One of the most critical components of managing an inflatable business is balancing your costs against your revenue, in an ongoing effort to maximize your business’ profits. Each month you need to know what your sales were and your monthly costs. It is important to have a good estimate of the ongoing costs to operate your inflatable business each month so that you can estimate the amount of revenue and events you need to book to break even, and to make a profit.
The following are typical ongoing costs for an inflatable business:
- Storage facility
- Salary of owner and employees
- Utilities – telephone, internet, etc.
- Legal and other professional fees
- Equipment cleaning supplies
While transportation may be a variable cost, depending on mileage to and from the events booked, most of these costs are fixed expenses that do not change from month to month. Knowing what your business is costing to operate on a monthly basis is a critical component to operating an effective inflatable business.
All of the above expenses become your inflatable business’ total monthly overhead, or the cost needed each month to keep your business operating. You should include the owner’s compensation at a modest level for the purpose of calculating these numbers.
The amount of expenses you business incurs will affect your pricing, owner and employee salary, and available spending for repairing and replacing equipment. Unforeseen costs will also need to be accounted for. You should set aside a certain dollar amount each month for this expenditure as well.
The accounting aspect of a small business can quickly become overwhelming with terms like balance sheet, income statement, amortization schedules, and profit and loss statements. To keep it simple what you really need to know about your business is – are you bringing in more money than you are spending?
If you find that your business expenses each month are consistently exceeding the income this is a red flag that you need to reevaluate aspects of your finances. You may be able to trim some of your expenses, such as reducing the size storage facility you are using, eliminating staff, or cutting back on the more costly advertising.
Another item to evaluate in this situation is the rental pricing of your inflatable equipment. Take a look at approximately how many events are being booked each month, and the average cost of each event. This number should be higher than that of your monthly expenses. If your expenses continue to exceed this you may need to consider increasing your rental pricing. When adjusting your pricing to cover expenses you need to make sure you are not pricing your rental fees so high that you will lose business. Doing some research about what other inflatable businesses in your area are pricing products at will give you a good ballpark of where you need to be with your own pricing.
Remember, it is important to keep a close eye on the finances to maintain a healthy and successful business.