Watch Out for Lumpy Money

By Rob Spiegel

Watch Out for Lumpy Money: One month you book thousands in revenue... the next you're in the red. That's called lumpy money, and it's something all new businesses have to face.

Is your little-business-that-could giving you mixed messages? One month you book $10,000 in revenue and pay yourself a conservative salary of $4,000. The next month you book $2,000 in sales. What the heck do you pay yourself after that performance? If your overhead runs $2,500 per month, perhaps you owe your little business $500. Yikes!

There are two kinds of personal income. Smooth money and lumpy money. Most people live by smooth money – that’s paychecks. They usually come twice each month and the amount is very predictable. You budget your bills and adjust your outgo according to your known flow of income. If you get in trouble by spending more than you earn, well, you knew that as you overspent. Lumpy money is different.

Business owners, freelancers, musicians and dope dealers have to grapple with lumpy money. Lumpy money comes in delightful chunks, windfalls, dribbles or not at all. One month you’re dazzled by your fruitful fortune and the next month you have to push more money into your business. The biggest problem with lumpy money is that it’s so darned tempting to raise your standard of living to match a good season. When the season passes, you may be in trouble.

From a distance, it seems this should be a very easy problem to solve. During the good season, you stash some of the extra and resist the temptation to match your spending to the peaks of a couple good months. But when you’re neck-deep in a young business, the pressures around you can be bizarre.

Chances are, your young business has forced your family into a peanut butter and jelly living. You’ve scrimped and saved, practiced delayed gratification, pulled some of your spouse’s income into the business, skipped vacations and raided your kids’ college fund to get the business going. Now that you’ve had a couple good months, you feel it’s time to buy a few presents for your family just to keep them somewhat on your side.

You’ve been promising that things are going to work out in just a few months, and now that two years have passed, they’re getting a tad irritable. They’re about to beg you to give it up and get a job. So a couple of good months at the cash register may help salve the rough edges at home. Maybe you can even repair the roof leak and get rid of the empty paint can in the family room. Besides, your dog is losing considerable weight as he turns his nose up at bargain-price dry food.



Unfortunately, business growth isn’t a straight upward line. Two or three good months, even two or three good quarters, don’t necessarily ensure you’ve turned the corner. Getting around the corner that will allow you to make a decent living from your company can take years, even if you have an occasional great month.

This is such a thorny problem that I have no advice. When it comes right down to it, if you have a decent month, you have to repair that dilapidated roof. In those first few years of your company’s young life, your delayed personal needs are going to suck up every penny a good month may throw. When the business falls down three months later, well, you deal with that when it comes, you and go right back to calling the utility companies to make your hopeful payment promises.

There’s nothing you can do but sweat it out. The point of this column is to let you know it’s normal, to-be-expected and predictable. You may get lucky and this awkward period will only last a few months. Chances are, it will continue off-and-on for a few years. I suppose there are some start-ups that don’t come with these gut-wrenching periods where one month looks like a corner-turner, while the next month lands you on Boardwalk with a hotel. There may be new companies that move forward steadily into the black. But I haven’t seen any.

Rob Spiegel is the author of Net Strategy (Dearborn) and The Shoestring Entrepreneur’s Guide to Internet Start-ups (St. Martin's Press). You can reach Rob at robspiegel@comcast.net

 
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