The phone is ringing with clients asking for your help.
Revenue is increasing.
Your associates are working as hard as they can.
You meet deadlines, deliver great work products, and answer all questions.
And still…
Cash flow is negative.
You have more bills to pay now—including payroll—than you have money to cover them.
You ask your accountant or CFO for help, and they tell you to do a 13-week cash flow forecast.
Before you even bother, you know what it will show.
It will show that you will have negative cash flow for the next 13 weeks!
I had a heated exchange with a CFO and self-appointed cash flow expert last week.
He lists more than 100 ways to generate cash.
But…
He ignores the single most powerful, reliable, and everlasting way to improve cash flow.
What is that?
Your firm’s terms and conditions.
When your terms and conditions require payment in advance you will never suffer from negative cash flow.
Terms and conditions are part of your offers
Most professional and business services firms focus on what the client wants and the tasks they’ll need to do to give the client what they want.
The outcome of this focus ends up in a proposal.
The proposal has a scope or list of the tasks.
The price or fee quoted is either a fee per hour of work, or perhaps a flat fee for one or more tasks.
- For example, a lawyer has a flat fee for forming an LLC.
- A mediator has a flat fee for a mediation.
- Or a trainer has a fixed fee for a training session or class.
- A PR company charges per piece written.
- A compliance expert charges for each process or system they evaluate for compliance.
These practices may be appropriate for your firm EXCEPT…
The terms and conditions require payment after completion of the work!
And the terms usually are 30 days.
Which means your firm does work today, sends the invoice on some (later) predetermined date built into your invoicing system, and then gives the client 30 days to remit payment.
You are causing your own negative cash flow!
Make these two changes to create positive cash flow:
- Terms and conditions require payment in advance. No ifs, ands, or buts.
Without payment in advance, you do not do the work.
If a client or prospect objects, they are a poor fit client, and you should let them go.
- Change your pricing model to one that is not based on an unknown variable such as hours worked.
My preferred pricing model is IMPACT Based Pricing, that is pricing that reflects the life changing differences you deliver to your clients. These are also known as IMPACTs.
A helpful transition to or substitute for IMPACT Based Pricing is simply charging a fixed or flat fee.
You are experienced in the work you do. You know what is involved in 99% of the work people hire you for.
Set a fixed price and use it for a month.
If you feel it’s not the right price, change it.
Create positive cash flow
You have ALL the power to create positive cash flow.
- Your pricing model
- Terms and conditions.
- Your invoicing system
When was the last time you looked closely at your proposals and your terms and conditions?
If it’s been a while, it’s time for a fresh look.
Text TERMS to 703-801-0345 and we can talk about a next step.
