Business income ebbs and flows. Up one month. Down the next.
Dealing with the challenge of tight cash flow in your business is stressful and can result in an emotional roller coaster as you try to figure out how to make ends meet.
The best solution to dealing with up and down cash flow in your business is to prepare for this income roller coaster ahead of time. The top ten steps I suggest you take to prepare for these low income, tight cash flow months are:
1. Set aside 10% of all business income for making decisions: I call this a ‘Choice Account’. Every time your business gets paid, set 10% of that income into a separate account. Wait 30 days (longer if you don’t have a pressing need for the money). After 30 days set aside time in your busy schedule to sit and review your business and personal expenses, and make decisions about how you can most effectively use this 10%. By waiting 30 days to spend this money (and any savings you have kept in your Choice Account) you will be able to make different decisions about spending than you will during daily business operations (especially if you are panicking about cash flow challenges).
2. Maintain a clear boundary between your business and personal life: open separate bank accounts for your business. If you can, set up separate credit cards or lines of credit for your business. Keep business expenses on the business side, and personal expenses on the personal side. When your business receives money, run that money through the business bank accounts, then pay yourself. Use the money you paid yourself to cover personal expenses. If you ever loan money to your business, write up a loan document and transfer that money officially, then make sure you pay it back.