Trade Business Owner's Complete Guide to Identifying Cash Flow Red Flags

1. The Pricing Death Spiral Red Flags

The biggest cash flow killer I see in trade businesses isn't late payments or bad customers - it's undercharging. Here's how to spot if you're in this trap:

Red Flag #1: You're always busy but never profitable If you're working 60+ hour weeks, your diary is packed, but your bank account doesn't reflect all that activity, you're likely undercharging. This is the classic symptom I see with building companies and electricians who think being busy equals being successful.

Red Flag #2: You avoid doing proper quotes When you give rough estimates over the phone or provide quotes without properly calculating materials, labor, and profit margins, you're setting yourself up for cash flow disaster. No quoting system means no profit control.

Red Flag #3: You haven't reviewed your prices in over a year Costs increase constantly - materials, fuel, insurance, wages. If your prices haven't moved but your costs have, your profit margins are shrinking every month.

2. The Hidden Profit Leak Indicators

Red Flag #4: You don't know your true hourly rate Can you tell me right now what you actually earn per hour after all costs? If not, you're flying blind. Most trade business owners I work with are shocked when they discover they're earning less than their employees.

Red Flag #5: You're competing on price alone If customers only call you when they want the cheapest option, you've positioned yourself as a commodity. This creates a race to the bottom that destroys cash flow.

Red Flag #6: Your jobs consistently go over budget When every job seems to have "unexpected" costs or takes longer than quoted, it's not bad luck - it's poor planning and pricing that's bleeding your cash flow dry.

3. Operational Warning Signs

Red Flag #7: You're doing £10/hour work instead of £1,000/hour work Looking at that time value guide, if you're spending your days running errands, doing basic admin, or fixing website issues instead of creating better offers and planning your business, you're destroying your cash flow potential.

Red Flag #8: No system for following up on unpaid invoices If you don't have a systematic approach to chasing payments, you're essentially giving customers an interest-free loan. This is especially critical for trade businesses where cash flow timing matters.

Red Flag #9: You're not tracking job profitability When you can't tell me which types of jobs make you the most money and which ones lose money, you can't make smart decisions about where to focus your efforts.

4. Customer Pattern Red Flags

Red Flag #10: Your customer base is too narrow If losing one or two big customers would seriously damage your business, you don't have a sustainable cash flow model. Diversification protects cash flow.

Red Flag #11: You're not getting repeat business or referrals One-off customers are expensive to acquire. If you're constantly hunting for new customers instead of building relationships that generate repeat work and referrals, your marketing costs are killing your cash flow.

Red Flag #12: Payment terms are getting longer If customers are pushing for 60 or 90-day payment terms, or you're agreeing to "pay when paid" arrangements, you're financing their business at the expense of your cash flow.

5. The Daily Cash Flow Danger Signs

Red Flag #13: You're using credit cards or overdrafts to pay wages This is the emergency alarm. If you're borrowing to pay basic operating expenses, you need immediate action on pricing and cash flow management.

Red Flag #14: You avoid looking at your bank balance When checking your finances becomes stressful, it's usually because the numbers are telling you something you don't want to hear about your pricing and profitability.

Red Flag #15: You can't afford to take a holiday If taking a week off would create cash flow problems, your business model is broken. Healthy trade businesses generate enough margin to handle normal business interruptions.

Conclusion

The harsh reality is that most cash flow problems in trade businesses stem from one core issue: undercharging for your services. Every other red flag on this list typically connects back to this fundamental problem.

The good news? This is completely fixable. A proper pricing review - looking at your true costs, desired profit margins, and the value you deliver - can transform your cash flow within 90 days. I've seen it happen repeatedly with glass companies, building firms, and electrical contractors.

The key is being honest about which red flags you're seeing in your business right now, then taking immediate action to address the pricing and operational issues before they become critical. Remember, you can't cost-cut your way to prosperity - you need to price your way to healthy cash flow.

What resonates most with your current situation, and which red flags are you seeing in your business right now?