Advice for creatives starting out on the bumpy own business ride.
Designed for those who hedgehog when faced with money issues.
When you grow into a big bold successful business then employ someone to do this stuff properly.
In the meantime these strategies should get you through.
The advice is for the UK .
There we are, now we are safe, now you can cope
This is all going to be in your language, you will completely understand and be able to apply it
What you don’t need to do and what to do instead:
You need some sort of book-keeping record but one you understand and feel master of. If spreadsheets mystify you, don’t use them.
Accounts are simple. They record how much money comes in and how much you spend on the business. You need them to understand your business and to pay the taxman
Use an ordinary A4 blue* hardback notebook and a cardboard box. Keep both to hand and fill them in as it happens
* Thats a joke, don’t be silly it doesn’t have to be blue
In the book you put a heading INCOME with the year and then put the month then every time you receive money you fill in who from, what it was for, and how much . Annotate this in any way that could be useful to you so if you do a show bracket the sales at that show and label it
On the opposite page do the same but head it EXPENSES and there you fill in what you paid out for, then how much.
Keep the numbers at the end so they are easier to add up and round them all to the nearest £.
Then total that month. Keep your expenses and income separate just run totals.
In your CARDBOARD BOX put your spending receipts, they are for the taxman. At the end of the April to April year bag them up, label and KEEP. If you work from home put your utility bills in here as you can probably claim a portion against your tax bill.
This simple method shows you how you are doing, for a bigger view do a YEAR ON YEAR account.
Take the monthly income totals and at 3, 6,9 and 12 months total those. The next year fill in those figures alongside and if the total is up or down on the year before put an up or down arrow. The arrows tell you everything. In the third year you do two arrows for the previous two years.
Remember that your expenditure total for the year needs to be taken off your income for the year as that is your profit. Working monthly on expenditure off income is misleading. But do the totals monthly as you need to be aware how much you are spending, especially if it’s consistently above income as that way disaster lies.
Accountants come later, you use them to save on tax, but for that you need a proper income.
Employ a book-keeper before an accountant and don’t do that before you have a solid working business.
You need to do the books to begin with, so that you know what’s happening.
Keep records as above and phone your tax office after a few months when you have a business and tell them what you are doing and they will send you forms to register. They will also give you a phone number to get help with how it works and what your allowances are. Use that.
You don’t need a business account they are expensive.
If you have a shared bank account open one in your name, possibly in a different bank but it should be a personal account.
Then join something like Paypal so you can take credit cards. You will pay them commission on each transaction but there are no other costs.
You need a situation where if you earn nothing, you pay nothing.
Don’t it’s not an investment.
Until you have a proven product and sales you should not buy in bulk, it might make your price look attractive but its a red herring because:
If you buy 100 widgets for £100 the cost of each widget is only £1 but only when you have used all the widgets. If you sell just 5 widget using products the cost of each widget is then £20 See what I mean? Its cheaper to pay the higher individual cost.
Make to demand not to your expectations.
Don’t make product expecting high sales, that’s an expensive game
Establish a show fund
Right from the beginning put £30 a month in so when you are grown up enough for a big show you have the money which often has to be paid in advance. Return the stake to the fund after the show or as much of it as you have left. If you start with capital, lock £1000 into a show fund but don’t use it at all in the first year as you are too likely to crash and burn.
There are all kinds of pricing formulae and none of them work
Pricing handmade in the UK is an art not a science
This is why :
An acceptable price depends on who you are selling to
Different products have different price ceilings
There is a soft margin around prices which means you can put them up or down and make no difference to the sale so it always makes sense to push to the upper limit and formulae don’t do that.
Your circumstances determine what you need to charge
Labour cost is always a nonsense as you don’t just make you have to spend about 70% of your time trying to sell. That has to be paid for too
None of this stuff can sit in a formula you have to price , step back and think all the way round.
Your prices are more likely to be too low than too high.
Underpricing builds in failure.
How many you sell is irrelevant to profit.
If I sell 20 Lovelies for £2 profit each that is not as good as selling one Lovely for £42 profit.
Only consider wholesale if you enjoy repetitive making and can make a living from it.
Selling one expensive Lovely will take effort but selling 20 cheaper ones will not necessarily be easier.
You can do what you need to do to know whats going on and to make the right decisions.
It isn’t really such a big deal after all.
Now you will have to find something else to worry about.