Are dips in revenue leaving you uncertain about your business’s future? One month you’re above goal and thriving; the next, you’re below target, wondering if your business will stay afloat. While many businesses experience financial shortfalls at one point or another, these fluctuations can pose serious risks if they become routine or too large to absorb. The good news? No matter where you are in your business journey, there are steps you can take to navigate and overcome these challenges.
Read on for 8 strategies you can implement to manage revenue dips and keep your business on track.
1. Track and analyze income trends
A good place to start when managing revenue shortfalls is getting clear on the problem. Review your monthly income reports for the current year, calculate your average monthly revenue, and note which months are above and below average. If you’ve been in business for multiple years, compare the current year to previous years and look for patterns. Does your income dip and peak during the same times each year?
Once you understand your income trends, investigate the possible causes of shortfalls. For example, if you live in a popular tourist destination, you’ll likely see sales spike during the high season and drop during the low season. If you sell products or services that are more popular at certain times of the year, you’ll see fluctuations due to the changes in demand. Fluctuations could also be related to economic downturns, overstocking, supply chain issues, and a host of other issues.
Make a list of the factors you predict are leading to your fluctuations and brainstorm ways to increase income during the low periods (more on that below).
2. Build a cash reserve
A cash reserve is the business equivalent of an individual’s emergency fund, designed to cover unexpected expenses. Once in place, you won’t have to stress as much or go into debt if you have a slow month because you’ll have backup funds to cover it.
To get started, aim to save three to six months’ worth of operating expenses. While that can seem like a lot, you can get there before you know it by automatically saving a percentage of each payment you receive and setting aside higher amounts during good months.
A high-yield business savings account is ideal for a cash reserve because it keeps the funds separate from the money you regularly spend and is easy to access on short notice. It also earns interest that may help your savings keep up with inflation.
3. Negotiate with suppliers/vendors
If suppliers or vendors play a key role in your operations, review your current contracts and consider how negotiations could ease your cash flow challenges. For example, would moving from net 30 to net 60 make it easier to get through slower months? Are the prices still competitive in the market, and could you benefit from making bulk inventory purchases during peak periods? Write down changes you’d like to make to your agreements, plan your approach, and then discuss it with your suppliers or vendors to see what you can work out.
4. Reduce operating costs during slow periods
You can lessen the blow of cash flow dips by temporarily cutting your costs. Start by reviewing your budget and auditing your expenses. Separate the needs from the wants, put the wants on hold, and look for ways to cut back on the needs without sacrificing your customer’s experience. For example, you may want to consider steps like scaling back staffing and inventory to match demand, pausing business subscriptions you don’t need, and limiting marketing spend.
5. Leverage financing
Seeking financing through credit products like business loans can help bridge the gap during slow periods. However, financing comes with costs which can make a cash flow problem worse in the long run. If you’re considering this route, be mindful of the repayment terms and shop around for the best deal. Some business credit card issuers offer interest-free introductory periods for a certain amount of time, such as 12 months. Those can be a helpful short-term solution — as long as you pay off the balance before the promotional period ends.
6. Automate invoicing and payments
In some cases, cash flow dips result from clients paying their bills late. While you can’t control when a client decides to pay, you can improve the likelihood you’ll be paid on time by automating your invoicing and payments. For example, Lili’s invoicing service sends automatic reminders when clients’ bill due dates are approaching and follow-up messages when invoices are past due. Additionally, you can monitor all your outstanding invoices at a glance, helping to ensure that no payments slip through the cracks.
7. Consider a subscription model
If your revenue dips are due to drops in demand, you could consider a subscription-based offering. For example, if you sell wine, you could launch a program where customers subscribe to get a box of different wines delivered to their door each month for a set fee. Or, if you have a dog walking business, you could offer a monthly membership that includes a certain number of walks. While subscriptions may not be right for every business, they are worth exploring. Beyond creating a reliable income base, they can improve both customer retention and demand forecasting.
8. Build demand through new income streams
Lastly, consider new ways to diversify your income and ramp up demand. For example, you could get into e-commerce, rent out assets, expand your offerings, target a new audience, create digital products, or leverage licensing/franchising.
For example, if a business owner launched a direct-to-consumer natural soap business but initially struggled with seasonal demand fluctuations, she might decide to branch out and offer bulk sales to hotels. This could generate more demand than she can meet year-round. As a result, she might find the supply level she can sustain and earn a steady amount of revenue on an ongoing basis.
If you can expand your offerings and create enough demand to stay profitable throughout the year, your problematic revenue dips can disappear.
Strengthen your financial foundation with Lili
Experiencing large revenue dips in your small business can be unnerving, leaving you stressed about expenses and the future. However, implementing strategies like these helps you withstand the shortfalls and move toward greater financial stability. If you’re unsure where to start, Lili’s all-in-one financial platform supports several steps mentioned above such as analyzing your income, building a cash reserve, and automating invoicing.
Take the next step toward stability and growth—explore Lili’s small business banking services today.
