Is Your Floral Business Financially Healthy?
Crunching numbers, reviewing balance sheets, reining in your costs. Sounds like fun, right? Maybe not, but If you're like me, you just want a simple way to keep track of how you're doing and get back to the business of doing.
Like it or not, to maintain a financially healthy shop, you will need to get a handle of your basic expenses and sales numbers. You should have a monthly budget in mind and keep track of everything. Quickbooks is a great tool to use for accounting and producing monthly reports for you to look at and stay on track. It's like a checkbook, but gives you a lot more information. If you simply can't keep track of your finances - hire a part time bookkeeper or accountant to help you.
Set Some Money Goals
Here are some simple goals to think about. You should aim for a 10%-15% profit before taxes. If you aren't there, it's time to look at how your hard earned money is being spent and break down each line item on your budget. Know how much you're spending on what and make adjustments as needed.
There are some broad cost percentage goals you should try to use in your floral business. These are the overall costs of a category divided by your gross sales. Here are some rules to get to your goals:
Some Basic Rules of Thumb to Keep you on Track
1.) Your gross sales are all the total sales that come into your shop - cash, credit card, checks, wire-ins, etc. Your net sales are the gross sales less refunds and returns from customers, any bad debit and your wire-in fees. If you're a typical florist, your sales are made up of direct sales (walk-ins, regular customers who call you directly, house accounts, etc), plus wire-in sales (FTD, Teleflora, etc.) You make more profit on customers who buy from you directly, so you will want to maintain an 80-85% target on your direct sales, and 15-20% of wire-in sales.
2.) Cost of Goods Sold and Payroll are the largest expenses in your business. "Cost of Goods Sold" is made up of your product costs (flowers, containers, plants, packaging, etc), plus any waste or shrinkage (lost product, theft, overstuffing arrangements, etc.) Cost of Goods Sold should not exceed 25% of your gross sales. If you want to improve your bottom line - this is the one item you can control. Make sure designers are recording every flower going into an arrangement and they're not "eyeballing" what they're doing. It's easy to overstuff a design and have your profit quickly go out the door - so keep tight control of what you are using. By keeping on track with what you use, you can get your COGS down to 20%, leaving more in your pocket.
Once a month, review what you pay per stem for product and what you pay per item for your hard goods. Make sure you are getting the best product for the right price from your wholesalers.
Shrinkage and Waste can get out of hand if you're not on top of it. Every stem you end up giving away or throwing away should be recorded along with the cost. Waste and shrinkage should never exceed 5% of your gross sales, so keep track of it on a daily basis - by creating a log. Aim to get this number down.
3.) Payroll is a huge expense. It should not exceed 30% of gross sales. This is harder to manage because it fluctuates from day to day and during the holidays and you have to manage your labor accordingly. Your designers are your biggest hourly expense. Make sure they are high producers. An average designer can produce 4 everyday arrangements per hour and you should figure about 6 hours of production time (the other two hours are for prepping flowers, waiting on customers, breaks, etc.). As well, you should know how many deliveries a driver can make in an hour, and staff accordingly.
The owner's compensation should not be included in payroll, but it should be somewhere around 10% of gross sales.
4.) Facilities cost is made up of your rent, building maintenance (cleaning, repairs, etc.), utilities, internet and phone connections, etc. In general these are fixed costs - meaning they happen every month and have nothing to do with the size of your sales. All together facilities costs should not exceed 8% of gross sales per year.
5.) Insurance, such as liability, workman's compensations and auto, should run about 2-3% of gross sales annually.
6.) Miscellaneous fees such as bank fees, credit card fees, wire company fees should not exceed 2-3% of gross sales.
7.) Automobile maintenance and repairs, fuel etc. should not exceed about 5% of gross sales. This can include a monthly leasing fee, but if you own the vehicle the cost and is treated differently in your budget.
If you can maintain all these percentages, your profit margin will be between 10 and 15%.
Below is a spreadsheet file you can use to plug in your own numbers by month. I've based it on a florist with $550,000 in gross sales. Once you plug in the numbers, you'll be able to see the percentages you are maintaining. If you need the file in a different format, feel free to email me at firstname.lastname@example.org
"Revenue is vanity, profit is sanity, but cash is king"