How to Create Consistency With Fluctuating Cash Flow

Money Files

Putting financial systems in place for where you desire to be long term should be a priority whether you’re a seasoned entrepreneur or just starting out with your business. Fluctuating income can bring with it a feast or famine cycle, but I promise you can break free from that and create consistency in your financial life.

I want you to be able to create consistency with your cash flow so that you can have predictability in your income and achieve all of your goals and desires.

Today, I’m walking you through the process of knowing your numbers, creating a business spending plan, and nailing down your expenses and your paycheck. I’m also talking about the importance of keeping your personal and business finances separate and making sure that you regularly evaluate and adjust your numbers as your business grows.

In this episode, you’ll learn…

  • The feast or famine cycle that comes with inconsistent income [01:51]
  • How to shift how you think about money in your business [03:55]
  • Why you need to treat your business as an entity that can support itself [04:50]
  • Treating your money the same way regardless of how much you bring in [06:11]
  • The importance of keeping your personal and business accounts separate [07:06]
  • Why you have to know your numbers when setting up systems [11:18]
  • About creating a business spending plan [13:37]
  • About breaking your expenses down to a monthly basis so you have a clear picture of your spending [15:51]
  • Why you should keep your expenses at 30% (or lower) of your income [17:11]
  • How to determine your paycheck when accounting for expenses, savings, and taxes [20:21]
  • Why it’s important to regularly evaluate and adjust your numbers [22:49]

Tune in to this episode to learn how creating consistency with your money will bring you freedom and flexibility in your business.

In the episode…

You are going to regularly experience fluctuating income in your business, but it doesn’t have to feel hectic. You can create consistency, and you first have to start by shifting how you think about money. You need to be able to see your business as an entity that can take care of itself. I know you want to be a good CEO who pays their employees (including you!) a consistent income. I know you want to be able to invest in areas important to you and manage the expenses that bring your business growth.

You can do all of this when you treat your business like a business.

Here’s how you can create consistency in your cash flow that allows you to achieve your business goals and pay yourself what you desire.

Before You Get Started … Separate Your Personal and Business Finances

As a business owner, you should have multiple accounts. It’s very important to keep your personal and your business finances separate. Even if you’re not an LLC, you can open a personal account and treat it as your business income account. Aside from that, you likely also want the following separate accounts: business taxes, business expenses, business savings, and your personal compensation account. Keeping everything separate allows you to be clear on how much money you’re bringing in and where it’s going.

Step 1: Know Your Numbers

Set a regular money date to categorize your business expenses and track your income. Take a look at how much you made in the last 12 months and in the last six months and come up with a monthly average. This will help you to make decisions on how much you can pay yourself as well as to be intentional about your spending and your financial goals.

Step 2: Create a Business Spending Plan

You need to have a budget in place for your business so you know exactly what your expenses are. Be sure to capture both your regular and your irregular expenses, including any quarterly or annual subscriptions or costs you may have. Break these expenses down monthly to get a full picture of your business spending.

Step 3: Determine What Percentage of Your Income Is Business Expenses

Next, you want to figure out what percentage of your business income is going towards expenses. Ideally, this number should be at 30% (or lower) of your average monthly income. This allows you to increase profitability. It’s important to understand where you are in your business and make intentional decisions. Take a look at your expenses to see what’s working well and what isn’t and what you want to be able to invest in.

Step 4: Determine Your Paycheck

You can think of this in terms of how much money you need to be paying yourself or how much money you can afford to pay yourself. How you determine this number will depend on where you are in your business. The important thing to remember is that you are also accounting for taxes, savings, and expenses when coming up with your compensation. A realistic number is somewhere between 20% and 40% of your average monthly income.

Step 5: Evaluate and Adjust

With money, you always need to be flexible. As your business grows and your personal circumstances change, you should regularly evaluate and adjust your numbers to fit your needs and your desires. I want you to think from the perspective of both employer and employee. You want your business to be able to support you now and ten years from now. Making tweaks to your plan allows you to create financial stability through the highs and lows of being an entrepreneur.

Here are the takeaways about creating consistency that I want you to remember from this episode…

  • Keeping your personal and business finances separate helps you stay clear on where your money is going
  • Creating a business spending plan allows you to understand your business expenses and how to keep them reasonable
  • The importance of treating your employee (you!) well with a consistent paycheck each month
  • Evaluating and adjusting your plan will bring you financial stability and also the freedom and flexibility you desire as an entrepreneur

Ready to dive deeper into creating consistency for your fluctuating income? Apply to work with me, and let’s start working towards your financial goals.

Want to use Money Dates to creat consistency in your finances? Listen to my episde on Money Dates here!

Transcript for “How to Create Consistency With Fluctuating Cash Flow:”

Hi and welcome to Money Files. I’m Keina Newell from Wealth Over Now. I work every day with professional women and solopreneur producers to help them get out of financial overwhelm and shame so they can experience more flexibility and ease with their finances. Are you ready to gain confidence and learn to manage your finances intentionally? Tune in and grab financial tips that will help you master the way you think about and manage your finances. Hi and welcome back to another episode of Money Files. 

I am following up on my episode from last week. So last week I talked to you guys about determining your paycheck as a solopreneur or even someone who does contract work. And maybe you have contract work where you are paid different amounts of money. But basically if you are someone who has fluctuating income and you actually bring in money for yourself, then you’re going to want to tune in to this episode. Or if you’ve been thinking about it, you have a little baby side hustle or whatever that is. Like this is an important episode for you because no matter where you are in your money journey, I always think it’s great to put financial systems in place for where you desire to be long term. 

You don’t need to wait to make a certain amount of money before you start to put in financial systems. If you’re already making a lot of money, it doesn’t mean that you can’t put in the systems, right? So just thinking of sometimes we have limiting beliefs about money and when we should start or where we should be. And all of this “shoulding” keeps you from actually creating the results you desire to see. So as an entrepreneur or solopreneur, I want you to be able to create consistency with your cash flow. 

One of the number one things that I see when I’m working with clients is that people are in this feast or famine cycle. So imagine you have a $15,000 month and you’ve never had a $15,000 month before, and you get really excited about that. So naturally you start to treat yourself because it’s more money than you ever made before and you’ve made $15,000 this month. Then the next month, let’s say you make $10,000, you’re still feeling really good because $10,000 is a sum of money that you’ve never made before. You feel excited about what’s happening in your business, and then the following month you have a $3,000 month and now things don’t feel as stable. And so you start to panic and you feel just like, Oh my goodness, what am I going to do? I need to be able to pay my bills and my business. I need to be able to pay myself. And there’s just a lot of things that start to come up for you when you think about your money and you start to just be really flustered because you’re thinking about how your income is always fluctuating and it’s so unreliable. 

And you’re right, your income is always fluctuating when you’re in this space because you’re responsible for generating your income, and that’s fine. However, you don’t have to experience the highs and the lows that come with fluctuating income because you can actually create consistency with your cash flow despite, like I said, the months being up or the months being down because that’s going to happen. Whether it is taking time intentionally, whether you take time off intentionally in your business or you don’t want to assign new clients because you don’t have space for new clients or to take on new work depending on if people pay you in full or pay you month to month. There’s a lot of different reasons that your income can fluctuate and it can look different. 

And so what I want you to hear is that you can actually shift how you think about money in your business. That is also going to help you create consistency with your cash flow. I want you to be thinking about your business as a business. When I see this struggle with managing cash flow, oftentimes for my clients, I don’t think they see their business as a business in the sense that I want your business to be able to take care of itself. I was joking with someone the other day that, imagine your business is an 18 year old child. You want an 18 year old to be out of your house, to pay their own bills. And so I want your business to not dip into your financial pockets on the personal side. I want your business to be able to take care of itself, because at some point, yes, your business is a baby and you need to support it. 

But the ultimate goal is that your business is able to support itself. And that means that you need to be thinking as a CEO. You are a business owner, and so you’re both the employer and you are the employee. You wear two different hats. So the money that comes into your business is business money. The money you pay yourself is that money that allows you to navigate your personal finances, etc. So it’s being able to see both sides of that and to put on both hats when appropriate. And I want you to be like the best employer that you’ve ever had or experienced. I want you to be able to pay yourself on time. I want you to be able to pay your business bills on time. 

So, so much of being able to do that is being able to shift how you think about money in your business and being able to see your business as a business and not a side hustle that you’re doing for fun that generates $50,000, $100,000. No, your business is a business and you are an employer and you are an employee. You are a CEO, and CEOs manage their money well. So that’s what we’re going to talk about today and how you can create this consistency with your your cash flow. 

And so the secret behind creating consistency with your cash flow is to treat your money the same way regardless of the invoice. I’m going to say that again. You’re going to treat your money the same way regardless of the invoice. So if you make a dollar in your business, you’re going to treat it the same way you would do $1,000 in your business or $10,000 in your business, because when you do this, it’s going to allow you to account for higher than and lower than average months. And you’re going to start seeing that you can create some natural buffers in your business. 

So I actually want to take one step back as I’m talking about creating natural buffers in your business and just give you an inside peek on how I manage my business finances and how I help clients manage their business finances. So I operate my business with several different bank accounts. And if you’re listening to this right now and you manage your business expenses out of a personal account, please separate those. I’m not an accountant, but one of the things that I’m recommending to you, if you’re listening, is that even if you’re just starting your business and maybe you don’t have an LLC and you haven’t established the requirements that would allow you to open a business account, just open a personal account so you can just see the money in a different place than you would see it in your checking account. And if you do have an LLC and you have an EIN and you’re able to actually open up business accounts, do that now. Your money, shouldn’t be co-mingled, that is not a CEO move to have co-mingled money. And it is one of the things preventing you from having clarity with what you’re able to do with your money. It is preventing you from having a business that actually takes care of itself and can pay its own bills. 

So as a business owner, I have several different accounts and one of the accounts I have is an income account. And so all of my money comes into this account. Any time that I invoice someone, the money hits my invoiced account, and from there my money splits off into different buckets. So I have another account that I use for business expenses. I have another account that I use to save money in my business. I have another account that I use for taxes, and I have another account that I use to pay myself. So imagine this one big account and it feeds all of these other four accounts. So when I’m talking about doing the same thing with my money all the time, if a dollar hits that income account, it will drop some money into savings, it will drop money into taxes, it drops money into expenses and it will drop money into my compensation account. 

And so by managing money in that way, I’m very clear on how much money I have saved for taxes, how much money I have in business savings, how much money I have for my expenses, and then also how much money I have to pay myself. And I’ll also tell you that for my expense account and my compensation account, the goal is for neither one of those accounts to ever be zero. I’m never trying to drain the whole thing. In determining your paycheck, which was the episode I did before this, I was sharing with you just the power of being able to let’s say, for instance, you have, let’s say, $2,000 and you pay yourself $500 on the 15th and the 30th of each month. Well, if I had $2,000 in that compensation account, I know that I could pay myself four times. That creates ease for you because you’re like, okay, I have my next four paychecks and any money that comes in between now and the next 30, 60, 90 days, I know it’s just going to continue to add to that amount. And so that continues to create that level of freedom for you, that level of ease, and allows you to make intentional financial decisions. 

So the first thing that I wanted to talk to you guys about is definitely just making sure that your finances aren’t co-mingled. I wanted to give you that inside view of how I break up my accounts and how it helps me just see money clear clearly across my business and makes me feel more confident about spending money in my business. Another thing that I’ve heard some people also do is if you are someone who likes to invest in coaching or maybe you’re not sure what you would invest in this year as a business owner, you could also have an account that was just for investments and just being able to drop money in your investment account as well, so that when something comes up that you want to invest in, you know, you already have money set aside for that. So that’s just, I would say, another money tip for you as you think about how you want to manage your business finances so you can create freedom and flexibility, which is ultimately the reason you went into business for yourself. 

So if you want to create this consistency with your cash flow, there’s a couple things that I want you to know so you can create that predictability with your business cash flow. So the first important step is to know your numbers. Always start there. If you have a system like QuickBooks, you should be updating that regularly. That’s a great money date that you can be doing each week is to categorize your expenses, or maybe you have a bookkeeper. But if you know your numbers, the thing that I want you to know here is how much money do you make on average per month? So I like to know my average for a 12 month cycle and my average for a six month cycle. And in knowing the average, that once again just helps me se,e it helps me plan from a place of like consistency. So if I knew that my average income was $10,000 over a 12 month or six month period, I can see like if I made $12,000 in April, oh, I’m above my average, which is going to help me be able to to add to my different buckets of money. And it’s going to provide a buffer for me. And when I talk about a buffer, I’m just saying like extra money that would allow me to to get further ahead. And then if let’s say, for instance, I had an $8,000 a month in May and my average is $10,000. What I know is like, okay, well, I’m a little bit below average, but because I do the same thing with my money all the time, it’s going to balance out because remember, I had that $12,000 a month and my average is $10,000. So there’s no need to stress. It’s just the fact that I do the same money, same thing with my money every single time it comes into my account. 

So know your numbers, know how much you make on average, because that is going to be the number that you are able to anchor in. You will do different things with your finances. But I just think that knowing your average monthly income allows you to make decisions for how much you want to pay yourself or you can afford to pay yourself. It allows you to look at your business expenses and be intentional with where you’re spending money. And it keeps you from being driven by the balance in your bank account or looking at one overall month and making decisions about where you want to go financially. 

So from there, you know your average. Now I want you to actually create a business spending plan. So if you don’t have a budget for your business, put a budget in place, I want you to actually know what expenses you have in your business. This shouldn’t be something that you don’t understand for yourself. So I want you to be able to know what are my annual expenses, what are my regular expenses, what are my irregular expenses, and where do I want to invest money? Things that generally catch people off guard is like when you think about annual expenses, a lot of your subscriptions you probably pay for annually. And if you have a subscription to Zoom, if you have a subscription to Canva or whatever that is, and you pay for that on an annual basis, those can hit your accounts at different times and they can be five, $300, whatever that looks like, $1,000. And so write down those expenses. If you don’t know them off the top of your head, go back and like I said, if you have an accounting system, look at QuickBooks and kind of see what your expenses are or look at your bank statements for the last 90 days and see where money is going when it’s not a regular expense. I also want you to make sure that you capture your regular expenses, capture your irregular expenses, so maybe you know that you invest in a graphic designer every single quarter. It doesn’t happen every month. But if you spend $300 on a graphic designer quarterly, you’re spending 1200 dollars a year. And so essentially, if I were to break that down into a monthly expense, that means that I’m spending $100 every single month. But that’s a number that I want to know, because it’s going to help me be really intentional about creating this consistency with my cash flow. 

And lastly, the investment piece. If you know that there’s a program you want to invest in this year, or maybe you’re looking to hire a VA, or there’s someone you want to add to your team. Start including that, and you can put that in your spending plan to allow you to plan for where you desire to go as a business owner, you don’t have to wait until that thing actually happens to start preparing for it. So essentially what you want to do is add up all of your expenses and any of the annual expenses, divide them by 12, any of the irregular expenses you can add them up for however many times that happens a year and divide it by 12. If you have investments that you know you want to make, maybe they’re going to happen in the next eight months or whatever that is. But divide it probably by eight months, but get a solid number for how much money you’re actually spending per month. And when you have this number now, you know, oh, okay. So I spend let’s just say you spend $5,000 a month. So if you’re spending $5,000 a month and let’s put an asterisk here, maybe it’s not, you’re like, Keina, I’m not spending $5,000 a month. But remember, this is going to account for like annual things that are happening, irregular things that are happening, investments that are happening. And by being able to see that you spend $5,000 a month, it’s allowing you to account for those investments and expenses that occur during different seasons. So you’re able to plan for it and think about the purpose of money in your business, especially when you have those higher than average income months, it’s going to go towards helping you be prepared and being able to put your expenses on autopay and not be worried about whether or not you’re going to have the money. 

So after you know how much money you spend per month, you have this spending plan. I want you to figure out what percentage of your average monthly income is being spent on expenses. So if you know that your average monthly income is $10,000 and you’re spending $5,000 a month, then you are spending 50% of what you make on expenses. And I generally try to help my clients have a goal of like 30% or lower because that means that it can increase your profitability. Granted, I will say this also with an asterisk, that people are in different spaces in their business. And I know early on I was spending 100% of my income on my expenses, but knowing this helps me thoughtfully make decisions and also build a plan to not be spending that much money over time. So if you notice that the percentage of your monthly expenses is really high, I always suggest that you can go back through, look at your expenses and decide like, okay, are there things that I want? What do I want to keep? What do I want to revisit and what do I want to cancel? And that can help get your expenses down, but also just use your knowledge of where you are in your business and decide how you want to actually apply this to what you’re doing and make that intentional decision for yourself. 

But also in knowing knowing the amount that you spend in your business per month will also help you, remember I talked about having that business expense account. And so, say, for instance, I had $15,000 in my business expense account. If my expenses are $5,000 a month, then I know I have three months of expenses. Do you know how good that feels to know? If I never sign another invoice for three months, then I have 90 days in my business. And I can just lay back and be easy. It also allows you to sell from a place where there’s not scarcity, and you can be intentional about people that you actually want to work with, clients you want to work with, contractors you want to work with, whatever that looks like for you and your business. 

So there’s just so much power in knowing this number and being able to be really intentional about how you want to spend money in your business, how you want to take time off in your business. As you’re going through and thinking about wanting to create this freedom and flexibility, just nail down also like what this is creating for you, especially if you’re someone who thinks that all of this is really overwhelming. Numbers can be simple and knowing your numbers is going to create ease in your life. All right. 

The next thing I want you to do, so we know how much. First, we know your numbers. We know what the average amount is that you’re bringing into your business either on a six month or a 12 month basis. We know how much you’re spending because you’ve created a business spending plan. I also want you to know, like, what amount of money are you going to be paying yourself? So determine your paycheck. If you listen to my last episode, you can think of this in different ways. Maybe it’s like, How much money do I need to be paying myself? There’s that. But then there’s also the like, how much money can I afford to be paying myself? And in the example that I gave earlier, if you are make if your average is $10,000 and your business expenses are $5,000, so you’re spending 50% of what you make on your expenses, then I’m just going to go out on a limb and say you can’t afford to be paying yourself $5,000 a month, because what you’re not accounting for is that you also want to save money for taxes, you want to save money within your business. So that allows you to see, Oh, okay, I either need to change how much I’m paying myself or I need to change my business expenses. 

But once again, it comes back to allowing you to be in control, allowing you to be realistic, even thinking about, Okay, I clearly need to be making more money. If the desire is to pay myself $5,000 a month, continue to paying $5000 a month in expenses, but it’s kind of a fun little backwards math problem so you can determine where you want to be financially and how you desire to get there. So determine your paycheck, understand like, is it realistic for me to pay myself this much money? You can even decide or see exactly how much money or what percentage, excuse me, what percentage of my average monthly income is my paycheck that I would like to pay myself? If it’s 60%, then I would say that’s a little bit on the high side. I generally would say if you can stay somewhere in between probably 20% to 40% of that average income will allow you to see like, okay, that actually feels really good and it makes sense. It’s very realistic. 

And once again, by determining a paycheck, you’re going to be paying yourself consistently. And so your personal finances, your personal bank account can learn to rely on the fact that you’re going to pay yourself every single month. You’re going to pay yourself the same amount. You’re going to pay yourself on the same day. And you are also going to be building reserves in your business so that you’re able to pay yourself consistently and over time. And lastly, I want you to always be able to evaluate and adjust. 

So you’ve done these three things. You know your numbers. You have a business spending plan, you’ve determined your paycheck. I also want you to evaluate and adjust as your business continues to grow so you can go through this same process as expenses change. Maybe they’re going to increase or decrease. Go back and evaluate your numbers. Your revenue, it’s going to also increase and decrease. Go back and look at, you know, has my average monthly income, has it shifted, being able to identify like is this an intentional shift that it has increased or decreased? And where do I actually want to peel back the layers to figure out what’s going on with my average monthly income? And then also your personal needs are going to change. And so as your personal needs change, it’s going to be vital that you understand how your business is going to be supporting you as an employee. And then as an employer, you’re going to decide, you know what? How do I want to make sure that I take care of my employees? 

So creating consistency with your cash flow is very, very easy. It takes you sitting down and making this an intentional goal for yourself. So you are actually creating the freedom and flexibility, the ease and predictability that you desire. And then as your business grows, you’re also going to just know that you’ve created this financial system for yourself where you’re able to take off time without being worried that you also need to be selling and that you’re going to be able to be okay when some months don’t look like other months without feeling really flustered, really anxious and concerned that you’re not going to be able to pay your bills. 

So I hope that today something resonated with you and that you are committed to going through and actually looking at your expenses for yourself, going and finding what your average monthly income is, and making sure that you are determining your paycheck. So you’re setting your you’re paying yourself on a consistent and regular basis. If you are in a space where you are ready to take this work deeper, I would invite you to apply to work with me in my five month coaching partnership. You can go to www.wealthovernow.com/appointment and I look forward to seeing your application. Have a great one. 

Thank you so much for listening to Money Files. If you’re ready to take the next step to reach your financial goals, head to www.wealthovernow.com/appointment and let’s get started. 

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