5 Signs Your Workshop Could Have a Cashflow Issue

18 May 2022 Helpful Tips


You may already know the saying “cashflow is king in business”. Your Workshop may offer the best servicing and repairs, offer great customer service, and have a strong recurring customer base, but, if your business is struggling to pay for expenses you are most likely having issues with cashflow.

Recent Data released by the Australian Securities and Investment Commission found that 40% of Mechanical Workshop Failures cited poor cashflow as the reason for closing. So, what are the signs your Workshop can look out for to avoid having a Cashflow issue?

1. You are struggling to source Parts

Parts have always and forever will be one of the largest expenses for Mechanical Workshops. One of the crystal-clear signs to look out for to avoid running into a cashflow shortage is your Parts inventory management.

If your Workshop is having trouble sourcing parts from suppliers due to cost, your workshop could have cashflow problem. If you think you experiencing a situation like this the first thing you need to do is evaluate your current pricing strategy and the prices you source your parts for. If your current pricing doesn’t at least cover supply costs you seriously need to consider increasing your margin.

Fortunately for Mechanical Workshops there are an abundance of parts suppliers available to you. If you feel like you aren’t getting the best parts pricing from your current supplier, seek others. Go online and see what other providers may be willing to give you. The cheaper you can source parts, the less likely you will be to fall into a cashflow issue.

Related Article: 5 Tips To Get Better Parts Prices.

2. You are Discounting Parts or Service Prices

Staying on the topic of Parts, another common cashflow issue sign to look out for is the need to discount parts or service prices. Sure, on occasion discounting your prices isn’t seen as a major red flag, after all they are a good way to drive revenue. But, if your business is continuing or depending on discounts, you could have a cashflow issue.

To stay on top of your parts expenditure its so important you have a system in place that allows you to make strategic parts ordering decisions based on your Workshops sales data. One the biggest reasons many Workshops fall into a whole when it comes to parts management is they either stock too much or too little parts – either option hurts your cashflow. Your Workshop needs know how many parts you will sell in a particular timeframe and order appropriately. Ordering Parts in the blind often leads to cashflow issues.

Related Article: The Main Reasons Why Workshops Fail.

3. No access to finance

If your business is starting to experience a cashflow issue, many businesses often need to seek other funds in order to trade. The first option businesses look at is the bank. If your Workshop is needing to take out extra loans just to stay solvent, you could be in the middle of a cashflow problem.

This is another tricky one, all businesses on occasions turn to lenders, but it’s the reason for accessing finance that matters. There are often only 2 reasons why businesses look to seek funds from the bank, and one highlights a cashflow issue. The first reason is many businesses may want to expand, whether it be location, offering etc. The second primary reason is to pay overhead or bills – this is a sign you could be either closing in or already in a cashflow issue.

As a Workshop you want to do everything in your power to avoid getting funds from the bank. The reason for this is it ultimately sets your business back further. Think about it you need to pay that amount back with interest and depending on the rate at the time it could make things much worse.

We get it, sometimes you may need to seek bank funds, and that’s okay, but if you are looking to do so, make sure you analyse your businesses current financial standing to make sure your not in a negative cashflow state.

4. Payroll Problems

Arguably the biggest cost for all businesses is staff. If your Workshop finds itself struggling to pay staff wages, it’s extremely likely that you are in a negative cashflow position. Your staff are the heartbeat to your Workshop, without them you cannot operate.

Many Workshops make the mistake of hiring too many Mechanics than what is needed. To avoid experiencing this issue, it is so important you understand your customer demand and how many staff are needed to fulfil those jobs successfully. Only roster on the appropriate number of staff to cater for demand.

Related Article: How Australian Workshops Can Minimise the Impacts of a Staff Shortage.

5. Your Workshop Isn’t Growing

The ultimate goal for every business is to grow year-on-year. If your Workshops is not growing it increases the risk of cashflow issues. Every year costs go up, from overheads, to parts to staff, everything increases. There is only a certain price point you can charge if you want to keep customers. To put it simply your Workshop needs to grow year on year to stay solvent and out of any cashflow issues.

To fuel your Workshops growth, it is important you adapt to current market conditions, understand customer preferences, and stay on top of the latest trends in the industry.

Related Article: How to Grow Your Workshop in 2022.

Final word,

Cashflow is the most important part of running a business. If your business cannot generate enough cash to cover expenses and maximise growth, you will quickly go out of business. Many businesses fall into cashflow holes for a variety of reasons but there are ways to avoid them. The 5 signs mentioned above are common reasons why Mechanical Workshops experience cashflow issues in 2022.

We hope you enjoyed this article. To read more articles like this, visit the Workshop Mate latest news section here.

About Workshop Mate,

Workshop Mate by Jeal is an Australian, web-based, Workshop Management Software that automates the daily tasks of running a mechanical Workshop. Using innovative technologies, Workshop Mate removes common frustrations experienced at the Workshop and opens your doors to future growth.

Workshop Mate features include Job Management, Stock Management, Quotes, Invoicing, Integrated Accounting, Barcoding, Service History, Job Allocation and more – in the one central, easy-to-use application.

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