It’s week 4 of our #SummerScaleUp series, giving you insightful tips to grow your creative business. This week, Creative Industry Finance business advisor Gill Thewlis, who has worked with over 150 businesses right across the creative sector, discusses the importance of managing your money when running a creative business.
Why manage your money?
Of all the things you have to do when you have a business, for many the task of keeping on top of the money is unlikely to come top of the list. You came into this to make stuff, be creative, bring great projects to life; not be an administrator. Well, unless you’re going to barter for absolutely everything in your business and in your life you will need to earn some money in order to pay for the stuff that you are doing and to live, and it’s a good idea to keep some of it back for a rainy day. This may sound like the sort of wisdom your granny would dole out – but it’s as true of a business as it is for you personally.
So good financial management is crucial, because otherwise it’s really easy to spend more than you are bringing in – and that according to Dickins’ Mr. Micawber – leads to misery. Cash in the bank also gives you flexibility, and can help you grow.
Good day to day financial management in essence is:
Separating Personal vs Business
?When you start a business, even if you are a sole trader, it’s very important to separate your personal money from the business money and to open a specific bank account for the business. It does mean that when you need to take some money for yourself you have to do a transfer from one account to the other, and in the end it’s probably best to do that on a monthly basis – a bit like paying yourself a salary.
Apps are key
The easy bit is to always know what you’ve got in the bank. This information is at your fingertips at all times if you’ve got the right banking apps. You don’t need to wait for a bank statement to land on the doormat anymore.
Keeping track of your cashflow
Know what is going to arrive into your account and leave your account over the next few months – how far forward you can know this depends on the kind of business you have, but it’s usually possible to predict in detail up to 3 months. Some things are annual charges, like insurance, or professional memberships and others like studio licence fees are monthly payments. Now you could keep this information in your head, but it’s much better to write it down and conventionally we use a Cash Flow statement to do this, usually in the form of an Excel Spreadsheet. It shows when amounts of money are expected to arrive and when you will need to make payments, and has a cumulative running total to show how much cash you will have in the bank at any one time. Normally they show the next 12 months of operation. The beauty of this is that you can see when a problem may be about to present itself and given enough notice can do something about it.
Make it easy to get paid
Remember that the quicker you invoice the quicker you get paid. If you are selling to members of the public then make sure you make it as easy as possible for them to pay you, and some portable card readers services will make sure you get the money the next day. If you are selling to organisations you may have to wait 30-60 days for your money, but that 30-60 days can only start once you’ve raised the invoice – so do not put it off!
You’ll have heard the phrase “Cash is King”. It’s true of all businesses, creative or otherwise and if you run out of it you will go bust. When you get that longed for trade order in bulk, you’ll need enough cash in the bank to make sure you can deliver against that order and fund yourself until you get paid. Your cash flow statement will allow you know how viable that order is and if you can afford it without any borrowing. If you need to borrow to fulfil the order, your cash flow is a key document needed by lenders to understand how much you need to borrow and over what period.
Gill is an executive and business coach, based in Sheffield. Since 2003 she has worked with over 150 creative and digital organisations, with particular expertise in fashion & textiles, visual arts, theatre, dance, and design. Prior to this Gill had a 20 year career in banking – 15 of which were in the City of London: 10 as a commercial banker, 10 as strategist, marketeer, corporate communicator and change manager. She the completed a degree in Fashion Design in 2003.