Financial Management Basics for Plumbers in South Africa

Financial management might not be the thing that gets you up in the morning - for some, even the thought of managing all the numbers can be a nightmare. You probably didn't become a plumber to crunch numbers in spreadsheets and software. For any plumbing business owner, numbers can be intimidating.

But here's the catch: a business can only be successful if the numbers add up.

roughly

80% of small businesses close within their first five years

due to a variety of challenges, including a lack of financial tools and skills, difficulties accessing their marketing, and insufficient funding.

Whilst being a great plumber is important - it’s not enough to build a successful business.

Building a plumbing business means the pursuit of profitability, managing your cash flow, tracking business performance, and grabbing opportunities that come your way.

In South Africa, where small businesses face many challenges, bad financial management is one of the main reasons why they fail.

Why is financial management so important? Well, it's the fine line between growth, survival and failure of your plumbing business. If you’re not in control of your finances, you’re not in control of your business.

Plumbing businesses typically can’t tap into the credit they need to grow because their finances aren’t well organised. Proper financial practices show that you’re in control and understand what is important in your business, which are things banks and lenders want to see when evaluating if you’re eligible for credit.

Also, plumbing businesses can be seasonal. Planning for the off-season is as critical as preparing for the busy periods. Proper financial management ensures that you can navigate your business through the quiet months by anticipating when demand for your services will decrease or increase.

In this series of articles, we will explore the importance of financial management for plumbing businesses, sharing practical strategies and tools to help you effectively manage your finances.

First, we’ll look at the basic financial concepts that are critical for plumbers, including creating a budget, forecasting revenue and expenses, managing cash flow, maintaining accurate financial records, and understanding financial statements.

Stay tuned for future articles where we'll dive deeper into each concept, exploring practical applications and tips for plumbers who want to improve their financial understanding.

Let’s dive in!

Now, let's explore a few important financial concepts that can have a huge impact on your plumbing business.

You might be wondering what exactly a budget is and why it is important for your plumbing business.Put simply, a budget is a financial plan that outlines your estimated income and expenses related to running your business.

It helps you track and manage your money, ensuring you allocate enough funds for materials, tools, overhead costs, and other business expenses while aiming to generate a profit.

As a plumber, creating a budget begins by listing all of your revenue sources, including things like routine maintenance, pipe replacements, or emergency call-outs. At the same time, create a list of your expenses, including things like equipment maintenance, vehicle costs, and wages for your team.

For example, consider setting aside a portion of your budget to upgrade tools or invest in specialised training to offer new services. This helps you control your costs and also set realistic financial goals.

In future articles, we’ll explore budgeting in greater detail, with an overview of what you need to include in your budget, and how you can use it to make sure that your plumbing business stays in the green and keeps making profit.

Check out this

7-step guide to budgeting

from BizCover for a breakdown of the main steps you should follow when putting together a budget for your business.

Alright, you now know what a budget is and why it’s important, but what’s the difference between revenue and profit, and what role do expenses play in all of this?

Let’s start with expenses, this is the money you spend on materials, tools, equipment, rent for workspace, utilities, insurance, wages for employees (if you have any), and any other costs associated with running your plumbing business.

Revenue, on the other hand, is the money you earn from the services you provide, such as fees charged for your labour or products you’ve sold. Finally, profit is what’s left from your revenue after you’ve subtracted your expenses and is a key indicator of the financial health and success of your business.

Plumbing businesses often experience changes in demand depending on the season. For example, winter might bring a ton of burst pipe repair requests, while summer could slow down with routine maintenance.

Analyse your previous years' data to predict these trends so that you know when you can expect increases or dips in demand.

By preparing ahead, for example by stocking up on supplies or adjusting the size of your staff, during busier seasons, you can efficiently manage these changes in your workload.

In our in-depth article, we’ll cover exactly what you need to know to accurately forecast your revenue, expenses, and profit so that you can better plan for changes in demand and keep your business growing.

For an overview of how to get started with forecasting your finances

check out this guide

by Fool.com.

The next step to improving your financial management is to manage your cash flow, but what exactly is that? Cash flow is the money that’s moving in and out of your plumbing business over time.

To get an understanding of your cash flow you need to look at the cash that’s coming in from sources like sales, investments, and financing, and cash that you’re spending to cover expenses, repay debts, and make investments.

Basically, it’s how well money is flowing in and out of your business, giving you an idea of your ability to meet short-term financial obligations.

As a plumber, managing cash flow is essential, especially when dealing with delayed client payments. A good idea is to have a system to track the money you owe to suppliers and the money that’s owed to you.

Consider offering discounts or other incentives for upfront and prompt payments to ensure that you have a healthy cash flow. For example, negotiate payment terms with suppliers that line up with your billing schedule to avoid being stuck without cash to continue operating.

Start by creating a spreadsheet or using accounting software to monitor incoming and outgoing payments. This allows you to stay on top of your finances and make informed decisions if you’re facing gaps in your cash flow.

In our in-depth article, we’ll share how you can manage your cash flow to ensure that you always have enough cash coming in to cover any expenses your business might face.

Check out these

8 ways to manage your cash flow

so you can know exactly how much cash is coming in and going out.

Why are accurate financial records important? Think of them like a detailed diary of your business's money. They track every Rand coming in and going out, covering sales, expenses, debts, and what the business owns and owes.

These records give a clear picture of how your business is doing financially. They're important for taxes, making smart decisions, and showing credit providers and others how healthy your business is financially, and that you’re in control of your finances and by extension also in control of your business.

Start by keeping a ledger of every financial transaction, from purchasing supplies to invoicing clients. For plumbers, this includes recording expenses for materials, tools, and any subcontractor payments.

Proper record-keeping ensures you’re following SARS’ tax requirements and lets you know what your business's financial health is like. Consider using digital tools or apps to streamline this process, making it easier to log and organise transactions accurately.

This approach helps in estimating how profitable each job is and helps you identify areas where you could potentially save on costs.

In our in-depth article, we’ll share tips and tools that you can use to ensure your financial records are accurate, making it easier for you to understand where your cash is going and to get credit for your business when you need it.

Check out these

4 tips for keeping accurate financial records

.

If financial records are like a diary of your money, financial statements are like a report card for your business's money matters. They include documents like the balance sheet, income statement, and cash flow statement.

These statements summarise how much money your business has, how much you’re making or spending, and where that money is coming from or going to.

They're crucial for understanding the overall financial health of your business and are often used by investors, lenders, and owners to make decisions and assess your performance.

Plumbing businesses can benefit from understanding financial statements like balance sheets, income statements, and cash flow statements. For example, examining a balance sheet helps you understand how your assets (like equipment) stack up against your liabilities (like outstanding payments).

Start by getting familiar with each statement's purpose and their main components to get an understanding of your business's financial standing.

In our in-depth article, we’ll show you the ins and outs of analysing your financial statements. This will help you make informed decisions, guiding your business strategy for long-term success.

Check out this video

from Intuit Quickbooks on understanding and using financial statements.

Now that we've laid the groundwork for financial understanding, let's talk tools. For plumbing businesses, utilising the right financial tools can be a game-changer.

An accountant can handle the financial nitty-gritty of your plumbing business —tracking all the ins and outs of money, making sure everything's recorded correctly, and sorting out taxes.

They're important because they keep a sharp eye on the money flow, help you save on taxes, and give solid advice on how to grow your business smartly. Think of them as the financial backbone, keeping everything in order so you can focus on your craft while staying financially healthy.

For example, an accountant can help a plumber navigate tax deductions for business expenses like tools or vehicle maintenance, maximising savings.

Start by researching accountants familiar with the plumbing industry to find a professional who understands your business's financial needs.

Check out this guide

from Xero about when to hire an accountant.

A bookkeeper handles your day-to-day financial tasks, like recording transactions, keeping tabs on invoices and receipts, and making sure everything adds up neatly.

Bookkeepers are important because they ensure your financial records are accurate, which helps you stay organised, saves time during tax season, and gives a clear picture of where the money's coming from and going to. They're the ones who keep the financial gears turning smoothly.

Employing a bookkeeper helps ensure that you have accurate financial records, freeing up your time to focus on your plumbing work. A bookkeeper keeps detailed records of transactions, making it much easier when it comes to preparing your tax returns and your financial reporting.

For example, a bookkeeper can organise receipts for material purchases and categorise expenses efficiently.

Begin by exploring bookkeeping services that cater to small plumbing businesses, ensuring they understand your specific industry requirements.

Check out this guide

from Xero about when to hire a bookkeeper.

Accounting software is a digital tool that helps you manage your finances by organising transactions, creating invoices, tracking expenses, and generating reports—all in one handy place.

Accounting software can simplify complex financial tasks, save time on manual record-keeping, and reduce errors. This software is a lifesaver for plumbers, making it easier to stay on top of finances without getting buried in paperwork, and it's like having a financial helper available anytime, anywhere.

Check out our article to learn more about how to choose accounting software for your plumbing business.

Check out SME software from

Xero

,

Sage

, and

Quickbooks

or speak to your bookkeeper or accountant. Don’t have one? Then

Google one

and ask!

For plumbers, mastering these financial basics is the key to not just surviving but thriving in a competitive South African landscape where so many businesses fail early.

By adopting these financial practices, plumbers can transform their expertise into thriving, resilient businesses that weather storms and seize opportunities.

So, grab your wrenches and tools, but don't forget to equip yourself with these financial insights—they might just be the secret ingredient to your business's success.

Stay tuned as we dive deeper into each of these elements in the following parts of this series, giving you the knowledge and tools to manage the finances of your trade business effectively.