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Why electrical contracting businesses fail in the first 4 years

Shockingly, it is estimated just over 40% of sole traders and over 30% of small businesses with one to four employees will fail over a 4 year period.

Many tradies start with the passion, drive and technical skills to make their business a success.

So why the high failure rate?
We spoke to the experts to unpack the critical mistakes electrical contractors are making.

1st Mistake: Failing to Plan

We’ve all heard the saying “failing to plan is planning to fail”. Yet, it’s one of the common mistakes electrical contractors make.

Planning helps business owners to define their goals and build a roadmap for how they are going to achieve them.

Matthew Jones is a Business Performance Consultant at Cube Performance. He says, “operating with the mindset that you just have to get through the next week, month or year is not viable. I’ve seen many trade businesses go under because of this mindset”.

When planning, electrical contractors should consider:

  • How much profit do you want/need to make this year?
  • What sort of jobs are going to help you reach your profit goal?
  • How will you target your ideal clients and manage leads?
  • How will you quote for jobs and ensure you come in within the quoted amount and desired profit margin?
  • How will you check-in and make sure you are on track with your goals?
2nd Mistake: Poor Financial Management

Many electrical contractors will tell you they got into business to make more money and have the flexibility to spend more time with family.

“What often ends up happening is they work 100+ hours a week, just to stay afloat. Not only are they overworked, but they aren’t making a profit and could be at risk of going under at any moment”, explains Jason O’Dwyer, Manager Advisory Services at Master Electricians Australia.

The culprit is cash flow management.

When business owners don’t have an adequate grasp on their cash flow, they can wind up underquoting and without the cash to pay suppliers, staff or the taxman.

“I see many trade businesses focus on sales, not profit! Electrical contractors must have a proactive approach to their cash flow and know where their financials are at all times”, Matthew explains.

3rd Mistake: Not having the right systems and processes in place

Many young punters are drowning in day-to-day manual tasks because they don’t have the right processes and systems in place.

Lack of processes and systems can negatively impact a business in a range of ways including, profit and business growth potential. Not to mention the impact on their personal life.

Matthew says, “electrical contractors must invest both time and money in developing systems and processes that will automate tasks, such as managing leads, quoting, invoicing, ordering, marketing, and accounting”.

For many electrical contractors, starting this process can be daunting, but there are lots of tools and resources out there to help you.

Implementing the right systems and processes, will not only save you time and money, it could even save your marriage!

4th Mistake:  Not having an ‘always be learning’ mindset

It just doesn’t make sense to go at it alone when there are so many who have walked your path before. Why not learn from their mistakes and success?

Electrical contractors are spoilt for choice with endless opportunities to learn the skills required to run a successful business. Blogs, podcasts, coaching programs, networking groups, books, membership associations – take your pick.

Matthew suggests seeking out a coach or mentor through your industry association.

“All professional athletes have a coach. They want to be better, and they need a coach to guide them, help them review where they are going wrong and keep them accountable. Running a business is the same”, says Matthew.

5th Mistake: Working in the business, not on the business.

Working in the business means doing work that is generating income, such as being ‘on the tools’.

Working on the business means spending time on planning, financial management, developing processes and systems, and continuous learning.

Jason explains, “When electrical contractors spend too much time working in the business, they often don’t leave enough time to work on the business”.

Electrical contractors who are making this mistake, are likely making mistakes #1 to #4 too.

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