At this point, it is an understatement to say that the COVID-19 pandemic has rattled businesses to the core. Many are trying to find ways to stay afloat after prolonged closures and many are trying to find ways to win back customers who might be trepidatious about going out and about or spending money on non-essentials.
For management consulting companies, the pandemic has been a source of concern as well as a source of new opportunities. While some businesses have had to scale back on the services they use, those that have tried to find a way forward have been likely to hire the services of consultants to provide guidance and advice. Whether a consulting firm is struggling during the pandemic or has continued to engage with clients, one thing is certain. Managing cash flow and making sure that more money is coming in than going out is more important now than ever before. If your company is facing cash flow concerns, there are steps you can take to ensure that there is always cash on hand to make ends meet.
Ask for a Deposit on Projects
If your company doesn’t do so already, consider requiring a deposit or retainer when you sign on new clients. An upfront deposit is particularly important if you are about to embark on a months-long project with a client, as you otherwise might not see any cash for some time. Requiring a deposit also commits the client to working with you. If they end up breaking the contract or backing out of the project, they will lose the money they have put down.
Change Your Payment Structures
In addition to collecting some payment upfront, you can help to improve your company’s cash flow by changing the structure of your payment agreements with clients. Rather than collecting all of the payment at the end of the project, consider switching to a monthly payment plan. A monthly payment plan means that cash will be coming in on a regular basis, for as long as you are working with the client. In addition to improving your cash flow, switching to monthly payments can mean that your company earns more on a project. If the scope of a consulting project increases and it ends up taking longer than initially anticipated, you will be paid for your time, rather than a lump sum amount.
Another option is to require payments as milestones are achieved. You can require a portion of the payment as your team reaches particular goals, for example.
If clients seem hesitant about either a monthly payment plan or paying per milestone, you can point out that a pay-as-they-go structure can be beneficial for their cash flow and budget, too. They will pay a little over time, rather than having to come up with a large payment upon project completion.
Find Ways to Reduce Costs
Managing cash flow isn’t just about making sure that enough money is coming in. It’s also about ensuring that not too much is going out. The pandemic has actually provided the perfect opportunity to find ways to reduce costs or to negotiate with your vendors. Many companies are willing to work with their clients to set up payment plans or to negotiate discounts.
You can also look at direct ways to lower your costs. If your consultants are all working from home right now, there might not be a need for them to return the office in the future, meaning you might not need to continue to rent office space.
Keep Networking and Connecting With Potential Clients
Even if you currently have enough projects to keep everyone on your team busy, it’s important to keep prospecting for clients and to always be thinking of your next pitch, so that you can continue to generate revenue and keep your cash flow positive.
When looking for new clients, try to broaden your horizons and connect with an industry you haven’t worked with before. There have been high profile cases of consulting firms stepping in to help businesses navigate the new rules and expectations created by the coronavirus, offering guidance on safe reopening. Some consulting firms have provided advice to governments to help them ramp up testing or develop more robust contact tracing teams.
Sometimes, consultants also need consultants. If you looking for ways to improve your firm’s cash flow or want to plan for profitable growth during the pandemic and beyond, the virtual CFOs at New Direction Capital can help. Hire your virtual CFO today.