Whether your wedding business is part-time or full-time, just yourself or employing staff, it’s vital to have control of your finances. You don’t need to be an accounting wizard – just informed and organised.
Here are our top 10 tips for financial mastery:
1. Know your legal position
It’s important to set up your business properly and understand the tax and legal obligations you have. This will vary depending on where you live. For example, in the UK you can run your business as an individual (sole trader) or as a limited company. Whichever you choose will affect how you manage your finances.
There are also things like sales taxes (VAT in the UK) to consider.
Get professional advice at an early stage to avoid making expensive mistakes.
2. Keep your personal and business finances separate
It’s tempting when you are starting out to just run everything through your personal bank account – especially if your business is part time.
But this can quickly become messy and difficult to manage and it’s much harder to sort out at a later stage.
3. Record all your expenses
Nobody wants to pay more tax than is necessary. So make sure you record everything, including your travel. Check with your accountant or advisor which expenses are tax deductible.
4. Plastic bags are not the best place for your receipts
I was chatting to a bookkeeper friend recently who told me that when they take on a new small business client they frequently get handed a plastic bag (or shoe box) stuffed full of receipts going back months or even years. Good news for the bookkeeper – it takes a long time to sort out the mess and they charge by the hour.
But not good for the business owner.
These days you can use smartphone apps to photograph and record your receipts so you don’t need to be keeping bits of paper everywhere (make sure you have backups, however).
5. Keep on top of your bookkeeping
And it’s not enough to simply keep those receipts – you need to track your expenses and income.
Whether you do it yourself or hire a bookkeeper, update your accounts regularly so you always know your financial position.
If you want to do it yourself there are plenty of low cost accounting systems (check out Xero) and for many small wedding businesses, a simple Excel Spreadsheet is perfectly acceptable.
6. Check your bank and credit card statements
Cross checking your actual transactions and balances against your accounting records is vital to ensure you don’t miss anything. Particularly these days of bank transfers and automated payments.
7. Pay yourself a regular amount
So often in a small business the owner gets paid last – if there’s anything left!
But, however much we love weddings, ultimately we’re in business to make money so it’s important that you do reward yourself for all that time and effort.
Get into the habit of paying yourself something from day 1.
8. Understand the difference between profit and cash
Profit is what you are left with once all your sales income has been received and your expenses paid. Cash is what you have in the bank available to spend right now.
Profitable businesses frequently fail simply because they don’t have the money available to pay for stock, rent or wages.
A business can continue to trade without making a profit for some time as long as they have plenty of cash (from investment, loans or overdraft) to use. Ultimately, however, you want to know that your business will be profitable.
9. Maintain a cashflow forecast
It’s absolutely vital to know your cash position and what it’s likely to be in the coming months – especially if you need to invest in stock in order to deliver your product/service.
A cashflow forecast breaks your financial situation down by month and includes the money you have to start, the amount you expect to receive and the amount you expect to pay out. You can then see how much you can expect to have at the end of the month.
It’s based on the dates you expect the money to actually change hands.
You can create a spreadsheet to do this and some accounting systems also have this feature.
10. Act early to resolve problems
With good financial forecasts you can spot problems before they become critical.
This is especially vital in the wedding industry where business is often very seasonal. If you know in advance that cash is likely to be tight in the coming months, you’ll be able to plan for it and organise additional funds (like an overdraft) before it’s too late.