Industry sector: Manufacturing

Furniture maker: Cash sales


'Cash sales' means any income from your main business activity which is received at the time of sale. For example, if you sell direct to the public you might specify cash with order, make online or mail-order sales where customers pay by credit card, or get paid cash on delivery. You might insist on a deposit if items are made to order - deposits are also Cash sales.

While some of your customers may pay you in cash, remember that Cash sales can also include:

  • debit and credit card payments
  • bank transfers and payments made through online payment services like PayPal and Nochex
  • cheques

To prepare your cash flow, you need to estimate how much income you will receive over the next 12 months, including VAT. To do this you will need to work out how many items of furniture your workshop or factory can produce and how many of these you are likely to sell. You will then have to decide how much of this income will be 'Cash sales' and how much will be income from customers that you invoice. You will also need to decide on any services you might offer, such as re-upholstery or restoration and repair, and how much you will charge for them.

There are a number of things to consider when you make your estimates.

Type of business

Think about the type of furniture making business you want to run:

  • who will your customers be - will you be targeting trade or retail customers, budget-conscious or wealthy buyers, a local or a national (or perhaps an export) market and so on
  • where will your workshop or factory be? Will you have difficulty in finding premises that are large enough in the place where you want to be located
  • will you have a showroom attached to the workshop premises
  • how will you market your furniture ranges? Will you aim to sell your furniture products to the major national multiple retailers or large regional independents, or will you direct sell to consumers by advertising in the press and online - you could consider making online sales through your own website or through a website like eBay or Etsy. Will you need a sales team or freelance selling agents
  • will you mass produce items or will you work on a much smaller craft scale, perhaps producing bespoke items
  • will you subcontract some processes, such as polishing or upholstery work, to specialist finishers or will you be able to undertake these processes in-house

Your furniture ranges

You should already have a pretty good idea about the type of furniture you want to produce. Think about:

  • will you make and sell fitted furniture or free-standing items - or possibly both
  • what range of furniture will you make (for example cabinets, tables, chests of drawers, upholstered items such as sofas and chairs, office furniture and so on)
  • will your products be fully assembled or will you go down the flat pack route
  • will you target a certain income group (for example bulk production for the starter home market)
  • will you establish your own, unique brand name or will you produce items for sale by one of the major furniture retailers
  • will you offer bespoke or customised services such as making made-to-measure bedroom furniture
  • what will differentiate your furniture ranges from other, similar products
  • will you design your own ranges or will you need to employ a specialist furniture designer
  • how quickly will you be able to produce items that have been ordered by customers - many people are not prepared to wait too long
  • where will you obtain your timber, raw materials and components from? With more and more people concerned about the environmental and ethical effects of their purchases it could be important for you to obtain your materials from a sustainable source. This can also be an excellent selling point for your business
  • will you take back end-of-life furniture when you sell a new item? If so, how will you dispose of old furniture in an environmentally friendly way. Maybe there will be some parts that you could re-use or recycle
  • how will you monitor quality and wastage

You'll need to consider:

  • which end of the market you are targeting - are you planning to produce cheap ranges in bulk or hand-crafted and bespoke items for a more affluent type of customer
  • whether you will supply stock to retail outlets or will customers have to place an order for your products. In this case you will have to provide display models and, perhaps, a print and online catalogue for your retailer customers
  • whether you are likely to sell approximately the same amount every month or get seasonal peaks - generally speaking furniture sales are highest during the build up to Christmas and in January. Easter can also be a busy period

Pricing

It's important to get your prices right. Things to consider include:

  • what will your pricing policy be - you must at least be able to cover your costs, overheads and drawings. No matter which sector of the market you plan to target, you should be aware that the furniture industry is very competitive. As a result retailers will put pressure on you to keep your prices low
  • how often will you review your prices
  • will you offer discounts and retrospective rebates to trade customers like retailers who place regular orders

You should be aware that:

  • if you source timber, raw materials and components from overseas your costs will increase if sterling weakens
  • if you plan to produce furniture for the export market you will be at the mercy of currency fluctuations which may mean your products become uncompetitive

To help with your decisions, click on the checkpoints for guidance. Once you have worked out a Cash sales figure add it to the relevant field in your cash flow forecast.