If you're a self-employed contractor, how do you handle the feast or famine in your business, and your checkbook?
I'm a self employed contractor providing technical services to individuals and I have a couple long-term clients that come back regularly. However there are still a couple times a year where I hit a slowdown, before the floodgates of work open up. How do you handle those ebbs and flows.
I really like your question. In any consulting or freelance business, there is no question that it is cyclical at best. One day, week, month or three, you are rolling in abundance and prosperity. The next two months, you are trying to figure out how to pay your car payment or rent or even buy food. That’s called a step beyond bootstrapping it. I’ve been in consulting since 1983 before the word Consultant even meant anything. Most people thought a consultant was a high paid person who didn’t really have a job. Those of us that were in it so many years ago, realized that we were not going to allow ourselves to be called jobless business advisors. Back then the roller coaster ride of consulting was live or nearly starve. I look back at those time and the one constant that kept me floating was to set a very solid consulting fee. Back then, I charged $35.00 an hour. I was a single mom, needed to keep my kids fed and clothed; keep a roof over our heads, and I worked at nights consulting and went to college by day. In my situation, I learned to save money. I learned about the cycles of business and had enough to keep us floating through the lean times. When I began using quickbooks, which had lovely charts and graphs, I was then able to see the ebb and flow of the business and when I needed to start vamping it up. I did that because managing my cash flow was what was going to keep me in business. One of the biggest pieces of advice I can give to you is to project your cash flow periods so you do not have surprises. When you’ve been consulting for time, you will know how to handle your clients, and the way they pay and have it outlined in a solid contract that is notarized so you have recourse in case they bail on you. It happens. When I first started consulting I did a lot of work for free. Then this attorney said to me magical words, “billable hours” and then that was my mantra. Then I started asking for my fees up front because often times after I worked really hard for a client, they bailed, and even when I won in court. A judgment is a judgment is a judgment. I then had a new mantra, “sue a beggar, catch a louse”. In this consulting business, there are milestones and rocks. Use the rocks to climb up to the milestones, not to trip on them. I guess the best advice I can give is find the niche, become a problem solver and get really good at it. Sooner or later people will be knocking at your door to help them solve a problem and actually pay you for it. That is when you know, that you are a very successful consultant or freelancer, the work will remain steady, your business will prosper and you can enjoy yourself in your life. Many blessings to you.
Christian sure have stirred up some great advice. Consider a part time gig; yes, take on a part time job that helps to take the edge off. This is of course dependent upon how much time you have and it also requires accepting that you are not abandoning your business. Odd as it seems this approach works- it has worked for some of my clients, colleagues and friends and it has worked for me.
Believe it or not, this is the nature of consulting and self-employment. You get the benefits of flexibility and better income, but you're expected to weather the bad times with the good.
I've been doing this for 17+ years (quite successfully), but it comes down to marketing. You need to get your name out there and build your network. Rather than take on one big client, consider 2 medium sized clients or 3-4 small clients.
As in any business, it's about distributing risk. Too many companies have failed by putting all their eggs in one basket (which is what you're doing). Please don't take this the wrong way, but that's a surefire way to get into trouble.
I would suggest taking 10 hours out of every work week (during business hours) and concentrate on pure business development. It's the only way to stay alive and feed yourself (and family).
You should invest in marketing materials as well. If you don't have the time to do this, consider hiring a marketing person to "make rain" if you catch my drift. No, it's not easy and it's never fun to work more than you have to, but it sounds like you have the *delivery* part of consulting down, just not the business development part.
Good luck. If you have any questions, please feel free to hit me up directly.
I want to build on what Mr. Rai said. Treat yourself as a real company.
This is partly a pricing issue. Let's assume that you've done as much marketing and business development as makes sense, and you still have down time.
Knowing that you have a likely proportion of down time during the year, you need to price so that the profit you earn will carry you over the lean periods. Your rate needs to reflect that as part of "labor overhead." Just as your rate must cover the cost of running your business, and marketing, it must also cover your non-billable time.
If you tell me you cannot raise your rates enough to do that, then you have to ask yourself:
-- Do you have the right clients? What companies or organizations pay a higher rate for what you offer?
-- Are you communicating your value, your uniqueness, in a way that lets you maximize your billing rate?
-- Do you need to segment your work, so that you do the high-value, high-rate work for your clients, and you hire a lower-paid person to do the more routine work that you must bill at a lower rate?
-- Are you billing for all your work? What about those change orders?
-- If you're billing hourly, people focus on the time you spend. If you bill for value, they focus on the value your provide.
Most small professional service providers under-price. Have you raised your rates lately? You're afraid you'll lose your clients. Possible, but perhaps if you lose a low-paying client it will free you up to find a more profitable one.
Never subsidize anybody wealthier than you are!
Lots of good responses here. Here's my 2 cents worth after being self-employed for over 40 years. Do what any company does, stuff resources (money) away for the lean times.
When times are good and the revenue is pouring in, don't spend money like a drunken sailor but put away what you can for the lean times that you know will follow just as sure as Spring follows Winter.
As others have wisely suggested, use the down time to network, market, prospect, develop products, etc.
Every business has its cycle. Know yours and go with it.
I have been an independent contract for many years so I can relate to your question. This is what I do and have suggested others to do. Never Over-Drive your head lights....always live below your means. Doing so can be a real challenge but so can paying bills during the down times. Commit to putting away X percent of money on every paid job. Put that money it to your "Reserve/Rainy Day Account" and somewhere that makes it hard to withdraw funds quickly.
As an entrepreneur for the last 2 decades I've learned...
you have to takea long view- any one month or quarter can be distorted- more work than I can comfortably handle or too little- but I find that over the course of the year the work and finances balance out.
you have to have enough reserves to get you through a couple of down cycles- have a good relationship with your bank! get a line of credit that you can draw upon if you need it- and pay it back as soon as possible
use the downturns to learn new skills and try to experiment and build your confidence using the new tools by applying to pro bono work
sometimes the down cycles are just a great time to re-charge creatively so follow whatever paths do that for you- music, museums, exercise, long walks in the woods, etc. lots of things you can do without putting additional stress on the pocketbook if you're concerned about finances!
talk to others in your professional (or personal) community to relieve stress and also to share ideas about what else you might do to minimize the downturns
hope this helps.
Activity management is one possible answer. As a self-employed consultant you need to:
1. Deliver your Service
2. Manage your Admin
3. Manage your Finances
4. Sell your Service
Most of us consultants do really well on number 1 and manage 2 & 3 when we are busy but loose sight of and neglect 4.
If you don't sell consistently you will have gaps in your cash-flow. Its easy to turn work down if you have too much but difficult to get work if you have none. So managing your sales process and making sure you sell every week in some form or fashion is critical.
Set up a pipeline spreadsheet of suspects, prospects, proposals and contracts and manage it tightly. Subscribing to a CRM system such as http://www.onepagecrm.com will help you maintain discipline! :)
That is part of the choice we self-employed people make. We can work for someone else, have regular pay and comparatively regular work. Or we work for ourselves, with the risks and advantages it offers; one of which is irregular workload.
The key is to learn to prioritize; identify the urgent and the important; make a list of jobs-to-do, etc. Find a simple system for this, e.g: pen and paper.
And plan holiday time when work is much quieter.
The ups are great and the downs can be a pain, specially when you live in a country like France where you have to pay all sort of taxes even if you have no income (it's based on what you have earned, and you then have to claim it back...)
I was faced with exactly that situation recently and it was not fun at all. So instead of moping I decided to use the time to enhance my skills (I'm doing some work on my PHD..) and as others have mentioned, doing a lot of networking. You sometimes meet potential clients in the most unusual places.
Also, it's a good time to rest and recharge - I'm going to take a week and go snowboarding in the alps (can't afford it but it will make me feel better ;) )
And finally, the advice one of my mentors gave me "look at what is, not what isn't"