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The 3 Most Common Financial Strategies Creative Businesses Use to Achieve Greater Profitability

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Creative businesses face unique challenges when it comes to managing their finances. However, by deploying the right financial strategies, creative businesses can achieve greater profitability and long-term success. In this article, we discuss the three financial strategies that creative businesses use to achieve greater profitability.

  1. Monitor Your Cash Flow

Cash flow is the lifeblood of any business, and creative businesses are no exception. Managing cash flow is essential to ensuring that your business has enough cash to pay your bills and invest in growth opportunities. Cash flow management also helps you identify potential cash shortages before they become a problem.

To monitor your cash flow effectively, you should regularly review your cash flow statement, which shows the flow of cash in and out of your business. You can use this information to identify trends and make informed decisions about managing your cash.

  1. Set Profit Targets

Profit targets are specific goals that you set for your business to achieve. By setting profit targets, you can focus on achieving specific financial outcomes, such as increasing revenue or reducing expenses. Profit targets can also help you measure your progress and identify areas for improvement.

To set profit targets, you should start by reviewing your financial statements and identifying areas where you can improve profitability. You can then set specific, measurable goals and develop a plan to achieve them.

  1. Manage Your Expenses

Managing expenses is crucial for creative businesses who want to achieve greater profitability. By keeping your expenses under control, you can improve your profit margins and invest in growth opportunities.

To manage your expenses effectively, you should review your expenses regularly and identify areas where you can reduce costs. For example, you may be able to negotiate better rates with suppliers or reduce your overhead costs by working remotely.

You can also consider implementing cost-saving measures, such as implementing energy-efficient practices, reducing travel expenses, or outsourcing non-core activities.

In summary, creative businesses can achieve greater profitability by deploying financial strategies that focus on managing cash flow, setting profit targets, and managing expenses. By following these strategies, you can improve your financial performance and achieve long-term success.

Financial Clarity – How To Sleep At Night

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So, what’s stopping you from sleeping soundly? I would say like a baby, but we all know they sleep terribly …

Lying awake at night, with a thousand thoughts racing around your mind is a horrible state to find yourself. It leaves you exhausted and cranky with anxiety slowly clawing at your thoughts.

This is no way to function at the best of times, let alone when you’re attempting to navigate your business through financial and politically tricky times. As a business owner there can be many reasons sleep evades you.

Common business concerns often include:

  • Loss of clients — are customers leaving your services, creating a financial deficit?
  • Stagnation — is your business struggling to grow or move forward in direction?
  • Denial — admit it, are you in full control of your accounts?
  • Overheads — can you cover your business overheads and reliably pay your staff?
  • Income — are you struggling to personally earn enough to live on?

How to start taking control of your business

If any of the above worries resonate, it’s not surprising you’re finding it tough to sleep at night. Any of these concerns are difficult to know how to overcome. It often feels like the wood and the trees are one, and the light is never going to show at the end of a dark tunnel.

However, there are pragmatic solutions. Try answering these simple questions:

  1. How much money do you want to take home each month after tax?
  2. Where do you want your business to head?
  3. How are you going to reach your goal?

Financial Planning and Modelling

Once you’ve answered the above, it’s time to work backwards! How are you going to achieve your objectives?

If you want to feel in control of your business and profit, you need to make informed decisions based from your financial data. A financial plan and model helps you work out how much money you need, your expenses and what sources of income are available. In other words: a financial model helps a business budget, forecast and plan. It keeps companies in control of their business and finances, so they know they’re on track. And if they’re not — why they’re not on track so they can fix that problem.

What is a financial model?

Essentially it involves creating a spreadsheet (don’t groan – they don’t have to be terrible!) to act as a representation of some, or all of your business operations.

  • A model can be used as a decision-making tool. It can assist in forecasting business decisions as you will better understand how much or how little money you have, or when more revenue will be coming in so you can invest, spend or save accordingly
  • Financial plans can be used in strategic planning, cash flow analysis, sensitivity analysis or appraisal
  • Models help estimate the value of your business
  • A model is useful if you are looking to compare yourself with competitors
  • They are very handy when it comes to selling a business

Considerations for a financial model

On a spreadsheet you need to add your business assumptions – these are educated guesses based from your historical data: numbers, trends, external conditions, industry and market. It’s important to consider situations or challenges that may arise and place these into your model to help plan for unforeseen eventualities.

Ideally you need to create a model which helps you understand how to plan for:

  • Working capital: How much revenue do you need to make to support your business after paying out for your direct costs and operation costs?
  • Revenue: Is the business continuing on the same trajectory as previous years? This helps plan when and how payments occur, whether prices are correct, how and when customers buy and areas of business stagnation
  • Financial statements: Forecasting of financial statements helps with talking to investors, banks, auditors etc
  • Growth margin: How much money goes towards delivering your product or service and how much is left over? This helps you plan to successfully develop your company
  • Increase in demand: Do you have the manpower or software capabilities to cope?
  • Operational expense: How much does it cost you to operate as a business? How much does each area cost e.g. admin, marketing, software etc?
  • Significant decline: Look at why a product or service is no longer popular and use this to make an informed decision to find a successful solution

We know it may seem a tad daunting, especially if you have a lot to focus on, but believe us when we say how important a great financial modelling plan is to a business.

If you don’t know where to start, or just want to talk things through, please give us a call.

As cloud-based bookkeepers, financial planning is just one of the many services we offer, so chat to us and we can help you get the sleep you dream of achieving.

Call 01206 700 252 or email hello@clouditbookkeeping.co.uk and take control of your business finances.

Great finances = great sleep!