How to Organize Business Finances with the COAST Method
- Melissa Mittelstaedt
- Apr 5
- 5 min read
Updated: 7 hours ago
What’s that phrase that gets used all the time… revenue rollercoaster?!
Yeah, that’s the one. The one we all ride month-to-month. Sometimes clinging on for dear life and sometimes shouting “this is the best” as we climb to the top.
Benjamin Franklin once said, “... but in this world nothing can be said to be certain, except death and taxes.” Well, Mr. Franklin, I’d like to make an adjustment to that. But in this entrepreneurial world nothing can be said to be certain, except varying revenue and taxes.
So now that we’ve accepted that’s the nature of the beast (I mean business). Where do we go from here?
You may not believe me, but learning how to organize business finances for stability is 100% possible with the right systems in place. I’m going to walk you through each of the five accounts so you can get off that rollercoaster for good and step into COASTing.
Here are the five accounts that make it work:
How to Organize Business Finances using the COAST Method™
C - Cash Reserves
O - Operating Cash
A - Anchor Fund
S - Sinking Funds
T - Taxes
Cash Reserves
Think of this as a revolving pot of money.
If you look at your revenue over the course of the last six months, what’s your average? That is the number you need to focus on… the AVERAGE.
If you make over the average–money goes into the account.
If you make less than the average–money goes out of the account.
An example
After doing the average revenue math, let’s say that the number comes out to be $16,750.
Month One: $30k rev
Which means you’d move $13,250 into the Cash Reserves account.
Month Two: $22k rev
Which means you’d move $5,250 into the Cash Reserves account.
Month Three: $12k rev
Which means you’d move $4,750 from the Cash Reserves account into your Operating Cash account.
Averaging your revenue is an exercise I encourage you to do every 6 months or so. Because if you are in a scale phase, you may be stacking up way more money than needed to cover your lower months. The good news… this is where a BONUS for you comes in.
And you know how fun a bonus can feel!
Operating Cash
Think of this as your day-to-day funds.
Your operating cash is your standard business checking account. The one where all your revenue lovingly lands, where you pay your expenses from, and where you get paid from.
This is the fund where I recommend getting “one month ahead.” This fund should always have at least your average monthly expenses in it so you don't have to transfer funds willy-nilly.
An example
After doing your average expenses math, let’s say that number comes out to be $5,500.
The cushion in your operating cash account will be $5,500. If your account dips below that, it’s a signal you need to pay attention to. Was it because:
You didn’t move money from Cash Reserves over
You made a large purchase without the funds to cover it
You’ve had an abnormally long revenue dip, and it’s time to do some investigating
If all is well, money will flow in and out of here, and it really won’t mean much to you. It’s doing its thing while you do yours. Isn’t that fun?!
Anchor Fund
Think of this as your emergency fund.
Your anchor fund is the account that will save your ass if needed. You remember COVID, yeah? That’s the kind of crisis I’m talking about here.
General guidance recommends having three to six months* of operating capital in this fund. What I mean by that is… how much does it cost to run your business on average + your salary/distributions (you want to make sure you can still pay yourself too if shit hits the fan).
*The caveat I’d like to add here is based on your comfort level. If you’re risk-averse, you’ll want more. If you live life on the edge and have a lot of transferable skills, then saving on the lower end is probably just fine. You know you. First run the numbers, then run it by your gut.
Sinking Funds
Think of this as your pot of money for those higher than normal irregular expenses… a new coach or a retreat, perhaps.
Sinking Funds can be fun to tie to a goal! If you plan to go on a Costa Rica retreat next year and know you need $5k to make it happen, then you can create a sinking fund to save up for it! Using a sinking fund is one of the best ways to create a healthy relationship with money if you typically feel guilty after spending.
You saved up for it. Now you get to spend it!
It really can be as simple as that.
Quick caveat: Earlier, when you calculated your average expenses, you may have included some higher-than-normal irregular expenses. Now would be a good time to readjust that, if it feels right to you, and to average out your day-to-day expenses.
Taxes
It’s best not even to consider this money yours. It’s the government’s and always has been.
You know how they say… you save the best for last… well. Er. 😬
Let’s just dive in, eh?
Knowing how much to set aside each month for taxes is about as straightforward as San Francisco’s Lombard Street.
But the most general guideline is saving 20-30% of your gross revenue. I think of getting to the right number in a good-better-best approach.
Good
Take a look at what you paid last year in total, divide it by four, and pay that.
Better
For Federal: Total your income and subtract your expenses. Take that number times 25%.
For State (if applicable): Total your income and subtract your expenses. Take that number times 25%.
Best
Work with your tax professional and ask them to run your estimated tax number.
IMPORTANT:
I am not a tax professional. The above is not legal tax advice.
The percentages used in the “Better” option are guidelines. Your rate varies based on any W2 income in your household + your tax bracket.
Let’s get to the moral of the story, shall we?! Irregular income doesn’t have to mean irregular stress. Once these five accounts are working together, you’ve punched your last ticket on that rollercoaster ride. And that’s exactly what you deserve.
Book a chemistry call here, and let’s chat about how you can COAST through the unpredictability of entrepreneurship!
Melissa Mittelstaedt
Financial Consultant | Accredited Financial Counselor®
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