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Cash: The Independent Consultant Most Valuable Asset

Written by: Jose Anes

Article Overview: The importance of cash reserves before starting your own new business.

Cash: The Independent Consultant Most Valuable Asset

Great core skills are good. Interpersonal skills are essential. But the most important thing you need to have before you quit a day job and start an independent consulting gig is cold, hard cash. Six months to a year of it. And keep it stashed away in a savings or money market account (maybe some in 3 month CDs).When you knock at the door of any company they will love the idea of an independent consultant to do their job. They love the idea of not having to pay all the bureaucracy fees, nor having to risk keeping you past your useful time. In their heads they are already thinking about saving money when compared to a regular full-time employee. Savings in mind, they will go for the maximum! (As compared to full-time employee recruiting where they go for the maximum skills and then they try to see how they can fit that person in their budget.)

Unless you are sitting in a cushion of cash, your negotiating ability is compromised. Not only you have to compete against the going rate that other people tell you, but you have to compete against your own hunger and accumulating bills. Unless you have cash, sooner, rather than later, you will settle for less than you would have hoped. Having to settle for less means you have to work more for the same amount of money. And more hard work means less time to sell yourself and build up your skills. It becomes a snowball effect that traps you at a low rate. Or worse, it motivates you to go back to regular employment (Yuck!).

Other thing to consider is the payment collection process. On my last consulting gig I had to wait almost three months before getting any payment (and I was lucky, according to contract it was four). That meant I had to live for a long time on cash that I had stashed away. When the check finally appeared I felt not only relieved, but very well compensated, knowing that I had landed a larger compensation than what colleagues on the field usually land.

One way of reducing cash requirements is reducing recurring spending habits. It means making sure that monthly bills are fairly low. You may not have a life of constant luxury. Some people have a hard time with that concept and they require a larger cushion of cash.

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