My three cents worth about dollars
In the wash-up from Darrell Lea, it may be timely to reflect on the first lesson of business: Keep your finger on the pulse and your eye on the bottom line, and do both at the same time.
Someone has to – whether the business is large or small – and that someone is invariably the business owner.
In the interests of saving you the pain and loss of learning the hard way, I offer three bits of common sense often overlooked in the thrilling first flush of enthusiasm for your new business.
There’s no such thing as a free office
At the risk of stating the bleeding obvious, I include this point because I have met a few business clients in my coaching practice who do not count a home workspace as part of their overheads. Regardless of whether you are actually paying rent or not, there are costs involved in any office.
If you have a dedicated space at home, the tax office allows a percentage as a deduction along with utilities, such as heating and lighting, so it pays to work out a reasonable fee and include it in your expenses. It can then be factored into the next item – COGS.
Stands for Cost of Goods Supplied. What does it actually cost you to produce your service or stuff? To be able to work this out you need to know how every dollar that gets invested in your business is spent.
And that includes how every hour you work is spent, because time is money: basic but vital. This doesn’t require any specialist accounting software because a simple spreadsheet or even pen and paper can do the job.
List everything that can possibly contribute to your ability to create, develop and deliver that product. Yes, include that cup of coffee you just had. And that Mars Bar! And the hour you were thinking it over last night between 3 and 4am.
Pricing a product
This topic is huge and needs more space, but in essence you need to know the difference between cost, price and value.
In my early days of business I was so keen to keep the price low for my customers that I didn’t do the requisite sums until after I had nothing left to count. Simple arithmetic then showed I was, in effect, paying my customers to take my product. I neglected to place any value on my beautiful Linnet’s Lotions, which is why you don’t see them on the beauty counter at David Jones.
Obviously there must be a figure between the cost and the price, which equals profit. I am going to repeat this because it’s kind of important. And I want you to get value out of my embarrassing confessions. It’s the difference between the two that makes the difference. The amount you charge doesn’t equal profit; it’s how much you get to keep.
So that’s the bottom line – you’ve heard it before and you’ll no doubt hear it again. I’m off to rub some incredibly expensive handmade moisturiser on my hands while reflecting deeply over past learning.