When you are running your own creative business it is really critical that you ‘own’ your finances and your business models. Here are some key financial tips when looking at this aspect of your business (and yes, I do acknowledge this is a lot less fun than the creative part!).
FINANCIAL TIP NO. 1 : DON’T DISASSOCIATE YOURSELF FROM THE MONEY
Just as you are key to the success of your business creatively, you are also key to its success financially. If you are running a small business, you have to understand the money. It’s yours after all.
FINANCIAL TIP NO. 2 : LEARN THE DIFFERENCE BETWEEN BOOK-KEEPING AND ACCOUNTANCY
Book-keeping is about the day-to-day record keeping, credits/debits and running the bank accounts for your business. Think about what reports you would like to see every week from your book-keeper and stick to them. Ensure you have access to your own online records so you can check up if needed.
Accountancy is about the profit and loss, the legal compliance, the annual overview. It’s a good idea to meet with your accountant every 3-6 months for a catch-up, not just at the year end.
“Think about what reports you would like to see every week from your book-keeper.”
FINANCIAL TIP NO. 3 : QUOTING AND MANAGING A JOB BUDGET
When you quote for a project, ensure you understand exactly how much every employee costs you, how much your daily overheads are, so you can factor these into the quote. Add on a healthy profit margin over and above that cost. If you mark-up goods and services, ensure you do this across the board, and watch the spend on the job like a hawk. If you go over-budget, there may be no wiggle room in the job price, so you will be picking up that overspend and it will eat away at your profit.
FINANCIAL TIP NO. 4 : SET YOURSELF 3-YEAR TARGETS AT THE START OF EVERY YEAR
If you set yourself targets only for the 12-months ahead, you will be planning for short-term success. By setting ambitious targets that look further ahead, you will be incorporating the groundwork for these targets this year and next year. This is the key to a successful business. You need to be continually looking at the horizon to check you are on the right track.
FINANCIAL TIP NO. 5 : ANALYSE YOUR CURRENT CLIENTS – WHAT CAN YOU LEARN, HOW CAN YOU IMPROVE?
At the end of each financial year, take time to analyse all of your clients. Which was the most profitable project? Why? Can you ensure this learning is taken across all projects?
Bracket the sizes of the projects into small/medium/large groupings. Which bracket has the most clients and which bracket has the most profitable clients? Can you move the bigger number of clients up a bracket next year?
Your past client information holds important data for your business – it may not be the ‘big data’ we all hear so much about, but, believe me, small data is just as vital for your company. But only if you use it effectively.
FINANCIAL TIP NO. 6 : IMPROVE HOW YOU USE RETAINERS
If you have retained clients (i.e. they pay you a retainer each month to do regular work for them), it is likely that you will be over-delivering for that client and they may not prove profitable. Recognise that scenario?
I see it repeatedly in the creative sector. But there is an easy way to ensure both parties get what they need.
When a retained client gives you a new project, do a proper quote for that project just as you would for any other client. Get your retained client to sign the quote off, then subtract the money from the retainer fee.
And don’t over-deliver or allow mission creep to skew the budget. Do this for every project you work on. Then at the end of six months, subtract the agreed projects fees from the received retainer. You will see quickly whether you need to up the retainer or leave it be, as you will have a clear balance of how that client work is delivering value to your business.
Written by Erica Wolfe-Murray
ABOUT ERICA
Erica is UK’s leading business and innovation expert and founder of Lola Media. Her new book ‘Simple Tips, Smart Ideas: Build a Bigger, Better Business’ is out now. Full of her usual easy-to-use advice, lots of case studies, quick tips, diagrams and innovative ways to think about growing your business – its 288 full colour pages will help you transform your business.
First published in ESTILA Magazine July 2019
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