Steven Brown

This is one of the greatest tools I found to running a successful and profitable web development company! Cashflow development has great benefits for both client and developer, and sets you up for other important tools, including quoting, debt collecting, time estimation and meeting deadlines.

Have you ever wondered how you can be so busy, landing great projects, getting paid a good hourly rate, but still you struggle financially? Well this is a combination of factors normally: meeting deadlines, debt collection, and cash flow.

The typical payment cycle is 50/50. 50% is paid up-front, while the remaining 50% is paid upon completion. Let’s look at the reasons why this is a very poor situation for client and developer on a 6 month, $12,000 project. As a developer look at things from the client’s perspective to see why clients struggle to say “yes” to going with you:

• The client needs to find $6,000 up-front which could be quite difficult
• The client needs to front $6,000 before any work has been completed, they have no proof yet of the developer’s capabilities
• You need to be sure you can complete the project to the timeline and budget, which you usually aren’t, but you say yes because you need the money
• You get a sudden cash injection that usually helps pay for completing the previous project
• You are left to develop most of the project on your own cash reserves, or you take on more work to cover it
• At the end of the project you have usually crammed some stuff in quickly to meet the deadline (or limit the damage) and the client usually wants you to put more stuff in, and they are holding the remaining 50% as a bargaining tool while you are desperate to get paid which means you will say yes to anything or risk the hassle of chasing down the 50%
• If for whatever reason at the end of the project the client doesn’t pay the remaining 50% you are in a very tough position

Cashflow development is the idea of breaking down an entire project cost over multiple regular payments, coinciding with development goals. Let’s look at the same project broken down into 6 monthly payments, paid in advance:

• You now know that you will get paid $2,000 per month
• If your hourly rate is, say $50, you know that you will need to do about 40 hours per month (usually more) to get it done
• You can now break the project down into 6 more achievable goals
• You can now work out how to distribute that 40 hours across the monthly goals
• The client only needs to find $2,000 per month which they might be able to draw from their business rather than requiring a loan
• You can show the client what you are capable of with their only risk being $2,000 rather than $6,000
• If you don’t get paid on time one month the development can be suspended until payment is made, you never fall behind except for the inconvenience of scheduling other work
• You can get the client to agree to the work at each point and pay the $2,000, any disputes can be raised and resolved early.

You will probably find it a bit difficult to explain cashflow development to clients as they often expect an up-front quote and 50/50 payment schedule, but once you explain it most clients are much more positive about moving forward.