Do you know how much it costs to run your business each month? 

This is just one of the exercise(s) I delve into with clients to help them get to know their numbers and manage cash flow. When going through this process, we encounter both monthly and yearly expenses because a business always has both to manage.

And if you’re like many of my clients you’ve probably wondered how to manage both the larger yearly and regular monthly expenses while maintaining a steady cash flow. I’ve got you covered—read on! 

The Monthly Cost of Running Your Business 

Alright my business-owning friends, let’s talk about your business’s monthly nut. Have I confused you already? Stay with me!

The monthly nut is an analogy I like to use with my clients that represents the bare minimum or baseline expenses that your business has to pay each month to continue to do business. In other words, these are the expenses you pay to keep your business alive. The most important thing to understand about your monthly nut is that these expenses must be paid each month whether or not you make a sale. They happen regardless of the top-line revenue so we must prepare for them in our monthly cash flow. 

Take my business, for example. I utilize QuickBooks Online, a bookkeeping software that enables me to offer bookkeeping services to my clients. This is a recurring expense that keeps my business alive. If I do not pay it, I would lose my subscription and if I lose my subscription, my bookkeeping clients won’t get their work fulfilled, which could lead to me losing clients and income. See the ripple effects? This is why it is imperative to be aware of your monthly nut so that you don’t suffer the domino effects of losing clients because you simply forgot about an expense. 

Now, when I ask you what’s your monthly nut, it’s easy to account for the monthly charges. However, my clients often forget about those pesky annual costs. 

Let’s talk about the differences and how to account for them in your cash flow management. 

Monthly Vs. Annual Expenses

Your monthly expenses are those payments that come around once a month. This includes subscriptions, software, rent, utilities, marketing, payroll, etc. 

Your annual (or yearly) expenses come around once a year and these are the ones that give the sticker shock because business owners often forget about them until they actually happen. Insurance is a great example of an annual expense, because well, who likes to talk about insurance? But it’s necessary to keep our businesses alive so we must account for it in our cash flow. 

And how does this factor into your cash flow? I’m glad you asked, keep reading to find out. 

Cash Flowing Your Business Expenses 

It’s easy enough to calculate your monthly nut when you only consider those predictable, monthly payments that get pulled from your account. But when that larger-than-normal annual charge shows up, suddenly you’re panicking because you weren’t financially prepared to make it happen. 

This is when I often see my clients using credit cards or a line of credit to cover the shortfall for the month. The good news is we can avoid this and keep everything moving smoothly ahead! 

When it comes time to evaluate that monthly nut, I show them how to account for both monthly and annual expenses because we divide the yearly expenses as if they were monthly. This way, my client sets aside 1/12 of the annual subscription each month so when that annual payment is realized, they have the money ready to pay it! See how that works?

Not sold yet? Understanding the monthly cost of running your business motivates business owners to make sales! That expense is getting put on your card no matter what and knowing the numbers means you know exactly how many sales you need to make to cover your expenses and make a profit. 

Let’s dive into your numbers and get your cash flow running smoothly and without surprise hitches! Book a consultation with me today!