Time - a precious commodity
A Mum's guide to types of businesses
January 2010 | written by Sam Thewlis, Head of Editorial
As a mum myself, I know that a mumpreneur’s most precious commodity is time. Why spend what little you have chasing after pennies when you can gather in the £ instead.
In order to find the money in your own business, take a look at the 80/20 rule:
80% of output comes from 20% of input (the Pareto principle)
The 80/20 rule suggests you make 80% of your profit from 20% of your activities (and conversely you spend 80% of your time on the least profitable 20% of activities). Now if you can identify the most profitable things you and your business do, and focus 80% of your time on them, you will be laughing all the way to the bank. Really.
So how do you identify which are most profitable activities of your business? Unfortunately there is no quick way round this one, you need to keep good, clear records, that you can understand, that will enable you to know your business in a financial sense, and to therefore know how to maximise your financial success.
Clearly, not everyone in the world is an accountant, so finding ways of keeping good and useful records, and understanding the implications of the answers you come up with can be a challenge.
I think it is challenge worth accepting. Even at its most basic, when working out how much to charge for your product or service, good records are crucial. If you buy a widget for £1 and sell it for £1.50 you might think you are making a good profit.
However, once you factor in any selling costs (like Ebay fees or shop hosting), cash handling costs (like Paypal fees, credit card charges or bank charges) and packaging costs, you may find your profit is eroded before you even think about the phone bill, the website costs or (heaven forbid) some reward for your hard work…
Keeping accounts is hard. And dull. But the information in your figures can help you run a tighter, more profitable business and, more importantly, let you know when you can afford to go to the park for half an hour, or have a day off and go to the seaside.
As a starting point, anyone who watches Dragon’s Den will know how many people get confused over accounting terms, like turnover (which means ‘sales’ rather than a yummy cream-filled pastry) and overheads (general expenses of a business rather than a hat. Or balaclava). Similarly many people buy expensive accounting packages like Sage or QuickBooks because they think they should, or because their accountant tells them to. But if you don’t understand what you are putting into a programme like that, how on earth are you going to understand what comes out of it?
I am a firm believer in drawing up your own records and systems. A simple spreadsheet can give you all the information you need and it can be updated daily to give you the most up to date figures possible.
Budgets and forecasts are also great tools- if you have a budget you are far more likely to strive to meet it, or exceed it, than if you have nothing at all. Forecasts, particularly cashflow forecasts can be crucial to businesses such that any problems can be anticipated and evasive action taken in good time.
And as mentioned previously, costings are key. Take Carly who makes a homemade baby item. She is meticulous with her records and makes sure her selling price covers the cost of every single one of the materials she uses- fabric, padding, thread, ribbon and packaging.
However, she does not factor in the time it takes her to make each one, which is a minimum of four hours. She also applied for a patent to protect her design and a British Safety Standard mark, but the time and cost of obtaining these has not been incorporated into the selling price.
Carly may cover her costs, but is she really making money?
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