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100% agree, if you're 100% utilized than you're working for your business not on your business.

I have three other pieces of advice.

One you need to decide whether you want to run a consultancy or be a consultant. The first means scaling by hiring more people the second means scaling by increasing your rate. You can make more money doing the first but your job will eventually be 100% account management and sales.

The second piece of advice is you need to come up with a business plan. The most important part of this is an actual plan for predictably acquiring new customers.

Third general piece of advice is 98% of the time being a general software consulting company is a shitty business. A good first step is pick a specific problem and/or a specific industry. "We build custom CRMs for enterprise sales organizations.", "we do custom ERP work for Oil & Gas" or "We help startups scale Postgres databases" are all much better businesses than "we write software". This is for two reasons. One you have a specific product you're selling to a specific customer which will help immensely with sales/marketing. Two the margins are much better.

This is all real, down-to-earth advice that corresponds with my observations after three years doing this.

> A good first step is pick a specific problem and/or a specific industry

To add, I prefer thinking of three levels of specialization:

1. By vertical or industry (oil and gas)

2. By problem or technical domain (user interfaces, data pipelines, etc.)

3. By platform (Salesforce, React, etc)

2 and 3 could be conflated, but I like to separate them. Your specialization can cut across dimensions and at a small scale it's likely the best (eg: "we build custom Salesforces apps for sales processes in oil and gas")

> You can make more money doing the first but your job will eventually be 100% account management and sales.

There is not two ways about this, but emphasis on eventually... I think up to a certain scale you will be able to combine technical and management - although arguably the scale is much smaller than we'd like to think.

I agree specification is better, but the issue is that I am afraid that would limit my clients especially that the first client is the hardest to find. I am working though on trying to be a "general" consulting company with a short term focus on one niche.

Wands choose the wizards. And to some degree, your niche chooses you. The tech stack I built for video games: gcloud, chromeos, android vulkan, admob. Is essentially a "native mobile ads" platform.

It was only when clients requested I serve ads that I realized what I had built!

Now it unlocks free cash flow potential. And I'm working on my own private buyers list, inventory management, real time bidding exchange & auction tech ;)

Your comment on utilization is spot-on, there are no two ways about it, and everyone should pay very close attention to this.

Even if you're truly solo, you will need ~20% for sales, account management, accounting, and residual business management tasks. If you're at 100% utilization either you are neglecting these areas and hurting yourself in a much shorter term than you'd think, or you're working 6 days a week, which means you're not really at 100% utilization.

Regarding paying customers, I agree with the sentiment, but probably not with the detail. I've worked with a few Fortune 500 companies and their payment terms are 30-90 days. On the other hand advances are very commonly accepted and I've never had any pushback. I go for 50% and could possibly push higher. It still doesn't create entirely positive cash cycles but it's decent.

> Try to focus on the kinds of customers you won't ask for down-payments and up-fronts --- the kinds of customers who will routinely delay a full quarter or two on payables, and you'll put up with it, because they're paying for several people's salaries,

Must be nice to have so much money in the bank that not only can you pay 6 months of several people's salaries, but you can also tolerate the risk of the client not repaying you that amount.

That's the benefit of working with high-paying customers!

Yeah managing cashflows is a huge part of running a business.

You really have to plan to deal with things like this because it will happen.

This is exactly what revolving/lines of credit are for. Talk to your bank.

Source: have seen a business growing who had to deal with this. There is no way - no way in hell - you can scale a real consultancy business using escrows and ditching clients as soon as they don't pay. It's just not how most of the world works.

> It's just not how most of the world works.

By this, do you mean clients tend to insist on long payment terms in the contract? Or do you mean they'll sign a contract agreeing to pay in 30 days then they only actually pay after 90 days?

Most contracts are standard 30-90 days with large enterprises. And they do take a while to process given their large structure. Sometimes there are breaches of contract terms but as a smaller consultancy serving a large organization, you really don't have much leverage to force them to pay faster.

That being said, project continuity is huge with large organizations and if you're opportunistic, there's always something to be fixed. They also pay well and are more likely to pay. That's the tradeoff for slower payments.

I think it's mostly an issue of trust.

- Customer says they can only pay in 6-months time? Ok, you will route around it.

- Customer says they will pay next month and then ghosts you for several months? That's not cool. Particularly when it's peanuts for them, in the grand scheme of things.

I was personally burnt by the latter scenario. It was only resolved when they reappeared almost a year later, after I had stopped consulting altogether, asking me to find some other guy to carry on; I replied that I couldn't honestly recommend my peers a customer that doesn't pay, and lo and behold, two weeks later the money came in.

Same for gov contracts. You might only get paid right at the end of the project + whatever their payment period is, but with an order number in your hand you know they will pay. Good luck getting a downpayment from big corp accounting depts if you're small fry.

I got downpayment from a company with about $100M revenue. Not sure if it qualifies for big corp. I normally do custom product development from scratch and it takes about a year of work in average. There is no way I would sit for a year without getting paid. Normally we would write a contract that among the other things specs stages and what is delivered for each stage. Each stage is paid upfront so first one qualifies as a downpayment. Obviously if by the time I am to start stage N it is not prepaid I would simply inform client and will not start working and the whole contract timeline shifts. But it is all in the contract and frankly had never happened. I've always got paid on time and had / have good relations with my clients.

But I normally develop software for companies whose main business is not software per se but they need software to conduct their business.

His advice is spot on though in terms of what OP will encounter. My peer comment said the same.

If you go after big companies they will be cash rich and they won’t rip you off, but they will be slow to pay.

Agreed, if scaling with full-time employees (which I am avoiding to do in and working on subcontracting) no advance would be hassle.

> Try to focus on the kinds of customers you won't ask for down-payments and up-fronts --- the kinds of customers who will routinely delay a full quarter or two on payables, and you'll put up with it, because they're paying for several people's salaries, and the people you work with there don't control the accounts payable people to begin with.

Can't you just volunteer for these companies instead? If the need free work so they can get their employees to do something useful and pay for it, and you want them paying their employees instead of you as a contractor, you can be straight up about giving away your labour, instead of pretending that they're going to pay you as your customer

If you're giving stuff for free on purpose, just give it away for free

I don't follow. The companies I'm describing are likely to be your most lucrative clients.

Looking in from geophysics, 3/4 lucrative customers for the 1 non-paying is not sustainable.

If you're looking for customers that don't intend to pay, is it 1/5 that end up paying well? 1/100? 9/10?

I don't know who the "non-paying" customers are. Don't do business with companies that might not pay.

When you say "delay on payables", do you mean not paying you for agreed-upon already-completed work, or do you mean not giving you new work right now?

I mean that some of your most lucrative clients will take forever to pay out invoices.

This is often deliberate. Postponing payment of invoices means you have at any given time a larger warchest to invest and gain an edge, or conversely have to pay more interest. CFOs often set a target and push back on swift payments. Some companies even risk lawsuits to be able to not pay the bill just yet, though it obviously depends on context what you can get away with and what harms your reputation too much.

This is just how large enterprises work. Nothing deliberate. They operate in longer cycles.

To give you an extreme example, I have worked as part of a team of consultants for various state owned companies in the past four years. They take up to six months to clear your payment but I have never ever seen them not pay and once you are in both the bureaucracy and the environment are so complex that given onboarding costs you get a steady amount of work for years.

He's saying large companies that have money will pay you even if it's late. If you're doing work for Johnson and Johnson they are going to pay you. If you're doing work for John the attorney they might.

So look for work for Johnson and Johnson.

You don’t get it. Some companies (bigger ones) have their accounting department operating independently from their development/IT department. This is not the case for small businesses which the OP is softly suggesting not to work with.

Clients with such departments will pay if your invoice is approved. The payment process is disconnected from the team you’ll be working with. It also happens that the team you work with will not care with the costs since it’s not coming out of pocket directly. The finance team, which will pay you, has no idea what you are doing exactly except that you are authorized for the payment.

The process is slow, so bear with it and price for the delay of the funds. But if you are a regular, it’s a constant flow.

Small businesses where the decisions making, IT and payment (ie: director of tech is also the CEO, is also paying out of pocket) will scrutinize much more on payments, and also miss a payment if they can (a surprising amount of people will try to do this).

> The process is slow, so bear with it and price for the delay of the funds.

Every large company actually has two parallel ways of paying.

There's a main procedure which is extremely slow, because getting a 6 month interest-free loan from your suppliers is free capital, and maybe the supplier will forget and you won't need to pay at all which is free cash, and to access these benefits all you need is a smaller accounts payable department. They will be overjoyed to not pay you because you didn't submit form AB-1234 confirming that you have a policy on modern slavery. And they absolutely will not chase you for that form.

Then there's a parallel procedure, where your contact asks their boss's boss's boss's boss and the bill gets paid by credit card within the hour.

Having a reasonable amount of flexibility is fine - but at any time that friendly, helpful, trustworthy contact you're working with could change jobs, the project could be cancelled, or the project could end successfully and all your contacts get reassigned.

You don't need to extend so much credit that you'd be put in a difficult financial situation were they not to pay - if the client has reached their credit limit, and they are late on payments they're contractually obligated to make, you just need to get your contact to trigger the fast procedure instead of the slow one.

I'd say landing such a company already require an internal or initial contact there. In case that contact does not exist, I'll tread careful like I am working with a black box. You'd have to navigate their bureaucracy somehow and a big company will have a reputation for such things (either good or bad).

The contact, depending on your friendly terms with him, can shed light on how these processes work and what to expect. It's up to you to determine if it's worth your time/effort to pursue working with them. Everyone has a different sweet spot.

100% agree with the utilized part. 100% utilized means you can't focus on growing your business and everything else which is not consulting work.