As a cakepreneur it is important to plan, to reassess your strategies from time to time.
As we a coming to the end of the year, this is the time to reflect and organize your business, make any necessary changes so that you can reach and break your financial goals by Christmas.
This week we will be talking how to build a solid financial foundation for your cake business. This way you will never be broke in your cake business.
I find out that many Cakers, just like me fell into the cake industry almost by accident. It started out as a hobby and then we realized we can actually make money from this venture.
And like most people (again myself included) we entered into this business because we were tired of our job situation, needed more money, wanted to spend more time the kids at home. So we got into this wonderful world of Caking but failed to build the business acumen to ensure the success of the business.
So this week I will show you 7 ways to build a strong financial foundation for your cake business:
- Have a separate current Company bank account
It is essential you have a separate current bank account for your cake business. This is to avoid mixing up your personal funds and your business finances. In addition, it will make your customers see your business as a serious brand instead of just a hobby; and it will allow you to examine your business finances more efficiently so you can monitor your cash flow.
In addition to this, get a separate business savings account from the start and always save for your business. Whatever money you have coming in from your orders, try and save a certain % to this account. In essence, whatever profit you make send this profit directly to this savings account from every order so that you will not be tempted to spend it.
Likewise, pick a set day in the month to pay yourself a salary. Don’t just dip into the business account whenever you feel like for your personal needs. It will just bring confusion and this will get worse as your business grows.
- Have a Buffer
In most business books, it says you must always have a minimum of a 3 to 6 months business expenses buffer in your company account. This cushion should cover all the costs of running your business for that time period. So let’s say it costs N30,000 per month to run your business (this may include, utilities, website, marketing, salary, buying ingredients, equipment etc), you’ll need at least N90,000 in the bank account at any given time. You can build up this buffer by not paying yourself for the first few months of your business and trying to keep your expenses low.
If you can discipline yourself to do it this way, it’ll be great. You will enjoy your business because you won’t have to be taking every single order that comes your way in order to survive. You’ll be in control of your business and you will have some funds in those slow weeks when you don’t get as much orders. I know this method will take some sacrifice, especially when money is already tight. But know there is a light at the end of the tunnel and your cake business will have a better chance to survive.
- Stop offering Discounts
I know we leave in a society where asking for a discount is the norm. However, when you give a discount you are sending the wrong signal to a customer about your business. This kind of situation can rapidly get out of the hand to the point that you are actually working for nothing.
Nonetheless, because of the environment we are in and we Africans are born negotiators, what you can do is to price your cakes a little higher so when potential customers ask for a discount, you can readily give them a reduction which will not affect your profit margin. So both of you will be happy. You- still making money; Customer- feels that she got a good deal and most likely will recommend you to her friends and will come back.
Another thing to mention is if you wish to donate a cake, like for instance for church or family functions, then just donate it completely free of charge and count it as your marketing cost. Also try and donate cakes to customers where you know you can network which in turn will bring you more customers.
Also when you donate cakes, bake the cake you want to bake, not what they tell you to do, because they are not paying you anything and just because you want to market, does not mean you should run your business into the ground.
- Keep accounting records
Schedule a day and time each week to analyze your cash flow so to know your weekly income and expense accounts. I know this may seem boring especially for those like me who dislike maths. But believe me this is essential. Doing your accounts weekly will help you know what is coming in and what is going out.
Keeping an account does not have to be complicated and you don’t have to hire an accountant. Just have columns for date, credit and debits. Also make sure you keep your receipts. This will help you know what you buy each week and also useful for tax purposes.
As your cake business grows, you should look into diversifying. In the beginning you can have one great product, for instance, character cakes, because it will allow you to perfect your skills in this area and be well known for it. But as you grow, this will limit your profit growth.
By offering other products and services it means that your business will not be at risk if a new competitor comes into the scene or if cake orders do not come in quickly especially during recession times
You need to develop new sources of income to supplement the dry months and keep you relevant in the industry. For example, you could offer cake decorating classes for adults and kids, start a cake blog, write a cake decorating book, sell custom made cake toppers, etc.
These are only a few ideas to making more money without much capital investment. So try and think of new ways to develop new products that you can do with little effort so as to gain maximum profits.
- Offer great customer service to your customers and followers
Focus your products on your customers (i.e. your subscibers). This is really important because if you can identify the customers and what type of cakes you are make the most money from, you can start to focus on those products and customers.
This is where the 80/20 rule comes into effect. The 80/20 rule states that 80% of your business comes from 20% of your customers. So all you need to do is identify your 20% and focus a little more on them by giving amazing customer service.
You can do this by sending them weekly newsletter informing them of your new product, offering them special deals if they refer you to someone else or organizing a tasting party for your loyal customers.
- Think of your return on investment (ROI) before you spend
Try and spend money on what will bring money quickly first before anything else.
For instance is let’s say you want to take a new cake decorating class but you also need to buy an additional mixer or a good quality camera to take better quality pictures of your cakes rather than on your mobile.
A good ROI will state you should buy the mixer or the camera first because you already have good cake decorating skills so you need to bring in more customers to use those already acquired skills to generate income before spending money for this class.
With an additional mixer you can make faster cakes so you can take more cake orders and with a good camera, you can take good quality picture which will draw more customers when you post them on your website or on social media pages.
You have to understand that the cake business is not a get rich quick scheme. But you can make a lot of money from this business. With passion, persistence, determination and developing your skills, you can always make good money from cakes to become a CAKE BOSS.
Finally, as a final tip the most effective way for financial security for your cake business is simply to spend less money. Only spend money when it is absolutely necessary.