Let’s back up. Do you have monthly sales goals for your business?

If not, you should. You should have a target number for how much money you need to bring in each month.

That number should be your benchmark. When you look ahead to the coming months, you should always be asking yourself, what do I need to be doing to hit my income target?

But how do you come up with that number? How do you know what your monthly sales goal should be?

You could start with a guess. Maybe a number that just feels right. Maybe something that just seems bigger than what you’re currently bringing in. Maybe you took your dream annual salary and divided by twelve.

If you’re using one of these methods, there’s a more concrete way. I base my monthly sales targets on two factors:

1. What it costs to run my business each month.

2. What it costs to live my life each month.

What it costs to run my business + what it costs to run my life = the minimum amount of money that I need to bring in each month.

It’s a simple equation that helps guide many of my business decisions.

So how do I determine those two numbers?

By keeping meticulous records. (Ok, that’s a little bit of a lie. I let outright.com keep meticulous records for me.) But I use the data that I get from outright plus my spreadsheet of income, expenses, and living expenses to determine that magic number.

How often do you look at your income and expenses for an entire year?

I keep a master spreadsheet where I chart income by category, expenses, and income from my teaching job, all by month. It’s essentially my version of a profit and loss sheet. At a glance, I know if I’ve made a profit or not each month, and how much. And I have one of these for every year I’ve run my business.

By making this sheet, I can easily get the full picture and spot trends. I start to see what my average expenses are each month. I get a feel for how much I’ve brought in each month. And I compare that to my money situation each month – did I have enough to cover everything? Was I stressed about money? Did I have to dip into savings or ask my husband to contribute more than normal?

All those factors led me to come up with a target monthly sales goal. And when I wanted to hire an employee, I simply added her wage (plus taxes) into that number to come up with a new monthly sales target.

Because of all this, I have a really good idea of what it costs to run my business each month. And I know how much I need to bring in to cover those costs. I know what I need to keep my business (and my life) running. I can set bare minimum sales goals, comfortable sales goals, and, wouldn’t this be great sales goals.

How about you? Do you know what it costs to run your business each month?

If you don’t, how can you expect to run your business successfully?

These checks weren’t unexpected.  They were payments from stores for jewelry I had sent them in March.  These were checks rolling in from my NET 30 accounts.  And these checks now form the bulk of the income from my jewelry business.

What is NET 30?

Once you start wholesaling your products, you’re likely to run into stores who ask if you offer “terms.”  What this typically means is will you extend NET 30 credit to the store.  NET 30 means that you ship a store’s order, and they have 30 days to send you payment in the form of a check.  (Some larger companies may request NET 60 or even NET 90 – meaning they have 60 or 90 days to pay.)

While I don’t recommend extending NET 30 to first time wholesale buyers (for those I request a credit card up front), I do like to move regular accounts onto NET 30 after a few orders.

Obviously, there are plenty of reasons stores like NET 30.  It gives them 30 days to sell product and recoup some of the costs before they have to send a check.

But as a maker, I find plenty of reasons to love NET 30 too:

1.  More money in my pocket. It’s not uncommon for me to have wholesale orders of $500 or more (and some are over $1000).  If a buyer pays with a credit card, that’s money I lose on the credit card fee.  When a buyer pays NET 30 with a check, the full price of the order goes into my account.

2.  It’s easier to get the order out the door.  Sometimes, it can take a few days of playing phone tag before I track down someone who can give me the credit card information for an order.  With NET 30 accounts, I just make, pack, and ship.

3.  Money comes in even if you aren’t working.  Because my business is primarily based around wholesale, I had wrapped up my busy production season last year by the first week of November.  I was even able to take the entire week of Thanksgiving off.  (Not something that can be said for my friends busily prepping for holiday retail shows.)  But during that week off, I was far from concerned about not making money.  I had plenty of NET 30 orders rolling in to make November my biggest month that year to that point, even though I didn’t do much work.

Despite all the reasons that I love NET 30, I know plenty of makers who still find it a little scary.  After all, there are a few legitimate concerns.  Can you afford to spend the money up front for supplies, and only get paid a lot later?  What do you do if someone doesn’t pay?

When it comes to making NET 30 work for your business, there are a few guidelines to keep everything running smoothly:

1.  Only extend NET 30 to qualified accounts.  As I mentioned above, I don’t typically extend NET 30 to first time buyers.  When you offer NET 30, you are offering a store credit.  And it’s important to build a relationship with stores before you offer them credit.  (There are exceptions to this rule.  I sell to a lot of museum stores, and their accounts payable system is only set up to handle NET 30, so I grant it from the start.)  For any store looking to go NET 30, you’ll want to ask for a credit sheet.  This sheet details their banking information, as well as references you can use to check them out.

2.  Keep detailed records. When you send out a lot of orders on NET 30, it’s important to keep detailed records so you know who’s paid and who hasn’t.  I keep a master Excel spreadsheet of all my business income, and one page is specifically for keeping track of wholesale orders and NET 30.  I keep a list of all outstanding accounts and when payment is due.  That way, I know at a glance how much money is coming in and who is late on a payment.

3.  Balance NET 30 with credit card orders.  Even though I like having the bulk of my accounts on NET 30, it’s nice to have a few that pay via credit card for the quick influx of cash it provides.  Since most NET 30 accounts will be stores you’ve established a relationship with, it’s critical to always seek out new stores, since these will be the most likely to pay with a credit card.

What do I do if someone doesn’t pay on time?

The first thing to do is not to panic.  I usually give stores a few extra days to even a week just to account for mail time.  My experience is that most checks will roll in over that time period.

If you’re still waiting on the check after that, you’ll need to call the store.  Be firm but polite and let them know that you’re still waiting on their check.  You can also resend the invoice as a reminder. (Be sure to mark it PAST DUE.)

In the time I’ve been selling wholesale, I’ve never had a store fail to pay.  (I think a lot of this comes from building my business through trade shows – there’s a level of trust that takes place when you see someone on a regular basis.)  But if this happens, your only real recourse is to sue to try to reclaim the money (or the product).  Depending on the amount of the order, this may or may not be worth it.

But luckily, for every occasional horror story you might hear, there are plenty of excellent stores who pay on time and are great to work with.  So the next time an existing account asks if you’ll offer terms, don’t shy away from it.   It can actually be a really smart way to build your business.

But how you spend this extra cash can have a big impact on setting your business up for success in the new year.

It can be tempting to spend it all on a few extra holiday gifts or some treats for yourself, but before you know it, all that extra money can be gone, leaving you with a cash flow crunch during the next few months.

Instead, you should look at the money you’ve made over the last few months and create a strategy that maximizes its impact. If you’ve done a good job of record keeping in the past year, take a look at the first few months of the year. How did things look financially? Did you make a lot of money? Were things slow? Did you need the money from the previous holiday to help get you through?

Once you’ve taken a look at your previous year’s numbers, think about the months ahead. What moneymaking strategies do you have in place? What are the opportunities? What challenges will you face when it comes to making money?

Now that you have an idea of what’s in store for the next few months, you can devise a plan to make the most of the money you’ve just made. Here are some suggestions for what to do with all that fourth quarter profit:

Invest it back in your business. If you don’t need the profit your business has generated to cover personal bills, then investing it back in your business is a good way to spur growth for the next year. Think about your goals for the next year, and decide how spending on your business can help you achieve those goals. Maybe it’s purchasing advertising or spending more money on marketing. Maybe it’s taking a class or investing in a piece of equipment that would make your production more efficient. Whatever it is, focus on investments that can help your business grow in the new year.

Start saving for a big business goal. Maybe your business goals cost more than the money you made in the last quarter. I often hear makers talking about how they’d like to try exhibiting at a trade show, but they can’t afford it. If you’re business goals are bigger than your current profits, now is a good time to start saving for them. Open a savings account dedicated towards your business goals, and make it a priority to contribute a portion of your profits each month.

Fund your retirement. When you’re self employed, it’s up to you to take care of your retirement. Even if you still have income and a 401(k) from another job, investing in your retirement is one of the smartest things you can do with the extra income you’ve made over the last few months. If you don’t already have one, open an IRA or Roth IRA and start investing. If you already have one, use the extra income you’ve made to max out your contributions.

Save it for a rainy day. (Or a slow month.) Once you’ve funded your retirement plan and invested in your business, you may also want to put aside some money for a rainy day. Perhaps you’ll want to tuck the money into an emergency fund. Or set some money aside to pay yourself in months when you know the business will be a little slower. (I actually put my salary for January into a savings account and then set it auto-transfer into my checking account mid-month. This way, even if my business is a little slower next month, I know my personal bills are covered.)

Treat yourself (a little). I know I mentioned that you shouldn’t blow all the money you’ve made on little treats for yourself, but if you’ve managed to fund your retirement, invest in the business, and tuck money into savings, there’s no harm in treating yourself a little. Of course, the best treats are the ones that also help support the local economy, indie business, or your favorite social causes. This might be a good time to buy that new bag you’ve been coveting on Etsy, treat your partner to dinner at that great local restaurant you’ve been hearing about, or donate to your favorite charity.

And don’t forget to put some away for the tax man. And don’t forget that if you’ve made a profit this year, you’ll certainly owe money in taxes. You can use a service like outright.com to help determine your estimated quarterly taxes, then make sure you’ve put enough aside for the January 15th Q4 tax deadline.

I’d love to hear your thoughts in the comments. What are you planning on doing with your profits from the fourth quarter?

{money tree print via keikeland on Etsy}

And that’s when I realized that my web hosting sucks.

I’ve had the same web host for meganauman.com since around 2004 or 2005. At the time, it made sense to me. There were a lot of cheaper options, but I made my decision based on the guess that this provider would be around for a long time. (Which, they were.)

But over the years, I’ve come to realize that maybe they aren’t the best. They’re overpriced for the amount of traffic I have. They have some weird domain restrictions. And site updates can take forever to show up.

So why have I stayed with them this long?

Simple, human nature.

It’s the way I’ve always done it, and changing seemed like such a hassle.

But last night I realized that mentality can really hurt your bottom line.

By not switching to a better priced service, I’m wasting money. And having to deal with weird restrictions is costing me time and frustration.

But I’m sure I’m not the only one that this syndrome affects. We stay with the bank that charges a monthly fee because it’s the one we’ve always used. We use the same credit card processing service as everyone else, rather than find the best option. We pay too much for supplies because it’s easier than researching new sources or negotiating a better price.

And while it might not seem like such a big deal, that kind of thinking can cost you big time in the long run.

Monthly fees and overpaying can add up to hundreds of dollars (if not more) wasted in a year. Overpaying on supplies can drive up the price you need to charge just to break even.  And all of this can have an incredibly negative impact on your bottom line.

So today, while I’m switching my web hosting to something better, I’d encourage you to think about the service providers and suppliers you use for your business.  Are they really the best option for your business?  Or are you using them just because it’s what you’ve always done?

And as the year draws to a close, I’ve been spending a lot more time staring at spreadsheets. (My bookkeeping method involves a combination of outright.com and a much more detailed Excel spreadsheet.) I’ve been staring at my spreadsheets because, while they are a picture of the last year of my business, they’ve got a lot more to tell me about how to run my business in the future.

Here are some of the most important things I’ve learned about my business by tracking my numbers:

1. The minimum cost to run my business. It costs money to run a business, but everyone’s business has a different set of expenses. Running a product-based business requires a lot of overhead. In order to successfully make a profit, you have to understand how much it costs to run your business every month. Now that I’ve tracked my expenses in more detail, I know what I need to bring in each month just to break even.

Of course, you don’t want to run a business just to break even. Which is why my spreadsheet has helped me come up with an even more important number:

2. The minimum amount of money I need to bring in each month to not feel financially panicked. The money I make from my business isn’t my only income – I also teach part-time at a university. But my teaching income isn’t consistent enough to cover my bills every month. Some months I make more than others, and some months I don’t teach, and don’t get paid, at all. In those months, I rely on the business to support me. (Full disclosure: Yes, I am married, so I don’t have to pay all the bills myself. But we also can’t live solely off my husband’s income. We both contribute to paying the bills each month.)

But what I’ve learned from tracking my numbers is what my gross income needs to be each month to not feel panicked. Adding my teaching income into my spreadsheet allowed me to get a fuller picture of my financial health, as well as the financial health of my business. Now, I have a target goal for total income. Which means if I don’t teach certain months (or start to cut down on my teaching) I know the number I need to reach to make that realistic.

3. Which months tend to be slow, income-wise. One of the other things my spreadsheet tells me is which months tend to be slower from an income standpoint. This is critical information as I plan for next year. I’ve learned that the month or two before a major trade show tend to be the tightest, whereas I bring in the most revenue for several months following a show.

Understanding these numbers means I can start to plan in advance for months that might be slow. Knowing now that July is probably going to be a tough month financially means I can start to think of creative ways to boost my income now, so that I don’t feel panicked when that time comes.

As the year draws to a close, I’ll be spending even more time crunching the numbers. I want to take an even closer look at the profitability of certain product lines and effectiveness (from a profit standpoint) of various marketing efforts.

And I’m not just doing this for fun, even though I do enjoy it. (What can I say, I’m a nerd – and proud of it.) The better I understand the numbers behind my business, the easier it is to make decisions.

Even if you don’t want to dive into the details like I’m planning on doing, understanding the basic financial picture of your business can go a long way in helping to make your business more successful.

{image credit}

So I’ve compiled a list of some of the ways you could “find” $500 for your business.  Some of these could net you $500 extra dollars quickly, while others may take a few months or longer.  None of them are as easy as finding $500 on the sidewalk or winning the lottery, but if you’re really committed to funding your business, putting one or more of these suggestions into action can have a big impact.

Cut the cable bill.  TV can be both a huge time suck and huge money suck.  If you talk to many successful entrepreneurs, they’ll tell you time and time again that they don’t watch TV.  Which means cutting your cable bill can free up both time AND money to spend on your business.  If you absolutely need TV in the background, or can’t miss certain shows, you can swap out your cable for Netflix and watch Hulu for more current shows.  Once you’ve cut the cable bill, look around for other bills that might be slashed.  Gym membership you aren’t using?  Take all that money and funnel it directly into the business.

Keep the change. At the end of the day, drop all your extra change into a container earmarked specifically for your business.  Don’t use cash anymore?  Sign up for a debit or credit card that funnels money (anywhere from a few cents to a dollar) into a savings account every time you make a purchase, and use that money for your business.  Or, put yourself on a cash diet and drop the leftovers into your business fund every week.

Teach a class or workshop.  Using your skills to teach others can be a great way to bring in extra cash for your business. (Not to mention provide a long term additional revenue stream for your business.)  Start by checking with local craft guilds and community centers to see if they need workshop instructors.  Or you could even consider teaching classes right out of your home or studio.

Add a service or custom component to your business.  Running a business designing, making, and selling products often requires a lot of capitol.  But parlaying your existing skills into a service component of your business can be a great way to bring in extra cash without a lot of extra cost.  Designers and illustrators should consider freelance work, and others may want to focus on doing custom designed pieces.

Ask your friends and family (for cash).  Sometimes what you really just need is a loan, and before you start begging banks, you might want to make the rounds with your family and friends.  Just make sure you draw up an agreement that includes terms and a payback schedule so that you can avoid feeling too guilty when you see Uncle Artie at Thanksgiving dinner.

Ask your friends and family (for gifts). Let you family and friends know that the best gift they can give you this year is an investment in your business.  I mean, do you really need another sweater?  You can ask them for cash to fund the business, or give them a list of the tools, materials, and supplies that you’re in need of most.  (This is also a great tactic if you’re still in school and working in a communal studio.  Every Christmas during college, I asked for an assortment of tools – including a torch – so that by the time I graduated I had a studio of my own ready to set up.)

Kickstart it. Got a project you’re particularly interested in getting funded?  Kickstarter is a website that allows you to post a project and then have members of the community make donations.  Donors only pay if the project gets 100% of its requested funding, so use it to fund a really great project that you can get lots of people excited about.

Put it on a credit card. While I don’t recommend using your credit card to finance thousands of dollars (there are smarter solutions with better interest rates), if you just need a boost and know you can pay it back in a few months, a credit card can be a viable option.  Apply for a credit card just for your business, and request a really low credit limit.  (Such as $1,000.)  Then keep the card on hand for situations where cash flow is a little tight, like in the few weeks leading up to a big craft show where you’ll be spending a lot of inventory, marketing, and display, but are likely to make that money back.  Bonus:  Pick a card with a good rewards program and use it rack up miles for that trade show in Vegas next year.

I’d love to hear your thoughts in the comments – what strategies have you used or are you planning to use to fund your business?

{moneybag wallet by chakrapennywhistle on Etsy}

One of the answers that I found particularly interesting was that when it came to the $50,000, several people said they would invest at least a portion of it.

Now, I understand the logic behind it. Investing is good. And you probably aren’t going to spend $50,000 on your business in one day. And investing will give you a much higher rate of return than leaving that money sitting in your checking account until you’re ready to spend it.

But on the flip side, I want you to get comfortable with another idea. That spending on your business is a financial investment.

One with potentially much higher yields than even the best money market account.

For example, I can take $50 in materials and $100 in labor and turn that into $450 of product. That’s a 300% return on my investment. In one day.

Or I can spend $2,500 on a trade show booth and write $10,000 worth of orders. Or you could spend $300 on advertising and sell $1,000 worth of products. You get the idea.

Now, I understand that investing in your business can be a much riskier investment. It’s hard to know if a marketing plan will pan out. Perhaps that new product line will be a total flop. But in order to find out, you have to be willing to invest. And you have to be willing to take risks from time to time.

However, you can mitigate those risks by making smart decisions when it comes to your business. Just like when it comes to traditional investing, it’s important to do your homework. Certain investments will always yield a higher rate of return. For instance, $500 spent on marketing will likely yield a higher return than spending $500 on materials that just sit in your studio.

Though in reality, you probably wouldn’t spend all your money on one thing like in the example above. Just like with your portfolio, it’s important to diversify. Which is why you might spend $150 on materials to create $2,000 worth of new product, which you’ll then spend $350 marketing. (For those who don’t like math, if you sell all that product, that’s a 400% return on your investment.)

But one thing I’ve noticed is that investing in your business actually means investing in yourself, and that takes confidence. It takes a lot of confidence to believe that you can take that money and turn it around to make a profit.

I was amazed at the number of people who wouldn’t take the $50,000 if they had to pay it back. In order to take the 50k, you have to believe that you can turn that money into something much bigger. You have to see that money not as debt, but as an investment that has the potential for incredible returns.

And you have to believe that you are the person with the power to make that happen.

I’d love to hear your thoughts in the comments. Do you consider spending on your business an investment? And what’s holding you back from making bigger financial investments in your business?

{Invest in Art photograph via RoyalFotographique on Etsy}

What if someone gave you $5,000 to spend on your business?

What about $50,000?

And would you spend it differently if you had to pay it all back?

{cash money print by orangebeautiful on Etsy}

As we approach the end of the year, I’m getting excited about doing some serious number crunching for my business. A little geeky, I know, but I run a blog about business, so you already knew that. But since I declared 2010 the year of numbers, I’ve improved my bookkeeping habits, and now I’m curious to see what all those numbers tell me. I’m looking forward to examining my business from lots of angles to see where I’m making money and where I’m not. This is valuable information I’ll use to decide where my business is headed in 2011.

Not only have I made a commitment to my business finances, but I’m also much more focused on taking control of my personal financial health. Ultimately, you can’t run a successful business without stable personal finances, so I’ve made a commitment to building my savings and funneling money into my retirement account.

But as I spend more time thinking about money and how it relates to me and my business, it makes me even more excited to find ways to help you get a handle on your business money situation.

So today, I’d love to know, what are your issues with money?

Do you struggle with bookkeeping?

Do you want to price your products better?

Do you want to figure out how to earn what you’re worth?

Do you just want to know how to make more of it?

I’d love to hear your questions and concerns, so feel free to share them in the comments below!

(image credit)

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PS. Today is the last day to grab your two-week free trial of The Creative Empire. Tara and I are putting together a fantastic seminar featuring Amanda Steinberg from The Daily Worth, and it’s all about, you guessed it,  money. You won’t want to miss this (Amanda is one smart lady) so head over to The Creative Empire and sign-up today.

Hello! I was so excited when Megan asked me to guest post here on CraftMBA. She has been talking a lot about creating a culture of profit and that topic is something I am so passionate about! Before I get in to the number crunching, let me start by telling you a little about myself…My name is Holly. I am a financial accountant, focusing on supporting micro and small businesses. I am a numbers girl. I am passionate about accounting, small business and entrepreneurship and love to support others in their quest for business ownership. I hope I can help get you on your way to financial organization!

{Image courtesy of f2images.etsy.com}

Megan has done an excellent job of sorting through the psychology of owning a profitable business, what I want to do is talk about the science of tracking your business profit. I want to help you create a process for tracking your business finances. I will put together a skeleton plan here today, then you can use that to make it your own and work for your own situation. (I should note, this discussion is based on the assumption that you run your business as a cash-basis, sole proprietor. If that isn’t the case, please adjust accordingly.)

So, let’s get down to the basics…
I have broken the process out into 4 steps:
1) Gather
2) Sort
3) Reconcile
4) Report

{Gather}
This is the easy part. You need to get your business bank statement and business PayPal* reports. You’ll also need any other reports or receipts for business transactions conducted outside of these business accounts. This could include receipts for purchases made with personal funds or sales received into your personal account. Simply put, you need to collect a receipt or record for every incoming or outgoing business transaction.
*(PayPal reports: history>reports>Monthly financial summary & View Details of same page)

{listing from OrangeBeautiful.etsy.com}

{Sort}
Here is where we group income with income and expenses with expenses. You may want to group income in to sub groups by type. Etsy sales, Local sales, Wholesale sales and so on.

Categorizing expenses will take a little more time. There is no set list of categories to use. I think it is a good idea to start with the expenses found on the schedule c tax form. It is not the end-all, be-all of expense categories, but it is a great starting point. Use these categories and then add in your own subcategories as necessary for your business. You can find those HERE.

So, the big question is HOW to best track this information. My three favorite methods are spreadsheets, Outright or QuickBooks. I suggest getting familiar with your options to see what best suites you and your business. I have free Income & Expense tracking spreadsheets available for download on my BLOG. These are simple and to the point. Great for micro business. Outright is a free online program that will automatically link to your PayPal account, and it’s a simple program to use. And I’m sure you’ve all heard of QuickBooks. I love the program. It is full cycle accounting software. Great for micro business and beyond. I could go on for hours about these programs. But, to spare you the excitement (ok, maybe only I find it exciting), you can jump over to my Accounting SPOT blog to read up about these and to find a few tutorials to help you get started with each.

{listing from Charms4You.etsy.com}

{Reconcile}
This is just a good old fashioned bank reconciliation. For accounting purposes, I consider PayPal a bank account. So for your business bank account, PayPal account and any other bank type account, you need to complete a reconciliation. This is where you match transactions on the statement to the transactions posted in your accounting program. This verifies that your information is complete and accurate. QuickBooks has a module just for this. If you are using spreadsheet or Outright, you will need to do it manually. I know, manually…yuck! But, so worth it for the reliability it provides.

{Report}
This is where all your hard accounting work pays off! You get to see your bottom line. Whether it be a profit or a loss, knowing just where you stand allows you to make solid business decisions moving forward.

Whichever accounting program you choose to use, the reporting is pretty much done for you. Once you do your input and coding, the reports fall in to place (unless you are using pencil & paper, you’ll have to do some work to get your report). An Income Statement (aka Income & Expense Report) is a necessary management tool. You need know where your business stands financially in order to make good decisions.

There you have it, the accounting basics you need to get started! Keep in mind, you don’t need an expensive and/or super sophisticated accounting system. What you need is a process that works for you and is something you will stick with on a regular basis. Accurate, reliable, doable.

If you have any questions or comments, please feel free to comment on this post. I will be checking in often. Thanks so much for having me!

You can also find Holly over at the Accounting Spot blog and on Twitter.

(Links to Outright and Quickbooks are affiliate links.)