1. Mastering Your Money

2. Important Qualifiers We are NOT accountants or attorneys What we talk about here is applicable to the US market. Other countries may be different so make sure you know your own country’s laws, or talk with someone who does For You Accountant Types: We know this is a very simplified version of “money matters” and that an accountant will look at it a bit differently. Our angle on this is as a business operator.

3. Money is the Lifeblood of Your Business If more money goes out than comes in, the business eventually dies. Let’s keep it simple. – Cash basis instead of Accrual basis – Money coming in – Money going out

4. Money Coming In - Investment Getting a business started usually takes some investment money before a sale can be made Internal investment vs. External investment – Internal means you fund the business with your own money – External means someone other than you funds your business with their money (Stock sale, Debt, Grant) Highly recommend internal investment – You will treat your own money with more respect than OPM – Savings or Selling assets (eBay, Craigslist) – External investment adds a layer of complexity and stress you would like to avoid

5. Money Coming In – Selling Eventually, your company must exchange a product or service you created for someone else’s cash. That is called selling. Cash from your sales income must at least cover: – Product costs (see pages on Inventory discussion) – Operating costs (aka “overhead”) – Sales costs If money coming in through sales exceeds these costs, then that excess money remaining is called “Profit” If money coming in through sales does not cover these costs, then you need to cover the shortfall through investment (personal savings, stock sales, debt, grants) or Asset liquidation

6. Money Coming In - Selling A quick note on accepting Credit Cards In the United States market, studies have shown that accepting credit cards can increase your business sales by over 30% Therefore, you MUST accept credit cards Now this is easier than ever before – Bank account >> Paypal account >> Accept credit cards >> Online and/or Credit card reader At a certain point in your business growth it will make sense to get your own merchant account

7. Money Going Out – Product Costs Product costs are expenses that are part of the product or service you have sold. – A bead used in a product that you successfully sell to a customer becomes at that moment of sale a product cost expense. – That same bead at the moment before the product sells is NOT an expense, but is instead an “asset” known as Inventory. This distinction is hugely important from both a cash flow and tax perspective

8. Calculating Product Cost Accurately The easiest way to remember it is to think what was the total cost to get this product to my door. Known as “Landed Cost” Example: – Buy 100 beads online for $10 – Sales tax is 10%, so 10% x $10 = $1 – Shipping cost is $4 – Total Cost: $10 + $1 + $4 = $15 – Cost per bead = $15/100 beads = $0.15/bead

9. Beware the Inventory Monster Many a jewelry designer small business has been ruined by the incessant buying (cash flowing out) of “pretties” that never turn into saleable product. When you are tempted to do this please remember that your business is a tool to help you create Profit so that you can use that Profit to get what you want in life. If you have made this mistake, consider “liquidating” excess inventory to generate cash to invest in marketing/sales.

10. Be “Anti-inventory” You must stay very vigilant about avoiding inventory build up When possible try to sell things first, and then order the materials to make the product Set a limit on the amount of inventory you have and be disciplined not to go above it You want to focus your “use of cash” on things that help grow your business – Marketing and Sales

11. Relation of Inventory to Taxes IMPORTANT Income tax on your business is applied to the Profits of the business Profits are defined as Sales Income minus Expenses Inventory is NOT an expense so cannot be deducted from Sales Income – Inventory “converts” to a product expense only at the time a product containing that inventory is sold to a customer

12. Difference between Supplies and Inventory IF you are buying “pretties” to practice your craft, or use in any way that will not result in the sale of that material in a final product, you can call that a “Supplies” expense. Supplies expenses are operating expenses and therefore they can be deducted from Sales Income to determine Profit or Loss

13. Money Going Out – Operating Costs Operating costs are the basic expenses required to keep the business operating Examples – Utilities, telecommunications, fuel, travel, office supplies, outsourcing expenses Be very careful not to add on more operating expenses than required to run you business successfully – Be “lean and mean” – Remember: Spending money is easy, Making money is hard

14. Money Going Out – Sales Costs Is really a subset of operating costs but can be helpful to separate so that you can see what kind of return you are getting on your investment in sales and marketing – Sales brochures, trade show expenses, MarCom materials, advertising and promotion

15. Money Going Out - Taxes Remember that if you make a PROFIT in your business that is considered income and the government will want a piece. Remember also that LOSSES from a business in many cases can be used to lower income tax burden. Key difference between owning a business and working at a job from a tax perspective: – Job: Income – Tax = Personal Spendable Cash – Business Owner: Income – Expenses = Profit Profit – Tax = Personal Spendable Cash

16. Tracking Key Money Matters In a micro business in order of priority 1) Cash (On hand, In the Bank) 2) Profit and Loss (P&L) Sales Income minus Expenses 3) Assets and Liabilities (Balance Sheet) Assets: Cash, Money owed to your business (AR), Things you have that can be sold as product (e.g. inventory) or liquidated for cash Liabilities: Money you owe (loan payments, money owed to suppliers (AP))

17. Tracking Tools Basic – Spreadsheet (Excel, etc.) – Wave Accounting (online and FREE) https://www.waveapps.com/ More Advanced – Quickbooks (Software or Online) – Can integrate with your bank account Be disciplined and dedicate time to staying on top of your finances