How to Plan with Fluctuating Sales
‘My problem lies in reconciling my gross habits with my net income’ Errol Flynn
Loving what you do for a living is great isn’t it?
As entrepreneurs and small business owners, there are a lot of perks to working for yourself. Flexibility, control over your work and job variety to name but a few, however, these can be overshadowed by the lack of a steady income. The unpredictability of cash coming into your business can be very stressful.
Depending on how long you have been in business, in the most port, determines how big these cash swings are. Understanding how money comes in and out of your business is often the best way to limit the surprises of fluctuation cash.
How does money come into your business?
To understand the flow of cash in your business, you need to understand how cash comes in. How may product or services – revenue streams – do you provide? Are any of these seasonal? If so when are they ‘in’ season and when are they ‘out’ of season? When are your busy times – does it tie in with any trade exhibitions or adverse weather conditions?
You need to understand how and why your sales are affected by any buying trends and/or fashions. It will therefore be easier to predict when you will have a good month and when you will have a not so good month.
Write these revenue streams horizontally on an A4 piece of paper at the top – typically you will have 3 or 4 different streams.
Next – write vertically on the same A4 piece of paper – the months in the year. Against each month write down how much you have earned for each revenue stream, under the relevant revenue stream heading. If you do not have any figures to work from – put in the figures you think you will earn in the next 12 months.
Look at the information you have, ask yourself the following questions:-
Which month is your best?
Which month is your worst?
How does money go out of your business?
On the same piece of A4 paper write out the costs each month for same 12 months. These costs should relate directly back to each revenue stream. Write each cost under the relevant revenue stream column (use another piece of paper if you do not have room) – these are called ‘Cost of Sales’. Again, if you do not have this information, write down your estimates.
Relationship between money coming in and money going out
You need to understand the relationship between your sales and these costs of sales. For example, the month with the highest sales that you identified above, does this month also have the highest costs? You would expect the answer to be yes, if it is no, you need to review what was spent and why.
It is also worth listing all your other expenses here too to find out what you are spending on a month by month bases. Typically, these costs will be more linear and will not fluctuate in line with sales.
Planning inflows and outflows
One of the main reasons to look at cash inflows and outflows is to make the unpredictable more predictable. We want to be able to cover our linear costs in low sales month with cash we have made in the high sales month.
Having worked out what you have due coming in and going out month by month allows you to plan. If you have months were your sales are expected to be high, if you can time your bigger outgoings to be in the same month, it will help with your overall flow of cash.
And remember …
The more you look at your cash forecast the more you will start to see patterns.
You will start to understand the cash flow in your business, which is unique in every business. I get my clients to fill in the actual numbers each month so you can compare what you planned to do against what you actually did do.
For a step by step guide click here.
My Five Day Challenge
Join me on my Free Five Day Challenge ‘Pathway to 5k Freedom’ challenge starting 30th March. This is for you if you are making sales but not making profit.
You can enroll here.
Creating a routine
You are more likely to keep on top of your bookkeeping and understand the numbers if you put aside a bit of time each week to do your paperwork. If you can make it the same time each week, you are more likely to form a habit.
The more you do your cash forecasting the more likely you are to see patterns and trends in your business. This helps you make better decisions.
This is why I have created #FinanceFriday coffee morning in my Facebook group.
Ideally spend 30 minutes on your accounts from 10.30 – 11.00 and then join me (details below) for a coffee and a chat. I love getting feedback and questions so if you are having any issues, #FinanceFriday is the best place to catch me.
As always I am happy to help, so get in touch:
Grab a FREE 15 minute consultation here
Join my Facebook Group here or
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If you have questions or comments, I’d love your feed back, contact me here.
I hope you are living your best life.
Till next time.