Negotiate Your Way into Healthy Cash-Flow

Lovely summer is here, generously rewarding us with warm breezes, long days and abundant sunshine.  Summer gives us many gifts but unfortunately, a generous amount of billable hours may not be one of them.  Two possible solutions to the impasse are to step up your networking activity starting in early spring, to help yourself meet and connect with potential clients who are in hiring mode and to let family, friends and referral sources know that you’re looking for projects.  Don’t be shy!

As a self-employed professional, you are the captain of your ship and it is your responsibility to take all reasonable measures to improve your financial position.  Your survival depends on it.  Smart marketing and prudent financial management are the foundation of a successful enterprise.

The most critical aspect of financial management for Freelance consultants and small business owners is to collect accounts receivable as quickly as possible, so that adequate cash-flow is maintained and accounts payable, employees and subcontractors can be paid on time.  Regarding your accounts receivable, I recommend that you take the following actions to encourage on-time payments:

  1. During the project specs discussion propose a payment schedule, perhaps tied to the timing and achievement of certain project milestones.
  2. Request a down payment of 20% – 35% of the total project fee and unless you’ve previously worked with the client, don’t start the project work until it is in hand.
  3. Invoice according to the agreed-upon payment schedule.

I cannot overstate the importance of these three actions.  Accountants estimate that in a given year, 5% – 10% of professional services providers’ invoices will be uncollectible.  The client is not always entirely at fault.  Freelancers must demonstrate that we intend to get paid and that’s done by being serious about the project payment schedule, requiring a project fee down payment and on-time invoicing.

Another helpful tactic is to make money by saving money.  Examining your accounts payable might help you gain a few dollars each month.  The number one accounts payable tactic is to avoid paying late fees by any means necessary.  Several years ago, many companies recognized that late payment fees are a very lucrative passive revenue stream and so they doubled, or even tripled, their penalties.  Some also shortened the length of their grace period window, when a late fee could be avoided.  Defend yourself from this predatory practice by flagging all accounts payable with their due dates as they arrive and make every effort to pay on time.

Another reason to pay on time is that a good payment record can sometimes be used to negotiate a lower credit card interest rate or request that certain fees might be waived or reduced at your bank.  While you’re on the phone and in the mood to negotiate, call your cell phone company and internet service provider and see what they can do to lower your monthly bill.

Adequate cash-flow is the life blood of every business, required to finance all business operations, including marketing campaigns, technological upgrades, professional development and other activities that support the venture.  No business can function effectively, much less grow and thrive, without healthy cash-flow.  Your diligence and negotiation skills can contribute substantively to its maintenance.

Thanks for reading,

Kim

Image: The Fruit and Vegetable Seller (1631) by Louise Moillon (France, 1610 – 1696) Courtesy of La Musee du Louvre, Paris

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Will That Be Check or Credit Card?

As every Freelance consultant knows, it is our pleasure and privilege to perform interesting and often mission-critical projects for clients whom we like and respect.  However, getting paid is the endgame and without exception, we all breathe a sigh of relief when the check arrives.  One vital element of maintaining adequate cash-flow in your business is to invoice on time, a topic that I covered a while back  Invoicing Inertia: The Cure .

Invoicing is only half of the battle, alas; it is smart and proactive cash management to make payment of invoices as swift and seamless as possible for the client.  In good economic times and bad, every once in a while clients will experience constricted cash-flow, even if they are the larger entity.  The ability to use a credit card to pay one of your outstanding invoices can be a great relief to them and could get accounts receivable into your hands as many as a few weeks earlier.

Let’s explore the basics of accepting credit cards and how to get started as a merchant who accepts the cards.  Twenty years ago, I spent a couple of years as an independent merchant payment services agent, selling Master Card, Visa, Discover and American Express processing services and card terminals to small business owners, so this topic is a nice walk through history for me.

Let’s start with some likely good options for a Freelance consultant.  Along with credit cards, you will also want to accept debit cards and eChecks.  You’ll choose the card not present processing option, so that clients can call you when the invoice arrives and phone in payment.  You may also decide to accept mobile payments, meaning that you will be able to accept client payments through your smart phone or tablet while you are at their office, or other location and to make that possible, you’ll also select the card present option.  In all scenarios, 48 hours post-transaction, the payment will be deposited into your business bank account.  You may not choose to invest in a (costly) credit card terminal unless clients visit your office.  Your card present transactions, if you do them, will most likely be mobile device payments.  You may decide against accepting American Express cards, since its processing fees are at least a point higher than Visa, MasterCard or Discover.

Call your business bank to get information about processing fees (about 2.5% of the transaction amount and 3.5% for AmEx cards).  There is also a separate fee called a transaction fee.  Freelance consultants will process few credit card transactions in a month and your transaction fee will be higher as a result.  In addition, there will be a service initiation fee and maybe also an annual fee.  Finally, there will be a statement fee if you’d like to receive  the hard copy of card, eCheck and mobile payments that you accepted.

The merchant approval process will center around an evaluation of your credit history and credit score, so if you need to pay down/pay off bills to improve your financial picture, do that first.  The associated merchant services fees will probably be impacted by your credit score.

If mobile payments will be explored, I can almost guarantee that Square will offer good service at very competitive processing rates  https://squareup.com/  You can also call Discover, Visa and Mastercard directly and find out what they’ll charge for your chosen merchant services.  Your bank may be where you buy eCheck processing services but then again, you may be able to negotiate a good merchant services package with your bank and get all that you want in one place.

Then there is the matter of security during the age of hacking, phishing and data breaches. If you belong to a business networking group, find a colleague who does internet services and ask how you take security precautions on your end.  The merchant services industry stays on top of security matters, but they are not infallible.

To sum up, be advised that although the various merchant services fees are an issue and you’ll want to secure the most competitive processing rates, good service and convenience matter.  As much as the process of expert payment transactions, you must seek out a system that will be reliable and user-friendly for both you and your clients.  A positive, glitch-free experience and excellent customer support are usually worth somewhat higher fees.  Consider it the cost of doing business. Getting paid by clients ASAP is, after all, the endgame.

Thanks for reading,

KIm

 

 

 

 

 

 

 

 

Invoicing Inertia: The Cure

Freelance consultants are no strangers to cash-flow crunches and as quiet as it’s kept, the problem can be of our own doing, or not doing.  The reason for our cash-flow problem could be a slow-paying or, horrors, a non-paying client (an acquaintance who is a business accountant estimates that 5-10 % of professional services providers’ receivables will be uncollectible in a given year).  But we can be our own worse enemy in these matters and it is time to tame our invoicing inertia.

As example last week, I sent an invoice to a client that was worth four figures and was four months late.  Why was I so negligent, when I had important accounts payable to resolve? Why is it so hard for so many small business owners and self-employed professionals to stay on top of our accounts receivable and send out invoices on time?

In my consultancy, and I imagine this is true for most, client work, both performing it and networking to bring more of it in, are the priorities.  Billable hours are the name of the game. Then there is content marketing activity (this blog!) to send to my preferred social media platform (LinkedIn) and my website.  Other revenue streams—teaching twice /week, which entails responsibilities to my students, and producing a monthly post for the online magazine for women entrepreneurs where I am a staff writer—claim another chunk of time and creative energy.  Being in business requires considerable mental and physical stamina.

The invoice was for hourly work, rather than a project fee, meaning that detailed information was expected (and not unreasonably so).  The very thought of generating the thing nearly made me nauseous, so I found several avoidance-behavior activities that on the surface appeared to be ambitious, but in reality served mostly to enable my procrastination.  Then the client asked me about the invoice.  I was so embarrassed!

As I worked on the detailed, multi-page invoice, I thought about what I might do to simplify the process, so that I could easily generate scheduled invoices and would be motivated to do so.  Invoicing for a project fee is much easier than the hourly rate version and it was project fee invoices plus the job income  that sustained me while I neglected the hourly invoice.  Here’s what I recommend (my business accountant friend approves):

Collect in advance

Whether the assignment is paid by hourly rate or project fee, collect a percentage at the contract signing or email-documented agreement (20 % – 35 % of the project fee, or an estimate of the first months’ billable hours).  Discuss with the client a mutually agreeable invoicing schedule and honor it.

Create two all-purpose invoice templates

In the top left of a Word document, type in your name and/or DBA as the vendor, tax I.D. and contact info. This will become the permanent part of your template.  Below that, type in separate lines  for the client name, date, project deliverables, total amount of the project fee and the amount of the invoice.  All you’ll need to do is copy the template, drop in the specifics and presto! You’ll have an invoice to send.

The hourly rate template will have a cover sheet that is similar to the project fee template, but with the lines for rate (the dollar amount you’re charging/hour) and hours (total billable for this invoice) substituted for the project fee info.  A second page of the hourly rate template will have lines for four “week of” headings, ready for you to insert the dates and specifics of your weekly client work.

Either invoice can be used for retainer contracts.  If you are brought in to work a standard number of hours per month for a particular client, or you’re asked to perform predictable functions as needed throughout the year and you can reasonably estimate how often you’ll be asked to perform those services and your cost to provide them, then you can calculate invoice amounts in advance and determine a retainer fee.  If this is the case, then suggest a retainer arrangement at the next contract signing and bolster your income security.

BTW, it is not unusual to invite a client to pay the year’s (or quarter’s) retainer in advance. Offer some attractive incentives for yearly or quarterly advance payments, like a good discount or service add-ons.

On all invoice templates, indicate how the check should be made out (your name or DBA) and indicate that the invoice is due immediately (although it is accepted practice to pay invoices within 30 days). Finally, state that it is a pleasure doing business with your client.

Invoice on time

Whatever the agreed-upon payment schedule, be sure to follow it (not more than one week late). When you honor the invoicing schedule, you communicate to clients that getting paid within 30 days, if not sooner, is what you expect and deserve.  Timely invoicing also benefits your clients, who will be able to better manage their own accounts payable and cash-flow.  If you start to bring in more lucrative assignments, investigate the process of accepting credit card payments.  You’ll be paid faster, but a small processing fee will be deducted.

Invoice as marketing collateral

To date, my invoices are created on an unembellished Word document, but that is about to change.  I plan to align my invoice design with my other marketing collaterals.  Very soon, I’ll design an invoice PDF that contains a scan of my (lovely) business card, that will appear at center top.  All the other info will be written as described here.  You can also investigate free invoice templates in an online search.

In our hyper-competitive business environment, where clients hold the keys and seem to be looking for reasons to cancel projects that Freelance consultants depend upon, it is imperative that we project professionalism.  All interactions with clients, from the first meeting, to the excellence of our work and concluding with an accurate and timely invoice, must reflect well on our brand.

Thanks for reading,

Kim

 

Doing Business As

To forge a successful career as a Freelance consultant requires courage, resilience, possession of marketable skills, relationships with people who are willing and able to help you get hired into one money-making opportunity or another, an affinity for selling, the discipline needed  to set goals, a talent for big picture thinking and setting strategies, and an understanding of human nature and motivation. The ability to attract good luck and dodge bad luck helps, too.

Precious few Freelancers are able to just “go to the office” everyday and take on the usual work.  In order to generate an acceptable number of billable hours, we understand that multiple revenue streams must be created and that we must learn to recognize the marketability value of segments of our overall skill set and learn to  package, promote and sell those segments to prospective employers, as well as target clients.

Take my revenue streams, for example. When asked, my short form elevator speech is that I’m an external consultant who provides business strategy and marketing solutions to for-profit and not-for-profit organizations. What that means in reality is that I’ve facilitated strategic planning meetings at not-for-profit organizations; edited a book and also served as its photo editor and project manager (it was published by the sponsoring organization); developed curriculum for a series of 90 minute sales skills training workshops; periodically teach business plan writing; and was made a staff writer at an online magazine targeted for women entrepreneurs.

Yes, I continue to do the business strategy and marketing assignments, but the fact is that there are always assignment gaps and I’ve learned to branch out and offer related skills that enhance my brand as they allow me to make some much-needed money.  In my experience, it is the ability to leverage your additional competencies that help a Freelancer to create and sustain a profitable business venture.

My friend Adela is a busy educational consultant who works with college bound high school juniors and their parents to first identify suitable colleges for the student and next to navigate the application process.  Her business seems to be quite lucrative, yet she nevertheless teaches Spanish at a local college (Adela was born and raised in Mexico and came to the U.S. to attend Harvard University).

Jackie, a friend of many years, launched a small, full-service fitness center that became very successful in that highly competitive market.  Yet Jackie has continued to teach fitness classes and train clients at a large downtown gym. Why? Not only does she earn a few extra dollars that a mother of four can always use, but also gets to observe sophisticated fitness center management from the inside and also receive instructor training in new fitness techniques that she can evaluate for inclusion in her own gym. Sometimes you can get paid to research the competition!

My friend Carole toggles between Freelance marketing for technology companies and corporate positions in that sector.  She’s a Lotus alumna who’s also worked for tech giant EMC, distinctions that command respect and open doors in the tech industry.  In between corporate gigs, Carole goes out on her own to develop marketing strategies for tech start-ups.  A couple of years ago, she was offered a position as director of marketing at one of those start-ups, but when the inevitable reorganization occurs, she’ll re-enter the Freelance life.

Now you, Freelancer friend, what else can you do to create additional revenue streams for yourself and if possible, enhance your skill set or obtain useful competitive information?

Sometimes an opportunity that is outside of your brand and strictly for cash-flow may present itself and I suggest that you discreetly take it anyway.  As long as running into prospective clients is not a danger, if time and energy allow, a pragmatic Freelancer understands the necessity of promoting cash-flow whenever possible.  Build up your retirement account, or use the money to attend seminars that provide professional development and potentially good networking.  It’s all about doing business as a solvent and successful Freelance professional.

Thanks for reading,

Kim

Fatal Flaws in Your Business Plan

A business plan is the blueprint, or road map, that guides aspiring entrepreneurs as they build their business venture. Business plan writing is about getting the details right as you keep in mind the big picture.  I’ve taught business plan writing since 2008.  I was invited by the program manager of an SBA-affiliated women’s business development  organization to teach a 20 week course that met once a week for three hours and students wrote their plan week by week.

A couple of years later,  I developed a six hour workshop that does not ask students to write their plan but rather, I present material that shows them the information that will be included in a good business plan: a marketing plan (including customer identification, branding and pricing), financial projections, operations processes and other elements.  We talk about how to do research and how the information discovered will help them build a successful business and if desired, attract investors as well.

When envisioning a potential business concept or writing a business plan, it is possible that unrealistic expectations or flawed thinking could influence the process.  Sometimes, one is just so excited about the great business idea that has surfaced that the adrenaline “rush” distorts clear thinking, such as the ability to see potential stumbling blocks that would require precautions to avoid.  Below are a few scenarios that entrepreneurs-in-the-making should beware.

Unrealistic expectations about the need and value of your products or services

While it is sometimes true that starting a business with yourself as the profile that represents the target customer is a smart idea, since you understand the value and availability of that product or service,  you may misinterpret the size of the market and the traction that can be achieved beyond a select group of true believers.

Insufficient information about target customers

Whether or not the target customer is modeled on you, research must be done to verify the number of potential customers who have the money and motive to do business with you,  regardless if this is a B2B or B2C enterprise in the making. You must identify the need for your products or services—what problem will you solve, what solution will you provide?

Furthermore, you must understand the buying process—who is the usual decision maker (the COO or the head of maintence?),  how will purchases be made and what is the tolerable price range? Lastly, from whom are your potential customers obtaining these products and services now? You must also identify and investigate competitors.

Vague about how to access customers

Especially in the B2B sector, access to customers is everything.  Some fields really are a closed shop. You may know who the ideal customers are,  know and describe well how your products and services fit their needs and know how to price and deliver them.  But if potential customers do not have the confidence to do business with you because you have not received an endorsement from a source that they trust, you will starve.

Overestimating cash flow

Usually, a business does not achieve desirable gross sales, and hence will not show a net profit, in its first year of operations.  Businesses that require high start-up costs especially will require a longer ramping-up period. The business plan must acknowledge the potential for negative cash flow and demonstrate how fixed and variable expenses will be met during that period.  One must know how inventory will be financed,  how payroll will be met and how the store or office rent will be paid.

When writing a business plan,  conservative financial projections are strongly advised.  Acquisition of paying customers may take longer than you expect and the size of their purchases may initially be small and infrequent.  Moreover, it is entirely possible for a venture to be profitable on paper and still suffer from cash-flow problems, because customers do not pay their bills on time.

Underestimating start-up costs

Developing a reasonable estimate of how much it will cost to get the venture up and running is essential.  If certain permits must be in hand, if certain tools or equipment are must-haves, then you must know the costs of securing all of the above.  If you’ll need to hire employees,  it’s essential that you have a good idea of the staffing needs up front (you can always hire more as customers increase).

“Magical thinking” business model

The business model is the design for how your venture will become profitable.  Well thought-out interactions between marketing, financial and operational processes will promote and sustain profitability and you must map out how these will occur. The business model describes the core fundamental actions of the venture.

The value proposition of your products or services will be described.  The resources that your enterprise will have to promote and defend the value proposition— the intellectual property that you’ve developed,  or patent rights, key relationships, or capital—will be accounted for.  Sales distribution channels will be detailed.

Getting to Plan B, a 2009 book by Randy Komisar and John Mullins, describes key business model components and advises business plan writers to segment the business model chapter into sub-headings such as:

  • The revenue model,  which describes what you’ll sell, the marketing plan and how you expect to generate revenue.
  • The operating model, which will detail where you’ll do business and how the day-to-day will function.
  • The  working capital model, meaning your cash-flow requirements.  Cash-flow means that you’ll know when money will be in hand to meet expenses like rent and payroll. It is subtly distinct from revenue.  The business can generate adequate revenue and still suffer from intermittent cash-flow problems.

Your business model keeps you organized and your priorities realistic. Matters such as quality control,  collecting accounts receivable,  inventory management and identifying strategic partners mean much more than your number of Facebook followers, for example. Best of luck to you as you work to launch your new business!

Thanks for reading,

Kim

Transition: Employee to Freelancer

Happy New Year! Is your number one New Year’s resolution to establish your own entity and become a business owner or Freelance consultant? Are you planning to abandon the “safety” of a traditional job to directly market and sell your products or services to customers with money and motive to do business with you?

Going out on one’s own is a thrilling and sometimes frightening prospect. Those who take the plunge eventually discover that many resources that are casually taken for granted while working in an office are not readily available to those who step out on their own.  As you weigh your options and prepare to write your business plan,  be aware of a few changes and expenses to expect should you join the self-employed sector:

No paid days off

It is now Winter and there will be days when extreme snow fall could make it impossible to meet with a client or otherwise work.  Further,  regardless of the season,  there will be no more paid sick days,  vacation days or personal days.  In particular for those who own a small B2B or B2C venture where the business model requires you or your employees to visit a customer location (e.g., cleaning services),  or customers to visit your location (e.g., a laundromat),  snow days = no revenue days.

Establish business credit

For tax purposes,  it will be useful to open a separate business bank account and also apply for a business credit card or two.  There will be business expenses to write off and you want to make it easy to monitor spending.  Do yourself a favor and check your personal credit ASAP and correct any errors.

Financial management

Financial management will assume more than one form.  As noted above,  you’ll need to establish credit for the business,  so that you can order inventory and supplies without immediately impacting business cash flow,  for example.  Those are Accounts Payable items.  You will also need to ensure that clients pay on time,  or at all,  and that is an Accounts Receivable function.

Maintaining sufficient cash flow is crucial to the business’ survival and your own ability to keep a roof over your head,  food on the table and your car on the road. You must develop a business budget and plan for the purchase of equipment,  licensing costs (if applicable),  insurance (if applicable),  professional certifications (if applicable),  or space rental (if needed).

In addition,  you may consult with a business attorney or accountant to discuss the legal structure of your venture: Sole Proprietor,  Corporation (chapter S or C),  or Limited Liability Company.  The type of business that you’re in and your exit strategy will play a role in choosing the legal entity.

Paying for office supplies

Free scanning and photocopying will be over.  When you need to staple a few pieces of paper together,  you must buy the stapler and the staples and you’ll buy paper clips,  photocopy paper and envelopes,  too.

There will likewise be no meeting space or audiovisual equipment for you to reserve.  You’ll have to meet at the (prospective) client’s office,  or at a coffee shop or other restaurant.  Privacy might be an issue and arranging a Power Point or other visual presentation can be awkward as well.  A lap top computer or tablet are must-haves.  It will be imperative to possess the tools of your trade and to always appear as a competent and prepared professional as you develop your reputation and build your brand.

Next week,  we’ll look at more unexpected challenges that await those who choose to launch a business venture.

 Thanks for reading,

Kim

 

 

Staying Alive: Business Management Technology That Works

Business ventures new and old can fail for many reasons and small businesses are especially vulnerable to all manner of threats.  Even outrageous good fortune can kill a business,  when customer demand far outpaces the ability to effectively fulfill the demand. Fortunately, some challenges can be overcome through sound business practices that are aided by technology hardware or software that are not terribly costly.  Here are areas where technology can help Freelancers and small business owners get arms around common business stumbling blocks. There are also sales forecasting and business analysis tools available, typically by contract through a business services company. Are you ready to trade-up from your Excel spreadsheet?

1.  Operational efficiencies Efforts to deliver core products or services can fall short in under-staffed, under-capitalized organizations, especially when the CEO is inexperienced and overwhelmed.  Orders can be incomplete, late or lost altogether.  Payments to suppliers or sub-contractors could be late.  Invoices may not be sent at the agreed-upon time and as a result cash flow will be diminished,  which leads to all manner of problems, including the inability to make payroll, purchase inventory and other vital supplies, or meet work space rent or utilities payments.  There can be quality control issues with the products and services.  Customer service can be tone-deaf or unresponsive.  Employee skills and time may be inappropriately utilized, resulting in burn-out or wasted time.  Fear not, for there are readily available and typically affordable solutions.  Billing software can generate professional looking invoices quickly and accurately as well as manage common bookkeeping functions easily. Other business management tools can help the CEO to analyze key performance indicators that identify seasonal peaks and valleys that can be used to plan staffing needs, inventory and supplies purchases, or other necessities to meet increased or decreased demand.

2.  Mobile workforce Mobility is a must in today’s business world.  Not having access to client information while you’re on the road, perhaps while meeting with the client, is inexcusable and makes it impossible to uphold the quality of your brand. Invest in a tablet computer or  notebook computer that along with your smart phone will be loaded with apps and software that allow you to demonstrate that you are able to service client needs and answer questions wherever and whenever.  Mobile friendly business management tools allow you and your team to be equally effective in or out of the office.  Also, make sure that your website is converted to a responsive design format, so that it can be easily viewed from a smart phone or tablet.

3.  Manage growth Growth is always the goal, but it’s sometimes like drinking from the fire hose for a Freelancer or small business owner.  Serendipitous growth sounds like the answer to our prayers,  when the orders just fall into our laps,  but the concomitant follow-through can trip us up and burn us out as it rolls through like a tsunami.  Resource utilization— time, talent, staffing, money— all change as the business grows. The best growth is planned, which allows for budgeting and incorporation of the right technological tools, staffing, product or service delivery systems, quality control measures and customer service procedures that make us look like a pro and live up to the brand promise.

If you choose a business management platform that will allow you to perform forecasting and analysis,  be careful of the organization that you choose to work with.  Avoid long-term contracts and look for flexibility that allows you to get into and out of management platforms relatively quickly and inexpensively.

Thanks for reading,

Kim

***WARNING***WARNING***Take Action Now

Ernest Hemingway said it best when he warned of how financial troubles visit us: slowly at first and then all at once. There are usually warning signs,  but they are not always recognized and they may persist for months,  or even years. For example,  business owners can go into denial about regularly occurring mid-month cash-flow problems if at the end of the month the bottom line looks healthy. Working more hours can be seen as just a sign of the times and in many ways that is a valid assumption. After all,  someone has to manage the social media accounts and generate the content marketing.

Oftentimes, corrective action can be taken to divert the impending disaster and other times, the crash is fated. Still, forewarned is forearmed and taking steps to protect the business enterprise is always the right thing to do (as long as one does the right thing!). Presented here is a list of early warning signs that indicate all is not well in your business venture:

1   Flat or declining revenue

2.  Unreliable cash-flow: difficulty in covering payroll, accounts payable, or payment to sub-contractors or vendors

3.   Prices reduced to stimulate sales

4.   Critical business investments cannot be budgeted

5.   Repeat business is declining

6.   Leads are dwindling or the sales conversion rate is declining

7.   Referrals are declining

8.   Inability to keep pace with growth, operational systems are overwhelmed

9.   Inability to fulfill promised deliverables on time

10. Client complaints about the quality of products or services

11. Accounts receivable statements not issued as scheduled

12. Working many more hours just to “hold on”

So what can you do? First, be vigilant about detecting warning signs and pay attention to the client list, conversion rate of leads, referrals and the amount of repeat business. If those values begin to trend downward over the course of a year, that is serious. Do you have a new competitor? Might you need to upgrade customer service? Should you step up networking? Or do you need to update your marketing message and sales pitch to better reflect client priorities?

Declining revenue and cash-flow issues might be at least partially remedied by sending accounts receivable statements on time, or increasing the down-payment that clients are asked to pay when a contract for services is signed. Declining revenues also ask you to look at the products and services that you offer and how you package and present them. You may need to increase prices, if expenses are cutting too deeply into revenues.

If repeat business and/or referrals are noticeably weaker, networking to renew your relationships and meeting new prospects may do the trick. Figure out ways to stay in contact with former and current clients. If you haven’t been sending holiday cards in December,  make a note to look into the process by the end of October.  Send congratulatory emails if you hear of a client success story. Reinvigorated marketing and PR can also be a useful defense, including content marketing. It may be time to start a monthly newsletter, to remind your client and referral bases that you are relevant.

On the other hand, maybe you’re facing too much growth too fast and you lack the infrastructure to successfully manage your good luck. Get ready to spend money to hire the right help and make useful systems or technology upgrades ASAP and cure problems in service delivery immediately. You are only as good as your reputation and word of problems travels very fast.

Finally, console yourself with the knowledge that every business venture must eventually respond to change and that will mean doing things differently and taking on risk by plunging into the unknown. How we respond to change is a test of our mettle. Be brave and face it down by first conducting an analysis of your business environment, competitive landscape and client priorities and then developing strategies and action plans designed to save the day.

Thanks for reading,

Kim

Cash-Flow Woes and Antidotes

Lucky you.  Your sales pitch to prospects is working and clients are stacked up like planes landing at O’Hare.  Receivables are numerous and the balance sheet rocks.  So how can it be that you almost didn’t make payroll  (again)?  How can you come up short on cash,  with all the business you’ve created?

Like so many business owners,  especially those who are new or who suddenly acquire a competitive advantage that creates a tidal wave of business,  you did not recognize the signs that a cash-flow crash was impending,  regardless of how much money was scheduled to flow into your coffers.  You placed your primary focus on creating business (which is vital),  but neglected to monitor the ebb and flow of revenues and expenses (which are vital).  Every business owner must keep an eye on the money ball and take corrective actions as needed,  if we want to keep the business alive and thriving because quite perversely,  as sales go up,  cash can go down.

Here is one example of how a cash-flow crash might happen.   As business expands,  staying on top of accounts receivable becomes more time-consuming.  Those in service businesses  (like website design or public relations) may find that clients,  oftentimes larger businesses whose names we crave for our client list,  may unilaterally decide to pay receivables in 60 days,  instead of 30 days.   Meanwhile,  you have payroll,  office rent,  phone bills,  auto insurance and numerous other operating expenses that are due somewhere between right now and 30 days.

Another cause of cash-flow crashes is improper pricing.  You may sell a ton of T-shirts but if the profit margin is too thin,  you’ll find that excellent sales volume as demonstrated by number of items sold does not overcome an inadequate mark-up.  Revenues generated will not cover expenses.  It will be necessary to either acquire the product less expensively,  or raise the price.

A growing business brings up still more issues that keep its owner awake at night: capital expenditures.  You will need to decide whether or not and when  (or not)  to upgrade office equipment,  open a new office or move to larger quarters,  or hire more workers to keep up with the growing number of customers.

Fail to invest in capacity and you leave money on the table,  plus dissatisfied customers who are likely to kill you on social media.  Get fooled by the romantic delusion of further growth,  invest in demand that never materializes and you are stuck with potentially crippling debt that can bankrupt the business.

That is quite the dilemma and only the best fortune-teller can give the right answer.  John Terry,  of Churchill Terry business advisers in Dallas, TX,  recommends that the business owner focus on one question only when evaluating the possibility of making large capital investments:  will it bring money in the door?  If not,  find a less expensive alternative or learn to make do without it.  Successful business owners learn to preserve and protect liquidity.  Here is an effective antidote:

  • Hire a savvy bookkeeper or accountant to function as the business controller ( full or part-time)
  • Each week,  collect the data on key financial indicators: accounts payable,  accounts receivable,  available cash and the quick ratio (cash + receivables / current liabilities + payables) to monitor that all-important liquidity
  • Each month,  collect the data on these indicators: accounts receivable turnover ratio (how long does it take to get paid?),  the operating cash-flow ratio (cash-flow from operations / current liabilities)  and the pre-tax net profit margin

It is imperative that you are able to pay obligations when they are due and for that you need cash in hand.  Analyze the above indicators weekly and monthly and learn what is really happening behind the scenes of your business.  Track the available cash trends over time.

Seasonal variations may become evident.   You may have to step up collections of receivables or approach certain clients about speeding up payments.  You may have to request more money up-front before taking on certain projects,  so money will come in faster.  You may need to trim expenses.  You may need to raise prices.  The decision of whether to invest in capital upgrades will become clearer.

There are software programs that will track important data and help business owners resolve problems and set priorities.  Accounts receivable,  cash,  inventory and liquidity can be monitored,  along with confirmation on whether the business is on target to meet budget and revenue goals.  For those businesses that get a lot of repeat business,  it is also possible to track the profitability margins of key clients.

Thanks for reading,

Kim

C x 5 = Success for Your Business

If one intends to succeed in business,  then it is necessary to manage the business effectively,  because in the long run,  the better-managed businesses  succeed.  Dan Barufaldi,  Freelance management consultant active in metro New York City,   authored the 5 C’s for Success in Business list.  According to Dan,  success in business requires that you attain and leverage these five resources:

Clients

Credibility

Cash flow

Credit

Capital

I.   Clients

But of course a robust client list is necessary if one expects to keep the doors open.  Clients are the life blood of every business and priority is given to acquiring and retaining the  source of revenue.  There are a number of tactics  strategies that business owners can use to find and retain customers,  including:

Advertising and promotion

Advertising in newspapers,  blogs,  newsletters,  trade journals

Email marketing campaigns

Trade show and conference  exhibits

Participation in local charity events

Brand

The focus may not be on a specific product or service,  but branding is marketing/advertising designed to enhance the reputation of the company/ consultant in the marketplace.  It is important to communicate to current and potential customers that the company/consultant is reliable and trustworthy.

Customer service

Create good word of mouth  (still the best form of advertising)  and stimulate referral business by providing excellent customer service and exceeding expectations every time.

Networking

Those whose target clients are B2B will greatly benefit from membership in the local chamber of commerce,  Rotary Club and neighbor hood business association.  Those whose target customers are B2C will be wise to take part in neighborhood charity events and otherwise be visible in the community.  B2G oriented businesses and Freelancers will attend information sessions and certified vendor conferences sponsored by city,  state,  county and federal organizations.

II.  Credibility

Freelance consultants and small business owners must package and present ourselves and our products and services in a professional manner.   We cannot afford to advertise and brand like the major corporations,  so we must be creative in our use of promotional resources.  A good ongoing branding campaign to enhance reputation is essential,  as is excellent customer service.  Promote your brand and build trust with good customer service,  to create good word of mouth that can earn you recommendations and testimonials.  Teaching is a time-honored way to demonstrate one’s expertise.  Speaking on (or moderating)  a panel at a professional development symposium is another excellent way to create visibility among your peers and potential clients.

III. Cash Flow

For Freelance consultants and small business owners,  cash flow can sometimes take precedence over  short-term profitability.  Cash flow glitches will result in unpaid accounts payable,  the inability to take advantage of special offers,  an unmet payroll and/or the inability to cover immediate and urgent expenses.  It’s a smart idea to project cash flow needs over 8 – 12 weeks,  so you’ll know when to invoice clients,  when receivables are expected,  when accounts payable are due and have time have time to cover any gaps that appear.  It may be possible to extend the due date on certain accounts payable,  accelerate the collection of accounts receivable,  adjust expenses or even get a bridge loan  (or a temporary job).

IV. Credit

Available credit supports cash flow management.  An honored request to increase the credit card limit allows one to float expenses when accounts receivable collections are unexpectedly slow,  or allows the business to stock up on inventory when prices are favorable.  Those with good credit ratings pay lower credit card interest rates,  which is also good for cash flow.

V.   Capital

Those looking to grow their business may need to make large expenditures and that will require access to capital.  If significant business growth is part of your organization’s three-year plan,  start now and improve your credit rating by paying off debts,  if that is an issue.  The establishment of a good relationship with a bank,  along with a credit rating and financial management practices that demonstrate good judgment and fiscal responsibility,  will be very helpful when it is time to seek financing.  Make an appointment with the manager of your bank to discuss your plans,  learn how much you are qualified to receive and the payment terms.  Meet a banker as you network at the local business association and get a second opinion.

Thanks for reading,

Kim