Friday, December 21, 2007

Doing Business (3.) Mind Your Money

Keep records So, it all comes down to the money. Do you have enough to start a business? Keep a business running? Service a business? There is a certain amount of start-up cash you will need, but you can control the flow of money of an internet business more easily than a bricks-and-mortar business. Using handdyed yarns as our example, let's say you have enough to pay for one year of internet host, programming services of a web designer to get you looking good, basic shipping supplies and enough raw material to dye up for the coming month. Sales will start out slowly, that is probably going to be the case. Maybe you're thinking that this would be a great time to dye up enough for three month's inventory. Resist the urge to borrow money, put materials on a credit card, or go into debt to finance growth at this unproven stage of your business. Once sales pick up, use a portion of the income to fund the purchase of raw materials for future orders. Do not fund your working capital through debt. Do not do it.
Set your company books up even before you make your first sale, using a computerized bookkeeping program. I use QuickBooks Pro and love it, but be sure to realize that just because you can put checks into a computer program, you are not an accountant. Sometimes the financial programs make us think we know more about accounting than we actually do. These programs will print out your business reports in a flash, and I strongly suggest that you invest in a program and learn how to use it because you want to keep an eye on the bottom line at all stages of your business growth.
The 'bottom line' is just that... the bottom line on a financial report. The most basic profit and loss report will group all income and expenses together in these general groups. The bottom line on a financial report is 'net profit,' and I like to think of it as the net or filter that holds any money after all the expenses and cost of the materials is taken out. The bottom line is your true profit.
  • Sales
  • -Cost of Goods
  • =Gross Profit
  • Gross Profit
  • -Expenses
  • = Net Profit

Control Expenses You will make the most profit if you control the primary expenses, and the main one will probably be the cost of materials. Buy as close to the source as possible; that is, don't buy at retail price. Establish wholesale prices with the suppliers you want to work with. Here is where having a Federal Tax ID number will serve you well and present your business as a viable business. If you have a resale account with your state, you probably will not pay taxes from in-state suppliers, or even with office supply stores or suppliers of other materials. So, shop for your pricing, compare the different suppliers' pricing and products, and establish wholesale accounts right away.

Assuming that your business will require you to ship packages out, here's a good tip which will save you lots of money and time. Set up an online account with the US Postal System. They provide free shipping boxes and have a carrier pick-up service, both will yield savings of money and time. I used to buy recycled brown boxes from a good supplier but the price of shipping was almost equal to the price of the boxes. It was killing me! Once I switched over the USPS's boxes, my shipping expenses were cut. Their largest box is 12x12x8, so this will not accomodate larger orders, but it is still a great way to save on shipping supplies. For packing paper, find a major printer and ask for their leftovers from long runs. In my town, there is a printing press which prints one of the country's major magazines, and I get ends of rolls of glossy magazine paper. Beautiful, creamy stuff, and I love touching it almost as much as I love touching the wool and spinning fibers I sell.

To set us a USPostal Service account, go to Order the free shipping supplies, and start to schedule carrier pick-up. I schedule one month in advance, and keep a reminder on the door, just in case there is a new postman. Sometimes my name is not on their pick-up list, so I just keep that sign on the door that says "USPS Pick-Up Today. Thank you!"

For office supplies you need, use your tax resale account number to establish a tax-free account. I use Staples' online store, and one of the things I love about Staples is that they do not charge a delivery fee. Yes, free shipping on my large boxes now. I saved a ton of money just in that change of supplier.

Ask for discount or wholesale pricing Now, please use your manners when you approach new suppliers. Ask if they have a wholesale price structure and request a copy of their policies and prices. Remember, they don't have to give you an account. How we write often is not a reflection of our personalities, but our writing style, spelling and punctuation habits, use of smiley-faces, etc. definitely paint a picture of who we are and how we approach business. Present yourself as a competent person who will be a good business partner for your supplier.

Control impulse spending Just because you have a business, and if you're smart, you are not paying state taxes, this doesn't give license to buy anything you want. Don't fall into the trap of using company money to buy personal stash. Don't do it!

Whatever you do, keep your checkbook up to date, pay your bills on time, do not go into debt to fund start-up purchases, research the best sources for your supplies and materials, and be a good customer to your suppliers. Good manners and good business go hand in hand.

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