A job can be priced well and still leave you short of money. The reason is that profit and cash are not the same thing. Cash flow is about when money comes in and when it goes out. This lesson shows the difference and gives you simple habits to protect your money.
Profit and cash flow
Profit is what is left when you take the costs of the work from the price of the work. Cash flow is the actual movement of money in and out of your bank account over time.
Many customers do not pay on the day of the job. They pay after a week, a month or longer. But your diesel, instalment and tyres must be paid on time. If your bills fall due before your customers pay you, you run short of cash, even on a month that is profitable on paper.
Example numbers only. Using the same bakkie as before, in one month the owner drives 3,000 km and does R28,000 worth of work. Customers pay R18,000 before the month ends. The other R10,000 is paid next month.
- Fixed costs: R12,000
- Running costs: 3,000 km × R3.20 = R9,600
- Bills to pay this month: 12,000 + 9,600 = R21,600
On paper: work done R28,000 minus bills R21,600 = R6,400 profit.
In the bank: cash received R18,000 minus bills R21,600 = minus R3,600.
The month made a profit, but the owner is R3,600 short of cash until the customers pay.
Habits that keep your money safe
- Keep business money and home money apart. Use a separate business account, and pay yourself your wage from it. When the two are mixed, you cannot tell whether the business is doing well.
- Put some money aside for tyres and repairs. These costs do not arrive on every trip, but they always come. Keep a little from each payment so the money is there when you need it.
- Know what is due and when. Write down the dates for your instalment, insurance and renewals. A simple list or calendar is enough.
- Track money in and money out every week. A notebook works. You will see a shortage coming while you can still do something about it.
- Follow up late payers. Send the invoice on the day of the job and ask for payment by a clear date. Agree the payment terms before you take the job.
- Do not treat money in the bank as your own. Cash that has bills waiting for it is not profit. Pay the bills first, then take your wage.
When the business keeps running short
If you are often short of cash before the month ends, look at two things: whether your prices cover your cost per kilometre, and how slowly your customers pay. Go back to Lesson 3 and check both.
What the full course covers
This short course gives you the basics of costing and pricing. The Owner Driver Business Boot Camp is a longer, self-paced course that goes much further. It has seven lessons with practice activities and a final assessment. It covers:
- A complete list of operating costs, and how to plan for replacing your vehicle
- Fuel management, including how to measure and track your fuel use
- A full step-by-step method for pricing transport work
- Cash flow and budgeting for an owner-driver business
- Compliance and roadworthiness, business registration and contracts, and courier operations
See Owner Driver Business Boot Camp on our products page.
- Profit and cash flow are different. A profitable month can still leave you short of cash.
- Late-paying customers and bills that fall due first cause cash shortages.
- Keep business and personal money apart, and set money aside for tyres and service.
- Track money in and out every week, and follow up late payments.