“9 Tips To Avoid A Financial Crisis In Your Embroidery Business” is an article that I wrote a few years ago and I thought that I would bring back the content of that article because it is so relevant in today's world!
We have seen so many changes in how we have to do business and how we market our business but when it comes to the financial end of our business, it stays the same. The cost of doing business keeps soaring and we must pay close attention to the day to day operation and do everything that we can to avoid a financial crisis!
In today‚’s world of business, having a superb product, soaring sales and excellent customer service are some of the things that go into making a successful business, but if you do not keep your business financially healthy, all of that hard work will be in vain. Without a sound stable financial position the slightest shock can be enough to send your embroidery business crashing to the ground.
Here are 9 items that can cause your embroidery business to sink and you need to stay on top of each and every one of them in order to avoid a financial crisis and keep your business alive.
Poor Record Keeping
Embroidery Business owners are usually not good record keepers! People who start embroidery businesses are creative and love being in the creative space, bookkeeping is not something that makes them jump out of bed in the morning! They do not get up thinking! “Great, I get to do paperwork today!”
If you are to keep your business going and growing then you have to accept that there are going to be days that you can‚’t avoid it. You must keep records of your sales, your purchases, your production time, and your inventory.
Without these records you will very quickly lose track of where you are. You won‚’t know:
- What you have spent your money on
- You won‚’t know where your cash is going
- You won‚’t know how much you have in inventory
You are effectively working in the dark and this is not conducive to financial stability. So what sort of records are we talking about? Nothing sophisticated. It can be as simple as a book with one page for your income and another for your expenditure. At least once a month total it all up to see how money you have made (I hope!). There‚’s a saying. ‚ÄòThe people who keep records are the people who break records‚’ ‚Äì so true.
Not Keeping Track Of Your Bank Balance
Do you know exactly what your bank balance is today? Why is it important? If you are going to write a check you must know that you have the money on your account. If your check bounces it can damage your reputation and have a negative effect on your credit. This can cause a struggle when dealing with suppliers.
To avoid this make sure you keep a running total in a check book at all time and even get a line of credit so that you can draw on when the cash flow gets low. This can really help in those slow times, but you must repay the line of credit as soon as the cash starts coming in. There really is no excuse for losing track of where you stand.
Poor Cash Flow
When you are working with your customers and purchasing products for them you need to be asking for at least 50% down and then get the remainder of the payment when he or she picks up the order. If you deliver the order, you must collect the remainder before leaving the products.. You cannot afford to work with your money. You need to be working with your customer‚’s money. Carrying Accounts Receivables can kill your business very quickly.
No Cost Controls & Purchasing the Wrong Things
When you are going to make a new purchase, shop around to make sure you are making the right decision. Compare prices and specifications especially on larger purchases. Have your budget set before you start shopping for that new purchase.
Make sure you spend your hard earned cash on the right things. Your business, in order for it to grow, needs cash. Remove the cash and you remove the life blood which keeps your business alive.
You have to be disciplined when planning a new purchase. Always ask yourself the question, ‚ÄúWill this cost add anything to my business? Is it going to help me increase sales?‚Äù Don‚’t act on impulse; go away and think about every large purchase. If it is not going to help increase your sales, then the decision to purchase a new item is not the right one.
Failing To Make Necessary Cuts
Failing to make the necessary cuts to ensure the survival of your business is something you cannot afford to do. If you have an employee that is doing your purchasing for you, keep a check on him or her to make sure that they are not purchasing more than necessary. If your work load decreases, cut some of your labor costs. Do not try to keep them hoping it will pick up, this will be a huge drain on your cash flow. If you notice you have any type of problem do something about it immediately! Don‚’t sit back and hope things will get better; as a general rule, they do not!
If you have product or service that is costing you money, get rid of it. Not acting quickly will only compound the problem.
Depending On a Small Number of Customers
Having a small number of customers is not a problem when everything is going well, but if one or two leave you or fail to pay up on time, then this can cause problems.
If you depend on 3 customers and one of them leaves, you are faced with a 33% reduction in sales. Unless you can replace him immediately you may not be able to cut your overhead costs quick enough to avoid any crisis.
You cannot afford for your business to be held to ransom. Get out as quickly as you can and get new customers.
The same situation can apply to a business that only offers one type of decoration, such as embroidery. A shift in the economy can cause your customers to decide on a more cost effective alternative and all of a sudden, you have no embroidery. You must diversify and offer more cost effective alternatives to your customer when times get tough to keep your customers coming back for more of what you have to offer!
Not Having a Budget
At the beginning of each year sit down and go over your financial reports with a fine tooth comb, Based on your previous year‚’s income and expenditure, create a new budget. Look to see where you can cut back on or even what to cut out altogether if that is necessary to keep costs in line.
Having a good sound budget will help you make the right decision before making any large unnecessary purchases.
Having a good budget will provide you with the discipline to keep track of your expenses. At the end of every month update it by comparing your budget with your actual expenses. Going through this exercise will help you focus on what your business is actually doing.
No Contingency Plan In Place
All business, large or small need to have a contingency plan for all area of the business. A contingency plan is basically a plan which answers the question, “What would we do if this happened …?”
If you are a small embroidery business and basically a one person business you are at even a bigger risk than a larger business that has several employees. If you are ill for a month or two and could not work, who will help you get through that bad time. Do you have any type of insurance that is going to help pay the expenses and give you a salary in order to help you though this time?
Do you have procedure manuals written for all parts of your business so that someone else can step in and take over that part? You need to have a manual for each area of your business that shows how that part of the business works, how each process is done. This includes your office. If something does happen then someone else can follow your instructions and at least keep it going for you. You need to have instructions written down for the entire business flow. Do not depend on your memory to be able to tell someone else what to do. In a time of crises, your brain does not function as normal and this is impossible.
You must do everything that you can to avoid such a crisis! Having good procedural manuals in place is a huge part of that contingency plan.
Not Talking To Your Bank Manager or Loan Officer
As soon as most people see a financial crisis on the horizon, they try and avoid their Bank Manager or their loan office! This is the first person you should speak to. Bank Managers like to be kept up to date with what is happening in your business. They don‚’t like surprises. When they are kept in the dark they can make decisions that can have a major impact on your business. You must go to your bank the moment you suspect there is a problem. Who knows, he may surprise you by offering to do something to help!
Financial problems can usually be avoided by taking a step back from the business and thinking about what can go wrong. Act as an accountant or a trusted adviser and look at your business in that manner. Once you do that, then you can take actions to put preventative measures in place to avoid a financial crisis before it‚’s too late.
I work very closely with many embroiderers and I find that the 9 tips in this article are extremely important to almost all of them. As embroiderers we were not trained to be financial geniuses or business people at all! We are embroiderers that totally enjoy the hands on of performing our day to day operations and creating our designs! The financial end of the business is hard for most of us! Thoroughly read this article, think about your business and what you can do to make the necessary changes in it to avoid any of these financial crisis!