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6 Strategies For Tackling Upfront Project Costs

Growth and Operations

6 Strategies For Tackling Upfront Project Costs

Updated: Apr 13, 2020

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Every business owner has to shell out money to cover the cost of supplies and services. However, if you run a business that relies on big projects for steady work and income, you need to consider extra factors when bidding on work, namely cash flow

For businesses in fields like construction, home improvement, interior design, and marketing, big projects are a double-edged sword. On the one hand, large-scale projects are more expensive to execute, but they also have the potential to pay dividends. 

Before you bid on your next big project, take time to weigh the pros and cons.

Benefits of big projects

Similar to starting an internal growth project, taking on a big project from a client can propel you forward if you approach it with the right strategy. Big projects can help you:

  • Enhance your company resume
  • Train your team on new skills
  • Break into a new niche
  • Establish credibility in your industry
  • Attract new clients 
  • Increase profits

Drawbacks to big projects

Working on a demanding job can take you away from smaller projects that guarantee consistent cash flow. Plus, taking on a big project requires more time, resources, and money. Upfront project costs might include:

  • Raw materials and supplies
  • New equipment 
  • Software upgrades
  • Equipment maintenance checks
  • Contractors
  • Travel 
  • Permits 

Big projects pose a risk to your business if you don’t have enough cash flow to complete them; if you do have adequate resources, though, big projects can be a worthwhile investment in your business’s growth. 

If you’re eager to bid on big projects but can’t afford the upfront costs, it’s time to explore your options.

6 cash flow strategies for tackling upfront costs 

The first step to preparing for upfront costs is estimating how much money you’ll need. Once you discuss the project details, timeline, and scope with a potential client, create an itemized list of all the materials and resources you’ll need, as well as how much each item or hire will cost. 

Listing your essential upfront costs can help you better evaluate your options and make sound financial decisions. 

Here are six tips for tackling upfront project costs. 

1. Review your cash flow 

Use your accounting software to look at your business’s accounts payable and receivable, as well as your monthly expenses and employee salaries. Reviewing your list of upcoming payments — including payroll, rent, utilities, inventory, and other operating costs — can help you see areas where you may have cash flow flexibility.

For example, are there any payments you can spread out so that cash isn’t as tight? If some of your business’s monthly expenses aren’t necessary right now, you may even be able to delay them until next month. Think– extra office supplies or client mailers. 

Making temporary shifts to your payments and expenses can free up some of your cash to use for upfront project costs. 

2. Identify money leaks

Money leaks are areas where your business’s money is going down the drain. In other words, the cash you’re spending isn’t helping your bottom line. Review your expenses to see where you may be spending too much with little return on investment (ROI). 

Maybe you’re paying for a monthly file hosting subscription your business no longer uses, for example, or funneling money into social media ads on a site where your account isn’t active. Use this opportunity to cancel subscriptions or stop marketing and advertising initiatives that aren’t directly supporting your bottom line. Plugging up your company’s money leaks gives you more cash to put toward projects that have a high ROI and the potential to facilitate long-term growth

3. Negotiate extended payment terms with vendors

If your business’s incoming and outgoing payment cycles aren’t aligned, you may find yourself with negative cash flow for a certain amount of time each month. To avoid this, arrange to collect the money clients owe you before you pay vendors and suppliers. 

Start by reviewing your net terms for vendors. If you have a good relationship with your vendors, and regularly pay on time, consider asking them if you can extend your payment timeline by one to two weeks to free up your cash for project costs. Even a seven-day cushion might help you stay out of the red. 

Keep in mind, however, that you may have to pay interest on the money you owe depending on your vendors’ terms. 

4. Facilitate invoicing and payments 

Streamlining your company’s invoicing and payment processes can help you get cash in the bank quicker. Use your accounting software to set up automated invoices, so you never have to worry about forgetting. 

Next, work on updating your payment terms and timelines with clients. If you offer net 60, consider changing it to net 30 or 14 so you don’t have to wait as long for cash to come in. It’s also a good idea to split up incoming payments if possible, either by requiring project deposits upfront, sending invoices upon project milestones, or negotiating a bi-monthly billing cycle if the project is ongoing. If you go this route, make sure to give your clients advance notice; otherwise, you risk burning bridges by instating new guidelines without fair warning. 

Finally, consider digitizing the payment process. With an online payment system, your client can pay you from their mobile device or computer instead of having to write and mail a check. You can also incentivize clients to pay their invoices faster by offering a discount on future services if they pay within a specific period.

5. Close out other projects to get your money

Working on multiple projects without completing any of them can halt your business’s cash flow. If you don’t get full payment until you finish a project, you might be waiting on tens of thousands of dollars when complicated projects stall in certain stages. 

That’s why it’s critical to regularly review your list of current projects to check their progress. If you have projects that are just waiting on a few final updates or approvals, address those first. That might mean signing off on the final logo for your client’s new landing page, for example, or asking your web developers to address the client’s last requests for their eCommerce shop. 

Next, focus on moving any stalled projects out of the stages they’re stuck in. You may need to clarify the next steps with your client, order supplies, re-assign team members to the job, or delegate tasks. The faster you can wrap up work-in-progress projects, the quicker you can get paid and put your money toward a new project. 

6. Consider financing 

Financing can give you the flexibility to cover upfront project costs and maintain regular operations. However, depending on the loan and lender you’re interested in, it could take months to apply and receive a response, so it’s a good idea to start the financing process before you think you need help. Work on gathering key documents like your bank statements, profit and loss sheet, and balance sheet.

The type of financing you choose depends on your project costs and business finances, but the most common options are lines of credit, term loans, and equipment loans. A business line of credit is a good option if you need cash flow to cover temporary or short-term costs, like inventory. A term loan is a good option for more considerable project costs, like hiring a second project manager, while equipment financing is helpful if you need to buy or lease new equipment for a job. 

Before you make a decision, take the time to do your research and consult your accountant to go over your options. 

If you need cash to cover your business’s upfront project costs, check out our loans at Funding Circle. You can apply online in just a few minutes and receive a response in as little as 24 hours.

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