I want to thank everybody for joining us today, and we are going to record our session today so that we can hopefully share this with some others as we go on. The resource that we’re going to talk about today is the new checklist function that I’ve worked together with CCSA to help update and kind of reinvent. There were some checklists in the past for operating studio and getting started with a studio that really kind of needed to be refreshed and updated. So CCSA invited me to help them with these new checklists. And I do want to clarify, we had a few changes along the way, so some of you are expecting to talk more about the financial statement side- we will go a little bit through that today but our process changed just a little bit. So we’re going to separate that out into a separate session at some point in the future.
Of the checklists that we’ve got today, there are two new resources. One is the strategic business operations checklist, which is meant for existing studios, and those of you who’ve been in business for a few years, if you are new to owning a studio, or are looking at potentially owning a studio, we have a separate resource for pre-open guide. Now this is one that, even if you have been open for several years, I recommend you go take a look at it. There might be some other little things that slipped through the cracks a while back that you ant to go back and revisit or rethink.
Within our pre-opening, just to kind of give you an overview of what this is meant to do, we’re looking at things the demographics … the things that you would do if you were coming in as a brand new potential studio and looking at your competition. You would want to be looking at the competitive analysis, who’s out there in your competition? What do they do? How can you outperform them? You would also be looking at things like your product mix and obviously with PYOP Studios this is an ever-changing mix of products and new things and things come and go. So you want revisit those. Also going back to the financial side of this, when you’re in the process of getting up and running you probably did some projection financials just to determine what your capital needs would be. And also a break-even analysis. The break-even analysis will tell you what you need as far as how much money would be necessary just to cover the nut, so to speak, each month as you operate your studio. And that will probably change through out the life of your studio because some of the variables change like your rent amount and things like that.
It also goes through a little bit about startup marketing, and how to get your domain in place, and your website and all of your social marketing strategies. So that’s just a little bit on the pre-opening. From the nature of who we’ve got on the call today I think most folks are in an already open studio, so we’re going to spend the majority of our time today on the existing studios.
I’m going to go back a little bit now that it seems like we’ve got everyone settled in online. I am Donna Bordeaux, a CPA who works with pottery studios across the country, and using that knowledge we are able to take really specific industry targets and share those amongst all of our clients. One of our goals is to help the CCSA membership be successful by having good financial tools to manage their business and using those industry performance topics so that we can help everybody succeed and create a very worth-while industry to be in.
I am located in South Carolina, but as you can see – the magic of the internet, it doesn’t really matter where I am, I can still help you from anywhere in the country. Hopefully that will make this a good resource, and I would be happy to be a sounding board for you if you have questions on other things that you see today- don’t hesitate to ask me or email me.
On this strategic business operations checklist, I’m just going to highlight, there’s a lot of information here so I’m going to highlight some of upper topics, again, if you have questions about these, if you want to sign into your chat, you can message me there, spend a little more detail on some of those things as well.
On the sales tax guide, this is a very important topic that I urge everybody to take a look at, obviously when you get setup initially you find out some things… in a lot of cases, sales tax laws may have changed. If you’ve been in business for more than 5 years, sales tax is an ever evolving issue. You may want to research with your state and double check. Many states have now taken the position that labor that becomes a part of a finished project of product is taxable now. So it used to be that we’d say anything that could be written off as labor, whether it’s running your studio, firing fee, something like that, or custom painting, maybe those things were not taxable in the past but in many states they now are taxing those. So care should be taken to check out your state. If you have a specific state issue, I work with many states and some states I’ve already done the research on. Some we have not. But I’d be happy to help out in those regard or give you some pointers as to where to go and how to get the details to back yourself up.
One of the problems with sales tax is that if you are a victim of sales tax, meaning you did not collect the sales tax on something you really should have, guess what, you can’t go back and talk to your customers and ask them to reimburse you that sales tax, you’re just out the money. So sometimes you may have to take the more caution position and go ahead and collect the sales tax if it’s kind of in the gray area rather than be caught hanging out to dry when they decide that is taxable and you’ve not got any of the money for it.
So that’s one area of caution I would take a look at. Another area that I get a lot of questions about commonly is on entity selection. Perhaps when you started your entity you didn’t have any real rhyme or reason to the selection, but from a taxation perspective as well as a legal protection status you may want to look at how you’re formed, whether you’re an LLC or corporation, a sole proprietor or partnership, those things can make a huge difference, especially as you grow your business, in how much you pay in taxes and how well you are protected. So definitely, I recommend revisiting those periodically with your accountant and maybe with your attorney as well.
If you’ve already formed an LLC or a corporation within your state, you probably don’t have to revisit it with your attorney, but you may want to talk with your accountant about the structure to make sure it’s still appropriate for you and if there is some point in the future where you should be keeping an awareness to say “okay at this point, I need to make a change” so that you know when it’s coming.
Another area where we have a lot of common questions comes in the relm of payroll. We know this is a never ending concern about hiring and firing and so you’ll see that the statements we’ve made in the checklist are very brief because this is a very expansive area. You may want to consider having an HR specialist that you can work with in your local area to help you with things like business policies and procedures; when can you fire somebody? What should you do in hiring somebody? How do you keep track of all that information. SO that is something I would definitely recommend on the firing part.
It always comes up as a very common question, “How can I fire somebody? Can I just tell them I don’t want them to be there anymore or do I have to go through specific steps to do that?” Definitely, this is one where it’s a state by state issue. Some states allow at-will employment and that means you don’t have to give a reason or establish just-cause to fire somebody. If you’re in one of those states, you don’t want to give a cause, because then you lean into the area of being under a cause, and you may have to avoid or press the issue of wrongful termination. If you’re in an at-will state, and you can do a quickly search on the internet on your state and ask if it’s got “at-will employment”. If you’re in an at-will employment state you can just tell somebody “I know things aren’t working out, we’re going to have to let you go.” And that’s all you need to do.
But do keep good documentation and records on these, they may come back with unemployment cases that you need to have some information for. You want to keep good documentation.
We’re also now working with some systems of timekeeping where they will be able to pull a lot of those records internally as an HR filing system for you if you’ve got somebody who’s constantly late, who didn’t show up for a shift, who decided “vacation sounded like more fun today – let’s not show up” you can document those things right inside of that time keeping system and have an all in one place to go. So you may want to take a look at that.
Payroll processing itself is obviously a headache because there’s a lot of different masters to answer to. Different taxation agencies for every state, different rules for every state, it’s a lot to work with. So from the payroll processing area, I do not recommend that this is an area where you should skimp and try to do it yourself. We have great resources out there and it does not have to be an affordable thing to have somebody help you with payroll processing. If it eliminates or saves you from having one penalty issue in a year you will have paid for that payroll service and probably then some because the penalties are very steep.
I just had a case yesterday where an employer signed up in the end of June in New Mexico and didn’t start paying employees until July. They received a $50 penalty notice because they didn’t file an unemployment report that was a zero report on time. I know $50 isn’t a whole lot there so those kind of little piddly tendencies take a lot of time, a lot of effort and they can be very substantial when it comes to the IRS.
The other thing, I never want anybody to use their employees payroll dollars from taxes to operate their business. This is a sure fire way to get yourself into big trouble and the IRS will just be all over you. They can be all over you personally as well. It’s just not an area you want to mess with and they are very stiff with these penalties now a days and not very lenient at all.
You may also want to check out, I’ve got a blog post listed here and it was in these checklists, if you used the ones that Dina sent out, they’re interactive so the links in here are live, you can just click on them and it will take you directly to the site.
Within our web blog, we have a post about “how much payroll is too much“. I actually get a lot of questions about what percentage should my payroll be. This will help you kind of walk through that session.
Let’s take a look at point of sale for a moment, and inventory. This is another big area where we have a lot of questions. With point of sale, obviously if you’ve been on the chat board recently you’ve seen there are lots of options out there and lots of people doing it a lot of different ways. If you don’t have a point of sale, I highly recommend that you go ahead and invest in one. No matter what system it is, invest in one to make sure that you have proper information to make good management decisions. You need to know what pieces are turning quickly more than just a gut instinct. You need to see in a glimpse which ones are priced properly verses which ones are priced too low, to high, to make sure that you’re able to keep that inventory turning.
When you walk into your studios and you go see that bisque, or that glass or that canvas or any of your supplies sitting on a shelf or in the back room, this is your money. That is where your money is at. So it is very important that your inventory has to keep a quick turn.
When we talk about turn, I’m looking for inventory to turn at least 9 times in a year. That means you should have about 30-45 days of inventory on hand at any given time. So that’s not a whole lot. If you are selling $200k worth of product in a year that would equate to- let me pull up our handy calculator here- we should be about 18% at most for cost of goods sold, divide that by 12, so a 30 day turn of inventory means that you have no more than $3k worth of inventory in your studio at any given time.
Inventory we don’t necessarily count as your paints or brushes or supplies, but more the resale items, your bisque, the glass that you’re going to resell, clay, those kinds of things.
If your inventory is up there and it’s not turning, or you have some non-moving inventory, do what you can to dump that and get rid of it. It’s bogging you down. I’ve had many studios say “my point of sale looks like I’m profitable, my financial statements look like I’m profitable, but I don’t have any money! I can hardly make payroll.” I hear that a lot in December. If that is the case, the same answer, go visit your money, it’s probably on your shelves.
Watch the inventory turn. If you don’t have a point of sale, these numbers are going to be near impossible or very cumbersome to come up with. You’re kind of shooting yourself in the foot if you don’t have some system of tracking for your inventory.
You may also see if you did put inventory into place, you might see some better habits already develop because you may have some theft issues. It’s just a fact of life that if you don’t track inventory your staff will know it, your customers will know it and things will float away. We don’t want that to happen to you.
From a point of sales system capacity, I know many people ask me questions about “which system should I use?” A lot of our customers use Vend. Light speed is also another system. Quickbooks Point of Sale is still out there, it’s not a cloud based system, which I highly recommend these days. This is kind of becoming an antique slowly.
I would definitely recommend a cloud based system. Since we finalized this checklist, Clover has also become a partner with CCSA and has a system as well in combination with merchant processing system.
Check those out, if you have questions on those, there’s a good bit of information on the chat boards about different systems there. If you’d like a 30 day demo, the link here will take you directly there and you can get a 30 day demo of Vend as well.
Couple of other things based on financials, as I mentioned, we’re going to touch on the financials a little bit but not as in depth as we had originally anticipated.
Key Performance Indicators, one of those things where you need to have all of your systems in line so that you can monitor the key performance indicators of your business. This is similar to your dashboard. When you get in your car. If you couldn’t monitor how quickly you were going, if your engine was running out of gas or running out of oil you wouldn’t be able to manage that car well. So the same happens with a business. If you don’t have a dashboard to let you monitor your key performance indicators of your business, it’s very difficult to manage and you could run out of gas. We don’t want that.
From Key Performance Indicators, the things we like to watch are the cost of goods sold and the percentage of sales, your labor as a percentage of sales, those are the top two things. We’re obviously also watching revenue numbers this year over last year at this point. This year to date over last year to date at this point. What do we think we’re going to need in anticipation of year-end and hopefully very busy holiday season.
I’ve listed a couple of live links here for you on performance indicators for both inclusive and non-inclusive studios. Includes cost of labor and the rent numbers as well. Take a look at those videos if you’ve not seen those and that should give you ample indication of a good place to get started.
When we talk about financials, I understand completely. I’m the accounting guru, I love numbers, I love looking at financials. I’m willing to bet if we took a straw poll right now we don’t really have anybody who would jump up and down and get excited about financials like I would. However, when you see what the results are from looking at these, I think you might change your mind. You first off, have to have up to date, accurate information. If your system of recording accounting transactions is not up to date, is not accurate, it’s kind of like looking at garbage, it might not help you do much. It may help you a little bit, but in order to be highly effective in managing your business you need accurate information. That way you can watch your goals. You can look at those key performance indicators like the cost of goods sold, the labor costs, the advertising. Your CPA should be playing a crucial role in helping you look at these statements and helping you look at your progress throughout the year.
One of the things that I do with all of our studios that we’re looking at is, I have very big database of numbers that I can use to analyse problems and get down to the point of “which specific things are causing you the most issue.” Whereas a generalist accountant will not have those targets. They really don’t have a place to go look on the web and say “What should your cost of goods sold be? What should your advertising costs be?” And your rent. That information is very proprietary to what we’re doing here, because we’re working with a great volume of studios at once.
Looking at that information is going to be a key place to help you grow your business. Especially this September is a great stopping point in looking at tax planning. I urge you, if you’re not doing tax planning, go spend the money on this right now, and get this done, because this will create a tax savings for you and you should, if you’re working with somebody who is very proactive, be able to generate way more tax savings than it costs you to do this kind of a service. Should be your best money spent.
In our tax planning that we do, we’re looking at what things should be implemented before the end of the year. What are the projections of items that we should be looking at to make sure we have those things in place by the end of the year.
A couple of last pieces. First off, the hours of operation is another area you want to look at. You don’t want to make changes in this too often because you’ll confuse your customers, but do take a look because initially many studios are setting up hours of operations based on what’s convenient for the studio owner, but you want to make sure that matched up with your customers schedules. That is definitely another area to look at to make sure that you’re optimized to make sure customers can find you to give you their money.
The last piece that I want to mention on business plans: Many people think about business plans as something that you would use as a tool to start your business only. This should not be the case. It should be an ongoing, updating, revitalizing document that is always in play. Because as your business changes, you want to make sure your business plans stay up to date. This is also a fabulous tool if you’re ever approached by somebody who would like to buy your business or you would like to sell your business. It’s kind of the road map of where your business would like to go, or where you’re anticipating it can be.
So make sure that you’re constantly updating that business plan. And again, I mentioned September, February, those are great months to sit back and reflect a little bit on how things are going with your business. This may be something you want to pull out. It’s also kind of fun if you haven’t looked at in a while, to look and say “Man, I really thought I was going to do that when I set this up?” There’s some fun things you can get out of there.
Also, start your staff to help you with it. You don’t have to be a one man show on all of this. Make sure that you involve your staff in helping you. Delegate, delegate, delegate. Let them show you what they can do. If they fail or can’t give you what you expected what have you really lost? Probably they did it in some downtime anyhow, so make use of your staff as well. And it can be a fun and challenging thing for them too. They may feel like they are more part of the business operations if you involve them in these types of tasks as well.
I urge you to go back and take a look at this checklist. There are lots of things in here that we did not cover today, but go through it, check off the things you’ve got a handle on. Highlight some things you think you may want to look at, and make a little checklist of where to go.
We are also open to feedback on these issues. This is not a static document that we’ll never make changes. We hope to constantly update it and let it evolve along with CCSA and the industry. So if you see some things you’d like us to add into the mix that maybe were omitted, or some items where you’d like to see some changes, feel free to let us know. You’re welcome to let Dena know, or come directly to me and I’ll be happy to work on those things as well.
I appreciate everybody’s time in joining us today. Again, I apologize if there were any audio issues, hopefully the recording will capture the whole thing and that should be available later on today.
I’ve got a few comments from folks, I’ll reply back to those personally after the session and if you have any others you’re welcome to email me. My email is Donna@PYOPaccounting.com I look forward to talking with you. Thank you very much, have a great day.
Donna Bordeaux, CPA with PYOPAccounting.com
Creativity and CPAs don’t generally go together. Most people think of CPAs as nerdy accountants who can’t talk with people. Well, it’s time to break that stereotype. Lively, friendly, and knowledgeable can be a part of your relationship with your CPA as demonstrated by Donna and Chad Bordeaux. They have over 50 years of combined experience as entrepreneurial CPAs. They’ve owned businesses and helped business owners exceed their wildest dreams. They have been able to help businesses earn many times more profit than the average business in the same industry and are passionate about helping industries that help families build great memories.