I owned a children's consignment store in Alberta for four years, and before that, worked part-time as a freelance writer around my full-time career. When I freelanced, balancing my books was as simple as having a few columns in a spreadsheet—I’d enter in my expenses and income. A simple calculation gave me a running total of how much profit I had made at any given time.
Then I opened my store. Instead of one or two transactions to enter a week, I was looking at hundreds. I had a business bank account and credit cards and a line of credit, and never knew exactly how much money would walk through the door that day.
For longer than I’d like to admit, I buried my head in the sand about how the business was doing financially. If there was money in the bank account I’d happily take a personal draw to spend, forgetting about (ignoring?) bills in the mail from the government, accountant, and suppliers.
Then when they arrived—yikes! Hmmm…hope we have a good sales day tomorrow.
Not the best plan. So I got serious and worked with my accountant to create a cash flow statement. Where I realised exactly how much money I was making. When I compared it to how many hours I was working and what we paid our live in nanny, the future for my store was a no brainer.
I closed my business in 2009. I should never have stopped my habit of having a cash flow statement updated at all time. I would have been more cautious with my spending in the business and outside of it, and had a clearer picture of what was (and wasn’t) working for my business. Like, say, far too many lunches at Original Joes with business associates.
Now that I work strictly from home again, I’m religious about maintaining my bookkeeping and cash flow statement and sharing it with my spouse regularly for a second opinion.
Whether you deal in small numbers or large, you should know every day how much you’re up, or down, for the year, and how much you expect to make by the end of the year.
For those in direct sales, expenses can add up quickly, even if the company you signed up with claimed to provide everything you needed to run your business for free. Tradeshow fees, display items, gifts for hostesses or referrals, additional samples, gas, phone—is your income covering this outlay easily, or is the money you’re making being eaten up by these nickel and dime expenses?
Women working from home making a product like hair bows or soother clips face these expenses, plus more. Materials, shipping materials and costs, web design or email newsletter charges all need to be tracked.
If your business is large enough, you can have your accountant help you set up your cash flow statement, and then manage it yourself. If your business is small, you can make do with a simple cash in, cash out spreadsheet in Excel, with a running number showing your profit so far. Here’s a great example perfect for the very small business owner.
Is your business making money? If it isn’t when will it? If it is, is it making enough that you’re content with the time you’re spending on it?
Check in again next week, when I talk about why you should (or shouldn’t) close your part time business, just because it’s in the red.
Did you enjoy this blog post? You might like Saving Money in Your Home Office or Are Daily Deal Sites a Good Deal for Your Business?