One of my aims for 2013 is to grow the business into a proper agency. For our first year, it was largely about me being a freelancer, but we’ve grown to the point where we need to take the next step. That’s great news, but it’s not without it’s challenges.
This is the first of a few posts about those challenges and what I’ve been finding out about them.
Our biggest challenge isn’t getting the work in, it’s cashflow. Up until now, it’s just been me – and I’ve realised we’ve been adopting a pretty lax approach to our invoicing. When it’s just me and some freelancers, that’s fine. I know the money’s coming in sometime, and I’ve got enough to live off for a few months, but when we hire people, they need paying every month. For the most part, we currently invoice at the end of the project, with a 30 day window. With the world’s finances being what they are, everyone then waits until the 30th day to pay their invoice. So what that means for us is if we do some work today, it’s usually 6-8 weeks before we see the money.
When I started, we went down this route because, well, that’s how things were done at my last company. But that was a massive multinational company, with enough cash reserves and clients to do that. I’d just assumed that was how everyone does business. Legally, you have to give clients 30 days before you can charge them a late fee, so it’s best to work with this mind anyway. In fact we’ve budgeted with this in mind, as it seems like the most sensible thing to do.
But in my chats with people who have successfully built their business from a freelancer to a small agency, this is the one consistent piece of advice I’ve been given – build up a stockpile, and reduce the payment time by asking for a deposit that’s paid before work starts, and reduce invoice terms as much as possible.
Failing to sort out the cashflow, not lack of work, causes the most headaches and is the biggest reason for new businesses failing.
So here’s what we’ve done to tighten up cashflow so far:
Some useful posts and resources on Cashflow