Outside investment is NOT a good option for most businesses, especially software services firms. Yet it gets the lion’s share of words written about it and works spoken about it.
First and foremost, protecting your equity should be a critical focus for anyone growing a business. After all, you’re the one shouldering a ton of risk. And diluting your upside before you exhaust every other option is premature. You could end up killing your incentive to stick it out long term.
Yet we’re collectively enamored with the atypical results we hear about in the venture-capital funded startup scene.
I liken it to the odds of the Average Joe winning the lottery. While the odds are probably technically unique, the metaphor holds. Both are more of a hail mary than a sustainable way to generate wealth. Yet they remain popular.
Before you entertain external funding, there are strategies you can pursue to pull in the cash your business needs right now.
Payment Strategies to Improve Cashflow
As an alternative to rushing toward external funding options, there are many strategies you can employ to quickly improve your cash position.
Cash is the lifeblood of your business.
Pulling in cash now is almost always better than getting it “later”. You owe it to yourself and your business to pull in cash as fast as you reasonably can.
No cash means no business.
According to a U.S. bank study, 82% of businesses fail due to running out of money. It’s a top reason for failure — right up there with a lack of demand for your services. And your software services business is no exception.
So, what can you do to encourage clients to help you out here? I won’t just share one strategy, I’ll share five.
1) Ask for payment upfront
Even just getting a portion of the payment at the outset of an engagement can be a huge win to combat your cash flow woes.
Not only does it ensure clients have “skin in the game” at the very start but it allows you to cover expenses related to creating the valuable outcome your client ultimately needs to achieve. If I only had a nickel for all the times I naively financed my clients at 0% interest without realizing it.
I’m currently helping a business ramp up a new service offering and this is the strategy we’re leveraging to cover its operating costs initially. Half now, half at the end of the engagement. We chose that approach given the engagements are typically less than 30 days long.
2) Offer incentives for early payment
This could be a discount but it doesn’t have to be. That approach is boring and likely unnecessary. Instead, get creative. Or, better yet, ask your clients what would entice them to pay early.
As an example, maybe skipping the line so their project starts next is something they value and will happily pay early to secure. When you can alter the price, quality, and speed matrix, clients will likely pay close attention.
3) Eliminate or minimize ongoing risk
I can’t imagine a business exists that isn’t threatened by the risk of something happening (or not happening) that would cause them harm. The harm could be financial, related to their reputation, or both.
If you can discover such a risk and devise a way to keep it at bay, you have the makings of a subscription service. That paves the way for clients paying you on a set schedule to ensure everything will be alright.
Subscriptions are great for cash flow and building financial momentum. There’s a reason why XaaS (Anything as a Service) is so popular.
I’m a huge fan of managed services. I’ve built teams and offerings that minimize downtime of business-critical systems. The key is recognizing what clients need to avoid and investing in processes to minimize harm.
Bonus: if you can measure the financial impact of downtime, you have the start of a value-pricing strategy. Leverage the savings you help achieve to carve out a percentage as your price. Incentives are now aligned — the more you can save your client, the more you can earn.
If a system historically went down 10 times a year, at a cost of $100k per incident, and your team can reduce that to 2 incidents, you’ll theoretically save them $800k per year. A value-based price would be a healthy chunk (%) of what your team saves them.
4) Package your knowledge to expand your customer base
Not every prospect that discovers your business is ready to buy your primary offering. Yet they may be ready to take a smaller step. Why not sell them a knowledge product.
Build once, sell twice. Or, more aptly, sell many times.
What could you sell that can be consumed with no interaction from you or your team? Maybe you create a self-paced course that teaches prospective clients your process. Or you bottle up your research and sell the analysis.
In any event, you make it easier for future clients to “kick your tires”, gauge the initial value, and come to you when they are ready to leverage your primary offering. Income now and (potentially more) income later too.
5) Mix-and-match the above strategies
None of these strategies are mutually exclusive so get creative. Clients that choose your subscription service may also be incentivized to pay early or maybe even pay upfront. Why not explore that possibility to improve your cash flow today? You owe it to your business to experiment here.
Looking externally for funding is a popular option but it comes at the expense of your equity position. Before you give up on bootstrapping your software services firm, get creative with pricing strategies. You may just solve your own cash flow problems and keep all your equity.
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