MICHAEL NGMichael has executed $5+ billion in M&A and capital raising transactions. In his freelancing work, he focuses on financial modeling, investor presentations, and M&A.0SHARES
Having been fortunate enough to spend the better part of the last decade working as an investment banker, venture capitalist, board director, and freelancer, I’ve witnessed the evolution of professional services firsthand. A lot has changed, including the adoption of flexible operating models and success-based fee structures. But one thing has become clear to me: On a consistent basis, clients are happier with both the cost and results of projects delivered by freelancers.
Only having to deal with one person for everything related to the project was invaluable. It enabled us to better adapt as the situation evolved & execute more efficiently.Former client and CFO, leading European retail operator in the food & beverage sector
I’ve seen this from the client perspective as a board director and from the advisor side as a freelance consultant—and increasingly, it is becoming apparent to my colleagues industrywide. It is perhaps unsurprising, given the increased personal touch afforded by freelancers and the increased accountability at an individual level for each project.
While freelance finance consultants may have historically only served younger companies in the form of projects like investor presentation creation and modeling, we’re increasingly seeing them handling more multi-disciplined projects. Projects like cash management or post-merger integration would historically have only been outsourced to traditional, on-site consultants, yet today, clients recognize the value of hiring a multi-disciplined freelancer with the same skills and higher accountability.
Here, I’ll discuss what draws companies to freelance finance consultants, my personal remote freelancing experience with a traditionally on-site engagement (cash management), and the factors driving a high ROI for more mature clients hiring freelancers for finance projects.
Why Companies Are Shifting to Freelance Finance Consultants
Finance and management consulting came to the forefront following the Great Depression, when large corporations sought out expert advice in ever-increasing numbers. Since then, the profession has expanded and opened up its offering to companies of all different sizes, solving the most critical issues facing businesses today. However, given the inherent importance of their work and legacy of catering to large corporations, charge-out rates for top-tier consultants (senior partner level) can go as high as $16,000 per day (paywall).
However, corporate consulting rates are increasingly under pressure with the steep rise in the number of freelance finance consultants, who typically leave these traditional consulting firms to find a better work-life balance but critically offer top-tier experience at realistic rates (given their considerably lower cost base).
Freelance consultants are inherently less expensive than traditional consulting firms—particularly remote freelance finance consultants. Experienced freelance consultants have lower training costs and virtually no overhead expenses (e.g., expensive offices in which to entertain clients). Further, they are more open to working virtually and less likely to include potential travel expenses in their fee.
You may be thinking, why is this happening now? Perhaps this movement is only temporary. The truth is that there are multiple, long-standing secular trends that have bubbled this very situation to the surface.
- Permanent employees are leaving full-time jobs at the fastest pace on record, and more people are freelancing than ever before. This has created a growing talent gap in the full-time employee pool, resulting in an increased demand for qualified freelancers. According to Morgan Stanley, more than 50% of the total US workforce could be made up of freelancers by 2027.
- For companies hiring freelancers, they are increasingly seeking out those with deep, specialized skill sets (and not just those who are a “jack of all trades”). The reason they have been able to do this (and still be successful in finding the right freelancer) is the increasingly large freelance talent pool available to them. Furthermore, given the quality of specialized freelancers now available for hire, the delivered results continue to improve.
- Freelancers no longer have to go it alone and build up their own business from scratch (including finding potential clients). They are now able to be hired through pre-vetted, high-grade freelancing platforms that manage everything from sourcing quality projects to managing payments, client communication, and timesheets. For instance, Toptal only accepts about 3% of the freelancers who apply to be on the platform, effectively optimizing value-creation for clients by granting access only to top-tier talent at realistic rates.
Cash Management Case Study: Easy Integration and the ROI of Hiring a Freelancer
Years ago, I was engaged by a leading European retail operator that had a major cash conversion and net working capital issue, which was getting worse in dollar terms as its operations continued to scale. This resulted in low levels of growth-oriented spending throughout the company.
Their cash conversion cycle (CCC) stood at 41 days, with suboptimal metrics across days inventory outstanding (DIO), days sales outstanding (DSO), and days payables outstanding (DPO). Their cash management systems were characterized by an assortment of inventory that was not properly calibrated to market demand, business customers who were not paying on time, and an accounts department that was paying invoices too quickly.
Less than a year later, we were able to reduce their cash conversion cycle to -2 days. How did we do it?
As a freelancer with the experience required to tackle this cash management issue, I was able to circumvent the common red tape/bureaucracy that comes with starting as a new permanent employee, and instead, easily integrate with the internal team to systematically get to the bottom of each issue.
In collaboration with the team, I spearheaded a number of bespoke revenue and cost initiatives to boost cash conversion and reduce the working capital crunch:
- Reworked supply contracts to extend payment terms. This more accurately reflected the increasing importance (and scale) of the client to their preferred suppliers. A newly designed, company-wide accounts payable policy was also introduced, which was tailored to accommodate multiple jurisdictions. An upward adjustment to DPO of 19 days was attributed to these changes.
- Revamped inventory management and stock selection procedures to carefully optimize the number of products offered to customers (while maintaining their value proposition) and increase the efficiency of the client’s distribution network. This drove a 13-day reduction in DIO.
- Introduced measures to encourage business customers on account to pay on time. This included halting the delivery of products and services in an appropriately risk-managed and staged manner, particularly those with known ample liquidity and/or aged receivables over 60 days. DSO fell by 11 days in the months that followed.
Cash Conversion Improvement Initiatives
With the company able to evolve into a negative CCC business, working capital actually became a source of cash, with growth effectively cross-financed between its suppliers. Taking into account the cost of the freelancing services, the company realized an ROI in excess of 5x, and that’s when you only consider the costs associated with working capital financing that they had used in the past. When incremental revenue activities made possible by the freed up cash are considered, in conjunction with the sustainable policies implemented during the project to safeguard against slippage going forward, the ROI increases to greater than 10x.
Other increasingly common engagements or use cases for more mature companies typically involve:
- Organizational and cost transformation
- Operations review and optimization
- Procurement and supply chain overhauls
- Business strategy and plan creation
- Integration of acquired M&A targets
What Freelancers Have to Offer
What these engagements have in common are a number of key elements that consistently drive ROI for the client. Greater accountability stems from fortnightly billing, regular client updates, and rolling contract extensions. One-on-one communication allows for faster and more efficient execution, and deep sector expertise equips the client with the know-how and tools to achieve superior results. Additionally, with freelancers typically open to being re-engaged, clients are able to achieve greater continuity in case a project’s scope is subsequently extended.
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Most clients feel more comfortable with smaller firms.