ο»ΏBusiness Fire Drills | Season 1, Episode 10
Fire Drill 09: Before a Launch Creates Financial Chaos
Speaker: Tamsen Horton
It's launch week. You send the emails, the sales notifications start pinging. By Friday, you've brought in $50,000. You post "biggest launch ever." You celebrate. You maybe look at that ad spend, give your team a bonus, maybe move a little money to yourself.
Three weeks later, the refund requests are rolling in. Your affiliates are asking when they're going to get paid. And you look at the account and think, wait, where did it all go?
Nothing went wrong. Nobody did anything shady. That's just what launch revenue does when nobody told it where to go.
I'm attorney Tamsen Horton. Business moments like this are predictable. Your panic is optional. This is your Business Fire Drill: Before a Launch Creates Financial Chaos. Short and practical. Let's get to it.
Here is what the fire alarm looks like. It doesn't go off during the launch. It goes off a few weeks later, even a few months later. The refund requests kick it off. The affiliates email asking about their commissions. A processor sees a spike and puts a hold on your funds. We just talked about that one. Or the tax quarter arrives and a huge chunk of that profit belongs to somebody else. Same fire alarm every single time. The number you announced is a lot bigger than the number in your account.
And here's the part that very few people warn you about. A launch doesn't just make money. It makes work. The sales blow up and suddenly you're scrambling. You hire help fast. Say ten people in a week. You haven't vetted them. There's no contractor agreement. Your affiliates were promised things in a DM. Now it's not just a money problem, it's a people and paperwork problem too, a.k.a. a legal problem.
That's the thing about fires. They are rarely one ingredient. The money is one combustible. The scramble is a completely different combustible.
Okay, before we run the drill, I need you to do something. Why do you have a smoke detector where you sleep? To alert you before your dwelling, your house, your apartment, your condo, whatever it is, is on fire. That's its entire job. I have a free one for your business. It's called the Smoke Detector. Eleven questions, about three minutes, no email required, and it tells you which three fires your business is most likely to have. If you run launches, go take it today. Not someday. Today. The link is in the show notes. Go use the smoke detector.
We're going to start where we always start, which is: are you reacting or responding to this fire alarm?
Reacting to this fire alarm looks like this. The money lands in your account and you treat it all as if it's spendable, whether literally or mentally. You reinvest it in ads, you hand out bonuses, you pay yourself, you buy some things, and the refund window that you listed in your purchase terms hasn't even closed.
And a slight public service announcement from your friendly fire chief over here: you really want to make sure you have those purchase terms for all of those sales. If not, go catch the episodes where we talk about that. Because if you don't even have a refund policy that is written and clearly communicated, you have a whole other combustible when people start triggering chargebacks and refund requests. I digress.
Responding to this fire alarm looks different. You decided before the launch where every dollar was going. A slice, a portion, is held back until the refund window closes, until the affiliate payouts are known and taken care of, and taxes are set aside as the money is coming in.
Now it's time to run the fire drill. D-R-I-L-L.
D: Don't react. Do not spend or distribute launch revenue as it is coming in, no matter how good the number looks.
R: Record everything. Track the gross launch revenue separately from three things: the refund reserve, the affiliate payouts owed, and the tax side set aside. And keep one folder of every agreement. Remember, agreements are simply contracts. So you should have your affiliate contracts, your contractor contracts, and anyone else you brought on to help you with this launch.
I: Identify the real risk. How much of this money is truly locked in, and how much is still refundable? What's already spoken for before any of it counts as profit? And who did you bring on in a hurry, and what did they actually sign?
Here's an example, and the numbers are simply to illustrate the idea. I am not using numbers for any other purpose than illustrative. Feel free to insert whatever number feels big for you. You bring in $50,000, or you bring in $500,000, or $5 million, or $10 million. Pick the number that feels huge for you, because you will remember this little teaching moment much better if the number feels really big to you. Affiliates are owed 10%. You set aside 20% for taxes. And if 10% get refunded, now you're looking at numbers. Your real spendable number isn't the $50,000, the $500,000, the $5 million, the $10 million. It's a lot closer to, subtract out those percentages, 30 to 50 percent-ish, perhaps, of your total number.
L: Lead with calm. Don't panic-spend to chase the momentum, and don't panic when a normal wave of refunds shows up. Build in the expected refund rate into your forecasting before you are launching. Build in the affiliate commissions. Build in the tax rate. When we're planning for all of those ahead of time, even though we don't have actual numbers until the sales start coming in, we can lead with calm because we have planned for this.
L: Lock in the lesson. After every launch, every sales cycle, compare the number you projected to the number you actually netted. Then adjust next time's reserve.
You just heard me go through the five steps, and you may be thinking, "I'm really not sure I have any of this in place." That's exactly what the Smoke Detector is for. It shows you where your gaps are so you're not guessing. It brings to the surface the smoldering fires. It's free. It takes about three minutes, and it points you to the fire drills you need the most. The link is in the show notes. Please go use the smoke detector today, when nothing is burning. That is when we run the smoke detector.
We also want to be aware of fire extinguishers. Do you have a fire extinguisher where you live? Do you have a fire blanket? Why did you buy those before the fire ever happened? Because you can't run to the store in the middle of a fire. So you are going to build this fire extinguisher before this fire hits your business.
Number one, a launch reserve policy. Hold back set percentages of revenue until the refund window closes, your affiliates are paid, and your taxes are set aside.
Number two, know your refund window. Put the close date on your calendar. If it is 30 days, you do not treat the money as yours on day three. No way, no how, don't do it.
Number three, calculate your affiliate payouts and when they're due, before the launch goes live. Put those dates on your calendar. I also, being the naturally protective person that I am, add 20% to those dates. I err on the side of, "Oh, more days passed, oh, this isn't a big issue." So I like to build in a cushion of extra days for myself and for the people I'm working with. I like the extra protective padding.
Number four, set aside estimated taxes as the money is coming in. Ideally an automatic transfer, so you are not the one deciding as these things are happening.
Number five, paper before the scramble. Paper means legal. It means contracts, policies, terms and conditions. Even though it's metaphorical paper, because it's all done digitally, we're talking about legal. A clear affiliate agreement, so everyone knows the commission, the timing, and the rules. A clear contractor agreement signed before anyone starts. And quick vetting steps. You're thinking this through ahead of time: if I needed to hire ten people this afternoon, what is the process? You don't want to hire ten people without that process. I have seen multiple people, multiple businesses, wipe out an entire launch's revenue cleaning up after one unvetted hire or one affiliate who promised something verbally. If you wouldn't hand them your password and your customer list, you don't hand them the work without a contract.
Number six, if you can only deliver so much, cap the sales at your capacity or set a clear delivery timeline up front. Say, and I'm literally making up numbers, so pick your number, I can only service and deliver a thousand sales. Use the team and technology you've hired as part of this launch and turn the sales off at that thousand. It is much better to have a bubbling-with-excitement energy waitlist than it is to sell 10,000 and not be able to service them properly or deliver properly. You will have the excitement energy versus the combustion energy. Trust me, I'll take the excited waitlist energy all day long, every single time.
Now that brings us to our three choices. What is your next right decision?
First, do nothing. You already have reserves for funds and taxes and refunds and affiliate payouts before you ever treat launch money as spendable. You're good. You have your process and your paper for "I need to hire ten people in the next ten minutes," and it's going to be completely buttoned up properly.
Number two, you're ready to put this fire drill into place. If you have ever been caught short after a launch, gotten burned by a contractor, or been hit with refunds you weren't expecting, start your reserve policy now. Run this drill, put the parts into place, such that, yep, I hired ten people in ten minutes and I'm completely covered with the right paper that I need.
Number three, listening: you're thinking of a friend. The one who's about to launch, the one who's in the middle of a launch, the one who got burned in their last launch. Send them the link to this. They will send you a thank-you note.
Any one of those three choices is totally valid. One is right for you.
Here's your free homework. Before your next launch, write down three numbers on one piece of paper: your refund window, your reserve percentage, and your tax set-aside percentage. That might take you ten minutes. You can guesstimate for sure, except for the refund window. That can't be a guesstimate. That needs to be backed up with clear purchase terms.
A launch high, that euphoric high, can hide the launch hangover for a few weeks, even up to 60 or 90 days. The businesses that avoid the launch hangover decided the math and signed the paper before the first sale came in.
And one heads up: a launch rarely causes just one fire. Money, people, paperwork. Once we finish the drills, which I'm doing right now sequentially, I'm going to do at least one episode, maybe even a series, on how a single launch, that sales cycle, can trigger several fire drills at once. If you would find that interesting, please let me know in the comments. And if there's a part of a launch you'd love for me to talk about, let me know in the comments. I'm happy to do that for you. So if you've ever had a launch hangover, what did it teach you? If you're getting ready to launch and wondering what you need to be thinking about, let me know. I have been a part of enough launches since 2011 that I have a lot of fires I could tell you about that we've been putting out over the years.
The link for the Smoke Detector is in the show notes. Run the Smoke Detector. Don't guess what fires might be smoldering for you. Use the smoke detector. It will tell you, and it will tell you in a priority way. So if something's not a high priority, it will tell you that.
Because business moments like this are predictable. Your panic is optional. We're going to run this fire drill before the fire alarm goes off.
