Financial Matters in a Gift Basket Business
Finances will include aspects such as price setting, record keeping, taxes, billing, and payment options. Familiarizing yourself with the different aspects of your gift basket business' finances, as the owner of the business, is vital to ensuring your business' success.
Price Setting Process
As the business owner, it is up to you to establish the prices of your gift baskets. Your pricing process should be one of the first things that you set up financially for your business, as it can affect other aspects further on. Poor pricing policies, or a weak pricing system, can lead to issues like profit loss, tax issues, and overpricing your products.
What needs to be factored into the price? The price of a gift basket needs to take into account the cost of supplies, labor, delivery services you may offer, and your overhead costs. Keeping track of your business expenses, like the cost of your inventory, will assist with your pricing.
You may want to consider starting with a flat fee based on the size or theme of the basket that covers your overhead, labor, and the cost of the basic supplies that you use for all your products. Use that as a basis for your pricing and add the other additional aspects--cost of contents, any customizations, etc.--to create a total cost.
Delivery Costs--The cost of getting the completed order to the client is going to be different based on how you plan on delivering it. If you plan on doing it yourself, you will need to take into account distance, gasoline usage, vehicle maintenance, and time into your delivery fee. In order to avoid inconsistencies or problems with delivery costs, you may want to have a cap on how far you will go for a delivery or place a total fee for certain portions of distance. For example, you may have a five-dollar delivery fee for those within a twenty-mile radius, with an additional cost for every five miles beyond that. Be sure to add a limit to any deliveries your business makes, as certain distances may end up costing you more than you charge. You may also consider coordinating your deliveries in order to not waste money on the service.
If you decide to outsource your deliveries, or if you are not able to deliver to the client due to distance. Some online gift basket services choose to use third party companies or the postal service to deliver their products. Services like UPS and FedEx will have their own costs and policies for making deliveries that are specific for businesses. However, there is some slight risk in using a delivery services, as you may not have any control over how orders are delivered or may be bound to their policies in the event of damage. If you do decide to use a delivery service, find out what their policies are for business that use their services and what liability there is in the event of lost or damaged deliveries.
Pricing issues--Problems with pricing are sure to occur with your business. A customer may demand a discount for certain reasons like bulk orders, distance, or because they found fault with the final product. You may also find that the amount of effort and money being put in to the basket ends up being more than you normally charge for. There is the possibility, as dreaded as it might be, that your customer may cancel at any point in the process, even the moment when they receive the basket.
As part of your pricing policy, you need to plan for any issue that can arise and create problems. Having a contingency plan in place ahead of time, even if you never need to use it throughout your business' entire lifetime, will greatly help you out and prevent you from encountering even more problems. Decide what you will do in the event of a cancelation or scam. Decide what discounts--if any--you will offer, when they may be, and what the qualifications for them are.
Process of Keeping Records
Record or bookkeeping is a necessity for any business. It allows you to keep track of your costs and make sure that you are actually making money with your business instead of losing it or breaking even. Without record keeping, you will not be able to easily identify and treat any financial complications that may arise. If anything, it will only aid any financial issues for your gift basket business.
Which financial records need to be kept?--The records you keep should be anything related to sales and business expenses. This includes anything denoting a transaction, whether it is between you and your suppliers or you and your customers. Copies of invoices and receipts should be filed and organized somehow in the event that you need to find a record of a specific transaction. Your files can be paper or digital, or even a combination of both, so long as they remain up to date. If you choose to have digital files, back-up your files and do so regularly. This may be weekly, monthly, or according to whatever schedule works for you so long as you remain consistent in doing so.
Additional records you should consider keeping copies of include bank statements of any accounts related to the business itself. Payments rendered to and from you will most likely come directly out of the account. You should use your bank statements to match with any invoices that you have, both ones you have issued to customers and ones that have been issued to you from suppliers, and check to make sure there are no inconsistencies.
Records for employees, like paychecks, should also be kept. Any employees will need to denote their salary for taxes (as will you) and may need to reference your records. You may even have an employee who states that they were not paid, either at all or not in full; your records of employee payments then would be used in your defense. Even if you are the only employee, keep track of any payments you make to your personal account for the sake of taxes and good bookkeeping.
Why keep records?--Keeping records in the first place for your business is necessary to make sure that your business is operating well. You should seek to remain even in terms of costs and profit, or operate in the black. The amount your business brings in through sales should be, at minimum, to the amount you spend for your business. If your spending is more than your earnings, this is referred to as operating in the red.
Your records are also how you make sure that you are paying for any costs that you need to. Bills from suppliers, if left unpaid, can ruin your relationship with them and leave you with a negative reputation within the industry. If you have a retail location, you will probably need to pay rent and keeping track of those payments will ensure that you do not miss one and put yourself at risk for eviction. Any employees you have will need to be paid for their work and it will need to be on time. Record keeping can help you make sure that you are paying them on time and for the correct amount.
Your taxes are another major reason to keep records, and it is a legal requirement of your business by the government. Inaccuracies in your reported profits can raise suspicion with the Internal Revenue Service, possibly leading to an audit. In the event that you are audited, you will need to turn over any and all financial information. Missing records, even if it is done on accident, can result in penalties if the IRS uses those missing documents as evidence of lying on your taxes. Your records can also help you save money with your taxes by helping you determine your qualifications for certain deductions.
How should records be kept?--As mentioned, you can choose to keep your financial records in paper, digital format, or both. You should develop some type of organization system in order for you to be able to keep track of all of it. Keeping primarily paper records requires you to have storage space for your documents, and you may need to adjust your business location's layout to accommodate your record keeping the more you accumulate.
With digital records, you have the option of creating your own system through standard programs like Microsoft Office or using bookkeeping software like QuickBooks. If you choose to use software for your record keeping, be sure to look at what options are available and what will work best for your gift basket business as it currently is. Keep in mind that you may have to make upgrades to your software as your business grows, and the data may not transfer from one program version to another. As you will most definitely need to revisit your records later on, you should make sure that your digital method isn't overly complex. Consistently backing up, as stated, is highly recommended.
Establishing your prices and your record keeping process will not do much for your business if you do not have a billing system set up. The billing process for your business involves a little more than your customers giving you money in exchange for your baskets. You will need to create an invoicing method, decide on payment options, and how it will be documented for your own records. Some businesses decide to start small,
Payment Options--The available payment options you can choose to offer for your customers will be up to you and should be based on how you have your business set up. Online-only businesses stick to credit cards or use third-party companies like PayPal as options for their customers to pay for services rendered. If your gift basket business has a physical retail location, you will be able to accept cash payments from your customers for your baskets. Personal checks can be problematic due to the amount of problems that they can come with like fraud and bad checks.
The options that you make available for payment will come with some extras. Credit cards, for example, come with processing fees for each transaction that you will need to pay. The fee will be different with each credit card company and may impact your decision to accept certain cards. Cash will require you to have change available, make regular deposits, and comes with issues like robbery and counterfeiting. Whatever you decide upon for your business' payment options, be sure to be aware of all the pros and cons that accompany your chosen options.
Invoices--Your invoice is like a receipt that covers all the information about the services you have done for your client, the associated costs, and how and when they can pay. The purpose of an invoice is to be able to present billing information to your client clearly so they can approve of the charges and process it on their end as efficiently as possible.
Invoices should clearly have identifying information on it, like the client's contact information, their order, and your business' contact information. Each expense that you are billing the client for should have its own line and be identified for the sake of your records and the client's.
What to do for late payments?--You should retain a copy or two of the invoice for your own records in addition to sending a copy to the client in the event of payments being passed due. Reasons for why payment is late can include things like problems in your billing system, lost invoices, or human error. If a payment is late, talk with your client and see if they actually received the invoice in the first place and if they have any questions.
Unfortunately, some customers may refuse to pay or provide insufficient payment. To avoid this, you may want to request payment before delivering the order. Completed and delivered product without payment is money lost for you, and can be highly problematic. Include a plan in your business structure or have a policy in place in the event that a customer fails to pay or pays using faulty methods like bad checks or counterfeit bills.
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