1. Mitigate your financial risk
Taking out the right insurance policies can help protect you from unexpected bumps in the road. Income protection insurance, for example, can cover part of your income if you’re unable to work for an extended period. Personal accident insurance can also help mitigate financial risk if a workplace accident puts you out of action.
Public liability insurance is also a must if you deal with members of the public in any way. It can help protect you against financial costs and claims associated with property damage or personal injury related to your business operations.
2. Forecast your future sales
Regularly forecasting your sales can also help you predict your revenue over the coming months. It’s not only helpful for spotting potential cash flow issues while you still have time to take action, but sales forecasting can also assist you to set realistic budgets. Overspending can demolish your profitability, so having an accurate picture of your expected income is a valuable reference point you can use to control your outgoings.
Likewise, it’s important to understand any business threats that might be lurking on the horizon. A risk assessment analysis will help you identify risks that may be facing you as a sole trader and to put a management plan in place.
3. Review your invoicing
Maintaining cash flow can be a real struggle for sole traders who tend to work on one large project at a time. Late or non-payments can quickly drive your business into the red. So, for large projects, try to negotiate a series of milestone payments rather than invoicing a lump sum at completion. This can help keep your cash flow steady throughout the project and give you the opportunity to take early action if the client is not meeting their financial commitment to you.
For smaller projects, consider reducing the length of your payment terms so you’re not waiting too long to receive payment following project delivery. It might also pay to offer a modest discount for early payments to incentivise your clients to get their bills paid before the due date.
4. Invest in marketing
It may seem counter-intuitive to put more money into marketing when times are tough, but it’s vital for sole traders to keep generating leads to maintain future cash flow. The key here is to carefully track the return on investment you’re getting from the cash you’re spending on marketing. For example, many digital marketing platforms include built-in analytics that can tell you exactly which campaigns are delivering the most leads.
Digital advertising networks, such as Google Ads and some social media platforms, allow you to turn ad campaigns on and off as required. This can be great for managing your spend. Turn the campaign on when you’re coming towards the end of a job, then turn it off when you’re flushed with work.
5. Diversify your business
If your regular source of income is at risk of drying up during an economic downturn, look for new ways to apply your expertise. For example, offering your know-how to other companies as a specialised consultant may work for you. You could also look into teaching your skills at workshops or via webinars to open a new revenue stream.
Developing a new product, finding ways to take your business to new geographic markets or demographics, embracing e-commerce or partnering with complementary businesses could also help you diversify your business.
The antidote to uncertain times is proper planning and foresight. While managing your day-to-day operations as a sole trader likely takes up the bulk of your time, keeping an eye on the horizon can help to prepare your business for challenging economic conditions.
To learn more about navigating your way through times of crisis, visit our free resource centre.