August 7, 2017
If your small business relies on contract work, you probably experience some of the same revenue spikes and dips that seasonal businesses do. However, it’s even harder to manage expenses with certain kinds of contract work. Contract businesses can’t always count on increased revenue during a certain time of year like a seasonable business can.
In fact, a construction contractor may have to depend upon another company’s ability to get a contract in order to get their own work. This lack of control makes it tough to predict and plan. Still, the opportunity to thrive with contract work is huge and growing. If you can learn to manage your expenses while your company is new and has gaps between projects, you should find that this task get easier over time. As you complete projects and maintain a good reputation, you should find that the gap between contract work will shrink and your small business will become better at managing expenses.
Tips for managing expenses for contract businesses
These days, there is a huge demand for all sorts of labor, professionals and consultants that can help other small businesses scale to suit their requirements. To fill this need, contractors and even solo tradespeople offer to do specific tasks on a per-contract basis. In time, many contract businesses can thrive very well if they can manage cash flow when they are first getting off the ground.
Certainly, it takes time to build a pipeline, so steady work isn’t usually something that these small business owners can expect during the first several months or even years of business. These tested tips can provide a good framework for managing cash flow and expenses when small business owners must deal with an irregular income:
- Keep personal and businesses finances separate: Small business owners should start out by maintaining business accounts that are distinct from personal accounts. This saves a lot of time because it makes accounting and tax preparation much easier. It’s also easier to demonstrate revenue to potential finance sources, investors and partners. Finally, contractors can keep from accidentally draining too many personal resources as they strive to grow their company. If the owner needs income, he or she should just draw a salary.
- Find good financing sources: Any small business that can demonstrate revenue should be able to successfully apply for an online loan. A business line of credit can keep the internet and the lights on during lean periods. That way, the company will be ready to roll into action as soon as it lands a good contract job. In some cases, this money might even be used to do the marketing that’s needed to land that next job. It’s always better to have a loan approval in hand before a project ends and revenue stops.
- Set money aside for taxes and other critical expenses: It’s certainly tempting to spend more when the market is hot. Tested veterans who have run a successful contract business for years keep their expenses level during periods of high revenue because they already know that they might need a reserve to make it to the next contract. Of course, no small business owner wants to get caught with an empty coffer when it’s time to pay the tax man his due.
- Predict revenue and expenses as well as possible: Obviously, the problem with contract work is that it can be unpredictable. There’s no guarantee of a regular paycheck every two weeks or even every month. However, detailed records usually will display a pattern that might associate certain activities with increases or drops in client revenue. Predictions should improve with time, but it’s important to make a habit out of keeping the right kind of data right from the beginning.
- Consider upselling or expanding services: Again, it might help to consider the way that some seasonal businesses increase revenues through the year. They add new services that might appeal to their existing customer base or that attract a new customer base at other times of year. New business owners might choose to focus on their main offerings, but it’s always easier to manage expense with more consistent and higher revenue. It may help to consider related services that may help improve the bottom line.
- Consult the experts: There’s no harm in asking for help, especially if you don’t have as much experience in finance as you wish. While you could go back to school, consider reading university blogs for advice. You can also find a small business mentor in your local area.
Managing an inconsistent cash flow is the top priority for contract businesses
Managing cash flow is critical for all small businesses. It’s just especially tougher when revenues are inconsistent. Many contract businesses have problems because they don’t have the resources to always court new business when they are working upon current contracts. Then, they might need to spend the most money on marketing and customer engagement during the times when revenue has dropped. Learning to deal with expenses and inconsistent income can help create thriving, successful contract businesses.
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