Setting Up a Business
Whether you're opening a lawyer's office in an exclusive downtown district, or starting a craft business from your home, there are certain steps any entrepreneur must take in order to set up a business. This section outlines some basic steps to take in order to set up your new hobby or craft business from home. It is by no means all you need to know. However, all new businesses will need to:
- Develop a business plan,
- Make yourself legal,
- Design a professional image,
- Find capital.
Developing a Business Plan
Developing a business plan is important because it enables you to see where you're going, and eventually where you've been. It can be compared to creating a recipe. You want to make sure all the basic ingredients are there, and as you work on your creation you will make changes to improve it along the way. A plan should include information such as: what you intend to do; how much money you want to make; how much time you are able or willing to spend; how you plan to finance your business; and how you plan to grow through the years. Think about what you want to do now, and how you want to develop your business in the future.Since most of us are more interested in our passions of making crafts, this task seems very dull and maybe intimidating. But, there is help available. Homemade Money by Barbara Brabec includes a step-by-step guide to writing a business plan. I recommend you call your local library or stop by the bookstore soon to pick up a copy of this book, which has a lot of other helpful business advice.
Making Yourself Legal
Zoning, licenses, taxes, Yuck! Right? Making yourself legal is probably the most unpleasant task of any business owner. The forms and fees never seem to end, and as a home-based business it can be even more of a hassle. But, it is illegal to run a business without the necessary licenses. There are a lot of restrictions on home businesses, before you get too far, find out what they are now.First, call your local zoning office, tell them where you live and what you want to do. They will be able to tell you if you are allowed to have a business from your home, and if so what rules you must follow. For example, where I live I'm allowed to run my jewelry making business from home, but I cannot have a sign in front of my house, have clients in my home, or keep large amounts of inventory in stock. When you talk to the zoning department, be careful what you say. Choose your words carefully. If you want to make wooden toys, don't tell them you want to manufacture toys. This leads them to believe that there will be huge trucks unloading supplies at your house, and inside will be dozens of people working around large machinery. Instead, you could tell them that you want to make hand-crafted wooden toys. Depending on where you live, the restrictions will differ and there are ways to change your zoning regulations if you are too restricted. If you find your zoning will not allow you to operate your business, then ask them what you need to do to change the restrictions.
Next, you need to apply for a business license and tax number. Even if you plan on only selling wholesale or doing consignment so you wouldn't need to pay sales tax, it's important to have these. Often, when you're buying supplies wholesale, you will be asked for a copy of your business license and your tax number. Companies want to be sure you are a legitimate business, and not just a hobbyist who wants to save money.
About this same time, you will need to decide on the structure of your business. The most popular structure for home-based businesses is the sole proprietorship, which means it is owned and operated by one person. Partnerships are owned and operated by two or more people. When you become a corporation, you become a legal entity, and a subchapter S corporation requires the income of shareholders to be taxed.
When you file for a business license, you can use a business name or your legal name. This does not give you legal rights to the business name you choose. So if you choose to use a business name, you must also file for a fictious name. This requires a name search, a posting in the paper of your intent, and for forms to be filed and fees to be paid. Some day when you are well established, you will be glad you have a legal name in order to protect some one else from taking it.It is impossible to write down every step required for the legal aspects of starting a business, because the law is different depending on where you live, and they are subject to change. So, call local government offices in your area along with your local Small Business Administration to find specifically what you need to do to be legal.
Designing a Professional Image
After going to all the trouble to become legal, you want to be taken seriously by the business community and your customers. So, designing a professional image for your company is essential. People in the hobby and craft industry have an especially hard time with this, because a lot of people may do what you do for fun only and not with the intent of earning a living.
Promotional materials are important tools you can use to develop your image. Business cards, letter head, price lists, catalogs, flyers, all can help promote your product and communicate who you are to those who matter. There is no harm in starting out with hand lettered business cards, but often these items are not as expensive as you think. If you don't want to spend a lot at first, decide which promotional materials are most important and visit a local office supply store or printer to determine how much it would cost to have these professionally printed. Many printers also provide items such as business cards with basic formats that are printed on white stock with black ink. These are the least expensive, but a good place to start.
Another necessary image device that hobby and craft businesses need are pictures and slides. Almost all shows require pictures or slides to be sent along with an application. These must represent your work, and in many cases they also want to be shown what your booth or display will look like. Pictures can also be helpful when trying to interest stores in your merchandise.
Finding Capital
Money is usually at the root of most business problems. You never seem to have enough, and you probably never will. First, you need to decide how much you need and can afford as an initial investment. I suggest starting out slow before getting in debt with a business loan or credit card. Be sure you thoroughly test out your market before jumping into debt. A good rule is to try to budget in a certain amount each month for your business. Even if you can only afford $50 a month, this can be a good starting place. Use this income to increase inventory, buy advertising, whatever you need that month. Once you have put in your initial investment, use all your earnings to continue the advancement of your business. In other words, don't quite your day job, but don't give up either.
Locating Wholesale Supplies
In order to increase your profit margin, it is important to know where you can get the best deal on the supplies you require. It's fine to start by purchasing these supplies from a local craft store, but you can save a lot of money by buying wholesale. As mentioned earlier, this requires a business license and tax number. Finding distributors you can trust takes time and energy. But, this is well spent when you consider the savings.When purchasing supplies and equipment wholesale, be prepared for minimum order requirements. Most wholesalers require a $50 to $100 minimum order. At first, you may think you will never require that much, and these large quantity orders are overwhelming. However, once you've started, you'll soon realize what a large inventory you'll need.
Reading books on your specific subject can be very helpful when trying to locate wholesale suppliers. Often they will include a reference section that could be of help. Attending wholesale shows related to your field is one of the best ways to make contacts. You are able to meet with your vendor face to face, and may be so happy with their selection and prices that you want to continue to purchase supplies from them through the mail. Industry publications are another excellent source for discovering wholesale suppliers. Call or stop by your library to find out what industry periodicals they have available. These are often full of wholesale suppliers who advertise for people like you. One other way to locate wholesale suppliers is by networking with fellow business. Of course, you can find a list of all kinds of jewelry making suppliers, many of them wholesalers, by browsing through the Supplies section of this page.
Exploring Opportunities
This section gets down to the nucleus of why you're reading this. It deals with specific ways people like you can make money from their hobby or craft.
Hobby and Craft Shows
Arts, crafts, and hobby shows are very popular forms of earning income. Because of this, they are increasingly more difficult to enter. You can find out about shows by contacting a town's Chamber of Commerce, looking in the newspaper, and if you live in the southeast, by checking in the Ronay Guide.
Once you decide which shows you're interested in, you need to contact them immediately, because many shows fill up quickly. Most of them require you to fill out an application, send slides or pictures, and pay either the entire amount of the show or just a jury fee. Most shows cost anywhere from $50 to $150. Unfortunately, being accepted into a show does not automatically guarantee that you will make money. Trial and error are your only true methods of discovering if a show will be successful. However, for general purposes, usually the larger a show and the longer it has been in existence, the more organized it is and the more people will attend. Statistically speaking, the more people attend, the more money you should make. When attending shows, make sure you network with your fellow vendors and ask them about shows they've attended and which ones they liked and why.
The importance of booth displays is frequently over looked. This is another time you want to look professional. You want to draw people to your booth. Think of ways that would entice people to stop by your booth. (We give out free flyers that have interesting and fun information related to our jewelry.) Draw up plans and experiment. You want people to walk into your booth. Tease them with something outside, or at the edge of your booth, so they have an idea of what you make. You could put up a sign, or set a larger piece of your work out by itself. Attend shows yourself to collect ideas and try to pay attention to which booths are the busiest and why. Draw a mental or physical sketch of their layout.
You should not try to work a show by yourself. You need some one there to relieve you occasionally for trips to the rest room, or to get a snack. Many times you are forced to park your car a good distance away after you unload and set up. We have developed a system now where my husband brings his bike. So, in case we forgot something, he can quickly zip to the car and back.
Shows can generate a large portion of your yearly earnings. They attract large crowds, especially around the Christmas holidays. If you also sell your work in consignment or other stores, or if you're starting to sell through mail order, shows also provide you with opportunities to notify people. (On our flyers, we list places that sell our jewelry regularly.) However, shows have become very competitive and difficult to get into. Some people think they have saturated the market, and there are too many of them. They are also very expensive to enter. You often must pay at least $100, plus you need tables, a tent, and other supplies to professionally set up your booth. If you're not sure you're ready to put a lot of expense into art shows, try doing a small one during the Christmas season. See if you can borrow tables from people and hope it doesn't rain (a tent can cost from $100 to $800). If all goes well, then gear up for next season and go for it!
Consignment
Selling your merchandise on consignment is probably the safest way to start making money with your hobby or craft. It is often a "no loose" option, because it only costs you time. There are a variety of shops today that sell strictly on a consignment basis. To start, look in the yellow pages under consignment. Also, check listings for antiques, collectibles, crafts, art galleries, and boutiques.Since the shop pays the rent, and for some one to sell your merchandise, many of them require 50% to 35% of your total sales. However, don't let this stop you from considering the opportunities of consignment. Simply mark up your items accordingly. If you want to sell antique china, and you need $10 for a vase, and the shop requires 50%, then you would sell the vase for $20.
Many consignment shops and galleries are choosey about who they do business with. As with shows, you may be asked to submit slides or photos. They also may want a resume or bio (write up) about you. Then they have a committee review your work and decide if you "fit in," and if your work will sell. Don't become discouraged if you are not always accepted. Your work may not be appropriate for their clientele, or there may too many items that are similar to your's. Keep looking.
Be careful when doing consignment, however, especially with businesses that don't exclusively deal with consignment items. I can't tell you how many times I have been cheated. Eventually, I've always gotten my money, but only after months of phone calls, letters, and in some cases threats. If you still want to do consignment with some one, but you're not sure, consider writing a contract stating how often you will be paid and how much interest they'll owe for late payment. If they refuse to sign, then you probably shouldn't trust them.
As you may know now, there are good points and bad points to consignment. But, if you work with a reputable retailer, and find a place where your work "fits in," then starting your hobby or craft business through consignment sales is an excellent way to start.
Renting Space
A growing trend for enterprising crafters and hobbyists is to rent space in a store. Some businesses exclusively rent space for this purpose, while others combine consignment and space rental. As you might expect, the cost of a space depends on its size. They usually range from $35 to $150 a month. Occasionally, a shop will also require a small (as low as 15%) commission on sales. In this case, the rent would be on the lower end. They provide a space for your merchandise, sales people, and are able to accept checks and credit cards. The shop keeper is also responsible for any sales tax, and you receive a check once a month for merchandise sold. Usually, there are few restrictions on what you can sell, but use your own judgment. If you make boats in bottles, a country craft store is probably not for you. However, a souvenir shop on the beach may be perfect.As the renter, you are responsible for setting up your display, pricing, and keeping inventory in stock. Peg boards are very handy. You can paint them, trim them with wall paper, and add shelves. Just like the shows, you need to attract people to your display. Look around at other renters for ideas. Then experiment!
Renting can be an expensive way to start out. You should not immediately expect the rent to come from your profits. But, the convenience of having someone sell your merchandise, accept checks and credit cards, and paying sales tax can't be beat.
Flea Markets
Many businesses have become successful by simply renting space at a flea market. In the past, these markets were thought of as dirty and full of junk. Not any longer. A large number of flea markets today even have areas that are air conditioned. As previously mentioned, you should not expect success over night, and your display is very important. You need to try to draw customers to your table or booth. Don't allow them to just walk by and be able to take in most of your items with one glance.Fees for space varies between $12 a day for a table (they furnish), and $150 a month for a walk in booth and storage space. During the Christmas season, rates usually go up. All flea markets have an office. Call first and find out what you need to do. Very popular markets may have a waiting list.
I honestly cannot recommend flea markets for crafters, though collectors of items such as antiques often do well at them. For many people, a trip to a flea market is a social event. They aren't necessarily there to buy anything. People are also there to look for "bargains." Why should they pay $10 for your hand painted t-shirt, when they can get a decorated t-shirt (made in Japan) for $5 from another vendor. They don't care that yours is painted by hand, and the other was mass produced in a factory. Another draw back to flea markets is, to do well, you need to be established. That means being there every week. This would allow you to work at home part of the week, but three days of that week you'd be out at the market.
Mail Order
People's lives are becoming more complicated. This results in less time to shop, so mail order has grown more acceptable and popular. Opportunities in mail order can create a way for you to earn money while at home.To start out in mail order, you don't necessarily need to spend a large amount of money on a slick, glossy, color catalog. A simple double sided piece of paper can list your items along with a description of each. Or, if you feel illustrations are necessary to communicate what you're selling, you could include a sketch of each item. Perhaps you know some one with enough talent to draw illustrations for you in exchange for your merchandise. If you have access to a camera and computer, you could take photographs and scan them. Once you've scanned the pictures, they could be used just like clip art. A small "home-made" brochure, along with an order form, and cover letter, and you're ready to start.
Next, you have to find customers. This can be done by putting an ad in a related magazine or newsletter. You could also check your local library again. They can provide you with addresses divided by zip codes. Names are not included, but you can just address mailings to "current resident." If you also do an occasional show, that is a perfect time to hand out information or ask people to sign up for future mailings.
Mail order could lead to a much larger income than shows and consignment provide. However, though no business venture will be an over night success, mail order success will often take much longer than other endeavors. Most established mail order businesses have been in business for dozens for years.
Home Parties
You've probably already attended parties in someone's home where demonstrations or speeches touting the virtues of merchandise are given. Then you are expected to purchase some of these products, and the hostess receives credit in merchandise depending on total sales. Finally, during the close of the party, more parties are scheduled with some of the attendants.Well, the same routine can be used to sell your merchandise. You can start by scheduling a couple of parties with friends and family. More than likely, they are familiar with your work and may have even bragged to their friends about you. This provides them with a chance to show you and your talent or knowledge off. You can provide door prizes, a special purchase with purchase, or a gift with purchase as incentives. I've done a few of these myself during the Christmas season, and have earned as much as $150 for only a few hours of my time. For the beginner, I suggest at least trying a few. And, if you have a knack for selling, and dealing with people, you could do very well.
The problems with home parties are probably already known to you. Sometimes the hostess may feel she's forcing her friends into something. Often people will tell you they'll come, and stand you up at the last minute, which can limit your sales, and also insult the party giver. The final reason to be leery of home parties is scheduling new parties at a party. The system is suppose to regenerate at least one party from another, but you're not always that lucky. If possible, try to schedule your's around the holiday season.
Boutiques and Stores
Another excellent way to earn money with your hobby or craft is to sell wholesale to boutiques and stores. Since they usually buy in quantity, large sales are inevitable. There are a lot of privately owned stores around, so they aren't hard to find. Check the yellow pages and even magazine ads. They may be advertising a product similar to your's.When selling to a shop owner, it is very important to portray that professional image which was discussed earlier. Business cards, price lists, and pictures are invaluable tools. Be prepared to have wholesale and retail prices allotted for your merchandise. Since they buy in large quantities, store owners expect to pay less than your retail price. Try to come up with the lowest price you can while still making a profit. (See Pricing Your Merchandise.) However, it is not unreasonable for you to expect them to purchase a dozen of one item at your lowest rate. So, on your list, you could have prices divided into quantity rates.
Cold calls are really about the only way to go when selling to businesses you don't know. If time allows, check out their store first to make sure your products would fit their needs. Maybe start with a phone call, and follow up with a visit. Whatever you do, try not to visit on a weekend. These are their busy days, and they won't have or make time for you. You may have success just by walking in from the street unannounced. This way they don't have time to make up excuses. Expect to make more than one visit to a store. Frequently, they ask you to come back with more of one of your products. They may want to wait until it is closer to Christmas. Don't let this discourage you. Follow up! Send them more information about you in the mail. Call them every few months to find out if they're ready to buy yet.
Though time consuming, you can make some very large sales when selling to boutiques and other shops. The time you put in will seem well spent when you close a $300 sale. (I've even known of one energetic crafter who sold her work to a local department store and grossed $5,000!) Remember though, these shops are usually looking for unique merchandise. If you're selling your work to every shop within a ten mile radius, they'll no longer consider your merchandise unique. So, traveling around a bit is usually necessary. (If you're planning a vacation, this is a great way to make some contacts, and a tax write off at the same time.) With enough time and energy, selling your merchandise to shops and boutiques is another way you can earn money with your talents and interests.
Opening a Small Store in Your Home
If your lifestyle and zoning allows, you could consider opening up a small store in your home. Perhaps you have a screen porch or unattached garage. Converting these into a store may take little effort. A visit with your local zoning board, a sign, a place for visitors to park, and some inside decorating, and you could be in business very soon.Having a shop in your home provides the luxury of steady customers, and the convenience of working in your home. This is a new trend, especially around older neighborhoods. Rules on zoning vary, so make sure you thoroughly research zoning restrictions before going too far. You will probably have to write up your proposed plan to be reviewed by the local zoning board. Written approval from your neighbors would also be of help. Make sure they realize you are talking about a small shop.
Selling directly from your home can be a great alternative for the home bound crafter and hobbyist. Low overhead, and freedom to work when you want to is very appealing and can also be very profitable. However, be prepared for rude customers to come knocking on your door even though the sign says CLOSED. If you like your privacy, then this alternative may not be for you.
Pricing Your Merchandise
Many hobby and craft business owners cheat themselves out of making a reasonable profit. This is easy to do, because you want that money to start coming in as quickly as possible. It's tempting to believe that the lower the price, the quicker it will sell. Not always true! Some times super low prices may make customers suspicious. Why so low? Is there something wrong with it? Also, if someone really wants an item (as long as the price isn't outrageous), they will pay what you ask.When pricing, consider your overhead. This is anything you aren't directly charging to your customer. Examples are:
- Your time (which is very valuable)
- Your office supplies (business cards, paper, pens, etc.)
- Your tools (glue gun, pliers, etc.)
1) You sell antique china and just purchased a tea set wholesale in order to sell it retail:
Wholesale Price = $100 x 3 = $300 (Min. Retail Price)
But, perhaps you've done some research and found that the market value is $500. Maybe the set was very dirty and it took you a couple hours to wash all the pieces. Then you had to label, and record each piece in your inventory. You may have spent time doing extra research in your library in order to find some information about its past which a customer might find interesting. This is a lot of extra time spent, so at $300 you may not be making much of a profit. You may be really only breaking even. That's not why you're in business. Therefore, a retail price of $400 may be required in order to make a reasonable profit.
2) You sell tie-dye clothing. You purchased fifty t-shirts at a wholesale cost of $2 each, and mixed up a huge pot of dye which costs less than 50 cents for each of the ten shirts you plan to do. You tye a couple of knots in each shirt and throw them in to cook. Your effort is minimal, so:
Shirt & Dye = $2.50 x 3 = $5.00 (Min. Price Each)
Then $5 each would be a perfect wholesale price, and you could double it for retail (this retail price would be for art shows, flea markets, etc).
This leads us to wholesale vs. retail. If you want to make quantity sales, then this is a subject you must deal with. Many crafters feel they are being taken advantage of by wholesalers, but the rules for wholesale have already been established. So, you must play by their rules. Sure, you may be able to make twice as much selling your merchandise retail, but how much effort will it take for you to sell each one? You may sell shirts at a show, but you will have to spend 1-2 days at the show, plus spend money on food, drinks, gas, etc., while a shop could take them off your hands for only a few hours spent on the sale.
Conclusion
As you can see, there are many ways to make money from your talents with out having to open up a shop. Just a few others which I may elborate on later include:- Sell on the Internet
- Teaching classes
- Creating kits
- Giving informative lectures
- Writing articles about your craft
- Join a Coop
Can you think of others or have had some experiences you'd like to share? Email me with your ideas.
