Naturally, most people are interested in any financial support for their business.
As a creative business adviser, I have helped hundreds of creative entrepreneurs over the years. Often, their enterprises are receiving financial support – from themselves !
This is because they are not taking into account the cost of things such as: use of a family computer, personal mobile phone, a back-bedroom office, or the family car. By ignoring the cost of these essential resources, they become ‘hidden subsidies’ to the business.
Ironically, as a result, these businesses lose money.
One effect is that they pay more tax because they seem to be making more money than they really are as a consequence of not including all their business costs.
More seriously, they lose money because they charge customers too little. By ignoring these hidden costs, they kid themselves that the price they charge customers creates a profit. But when I help them to calculate and understand the full costs of their business, we often find that the price charged is too low to cover all the true costs of the enterprise.
This problem comes to a head when they need to buy new equipment and there isn’t enough money in the bank account – because they haven’t put money aside to acknowledge the depreciation of computers, cameras or other equipment.
As the business grows, its unprofitability becomes clearer. The true costs come out of the woodwork as the creative entrepreneur now has to pay for for office space, software, transport etc – things that were previously provided free by family, friends or themselves.
So the main reason I urge people to calculate all these hidden costs is so that they fully understand the economics of their own business. It is only when the creative entrepreneur has this full understanding that they become empowered to make rational decisions about pricing and other key business matters.
I find that those creative entrepreneurs who do this are the ones that charge their customers the right prices/fees – and consequently generate enough income to make their creative enterprise profitable and sustainable.
See article: The Overheads of your Creative Business
Financial management is one of the business issues covered in the book ‘T-Shirts and Suits: A Guide to the Business of Creativity’, which is also available online as a free eBook.
There is more about finance and pricing in the marketing book ’Chase One Rabbit: Strategic Marketing for Business Success. 63 Tips, Techniques and Tales for Creative Entrepreneurs’.
Copyright © David Parrish. The original version of this article was first published on the MyCake Blog.