Cashflow vs Winning Your First Project

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Hi team!

Earlier today, I was on the phone with someone thinking about getting started in independent consulting.

He raised some really valuable questions that I think are worth discussing as a group.

Namely, what is the order-of-operations for cashflow when you quit a full time job to go become an independent consultant.

Let’s talk about that today

When is Your First Paycheck Coming when you go independent?

At your starting point, you likely have a stable full time job. You are likely being paid monthly or every two weeks.

When you go independent, that completely changes.

The standard consulting engagement is typically Net 30, Net 60, or Net 90. That’s just how big companies pay.

A Net 30 payment term means the company pays 30 days after the invoice is submitted.

Let’s do the math:

• You go independent (day 0)

• It takes you 14 days to land a client (day 14)

• You complete work on that client for 30 days (day 44)

• You submit your invoice for that client on day 31 (day 45)

• You get paid by the client 30 days later (day 75)

In this situation, you went 2.5 months without getting a single dollar direct deposited.

That can be extremely jarring, especially when you were used to getting a paycheck every 2 weeks!

For that reason, it was a completely reasonable question for the gentleman I spoke with earlier to be asking this question

Is there ways to make this better?

There are a couple different levers to pull here:

• You can win your first project faster, which pulls everything forward

• You can negotiate faster payment terms

• You can request an upfront payment, or a payment structure every week

Each of these has pros/cons to it and is something that is really decided on a case-by-case basis.

The short answer is this: waiting for 75 days for your first paycheck is possible, but not a great outcome. If done correctly, you could get paid significantly faster.

How does this change for different client acquisition strategies?

Everything above here is based on Catalant and working for F500 & private equity clients.

If you work with a different client type under a different client acquisition strategy, then things could be very different.

For example, UpWork is extremely quick to win clients and pays weekly. You could go from just starting to getting paid in 6 days or less.

(UpWork pays every Wednesday, so 6 days is a maximum. If you sign up on a Sunday, you could theoretically get paid in 2 days!)

On the other end, going direct to larger companies could be extremely long. If you sign on with a F500 company without the safety of the Catalant MSA, then you’ll need to negotiate that yourself. Expect it to take 6 months and you need to hire a lawyer.

In that case, you won’t get paid for more than half a year!

How can I help?

As always, reach out and let me know if there’s anything I can do to help!