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My new consulting business consists of myself and a partner. Our (currently one and only) customer is asking for us to hire more talent so they can utilize us more. This sounds great, but we do not have the cash in the bank to afford the temporary cash outflow to hire and pay salaries. Once we can invoice and be paid for their work, we will be fine, but there is about a 2 month gap we need to cover.
What is the best way to fund this 2 or 3 month cashflow gap?
We are a software consulting startup, and I will be hring software developers who are also business analysts and can work with customers to solve their problems (rather than just sit in a corner and code).
I would like to get some kind of loan or credit that I can pay off in 3 months rather than giving away part of the company, but I know you have to have collateral for a loan.
Perhaps you can find people that will start off working as 1099s and invoice you? or if this is important to your client have them fund your expansion by paying upfront. I would think that your client would pay a percent of the project at start anyway.
HTH!
Good Luck and Happy Holidays-
Laura
Are you and/or your partner taken salaries at this point? If so you may be able to be creative. Maybe not pay the partners for a month. Or maybe alternate pay.....one month one partner takes pay and the other doesn`t then flip it the next month......
If you build it, the work will come.
We fretted over hiring our first person 5 1/2 years ago, and now we have 25 employees. Sometimes you just have to do it. Seek out some financing, ask your clients to pay in advance. Offer some sort of pre-paid discount. We do this with our maintenance plans for our IT support services. We offer our clients a discount to get their money ahead of the work being done.
Something to chew on.
Stuart
The IRS has strict rules about 1099 "employees" so I do not recommend this route unless you consult with your CPA. There are many creative ways to find cash. Consult with you financial adviser first, and if you don`t have one, then find a good one. I do agree that by taking the risk of hiring someone, it will pay for itself in no time.
This is a typical growth problem we all face. A few points:
* Having only one customer, who is pushing for you to hire, is a scary place to be, especially if they then try and lock you out of consulting for their competition. What happens if you hire staff, the client`s budget changes, and you`re sitting there with nothing in the pipeline?
* Paying with equity is the stupidest idea on the planet. NO form of capital is more costly than equity. I`d delete that idea out of hand. Not like that guy had an agenda anyway...ahem.
* The prepay discount idea is a great one. Just mark your invoice `2% cash discount if paid on receipt, net 30 days`. Any decent-sized company with an accounting department will be REQUIRED to pay that invoice as part of their cost-cutting measures. Just putting that line on invoices has been great for my cashflow.
* What about an intern on a 60-day trial which could lead to full-time at graduation? It`s January already - they`d be off the trial in April and graduating in May.
* A contractor might not be too happy with a pay-after-the-fact gig. Waiting until after the work is done probably won`t get you anything but the unemployed and underqualified. Good people expect timely payment. Two weeks - sure. 30 days - tough.
* Find more clients, for god sakes. I know we have all faced this - you can`t turn away from actual work to be done and still keep marketing - but if and when the client finds out they are your sole client, don`t be surprised if they start squeezing you for other consessions, like volume discounting, etc, etc.
Good luck. Always a good problem to have.
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