REPEAT AFTER ME: DO NOT MANAGE YOUR BUSINESS BY LOOKING AT YOUR BANK ACCOUNT.
Hands up if you’re guilty of this!
Here’s what it looks like:
Opening up your banking app.
Taking a quick squeeze and using the “cash in the bank” to assess the “health” of your business.
Making decisions on spend based on the figure you see.
It’s normal for a LOT of businesses to operate this way.
The truth is though? It’s problematic, ESPECIALLY so, when you have a business that has inherently “lumpy” income. Lumpy income means that you don’t have a consistent “amount” ending up in your bank account each and every week, and it’s really common for course creators (and all online business owners).
Oftentimes, we’re launching so we will get a big cash injection in one month thanks to pay in full payments, and then slower months where you have MRR (monthly recurring revenue) from older payment plans still coming in. Or you might sell year round (no launch model), but you have a BIG influx of pay in fulls and have an unexpectedly big month whilst other months might be unexpectedly smaller — even if you hit your “goal” intake numbers.
In these circumstances, running your business by simply looking at your bank account could land you in serious hot water.
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Implications of Managing Your Business By Your Bank Account
✔️ You Become a “Launch Millionaire”
You might have a BIG launch one month, and feel like you’re “rolling in it” (we like to call this the “launch millionaire”) – and then make business decisions based on the LUMPY bulk income (never mind that for 10 months of the year your revenue is much, much lower).
✔️ You Refrain From Making Big Investments
Never sure whether your bank account will look “healthy” or not in the future, you’re too scared to pull the pin on making big investments that could propel you forward because you’re never quite sure you can swing it and you’re worried the money will “run out”.
This could look like coaching programs, hiring team and anything that has an “ongoing expense” associated with it.
✔️ You’re Always in Feast or Famine
You feel like you are constantly ricocheting between riches and rags. Some months spending up big and others living on fumes.
✔️ You Run Out of Money
You could run out of money, especially if you aren’t aware of the runway ahead of you. Or, you might have a slow month because you’re not launching or promoting anything, and feel the need to cut drastically back on expenses you’d incurred in your “Launch Millionaire” phase.
Three Steps to Managing Finances In a Business With Lumpy Income
The reason I’m so familiar with the challenges is because I used to live it. And most business owners do, in the early days.
At some point though, in order to confidently grow, you need to a more sophisticated way of managing your finances.
Here’s how I manage my finances in my business.
This isn’t financial advice, and you will need to consult a professional for your unique situation as there is nuance here.
The BIG key here is “evening” out your revenue into Monthly Recurring Revenue, even if you receive big amounts up front. This is something SAAS businesses do a lot, because their business involves monthly revenue incoming.
1️⃣ Set PERCENTAGE Budgets
The first step is set percentages for the key areas that you spend money in your business.
Key areas are the “buckets” where you spend money in your business.
For example, operations and software would be one bucket.
Marketing would be another.
(And there are five or so others for a course business.)
Decide on your buckets, and then decide what PERCENTAGE of your total revenue pie will go toward each bucket.
2️⃣ Use Revenue as MRR to Set DOLLAR Budgets
Once you know what % of your money you are going to spend on each bucket in your business, you then need to be clear on what the DOLLAR amount for each bucket should be each month.
The big mistake here?
Dividing the DOLLARS in your bank account at the end of each month by your chosen percentages.
Why? It will mean BIG spend on some months (eg when you launch), and SMALL spend on others.
Instead, use something called “Revenue as MRR” (which stands for Monthly Recurring Revenue) to discover what the $ amount you can spend is each month.
So, what’s Revenue as MRR?
Let’s say you have ten pay in full program sales at $1,000 each, and the program is 12 months long.
Your SALES REVENUE would be $10,000 (because that’s the full revenue you can expect to make).
Your CASH COLLECTED would be $10,000 (because that’s what was actually transferred into your account).
And, your REVENUE AS MRR would then be split into the following 12 months (because the program length/payment plan is 12 months long) at $1,000 each. So, the revenue as MRR would be $833 in the first month, and $833 every month thereafter for 12 months.
So in month one, if your % budget for software was 5%, your $ budget for that month (based on revenue as MRR) would be $41 (5% of $833).
If you made ten more sales the next month, that would add to your revenue as MRR and you would have $833 + $833 in month two – the $833 from month one and an additional $833 from month two. So, your $ budget would be $82. And so on.
Revenue as MRR essentially means distributing your SALES REVENUE across ALL months, even if it was a pay in full sale.
This allows you to make long-term decisions about things like team, coaching programs and the like, because your revenue is spread evenly across a set period (e.g. the period you spend delivering) and doesn’t feel “lumpy” and inconsistent.
Side note: You’re probably wondering how to calculate revenue as MRR. The only way I have found to do it is with a fancy financial forecasting and budgeting spreadsheet I have created from scratch. It allows me to log ALL sales, and then to break them down using complex formulas into revenue as MRR. It also tells me my $ budget for each bucket each month.
We’re sharing this document inside of our new program Legacy. And truly, it’s worth the entire investment in the program alone — the decisions it has allowed me to make and the money I have saved on making “silly” upfront decisions has made my business what it is. You can join the Legacy waitlist here.
3️⃣ Allocate Your CASH COLLECTED Monthly Into Your Buckets
Each month, allocate the AMOUNT in your bank account into separate buckets. You can do this by actually opening up different bank accounts, or with apps that allow you to “earmark” money into different buckets.
Here’s an example: Let’s say that you made $10,000 in SALES REVENUE, and it was all CASH COLLECTED because it was an upfront sale.
$500 would go into your operations and software account (5% of CASH COLLECTED).
BUT! You would only have $41 to spend, and $41 every month for the following 12 months (if your program/payment plan was 12 months long, because the Revenue as MRR was $833 each month for 12 months.)
You will be able to streamline your cashflow and budget, working on monthly recurring revenue rather than lumpy income!
This will also allow you to see where your income is dropping off, so you can plan accordingly WAY ahead of time. You can plan your launches and promotions around it, so you never see a BIG drop.
All sound Japanese?
One thing I will say is that LEARNING the skill of math is essential as a business owner. It’s not something you hear spoken on podcast episodes a lot because there are sexier things, like the latest Reels trend.
But THIS? This is what you need to go to the next level.
PS This is EXACTLY the sort of thing we teach in our upcoming program Legacy, which focuses on building the business end of your course or program with the ultimate aim of reaching what we like to call “The Lifestyle Business Sweet Spot” – a simple business with one to two core offers, high profit margins (min $250k+ profit), working 5-hour days and a lean, remote team of 1-5.
Interested? Join the waitlist NOW here to get access to our Foundation Pricing when it drops.
Links and Resources:
PS Whenever you’re ready, here’s a few ways we can help you!
1. Want to build out your digital course business to the “Lifestyle Business Sweet Spot”? Legacy is for experienced course creators who aspire to the Lifestyle Business Sweet Spot (Minimum 250k+/year profit , working 5-hour days with lean, remote team). Join the waitlist NOW and get an invitation to our FREE training in 2023.
2. Are you ready to create, launch and scale your flagship digital course in 2023? Head to www.thecoursecartel.com/launchpad to apply for our 12 month, high touch group coaching program.
3. Want to launch your Wildly Successful Podcast in just 6 weeks? Check out our FREE masterclass where we share with you our complete five-step strategy!
4. Want to get paid to generate more leads into your business than you can poke a stick at? You need our $57 Paid to Grow Workshop and Bundle series (we are consistently told that this is the best program our students have ever bought and it’s a steal!)
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