Monday, January 16, 2012

Keeping Money In The Bank

A strangely common question that I see on cake decorating forums is the question of when to spend the money that people earn for a cake. This usually goes along with the question of "I have to buy supplies for the cake, how soon before the cake is due should I do that?"

Well, in the first place, you shouldn't really be spending ANY of the money that you got for making a cake until the cake is made and delivered safely. If you're running a business you should have a business account that always has money in it.

That would be money that came from other cakes you've already done. Then when you didn't take that money out of the bank and immediately go buy yourself something with it, that cash becomes what we call "working capital."

This accomplishes a couple of things. First, it gives you the ability to buy supplies without touching the money that is paying for future projects.

Because that money isn't being touched, it gives you the ability to make refunds to clients if you need to without dipping into your personal cash and affecting your family finances.

Finally, it gives you a pool of money to use to pay for business expenses such as advertising, insurance, estimated taxes and other things that come up in the course of day-to-day expenses.

When you first start a business you might have to go for a while without taking any "pay" out of the bank for yourself. Welcome to the world of owning a business! Count yourself lucky if you work from home, since a lot of your expenses are probably being paid regardless of whether you're working a lot or not. If that's the case, you can afford to put off taking a lot of cash out of your business right away.

Next week...How I handle retainer payments.

 Kara Buntin owns A Cake To Remember LLC in Richmond VA, and cake supplies online at www.acaketoremember.com and www.acaketoremember.etsy.com

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