Saying no to clients is hard. Business owners know they should target their “ideal clients” – that certain demographic who are most likely to require and pay for your products or services. They are the right age, gender, have suitable economics (i.e. funds), and have a health, lifestyle or business problem that your product or service could help solve or at least improve.

If your first communications with a prospect indicate that they really don't fit any of that, wouldn't you rather say “No thanks” to taking them on as a client? “Of course!”, you say (or “hell yeah!!”). And then reality hits – you know you need that client and can’t possibly turn down that sale. What to do?

When we start out in business, typically any and all sales are welcome and even necessary, not just to make money but to build our reputation and credentials. At that stage, you may indeed need to accept any client. It is even useful, as it helps you narrow down who exactly your ideal target market and ideal client would be.

As soon as you reach a profitable state in your business, it will benefit you – and your clients – to say no.

Aside from demographics, your ideal client should also be someone you would enjoy working with. This is especially true for small business owners, who do much or all of the work themselves or are very engaged in their staff’s work. You are better off accepting only clients whose values, ethics, and personality resonate with you. You can even post these ideals on your website. By ignoring your ideals, you can end up feeling miserable and/or stressed about the working relationship, you suffer, your staff suffers, and your performance and results suffers. And that will affect your client and therefore your reputation.

So do yourself a favour and learn how to say No – politely and professionally. I strongly believe that respecting yourself, your services or products, and the way you conduct your business, will in fact increase your reputation even when you turn down work. This applies equally to taking on new clients, as it does to an existing client relationship you want to improve on, extend, or discontinue.

Here are some tips on what to keep in mind.

DON’T:

Work for barter or lower your rate. Occasionally it may help to exchange your work for someone else's but generally what your business needs is cash. Seasonal or occasional special deals can be a good way to generate additional sales, however, don't make it a habit to reduce or discount your rate or price. Whether you're caving in to perceived pressure or have been asked directly for a discount, it is a slippery slope. It is difficult and may be impossible to bring a discounted client up to your standard fee. Word also spreads, so anyone referred to you may also expect and demand that lower rate (people do talk!), keeping you stuck in a discount twilight zone.
Don't accept ethically or morally questionable clients or businesses. If you have decided not to work for the tobacco or alcohol industry for personal reasons, or if a prospect is known for questionable practices or being a difficult customer, just say no. Otherwise it will only hurt you and your reputation. And don't over-explain your reasons – short and sweet does the trick.
Don't accept unrealistic timelines or expectations. With new or existing clients, try to manage and negotiate their expectations so that they don't rule your work day, and you don't burn out. You know your business best and how long it will take to complete the task and do a good job; explain it that way to your client.

When you turn down a prospect or client, do it politely and without putting any blame on them, so you can keep your reputation intact. If someone referred you to the prospect you’re turning down, let them know. Either copy or blind-copy them on your written response to the ‘rejected’ client, or forward your reply, thank them for the referral, and provide an explanation of why you can’t take on the referred prospect. This also helps protect you in case the rejected client twists your words around.

DO:

Provide credible and plausible reasons for turning them down/discontinuing the client relationship. Use reasons such as your personal values (you don't want to work for a business that uses sweat-shops), your current workload (you can't take on new clients in the next 3/6/12 months), or you are not specialized in the particular service they are asking for.
Be sympathetic. Show a little understanding in their likely disappointment of your turning them down. You can say “sorry I can’t help you”. If you can and want to refer them to someone else, then do so but don't feel obliged.
Be clear. Do not say no in a way that can come back and bite you, for example “I would love to work with you but I need to finish this other big project first”, or “I really loved working with you…” (when clearly you didn't). Otherwise this leaves the door open for future negotiations and you'll just have to face the same conversation again.

Once you have reached the financial stability – or the emotional conviction – that allows you to say no to clients or prospects, you will see how utterly satisfying it is to your self-confidence to turn down business. It is a true position of strength. Savour it!

Sources: http://ittybiz.com, www.upwork.com/blog