Monday, March 08, 2010

On Starting A Business

This weekend my friend Ruthie wanted to get some advice on starting a business. 

Yikes. 

Sometimes I feel like I'm flying by the seat of my pants.  But when I got to talking to Ruthie I realized I've gone through all the steps and am recognized as a bona fide organization known as a Limited Liability Company.  Me?  A company?  Yes, it's true.  And so Ruthie wanted the skinny on how it all began, and what is entailed in the process of starting a business.

I won't bore you with all the details of our afternoon-long conversation, but I must admit she had some very good questions for me.  If you're thinking about turning a hobby into a business, here are some things you might want to think about.

1.  When do you decide to make the jump to making your hobby a business?  This is a good question.  I think the answer is probably different for everyone.  My answer: I felt obligated to pay sales tax to the state in which I do business so I applied with the Secretary of State and put in a request to be an LLC.  An added bonus: tax exempt status with some stores on supplies and the ability to do business with wholesale suppliers.

2.  What's better, online selling, consignment stores, wholesale customers, or art/craft fairs?  Once again, this answer is probably different for everyone.  Each venue has pros and cons and the pros depend heavily on what you are trying to sell.  I resisted online selling for years because my primary product was candles.  I figured people would much rather touch, see, and smell candles in person.  I was quite right about that.  I do sell candles online, but they are not my main focus.  I broadened my line to extend beyond candles, and those items sell much better online.

Consignment versus wholesale?  I've done both.  I would choose wholesale accounts over consignment stores because they are sure sales.  However, your products will have to be sold at a reduced price, usually half of what you would charge retail.  Consignment allows you to charge as much as you want and the store owner gets a commission.  But your sales aren't guaranteed and a lot of your inventory could be tied up in a store that might or might not sell your product well. 

In my estimation, for my business and product, the art/craft fairs are a good bet.  I can put a little bit of everything out, make sales without having to pay a commission, and get to hear feedback on my products firsthand from the people shopping.  Also, participating in fairs and shows provides great networking opportunities with other vendors. 

3.  How hellish is the business side of a crafting business?  I can't lie, if you are running a business it is in your best interest to keep impecable records.  I manage the record-keeping myself and taxes are handled by Husby, but one could surely hire accountants and tax people to take care of that.  I'll confess I've spent hours setting up Excel spreadsheets for sales and expenses and have calculated to the last fraction of a penney the cost that goes into each and every product I make.  That may seem hellish to some.  For me it took away from production time, but setting up worksheets and doing calcuations in the beginning are worth it for easy bookkeeping throughout the year.

4.  Are you prepared for success?  Typically people will fear failure when starting a business, but there is such a thing known as fear of success.  What happens if your business takes off beyond your wildest dreams?  Do you know what you'll do?  Will you expand and hire employees (if you haven't already)?  It's not arrogant to speculate huge success, because it, as well as failure, must be considered and plans must be made regarding how you will handle either scenario.

Whether you decide to maintain a hobby or start a business, the main thing I can recommend is to do something you love.  I mean, if you're going to do something that wears on you or don't enjoy, you might as well be making money for someone else instead of yourself.  One other piece of advice - don't have expectations.  Expectations tend to be violated and that only leads to a boatload of disappointment.  Take it all as it comes; the bad things will become opportunities and the good things will become motivators. 

19 comments:

Courtney said...

Great article on deciding whether or not to take the plunge! You have good advice for your friend. Another question for you would be, "If you could go back and do it all over again, would you?"

Sara said...

Great question, Courtney. My personal answer to your question, yes I'd totally do it again. Follow your dreams and you'll have no regrets.

Zemphira said...

Still sounds a bit scary for me. Wonderful info though!

Sara said...

Zemphira,

Scary, yes! It's totally scary, but there are a lot of good people out there willing to help you through the hoops. Start small, one step at a time, and things will grow before you know it. You'll be accomplishing things you never thought possible!

Twisted said...

I am visualizing success right now!

whyte said...

Love your comment: "Expectations tend to be violated and that only leads to a boatload of disappointment." I think it's difficult not to have expectations, but letting go of them easily is helpful if they fall short. I'm constantly amazed how my expectations have changed and I'm loving the results. Let some things lead you around by the nose and see where you land.

I Sew Lucky said...

What a great article!!! My shop started off really slow and then took off about the end of May last year and had over 700 sales since then. I really have no clue when it comes to record keeping. I know what I make every week and that is about it. How do you begin the record keepping process?

Sara said...

I Sew Lucky (what a great name!),

Record keeping is an ongoing, updating process for me. I keep most of my records in Excel worksheets.

I started out my record keeping (many years ago) with a simple inventory of what I had in stock to sell. That moved to including how much each item costs to make, which led to a more accurate estimation of what my retail prices would be. Another record you might want to keep would be tracking specific item sales. That way you can provide the hot-selling items in larger numbers, and hold off on producing the slower-selling items.

The more records you keep, the more you'll think of what information you want/need to have, not only for your own information but also for the IRS.

Congratulations on 700 sales!

Laura said...

Thank you for your article. It came at the right time for me. I'm just starting out, I have a free weekend, and my goal (after reading your article) is to have my Excel spreadsheet set up before Sunday night :)

Calico Road said...

Thanks for the article, just what i needed since i was recently laid off and trying to take this opportunity to get my craft "business" more business-y.
I do have a question.....when figuring the cost of your items, do you include an hourly wage? I've heard some crafters swear by it, others despise doing that. What do you do?

sweetpeabyjk said...

What a great article! Sara- thank you for the info.

I, too, have that question about including the hourly wage in the cost. That is a hard one...

Sara said...

Thanks to all who left comments! I think I'm going to have to go into a little more detail on the business subject in upcoming posts.

As for the question of hourly wage: Currently I don't give myself a salary. My business is self-sustaining, which I consider a huge accomplishment. Perhaps if I didn't have a day job I would give the matter more thought. On the other hand, if I don't give myself a salary in my business I may never have the chance to quit my day job!

What would you give yourself per hour for the work you do? Would you pay yourself for your time? Your expertise? Would you consider yourself a laborer or a manager? Would you pay yourself differently for the different jobs you do within your business?

Tell me what you think.

Victoria said...

I agree with whyte, I liked your comment on expectations. Since I love doing online selling and creating, I don't mind when I have to pay the additional shipping because it cost more than I had estimated. Somebody is getting a good deal and I love my customers. And, yes my day job supports me and my sales support my 'hobby' but I have just started.

sartassa said...

Thanks so much for sharing this with us. I just joined etsy and thought about selling some things too (though I can't start now since I am a perfectionist and never satisfied with what I create)
Now I feel as if I am not really prepared for everything ...

Sara said...

Sartassa -

Ah, perfectionism. It is the bane of every creator's life. Guess what? No one else can even see the imperfections, or else they are considered endearing.

Here's a perfect example: I created candles once and didn't include enough of a certain additive to the wax. My dark blue candles had white spots all over them because of this oversight. Of course it wouldn't affect the burn of the candles, but I thought they looked terrible. I put them out for sale at a craft show anyway. A customer came up and bought them, in love with how they reminded her of a starry night.

Don't be too hard on yourself. Of course you don't want shoddy products, but perfection is a goal few of us can always achieve.

Loved Ever said...

Good post keep blogging.
Work From Home India

SuZeFashion said...

Great article! Thanks for sharing!

Terry T said...

Great information to share. I am great about record keeping and track everything on Excel which has been a lifesaver....As much as success scares me I can only hope that I become busy enough to hire help! Thanks for your insights!

Anonymous said...

I am planing on moving to Nevada. I don't need a business license if I have a crafts business and work at home. I can even do craft shows. I will just need to pay sales tax.

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