Michelle Coyle is CEO of The Political Business Institute and president of BGSD Strategies. Have a question about your business? Email her directly at mcoyle@politicalbusinessinstitute.com and she’ll answer them here.
Q: I’m having cash flow issues and can’t figure out how to manage them. We’ve tapped a line of credit from a bank but are coming pretty close to the limit to make payroll some months. It’s mostly because of slow payment by certain clients. Any advice?
A: There are two issues at play here and we need to address them individually.
First, you’re getting close to maxing out your line of credit some months. The language you used there implies to me that you’re also paying it back down before running it back up again, so that suggests that your business could likely handle a credit extension without getting over your skis too much. (If you want an external check on this, calculate your firm’s debt-to-equity ratio; anything below “1” and you’re fine to keep borrowing). Talk to your banker about either extending your current line of credit or taking out a mid-term loan to provide a cash infusion that you can use now and pay off over time.
The second issue is your slow-paying clients. I know it can be scary, but the most effective way to handle this is to stop work once a client falls into arrears for a set period of time — 30 days is common. When you do this, the client will either catch up quickly to resume service, or they’ll drop off entirely thereby making room for you to service a new client who will pay on time. Either way, you win.
Moving forward, If your contracts aren’t already structured with this language, get it in there. You might also elect to write late fees for late payment into your contract language. That’s only fair when you’re borrowing money at the current high interest rates to cover your expenses while your clients lag on payment. The internal boundary “I am not going to borrow money so that you don’t have to” has been extremely helpful to me when wrestling with how to deal with late-paying clients.
We work in an industry where revenue is cyclical and uncertain, and so we can all expect a certain amount of expectation on the client’s part that we will be flexible on payment terms/times. And many clients will stiff a small business before a larger one because they know that the smaller business has less bandwidth, and usually less willingness, to put a client into collections.
Nevertheless, you’re always in control of your own boundaries in your business, and you’re under no obligation to accept business from or continue doing business with any client who expects you and your staff to provide them with unpaid labor.
Q: I want to expand but worry about hiring another staffer who would just sit around with nothing to do. Is hiring a case of “if you build it, they will come”?
A: It depends on who you’re hiring! You’re generally on the right track with hiring before you think you need to. In the political industry, revenue coming in — eventually — is pretty inevitable, as there’s a lot more demand than supply for political consulting services.
If your business is struggling with bringing in a steady lead flow, there are proven process fixes to your marketing and sales processes that you can implement to fix that within a few weeks or months.
That’s a lot easier to do than to pay someone to sit around, or worse, have to turn away amazing work because you just don’t have the capacity to handle it.
But really, nobody should ever be sitting around in a small business. If there’s not enough client work to do, that means there’s definitely more marketing and sales work to do. Slow client periods are also the best time to get organized, fully onboard new employees, and implement new back-end systems in your business that will make workflows more efficient when you do get crushed with business down the line.
Unless and until your business has more than 10 people on board, look to hire versatile folks who enjoy wearing multiple hats and doing varied types of work, and who are motivated by the idea of helping you grow the business.
As long as you can find the right people, it’s almost always a good idea to hire toward future expansion in the political industry.
Q: We launched a new service line during the off-year cycle and it did okay. Things haven’t really picked up yet and I’m worried it might be a bad investment. How long do you think we give it?
A: If a service line was profitable for your business at launch, and it wasn’t based on capitalizing on a very specific fad or market condition, it likely has the potential to continue being profitable.
Right now, you haven’t given it enough time to really know – in the political industry you’d really need at least two full cycles to get enough data to fully assess whether a new service line has long-term legs.
So, it comes down to your willingness to continue to invest in running the new service line while you troubleshoot to figure out why it’s lagging. It could be a function of cycle-timing, market movement, execution issues, marketing or sales issues — there is a lot to examine and try before you fully give up.
Of course, at the end of the day, this is your business, and you’re allowed to quit doing anything you don’t want to put the time and money into anymore at any time and for any reason.
