Going out on your own: a first-year cash plan for new trade businesses

Plenty of good tradies leave a steady job, pick up their own ABN and are flat out within a month. That’s the easy part. The hard part is that being busy and having cash are two different things, and the gap between them is widest in the first year.

On wages, money turned up every week whether the builder paid the boss or not. On your own, you buy the materials, pay for fuel and insurance, and wait. If you’re lucky, the first invoices are paid in a fortnight. More often it’s a month or more, and a slow payer can stretch that to two.

This guide sets out a simple first-year cash plan. It won’t make you an accountant, but it will help you avoid the most common way new trade businesses get into trouble: running out of money while the diary is full.

Split the money into three buckets

The cleanest way to plan is to think of three separate amounts of cash, each with its own job.

Bucket one: start-up costs. This is everything you need before you can do the first paid job. Tools you don’t already own, a vehicle fit-out, public liability insurance, licence and registration fees, a phone plan, accounting software and basic signage.

Bucket two: the running buffer. This covers business costs and your own living costs while you wait for invoices to be paid. A common rule of thumb is two to three months, because the first payments often arrive four to eight weeks after you start work.

Bucket three: tax. GST you collect isn’t yours, and income tax will arrive later on profit you’ve already spent if you don’t plan for it. Every payment that comes in should have a slice moved straight into a separate account.

The mistake most new tradies make is treating these as one pot. The start-up spend eats into the buffer, the buffer gets dipped into for tax, and three months in there’s nothing left for the quiet week that always turns up.

Bucket	What it covers	When it’s needed	Common mistake
Start-up costs	Tools, vehicle, insurance, licences, software	Before the first job	Buying everything new at once
Running buffer	Fuel, materials, phone, your living costs	First two to three months	Assuming invoices are paid on time
Tax set-aside	GST and income tax on profit	Each BAS and at year end	Spending GST as if it were income

Work out your first 90 days on paper

Before you hand in your notice, sit down with a pen and map the first 90 days week by week. List what you expect to spend each week and when you realistically expect to be paid.

Be honest about payment timing. If you’ll be subbing for a builder who pays at month end, the first payment for work done in week one may not arrive until week six. If you’re doing domestic jobs, you might be paid on completion, but only if you invoice the same day and chase it.

Our cash-flow gap planner is built for exactly this. Put in a typical job’s value, your materials and wages, and how often you claim, and it shows the peak amount of your own money tied up before the client pays. Run it for the kind of work you expect in the first few months and you’ll have a real number for bucket two.

Get the basics set up properly from day one

A few small decisions in the first week make a big difference later, especially when you need finance.

• Open a separate business bank account. Lenders assess most trade businesses on their bank statements. A clean account that shows only business income and costs is far easier to read than a personal account mixed with groceries and rent.
• Invoice the day the work is done. Every day you wait to invoice is a day added to the gap. Use software that lets you send an invoice from your phone before you leave site.
• Agree payment terms in writing. Whether it’s seven days or month end, put it on the quote and the invoice. It gives you something to point to when you chase.
• Ask for deposits on materials. For domestic jobs, a deposit that covers materials means you’re not carrying the client’s job on your own cash.
• Keep receipts and logbooks from the start. Vehicle and tool costs are easier to claim, and finance is easier to arrange, when the paperwork is clean.

Plan for tax before the first payment lands

New businesses are often caught out in the second year, when the first income tax bill arrives alongside instalments for the year ahead. The money was earned and spent months ago, and suddenly there’s a bill and no cash to pay it.

The fix is simple but needs discipline. Move a fixed share of every payment into a separate tax account the day it arrives. Your tax agent can help you set the percentage based on your expected profit, and whether you’re registered for GST.

If you register for GST, remember that the GST portion of every invoice belongs to the tax office. Many tradies register early, even before they reach the threshold, so they can claim GST credits on start-up purchases like tools and a vehicle. Whether that suits you is a question for your tax agent.

If the tax side does get away from you, it’s fixable. Our page on ATO debt finance explains how some lenders help trade businesses deal with a tax debt, but it’s far cheaper to avoid the problem in the first place.

Where finance fits in the first year

Finance isn’t a substitute for a plan, but used well it protects the plan. The two most common uses in the first year are:

Vehicle and equipment finance. Paying cash for a ute or a big tool purchase can wipe out the running buffer in one transaction. Financing the asset spreads the cost and keeps cash on hand for fuel, materials and the first quiet patch. Because the asset secures the loan, some lenders will consider a new ABN, particularly with trade experience or a deposit. See ute and van finance and equipment and tool finance.

Startup finance backed by property. If you own a home with equity, a property-secured loan can fund a bigger start, such as buying an existing business, setting up a workshop or taking on staff. These loans range from $20,000 up to $5,000,000 and are assessed more on the security than on trading history. Read more on startup loans for tradies.

Unsecured cash flow loans are harder to get in the first few months, simply because there’s not much trading history for a lender to assess. Once you have six months or more of business bank statements, that changes. That’s another reason the separate account matters so much.

A simple first-year checklist

• Price your start-up costs and decide what to buy now, what to buy used and what to finance
• Set a running buffer of two to three months of business and living costs
• Open a separate business account and tax account in the first week
• Agree payment terms in writing on every quote and invoice
• Invoice on the day and chase on the first day an invoice is overdue
• Move a fixed share of every payment into the tax account
• Review the 90-day plan every month and adjust it with real numbers

The first quiet patch

Almost every new trade business hits a quiet patch in the first year. It might be the Christmas shutdown, a wet month, or a builder who pushes your stage back three weeks. It’s normal, but it’s also the moment a thin buffer runs out.

Plan for it in advance. Look at your 90-day plan and ask what happens if no new work comes in for three weeks. If the answer is that you can’t cover fuel, insurance, phone, loan repayments and your own living costs, the buffer is too small. Either build it up while you’re busy, or line up a facility before you need it. Lenders are far more comfortable approving finance for a business that’s trading steadily than for one that’s already short, so if you think you’ll want a line of credit, ask about it early.

Use the quiet patch well, too. It’s the time to chase old invoices, update your quotes, get your BAS paperwork in order and service the gear.

Talk to someone before you need it

The best time to look at finance is before the buffer runs low, not after. If you’re planning to go out on your own, or you’re a few months in and the numbers are tighter than you expected, start a quick enquiry. There’s no credit check when you first enquire, and a person who understands trade work will talk you through what’s realistic for a new business.