17 Apr Good Math, Smart Business
Let’s be real. Running a craft business is tough. Between day-to-day operations like sales and employee management, keeping up on your inventory, engaging your customers, staying ahead of trends, and not freaking out over economic roller coasters, the books can be the last thing on your mind. And if you’re keeping all that’s due paid, it’s even easier to let your ledgers slide. Sound familiar?
No One Wants a Money Monster
The longer you ignore your finances, the bigger the mess becomes. Ignoring finances can lead to missed opportunities, lost profits, and, worst of all, the shrinking possibility of paying yourself a salary. Yikes. Ignoring your finances turns into a growing, breathing (down your neck) Money Monster that feels easier to avoid than face. Learning a few key numbers and implementing systems will make that monster dissipate in months.
One accounting system that has gained popularity is Profit First (Mike Michalowicz). In this method, Michalowicz turns traditional accounting upside down by putting profit before expenses.
Traditional: Revenue – Expenses = Profit vs. Profit First: Revenue – Profit = Expenses
Mike Michalowicz’s goal is to eradicate entrepreneurial poverty by ensuring business owners are allocating profit and paying themselves each and every month. The Profit First system involves dividing your monthly revenue into several accounts based on predetermined percentages. These include Revenue, Profit, Owner’s Pay, Taxes, and Operating Expenses. A second factor is to stay within these allotments throughout the month. No dipping into your ‘Owner’s Pay’ account to cover an incoming shipment, no pulling from ‘Profit’ to pay utilities, and no skimming ‘Operating Expenses’ to remit your taxes.
Now for the …ish. Profit First is a fantastic starting point for most entrepreneurs, including the craft-focused business. However, it fails to grasp some common experiences in this sector: a higher than average operating expense based on total revenue (Michalowicz suggests 30%) and seasonal revenue swings.
If you use more than 30% of your revenue to operate your business, you’re not alone. In the craft sector, it’s common to spend 50-65% on expenses. If you realize more than a quarter of your annual revenue during the holiday season, again, you are not alone. So, how do you take the principles of Profit First and respect the rhythm of your business?
Good Math; Smart Business
Join our new mastermind group, Good Math; Smart Business! Led by Stitchcraft Marketing’s in-house Financial Strategist, this new four-week session will help you say goodbye to your Money Monster for good. You’ll learn how to look at your finances without fear, build a system using the Profit First method adjusted for your craft-based business, and other key numbers to leverage revenue, and therefore profit and growth. Mathematician status not required.
Click here for the details on the new Financial Mastermind group, Good Math; Smart Business. Stitchcraft Marketing is leading the way with exclusive Mastermind groups for crafty business owners just like you! We’re keeping the groups small with limited enrollment. The first session of Good Math; Smart Business starts May 17, 2023 and runs for 4 consecutive weeks.