This is the portion you might already be dreading in your business: the books. It’s easy to argue that accounting and bookkeeping are the most critical parts of your business. Having accurate books will ensure that you are running a clean and successful business. Get set up with a simple tool like QuickBooks or an online bookkeeping team like Bench. You will need a Certified Public Accountant (CPA) to handle reporting, as well as help you understand the necessary tax payments.
Your system for bookkeeping and paying bills needs to be the top priority. Instead of spending on a whim and doing what “feels right,” having clean financials enables you to make analytical decisions that are justified by dollars and cents instead of guesswork and estimates.
Financials may seem overwhelming at first, but you can break it down into simple steps to get started.
The first essential step to clean books is to bill properly and accurately. Develop terms for your business on how you collect payments and live by them. Perhaps your business requires payment up front to protect cash flow or at least a down payment to cover your garment costs.
Set clear terms for collecting invoices: write out a store policy and ensure that all your customers know it. Be consistent with your terms. The key to billing is to make it simple for your customers to pay you. When you begin working with wholesalers that accept purchase orders, make sure you have a credit form on file with net terms that are clear and enforced.
One way to accomplish a frictionless payment experience for customers is to accept payments online. We highly recommend this! If credit card fees are an issue, build them into your cost so you can avoid surprise charges upon checkout. Your customers will see right through you if you do not have a set system in place for sending out bills and collecting payments. It’s a good idea to send bills out twice a month, then make follow up calls twice a month on anything past due. Bad debt hurts your cash flow, so get ahead of it.
In your business, you will have fixed costs and variable costs. Fixed costs are unchanging: salaries, rent, utilities and any other costs associated with keeping your business open. Variable costs are things that change, like goods sold or anything that varies over time. Your profit margins are going to derive from your total revenue minus the sum of your variable costs and your fixed costs. This simple way of looking at your profit margin allows you to create historical data that you can reference on a month-to-month basis.
There are two basic types of accounting:
Your accountant will go over different types of bookkeeping with you based on how you want to manage your business. Generally speaking, cash-based accounting is easier to manage and gives you a quick understanding of how much cash you truly have in your bank account. We highly recommend starting with cash-based accounting.
Keeping organized books from the beginning will pay dividends. Reduce your headaches and grant your business financial clarity down the road. Stay organized from the start.
As you grow accounts receivables (AR) and accounts payables (AP), accrual-based accounting can help give you a better understanding of your company’s entire financial situation since you’re accounting for payments that have yet to be made or collected. To illustrate: you might not receive payment for 30 days, even if you’ve completed an order for $5,000.
As your AR backlog increases, it’s important to control and reduce it as much as possible. Always collect a minimum 50 percent down payment on orders (if not 100 percent). Larger clientele will often only work with your company if you bill them with “net terms” — they will essentially just mail you a check at a later date. This can be lucrative for scaling your business but also puts you in a tough spot if cash is in short supply.
As your print shop grows, reduce accounts receivables. Work hard to maintain a monthly profit margin of 10 percent after you pay your own salary.
Pricing and Profitability
Focusing on growth is contagious. Everyone wants the biggest shop with multiple automatic presses. But if you’re not profitable, you’re no different than a brand new printer in their basement. In fact, you’ll have more issues and responsibilities as you grow: rent, employees, management, equipment, and budgeting for seasonality.
There is a popular trend in the screen printing industry to undercut a competitor’s price. You can do it cheaper. You tell yourself to just get the work, and the customer will surely come back in the future. “If I don’t match their price, I won’t win the job.” We’ve all thought it a million times.
Shop owners are notorious for taking on too much work “just to have the work,” especially as they push hard to grow early in their company’s history. On top of the burden of overwork, the owner forgoes their salary just to reinvest it into the business. “I’ll take money out next month. I don’t need to pay myself. I can just cut corners and offer even lower prices.” This is a toxic way of thinking that results in going out of business. This short-sightedness is beginning to cannibalize the industry, but it’s also a disastrous strategy; a race to the bottom. Growth is an alluring concept, but at what cost?
Have your accounts receivables ballooned out of control? Have you forgone a salary for months on end? Missing sleep and feeling like you want to just quit? It’s time to reset. Start thinking about the long-term timeline of your business.
Consider this: have you ever paid more for an item or service because you enjoy working with the person that sells it? Think about your doctor, dentist, lawyer or even favorite car or clothing brand. Price is not the most important factor! Customers want a relationship. People want to reach out when it’s convenient for them, get ideas for solving their latest problem, create solutions quickly and work around their schedule. Small gestures showing that you understand your customers can provide large amounts of added value. Reply to your emails within two hours, answer phone calls instantly and return voicemails the same day. Have a zero-inbox policy — when your team leaves, there must be zero emails and voicemails left in the team inbox or support desk software.
Pricing to match a competitor is the quickest way to go out of business. It’s essential to truly understand your expenses. Look at what your total operating costs are per day, and lock into sales goals with your team. Don’t cut corners and calculate overly conservative or unrealistic numbers.
Stay lean. Hustle hard at the peaks and spend like it’s always a slow season. It’s your decision. Would you rather slow down and struggle to make payroll in the dips – or be comfortably profitable with enough work to truly challenge yourself?
Screen printing is a multi-billion dollar industry with customers from every part of the world. Every year, thousands of entrepreneurs discover their passion for screen printing - and they want to claim their cut of the billions and billions of dollars spent on custom printed apparel.
But the majority of new screen printing shops fail before they reach the 5-year mark. They fail because of poor business planning, dull branding, and a lack of ability to scale.
Your shop can be different.
This is an excerpt from our book, The PrintHustlers Guide To: Growing a Successful Screen Printing Business. Written by Printavo's dynamic founder Bruce Ackerman, Campus Ink's enterprising Steven Farag, and Adam Cook. The PrintHustlers Guide To: Growing a Successful Screen Printing Business is the next generation's guide for building your own lucrative print shop.
You can purchase a physical copy of the book on Amazon.
Previous chapter: Chapter 8: Training is Undervalued
Next chapter: Chapter 10: Payroll Should Be Automated
Printavo is simple shop management software. Whether your shop works with screen printing, embroidery, signage, digital printing, or awards & engraving–we make your complex workflow simpler to manage and understand. Printavo keeps your shop organized by handling scheduling, estimates, quote approvals, workflow, payments, accounting and more. With Printavo, you’ll work smarter–not harder.Try Printavo