Top Tune-up Tips for

creaTive businesses

We see an exciting range of creative and innovative businesses come through our doors each year and whilst each business is undeniably unique, there are some common traits the successful ones tend to share. Here is a selection of these that could be used to tune-up your creative business.

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The most successful creative businesses tend to have a very clear reason for being. The owners have clearly articulated why they are in business – that is to say they have figured out what they are able to offer their customers (this is the value proposition), where they want the business to end up, and they know why they themselves got into it in the first place (i.e. the owner’s personal goals).

A value proposition refers to the point of difference the business offers the market, what it is able to offer its customers; the business’s competitive edge. This could be tied to the uniqueness of the original idea that spawned the business, or it could be around the altruistic values the owner holds dear, or it could be in relation to the perceived quality of the product (be careful with this last one – everyone claims to be ‘quality’ making it hard to differentiate on this point).

The owners should know where they want the business to end up – is this a lifestyle business (i.e. one which exists primarily to provide an income for its owners), or is it being fattened up for sale, or is it to be a legacy family company? This is important – lacking a clear endgame can make decision making during the life of the business difficult. The owners’ personal goals will inevitably inform the business goals for any small, owner-operated enterprise. These goals might be around lifestyle – working fewer days, longer holidays, early retirement – or they could purely be financial – pay the house off sooner, buy a Lamborghini. Regardless of what they are, they need to be clearly articulated because if they are not, how will you know if you’re achieving what you want from your business?

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“The owners should know where they want the business to end up. This is important – lacking a clear endgame can make decision making during the life of the business difficult.”

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The more savvy operators tend to have their bookkeeping game on lock. They can tell you (usually from their tablet or phone) exactly where the business is at today, how that compares to last year, and what they are expecting for the year ahead. How is it they can do that? They have great financial systems in place which are rigorously maintained.

Having a clear and accurate bookkeeping system in place is the foundation of this and choosing the right software and the right bookkeeper is paramount. Your accountant will be able to advise here, though we recommend choosing a cloud based solution for your software because of the ease of use, the time saving features, and the ability to access a world of software add-ons that can help with everything from financial reporting to workflow management to debt collection to inventory management. Very clever stuff.

Once you’ve got the record keeping sorted out, it’s relatively simple to have regular and informative financial reporting for the business. A basic financial reporting pack might include:

üBalance sheet – this shows the assets (what the company owns) and the liabilities (what the company owes) at any given point in time

üProfit and loss statement – as the name would suggest, this report shows how much money the business made over a period and what the costs of the business were

üDebtors report – a listing of who owes the business money and how long the amounts have been outstanding

üCreditors report – a listing of what amounts the business owes its suppliers and how long they have been outstanding

This will enable the owner to see what is going on in all areas of the business. There is a saying that you can’t manage what you can’t measure and that is never more true than with the financial reporting for your business.

“Having a clear and accurate bookkeeping system in place is the foundation of this and choosing the right software and the right bookkeeper is paramount.”

How do you keep your staff engaged and happy (two things which should be top priority for any business!)? It isn’t always about the salary. There are many other benefits that a creative business can employ to ensure its staff want to hang around for the long term. As long as salaries are competitive with the market, you can start to look at other options.

Cash performance bonuses can boost morale and confidence as the financial reward is directly linked to the results achieved. Such systems should be simple to understand and can be based on a percentage of the profit generated by the team member. The more confusing the system, the less inspiring it will be.

A pseudo-cash benefit could be in form of share options in the company. Recent changes in legislation mean the tax treatment of such benefits

is quite favourable and can yield brilliant results as the team members interests become aligned with those of the owner. Not the simplest scheme to implement, but potentially a powerful one. Other non-cash benefits could include:

ücharitable donations made on their behalf

üinteresting and engaging team outings

üflexible working hours

üability to work from home

üadditional leave

ülearning opportunities

übeautifully appointed workspaces

ühome Internet and mobile phones paid for

üinteresting seminars on diverse topics such as efficiency, communication, and nutrition, and many more

The point is that there are many creative options when it comes to rewarding your team – don’t scrimp, they really are your most important asset!

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“It isn’t always about the salary. There are many other benefits that a creative business can employ to ensure its staff want to hang around for the long term.”

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Successful creative and innovative businesses rarely became successful by fluke (though there are certainly exceptions to that rule!). They got there by careful planning, knowing their goals, and setting clever strategies.

Successful businesses will have strategies for achieving their short, medium and long term goals. These strategies are typically laid out in the business plan and will be frequently updated and adjusted as the business grows, the team changes, and the market evolves. A good business plan is a living document and will be updated and referred to frequently.

Successful business planning should inform the choices a business owner makes. Such decisions will be around staffing requirements, which markets they choose to operate in, technology usage, marketing, location, quality assurance, market share, financial results, etc.

policies andprocedures

Not many people revel in the opportunity to create policy and procedures manuals. But having well thought out procedures (that are carefully documented in a manual) should make a business more efficient which can yield many benefits including reduced staff training costs and higher saleable value if you decide to sell the business.

The manuals should be intuitive to read, easy to access, and frequently updated. The team should be adequately trained in relation to the policies and procedures contained within the business manuals and be encouraged to contribute to them so they truly reflect how the business operates. There are software options available and we’ve seen great results using an internal intranet based on SharePoint.

Regardless of what format you choose, be sure to check with your advisers as to what needs to be included legally – many workplaces may be impacted by government legislation which requires written guidance for all staff members on matters around workplace health and safety and employee welfare.

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“Having well thought out procedures (that are carefully documented in a manual) make a business more efficient which can yield many benefits.”

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Another trait of the successful creative entrepreneur is that they appreciate the distinction between company money and their money. They may own the company, but they aren’t necessarily allowed to spend the company cash.

Ensuring that personal expenses (i.e. ones that have no real connection with the business) are paid for using personal funds is a simple rule for keeping the financial records clean and reflecting the true state of the business. It also helps at tax time!

Take, for instance, the “company car”. Acquiring a car in the company name and having the company pay all the running costs can make a lot of sense if handled correctly. The savvy entrepreneur knows to get the right advice before buying a car to ensure they aren’t going to be slugged with unexpected costs such as Fringe Benefits Tax due to the car being used largely for private purposes.

How much should the owner be paying themselves? This is a tricky question that requires careful thought and an ability to estimate the business’s revenue into the future. The owner needs to look at the cash they require to live the lifestyle they desire, which then needs to have tax added (PAYGW) and superannuation paid on top of that. They’ll then need to look at all the other costs of the business as well as saving a buffer for rainy days and asset acquisition. Once that is all added up they’ll have a good idea of what sales need to be to support their lifestyle.

It is possible and sometimes advantageous to pay for some of the owners’ costs through mechanisms such as directors’ loans. But it’s really important this is thought about carefully throughout the year as it can lead to pain and disappointment when at year end when their accountant informs them of the large amount of PAYGW and superannuation they owe on their

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‘borrowings’ throughout the year. Careful wage setting and tax planning can avoid all of this unpleasantness and is definitely worth investing time in.

“Ensuring that personal expenses are paid for using personal funds is a simple rule for keeping the financial records clean and reflecting the true state of the business.”

Cash is king! Most successful creative businesses will have a good handle on their entire cash cycle – from signing new clients, to issuing invoices, to collecting the cash – a process that should be kept as short as possible.

When signing a new client make sure they sign off on a service agreement with clear terms and conditions, and ensure they fully understand your invoicing procedure. Best practice is getting paid up front, but that’s often a difficult sell to clients. A good option is to get paid during the work and to get paid regularly – interim invoicing will help here. Be sure to stop work if any invoices become overdue.

When it comes time to send the invoice it can be better to have the accounts person send all the invoices rather than the creative services people. Once the invoice is sent out it pays to be strict

with your payment terms – once certain customers realise that you’re lenient, your invoices will go to the bottom of the pile.

The flip side to this is how the business times the payment of its own expenses. Clever cash management dictates that you should of course pay all invoices as and when they fall due, but make sure to take advantage of any discounts that may be offered for early payment. It is also wise to pay careful attention to any possible penalties and interest for late payments (e.g. tax department payments) because if you’re going to be short one month, it’d be better to pay the suppliers that penalise the most first.

Spend some time drawing up a cash flow budget. This is a month by month estimate of cash payment coming into the business and cash expenses being paid. It’s a simple exercise,

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but one which many businesses don’t bother with. It’s also an essential tool for planning for the times throughout the year when cash is tight.

“Best practice is getting paid up front, but that’s often a difficult sell to clients.”

Phone +61 (2) 9383 4580Fax +61 (2) 9383 4592

Email hello@generate.com.au Fox Studios Australia, Building 19,

38 Driver Avenue, Moore Park NSW 2021

eBook written by Ben Fletcher.