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“My consulting business is profitable and growing, but we still seem to worry about cashflow all the time.”
Does that sound like you?
Over the years, I’ve learned that one of the toughest challenges in running a growing consulting business is managing cashflow.
In the early years especially, it isn’t always easy to access bank loans to boost your working capital or find the right investment partner that believes in your dream without encroaching on your style.
Most investors are bootstrapping their own business, leveraging personal funds or assets—but at considerable risk to their own wealth if it doesn’t all go to plan.
It might feel counterintuitive, but uncontrolled growth can actually lead to more cashflow pressure. As your firm expands, there’s more need for upfront investments in talent and operations, which can create imbalance between expenditures and incoming cash.
Of course, you don’t want to have to put the handbrake on your growth—so what can you do to manage your cashflow problems?
Here are a few ideas that might help:
For consultants, time is both a valuable commodity and a critical component of financial success, which is why streamlining your processes can significantly impact your cashflow.
One of the key areas to focus on here is timesheets—speeding up their completion, processing and approval. Filling in timesheets can often feel like a thankless task, and if there’s a lack of reciprocity, consultants are more likely to put off filling them in.
That’s why implementing easy-to-use timesheets systems is so important for streamlining this process. Faster timesheet processing translates to quicker invoicing, expediting the flow of cash into your business.
Monthly billing, on average, comes with fifteen days of lag-time at the end of the month—creating a considerable gap between service delivery and payment receipt.
Instead of sticking to this traditional monthly cycle, consider increasing the frequency to weekly or bi-weekly to limit the number of days you spend billing in arrears. This can shorten the payment cycle, providing a steady and predictable cash inflow.
Instead of time and materials, consider adopting a fixed price arrangement. Fixed price gives you the opportunity to invoice some of the project up-front and establish regular billing milestones, providing a consistent stream of cash.
You can also consider billing clients up-front on an agreed burndown rate, using the last billing period of the engagement to true-up.
If you instead prefer the flexibility of time and materials arrangements, adjusting your billing frequency can significantly affect cashflow dynamics. Rather than waiting until the end of the month to bill your clients, consider switching to fortnightly or even weekly invoicing.
First things first: if you need a purchase order, make sure it’s in place before you need to send the first invoice—you won’t get paid on time without it!
It’s also a good idea to have a clear understanding of your client’s internal approval process to minimize the risk of approval delays. Take your time to familiarize yourself with key decision-makers in the process, and ensure they receive digital copies of any invoices.
You can also speed up the payment process by ensuring you’re set up correctly as a supplier on your clients’ systems, eliminating any potential administrative hiccups.
It’s also helpful to be proactive in payment discussions. When you send your first invoice, give your client’s accounts payable department a call to smooth over any potential bumps. Ensure that a) they’ve actually received it, b) it’s in the correct format, c) they understand the agreed payment terms, and d) there’ll be no impediments to paying on time.
Establishing an early line of communication and build a rapport with your client’s accounts payable team can also turn the tide in your favor if you ever need to chase a payment. Having a pre-existing relationship will increase your chances of getting a positive response.
Another useful practice is to call ahead before the payment is due and confirm that you can expect the payment on its due date, thereby ensuring you are in the payment run and giving you greater confidence of receipt on time.
Don’t always assume that you have to sign up to your client’s standard payment terms—you may be able to align terms closer to your firm’s operational and financial needs. Instead, take the initiative to ask the question and be prepared to negotiate.
Negotiating payment terms is also an opportunity to leverage other things that your client might value, such as early payment discounts. These incentives will help you to secure the client and contribute to a mutually beneficial relationship.
Detailed forecasting is one of the best ways to ensure a steady and predictable cashflow. A well-defined invoice schedule for each of your projects will help you understand exactly when you should be raising and sending invoices, preventing any oversights in the billing process and reducing the risk of delays.
Managing your payments profile is also an integral part of managing your cashflow. By balancing outgoings throughout the month, you’ll be able to avoid financial strain during specific time periods.
Even thriving consulting firms can encounter challenges with managing their cashflow—but these don’t necessarily need to impede your growth or profit. By following good practices like the five suggestions above, you’ll be able to ease the cashflow pressure, all while keeping the momentum going.
Fraser Moore, Head of Consulting at CMap, has over 30 years' experience as a business leader in the consulting sector and is passionate about building successful, sustainable, and caring consulting organizations. Having implemented CMap at several businesses in the past 15 years, Fraser strives to help businesses achieve operational success and achieve strategic ambitions. Read more about Fraser's journey here.