Three Financial Tips for Consultants

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Money is not the root of all evil, but not having enough of it has inspired more evils than a body can count. As a consultant, you have to worry about money every day, because you’re not only your firm’s chief software designer (or Web designer or network engineer) but also its chief financial officer and head of sales. And you’re the bill payer, comptroller, collections agent and, frankly, every other job that deals with the almighty dollar.

Here are three simple strategies that will help you be smart about money.

Beware the Accretion of Little Things
Let’s say you’re unhappy with your Web host. Your site goes down, you can’t get your e-mail and they’ve got a help desk staffed with morons. So you switch to a new company — but the old one still bills you one more time (or more often than not, directly charges your credit card). “No big deal,” you say. “It’s only $30.” You’ll call them to get it fixed.

A week later, you’re browsing the IT books in Barnes & Noble and come across something good on SOAP. You’d like to add it to your skill set, so you buy the book. “No big deal,” you say. “It’s only $40.” It’s not like buying a car. So what if you get too busy to read it?

A week after that, you remember to pay your credit card the night before it’s due. It’s too late to mail a check (besides, who does that in this digital world?), so you make an online payment. Problem solved? Sure. But the company charged you $15 to make a same-day or next-day payment, which you had to do to avoid the even bigger late fee. “But that’s OK,” you say. “It’s no big deal. It’s just $15.”

By now, you’re in the hole for $85. If you follow this routine every month, you’ve lost $1,020 in a year. In five years, you’ve lost more than $5,000. There’s an old line that’s true enough to be trite: A bucket of water fills drop by drop. But it can emptied by drops, too.

Let Software Open Your Eyes
Years ago, I set aside a week — a complete week — to enter three years’ worth of transactions into Microsoft Money. (This was before the days of auto-downloads, of course, when using financial software was still time-consuming.)

The result? Shock and awe, to quote the Department of Defense. I was shocked — it’s not an exaggeration — to see where my hard-earned dollars went. I had no clue I was spending so much on books (always a favorite) and food. (Did I really need to eat out so often?) How much? About four times as much as I thought, to be precise. I also discovered that I was earning less from certain clients than I had presumed.

Financial software — Money, Quicken, QuickBooks or any program you like — can show you things you never dreamed about your financial life. It can open your eyes and give you a heaping dose of reality. And while you might think you can do just as well using an Excel spreadsheet or keeping a running tally in your head, you’re flat-out wrong. Spending $25, $50 or even $100 on a program that puts your financial life in order will more than pay for itself in the long term.

It’s All About Flow
Cash flow, to be precise, is key. Too often, consultants think in simple terms of accounts receivable. That’s a start, but if you really want control of your dollars, you need to couple your accounts receivable projections with cash flow projections — when you’ll get the money and how soon you need to use it.

Let’s put it this way: If you tote up next month’s expected revenue and see that you’ve got $7,000 of work and only $4,000 of bills to pay, you’re apt to think you’ve got plenty of money. Not so. You won’t get paid for that work for 30, 60 or even 90 days after it’s done. But your credit cards, your landlord or the bank that holds your mortgage or car loan won’t be willing to wait. Thus, knowing when you’ll get your money is every bit as vital as knowing how much you’ll get.

You can, of course, do your own cash flow projections by hand. It’s not hard. But software such as Money and Quicken will do it for you. Just enter your bills and their due dates, then enter your invoices and their due dates, and the software will project your bank account balance for every day of the month, showing you a nice, pretty picture of how much you’ll have, when you’ll have it and whether it’s enough for the bills at hand. If nothing else, that buys you peace of mind. And that’s priceless.

David Garrett is a Web designer and former IT director, as well as the author of “Herding Chickens: Innovative Techniques in Project Management.” He can be reached at editor (at) certmag (dot) com.

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