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In this economy, Moody’s Says 10% of Companies May Face Cash Shortfall in 2009. The number of companies facing a credit crunch (and a cash flow problem) is a concern.

How does a startup like Early Stage IT survive and grow in this economy? By maintaining a focus on cash flow. Our billing and payment model is unusually cash-flow centric but there is something in it for you too, dear customer. A pet peeve we’ve heard from customers is the lack of transparency in IT. Comments like “we got this bill but we have no idea for what” are far too common. Here are a set of principles we will use:

• We only work with prior authorization for the work and agreement on the resources that will be deployed for that work. You always know what we are working on and billing you for.
• We obtain authorization on a regular basis: weekly, two-weekly or monthly. The period is agreed upon at the beginning of the relationship, and revisited from time to time. The time period is deliberately set to be short. It gives you a view into what’s going on at a detailed level.
• We require that the client set aside funds at the beginning of the work period and expect to be paid within 15 business days of the end of that period.

In other words, at this stage of our development, we need to be sensitive to cash flow. Once the economy improves, we may consider other arrangements upon mutual agreement, such as credit.

Would we work for equity instead of cash? We are not venture capitalists. We don’t know how to evaluate future worth of a company and invest in it. In other words, No.

That said, we still need to provide our clients an opportunity to get to know us. We will spend up to a half day helping potential clients assess their IT requirements at no charge. Furthermore, since we are just starting out, we are looking to select a few clients to pilot our services in exchange for references and referrals.

Your thoughts? Are there other financing arrangements we could/should consider?  Please comment on this post if you think so.  Thanks in advance.