Alex's concerns seemed like music to Ted's ears.
"That's another reason to think of your Five-Step Logo Design Process as a product. When you have a product, people expect to pay for it in advance. When you go to Costco to buy toilet paper, you expect to pay for it before you use it! We're used to paying for products up front and services after they have been rendered. Think about the last time you had your windows cleaned. The service was performed first and then you paid the bill. Products are paid for before you use them. Now that your service has been productized, you need to start charging up front for it."
"I do expect to pay for products up front. If I turn the sell sheet into a brochure and put our fee on the brochure, it would look even more like a tangible product."
Ted brought the conversation back full circle.
"When someone buys a company, they look at the amount of capital they need to tie up to buy the business. If your business is a cash suck—and it sounds like it is today—then they will be willing to pay less for the business. If your business generates cash, they will be willing to pay more to buy your business. Alex, give me a rundown on how you bill for your service today."
"Once an estimate is approved, we get to work on the project. Once we complete the project, we send our bill and wait 60 days or so for a check."
"And how long does a typical project last?"
"That depends on the job, but a logo project usually takes 8 to 12 weeks."
"Alex, I need you to listen very carefully to what I'm about to say. You have a negative cash flow cycle. On a typical logo design project, it takes four to five months before you get paid because it takes two to three months to do the work and another two months before your invoice is paid. The more projects you sell, the more cash you sop up. No wonder your bank is on your case. Now compare your existing cash flow cycle with a model that allows you to charge in advance. You win the project and you ask to be paid before they experience the product.
You then get to use their money for two to three months while you're doing the work. Now imagine that you convince five or ten clients to go through the Five-Step Logo Design Process. Now you have $50,000 or $100,000 of your clients' money to finance your business."
Alex, thinking of the possibilities, smiled for the first time in the meeting.
"The more we sell, the more cash we accumulate. I'll never have to grovel to Mary Pradham again."
"And an acquirer will look at your business as a cash generator instead of a cash suck."
Ted offered his instructions for the week.
"Alex, see how many more clients you can get a meeting with to pitch your Five-Step Logo Design Process. This time, make sure you include the price on the sell sheet and the words ‘Billed upon signing letter of agreement'. This is your product and you get to decide how it's billed."
Alex left Ted's office feeling confident. He knew if he could start getting clients to pay up front, he would get Mary off his case and sleep a lot better at night.
Curious about whether you could sell your business (and for how much)? Take the 10-question Sellability Index Quiz at www.BuiltToSell.com.
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