Small Business Blog

When you establish a service business, you generally start out by taking whatever work you can get. That can mean working for less than you’re worth, or accepting projects that are excessively risky–such as those for clients who won’t sign a contract or who refuse to give you a deposit for the work. If you must choose between sitting in your office idle or working under less-than-desirable conditions, the latter option sometimes has more upside.

But there will come a time when you have to stop taking those projects. And it will be hard to do. The entrepreneurial spirit often drives us to take on everything and anything, for fear that all work will dry up tomorrow. Resist that urge. The future of your business depends on it.

Now if you were selling women’s shoes online, you wouldn’t have to worry much about qualifying your clients. You buy the inventory, upload product descriptions to your site, and do your marketing. People come to the site, select their products and pay for them. You fulfill the order and, just like that, you’ve closed the transaction. When you run out of shoes to sell, you buy more.

In a service business, the inventory dynamic is totally different. Your inventory is essentially the time you have available to work on projects. When you run out of time, you have to hire an employee or freelancer to help you, which brings new complications to the table. The employee/freelancer may need to be trained or may work more slowly and to lesser standards of quality than you expect.

On top of that, some prospective clients may have the idea that they shouldn’t have to pay you until after you’ve done the work. This often leaves you, the established service provider, in a no-win situation. What are your options here? You can direct your attention to the project and hope to get paid after the fact. If you don’t get paid, you will have lost valuable billable hours that could have been put to use executing or obtaining other paying projects. If you decide to retain a freelancer to complete the project, you accept the obligation to pay that freelancer whether or not you get paid.

But why should you be taking on obligations and risks on your client’s behalf? The answer is, you shouldn’t. Unless you have agreed to compensation tied to results, you shouldn’t be extending yourself on behalf of your clients without good reason. And that’s where qualification comes in. Before you begin a project, you must establish the terms on which you will work. Ideally, you should obtain an upfront deposit and then bill progress payments that precede your time investment. This works best when you can establish specific deliverables (coinciding with progress payments) to show the client that you are progressing as scheduled.

There are two main reasons a client wouldn’t accept these terms. The first is that she is basically unreasonable and expects you to fund her business with your time and expertise. The second and more likely reason is that there is some doubt on her part about your ability to do the work promised. You can address this doubt by negotiating a trial project that requires a much smaller time investment on your part. You can show good faith by accepting after-the-fact payment terms on this mini project. If that doesn’t remedy the problem, then it’s probably best for both of you to part ways. It’s tough to work for a client who doesn’t trust/respect your time and expertise, and it’s equally challenging to be the client in that situation.

When you start qualifying clients, you will have to walk from some projects. But when you are in business for the long-haul, walking away from risk is a good thing.