Monday, 31 January 2011

Stash your Cash

In this lesson of Creative industries we looked at managing cash flows, allowing you to keep track of your money by knowing exactly whats going in and out. This was done in a business model and applied to the concept of running a business and making sales, a simple chart was made to explain the process of a cash flow:

  • Update your cash flow Forecast(how will you spend your money)
  • Adjust your marketing to increase sales (market your productions to meet sales predictions)
  • Make contracts (Make sale)
  • Invoice your clients (recieve money)
  • Send reminder (if unpaid, send reminder)
This process is then repeasted over and over again, it should be noted that if your cash flow is down you should reduce costs and adjust your marketing to increase exposure.

We then addressed what exactly is a cash flow and what can you learn from it? well there are 3 steps to a cash flow:

  1. Receipts (This is your income)
  2. Payments (This is your Expenditure)
  3. The Blanace (The value of you income minus the value of your expenditure)
If when you work out your balance and it's in positive figures that means you have a "Positive Cash flow" which means a steady growth of figures on the bottom line and that you're earning more than you're spending, in your figures are in negative figures that means you have a "Negative Cash Flow", showing that you have a steady decline of figures on the bottom line and that you're spending more money than you're earning. Pretty simple, right?

It's important to make a cash flow forecast when starting up a business as it gives you a rough estimation of what you'll be spending your money on such as payment for employees, rent for your building and various other aspects that require money to run a business, always consider costs and groth and never be afraid to ask for help from a Certified accountant. Don't get confused as there are two types of accountants, Charted and Certified, more often than not, Charted accountants are very expensive but don't really do anything different to Certified accountants.

It's important to know the types of documents you'll be handeling when running a business, often these documents will be invoices and statements:
  • Estimate (Quote)
  • Invoice (Bill, has name, date, items/service and total cost)
  • Statement (reminder for any missing payments)
Next heres a list of terms and conditions, it's important to apply these when making a sale as it gives you benefits such as protecting your rights and interests, it lists costs clearly in a legally binding contract aswell as delivery arrangements and payment terms. Important Terms and Conditions are:

  • Cancels and Returns
  • Risk/Title
  • Payment
Accounting is a very important part of business as it allows you to keep track of spending and who owns the money. It's important to see the money coming in and out and that you don't spend more than you earn, as well as using accountants you canalso use software programs to keep track, whilst they do cost money it's generally a good idea as if you notice you're losing money somewhere along the line it might be too late to fix it.

So what do businesses spend their money on? more often than not there are start up costs, overheads (fixed costs) and direct costs, tehese are listed below:

Start up Costs:
  • New Equipment
  • Website
  • Company Name
  • Logo/Signs
  • Aesthetics
  • Launch Party (Optional)
  • Bills (rent, power, wages)
Direct Costs:
  • Any spendature realting to the project (this is a variable amount, eg Computers for designers)
As well as keeping yourself informed about your business it's important that you keep your bank informed. The usual information that they require is:
  • Marketing plan
  • How much money needed?
  • How much money do you have?
  • How will you spend your money?
  • (If borrowing) How will you pay the money back?
With all that said the main lesson that should be taken away from all of this is that when starting up a business the most important thing is that you should hire a certified accountant.

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