Partner Article

Turnover is vanity, profit sanity but cash reality

Durham-born entrepreneur, Sara Davies, talks to Bdaily about her experiences of starting up her business Crafter’s Companion in 2005 and gives advice to others in similar positions.

Starting with the numbers…

First and foremost, starting and managing any kind of business begins with managing your finances. Start-up companies and budding entrepreneurs in the creative world of crafting - it’s an absolute must to have a good handle on the business bank account! If you don’t have those skills then employ someone who does. If the business is too small to justify a specific finance person then choose a good accountant, one who will get under the skin of your business and understand it so they become an extension of your internal team and advise you properly and are deeply involved in your decision making.

A common mistake many companies make is that they can generate sales, but they find further down the line that they aren’t making any profit. More often than not, this is because they don’t see all the hidden costs and don’t have a good enough handle on the financial arm of the business. By carefully selecting an accountant, you can avoid this pitfall.

Choose to live by the saying – “turnover is vanity, profit is sanity but cash is reality”. Don’t have your head in the clouds and run away with big ideas and dreams that are going to deliver lots of sales if they are just that – sales. The fundamental aspect of any business should be to make a healthy profit. It sounds obvious but you would be surprised.

Cash is king (if you can manage cashflow)…

The end to the above saying “cash is reality” is very true, but that cash needs to be managed. Cashflow is the biggest killer of small businesses, you can be making sales and they can be incredibly profitable, but if you don’t plan your cashflow, then you could end up in a sticky situation. Not having short-term cash available to see you through a growth period can be fatal for your business, especially at a time when banks are not as helpful as they were a few years ago. In order to combat this you must look at all the opportunities facing your business and ask three key questions:

1. How much time does each opportunity take?

2. What return are you going to get? (Both turnover and more importantly profit)

3. How much cash does it need?

It is as simple as that. Weigh up the opportunity cost of each option and understand that you physically can’t do everything at once, you won’t have the resources let alone the cashflow. From there, you select the options which are going to give the greatest return for the least amount of resource and cashflow.

Know your strengths but recognise your weaknesses…

A big point to consider is why you started up in business in the first place. You need to be asking yourself: ‘What am I good at?’ If you focus on your strengths, this is where you can add the most value to your business.

Once you have accepted you cannot function as a one man band, hire someone to do the things you aren’t so efficient at – one of my tutors at York University taught me a valuable lesson very early on. You must always play to your strengths, and then surround yourself with good people who can fill in the gaps of your weaknesses.

For example, I know that my key strengths are product development and sales (or basically just talking passionately about craft products!) I’m not so good at the technical stuff. So, when I first started the business I quickly realised I needed a website and decided to take evening-classes in web design. My tutor pointed out that this was a very bad use of my time as it would take me three times longer to build a website than if I enlisted the help of one of my classmates at University. Furthermore, what they could make for me would far surpass what I could have designed myself – thus giving me a stronger start with my website, and my time was better spent developing products.

Surround yourself with good people - the best you can afford - no matter what size your business. When I first started out there was just me, and I couldn’t’ afford to hire people so I used freelancers and consultants to specifically fill the areas where I was weaker. I built a strong team, but one where I didn’t have the responsibility of finding a huge pay packet at the end of the month (or filling their time).

As we’ve grown at Crafters Companion, we’ve gradually brought skills in-house and we have been fortunate enough to expand the team. However, we still use many freelancers and consultants both in the UK, Europe and the USA and I ensure they feel just as valued as my permanent staff and definitely see them as an extension of my workforce.

Be Patient…

Another trap to avoid at all costs in impatience. Do not try and grow too fast! If your business model is sensible and sustainable then success will come but it will take time, which is a good thing. If you chase too many opportunities all at once the chances are you’ll spread yourself too thin and won’t do anything well. Also at the very beginning, you’re unlikely to have the cash resource to undertake many projects at once so you run the risk of losing money as projects may have to be pulled before completion.

In my opinion, getting the hang of your finances is the most crucial factor when trying to run a successful business. Whether generating a few sales in the early days or trying to control the expansion of your company, managing the growth of your business is no easy task. However, if you get it right, the challenge becomes incredibly exciting and very satisfying.

To round up, my core advice to any creative out there is: do something you enjoy, be sensible with your money and delegate tasks to good people. If you cover all of these bases then you should be onto a winner!

This was posted in Bdaily's Members' News section by Sara Davies .