Ten Ways to Boost Cash Flow as an Independent Consultant
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This article was written in collaboration with Gabrielle Fontaine, PB, ASBC, and the founder of BookkeepingDirect, an accounting/business consulting firm that helps small consulting firms achieve freedom from financial stress so they can do their best work.
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As a solopreneur, you’re undoubtedly familiar with the feast-or-famine cash flow rollercoaster that most small businesses face. Downtime between projects combined with slow payments can wreak havoc on your bank account. To smooth out the ride and lower your stress, work to achieve these three objectives:
1. Accelerate the money coming in
2. Reduce waste and ensure that every dollar going out is giving you the best value
3. Use a reliable tracking system so you always know your cash position at a glance.
Here are several strategies you can use to achieve these objectives and improve the health of your business.
Top Ten Cash Flow Boosters
1. Speed up the money coming in. The quickest and easiest way to improve your immediate cash flow is to collect what is already owed to you. If you have any outstanding invoices with clients (even if they’re not quite due yet), give those clients a gentle nudge and you’ll likely be rewarded with some fast cash in your bank account. Your accounting software may be able to automate this!
2. Streamline your payment process. The easier it is for clients to pay you, the more likely it is that you’ll get paid sooner. Consider offering multiple payment options including ACH bank transfer, PayPal, Venmo, and even credit cards. Just be aware of any fees.
3. Ask for an initial deposit and periodic payments. Ask for an initial deposit and then periodic payments either monthly or at established milestones throughout the contract. Especially with large corporate clients, asking for an initial payment upon signing of the contract will help ensure that your subsequent invoices don’t get lost in the accounts payable process. With smaller clients, asking for a deposit will help them realize that working with you is a partnership because they will already have some skin in the game.
4. Offer a discount for full or early payment. Some clients may happily pay for their entire project or program up front if there’s an incentive. Offering a 10% discount usually does the trick. Another alternative is to offer a discount for early payment of your periodic invoices. Often a discount of just 2% can cut payment terms from 45 or 60 days down to just 10 days. Many large corporations already have these discount programs in place. In either case—pay in full up-front or a smaller discount for shorter payment terms—make sure the initial rate you quote for the work has already factored in these discounts. Otherwise, you’ll be sacrificing too much of your income.
5. Do an expense review to “cut the fat.” Review your regularly recurring expenses by studying your credit card and bank statements. Particularly scrutinize your online software subscriptions, and cancel those that you rarely use; you can always resubscribe later. Even for subscriptions that you use regularly, consider canceling the subscription and then re-subscribing later to get a lower introductory rate. This tactic can save you hundreds of dollars a year. Simply set reminders in your calendar to cancel and resubscribe.
6. Build up a cash reserve. Setting aside a percentage of every dollar earned is an excellent way to build a cash reserve over time. This becomes your safety net for lean periods or times when you know you will need more cash, such as during tax season. Planning ahead goes a long way toward calming the nerve-wracking stress of inconsistent cash flow, and gives you peace of mind and confidence. If you can swing it, save 30% or more of every payment so that you have cash available for quarterly taxes and to contribute to your retirement account— doing so can lower your effective tax rate. Keep more of what you earn!
7. Monitor your cash flow. Keep your finger on the pulse of your business by regularly reviewing your financial statements. One way to do this is by using the Accounts Receivable Aging Summary report that lists when your clients are due to pay. Take note of any potential issues or important trends. This proactive approach allows you to address any money challenges before they get worse.
8. Do business development at least once a week. Schedule time—at least an hour a week—to do marketing and outreach related to business development, even when you’re busy. Keeping your foot on the gas will help keep your project pipeline full and your cash crunches few.
9. Make sure you’re charging what you’re worth! If you haven’t increased your rate in the last year, activate a plan now to ease your existing clients into the new rate. If you’re charging hourly, consider a new pricing strategy like fixed fee, package pricing, or hybrid pricing.
10. Get professional assistance. Hiring a bookkeeper or accountant to properly track your cash flow rhythm can help you get relief from time-consuming, tedious administrative tasks. You’ll also benefit from a fresh perspective— these professionals understand the challenges that you face and can offer specific advice on ways to support your business goals.
The Bottom Line
By putting these cash flow boosters to work, you can achieve financial confidence and avoid the stress that comes with unexpected instability. With a proactive approach to managing cash flow, you get peace of mind so that you can focus on growing your business and do your best work with joy.
Remember, running a profitable business is not just about how much money you make, but also about how much you keep. Having your finger on the pulse of your incoming cash and upcoming expenses, including taxes, puts your practice on solid financial footing for both short-term and long-term success.
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