Many people are artists, inventors, designers, visionaries and want to leave “bean-counting” to someone else with a fancy looking calculator and a pocket protector. Incidentally, I endured much good-natured ribbing since I used to carry around my old high-school graphing calculator. My colleagues joked that it had nuclear code capability. I was attached to it, though, since I was used to the buttons and knew where they were without looking. My other favorite device in B-school was my handy number pad (the USB kind you plug into your laptop). I got made fun of for using that, too, but I stick by my assertion that it makes number entry SO much faster.
If you fall into the category of person who would be amused by my calculator and number pad the important thing for you to do in answering Question 3 (“How do I approach finances?”) is to start approaching finances somehow. I’m not going to be picky here – just buckle down and start thinking about it. Don’t be scared. You HAVE to do this in order to sustain the creative activity you are made for, so just start and you’ll feel so much better – when you have addressed finances you’ll feel free to attend to your core business.
So these thoughts are just starting points to help you not feel overwhelmed if you’ve decided to get a grip on your business’s finances and are not sure where to start. Let me break this into two goals:
- Goal 1 (past-oriented records): Keep your books clean so your accountant can work with them easily (I can’t help you here bc I always confuse debits and credits – accounting is not my forte). Communicate with your accountant so you know what (s)he needs. If you do not have a good accountant, make it a priority to get one – you need to be square with the government. Note: If you cannot BE the ninja, KNOW the ninja.
- Goal 2 (future-looking projections): Get a good idea of your revenue and expenses so you know if you’re going to make money in the future or not, and what you have to do to turn a profit.
- Expense Categories: Decide on categories that encompass all of your expenses. This will allow you to track them accurately as you sort every dollar that goes out the door into piles, and then size the piles so you know how much it costs to keep your venture running. Examples: Travel & Entertainment, Continuing Education/Licensing, Materials, Office Space Rental, Office Supplies, etc.
- Revenue Unit: What is a good “unit” to work with? Depending on the business it could be a burrito, a book, or the hourly rate for an evening of babysitting.
- What are the costs attached to each unit? What is your pricing scheme? Per room, a % of costs, etc.?
A note on Pricing: Do your homework and know what the market value of your product/service. What are your competitors charging? If you charge above this you should be able to clearly point to the extra value your business provides – the surcharge is simply the monetization of that extra value. If you are charging below market value you must make sure that a) this price cut is NOT perceived by your customers as a discount for a product or service of inferior quality, and b) you can make up the deficit by the increased volume of sales you’ll see because of your low price strategy.
The goal is not to break even – it’s to turn a profit. But it might take a while for this to happen, and it would be good theoretically to know how many sales you must make to break even since it’s a good mental milestone. You just want to make sure you’re not throwing money at a losing proposition for X years while your family goes hungry because you’re busy pursuing your dream but have counted the cost ineptly. If your dependents are extremely supportive of your dream and are okay with making some sacrifices in order to see it become a reality, that’s wonderful – but you still want to have some sort of idea of how long they are going to have to tighten their belts so you can make an informed decision regarding whether or not to take the plunge.
It’s time for me to self-illustrate, but I can’t this time because 100% of the profits from Learning How… (in any format or language) will go to a good cause. I am not sure of the language to use – I mean to say that they will go to a government-recognized organization that is non-profit or not-for-profit. The funds will not be going to the Charity of Me. Although I’ve heard of many people who, when faced with unexpected illness, accept donations for their medical/living expenses – and this is a good thing since if you can’t work bc you’re injured/sick, where are you and your family supposed to get money from? If I were in this kind of situation I’d tell you. But I have been blessed to be in a situation that does not necessitate fundraising (at present). Instead, I’ll offer you a product (my “Memoirs”) in return for a price – it’s your decision whether or not to purchase. As I’ve said before, there’s actually very little overlap between this blog and my “Memoirs” – I know, you’re like, Seriously? What else could she possibly have to say? Answer: Many, many things.
To be clear, Ed Goes to D.C. and anything else I come up with are not part of my “Memoirs” (right now I’ve got Volume 1 written, and am waiting for more stuff to happen so I can write Volume 2). All revenue will be categorized and recognized appropriately – don’t worry, Tanpo is going to help me. One more thing – I mentioned different formats/languages in the paragraph above. I have enlisted some multilingual friends who will graciously translate Learning How… into Mandarin and Spanish. I also researched options for a low-tech audio book and figured it would be a good use for my voice if I did it myself, plus I’d love to offer an accessible option like this…but given my upcoming vocal cord intervention I’m having second thoughts.
Don’t you love how I’m referring to it as “intervention” and not “surgery”? Aaah – the soothing use of euphemisms helps me face the reality that I’m going back to the hospital without really facing it. But this is exactly what I’m telling you NOT to do – don’t practice avoidance like I do – just jump into the financial pool. The shock of the water might take an adjustment but you’ll feel more comfortable once you just climb in. Don’t just get your toes wet, either – do a cannonball. Better you than me. 🙂