"I LOVE my business but… keeping up with the financials makes me feel all sorts of icky!"
That statement right there, is exactly what I hear from almost every creative I work with, time and time again! It feels like they have mastered all areas of their business but one. Managing finances correctly is a highly dreaded task for most creative entrepreneurs. I feel their pain, I really do! That’s why I want to provide you with a few simple but valuable steps to help you get started and begin to conquer this “left field” task. After reading this post, my hope is that you feel better and more capable of tackling this head on. Let’s get started!
First things first… You gotta have a BUSINESS bank account!
One of the simplest things that you can do to help get your business financials in order is having a separate, stand-alone, business bank account for your business. It may sound silly, but many business owners are still running their business financials through their personal accounts. This is not only messy when receiving payments from clients and paying for expenses, but also gets in the way of your personal finances. Let’s not even get started on the “tax season nightmares” you and your accountant will experience as you both sit there trying to figure out what is personal and what is business. Get ready for tons of unnecessary billable hours and headaches. If that alone doesn’t make you want to run to your nearest bank, I don’t know what will!
Okay, bank account, check! What’s next? Let’s get matching accounting software!
Another very simple tip you should implement is an accounting software system. I know that many entrepreneurs start with spreadsheets, but I don’t recommend it as an accounting or record keeping method. Let me tell you why. If you know that spreadsheets won’t work when you reach a certain number of clients, why would you want to start tracking something as important as your financials in a way that will soon be obsolete? The moment that system becomes obsolete, you will have to transition into a more advanced system and you will have to either re-enter all of that information into the new system or, even worse, lose all your financial data and history and start from 0. That means no reports to tell you about sales trends, profits and losses, your overall progress month after month, etc… I recommend using a software like Quickbooks or Xero or any other accounting software you find suits your business needs best.
What’s next? Let’s work on your prices and costs.
This is going to be a long tip with multiple sections, but it’ll probably be your favorite one! Once you have your accounts and software in place, the next thing you should probably focus on is your pricing and expenses.
Look inward (your costs), then outward (all market research):
When it comes to setting up your pricing, I always recommend that you look inward (your costs) first and then look outwards (doing all the market research). The reason I say this is because you should make sure that your costs are always covered, no matter what. This is where you get what’s called your break-even point, meaning you don't make any money (profit) but at least your expenses are covered and don’t have to come out of your pocket. You can’t just look at your competitors’ prices to decide what to charge, because, just like like Emylee and Abagail always say, you never know why that person down the street set up their prices the way they did. They might have a full-time job so they don’t really need the money, which is why their prices are so low. Or maybe they’re trying really hard to make ends meet, which is why their prices are so high. Perhaps they’re not even making any sales! You just don’t know, so look to cover your expenses first and then research.
Analyze Price vs. Cost Structure:
It’s also important that you take a moment to review and deeply analyze how your prices are structured and where you are with your expenses, even if you already know what your prices are. This is important because, just like with expenses, prices can change over time and there are many factors that can affect your pricing.
Consider Pricing Strategies:
Pricing is one of the hardest things to figure out for any business, so don’t be hard on yourself if you don't get it right the first time around. It may take some trial and error and a lot of hands-on research. With that being said, don't fall asleep at the wheel if you see that you are simply not selling. If it’s not working, start coming up with strategies to make sales. This is where that hands-on research and practicality comes into play. If your products/services are not structured into packages, try doing that. Packages tend to convert better than standalone items, as people feel like they are getting more for their money. Look for ways to spread the word about your products/services. This could be something as simple as creating a special promo just to get things moving, and seeing how people respond to that. Oftentimes, the problem is not our pricing, but rather our visibility.
Start Lean & Invest Smart:
When it comes to talking about expenses, I believe in and recommend a lean startup, as lean as possible! Oftentimes, our first expense comes way before our first sale because, as is often said, it takes money to make money. So make sure that you’re only spending on the bare minimum, especially if your business is not online/virtually based, but rather based in an office, store, or studio. I say this because not everything that you want to buy to make it “pretty” is necessary. Invest in getting the best of what is needed and postpone the rest.
With every creative I’ve had the privilege of speaking to and working with, I’ve realized that they are really good at what they do. That’s why I strongly believe that in business, you should focus all your resources towards your strengths and outsource to cover your weaknesses. If you are a great photographer, for instance, focus on ways to build your business doing what you do best. Rather than spending countless hours trying to figure out your financials, why not find new ways to make more money doing what you love? Outsource the financial aspects of your business to the professionals who can compensate for those gaps. There are financial consultants, like myself, who can help you get started or figure out exactly where you are and where you’re headed. Then, there are bookkeepers, who can help you with the day-to-day financial upkeep, and accountants, who can help you with wrapping things up at the end of the year and getting you ready for tax season.