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Want to know how to manage inconsistent revenue as a solopreneur or small business owner? Highs and lows in revenue is normal for business. Many business owners dream of having consistent revenue month on month in their business, and whilst that happens for some businesses (businesses that run predominantely using a subscription model or retainer model) but the reality for most businesses is that revenue differs on a monthly basis with some being higher and some being lower that the last month. Keep on reading to find out how to manage inconsistent revenue as a solopreneur or small business owner.
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Why businesses have inconsistent revenue
Before I share how to manage inconsistent revenue as a solopreneur or small business owner I want to first explain why businesses have inconsistent revenue and reassure you that if right now you are experiencing inconsistent revenue that is perfectly normal.
Inconsistent revenue can happen for a number of reasons with some reasons showing there may be a bigger problem in your business and some just being the reality of running a business.
1. A SEASONAL BUSINESS – A lot of businesses by nature are seasonal. In some businesses it is obvious – wedding photographers have a busy summer and personal trainers have a busy January. However, even if you have an evergreen service that can be bought at any time there could still be times of the year when it will be more popular. For example, my signature service is a 1-to-1 Business and Marketing Mentoring. This is available all-year round (unless I’m fully booked), but I still see peaks in September and January. This is because these two times of the year, after the beginning of the UK school year and the beginning of the calendar year seem to be times when business owners are setting goals, and as a result think about getting a business mentor or coach to help them achieve their goals.
2. YOUR PRICING STRATEGY – The way you price your services has a massive implication on the revenue that your business will generate on a month to month basis. If you have a service that is paid for upfront as a one-off fee then there will be a direct correlation between sales in your business and revenue. No sales means no revenue. Therefore, unless your sales are consistent your revenue won’t be consistent.
3. YOUR SALES STRATEGY – A very common reason for businesses having inconsistent monthly revenue is because of using a launch method. (Find out more about using a live launch versus an evergreen sales model here) . A launch will result in you having a concentrated period of time when you make sales, and as a result you’ll have a self-constructed spike in sales.
4. YOUR MARKETING AND SALES ACTIVITY ISN’T WORKING CONSISTENTLY ENOUGH – The first three reasons why a business might have inconsistent revenue aren’t necessarily a problem. It is more a reality of the type of business and some of the decisions that have been made within the business. However, sometimes inconsistent revenue is a sign that something is going wrong with your marketing and sales. If your inconsistent revenue is because you never know when your next lead will appear and the likelihood of turning that lead into a client is low then that is a sign you have bigger problems.
Now that you are aware of why your business might have inconsistent revenue it is time to learn how to manage inconsistent revenue as a solopreneur or small business owner. The focus is going to be on managing inconsistent revenue rather than looking at how to move from an inconsistent to consistent revenue (although I could write that blog post in the future).
HOW TO MANAGE INCONSISTENT REVENUE AS A SOLOPRENEUR OR SMALL BUSINESS OWNER
Know your monthly expenditure
One of the reasons why inconsistent revenue can be stressful for business owners is because they are worried about being able to pay for everything they need to keep their business running. To ease that type of stress the best thing you can do is know your monthly expenditure. Ideally you want to know two different monthly expenditure figures.
Firstly you want to understand your average monthly expenditure. If you’ve been in business for over a year then look back over your expenditure for the whole year and divide it by 12. This will give you your average monthly expenditure.
Secondly you want to understand what your essential monthly expenditure is. This means that if you had to cut back costs and keep your expenditure to a minimum how much would you need to spend to ensure the business keeps on running.
Regularly do a cash flow forecast
Once you are clear on your monthly expenditure you can start to do a cash flow forecast. Cash flow forecasting is where you estimate the flow of cash in and out of your business. This allows you to understand how long your business could continue to pay for its expenditure without any more revenue, as well as putting different revenue figures in and understand how that impacts the amount of time before you’d need more cash in the business.
| WANT TO RUN A THRIVING ONLINE SERVICE-BASED BUSINESS?
There is so much more to running a successful online business than just delivering a great service. I offer 1-to-1 business and marketing mentoring for coaches, consultants and online service providers who are small in team size, but big in ambition. If you’re ready to fully embrace being a CEO (and that doesn’t mean taking on more people) and build a thriving online service-based business you’re proud of and that provides you with the flexibility and money you desire then I’m can help you. My 1:1 business and marketing mentoring programme will give you the training, ongoing support and accountability you need. For more information check out my 1:1 business and marketing mentoring programme here. |
Have business reserves
Sometimes when you do a cash flow forecast the outcome isn’t great. You can see how vulnerable your business is and how quickly you’d be in trouble if you don’t bring in more revenue. For most solopreneurs and small business owners managing inconsistent revenue is stressful because money in their business is tight and they are relying on money coming into the business in order for them to pay for essential things to keep the business running. If you are in a similar position know that this is really common. Therefore, a great way to deal with inconsistent revenue is by having reserves in your business. Having cash in reserve will mean that if you have a quieter month, where revenue is low, you can use the reserves to cover the monthly expenditure of the business. Choosing the right amount of reserves for a business is similar to choosing the right amount of money to have in your personal emergency fund. It depends on what is financially feasible and what amount makes you feel more comfortable. Also, you can build up your reserves over time.
Don’t go on a business shopping spree when you have a high-revenue month
Most business owners focus on how to manage inconsistent revenue when they are having a low-revenue month, but it is your behaviour when you have a high-revenue month that will make the difference. When the sales are coming in and you can see the monthly income figure going up and up it is easy to get excited and start spending, but spend wisely. This is where knowing the seasonality of your business and having done the cash flow forecast can make a massive difference. If the sales spike is exactly where you expected, and you know you have a few quieter months ahead, then you shouldn’t be spending all of that money. Look at your figures and then decide what is an appropriate amount to be spending on expenditure.
The elephant in the room – Paying yourself and your finances
Managing inconsistent revenue is something that businesses big and small have to deal with, but as a solopreneur or small business owner it is likely to feel different because the revenue of your business and your personal financial situation are more closely connected. Depending on how your business is set up the ideal situation is to have a process of regularly paying yourself whether that is a salary for sole traders or a combination of salary and/or dividends for limited company directors. Either way, you should know when those payments are meant to happen and this information should be included in your cash flow forecasting. This means rather than having a slow month and panicking about not having enough money to pay yourself you’ll be able to properly assess the situation.
And if you really want to take the stress out of worrying how a slow month in business will impact your personal finances, build up your emergency fund so you can sleep well at night knowing even if you couldn’t get paid for X months you’d be fine.
That’s it. You know now how to manage inconsistent revenue in your business as a solopreneur or small business owner
As I’ve said multiple times, inconsistent revenue in business is normal. There is nothing wrong with having inconsistent revenue if ultimately you still hit, or exceed, your financial goal for the year. The problem is inconsistent revenue can feel stressful and if you don’t manage your cash properly it can result in your business running out of cash and unable to cover all of its bills.
Let me know in the comments what your biggest takeaway was and what you are going to do as a result of reading this blog post.
| WANT TO SUCCESSFULLY RUN A THRIVING ONLINE SERVICE-BASED BUSINESS ?
I’m a Business and Marketing Strategist that specialises in supporting coaches, consultants and online service providers who are small in size, but big in ambition. I help my clients to build thriving online businesses without selling their soul or working themselves into the ground. To find out more about how we can work together check out my services here. And to discuss your precise needs book a free, no-obligation, introduction call to discuss your business here. |
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