Things are tough in the newsletter world right now…
In the past couple of weeks, I’ve spoken with a handful of financial newsletter businesses that are struggling. One laid off dozens of employees. Another is closing shop.
I’ve seen times like this before. The falling stock market makes it harder to sell financial newsletters. New subscriptions dry up and refund requests tick up.
If you’re prepared for it and know what to do, it’s no big deal. If you’re not, it could be serious trouble.
And it’s not just financial newsletters that go through big ups and downs. Lumpy revenue is a defining trait of almost all subscription businesses. One month you have a product launch or go on a podcast and your sales soar. The next month sales barely trickle in.
The newsletter business is wonderful for many reasons. High-profit margins, loyal customers, customers pay you upfront. But to enjoy all these benefits, you have to know how to deal with inevitable ups and downs in revenue.
Luckily, it’s not hard when you know what to do. Here are 4 simple money moves to ensure you emerge stronger from slow times.
Why smart cash management is crucial for content subscription business owners
Don’t be intimidated by the phrase “Cash management.” It simply means:
- What do you do with the cash that comes into your business?
- When do you do it?
Lots of growing content subscription businesses tend to manage their cash like this…
- Receive subscription revenue throughout the month (some monthly, some annual subscriptions)
- Some cash goes out the door to pay for essentials like cash and payroll.
- Some cash gets reinvested back into the business – for example to pay for advertising.
- Most of the leftover cash is distributed to the owners as profit.
- A little cash is left in the bank afterward
This is fine during good months when sales are up and churn is low. But what about in slow months? That’s when proper cash management is crucial.
For example in my own financial newsletter business, we just hired a talented new editor who was laid off from a competitor. We’re only able to do that because we conservatively manage our cash – so we could pounce on this opportunity.
4 ways to improve cash management in your content subscription business
1. Build up your cash reserves
It’s good practice to put away plenty of cash to cover unexpected expenses and periods where sales are slow. As a general rule, take the amount of cash you think you need on hand, and double it.
I‘ve advised newsletter business owners to keep enough cash to cover 12 months of expenses. This is probably overly conservative, but it’ll help you sleep soundly. For most businesses, 6 months’ worth should be plenty.
2. For annual subscriptions, recognize the revenue monthly
If you sell annual subscriptions, you might count the cash you receive as revenue as soon as you get it. Don’t. Although the money is in your bank account, don’t think of it as “yours” yet. You haven’t earned all that money yet – because you’re obligated to provide content to the customer for the next 12 months.
Instead, recognize 1/12th of the revenue for each of the next 12 months. This way, you won’t spend it before it is earned. If you use Quickbooks Online, you can categorize some of the sale as ‘unearned revenue.’
3. Keep your fixed expenses as small as possible
When sales drop, fixed expenses don’t drop with them. Think rent, staff salaries, insurance payments. Keeping fixed expenses low can be tricky, but here are some tactics I’ve used in my business.
For employees, make part of their compensation variable. For example, give them a base fixed salary that doesn’t change. Then a quarterly bonus tied to sales. When the business succeeds, they’ll make more money. When the business slows, they’ll make less. Your expenses will decline a bit when revenue declines – which gives you more financial room to ride out slowdowns.
When you communicate this well to your employees, it has another big benefit. It will motivate them and make them feel like co-owners.
As an owner, you can also make your own compensation variable and tied to sales.
Another tip: don’t commit too far in advance to expensive marketing. 12-month deals might sound great, but what happens if something unexpected happens in month 3, and you’re committed to another 9 months of payments?
4. Produce timely, monthly financial statements
Monthly financial statements give you a useful summary of how your business is performing each month. Your CPA and/or Bookkeeper should be helping you with this. Without financial statements, you’re trying to run and grow your business blindfolded.
Not only will this help to highlight any cash challenges before they become a problem – but it will also help you to sleep easier at night and give you the confidence to make better business decisions around hiring new team members, or investing in additional marketing campaigns.
Like it or not… financial decisions make or break your success. You don’t need to go it alone. If you don’t have an accountant – or your current one doesn’t have the specialized knowledge of content businesses to help you scale – reach out to me.
Click here to book a free 25-minute accounting-relief call. We’ll chat about your financial pain points… and how to make sure your business is set up for financial success. Whether you’d like to take bookkeeping off your plate… have an expert do your taxes… or get ongoing expert financial guidance… I can help.