Cash Flow: Watch For These Warning Signs
Issues around cash flow can easily creep up and cause serious trouble for your business. Watch out for these six key warning signs to keep your business financially healthy and running smoothly. From protecting your profit margins to staying on top of taxes, these simple strategies will help you avoid common financial pitfalls.
1. You’re tempted to lower your margins to win more jobs
Resist the urge to cut margins, even in a competitive or challenging market. While you may win more quotes in the short term, it’s really just a race to the bottom. Once you’ve dropped your margins, it's tough to raise them again, which impacts long-term profitability. Focus instead on attracting your ideal clients and showing your value early on. Excellent communication, being organised and having efficient processes in place will set you apart from the competition and allow you to charge a fair price for your services. Always know your breakeven point, so you know what you need to invoice each month to cover costs.
2. Your turnover has dropped, but your expenses haven’t
A drop in turnover is a good time to review your general business expenses and cut back where possible. Are you paying for subscriptions or services that no longer provide value? Take the time to assess all your outgoings, like project software that may have been superseded or other unused services. Reducing unnecessary costs will free up cash flow, keeping more money in your business when it’s needed most.
3. You scramble to pay taxes, creditors and wages when they’re due
Set aside money into different "buckets" for your obligations. Allocate funds for creditors, taxes, GST and wage-related costs such as annual leave, sick leave and ACC. By putting money aside as you go, you’ll ensure these costs are covered and avoid any last-minute crises. You’ll be able to truly relax on your summer holiday, knowing that holiday pay and other wage costs are already covered.
4. You forget or struggle to pay PAYE on time
Stay on top of your PAYE obligations by using payroll software such as Smartly or Pay Hero. These services automatically deduct PAYE when they pay wages and file with the IRD on your behalf. It’s an easy way to ensure PAYE is paid on time and avoid penalties -remember, missing PAYE payments is a criminal offense. If you do fall behind on tax obligations, it’s best to front-foot the issue by reaching out to the IRD and discussing a plan.
5. You don’t factor in overheads when quoting for projects
Regularly review your business overheads and make sure you’re recovering these costs by allocating a portion to each project. This includes admin, project support and project management costs - essentially any expense tied to running a building project efficiently. By doing so, you’ll ensure your quotes and estimates reflect the true cost of delivering the project.
6. You don’t regularly review your cash flow or financial reports
Hire a bookkeeper! A good bookkeeper is worth their weight in gold. They keep your financials up to date, help manage cash flow and raise concerns before they become bigger issues. Having a great relationship with your accountant is equally important, as they can offer higher-level financial support and advice. Regularly reviewing your financials helps you spot cash flow problems early so you can act quickly to resolve them.
By keeping an eye out for these warning signs and taking the right action, you’ll be in a stronger position to manage your finances effectively and ensure your business continues to thrive.
Amanda is a regular contributor to NZCB's InHouse magazine
This article featured in the December/January 2025 issue.
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