If I asked you right now, “Is your revenue goal high enough to pay yourself…
Want to know the 3 money moves that make growing a service-based business feel safer? In business there is always an element of risk, but there are things you can do to feel safer. As your business grows, and there is more money coming in and out of your business, the way you think and deal with your business’ finances might need to evolve. Keep on reading to find out the 3 money moves that make growing a service-based business feel safer.
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3 MONEY MOVES THAT MAKE GROWING A SERVICE-BASED BUSINESS FEEL SAFER
Money Move 1: Build a decent reserve
One slow month in business shouldn’t be a disaster and make you stressed out, but for some business owners, one slow month is enough for panic to set in. And this is usually because they don’t have sufficient reserves in their business.
In personal finances you have a rainy day or emergency fund. This is savings that are easily accessible, which you could use if you needed to. Usually, the recommendation is to have somewhere between 3 to 6 months of your standard monthly living expenses in your rainy day or emergency fund.
In business finances you need to have a similar thing. You should have business reserves. This is money that is easily accessible and that the business can use if required. Again, the recommendation is to have somewhere between 3 to 6 months of your business’ monthly operating expenses.
So if your monthly operating expenses are £3,000 per month then you’d want to have £9,000 (3 months) to £18,000 (6 months) in your business’ reserves. These ideally will be in a separate savings account.
Why having decent reserves will make growing a service-based business feel safer
It’s common in business to experience ebbs and flows in monthly income, but without proper reserves, a slow month can mean the business owner isn’t properly paying themselves (stressful) or the business owner worries about upcoming cash flow issues. Decent reserves mean you can feel safe knowing that one or two bad months won’t mean you have instant cash flow issues. This is especially important as you are growing your business. Growing businesses usually have increased monthly operating costs and you want to feel confident, especially when making commitments to ongoing investments, that you can meet that financial commitment.
Money Move 2: Understand your business’ seasonality
The second money move that will make growing a service-based business feel safer is understanding your seasonality. As already mentioned it is common for a business to experience ebbs and flows. It’s way more common for their to be fluctuations in your monthly revenue than it is for you to have consistent monthly revenue. Understanding the seasonality of your business aka when is usually a high sales month and when is usually a low sales month is vital.
Seasonality can exist due to both internal and external reasons. Looking back over your past sales data, you can identify your seasonality and then try to identify what is causing the seasonality. For example, a nutritionist might see an increase in sales every January because of people setting New Year Resolutions to “improve their health” and so that is an external factor. Whereas a consultant who takes the whole of August off, and doesn’t have any evergreen marketing or advertising, might experience slow sales every August and September. That decrease in sales is due to an internal factor.
Understanding your business’ seasonality will enable you to do a better job when you are doing your annual planning and financial forecasting. You do your financial forecasting with more confidence as it’s based on what has happened in your business in the past. And with annual planning where there are lows you can be proactively and decide to take actions to address a historically low period.
Why understanding your business’ seasonality will make growing a service-based business feel safer
It’s natural if you have a slow month to worry. But there is a big difference if you have a slow month and that month is always slow, versus having a slow month when that month is it usually around your average, or worse, one of your best months. Understanding your business’ seasonality will help you to not just panic the moment you have a slow month, but enable you to understand whether it genuinely is something to worry about or actually normal for your business.
Also, understanding your business’ seasonality will mean you are able to do much better annual planning, which will make you feel in more control. You can identify historically slow months and proactively make changes in order to improve those months. Or you can let a slow month happen and because you’ve looked at the year as a whole rather than focusing on just one month rest assured knowing it will average out across the year and be alright.
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Money Move 3: Create a monthly recurring revenue stream
Money move 1 and 2 every business growing service-based business should have. Money move 3 is optional, but it will absolutely help to make growing a service-based business feel safer.
I’ve already spoken about the ebbs and flows of income. That is the major reason why business can feel unsafe or risky. Having a good sales month in August doesn’t guarantee a good sales month in September. When revenue is unpredictable, it can feel stressful to manage and also can put a lot of stress on making new sales. This is where having a monthly recurring revenue stream can make a massive difference.
Across all industries, businesses have been focusing on how they can add a monthly recurring revenue stream to their business. Without thinking hard, I’m sure you can name at least 3 businesses you are paying on a monthly basis. Businesses have focused on building in monthly recurring revenue streams for multiple reasons, but a big one is because they have more confidence around what the business will make next month, the month after that and the month after that.
Why creating a monthly recurring revenue stream will make growing a service-based business feel safer
A monthly recurring revenue stream is great for all businesses, but as a growing service-based business, it can make a huge difference for this reason – the monthly expenditure of your business is going up too. Often when you are growing or scaling a service-based business your monthly expenditure will be going up. You’ll be making investments to your tech stack, to your team and in your support as a business owner. This can mean you look at your budget and realise you have committed to spending thousands each month. Doing that when you don’t have confidence around how much you’ll make each month is stressful. Having a monthly recurring revenue stream will help to give you more predictability and feel safer making your investments.
Instead of starting the month and thinking there is nothing due to come into the business you will be able to start the business knowing that thousands are expected to come in. Depending on your monthly recurring revenue stream, yes that number might drop. People cancel subscriptions and people default on payment plans. But you can factor that in. But you’ll know you have a (virtually) guaranteed amount of money coming into the business whether you make new sales or not. And if that doesn’t make you feel safer I don’t know what will.
That’s it. You now know the 3 money money that make growing a service-based business feel safer.
If you are running a business there is always going to be an element of risk. You never truly know what tomorrow will bring, but there are ways to make business less risky and feel safer. The three money moves mentioned (budiling reserves, understanding your business’ seasonality and creating a monthly recurring revenue stream) will help to make growing a service-based business feel safer.
I hope you’ve found this blog post helpful and it has inspired you to make some money moves of your own.
I would love to hear which of the three money moves you are going to concentrate on first.
And if you are looking for support with growing your service-based business, then I’d love to help you.
I offer one-to-one business mentoring for growing or scaling service-based businesses. For all the information and to apply click here.
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