Dear Dangerously in Love with Your Finances,
Our business – a small, artist-owned company that builds custom furniture in Pennsylvania – has financial growth challenges. We cannot seem to get to the next level of consistent positive cash flow. Expenses and costs are extremely high; however, this is not unusual in the custom design industry. How do we maintain positive cash flow, while paying both our suppliers and employees?
~ Increased Business Expenses
Dear Increased Business Expenses,
There is something special about custom-designed furniture because each piece is distinctive and it’s likely that no one else has it.
Custom furniture and its uniqueness come with a high price tag, which leads me to a few accounting questions for you:
- What is the process for estimating pieces being sold?
- Are you charging enough for each piece of furniture that is sold?
- What is the gross profit margin for each product sold?
- What percentage of your products have not been within budget?
- Is your bookkeeper using job costing as the method of accounting?
Job costing allows your bookkeeper to track, control, and manage every cost incurred by a job. Each job will have its own costs and expenses – since each job is customized. Labor and materials are your highest cost and are also direct expenses for each job.
Overhead costs such as marketing, general, and administration expenses will be tracked to each job by a calculated formula. Overhead costs known as indirect costs cannot be traced to one specific job – it is allocated by a percentage of total overhead cost.
The benefit of your bookkeeper using job costing provides you with the following financial information:
- Are you losing money on jobs?
- Do your processes lack efficiency?
- Are the material costs too high?
This type of financial information identifies not only increased expenses and costs; it allows you to become proactive with pricing and expense management for future jobs.
If you have any questions about job costing, please do not hesitate to reach out. I am always an e-mail away.
As always, Stay Dangerously in Love with Your Finances.
Regards,
Lozelle