You’re in business for many reasons, but I’m sure one of those reasons is to make money!
A critical part of managing any business is cashflow management, and its no different in the consulting business. While you may not have the same fiscal pressures as product/inventory based businesses, with creditors constantly knocking on your door to be paid for goods ordered, you have to be especially careful that you’re not losing sight of billables either.
Here’s some information on how you can manage your consulting cashflow effectively.
Depending on the nature of your consulting business, you might have small, frequent calls and billable tasks with a variety of clients, or you may have large, fixed bid tasks with a single client, and of course anything in between. In either case, the first step is to be able to track your incoming work requests. There are a variety of ways to do this, but probably the easiest is to create an Excel spreadsheet with the appropriate columns to support your client requests. If your business if of the large number of clients, with many small requests variety, you probably need something a little more formal here.
A good tool to use is Things, by Cultured Code (if you’re on the Mac). Its a ToDo manager with the ability to not just capture individual items, but to categorize tasks into projects and contexts (Home, Work, etc). Its also available on the iPhone.
Another good option is Basecamp by 37Signals. This has the additional bonus of being a mini-Project Management tool, allowing you to manage milestones, task lists, message boards, and files, all related to various projects, and collaborate with your clients. It also has the ability to create and populate Timesheets that you can use to track the actual time and expenses related to client tasks, which you can use to generate billings.
Once you are able to track the work requests – make sure you do the work!
How you get your work done is beyond the scope of this article, but whatever it is, track the completion of the work through your work request tool. A critical part of keeping cash flow going (and making sure you’re paid on time) is to bill your clients regularly. If you have a lot of small requests, a good practice is to bundle completed requests together every two weeks or perhaps monthly, then to bill them together. If you are working on a larger project, group together completed work activities or T&M (Time and Material or Time and Expense) billings every two weeks and issue an invoice to your client.
Since a lot of smaller consultants don’t have internal accounting departments, and don’t have a lot of clients, they usually find it simplest to create and track invoices in Excel or even a small accounting package such as QuickBooks or MYOB (now called AccountEdge). While Excel is a great all-purpose tool for a consultant, its kind of like the “when you have a hammer, everything looks like a nail” syndrome. There are better tools available, and QuickBooks / MYOB might be a bit of overkill if you’re not using all of its features, especially since you probably don’t need Inventory management in a consulting business.
Personally, I’ve been using FreshBooks for the last few months. Its a great small business accounting package, and even better – its fully web-based, so its accessible from anywhere. It has a lot of great features, including letting you setup your clients to have access to their invoices and payables, tracking timesheets (even integrates with Basecamp!), and creating and tracking invoices and payments. I use this part of the software the most, and that’s where I’ll focus today. Even better – FreshBooks is free if you have fewer than 3 clients, and is made right here in the T.DOT (Toronto to those of you “not” in the know!).
I usually bill my clients on a biweekly basis. I’ve setup FreshBooks to generate an invoice preset with all of my clients information, as well as a boilerplate description of my work I’m billing for. I just enter in my hours for the week and generate the invoice. FreshBooks automatically calculates and bills my taxes, takes care of the sequence number and invoice dating, and sends my client an email notification with a PDF of the invoice. I usually save a local copy of the PDF invoice (very nicely formatted) on my local machine as well. As a bonus, the client gets his own minisite access to their own payables, branded with my company logo and colours.
OK – that takes care of getting the work, doing the work, and then billing for the work. The next step is to get paid!
This is where a lot of consultants fall down. Its easy to focus on the work, and even billing your clients, but most people forget to follow up to ensure they get paid. Its easy enough for smaller clients to sometimes forget to pay a bill, or even to stretch your terms to the limits. Unfortunately, sometimes the larger clients are even worse and will stretch your terms to the limit and then some, to better manage their own cash flow. Even worse, if you have lots of small client billings, its often quite easy to overlook or lose track of what payments you get and those that are late. This is where a program like FreshBooks can really stand out. I use FreshBooks to track payments from my clients against each specific invoice – so I always know how much is outstanding for each client, and if necessary, I can send a gentle payment reminder via FreshBooks. You can even do Expense reports to ensure you’re paid exactly what you’re owed!
So to summarize:
- Track your work requests
- Do the work (update your tracking system)
- Bill for the work you’ve done
- Collect your money and track your payments!
FreshBooks offers accounts that range from absolutely Free, up to $150 a month, with plans named after various transport modes (Moped, Shuttle Bus, Limo, etc). They offer free trials, and a bunch of other features, including snail mailing your invoices for you. Give them a try!
Until next time,
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