Essential Financial Management Tips for Entrepreneurs

FINANCE Budgets/Forecasts/Cashflow Workshop Jenny Holloway Business Mentor and Coach February 2025 Jenny Holloway Be Your Own Boss

FINANCE INTRODUCTIONS Jenny Holloway Be Your Own Boss

FINANCE Topics: 1. Elements of Financial Management (The things you need to do) 2. Costing Sheets 3. Profit & Loss 4. Cashflow 5. Book-keeping 6. Managing cashflow 7. Funding Jenny Holloway Be Your Own Boss

FINANCE 1. Elements of Financial Management: The things you need to do! a) Product Costings know how much each product costs b) Recording and reporting what has happened - statutory reporting and Tax - book-keeping c) Forecasting/Budgeting for what is going to happen (P&L and Cashflow) - are you going to make a profit? - making sure you have enough cash - matching your business plans to your finances d) Financial Discipline - Cost control/Pricing/Maintaining Margins Jenny Holloway Be Your Own Boss

FINANCE Elements of Financial Management: a) Product Costings a) Know how much each product is going to cost you when you go into production. b) Check if your pricing is ok compared with your product costs Jenny Holloway Be Your Own Boss

FINANCE Elements of Financial Management: b) Recording and reporting what has happened: i) Statutory reporting and Tax - Sole Trader annual tax return - Ltd Company annual accounts Using an accountant: - Prepares and submits annual accs. - Prepares and submits tax returns - Gives tax and financial advice - Can do payroll, VAT, book-keeping etc Jenny Holloway Be Your Own Boss

FINANCE Elements of Financial Management: ii) Monitoring and book-keeping Why monitor what is happening? - stay in control - make sure you are on track - spot problems straight away Why do book-keeping? - monitor income & spending - needed for annual accs & tax - needed for VAT returns Jenny Holloway Be Your Own Boss

FINANCE Elements of Financial Management: c) Forecasting/Budgeting for what is going to happen - why do forecasting? - enables you to measure success - enables you to anticipate cash requirements - enables you to take informed decisions Jenny Holloway Be Your Own Boss

FINANCES Elements of Financial Management: d) Financial Discipline Top Tips: - Know your product costings and pricing in detail, so you know how much margin you are making - Know your budgets. You can be flexible but understand the financial implications of going outside your budget - Get the best possible payment terms from customers and suppliers Jenny Holloway Be Your Own Boss

PRODUCT COSTING 2. Product Costings: How much is each product going to cost you? How does your price compare with your costs? Include the cost per garment for the following: + Materials (e.g. Fabrics and Trims) + Production cost + Packaging? + Anything else? Jenny Holloway Be Your Own Boss

PROFIT & LOSS 3. Profit & Loss: How to calculate profit/loss: Sales Income 100,000 less Cost of Goods Sold (materials and prod costs) - 50,000 Gross Margin (sales costs of goods sold) 50,000 less Others Costs (overheads) - 45,000 = Profit = 5,000 Note: Cost of sales usually excludes the cost of anything still in stock, unless it can t be sold. Jenny Holloway Be Your Own Boss

PROFIT & LOSS Typical P&L report in annual accounts: Tops and Bottoms Ltd Profit & Loss Account for Year Ending 31st March 2024 Sales 100,000 Less Cost of Goods Sold Opening Stock Plus Stock Purchases Less Closing stock 0 50,000 0 50,000 Gross Margin 50,000 Less Overheads Wages & Salaries Development Studio/Office/General Marketing Finance & Professional Depreciation 5,000 20,000 6,000 12,000 2,000 0 45 ,000 Net Profit before Tax 5,000 Jenny Holloway Be Your Own Boss

PROFIT & LOSS Typical P&L report in annual accounts: Tops and Bottoms Ltd Profit & Loss Account for Year Ending 31st March 2024 Sales 250,000 Less Cost of Goods Sold Opening Stock Plus Stock Purchases Less Closing stock 10,000 130,000 ( 15,000) 125,000 Gross Margin 125,000 Less Overheads Wages & Salaries Development Studio/Office/General Marketing Finance & Professional Depreciation 45,000 30,000 15,000 22,500 3,000 2,500 118,000 Net Profit before Tax 7,000 Jenny Holloway Be Your Own Boss

CASHFLOW 4. Cashflow: Cashflow is simply keeping track of what cash comes in and what cash goes out on a regular basis (usually monthly), e.g: Cash Flow for Jan 2024: Opening bank balance at 1st Jan Plus Sales Income during July Plus Other Income Less Cash spent in July: Stock purchases Overheads =Closing bank balance at 31st Jan 20,000 + 25,000 + 0 - 12,500 - 15,000 = 17,500 Jenny Holloway Be Your Own Boss

CASHFLOW Cashflow: The main differences between cashflow and P&L: Cashflow uses the same format as the P&L but: It includes all cost of stock whether it is sold or not It includes all income (not just sales) e.g. loans, investment etc (these are shown separately so you can monitor sales income and investment income separately) If you are VAT registered you only show the net sales and net expenditure (excl VAT) on the P&L, but the full value (incl VAT) on the cashflow Cashflow is the main financial control tool for monitoring and forecasting so you don t run out of cash and you see problems coming before it is too late Jenny Holloway Be Your Own Boss

CASHFLOW Seasonal cash cycles You need to understand your own business cycles to forecast cashflow properly. Example (typical womenswear wholesale cycle): SS Sampling Jun to Sep Sales & marketing activities Aug to Oct Receive orders and deposits (if apt) Sep/Oct Order fabrics Oct Pay production deposit (if apt.) Nov Pay for Production (balance) Dec/Jan Receive Customer payments (bal) Jan/Feb/Mar AW Cash Nov to Feb Jan to Mar Apr/May May Jun July/Aug Aug/Sep/Oct Out Out In? Out Out Out In What about e-commerce/private client sales? Can you make to order? Can you keep stock levels low and top-up when required? Jenny Holloway Be Your Own Boss

CASHFLOW Cash cycles cont. E-Commerce sales from stock (stock replenishment model): Produce initial stock Sell from stock Replenish stock Sell from stock Cash Out In Out In Bespoke commissions made-to-order: Receive order and deposit Make to order Customer pays balance In Out In When are your peaks and troughs? Jenny Holloway Be Your Own Boss

CASHFLOW Tops and Bottoms Ltd Monthly Budget Cash Flow May 2020-21 Jul Apr Jun Aug Sep Oct Nov Dec Jan Feb Mar Full Year Bank balance b/fwd: Cash In: Loans/Investment Sales: SS AW Online sales Other Total Income: Cash Out: Materials, Fabrics, Trims Production Packaging Carriage Total cost of goods Overheads: Gross Salaries National Insurance Sampling & Development Travel & Subsistence Print/Post/Stationery Telephone + Internet Utilities Insurance Events Marketing (website, lit, ads) Miscellaneous Rent Rates Bank Charges Professional Fees Total Overheads VAT Capital items Bank Interest Net Cash Flow Balance c/fwd Jenny Holloway Be Your Own Boss

CASHFLOW Tops and Bottoms Ltd Monthly Budget Cash Flow May 2020-21 Jul Apr Jun Aug Sep Oct Nov Dec Jan Feb Mar Full Year Bank balance b/fwd: Cash In: Loans/Investment Sales: SS AW Online sales Other Total Income: -1,250 1,500 -9,250 -20,000 -6,250 -2,500 1,250 -12,500 -26,250 -2,500 6,250 15,000 25,000 10,000 50,000 30,000 10,000 15,000 5,000 10,000 15,000 5,000 15,000 25,000 10,000 80,000 Cash Out: Materials, Fabrics, Trims Production Packaging Carriage Total cost of goods 6,000 10,000 16,000 24,000 4,500 4,500 7,500 7,500 6,000 4,500 4,500 10,000 7,500 7,500 40,000 Overheads: Gross Salaries National Insurance Sampling & Development Travel & Subsistence Print/Post/Stationery Telephone + Internet Utilities Insurance Events Marketing (website, lit, ads) Miscellaneous Rent Rates Bank Charges Professional Fees 5,000 5,000 5,000 5,000 20,000 250 250 250 250 250 250 250 250 250 250 250 250 3,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 12,000 1,000 1,000 Total Overheads 1,250 1,250 6,250 6,250 1,250 1,250 1,250 6,250 6,250 1,250 1,250 2,250 36,000 VAT Capital items Bank Interest Net Cash Flow -1,250 2,750 -10,750 -10,750 13,750 3,750 3,750 -13,750 -13,750 23,750 8,750 -2,250 4,000 Balance c/fwd -1,250 1,500 -9,250 -20,000 -6,250 -2,500 1,250 -12,500 -26,250 -2,500 6,250 4,000 Jenny Holloway Be Your Own Boss

Book-Keeping 5. Book-Keeping Options: 1. Use simple income and expenditure lists (best done on excel) 2. Use a book-keeping software package such as Xero, Freeagent, or basic Sage package etc 3. Give everything to your accountant (OK for annual P&L, no good for cashflow management) For 1. and 2. you can do it yourself or use a part time freelance book-keeper or a part time admin person Jenny Holloway Be Your Own Boss

Book-Keeping Income/ Sales List Net VAT Gross Income Sales Analysis: Wholesale Other income: Date Inv. no. Customer Description Income Private E-Commerce Post & Packing Loans Other Apr-20 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Apr Total 0.00 0.00 0.00 0.00 0.00 0.00 May-20 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 May Total 0.00 0.00 0.00 0.00 0.00 0.00 Jenny Holloway Be Your Own Boss

Book-Keeping Book-Keeping Possible sub-headings ( account headings ): Sales: UK Wholesale Export Wholesale E-Commerce Private Clients Cost of Good Sold: Materials Production Warehousing/packing/despatch Jenny Holloway Be Your Own Boss

Book- Keeping Book-Keeping Possible sub-headings ( account headings ): Other Income: Loans/Investment/VAT refunds Overheads: Salaries: Freelancers/Staff/Director s remuneration Development: Materials/Production or outsourcing Studio/Office/General: Rent&Rates/utilities/telephone/ stationery/travel/insurance/IT software & support/misc. Marketing: Shows/PR/photoshoots/social media/website Finance & Professional: Bank charges/interest/accountant/ legal fees/mentoring/training Equipment: Small tools/capital expenditure Other Payments: Loan repayments/VAT payments Jenny Holloway Be Your Own Boss

CASHFLOW 6. Managing Cashflow Best Practice Use cashflow forecast to predict and plan for growth Set realistic budgets and monitor them regularly Question your sales forecasts do a sensitivity analysis (a what-if check) Question your budgets do you really need to spend what you have budgeted? Check your cashflow monthly, so you know its up-to-date and realistic update it accordingly Organise your book-keeping system. Use excel or specialist book-keeping software like Xero or Freeagent. Keep paper trails on everything. Plan for any financing needed. It can take weeks to get funds Get to know your bank, the account manager, and the products they have available (overdrafts, loans, invoice financing) Learn about other sources of finance as early as possible factoring, angels etc. Choose an accountant who can explain things clearly to you, who you can trust and who can be proactive Jenny Holloway Be Your Own Boss

FUNDING 7. ACCESSING FINANCE Why might you need more money? Jenny Holloway Be Your Own Boss

FUNDING Types of finance: 1. 2. 3. 4. Loans Equity/Investment Crowd Funding Grants/Sponsorship/Prizes Jenny Holloway Be Your Own Boss

FUNDING Loans: Friends and Family (including your own resources) Commercial and Social Lenders Start-up loan company Banks Loan Overdraft Other Lenders e.g. social lenders, peer to peer (Talk to Creative Industry Finance) Invoice discount / factoring Crowd funding (e.g. Funding Circle, etc) Jenny Holloway Be Your Own Boss

FUNDING Equity (Shares): Friends and family Business Angels or Venture Capital groups Individual investors Informal networks Business Angel Networks Venture Capitalist Group Crowd Funding Crowdcube, Seedrs, etc Jenny Holloway Be Your Own Boss

FUNDING Grants/Sponsorship/Prizes etc: Grants keep your eyes open/talk to your peers, mentor, business advisors etc Examples: UKTI/UKFT support for certain overseas shows Arts Council Government e.g. support for businesses that take on an apprentice Sponsorship do you know anyone who might want to be associated with your brand? Prizesand Awards Keep an eye on competitions and awards plus other sector organisations Crowdfunding e.g. Kickstarter Jenny Holloway Be Your Own Boss

FINANCE Thank you, and any questions Jenny Holloway Business Mentor and Coach Fashion Capital CEO Jenny Holloway Be Your Own Boss