About this module
Money talks, and in the world of business, it’s important to manage your finances throughout every step of your business! Learn about the many key sectors and hidden costs that go into running a baking business, from crowdfunding, production, operations and more. Find out which parts you shouldn’t overlook, and how you can budget your money smartly to steer your business forward!
We have a shown you the ropes on being a successful entrepreneur. Now it’s time to equip you with the hard skills of running your own business.
A typical business is divided into 3 functional areas that requires financing – Finance, operations and marketing.
First Area, Finance. The key role of finance here is to ensure you have sufficient funds at various stages of the business. There are 3 key stages – Beginning, Customer-Funded and Credit Expansion.
In the beginning, you will need to secure enough funds to start up. Then you will enter into a customer-funded stage, where you must have good cash flow management to ensure your income can sustain your day-to-day expenses. When the business is showing profit, to further expand, you can then enter the credit stage to secure larger funds for expansion.
Drawing on our introduction, we can split finance into two types – Start Up funds and tracking cash flow.
When starting up, you will need funds to purchase the basic equipment for production and expenses for the first batch of products, such as ingredients and packaging.
As the homebaking business requires relatively low startup funds – ranging around RM10,000, many choose to fund everything themselves with minimum outside help. This is called bootstrapping.
It is quite common for home bakers to start the business as a side income, while still being employed and earning a salary. Some may take the opportunity to apply for credit cards, withdraw cash from their personal savings, raise funds from friends and family – all while earning a monthly income, before quitting their job and becoming a full time entrepreneur.
Those who can successfully make this jump will commend themselves for being resourceful, versatile and possessing the great ability in handling pressure.
For home bakers who wish to grow and expand, there are also other funding options such as loans and government grants. For those who have a clear growth or expansion plan, you can try the crowdfunding option or look for investors.
Secondly, Tracking Cash Flow in order to keep a tab on sales revenue and cost.
This is done through good book-keeping, where every transaction is recorded, no matter how small.
This will ensure that at the end of every week, you are able to know your cash flow standing, whether it is positive or negative.
This will then be able to guide you to make necessary decisions such as to increase your sales to add revenue or to reduce buying of ingredients and use existing ingredients.
This will be addressed further in the Operations Section. Let’s take a look at how some of our home bakers does it.
To be honest, in the early days, I didn’t know how to manage the accounts. I just wrote in the book what orders came in, what went out. My sister, started an excel. From there, we could see the figure and all. Only then could we manage the cashflow. From there we could buy what we need like the oven and mixer.
The second area is OPERATIONS, where you must ensure timely production of goods and delivery.
The key is to plan for every goods production and ensure that the costing is done accurately.
Costing for this includes:
a. Cost of raw ingredients,
b. Cost of Overheads – (electricity, rent, water, labour)
c. Cost of packaging, and
d. Cost of delivery
It is important to calculate the unit cost in order to determine your selling price. This can be done by first calculating the total cost for each batch of production.
For example, if you produce 50 loaves of multigrain bread per week, knowing the total production cost will allow you calculate the cost per loaf, and determine the price and margin for each batch.
We will elaborate more about calculating unit costs and pricing strategy in the upcoming module.
The third functional area of a business is MARKETING.
Marketing is the hand that feeds any business. It is one of the three lifelines to any business because without it, you may not be able to generate the demand for your products, which leads to sales revenue.
Some new entrepreneurs may make the mistake of cutting their marketing costs in order to save money – but as they cut the wrong activities, they may lose exposure or demand and hurt the business instead.
For more marketing tips, you can navigate to the Marketing Module.