How do I pay my consultants if my customers drag their feet on paying my company?
I want to transition my 12 years of information services/information technology experience into a consulting business to assist companies with things such as networking, software development, implementation, training, etc. My biggest concern is paying my consultants. Let's say I land a customer who needs a network administrator, and I find and place an independent consultant. It's almost impossible for a new business to get a line of credit to cover operating expenses. How can I avoid going into my own pocket to make payroll if my customer is 30 days late with a payment?Typically, your category of firm can ask for a deposit upfront before you start work (usually 50 percent of the project fee) as a way to help with cash flow.
You also say your consultants would be "independent." If that’s so, they wouldn’t be on payroll, so to speak, and you could negotiate a time frame for payment that would work better for you … making certain you deliver on that time frame to keep your reputation high in the market.
You may have to get creative at the start regarding your line of credit, until you have the track record a bank will consider. Another option is to find a "small business"-friendly bank or a "business bank" that specializes in helping small companies and startups.
Even established companies struggle with cash flow. So it's better to learn more about how to cushion yourself at the start because you will need to apply those lessons even more frequently as you grow your company.
All the best. Brad Sugars