Babystep 4: Systematizing Your Finances

Finances. There are a few people who become excited at the mention of the word. And yet out of any part of your business, this one is the most important to systemize well.

Many people go into finances believing that it’s too difficult for them to understand or impossible to connect to, but these preconceived notions should be addressed head on. Finances can become painless with a healthy system in place.

A financial system that is lacking is like an unused room where all the random things get thrown into. In this random abyss, problems can hide with ease until they are so big that they are devastating.

And if your finances aren’t organized, it’ll be impossible to understand your cafe well.

Think of it this way: money is often talked about as the lifeblood of a business. When you go to the doctor, what is the first thing they check? Your pulse, your blood pressure - and if you’re losing blood, they’ll attend to that right way. Business is no different. In simple terms, there are a few things you must know first:

  1. What does each product you sell cost to make?

    • This should be in a spreadsheet detailing what each ingredient cost per unit with a link attached.

  2. What is your gross on average?

    • This is simply how much you spend on ingredients before any fixed costs.

  3. What are your fixed costs that barely change each month?

    • Rent

    • Utilities

    • Salary

  4. How much do you need to sell for your gross profit to be more than your fixed costs? That is your break-even point.

This is a great start.

Next look at your point of sale and begin to track it:

  1. Number of each item sold per day

  2. Tickets or customers each day

  3. Average ticket amount

This allows you to evaluate:

  1. What items to increase price on to make the highest different in profitability

  2. How you are doing on up-selling (average ticket amount)

What we’re not talking about here is bookkeeping. Sure, it’s important to keep up on your bookkeeping but many business people are chronically behind on their bookkeeping. More so what we’re talking about is understanding the basic numbers of your business.

What goes into making each cup of coffee that you make? How much do the coffee beans cost? How much does each gram cost? How much milk are you using and how much does that cost? A good rule of thumb is that the ingredients should cost you 25 to 30 percent of what you’re selling the product for.

You might be surprised to see which product of yours make the most money and which ones don’t.

The end goal is to make your coffee shop more financially sustainable but if you don’t know what is costing you money and what is earning money, you’ll never make progress.

We find many cafes want to buy more sustainable coffee but they often are in a financial position that forces them to choose cheaper and less sustainable options.

It all starts with writing down what ingredients go into each product and exactly what the cost is.

Ultimately you should know what you’re spending every month versus what you think you should be spending every month. It’s easy for wastage issues, wrong product pricing or wrong product choices, to hide.

If your products aren’t making good margins then either raise the prices or choose not to sell those products.

For items that you don’t make but sell already prepared, like soda water, it’s okay to not make the 25 to 30 percent margin. And it’s also okay for you to sell a few items in your business that are important to your business, but don’t make a lot of money. For both of these items, it’s not a big deal because you won’t be selling a lot of them

You know you’re done with financial systemization when you know the reality of your monthly expenses and are then able to work backwards and figure out how many customers you need to walk in the door to break even - and to be profitable.

A note on bookkeeping: the most important time to do bookkeeping is both when we don’t want to do it (because we’re not excited to see the numbers) and when we’re breaking even.

Many people say that they hate bookkeeping but in reality, they hate the black and white numbers that tell them the raw truth of how their business is doing.

Feelings of shame or failure can often deter business owners from being honest about their finances, but it’s an important step toward making change.

Don’t let the shame stop you from systemizing your finances. Seeing the numbers of your business, clearly, is one of the biggest steps you can make toward victory.

You can purchase SCI’s, “From Your Coffee Shop Dream, To Your Dream Coffee Shop” book here.

With SCI’s book, you’ll walk out these steps through the fictional, but all too relatable, story of Claire Wallace as she journeys toward her dream coffee shop.

Alex Mosherfinances, strategy, cafe, coffee shop, sci, money, accounting