Managing cash flow is a challenge for many consultants. Your work may be seasonal or strongly affected by outside factors, like economic downturns or changing client behavior. You might be swimming in clients one month and struggling to find them the next.
Here are seven easy cash flow ideas to help you manage your professional service cash flow throughout the year.
1. Make savings a priority
Having money set aside could help you make it to the next upswing in business. One budgetary trick is to save a percentage of each paycheck, creating a buffer of cash for lean times. This money might also come in handy as a tax fund or retirement fund.
2. Set up an emergency fund
Unexpected expenses are part of running any small business. An emergency fund could help you take care of necessities, like buying a new laptop or repairing your vehicle. Savings from each paycheck can go into your emergency fund, but you might also top it up each year by saving your tax refund (if you receive one).
3. Require a deposit for projects
Long-term projects can be a great source of income. However, it could be hard to run your consulting firm if you’re waiting for one big payment at the end of the job. Instead, consider charging a retainer upfront. This could help you keep up with expenses, especially if you’re only able to work with one client at a time.
4. Require milestone payments
Asking for partial payments as project milestones are reached could also help you improve professional service cash flow. This not only provides you with regular income throughout a project, but it can also help your clients’ budgets. Milestone payments and deposits are typically written into business contracts, so everyone is clear on how much money is due and when.
5. Offer payment options
Managing cash flow can be a challenge for many businesses, including your clients. What happens if a large payment comes due and they can’t pay right away? Offering a monthly payment plan could help you get your money and help your clients manage their own budgets. This could also provide you with a steady cash flow rather than sudden spikes followed by long droughts.
6. Consider consulting insurance
Many consulting firms cannot survive unexpected expenses, especially compensation claims or lawsuits. That’s why many consultants consider different types of insurance to help protect their business finances. Policies such as Professional Liability, General Liability, and a Business Owner’s Policy can pay the costs of potentially devastating lawsuits and claims.
Insurance may also be required in certain circumstances. Clients might require you to have coverage in order to work for them, and commercial landlords typically mandate it to lease their premises. If you have employees, Workers’ Compensation insurance will likely be a legal requirement.
7. Keep looking for new clients
Finding more work may not seem like a top priority when you’re in the midst of a big project. But if you aren’t continually lining up new clients, you could be left scrambling when your current project comes to an end. Dedicating time each week to prospect future work can help you avoid gaps in your schedule and cash flow. You might include activities such as attending networking events, touching base with existing clients, or resuming paused advertising.
Recommended reading: 4 Smart Ways Consultants Work With Clients
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