Managing cash-flow is at the heart of any service-based business, and it can be a huge challenge when you’re first starting out. We’ve all experienced the feast-or-famine cycle and I think it’s the number one thing that contributes to entrepreneurs flaming out and giving up.

It has taken me years to get a better handle on my cash-flow and even now, it can still be a struggle. Unfortunately, there is no one single solution to cash-flow problems, but I have found some success by examining and changing how I manage clients and their expectations.

1. Always get a deposit

Always, always, always get a deposit. You may not think it’s a big deal, but it is. The reason it’s such a big deal is because of client expectations, which you are solely responsible for setting.

There’s an old anecdote about a man who won the lottery. He decided that he wanted to help his neighbor, so every week he walked next door and handed his neighbor a $100 bill. The first week the neighbor was blown away by the man’s kindness and thanked him profusely. The second week was the same. But over time, the neighbor grew accustomed to receiving these $100 bills. He even began to feel he was owed this money. One day the man had no more $100 bills to give, so he stopped visiting his neighbor. To his great surprise, the neighbor was furious. “Where is my money?!” he demanded.

That’s a bit of a ridiculous analogy, but it shows how people respond to the expectations we set.

If you are willing to start working before you receive a deposit, you’re telling your client that they can walk all over you, and they will if given the opportunity. It’s not because they’re jerks, it’s because of the expectations you set at the beginning of the relationship.

2. Send regular invoices for smaller amounts

When I first started, I split payments into two equal parts: deposit and final payment. This can work with small projects (less than one month), but in general it’s a terrible idea.

Once my average project size grew to about three months, I found myself with large periods of no money. Maybe you’re the kind of person who can manage large sums of money every third month with nothing in between. I certainly am not and my guess is, most freelancers aren’t either.

So, what did I do? I decided to break up my billing into smaller, more frequent invoices. It looked something like this:

• First payment when project starts
• Second payment when design is complete
• Third payment when development is complete
• Fourth payment when project launches

This was a step in the right direction, but I still had a major problem; my billing was tied to deliverables. Which leads me to the next (and most important) point.

3. Don’t tie payments to deliverables

I’m sure the problem here is obvious. When billing is tied to deliverables, you are at your client’s mercy. Every time there is an extra round of revisions or a change to the project scope, your payment timeline will fluctuate.

One solution that I have found very successful is monthly billing. I create a timeline for the project and then divide the invoicing by the number of months. So if the project is three months long, the client will receive three equal invoices that are due upon receipt and not tied to any deliverables.

Now, you’re much better prepared to manage cash-flow because you can expect a certain amount of money every month. It also lowers the chances that you will get screwed if a client decides not to pay. If you don’t receive a payment, you stop work. This is so important. You’re not a bank. You don’t offer financing. What do you think would happen if you went to the grocery store and said, “Can I go ahead and take this gallon of milk and send you a check in about three weeks”?

I’ll tell you what would happen; you wouldn’t be getting any milk. With smaller, more frequent payments, your work-to-payment ratio is more in line and you’re chances of getting screwed are lower.

4. Be firm, but don’t be a jerk

Setting expectations is hard because we don’t want to sound like jerks. Contracts, invoices, and deposits are all difficult discussions because it sounds like we don’t trust our clients. Being nice is critical. You can set expectations in a way that feels cold and impersonal, or warm and inviting. It’s up to how you deliver it.

Never compromise your values, but don’t be a jerk either. I once had a client who was haggling with me on the price of a project addition. It was a very small thing, but they were trying to get my estimate down by countering with a lower amount.

I called the client and explained that my estimate wasn’t negotiable, but that I valued and cared about them as a customer, so I would do this one for free.

If I had accepted the lower amount, I would have sent the message that my price is arbitrary and that I didn’t really believe in my value. Instead, the client walked away with an immense amount of trust in me. They knew I took my business seriously, but I also really wanted them to succeed. The next time, they didn’t haggle. They trusted me and knew I had their best interest at heart.

Conclusion

Cash-flow management is foundational to the success of your business. The problem with a foundation is that if it’s weak, the whole house can collapse. Build a solid foundation by properly setting your client’s expectations, billing in smaller more frequent chunks and being nice. These steps will go a long way.

For even more tips on better cash-flow, check out this article by Allan Branch.

The post Avoid Cash-flow Problems Through Better Client Management appeared first on Treehouse Blog.

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Last night’s Apple Design Awards provided plenty of inspiring moments, celebrating some of the year’s most well-designed, state of the art, and innovative apps, and the developers behind them. Learn about this year's winners.

Last night’s Apple Design Awards provided plenty of inspiring moments, celebrating some of the year’s most well-designed, state of the art, and innovative apps, and the developers behind them. Learn about this year's winners.

The Apple Worldwide Developers Conference is off to an exciting start, and Registered Apple Developers can follow along each day with session videos on the WWDC site or on the go with the WWDC app. Watch now.

As a master of marketing tech and entrepreneurship, UMBC alumnus Greg Cangialosi ’96, English, always seems to be two – or ten – steps ahead of pretty much everyone else. He has to be.

When many of us were still figuring out listservs, his vision for power e-marketing was already permanently changing the communications scene. When we finally started to grasp the concept of “the cloud,” he had already measured potential and created a community for big thinkers and even bigger collaboration. Follow him on Twitter, and it sometimes feels like time travel.

And yet, in the best of ways, Cangialosi is an old-fashioned guy with a timeless sense of what really matters. A generous volunteer, he embraces the three pillars of philanthropy – time, talent and treasure – and UMBC is all the better for it.

Last month month, Cangialosi made a five-year commitment to UMBC totaling $100,000 to support the creation of a business innovation competition and an endowment that will support student entrepreneurship initiatives, including everything from new courses, guest speakers and potential seed money for budding student start-ups.

“I have had wonderful experiences in all three realms of giving back and I think they are all important as they all make an impact,” said Cangialosi, who sold his start-up email marketing firm Blue Sky Factory in 2011 and recently co-founded Betamore, an 8,000 square foot “urban campus for entrepreneurship and technology, focused on three main areas, education, community and incubation” in Federal Hill.

“My recent experience, teaching, has given me the closest connection to the students, student life, and how many amazing things are happening on campus and around the university,” he said. “UMBC is moving forward, making things happen, and it’s great to be part of that momentum.”

Since his graduation in 1996, Cangialosi has played many roles as an alumnus and donor. He has judged UMBC’s annual Idea Competition, and served as a speaker for the Alex.Brown Center for Entreprenership and Career Week. A former member of the Alumni Association’s Board of Directors, he was named an Outstanding Alumnus of the Year in the Humanities in 2012. And last year, he taught “Entrepreneurial Marketing” at UMBC for the first time – an experience he found “challenging yet rewarding.”

“Greg’s relationship with campus has so many dimensions,” said Greg Simmons ’04, Vice President of Institutional Advancement.

“From his early days an entrepreneur – when he let us use his e-mail marketing platform to publicize university events like the IT Visionaries programs – to his work on the alumni board, he has always demonstrated great commitment and energy to finding ways to be supportive of UMBC.  Seeing him enjoy teaching has been great.  And this recent demonstration of his commitment – via philanthropy – shows a great alignment of UMBC’s efforts and his own value system.”

Cangialosi’s gift will further solidify UMBC’s entrepreneurship program, said Vivian Armor ’73, director of UMBC’s Alex.Brown Center for Entrepreneurship. She expects the Cangialosi Business Innovation Competition to become a major source of support and inspiration for students looking to become successful entrepreneuers.

“We’ll be able to create a very immersive experience for students,” including potential cash prizes for winning ideas, as well as structured mentorship opportunities, she said.

Through his teaching and connections to UMBC, Cangialosi has been able to further provide opportunities for students. Recently, Betamore hosted a “Startup Crawl” for more than 80 students from around Baltimore (including a couple dozen from UMBC) as a way of “getting students exposed to the startup scene here in Baltimore, and at the same time exposing new emerging companies to the amazing talent pool here in Baltimore,” Cangialosi said.

Twenty companies participated, all of whom were hiring either full time positions or internships. Students mixed and mingled, getting a taste for employment options they might not otherwise have considered.

“What I got out of it was great networking,” said newly-minted alumna Monica Berron ’13. “I had no idea we had a burgeoning entrepreneur community in Baltimore. I met a great group of women, for example, who have business called Drio who create website for bloggers and businesswomen, which is something I’m really interested in.”

“Aside from networking and meeting a lot of the founders, a portion of the Startup Crawl also included a session in which each company presented to all the attendees,” said senior Andrew Mavronicolas, who recently took Cangialosi’s class, and who is majoring in information systems with a minor in entrepreneurship. “From this, we not only learned about their companies, but some of the struggles they went through along the way.

Always looking ahead, Cangialosi is already hoping to host another Startup Crawl for the fall. And UMBC students will definitely be a part of it.

“I love UMBC first and foremost,” he said. “I am also a big believer in giving back and helping to make the places and the institutions that support you better and better. That happens by giving back.”

Learn more about entrepreneurship at UMBC here.