Financial Planning for the Wedding Industry, Part 3
This week we have been working on numbers galore! First we worked on an expense budget for 2010. Yesterday, we worked on a sales plan in which we determined our break-even sales and our targeted sales. What I love about this exercise is that you can play all sorts of “what-if” games:
- What if I cut that ad that didn’t make any money for me last year?
- What if I want to make $10 million in 2010?
- What if I only want to do 5 weddings next year? How much should I charge?
- What if I cut my labor cost by hiring someone to do assembly?
The possibilities are endless! Seeeeeeee… geeking out with numbers is FUN!
Now, let’s get into planning what you are going to do with this money you earn next year.
Understanding cashflow…
This week we’ve gone over two ways that cash flows out of your business:
- Expenses (these are overhead and administrative expenses)
- Costs (these are the costs of producing a wedding; they directly tie to your product or service)
The other way that cash flows out of your business is by purchasing assets. (WO! Michelle is getting into the accounting terminology now… stay with me folks.)
What is an asset?
An asset is anything that provides a future benefit to your business. These assets enable you to provide your good or service. Here are some examples of assets and how they provide this benefit:
- Computer – you’ll use this for 3-10 years in operating your business
- Camera – as a wedding photographer, you will use this 2-10 years to provide your services
- Vases – depending on the value (let’s assume this is an expensive fancy vase) you will use this for a number of years as a wedding florist in producing centerpieces
- Inventory – as an invitation designer, you’ll have paper stocked for customer’s needs to produce the invites
An asset is not an expense. An expense is something that expends itself in a short period of time. It doesn’t provide much long-term benefit and it is usually of smaller value. For example, office supplies are expenses. Advertising, while beneficial to your business, has a short life cycle and is an expense.
How to plan for asset purchases…
Yesterday, we built the sales plan that set your target sales amount. Let’s say that you want to make $100,000 in 2010 and you determined that in order to do this you will need to do 30 weddings. And, you chose promotional activities to make those 30 weddings a reality. GREAT! You are all set! You now have $100,000 earned in 2010. What do you want to do with that money? Here are a few thoughts:
- Apply the entire amount to your personal expenses, mortgage, credit cards, and savings accounts – voila! Great choice.
- Reinvest some of it back into the business by purchasing a new camera lens. Great choice, too!
- Invest in the purchase of a new computer; yours freezes every time you open firefox. Another great choice!
- Take on a new vendor and purchase inventory for the echo boom, set to peak in weddings in ~2012. Again, great choice!
- Grab the money and head for the border… never looking back… a choice of which I envy. 😉
Build this into your plan…
The last step in building your financial plan for 2010 will be to decide how you want to spend your money. This can be a difficult decision when faced with satisfying your personal needs and your business needs. I want you to consider yourself before your business. I see too many small business owners who don’t take a cut of their profits before pouring it into the business. Take care of yourself first. Then, satisfy your business. If you do want to do both, you may need to boost that earning number a bit so that you can invest in yourself AND your business. Make a PLAN for all of this. Decide how you are going to build your finances for 2010 and you’ll be on the way to creating a sustainable business.
We hope you enjoyed this series!
Here’s to a prosperous New Year for you and your business!