadline, you could be left waiting another month.

Effective financing

Explore the option of financing new asset purchases instead of buying them outright. This can ease the upfront financial burden of a large outgoing.

Have a buffer

Good cash flow management also includes making sure there is contingency cash for unexpected outgoings. This doesn’t always have to be cash savings – speak to your bank about having access to an overdraft facility.

Work with your accountant

Whether it be your internal finance team or external accountants, make use of the experts. They can help with the analysis of the data and should be able to demonstrate how your existing accounting software can aid cash flow management.

Incorporating some of these practices can really help to proactively manage cash flow and ensure the financial stability of your business.

* Please remember, this advice does not take into account your personal or business circumstances, is general in nature, and is provided for information purposes only. Please seek professional financial advice that’s tailored to your circumstances if you need it.

Our Finance expert:

Kris Dieckmann, Business Adviser and Accountant at Wiseman Accounting

Q: What’s the best way to create a business budget? How do I know what I should be spending?

Kris Dieckmann, Business Adviser and Accountant at Wiseman Accounting, says:

Creating a business budget is a critical step in ensuring financial success and sustainability. To start, it’s essential to understand your business’s revenue streams and expenses. Begin by examining historical financial data, which will provide a realistic base for your projections. It’s also important to factor in market trends and economic forecasts, especially in sectors that are directly relevant to your business.

For a comprehensive budget, break down your costs into fixed and variable expenses. Fixed expenses, like rent and salaries, are generally consistent, while variable expenses, such as marketing costs and raw materials, fluctuate based on business activity. This distinction will help in making more accurate financial predictions.

When determining spending, prioritise expenses that directly contribute to revenue generation and business growth. However, be cautious and avoid overextending your resources. It’s advisable to have a contingency fund for unexpected costs, which helps in maintaining financial stability.

Remember, a budget is not set in stone. Regularly review and adjust your budget to reflect changes in your business environment. This dynamic approach ensures that your budget remains a useful tool rather than a static document.

Lastly, maintain an optimistic outlook. A well-planned budget is a roadmap to financial success. It helps in identifying opportunities for growth and efficiency, ensuring that your business remains on a positive trajectory.

* Please remember, this advice does not take into account your personal or business circumstances, is general in nature, and is provided for information purposes only. Please seek professional financial advice that’s tailored to your circumstances if you need it.