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.
With practice this can become very straightforward, however, if you are doing it for the very first time you know I’d love to help you. We both know running out of money and not being prepared financially is a very scary thing.
Join me for a 3-hour Masterclass in Dublin City Centre on 19th Nov where I will be going through step by step how to monetize your goals for 2019.
Get your tickets at:
Not in Dublin or can’t make it? Book at FREE 30-minute consultation #here# and we can discuss your Cash Flow Forecast.
Next week’s blog: How to budget for the big expenses
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