It takes more than technical expertise to run a successful electrical contracting business. Frequent delays and a widespread lack of transparency make it difficult for many contractors to manage their expenses and invoices, resulting in financial trouble. Companies must increase their cash flow to stay afloat.
Studies show that 82% of business failures stem from poor cash flow management. Even if a company has competitive services, fair pricing and an open market, it’ll struggle to succeed without a sound financial strategy. With that in mind, here are eight ways electrical contractors can increase their cash flow.
1. Consolidate Information
Managing data from various sources is one of the most significant cash flow management challenges contractors face. Purchase receipts, timesheets, materials lists, contact information and more all come from different sources, making it easy to confuse or overlook records. Contractors that consolidate this information into a single access point will find it easier to manage.
At the very least, companies should record all cash flow data in a single spreadsheet. Ideally, they go a step further and automatically use business software to keep this information in one easily accessible window. Keeping everything in one place means workers will be less likely to make billing errors, and managers can see financial trends to address.
2. Embrace Automation
Along similar lines, electrical contracting companies should implement automation as much as possible. Robotic process automation (RPA) can take over routine administrative tasks like data entry, scheduling and billing. Leaving these time-consuming but nonvalue-adding workflows to machines will save time and reduce errors.
Humans are more likely to make mistakes when performing repetitive tasks, but RPA is the opposite. Consequently, contractors can save money by reducing billing and data entry errors. Automating back-office processes also frees employees to focus on other, more value-adding work to increase cash flow in the business.
3. Accommodate Multiple Payment Methods
Some strategies for increasing cash flow are remarkably straightforward. It may not seem like the most critical fix on the surface, but accepting multiple payment methods can make a significant difference. Slow or delayed payments are rife in the industry, costing $64 billion in 2019 alone. Flexible options help mitigate that trend.
Every client is in a unique financial situation and carries different payment needs. Clients will be more likely to make timely payments if contracting companies accommodate these varying needs because it’s easier. Some may prefer credit cards, cash, payment apps or direct deposit, and seeing their preferred payment option will make them more willing to pay quickly.
4. Adopt the Right Billing Strategy
Similarly, electrical contractors should pay attention to how they approach billing. Waiting to bill clients until completing a project in its entirety may seem like the best option, but this could cause delays in some circumstances. It may be better to use progress billing, where several smaller invoices are issued upon completion of different milestones.
Progress billing will result in smaller individual payments but a more consistent cash flow. As a result, it may be the optimal strategy for contracting companies struggling to receive timely payments.
However, this may not be an option if the nature of a team’s work is shorter and contains fewer defined milestones. Contracting companies should review their workflows, projects and needs to find the optimal billing strategy.
5. Look for Unmet Needs
Increasing cash flow is also about bringing more revenue in from the beginning. An effective way to do this is to offer more services, which starts with finding and serving unmet needs. Electrical contractors that provide an additional service others aren’t can foster customer loyalty and bring more money into the company.
Preventive maintenance is an excellent option for extra services to offer. Many businesses fall behind on electrical equipment maintenance, yet outages cost $27 billion each year. After installing and wiring new equipment, contractors can inform clients about these concerns, enticing them to pay for extra services.
6. Follow up With Customers
Many contracting companies overlook the value of customer relationships in improving cash flow. After completing a job or receiving payment, contractors should formally thank clients for their business to build a better reputation. It’s also important to ask for feedback in these follow-ups.
Customer feedback will help direct contractors toward ongoing improvement. Any trends that emerge from multiple clients’ reviews will highlight something companies should change to provide more competitive services. This practice will help develop a reputation for listening to clients, gaining more business in the long run.
7. Capitalize on Referral Marketing
Customers that provide positive feedback are a useful marketing resource for electrical contractors to capitalize on. Reports show that 93% of customers today trust friends and family for information about brands and services, and 91% trust review sites. Since people place so much value in peer opinions and experiences, referral marketing can be highly effective.
Contracting companies should encourage clients to refer friends, family members and colleagues. Offering rewards like discounts can help incentivize participation in these programs and are often cheaper than other marketing channels. Contractors that foster an effective referral system will help their businesses grow, increasing cash flow.
8. Invest in Employees
Electrical contracting companies must also invest in their workforce to increase their cash flow. Turnover is expensive, costing some companies millions of dollars annually, so retaining employees is critical for minimizing operational costs. Managers should listen to and meet workers’ needs, whether offering competitive pay, flexible schedules, career development or a combination.
Similarly, companies should aim to develop their employees’ skills. Continual learning opportunities help the workforce meet the needs of an evolving industry and can help improve employee satisfaction and engagement. Contractors can see higher revenues and decreased expenses as a result.
Electrical Contracting Companies Must Increase Cash Flow
Contracting companies often struggle with cash flow management. These eight steps can help virtually any electrical business get a better handle on expenses and increase revenues.
Increasing cash flow is a multifaceted process, but that also means companies can implement strategies to help. Regardless of where a company’s finances are, at least a few of these steps should prove effective.
Emily Newton is the Editor-in-Chief of Revolutionized, a magazine exploring how innovations change our world.