Top 3 Financial Tips From Food Entrepreneurs
The best advice always comes from those who are in the trenches so I polled readers of the Smallfoodbiz.com website to ask those entrepreneurs what advice they would share with their colleagues when it came to running a successful food business. What was surprising was that time and time again, the responses I received were focused on the financial aspects of food entrepreneurship and essentially boiled down to 3 main areas of focus:
You Have To Know Your Product Costs
Having a ‘rough’ idea of how much it costs you to make your products isn’t enough. To be successful in this industry you need to have a to-the-penny understanding of how much each product costs you to make. Only then can you accurately price your products. This is one of those exercises that should be undertaken at least once a year to account for the fact that food prices fluctuate and so you know exactly how that may or may not be impacting your product line.
If you haven’t yet done a product cost analysis, or if you haven’t done one recently, this has to top your list of to-do’s. You simply cannot run a profitable business in the long-term if you don’t know how much it costs you to make your products.
Have A Plan For Who Is Going To Be In Charge Of Your Bookkeeping
This tends to be one of the less glamorous aspects of food entrepreneurship. Most get into this industry because they love food and want to bring a product they feel passionate about to the market – not to stay up late balancing their checkbook. But if you’re going to run a business then you need to have a plan in place for how your bookkeeping is going to be managed. If you overlook this small yet critical aspect of business ownership you may find yourself with unreliable financial records or, worse, a nasty note from the IRS. Your financial records are the backbone of your business – both for your own understanding of what is happening in your business and for tax purposes, so whether you hire an outside bookkeeping to keep your records for you or plan to do it yourself, make a plan and stick to it. Don’t let your bookkeeping fall behind.
Know How To Read Your Financial Statements – And Do It!
Respondent after respondent also commented on the importance of being able to read and understand the financial statements that your bookkeeping produces. These statements help you understand, among other things, how your business is performing, what products are selling better than others, and can help you see whether the amount you’re putting into sales generation and marketing is showing a return-on-investment. Ideally your financial statements, specifically your profit and loss, should be reviewed quarterly to see how your business stacks up against the previous quarter and the same quarter of the prior year.
If you don’t have familiarity reading financial statements this is something your accountant can help you learn or you may want to reach out to your local SCORE or Small Business Administration office and see if they might be able to partner you with someone who can teach you.
Jennifer Lewis is the founder of Small Food Business, a website focused on providing resources and information to food entrepreneurs. The site includes hundreds of articles specific to the food industry, a podcast series which includes interviews with industry experts, white papers, and a community forum amongst other things. In addition to being a professionally trained pastry chef and having worked in the food industry from more than 20 years, Jennifer also holds an MBA from Northwestern University’s Kellogg School of Management.