One of the many attributes and skills a small business owner needs to have is good financial management. It’s one of the areas that can give small business owners the most amount of sleepless nights as you lie there thinking how are you going to pay your suppliers, staff, HMRC etc.
You can have the most amazing ideas, shop, staff and artists but unless you can manage your businesses finances you’re likely to get into hot water pretty quickly!
As you can imagine we’ve learnt an awful lot about managing finances since we’ve owed the gallery and we thought we’d share with you our top tips!
Cash Flow As any small business owner knows cash is king – you can be profitable but without cash you’re done for. Here at the gallery we’ve created a simple cash flow model in Excel which we update regularly allowing us to proactively manage our income and expenditure. This gives us the security of knowing that we can comfortably pay all our expenses but also gives us the heads up when things aren’t going as well as we’d like and we need to tighten our belts.
Pay Bills on Time Most of the suppliers and artists we work with are like us, small businesses trying to make a living, contributing to the economic success of our towns, employing local people and creating a secure financial footing for the future. In the same way we like to be paid on time we endeavour to make sure we pay our suppliers and creditors in line with their agreed terms.
For artists that have their work with us on a sale or return basis we keep daily records of what we’ve sold which then get tallied each month and the artists are then paid what we owe them.
For both SOR sales and VAT we work out each week what is owed and transfer it from our current account into a deposit account so that when the time comes to pay our artists and our VAT bill we have the funds available. It also means that when we’re looking at our current account we’re not lulled into a false sense of security about how much money we have!
Invest in Accounting Software For years we’ve used SAGE Instant to manage our bookkeeping, VAT returns and the production of our annual accounts. Last year we moved over to using a cloud based accounting software called Xero which has been brilliant. It means that we can have real-time insights into the business and allows us to manage our finances from anywhere and anytime. It’s incredibly easy to use and set up and now means the burden of book keeping etc can be shared.
Monitor Your Performance Do you know if you’re doing better, worse or the same this year as last year? It’s really important to keep records of your sales and expenses as this can help you look at trends which can then inform all sorts of areas of your business including when you buy new stock, pricing and staffing levels.
For example here at The Mulberry Tree we have a daily takings sheet which is broken down into 6 distinct areas - Framing, Art, Cards, Other, SOR Sales and Internet Sales. This information is then fed into our accounting software and also an Excel spreadsheet that enables us to monitor how we are doing. We’ve built up a wealth of data over the years which has enabled us to spot trends which have then informed our business decisions.
A few years ago we saw a dramatic fall in our sales that was totally unexpected, the historic data hadn’t suggested that this was on the horizon, our cash flow model was looking OK, but we saw sales and our cash flow literally fall off a cliff in a 12 month period. We spent many hours reviewing what was going on, trying to work out what the problem was and in the end we were able to answer our own questions because we had so much information and data to look at. It was a horrible time for us and our staff but because we had the data we were able to put a plan in action that enabled us to actively manage and work our way through this challenge.
Review Your Costs Every business has 2 types of costs – fixed and variable. Fixed costs have to be paid whether we’re making money or not but there is always the potential to make savings in our variable costs. We review our costs making sure that we’re not paying over the odds for materials and services and it's a discipline that's worth doing regularly.
Recently, we’ve changed all our lights in the gallery to LED ones, the initial investment was large, but the long term savings will be bigger (we hope!). We also looked at our opening times and realised that during the winter months it wasn’t worth staying open beyond 4pm – the cost of staying open was way more than what we were taking in sales.
We all know that it’s really exciting starting a new business and probably the last thing you want to be thinking about is all the financial stuff associated with it. However, if you want a successful, stable and long-term business the finances really have to be a big focus of your day to day activities.