How to Divorce Your Client and Protect Your Own Interests
Five steps to help you protect your business, your mental health and your future.
It sounds like the exact opposite of everything you thought and read about being an entrepreneur, but yes, sometimes you have to leave your clients behind before a project is completed or you accept a contract extension. It isn't easy leaving a contract on the table. The reasons most entrepreneurs stay committed to toxic working engagements can be broken down into two areas of risk: financial security and brand reputation. Both are paramount to the continued success of your business, but at what cost?
Why would we consider losing clients? Again, there could be many reasons that leave you feeling like the relationship may no longer be a good fit. These could include:
- Slow payment cycles, over-invested resources into the engagement.
- Constant scope changes resulting in delayed results and tension.
- Lack of clarity with requirements and tasks making resourcing difficult.
- Toxic working environments, conflict with leadership personalities.
- Work that doesn't align with your brand.
- No time for other projects and engagements that are more profitable and aligned with your business goals because of the constant changes arising in the engagement.
As these concerns start to appear within your business and efforts made to resolve them with your clients are unsuccessful, you will find yourself at the point of being ready to sever your ties. Financial risks have to be considered, however. Here are five ways to prepare for your client divorce to mitigate risk and reduce financial exposure.
Replace the cash flow
Line up your next client and project to ensure that you have the cash flow coming in that you need. This is one of the most significant reasons why people don't cut ties with clients, because businesses need cash flow to sustain operations. Begin sourcing replacement opportunities in advance of your anticipated divorce date. Create an appropriate timeline that will allow you to wrap your current engagement in a way that won't harm your client. Having your next client lined up will be your greatest motivator to eventually make your move.
Get your financial affairs in order
I've witnessed some nasty financial battles when contracts are ended. Balances are outstanding and jilted clients are unwilling to pay up. Getting paid in full, if you don't have the means to pursue legal action, can be tricky and time consuming. To reduce your financial exposure, you should consider the following.
- Adopting a fixed bid policy with payment plan that correlates closely to work completion. Target for an agreed upon payment schedule that leaves the final instalment within the 5-10% range to limit exposure nearing end of completion. This will allow you early cash flow to align with resources expended throughout your project and alignment with effort. The ideal practice is to manage your cash with time spent to ensure that there is little room to argue against percent of work completed or open the door to possible disputes and requests to return funds that have been received.
- If you're running on time and materials, get ahead of your invoicing well in advance of your divorce date. The goal is to ensure that your final invoice isn't as large. For example: If you know in two months you are going to end your agreement, ensure that your next invoice within 30 days is your larger one and paid prior to advising of your end date. Keep hours worked to a minimum to the best of your ability in your final month to mitigate risk of invoices being held as a consequence of providing your termination notice. The key is to get your Accounts Receivable cleaned up as soon as you can prior to giving notice and keeping your current billings down without compromising the work you are doing. It is an unfortunate reality that not all contracts are withheld by both parties, and if you are able to protect your business interests in a way that is ethical, then you should do so.
- Protect your brand and Reputation by doing great work. Achieve your deliverables while working on the engagement as you prepare to exit. Do not give anyone the opportunity to slander your name or brand without merit. Avoid getting into heated exchanges, verbally and in writing with your clients. As cliché as it sounds, take the high road. In today's modern digital age, we know all too well that a screenshot can be shared within seconds and your name and brand reputation tarnished after years of hard work. As you work on engagements, document your work and the success metrics that you are creating for your clients. No matter what happens in an engagement, those stats are still valid. Provide your clients with as much documentation/blueprints to carry on without you as possible to ensure that you set them up for success and to be able to continue on after you end the engagement.
- Know your T&Cs, and be prepared to fight for your payments and backlash in general from your client. Go back and review your contracts for payment terms and agreements as well as any verbiage on non-competes that may exist in your contracts. While we hope to never have to worry that things could go so awry, it is possible to have clauses within your contracts be brought to the forefront when you attempt to sever a relationship. By being informed, you can put steps in place to make the right choices and be prepared to state your facts.
- Know when to walk away. If the pursuit of funds will cost you more than you stand to gain, think of the opportunity cost — both financially and possibly to your reputation. Never let your ego get in the way of making sound business decisions that could affect your business in the short and long run.
Related: How to Handle an Angry Client
Again, the intent is not to have anyone crash and burn without you, but to be able to professionally walk away from engagements where mutual beneficence doesn't exist — and hopefully without burning bridges if possible.
All of the above are not always easy to deliver or possible and won't guarantee an amicable split. But these pieces of advice will make it easier to do what is right for you and your business and allow your clients to carry forward as well. Even after the sting wears off.
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