How Can I Budget When My Income is Inconsistent?
Episode 768: Show Notes
In today’s episode, I am going to be talking about what it looks like to budget when your income is inconsistent. Perhaps your business’ revenue and your pay are inconsistent, and you want to create more sustainability so that you can get paid more often and more predictably. The economy is insane at the moment, so everything I am going to share with you today is what I would do to have a more conservative approach in a time of uncertainty. I know that this will have an instrumental impact on how you change your business’ finances, create more personal financial stability, and solidify the future health of your business. This is the thing that will keep your doors open for years to come!
I need you to get the idea out of your head that businesses grow linearly or exponentially. They just don’t! Don’t think that this sort of change means you’re doing something wrong. Running a business is simply too unpredictable. I’ve been there. I want to help you find ways to manage these waves of inconsistency. Don’t get me wrong; this isn’t about taking every bump out of your business. Bumps will happen! This is about creating predictability in your personal financial future and preparing you to manage the unpredictability that will inevitably come.
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The Number One Cure for Inconsistency
How do we create consistency? The inconsistency cure is establishing a base salary! When this starts to happen, you can plan for things a lot more effectively because you will know what you can afford in terms of living, personal expenses, vacations, etc. It will also give you a better idea of where you are now compared to where you have been in the past. This will open up a world of being able to understand your personal finances while giving you the stability you are looking for and an opportunity for saving inside of your business. For a Sole Proprietor, you need separate banking! While every dollar that you earn in your business is immediately yours, having separate banking will allow you to create all the healthy habits that will keep you growing and give you a better understanding of how your business is working. In an S Corporation, you are going to need to discuss a reasonable salary with somebody who is qualified to talk about the considerations you need to make for the IRS. This is very important, so don’t forget this step!
For both types of businesses, I want you to look at the low end and figure out what you have had consistently in profit to create some sort of reasonable base salary for you. I am talking about taking your business’ income minus its expenses before paying yourself. If you can take the minimum amount that has been for the last 12 months, that is a great place to start your predictable base. Regardless of the number, I want to create something that you can rely on and as you grow, you can adjust this number. You are going to take this amount, create a regular schedule, and pay that amount to yourself as a salary. If you need help figuring out what a reasonable base pay is, feel free to reach out to me!
Creating Your Business Lifeline
I don’t ever want you to get desperate so you need to create a cash flow account and an emergency fund. I need you to push anything you’ve heard about this aside for a minute because I have been doing this for a long time and I know what’s going to make you feel stable. You want two accounts; cheque and savings. The cash account needs one month of operating expenses in it. Your cash reserves account is the backup and stability plan so that even when the income is up and down, your pay and your team's pay don’t necessarily have to suffer. You need to keep three months’ worth of operating expenses in your cash reserves account including your base pay and any team costs. It’s a good idea to look at averages over the last 12 months in terms of how much your business has been spending and paying you to know what number you’re aiming for.
This is the safety net for any economic downturn and can carry you for four months! I know you are probably freaking out right now but you don’t have to have all of this money on day one. It’s going to take time and that timeline won’t be the same for everyone. I also have a little side note: as a Sole Prop or S Corp, if you have too much money in your accounts you are going to have to pay tax on that cash. I don’t want you to do this so fast that it puts strain on you in any way. I want you to start by looking at the profit after your base every single month and keep 50% of that in the business where possible and distribute the other half in some other way. The amount of cash you need to keep in the business will change as the operational expenses do so you’re going to have to work towards this (potentially) over years.
As things start to change, I suggest you distribute 85% of your profit and leave the rest in the cash flow. You do not need huge chunks of cash sitting in your business so you could get to the point where you’re distributing 100% of the cash! Because you are the boss, you can actually put cash back into the business so it doesn’t make sense to just have it sit there. At the maximum, I suggest you have one month of cash flow and six months of cash reserves. You’re going to pay yourself and distribute profit according to the same schedule. These savings give you the opportunity to even things out because consistent distributions are not a thing in business. I know this sounds like a lot and I want you to know that I am here to help you. I believe the Incubator can assist you with the tools you need to manage your finances so go check it out!
What We Can Control to Fill the Lead Gap
You may be thinking that your big problem isn’t necessarily managing cash flow but rather the fact that you have no control over leads right now. I want to help you fill this gap and talk about everything that’s going on. So many social media changes are disconnecting small businesses from prospective buyers because of the privacy laws and settings disrupting the ability to reach people. I want you to focus on what you do have control over which are the strategies that will help improve your conversions. If you are currently in a ‘one-call’ approach, I highly encourage you to move over to a two-step process where you have a discovery call and a sales call. I have seen so many clients build more rapport and create long-term clients who convert at a higher rate by splitting these calls into two.
You can also give your sales calls a makeover! Enhancing a sales pitch into a strategic presentation can make a huge difference in illustrating what you’re saying and showing how prepared you are. It makes people feel so much more special. I have some great templates for this so head over to the Creative Template Shop. There is even a built-in sales presentation template inside the Incubator! I want you to make it an easy yes for potential clients. You can also offer special promotions to fill that lead gap! A lot of people don’t like discounting and I get it, I don’t think you should go out and cut your prices. But I do think in a lead gap space, you can create special promotions to book for a new season and really make people excited about it. Part of creating this excitement is just talking about booking and making discovery calls – this will make people want to book you!
Moreover, expanding your offering when you have fewer leads can also be helpful. Ask yourself what you can give to clients and prospective clients that will set them up for success and illustrate to them that you are the solution they need by giving them a taste of what you would do. This will also allow you to get paid in the meantime! Doing a lead-in offer will not only allow people to say yes to something that is less expensive initially but it will demonstrate your value and book them on the back-end into your bigger offer. I want you to get out of your own way and start doing more of what works and more of what’s gotten you leads in the last six months!
Get More Support
If you need some support to help you with all the things I’ve just outlined, because I know it’s a lot, then the Incubator is for you!
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Quote This
Get out of your own damn way and do more of what works!
Highlights
The Number One Cure for Inconsistency. [0:09:45]
Creating Your Business Lifeline. [0:17:40]
What We Can Control to Fill the Lead Gap. [0:31:10]
OUR HOST:
Abagail Pumphrey
Abagail on Instagram | Boss Project on Instagram & Facebook
Abagail Pumphrey, the Co-Founder & CEO of Boss Project, has been a driving force in the creative entrepreneur industry since 2015. With a passion for empowering service-based business owners around the globe, she became internet-famous after the launch of the transformative training, "Trello for Business." This innovative system revitalized the operations of over 10,000 business owners, making a significant impact on the online business landscape.
Under Abagail's leadership, Boss Project has been featured in prestigious publications such as Forbes, Marie Claire, INC, and HuffPost. Her twice-weekly podcast, The Strategy Hour, is a staple in the business community, continuously topping Business and Management Charts on Apple with millions of listeners from around the world.
Abagail's superpower lies in her ability to break down complex concepts into easy-to-implement, duplicatable systems. As an expert in online sales and a data-driven strategist, she has turned a layoff into a 7-figure work-from-home business. Abagail's mission to help more female founders become financially free, without letting their businesses take over their lives, continues to inspire and guide entrepreneurs on their path to success.
Key Topics:
Budgeting, Economic Fluctuation, Small Business Budgeting, Variable Income, Lead Gap
