As a consulting firm owner, knowing your cash flow position is crucial for operations. Typically, you get a clear sense of your cash flow at the end of the month, when all of your invoices are ready to send out. But in the middle of the month, you are operating in the dark. And what about three months from now?
Committing to new hires, investments in tools or training, or new growth initiatives all depend on projected future revenue. If you can only see your cash flow position accurately once per month, and it is backwards-looking (revenue realized for the past month), how can you project what the next quarter will look like?
Using PSA software like Projectworks, you can use what can be described as "Predictive Invoicing” to accurately forecast cash flow, by utilising your revenue forecast (which can be based on your resource planning data) to model into the future what you’ll get paid and when.
How Predictive Invoicing Works
Instead of using past invoice data, Predictive Invoicing uses your revenue forecast, which is often based directly off your resource planning schedule. This gives you a forward look into your future cash position. If you have a consultant scheduled for 32 hours of work next month at $250/hour, the Predictive Invoicing method will tell you to expect $8,000 in revenue from that project. Add all the other scheduled work for that month, and you will have an accurate forecast of next month’s revenue. And since PSA software also ties in to your CRM data, your resource planning can be done months in advance, allowing you to:
- See Revenue Gaps Months In Advance
If you see that the third week of next month looks light on revenue, you can shift project timelines up to cover the gap, or ramp up sales effort on other accounts. - Deeper Insight On Client Profitability
Using PSA software for Predictive Invoicing will enable you to analyze Revenue vs. Capacity, showing you which types of projects are most profitable, and which projects have a high risk of write-offs and scope creep. - More Control Over Fixed-Fee Projects
PSA Software is essential for managing your fixed-fee work because it allows you to track the project burn rate in real time. Knowing a project’s burn rate at any point in time enables you to accurately calculate your “realized” revenue based on the scheduled work, helping prevent over-estimation of your profit and cash flow.
Accurately Predict Your Cash Flow
Your firm’s growth depends on predictable cash flow – knowing exactly what your cash position is going to be months from now. Having an accurate future look at your cash flow not only eliminates surprise crises and stress, but puts you in a position to plan your growth strategically, with enough time to confidently plan for new growth initiatives and new hires. You can see your firm’s future revenue today by signing up for a free trial of Projectworks, or let us demo Projectworks for you.
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