Are you losing money while working your butt off? How to guard against this pitfall
Even though you may be working your tail off, you could still be losing money. I’ve seen lots of consultants fall into this trap, and it can put a serious squeeze on your business and personal cash flow–and we all know that too little cash can cause a lot of stress. To start and run a successful consulting business, you need to be aware of the potential mistakes so you can prevent them.
Being afraid to bill for your consulting work: hidden and not-so-hidden pitfalls
You may think, “Of course I’m not afraid to bill for my work!” But before you tune out, you might want to know a bit more about the hidden ways that this can be an insidious problem.
For example, do you:
- track your billable time inconsistently?
- bill your clients irregularly (i.e., not every month)?
- bill for your work more than 1 month after it was performed?
- discount your services?
- write off your services?
- negotiate your rate?
- fail to follow up quickly on any unpaid invoices from your clients?
If you answered yes to any of the above, then you’re likely losing out on revenue.
Remember, as a consultant, you’re in business to provide value to your clients, and your clients have agreed to pay you for the value you give them. It’s simple, and it’s the same formula that essentially all businesses follow.
I know consultants who bill for time several months after the work was done, and/or who regularly discount their time on projects. Those are sure ways to lose revenue. The longer your time remains unbilled, the less likely you’ll be to collect on it.
Similarly, the longer you let unpaid invoices age, the less likely you’ll be able to collect on them.
As for time entry, before I started my consulting business, I worked at a software company, essentially doing consulting work, and we were required to track our time. But of course, very few of us actually tracked our time very well, and most of us scrambled around at the end of the month trying to figure out what we worked on, combing through e-mails, our Outlook calendars, and scraps of paper to figure it out.
The result? Lost revenue for the company and/or inaccurate invoices to our clients. Sloppy, sloppy…
Now that I own my consulting business, I track my billable time religiously. Whenever I’m doing something billable, I’ve got the timer running on my time-entry software. When I’m through with the task, I enter a narrative, and save the entry. At the end of the month, when I’m ready to generate invoices, it’s easy to do. All my time is already entered, and the process of sending my invoices is easy.
The result? Accurate invoices, and (hopefully) no lost revenue for me.
You might do a great job of regular time entry and monthly billing, but like I mentioned above, there are other ways you could be losing consulting revenue.
You might have legitimate reasons for not billing every month, or for discounting your services, etc. But if you notice that you get anxious thinking about or actually creating your invoices, discussing your rate or billing practices, or following up on unpaid invoices, you may have a problem that needs to be addressed. Unless, of course, you like losing money–but I’m guessing that’s not the case.
- feel uncomfortable asking for money
- find it difficult to ask for things
- feel like your rate is too high
Whatever the case, there’s probably a part of you that doesn’t value yourself. I won’t get into all the possible causes for why this might be, but it’s a fairly common issue. And I can identify with it, because there have been times when I’ve struggled with discussing my bill rate or following up on unpaid invoices. But if you’re conscious of the issue, it’s much easier to deal with it.
There are plenty of ways you can sabotage yourself, and most of them are caused by believing in fallacies. Ramit Sethi talks about some of the excuses that prevent people from earning more money.
What you can do
Apart from going into psychotherapy to work through why you might be sabotaging yourself, there are a number of ways you can guard against this pitfall. Mostly, I tend to rely on systems–or habits–so that I don’t have to spend too much time thinking about or agonizing over things. Systems work well, since they put things on autopilot.
Here are a few things I’ve found helpful:
- Track your billable time religiously.
- Send out your invoices by the first or second of the month for billable time from the prior month.
- For unpaid invoices, create a similar system for following up. If an invoice is unpaid by the 15th of the following month, call the client to make sure they’ve received the invoice, and politely ask when you can expect payment.
As for your rate, don’t discount it. As I’ve discussed before, be matter-of-fact when discussing your consulting rate.
If you have systems in place, your clients will expect and pay your invoices, and you’ll be less stressed about your own cash flow.
Even if you’re uncomfortable sending out your bills, just do it. Remember: you’re in business to provide value to your clients. As long as you provide value, they’ll be happy to pay.
If you received something of value, you’d be happy to pay for it, right? Your clients are no different.
If you devalue yourself, others will too. Don’t do it.