The one where we learn to embrace the ebbs and flows of cash flow
Let's talk about money.
I have an important topic to talk about today. Let’s kick things off with two very unfortunate facts:
We don’t talk about money enough.
In business, we REALLY don’t talk about money enough.
Running a service business can be extremely tough. (Running a product-based business is tough too, but my experience is specifically with service.) We have a couple of seasons every year where new leads plummet. Summertime is one of those seasons, so my stress levels have been particularly high lately.
It’s so easy to see the money come in during the good times and turn around and spend it on things: new employees, new services, new benefits, paying yourself a little more, surprises for the team… the list goes on. And then the leads slow and retainers pull back and you’re left in a terrifying financial state, wondering if you’re going to make payroll each month.
The good news is it doesn’t have to be like this.
I’ve learned over my years of growing and scaling The Taproom what I need to feel financially confident when times get tough, and it’s an important conversation for us to have today.
Your business needs its own emergency fund, too. Just like your personal emergency fund (you have one of those, right? If not, your homework is to open an account today!), you need a rainy day fund for your business. Because the rainy days do come. Ideally, you can put way 3-6 months of business expenses. (For some businesses, this is going to be tough to accumulate that much. Any bit you can set aside is good.)
Control your spending. It seems obvious, but the less you spend, the more you can save. As I mentioned before, it’s so easy to suddenly start making more money and then immediately spend that additional capital instead of saving it. Make sure you’re keeping a well-documented list of your expenses so you know exactly what you’re paying each month. Those little monthly services really do add up.
When your business is in good shape, apply for a line of credit. This is some of the best advice I got back in 2018 when I only had one employee. As time has progressed, I have increased my line of credit to be able to rely on it when needed. If I don’t need to touch it for a while, I still occasionally withdraw money from the line of credit and then pay it back just so it stays active for when I do need it.
Accept that there are going to be natural ebbs and flows to cash flow in your business, and learn when they happen. I have been keeping a spreadsheet of every client payment I’ve received since 2015. That’s nearly 6 years of data to watch for trends in cash flow. This is exactly why I know when payments are likely to slow down, so I can adjust my spending accordingly. I recommend keeping your own log of payments received so you can look for trends in your own business.
Talk to other business owners. Money doesn’t have to be a taboo topic. I know other agencies are in the same exact boat I’m in right now, and while that doesn’t magically generate more money, it does help to know I’m not struggling alone. We’re all figuring this out as we go. Some businesses are just more prepared than others. Be one of those more prepared businesses. :)
I also wanted to shout out the Profit First Method, the strategy I’ve taken to handling my company’s finances since (almost) day one. It’s a methodology that essentially involves creating a bunch of “buckets” where money flows into, including an account called Profit. By moving money into this account, you know you have at least that profit coming in. I probably did a terrible job explaining it, so maybe you should just pick up the book.