Okay, dear readers, time for part two of my insomnia cure… er… financial planning for the woodworking pro.
You’re rolling now, doing real honest to golly wood work for real, honest to golly customers and getting real, honest to golly money for it. Now what?
Every day you have to do your book entries for the day. If you let yourself fall behind, it will grow into a monster too large to face and you’ll just let it keep growing until it topples your fragile financial house. It’s easy if you keep it up to date. If you don’t, remember what I said about getting to know the tax man far too well?
Another benefit of the daily routine of entering everything is the fact that you can do a bottom line calculation any time you want to, letting you know how healthy (or unhealthy) your business is.
Speaking of which, you should be checking that bottom line once a week. Schedule a time every week, as close to the same time/day as possible, to do a financial “check up” on where you stand. Look for trends and try to figure out what is behind them. If you notice every time you do a couple of widgets in a particular week, the bottom line that week is better that the weeks you didn’t make any widgets, maybe you should be actively promoting your widgets. Conversely, if your bottom line suffers every time you work on a thingumabob, don’t make any more thingumabobs. Get the idea? This is an easier, faster method than doing a time and materials break down on everything you make. (not that the time and materials study isn’t a valuable tool too, it just takes longer).
My point is that it’s very important to keep track of how your business is doing. This helps in planning for the future. It lets you spot things that are benefiting you and things that aren’t so you can focus your time and energy in the areas that will give the best returns.
In the early days, expect a lot of red ink in the totals column. It’s only natural. As long as the red figures are shrinking, you’re on the right road. If they get bigger, it’s time to find out why.
Once the bottom line starts to show up in black ink, you can start to relax a bit. Now it’s time to pay more attention to your second set of books, your personal ones. The first books, the business ones, keep track of the business. Your other set of books keep track of your own finances. All those expenses the tax man doesn’t care about but still have to be paid, such as residential rent or mortgage, food, heat and light for the home, etc. As one of Charles Dickens’ characters once said, “Annual income ten pounds, annual expenditures ten pounds two shillings and sixpence, result? Misery! Annual income ten pounds, annual expenditures nine pounds nineteen shillings and sixpence, result? Happiness!” True then, true now. If your business is in the black but you are in the red, you’re not going to be happy. What can you do to improve this? One of two things (or a combination of the two): reduce the expenditures or increase the income until your personal bottom line is not only in the black but growing.
I know, now you’re going to ask how, right? If I had a universal answer, I’d be a millionaire! (grin) Since my bank manager can tell you I am not a millionaire, we’ll all have to find our own answers to that one. I can, however, offer one little tip.
Do not live beyond your means. If your bottom line is red, you have no business eating anything not prepared at home. You have no business buying anything you don’t absolutely need.
This next point isn’t going to sound like it’s financial, but trust me, it is.
Work full time hours! I don’t care what you’re doing, but do something to do with your business at least eight hours a day. Every day! If you aren’t building something, go out and prospect for customers. Do the books. Sweep the shop floor. Do something. If you get in the habit of taking half the day off because things are slow, you’re putting the skids under your own feet. Get in the habit of working at least full time if you’re serious about the business. If you keep at it full time, and if you’re good at what you do, (and if the Gods are smiling on you), you will succeed.
This next one also won’t sound like financially based, but it too is.
Do the absolute best work you are capable of on every item you make. Believe me, you can’t afford not to! What’s the best advertisement in the world? A happy customer! What’s the worst? An unhappy one! No amount of money can buy the one or make up for the other. One ticked-off customer with a bee in his bonnet can bury a business!
Okay, that’s enough rambling for tonight. Stay tuned for another installment. Same time, same station.
Tonight’s program was brought to you by the letter “L” and the number 2. (grin)
-- The nicer the nice, the higher the price!