book keeping
Financial planning for growth workshop
MyCake is giving advice at Cockpit Arts’ financial planning for growth workshop on Wednesday 11th August 2010. We invite you to come and explore how to use your own financial information to make more informed decisions about your business.
You’ll look at the pros and cons of different record- keeping systems and which approach is best suited to you and your business. Through practical group exercises, you’ll cover budgeting, financial planning and how to improve your cash flow on a day-to-day basis.
You will also look at improving profitability and using designer-maker case studies, you’ll be taken through a profit and loss forecast and show you how to interpret your own figures to make better decisions about your business.
What you’ll get:
- Guidance on setting up a record system that works for you
- Improved financial literacy and confidence in financial planning
- A clearer understanding of your own business model and how to develop this to improve cash flow and profitability
Wednesday, 11th August 2010 from 10:00am to 12:00 noon.
The cost is £10 and open to studio and non-studio members. Book here
Sales vs. Grants … income defined
What does your income look like and can you see what is at risk re public spending cuts?
Various folks have said they’d like to see how their income splits out between grants and sales. So in order to help you do this we’ve added in a few categories to the standard set of nominal codes in Kashflow and we’ve also added it as a line in the benchmarking side.
Now you can clearly see your income streams and the amount coming through from public funds that may be at risk as the new Government gets to grips with its spending.
If you’d like a hand working out how to make this separation in your own figures so that you can track the vissicitudes and variations in this area then please do have a look at the benchmarking forms or drop us a line …
Good book keeping is key to survival
She may be larger than life but Hillary Devey has some great practical advice for businesses. See her top tips on Five.TV ~ we like how to do your books .
We would add to her top tip that keeping your records on a computer using accounting software gives you more bang for your buck ~ you get a clear visual view of your business and can run tax reports automatically.
MyCake users can also test out price changes or cost savings on your business before putting them into action, benchmark your business against others in the creative industries, and backup your accounts from the reports menu by downloading a CSV file of exported data.
How many of us spend 2-4 hours a week sorting out the paperwork? Do you spend more or less? let us know in the comments below.
Now you may be drowning in paperwork stuffed in shoe boxes, files and jars. but it is essential (and for some records a legal requirement) to keep good records. Hilary shares her tips for record keeping.
Should a basic business use just a spreadsheet for their accounts?
Duane Jackson of KashFlow (the book-keeping tool behind MyCake) tackles the question on his blog:
A thread on UK Business Forums caught my attention today. Kelvin White is a driving instructor and asks for accounting software recommendations for his small business. He is in fact a sole trader driving instructor. He has no need to file VAT returns or issue invoices to his customers. As well as the usual recommendations, some people suggested that as his requirements are simple, he should just use a spreadsheet.
Forgetting for a moment the room for human error in using a spreadsheet, it is in fact a perfectly good tool for simply keeping a record of the income and expenditure for this type of business.
So, should Kelvin just use a spreadsheet? If all he wants to do is record basic accounting data, it’ll probably suffice. What those that recommend a spreadsheet seem to overlook is the fact that your accounts are much more than just the data needed for the tax man at the end of the year.
Your accounting data is the underlying information about your business and if it’s recorded in a proper accounting application like KashFlow then you can get so much more useful information from that data.
As an example: with a spreadsheet Kelvin would have a hard time analysing where his new driving students come from – ie, how they hear about his services. With KashFlow you simply tag each new customer with the relevant source of business from your list of sources. This means you can, in just a couple of clicks, see instantly what sources of business work for you and which don’t.
Income By Source
This is just one of the many non-accounting type reports that can be generated from your accounting data and give non-accountant types insights into their business.
Additionally, the services Kelvin sells and the business-related purchases he makes can also be tagged so that when it comes to self-assessment time, the majority of the work is already done and the numbers for most boxes on the self assessment form are calculated. Thus reducing the bill he’ll get from an accountant at then end of the year.
An accounting application will give you the tools you need to reconcile your accounting entries against your bank account to make sure everything is entered correctly.
Yes, in theory a spreadsheet can also do all of the above. But the more you want the spreadsheet to do, the more laborious data entry becomes and the more room for error.
In summary, I think it’s quite short-sighted to see accounting as just something you have to do to keep the tax man happy and therefore opt for the most basic option possible for inputting data without considering the importance of getting useful intelligence back from that data
MyCake agrees! Keeping your accounts is a time consuming and often laborious unloved task, so why put in all that effort just to pay your tax when you can get real benefits for your business by using the data to build a picture of your business and help with planning and decision making.
Aside from visual business insight reports and cost savings, using added tools like benchmarking allows you to check how much you are charging compared to others and to visualise how a change in your chargable rate or overheads will affect your business.
Are your figures under-dressed?
High fashion businesses are often a money pit in the early years. Those first few seasons might only result in £3-5,000 of orders per season and yet the cost of sampling and PR let alone catwalk shows and salons will certainly exceed this income.
So how does anyone get going? There are several answers to this depending on which bit of the fashion sector you are in. If you are aiming to be the next Alexander McQueen then many would say that you need passion, commitment and to get noticed. Many would infer from this that your finance skills are less important. Indeed if you find a financial backer who will cushion you from the ups and downs in seasonal cashflow then indeed this can be the true. Camilla Staerke is one example of a name backed by an investor.
If however you want to build your own label independently or indeed if you want to maintain easy communications with your investors it pays to understand your numbers. There are a couple of key angles to this. You need to understand garment costing so that you know precisely what the unit cost is of each design you create. We rate F2IT as the best solution for independent labels … just looking at their customer list shows you that the likes of Christopher Kane, Eley Kishimoto and Erdem agree.
But production costing is not enough. You need to be able to make forecasts as to where your sales will come from next season and target the retailers who you feel would be a good fit for your brand. You probably need to hang out in some of those retail spaces to to get a real idea of how sales happen and why.
You also need to get a handle on the mix between online and offline sales. With such a huge growth in online fashion retailing you need to work out pretty early on whether you’re going to run your own store or whether you’re aiming to get stocked by one of the existing online retailers.
Sounds like a lot to handle, well yeah, kinda but honestly … you gotta be business savvy as well as creatively brilliant. Don’t just take our word for that, here’s Wendy Malem of the Centre for Fashion Enterprise explaining why business development matters as much as creative development … in particular check out her views on the finance needs of companies growing from creatively applauded but financially fragile to more robust global brands.
Wendy Malem speaking at Investment Matters in 2008 courtesy of CIDA and the ECCE project
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Look out for our fashion related giveaway later today…
Improved project function for invoices and receipts
You can now assign invoice and receipt items to a project rather than a whole invoice/receipt. Which means that you can have a more accurate data on where every penny goes.
To enable this go to SETTINGS > PROJECT SETTINGS > Option 6: Set your preferences
Don’t forget to click “update” to save your changes.
A benchmark just for jewellers (2008-9 data)
As we have quite a cluster of jewellers using MyCake we thought we’d do a brief benchmark just for this sector. Here are some of the highlights:
- All the jewellers are sole traders with two thirds making all their own work (the other third subcontract some of their production either to other jewellers or to manufacturers).
- There is quite a variety between those who use a lot of gems vs. those whose work is mainly silver based or made from non-precious items.
- Those who use a lot of gems unsurprisingly show a very high cost of production … up to 73% of turnover is spent on materials … In all honesty we think this is too high because it means that the income for the jeweller is a pretty small percentage of turnover ie a lot of risk for very little return particularly if you’re working on a sale or return basis
- By contrast those using less precious materials may spend as little as 10% of turnover on materials giving a high gross profit … averaging around 80% in this subset. This model offers better profitability i.e. the design value is a higher proportion of the total value of the piece whereas in gem jewellery the design value is smaller and the gem value is what is driving the prices
- Cashflow is very sporadic in both sets as you’re making an outlay on materials that is often not directly connected to the fulfilment of an order (also true for many/most batch production oriented designer makers). Equally your income is lumpy either due to the way orders are placed or because SoR retailers only summarise their sales and make payments monthly or quarterly so there is often quite a delay between a sale by them and payment to you
What does this mean for the way you run your business i.e. what can you do about it?
- The greatest risk of lumpy cashflow is that, particularly in a tough economic climate, you end up making a loss when you look at the year as a whole but it is hard to see at the time due to the up and down cashflow. There are a clutch of designer makers who suffered from this in 2008-9. The good news is that you can offset your losses in one year against profits in another in terms of your tax return. DO THIS!
- Analyse where the money is being held – do a stock take and make sure that you’re not tieing up too much money in stock (raw materials in the studio, finished product in the studio, finished product with SoR retailers). Aim to sell off your excess stock to release some funds and work out which of your SoR retailers are actually worth holding stock with i.e. if they demand a lot of stock but sell little are they worth it?
- If the greater value is in the design rather than the gems (only you can tell this for your business) then consider having a less precious range e.g. silver not gold and aim to make this a steady earner so that the high value gem based work becomes the glittery piece that catches peoples eye but if it’s out of bounds for many then they walk away with a silver something.
- Remember that you see a greater proportion of the sales price in private commissions than in sales through retailers so if you’re gem based then growing your private client base will help improve the profitability of this work. Plus you can make to order rather than speculate on SoR work.
- Be careful with your ‘marketing’ budget … I’ve seen makers who’ve had a bad couple of years borrow against their personal assets e.g. mortgage in order to use the money to pay for trade fair stands. You might do this at a push for one year but the risk here is that you are increasing your debt but putting it into a business that has a reducing ability to pay the debt off. Long term this spells trouble! It is awfully tempting to think that ‘if I could just go to X I’d make enough orders to put me back on track’ … this is getting all to close to the gambler on a losing streak betting larger to bring themselves back to zero! The tough alternative is to cut your cost base and work your way out of tough times by taking the work that you’d shun when all is going swimmingly … for some that’s pieces of teaching, a part time job, less interesting commissions, selling off stock at retail (rather than trade) fairs.
Ultimately you need to keep better track of your finances. MyCake is of course one way to help you do this but software alone is not enough … you need to be looking at your figures on a monthly or quarterly basis, not just looking at your income but at the profitability and the cashflow. This is predicated on the idea that you’re entering data regularly (weekly or monthly) so that you can look at up to date information … so the message here is that the process matters as much as the software. If you’d like a hand looking at your business, your profitability and your cashflow then do drop us a line to marion at mycake dot org. See also our current offer whereby new and renewing users who sign up for an annual payment by the end of Jan are eligible for a free 1:1 session.
Allowable expenses for Tax
rather than re-invent the wheel on this one we suggest you look at this piece which is very comprehensive
Setting up Suppliers in MyCake
We suggest that you set up two types of suppliers … the generic ones for things like ‘train’ and ‘accommodation’ where the actual supplier doesn’t really matter (is there a difference that matters between Virgin Trains and SW Trains?) and then the specific ones …e.g. freelancers you subcontract to, your landlord.
You’ll end up with a list that looks something like this:
When should I hire a book keeper?
There comes a point in a business’ growth when it no longer makes sense for highly skilled creatives or business folk to be sitting there plugging in the details of each bus fare or box of staples purchased for the business. Your time is better spent designing product or winning business. If this feels like the stage you’re at you probably have a few questions before delegating the task, such as:
- How do you know when to make the change?
- Where do you go looking for a book-keeper?
- What might it cost per month?
Equally if you’re self employed and have a tax return looming you might want to consider getting a book-keeper to give your finances the once over and check that everything is in order? A book-keeper probably won’t give you the same level of advice that an accountant can as to the eligibility of some of your expenses etc but they can tell you if you’re processes are appropriate, if your headings & nominal codes make sense and so forth.
When? There a few indicators that the time has come to start considering hiring a specialist bookkeeper: if you used to be disciplined at doing the accounting books regularly but now it gets put off because you’re busy; if the business finances are getting more complex because you have payroll to do or multiple currencies to manage; if your cash flow requires more careful management because order values are increasing.
Who? – You can get a referral by word of mouth or advertise for a book keeper directly, or you can go through some form of agency. The former two are probably cheaper but the latter implies a level of control and responsibility being taken by the agency for the book keepers they deploy. Of course you want someone who is familiar with your bookkeeping (the software or method, if not your idiosyncrasies!). Boogles by the way are familiar with MyCake and we’ve had folks from The Local Bookkeeper look around the site from time to time too. You want someone who understands the financial challenges of the sector you work in but who brings specialist skills to bear and in an ideal world can help you interpret the information as well as input it (but you might just settle for inputting).
How much? Well as a point of comparison Boogles charge between £22 and £25 per hour and the folks we know of are spending between £75-£300 a month depending on the scale and complexity of the business.
Of course if you’re not at that stage yet what you might want to do is hire a book-keeper on a one off basis to help you set up your systems correctly and perhaps do a health check once every 6-12 months. Boogles & MyCake are joining forces to offer MyCake users just such a service. Drop us a line if you’d like to chat about it.
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