Q&A - Supply Costs

Kaelin said...

I would like to know what the right ratio of start-up costs are for materials. I work in what has turned out to be a series of designs appealing to a rather high-end clientele, which entails a rather large materials bill. I have invested very heavily to start, and about once a year I manage to cover most of my previous expenses, but not enough to continue to restock materials such as gemstones, precious metals, and gift boxes with which to make more pieces....

My answer to this isn't entirely about supply costs. Yes, starting out you may need to invest in a lot of supplies that will take a while to earn enough to cover the cost. I think you should start small and not put supplies on credit cards when starting out, if your carrying those supplies as a balance they are costing you a lot more with interest. How much is totally dependent on how much time you can devote to your craft, what supplies are needed, and how much you can afford.

The real issue here sounds more like covering the cost of your supplies on an ongoing basis. If you are selling your work yet can't cover the cost of new supplies to restock then your prices are probably too low. You should be making enough to cover the cost of material, the cost of a replacement, and pay yourself a decent wage for your time.. I've covered pricing before in this post. If on the other hand you are pricing well and aren't selling enough to cover your costs then you may need to take a break from making new pieces and work on promoting yourself. You need to be selling enough to cover your costs and make a profit.

Make sure you are tracking all your sales and expenses somewhere, whether it's accounting software like Quickbooks, Excel/Open Office spreadsheets, or a ledger book. Doesn't matter so long as your keeping records. If you aren't tracking this stuff it can be far too easy to spend too much on supplies or spend the money elsewhere. Plus if you keep the books organized it makes taxes far easier and you and the IRS will be happier.

Q&A - Multiple Income Streams

Avlor said...

How do you manage multiple income streams? (i.e. PayPal and Google checkout). Right now I treat my Paypal account like my checking account and everything is funneled through there. You've hinted at a main account you funnel to and have regular withdrawls from. Have you had issues with the time for Paypal or Google checkout?

Here's the way I have my accounts set up: Once or twice a week I'll transfer money from Paypal to two savings accounts. One is my business expense account and the other is a personal savings account, 1/3 goes to the business account and 2/3 goes to the personal account. Google checkout is set to send any money I make to the business account since it only allows being linked to 1 account.

So if this week I've made $300 that was paid via paypal, $100 goes to the business account and $200 to my personal account. Remember these are savings accounts so they also earn interest (though rates are very low right now).

I have a checking account for business expenses and I transfer money to it once a month. This account is ONLY used for business purchases and that makes my record keeping much easier.

Twice a month I have money automatically transferred from my personal savings account to my personal checking account. I consider this like my paycheck and it's what I use for my personal expenses, I resist the temptation to make extra transfers though as my business grows I give my "paycheck" (the one exception was is the holidays, if your sales tripled like mine did it's okay to give yourself a small bonus). I also have another $50 a month automatically transferred to another savings account that is an emergency fund. The purpose behind this system is to smooth out the variations that any handmade business has in sales and set aside money for business expenses, it's tempting to splurge during good months then you're left with things being very tight during slower months. This also solves the time problem, since everything is scheduled and I know how long the transfers take I know exactly when I'll be getting my money and if I'm uncertain I have online banking set up for all my accounts.

I'm able to keep track of my accounts and see the big picture using Mint.com which is a free personal finance service that lets you track how much you make and spend in an easy way. This is just for simple tracking, I use spreadsheets for keeping track of expenses and income for taxes and that is a whole other topic for another time.

If you have a question you can email me or leave a comment in the Q&A Request thread.

Quick Tip #20 - Paying Yourself

This is an idea that came up on the Simple Dollar blog a few days ago and I thought it was really great and I plan to start doing this.

Set up a savings account (online banks like ING Direct are great for this because they have good interest rates) and deposit your earnings into that account. Then set up automatic transfers bi-monthy for a set amount of money and treat that as your paycheck. This makes it easier to grow the savings you may need for your business and provide a cushion for months where you earned less. As your business grows you can adjust the amount to pay yourself more.

A Business for Kids

Monday I spoke at a local school for a bunch of art students and a lot of business stuff came up about selling online. There are a lot of great creative kids out there who would like to sell the things they make. Personally I think it can be a very valuable learning experience for a kid to start up their own little business. So if you have a creative child who wants to try to sell their work, give them a shot at it but realize it is going to be work for you as well as them.

Legally children under 18 can't enter into legal contracts so as the parent you are ultimately responsible for any online accounts, bank accounts and so forth. This means that you're going to have to do a good bit of work, the younger they are the more work you'll have to help them with. Research with them local rules for businesses, help them with the books, you'll have to accompany them to the bank to set up an account for them (most states don't allow kids under 18 to have a bank account on their own), and teach them how to manage their money.

Most selling venues online require a credit card to set it up (and paypal prefers you have one on file). Since I don't think most kids should have access to a real credit card instead of using your own consider using a prepaid card or setting up a checking account with your child that has a debit card with a credit card logo.

On the subject of money I think you should put rules down at first about how their money must be spent or saved. A portion should be for personal spending, a portion goes back into the business, a portion to savings, and a portion to charity (let them pick whch ones, it'll mean more to them). What the proportions should be will constantly change depending on their age and how much the business is making. For a younger child (say 9-10 years old) an even 1/4 split between them would be simplest to handle but as they get older they may want more money to go into growing the business or going to college savings. Discuss it with them every few months. As your child gets closer to 18 you need to back off and let them make more of the decisions to prepare them for when they'll be on their own.

Links:
Etsy Guidelines for Sellers
Forbes article on Raising an Entrepreneur
These Kids Mean Business Documentary (aired on PBS)
Kids and Money Books on Amazon

Tracking How I'm Doing

Sorry for the lack of a Monday post, I was in the middle of getting a brand new blog going called the Culinary Cuttlefish which is my food blog. Don't worry it shouldn't affect this blog from now on, I plan to post to it on different days of the week (probably Tuesdays).

A couple weeks ago I posted a link roundup on using .csv files and inporting them into spreadsheets. Today I'm going to show you how I'm using spreadsheets to track how Noadi's Art is faring.

First a little about how I'm keeping track of these spreadsheets. In the screenshot you can see the folder where I have all the Etsy spreadsheets. I downloaded the .csv file for each month, renamed them with the month and year, and saved them in Open Office spreadsheet format which is the software I'm using. I also have folders for Paypal and Google Checkout files as well.

Using the data from all these spreadsheets I've compiled a simple spreadsheet that tracks my months sales for 2009 (I'll start a new one for 2010 when it rolls around). This spreadsheet lists by month the number of sales and their value for Etsy, eCrater, and Other venues (art shows, commissions, etc), and the total number and value of all sales for the month and year.

Using this spreadsheet I could make a couple charts to visualize how Noadi's Art is doing. Yes, these are my real sales figures, they aren't astronomically high by any means but I'm very happy the steady improvement I've had over the year. 

So now you see how I've organized and compiled a lot of my sales data, do you have any tips or tricks that you use?

Planning for the Future

I debated about whether to post this here or on my personal blog but decided that while it's not 100% related to running a business that it might be of interest to my readers here.

In case you didn't know this, I'm 27 years old and right now I still live with my parents because Noadi's Art is my main source of income. My parents have been incredibly supportive of me and helping me get the business going. A big part of that has been letting me live rent free in exchange for doing all the cooking, taking care of some of the pets, and keeping an eye on my disabled uncle when they aren't home. My goal of course is to be independent and in my own place.

Like a lot of people I spent much of my early 20s unfocused and not sure what I was going to do with my life, thankfully I didn't get into credit card debt but I do have student loans still. Right now my business is doing better than I expected it to be at this point. So I'm getting my ducks in a row financially to be ready to get my own place in the next few months. I'll probably be able to afford the move in the next month or two but I'm probably not going to actually move until after Christmas (just too busy a time of year personally and for the business)

Since this is a big deal financially for me I'm going to share what I'm doing over the next few months. Hopefully as a fun example of what you can do running a little home based craft business and how to plan for big changes in your life.

What I'm doing right now:
I have a savings account currently with about $350 in it specifically for first and last months rent plus any deposit I need to make. My checking account has enough for all my bills and spending for several months so I'll be putting most of my money in savings for now. My goal is $1500 since I'm lucky enough to live in an area where rent is fairly low, especially when you're only looking for a small 1 bedroom place. I want that money in place before I even start looking for an apartment. I'm also doubling my student loan payments to get them paid off faster. Whatever is left over in my savings account after I pay what I need to for the apartment is going to stay there and become the basis for an emergency fund. I have a separate Noadi's Art Savings account (this I think is important, all businesses should have a separate savings account to only be used for the business).

Part of my pulling things together is learning more about personal finance and planning ahead. I've started subscribing to a number of money related blogs and added some books to my amazon wishlist. I'll probably be reviewing those books here.

• Simple Dollar - Frugal living and personal finance
• Get Rich Slowly
• Frugal for Life - Spending wisely, wasting less

Link Roundup: Using CSV files

Etsy, Paypal, and other online services you're likely to use in your business have the option to download CSV (comma-separated value) files. These files can make keeping up to date with your accounting much easier. You can use them by opening them in your spreadsheet software of choice.

Tip: Download the CSV for each month and name the file clearly like paypal-01-09.csv for the paypal csv for January 2009.

Links:
Open Office Calc - Open source spreadsheet software equivalent to Microsoft Excel but free.
Spreadsheet Basics - Open Office Tutorial
Google Docs - Online spreadsheets
Streamline Your Records with PayPal and Excel - Paypal specific tutorial, adaptable to spreadsheet software other than Excel

Link Roundup - Finances

This weeks links are all about finances. Learning to track how much your making and spending. I could easily make this a list with hundreds of links but I decided to pick just a few that have the most information.

Small Business Bookkeeping & Accounting
SBA Small Business Planner
Big List of Free Business and Office Software

Link Round Up

In this first every round up of handmade business links I have some useful ideas, tax info, and a call to action about the CSPIA.

First about the CSPIA. Read up on a class action lawsuit over the CSPIA and consider gettig involved if your business will be directly impacted of potentially shut down by CSPIA.

Now for the useful idea. Suzy Q Jewelry has a post on her blog about using a wiki to collaborate with clients on custom orders. There are a number of sites that allow you to set up a wiki and Suzy Q reccomends pbwiki.

Now taxes can be overwhelming and you can get lots of conflicting advice especially when it's the first time you've had to do self-employment taxes. Here's a link to the IRS Small Business and Self-Employment Tax Center.

Is the Recession a Benefit for Handmade Businesses?

I don't have the answer to that question, it's much too big and complex for me as a single businesswoman to draw a firm conclusion just from my experience and talking to other business owners. My sales this holiday season have been much more than I expected and I don't know if that's a result of more people buying handmade or the effect of my marketing efforts or luck or some combination of that.

However one writer for the New York Times does think that the recession and people wanting to save money has had the effect of helping craft businesses and suppliers. Go check it out here: For Craft Sales, the Recession Is a Help

Quick Tip #1 - Fee Calculators

If you accept paypal payments this is a great PayPal Fee Calculator. There's also one for Etsy but I've yet to find one for Google Checkout so you still have to do that math yourself.