This is the most asked question on the ‘Making Profit from Cake Decorating‘ course.
There are a number of factors you must take into account:
1. Compare your skill level with other cake designers within a 25 miles radius and find out what they’re charging.
2. Establish how many hours a week you can devote to your cake decorating business (remember to allocate time for admin, taking orders, bookkeeping, stock management, deliveries, marketing etc).
3. With the time you have left how many cakes can you realistically bake and decorate?
4. Identify your business set-up costs. Include everything you will need like stock, equipment, logo, branding, stationery, phone, website, delivery means, courses etc. Remember that as a business transaction you can ‘sell’ equipment you already own to your business.
5. NEVER MIX PERSONAL MONEY WITH BUSINESS MONEY. Set up a separate business account and keep things entirely separate.
6. Once you’ve identified your set-up costs you need to find a means of funding them.
7. Chances are that if your using savings then you’ll already had paid tax on that money. If your funding through a business loan then its straightforward in allocating repayments of the loan to your business account. Exactly the same should apply when personal funds are used. Set up a repayment plan from your business account back to your personal account. The benefit here is that you set the repayment period and amount and the loan then gets allocated to your business running costs therefore reduces your profit, which reduces your tax liability at the year end.
8. You then need to work out your Fixed Running costs. The first of these is a repayment up the set-up funding. Other things will include insurance, energy, web hosting, phone bills, marketing, delivery vehicle, professional fees etc.
10. Then your variable running costs. The main one here is ingredients. At the moment we have been sitting at 32% of sales are allocated to Cost of Sales (ingredients) which represents a 68% Gross Profit. Ideally you wouldn’t want to be much below 70% GP, however you also need to be sensitive to the market place.
11. You then have all the facts you need to work out how many cakes you can make, the GP and the net profit (taking off fixed running costs). Work around with some numbers and you’ll find out what you need to charge to make profit from your business.
12. Other things to consider are that if you’re on holiday for two weeks you won’t be able to take any cake booking s for the time you’re away and you are not there to take orders which will also result in a further loss of sales, Make sure and factor these things in as your fixed running costs will be there whether you make a penny or not.
13. Be aware of seasonality. In July and August you are likely to be around 2-3 times busier than in December / January.
14. You then have to get a marketing plan together to make sure that you achieve the orders you need to make the business model work.
David will be running a one day seminar in London on the 25th September and courses in Scotland on the 10th December and 28th April 2012. He guarantees to provide a number of hints and tips which will be worth multiples of the course fee.
