Top 10 Finance Questions Encountered By Every Entrepreneur: #5: How Do I Handle Cashflow When Income Arrives Sporadically?
You know how most of our bills have the audacity to show up every single month without fail? Well, wouldn’t it be lovely if our income did the same?
For those of us riding the entrepreneurial rollercoaster, though, ‘consistent’ is often the last word we’d use to describe our cash flow. And this is undoubtedly one of the biggest conundrums that comes up for business owners, which is especially tricky to navigate if you’d previously always been accustomed to a job that paid you a regular, predictable wage each month. Transitioning to the unknown with so many variables and factors that impact your bank balance it can be a real challenge.
How is sporadic income showing up for you? Maybe your business is the seasonal type, where the industry you’re in naturally has a clear pattern of busy months and quieter months, that could have you thriving one minute and hibernating the next.
Or perhaps you’re juggling projects that pay in big, but infrequent, bursts. Then there’s the age-old issue of clients who treat payment due dates more like gentle suggestions. And let’s not even start on those big, chunky project expenses or cost of sales that hit you before the money rolls in. And of course we’re not machines so navigating the effects of your own personal energy dips and fluctuating creative bursts can mean your earnings will never be linear.
So, how do we manage the cashflow to square away those pesky monthly bills, invest in a bright future, give back and enjoy life – with an income that’s seemingly got a mind of its own? Stick around, because this blog post is all about tackling that very conundrum. So you can stop playing catch-up and start planning ahead. Let’s get to it! In my top 7 ways to tackle this.
1 Establish Finance Routines and Practices
The first step to is to take inventory, because if looking at your business numbers and doing your finance admin isn’t happening all too frequently it’s no wonder everything seems so up in the air when it comes to money.
The good news is you can establish a strong financial foundation in just a few steps. It could be a case of setting aside a regular time block each month to keep up to date and on track with this, setting yourself up a simple checklist of essential financial tasks or even outsource it to help prevent the overwhelm.
Check out our blog earlier in the series all about how to manage your finances.
2 Separate Business from Personal
If you’re started out as a soletrader it can sometimes be tempting to just run everything through your existing current account but segregating your business and personal finances is going to create so much more clarity.
A clear division helps in managing sporadic income by providing a transparent view of your business’s financial health with a closer view of your regular ins and outs, both business and personal. Setting up separate accounts, if you haven’t already, is a straightforward step with long-term benefits, making it easier to navigate the ups and downs of entrepreneurial income.
And as and when possible, it’s a good idea to physically pay yourself a regular ‘wage’ to cover your drawings to help you budget (exactly how best do this will depend on your company structure).
If you’re operating as a limited company it might be that there are times when you are personally bank rolling quieter periods or the early days. In these instances keep a close track of your cash injections, usually via the directors loan account. Where possible send ‘chunks’ of money into the business account to cover outgoings rather than simply putting stuff on your personal cards, which you might then forget about.
3 Influence Payment Terms
Ever had that awkward chat with a client about when the money’s hitting your account because you keep having to chase them? Annoying right.
It can be tricky, especially if you deal with large companies with their own fixed view on payment terms that you have to adopt if you want to work with them but the more you can influence this in your favour, and nail it all down in writing, the better. Think super clear terms and conditions, asking for payments up-front of delivering the products/services and clear implications if payment terms are breached. If you are working on larger projects, consider asking for upfront payments, or stage payments, which will bring a magical cushion for your cash flow, especially if you have associated project/product outgoings.
You see, when you get a deposit or part payment before you even lift a finger, you’re not just giving your cash flow a nice little boost – you’re setting the stage for so much less stress and worry. Alex started asking for 50% upfront and guess what? Their cash flow went from eek to awesome. So, go on, have the ‘money talk’ early on, build it into your T&Cs and watch your bank balance soar.
4 Navigating Large Payments
Received a sizeable payment from a recent project? Fantastic! It can be easy to see a load of money hit the account and think it’s all yours to spend. But now’s a great opportunity to think ahead.
Consider dividing that payment into savings ‘pots’ within your banking app, earmarking funds for essentials like your ‘wage’ for rent and utilities in future months, and yes, even that tax bill that’s on the horizon, a pot for fun and a pot for a rainy day. This isn’t about restricting and going without now—it’s about extending that sense of financial well-being into the future.
By setting aside a realistic amount for routine spending, you’re not just preparing for the predictable; you’re also equipping yourself to handle the unexpected with grace. This thoughtful approach can help smooth out the financial peaks and valleys that come with entrepreneurial life.
So, when you receive that substantial payment, channel it into various banking app pots and let yourself feel the satisfaction of foresight. It’s all about embracing smart, proactive financial habits that keep you secure and stress-free.
5 Create an Ecosystem of Banking accounts and pots
And on that note you might be thinking but I only have one or two bank accounts this seems like a lot of work. Well by using savvy banking solutions like Monzo or Starling (many other banks are available), you can create dedicated ‘pots’ for different costs with ease and keep your main business current account at a consistent level.
It’s like having jars on your shelf, each labeled for its own purpose – ‘Travel’, ‘Supplies’, ‘Tax’, ‘Emergency Chocolate Fund’… you get the gist. This way, you’re not just throwing all your money into a big pot and hoping it covers everything. Nope, you’re the boss, telling each penny exactly where to go and saving a stash for a rainy day. Here’s a little more video guidance on setting up your bank accounts.
6 Cash Flow Projections
If you’ve ever felt like a financial fortune teller trying to predict your cash flow, I get it. But here’s the secret: cash flow projections. They don’t have to be fancy – a simple spreadsheet can work wonders.
Plot in your best estimates of the money coming in, and going out over time, and voila, you’ve got a crystal ball that actually makes sense. And if you’re thinking, “But I’m no spreadsheet wizard,” fear not. I can help you whip up a cash flow forecast that’ll have you planning like a pro.
Check out my cashflow templates and guidance here.
7 Assess Your Pricing Structure and Offer Suite
Revisiting your pricing and offer structure is a smart move, especially when income flows are unpredictably. Sometimes, cashflow woes are simply the case that you’re not charging enough or the content of your offers needs a few tweaks.
There are many variables to this, but in simple terms you need to ensure your prices are in step with the value you deliver and more than cover your costs including paying yourself and an element of profit. For example switching to a project/service price rather than day rates and component charges, along with really knowing your costs to factor in a healthy profit margin can be a real game-changer.
For some more helpful tips I recommend watching my recent Masterclass on Pricing And Profitability and this is something I regularly work through with transformational results, in 1:1’s with my clients.
Closing Thoughts And Opportunities For More Support
Exploring some of these tips should hopefully help you feel more confident with managing sporadic income. If you need any more assistance or to run through some specific scenarios feel free to reach out and book a power hour style advice session.
And you might well be interested in joining my upcoming Workshop on Down To Earth Finance Routines For Purpose-Driven Creators: an Empowering Workshop on Impactful Money Practices for Heart-Led Free Spirits
During the workshop we’ll explore:
🙌 What to actually do on a monthly basis to create an aligned routine for finances that feels good and helps you keep track
🙌 How to set up your bank accounts for clarity and success
🙌 Managing your money when income arrives sporadically
🙌 Making the most of tax savings, and worrying less about HMRC
The workshop will be gentle, informative and immediately actionable and you can expect:
🥰 A relaxing somatic practice
🥰 Simple actionable tips and guidance
🥰 Journalling to enhance impact
🥰 Practical exercises
🥰 Templates, checklists & extras to take away
Join us on 6 March 2024 on Zoom 1-2.30PM GMT (or catch the recording)
It’s £30 + VAT (£36) with £5 of each ticket sold going to Doctors Without Borders, to amplify our collective impact.
Hi, I’m Harriet Formby, your trusted Fractional CFO, Chartered Accountant and Business Growth Specialist.
I am the founder of Below The Line Finance and my mission is to financially empowering creative entrepreneurs to build aligned businesses – with profit, purpose and healthy cashflows! With my collaborative and supportive approach, I am dedicated to guiding you to greater confidence and success with your business finances. What could you accomplish with your very own Mini CFO?
Let’s stay in touch:
- I run a Facebook Group Money Mastery for Creative Business Owners which is all about feeling good about finance – you are most welcome to join!
- Want to grow confidence with the fundamental of finance? I run a monthly finance Master Class Series
- Are you on the email list? I send a regular newsletter of finance tips and resources.
Together we can say goodbye to fear and confusion, build solid finance foundations and step into a supportive environment where you can turn your dreams into a reality through bespoke finance strategy and practical support.
Harriet Formby MA ACA
Founder: Below The Line Finance & Get Number Savvy