Now that your creative mind is primed for action, it’s time to switch gears and mold your business acumen. Beginning right now, you should start treating your craft business as a real business, not just a hobby. Your frame of mind shouldn’t be limited to earning a little supplemental income or creating a business just for fun. Be serious and be professional, because you never know where this might lead. To help with the adjustment, this chapter will introduce you to terms like sole proprietor, fictitious business name, and limited liability company. But before you fill out any forms or pull out the plastic, you’ll need to ask yourself how ready you are for entrepreneurship. In a world where we can get daily assistance from day-care providers, personal trainers, and dog walkers, being a business owner means doing the exact opposite: being completely self-reliant, working ridiculous hours, and wearing several different hats simultaneously—a veritable jack- or jill-of-all-trades. Are you ready?
Most people believe they have what it takes (or that it doesn’t take much) to be a business owner. And although anyone can start a business, it takes a certain breed to make it a long-lasting, profitable venture. Taking this quiz will assess your aptitude for entrepreneurship.
1 If you were going snowboarding for the first time, you would most likely . . .
A. Sign up for a snowboarding class before joining your friends on the slopes.
B. Change your mind at the last minute and toboggan alone instead.
C. Throw caution to the wind and take the lift straight up to the double black-diamond slope.
2 How would you describe your sock drawer?
A. I try to pair my socks when I can, but I usually have to hunt for the matching pair.
B. My socks are all paired and then organized by color.
C. Does my hamper count as a sock drawer?
3 As a member of a wedding entourage, you’ve been asked to participate in a favor-making party that starts at noon and ends at three o’clock. At the gathering, you would typically be the person who . . .
A. Plays video games or reads magazines until the bride notices that you haven’t been assigned a task. You also leave at three o’clock on the dot.
B. Volunteers for any task. You also take it upon yourself to re-tie every bow that looks sloppy and re-cut any tag lacking perfect right angles.
C. Is picky about your task assignment. You hate getting your fingers sticky with glue.
4 You befriend another crafter who seems like a sweet and talented individual, but your inner voice tells you that this person is going to be trouble. You would . . .
A. Trust your instincts above all else; you would never return this person’s e-mails.
B. Ask other crafters for their opinions of this person.
C. Consider the advantages (her friend is an editor at Lucky) and disadvantages (she’s clingy) of befriending this crafter.
5 Your embroidered handkerchiefs have been on the market for nearly a year. You’ve tried two different types of packaging and even tested them at different price points, but sales continue to plummet. Your first instinct would be to . . .
A. Go to the library and pick up a book on improving sales.
B. Ask friends and colleagues for their opinions or suggestions.
C. Give up on the handkerchiefs and try your hand at greeting cards instead.
6 You ask a friend to help man your booth at the New York International Gift Fair. When she arrives, you notice her G-string rising above her jeans like a slingshot. You would most likely . . .
A. Ask her to go home and put on more professional attire.
B. Fire her on the spot.
C. Pretend not to notice and hope that buyers and members of the media will not be offended.
7 Which statement best describes your attitude when you get into an argument:
A. I’m always right.
B. I can admit when I’m wrong and I have no problem apologizing.
C. I would rather be quiet than admit I’m wrong.
8 You and another jewelry designer started your businesses in unison. However, her jewelry is more popular, garnering more sales and press mentions. Your plan would be to . . .
A. Start working on your press kit to mail to magazine editors.
B. Do nothing and figure she’s just lucky.
C. Copy her metalworking technique—this is business, after all.
9 Working as a graphic designer, you’ve made several wedding invitations. You’ve gotten praise for your work and know you’d make money if you made a business out of it. But you’re not very enthusiastic about dealing with brides. You would . . .
A. Go ahead and do it even though you’d probably hate it. Hey, it’ll make you money!
B. Psych yourself into believing that working with brides isn’t that difficult.
C. Walk away from the idea and think of better business ideas.
1. (A) Sign me up for a class on the bunny slope, please. Although successful entrepreneurs have an appetite for adventure, they wouldn’t make a reckless decision. They prefer to minimize risk by arming themselves with the proper knowledge and skills to increase their rate of success.
2. (B) My sock drawer would make Martha proud. The most efficient business owners are organized. They manage their time; juggle taxes, shipping, press, and trade show deadlines; and they keep receipts and paperwork in a filing system. Even if they are cluttered by nature, they know better than to extend disorganization into their businesses.
3. (B) I always strive to be the best worker of the bunch. The best entrepreneurs have good work habits. They are often meticulous, devoting themselves to the task at hand. Self-motivated to boot, they don’t need someone to tell them what to do. They have no problem looking to themselves for leadership and support. They also aren’t afraid to do any of the less-than-glamorous tasks, like mopping spilled ink off the floor or unloading cumbersome boxes off a freight truck. They are more than willing to put in the elbow grease, effort, and extra hours to complete a job, even if it means working longer than anticipated.
4. (C) Instinct isn’t everything. Possessing a sharp instinct is a valuable asset, but good business owners know better than to rely on that alone. They try to assess a situation from all angles and use all the tools available to them before reaching a final decision.
5. (B) I’m not afraid to ask my friends and colleagues for help. Although creative-business owners are natural do-it-yourself types, smart entrepreneurs know when it’s time to seek wisdom from others. They eagerly learn lessons from their failures and aren’t afraid to make known their shortcomings when they need help.
6. (A) My company comes first. Attentive entrepreneurs make choices that are in the best interest of the company. They would not ignore problems that are hurting the business. They also thrive in challenging situations. When circumstances are particularly awkward, they look for alternate solutions.
7. (B) I can’t always be right. Intelligent business owners know that most problems are not usually black or white. Regardless of the situation, they are diplomatic at all times and do their best to please clients. They are able to make sacrifices, even if it means setting aside their ego, to succeed.
8. (A) I can make my own luck. All business owners are competitive, but conscientious ones can be without losing their integrity. Although it’s normal to be jealous of someone else’s success, they realize it’s better to turn that energy into action instead. Smart entrepreneurs know that success is not mostly luck. Through hard work and determination, they know they can influence their destiny.
9. (C) For my business, I’d rather do what I love. Even though the goal of any business is ultimately to make money, most successful business owners truly love what they do. They would engage in their craft even if they weren’t paid to do it.
For each correct answer, give yourself a point. If you scored five points or more correctly, congratulations! Your instincts are pointing you toward entrepreneurship. If you scored four or less, don’t despair. Not everyone who runs their own business was born with an entrepreneurial chip in their brain. Luckily, anyone with passion, commitment, and perseverance can learn to become a good entrepreneur.
A goal as big as starting your own creative business needs definite plans. How many items will you have in your debut collection? How often will you introduce a new line of goods? Who’s your target market? What’s your marketing plan? What if your business fails? All of these issues should be addressed at the beginning. Most people are intimidated by business plans, or what may seem like the daunting task of creating one. Just think of it as a map for your business; if you don’t know where you’re going, you might find it difficult to get there.
Unless you’re looking for outside funding (like from a banking institution), your business plan will largely be for your own eyes, so make it as formal or informal as you like. It can be businesslike—neatly drafted in a word processing program and bound in a presentation folder—or craftlike—handwritten in a journal and decorated with collage and illustrations. It can even be as simple as putting together a list of measurable goals and objectives for the business. Below are topics to consider including in your business plan:
Company Description
List of Owners and Responsibilities
Creative Mission Statement
Company Identity
Location and Place of Business
Target Market
Market Research
Projected Timeline
Products Offered and Frequency of Release
Projected Goods in Debut Line
Equipment and Materials
Production
Selling Strategies
Marketing Plan
Financial Plan (including budget for first year)
Revenue Projections
Exit Plan
Using the aforementioned topics, create your business plan step by step, first filling in the pieces you understand, then clarifying and adding information as it all begins to make more sense. Don’t worry if there are terms here that you don’t recognize. You will learn most of them as you read further, and the “Internet Resources” section on page 187 will point you in the right direction to learn the rest. It is best to start with a plan in place, however rough, that at least answers these basic questions: How much do you need to earn? How much does it cost to make your product(s)? And how much can you charge for your product(s)? Make sure you assess your financial situation and outline weekly, monthly, and annual earning targets you need to reach. Detail every cost required to make your product(s) and determine how much of a profit margin you can earn from them. This plan will create a foundation for your business, so it is important that you dedicate a good deal of time and thought to it, while understanding that it will change over time.
Earning a living off your creativity is not just about making things that people will want to buy. It’s also about making your livelihood, well . . . lively! You have the opportunity to reinvent your career on your own terms and mold your business into an ideal work environment. As you are basically designing your new lifestyle, you should incorporate elements that you find stimulating. For example, if you love to travel and snap photographs, maybe you should launch a line of travel journals using
screen-printed versions of your snapshots. If you’re a community-minded individual, you might also think about ways that your company can help support charitable organizations. Perhaps you’ll design a brooch, modeled after your grandmother’s heirloom piece, whose proceeds support cancer research, or maybe you’ll increase your profit margin enough to allow you to donate a quarter of your profits to a women’s shelter. Take advantage of this embryonic stage of your business and synthesize activities you love or organizations you’d like to support into your new creative career.
For some individuals, crafting is a therapeutic, stress-relieving technique—as was the case for Joy Durham, a single mother of two, who found herself clutching crochet hooks as she watched her five-year-old daughter, Sunshine, endure twelve eye surgeries after an accident. Fueled by the desire to give her children proper Christmas presents under belt-tightening circumstances, she generated a unique crochet style as she made scarves for them. Her daughter loved hers so much that she refused to take it off. From that moment, Joy’s life purpose began to reveal itself. Soon thereafter, she launched a business—making scarves, with plans to donate a portion of the profits to a foundation for prosthetic eye care. Naturally, the business and foundation could only be named after Sunshine. Born of a tragic event, the business is very personal, with a word-of-mouth marketing strategy that relies primarily on the energy radiating from the business and the inspiring story behind it.
I had been selling the scarves strictly by word of mouth, and another dimension began to come together when I was at Sunshine’s doctor’s office. I noticed that there was a low-income family being turned away for prosthetic care for an eye injury. I asked the doctor, “How can you turn them away?” since I knew the injuries would end up as deformities. That’s when I learned that many insurance plans don’t cover this type of procedure and that there was no foundation for prosthetic eye care. It became apparent that I should bring the two ideas together: having a company (the scarves) and donating a portion of its profits to a new foundation (prosthetic eye care). That’s how the Sunshine Foundation came to be. It became clear to me that this is the reason behind everything we’ve gone through.
The foundation has helped pay a handful of unaffordable insurance deductibles (ranging from $500 to $2,500) for families in need of assistance getting prosthetic eye care treatment. The Sunshine Foundation for Prosthetic Eye Care isn’t that well known yet, but all good things take time to spread, grow, and build into something strong.
I’ve been doing commercials and modeling work for twenty years, and I continue to support my family that way. I somehow manage to juggle that with the business and foundation. What makes it a little easier is that my business’s product, the scarf, is seasonal. The demand for it starts in August and ends around February, which leaves the other months to cultivate my other career and work on the foundation.
In the very beginning, I was making all the scarves, anywhere from twenty to fifty scarves a month. I decided to stick with scarves only because it’s one of the easiest and simplest knitting projects to make. Later, I had other people to help make the scarves, but I realized it was a bit difficult to teach someone else how to crochet the way I do. I learned to crochet as a child, and developed a technique that is apparently difficult to copy. At first, it was difficult to write a pattern for my work. Since then, I’ve figured out how to make some of my stitches into patterns and can teach them to people.
I think it’s helped me, but truly it’s all happened quite serendipitously. For example, someone who worked at CNN got one of my scarves and fell in love with the story behind it. They asked if they could do an interview. Sunshine’s Scarves became one of seven top picks for Christmas 2003 on CNN. It really catapulted the business forward. I got an onslaught of orders that kept me busy until March of the following year.
And when I do commercial work, I often sit on the set for five to six hours, but only work like an hour and a half of it, so I always bring my yarns and crochet while I wait. Sometimes I’ll find a crowd of people around me asking what I’m doing—and I might end up selling fifteen to twenty scarves that day! Some of the stylists who buy them will sometimes use them for future jobs. One stylist dressed Sela Ward for a magazine cover. Another stylist worked on the set of Friends. On one of the last episodes, Jennifer Aniston’s character received a Sunshine scarf for Christmas. Jennifer went on to purchase some scarves for herself.
Thankfully, it’s all happened so effortlessly, as though the company was generating its own PR. I almost feel like I should have done more work to get to this point. I just hope that people continue to act on inspiration. It’s such a beautiful thing when people ask me, “How can I help?” or say, “This is an amazing company and cause.” And best of all, it’s not a cheap product. There are a lot of people who get the scarf to support my cause and are delightfully surprised when they find such a high-quality product that uses exquisite European yarns.
When you’re planning a business, it doesn’t have to be a self-centered scenario. The business doesn’t have to be about making money; it can be about giving to your community. Having a charitable component is an incredible way to get people involved in your business. They’ll see a company outside of its profit margin, and for business owners, customers will be more than just a paycheck.
The business has changed in an amazing way. It was a struggle to figure out how to make all the scarves, and such a tremendous burden for me to spend all my time making the scarves. I knew I needed to solve this issue in a creative way to keep with the original concept of donating 50% of our profits to the Sunshine Foundation. It was such a dilemma, because there was no budget to pay people to make the scarves, and the small amount of volunteer crochet/knitters would only produce scarves off and on, depending on what was going on in their lives.
I had a strong desire to move the company deeper into the community, offering people the opportunity to really get involved and serve others in a very real and active way. So I developed Sunshine’s Scarves Public Outreach Programs in Los Angeles, covering youth and schools (elementary, junior high, and high school), rehabilitation services, and senior citizens. Right now, I teach a class on crochet, design, and fund-raising to 6th-, 7th-, and 8th-grade students in Los Angeles public schools as well as to patients at Malibu Horizons, an alcohol in-patient recovery center. It’s been pretty amazing to watch the programs unfold from a creative conceptual idea into something that really works and functions according to the blueprint in my mind. The programs are so full of an incredible energy that brings people together and unites us in a common goal.
Naming your business is an important decision—right up there with naming your firstborn child. You should start by making a list of names and surveying your friends, family, and colleagues for their opinions or suggestions. Go eponymous (like Angela Adams). Go clever (like Good on Paper Design). Or go humorous (like Cookie and the Dude). Whatever you choose, it should match your company’s goods and aesthetic. Like you would for your own child’s name, say the business name aloud to make sure it rolls off the tongue nicely. Ask yourself if the business name will still sound good to you ten years from now, when you’re older and more mature, and if the name allows you the flexibility to grow and expand. For example, “Edge Bedding” would be a confusing name if, at a later point, you decide you’d like to design tote bags, too. Definitely take any potential names out for a test drive with friends and family to see which one elicits the most positive response.
Before you finalize the name of your business, you will need to do your homework, part of which will include doing a national search for other companies using the same name. Check for blog names and Internet domain names that use your prospective company name. (You’ll probably want a Web site sooner or later, so keep this in mind if the domain name you want is available—you might want to take steps to reserve it.) If you plan on having an Etsy storefront, make sure that no one else is already using the name or something similar to it.
As fun as it may be to come up with a nifty name, a business name is not something to take lightly. You’ll want to check with state and federal agencies to see if another company has trademarked the name you’ve chosen, or you run the risk of hearing from a lawyer with a cease-and-desist order. This is true even if you decide to use your own name. Once you’ve paid licenses and permits, stamped your company name onto checks and business cards, launched a Web site, announced a Facebook fan page and Twitter handle, it could be a costly and major pain if you are forced to change everything.
Whether you plan to hawk goods on the side or in bulk to retail stores, the instant you sell your work for a profit, you’re technically in business and, therefore, subject to taxes, rules, laws, and regulations. You will have to apply for a variety of licenses and permits, and you’ll need to consider protective measures like health insurance and product liability insurance. Here are the basic necessities for starting your own business:
To legally run a business, you have to apply for a business license in your city or county. There is usually a nominal fee to pay, and, when you renew your license yearly, there will be a renewal fee (sometimes called a business tax), the amount usually dependent on your business’s total revenue. You are often required to keep this license mounted on a wall at your place of business.
In conjunction with getting a business license, city officials will verify that you are able to run your type of business at your location. In most cases, cities will allow you to operate your craft business out of your home, as long as you don’t post advertisements and your craft isn’t something that could potentially rile up the neighbors, like noisy metalwork. If zoning for your location doesn’t allow for your specific craft, you may need to apply for a special use permit.
If you are running your business under a name other than your legal or personal name, you will need to file a Fictitious Business Name, referred to as a “DBA” (Doing Business As), through your county clerk. You will also be required to run an advertisement in a local paper announcing your DBA, and supply a copy of this ad to the county clerk. For many small newspapers, running these ads is a form of regular revenue. After you apply, you’ll often get a solicitation from one of the papers offering to run your ad. Many of them will even send the ad to the county clerk on your behalf.
If you are selling taxable goods, you will need to apply for a certificate of resale, or seller’s permit, through the state agency responsible for collecting sales tax (e.g., in California, it’s the State Board of Equalization). Unless your state does not have any sales tax, you must collect sales tax on every retail sale made within your state. You will be required to file sales tax returns on a monthly, quarterly, or yearly basis (depending on your sales volume). In these returns, you must provide your total receipts and how much tax you collected within a certain time period. Sales from goods delivered outside your state and wholesale sales are both exempt from sales tax. Whenever anyone purchases items from you at wholesale cost, they need to provide you with an active seller’s permit. Likewise, when you want to increase your profitability and buy materials at wholesale cost without paying sales tax, you will have to present your resale number.
If you are a sole proprietor without any employees, you do not need to obtain a Federal Tax ID number, often called an Employer ID Number (EIN). Your individual Social Security number is sufficient for filing taxes. If your company is a partnership or a corporation, or if you have employees, you will need to obtain a Federal Tax ID number through the IRS.
A trademark is a word or phrase (like your business name, slogan, or product name), symbol or picture (like your logo), or any combination of these things that distinguishes your goods from another company’s. Getting a trademark is a protective measure to prevent someone else from launching a company or selling a product with the same name. You’ve probably doodled a million possible trademarks for your business, but those names and logos aren’t yours until you make an official trademark request to the government. To file a trademark, you must first do a trademark search, either on your own, through a search firm, or with the help of an attorney. If the trademark is available, you can register it on both state (through the state agency that does business filings) and federal (through the U.S. Patent and Trademark Office) levels. The application process can take anywhere from a few months to over a year and, once completed, will grant you ownership of the trademark for ten years.
If you are running a home-based business, you should talk to your insurance agent to cover any tools, equipment, materials, and inventory stored in your home. There may be optional riders you can add to your policy in case a fire should break out in a space dedicated to your business, like your garage. And if customers will be coming into your space, you may want to consider increasing the personal liability insurance on your policy.
Although it can take a bite out of your wallet, health insurance is something you cannot afford to be without. These days, there are numerous health coverage plans that serve a variety of budgets and needs. You can even join an artists’ guild or association to take advantage of health insurance group rates. If you are married or have a domestic partner, you may be able to add yourself to your partner’s employee-sponsored health care coverage. If you are quitting your full-time job to launch your own business, take advantage of the opportunity to extend your health insurance through COBRA (Consolidated Omnibus Budget Reconciliation Act). COBRA allows for you, your spouse, and your dependents to maintain continued health insurance for a limited time. When you’re running your own business, you’ll probably be subjecting yourself to tasks that are physically and mentally taxing, usually at a high-efficiency pace. And when a business runs solely on your fuel, your health and well-being are integral to the success of that business, which, in turn, makes having proper health insurance all the more important.
Product liability insurance covers you if someone suffers an injury from your product and decides to sue you. In general, most craft or gift products are relatively harmless and don’t require that you get this type of insurance. The most “dangerous” crafts are in the candle-making or bath and body fields: a poorly made candle could cause a fire, and creams and soaps could contain potential skin irritants. But even in these fields, the occurrence of a lawsuit may be relatively low. The cost of liability insurance will be dependent on the type of product you produce and how wide the distribution is. You can also get general liability insurance to cover your products.
Legally, you can’t print your home number as your business number, so you’ll need a business line. These days, people often use their cell phone as their business line. But it might be better to have a dedicated phone line so that you’ll always know how to answer phone calls—especially important when buyers or members of the media are contacting you.
Before you spend another dime on your business, you should get a separate bank account. It is illegal to use personal bank accounts for business purposes, since they do not clearly separate personal purchases from those that are business-related. To open an account for a business using a DBA, you will need to show proof that you’ve filed a Fictitious Business Name statement with the county clerk. You will want to choose a banking institution that is nearby if you’ll need to deposit cash or checks often. The ideal business checking account would offer online banking options, flexibility in the allowable number of checks written per month, a reduced minimum balance requirement, and a minimal monthly fee. If you have a business partner, you can require that both partners sign each check so that no single partner can write a check without the other person’s knowledge. Also consider opening a savings account to set aside money collected as sales tax—this should help reduce the temptation to spend it and then find yourself short when tax-filing time rolls around.
As a business, you will be responsible for taxes on all levels: federal, state, county, and city. To differentiate businesses from hobbyists, entities are considered businesses if they are truly making an attempt to generate a profit. A company must be profitable in three out of five years of operation or it may be considered a hobby, in which case you will only be able to deduct expenses up to the total income. You should read IRS publications or speak to a certified public accountant to find out which types of expenses are deductible and how to file your taxes.
When you’re jumping into the mysterious waters of business ownership, you may think it would be a good idea to have a partner to dive in with you. Since running a business requires so much work, it seems logical that the workload would be lighter when shared by two or three. But this is not true for all partnerships—sometimes things move even slower since decisions have to be approved by the group. Simple mathematics dictates that more people means increased start-up capital for the business; it also means sharing the returns. But a partnership is not simply about dividing labor and profits. In many ways, it’s like a marriage—behavior and expectations play a large role in the happiness of those in the union. And, like spouses, you and your partner will be spending a tremendous amount of time together. Partnerships can be satisfying when they operate like a well-oiled machine and emotionally draining when things aren’t running as smoothly.
The best partnerships are those that take advantage of each individual’s strengths. And it’s even better when each partner brings a different skill to the table—maybe one partner is a graphic design whiz who can build and manage the Web site, while another partner has a background in public relations. Good partnerships also happen when there is mutual respect for each other’s opinions, a common work ethic, shared visions and goals, and, of course, enjoyment of one another’s company. It is natural for people to immediately think of friends or family members as potential business partners. But you should realize that mixing financial matters in with any relationship often changes the dynamic. It certainly makes the relationship much more serious. Situations that would have been tolerable in a friendship may not be tolerable in a business relationship. Owning a business, people may even exhibit a different side of their personality. You may discover that a friend you thought had a laid-back personality isn’t so laissez-faire when it comes to business, but rather a no-nonsense, domineering entrepreneur.
If you do decide to establish a partnership, you should draft an agreement, in writing, that outlines each partner’s responsibilities, duties, and the percentage of ownership allotted him or her. Not all partnerships need to be split 50/50. (In fact, if there are two partners, the business should be split at least 49/51 so that one partner is the final decision maker in stalemate situations.) In addition to sharing ownership, you will also share the company’s debt. In a partnership, you are liable for your own actions plus those of your partners. So if you have a partner with impulsive buying tendencies who purchases a vintage 1912 Chandler & Price platen press for your letterpress company without first asking you, you too will be responsible for paying for that machine. You may want to consider including preemptive clauses in your partnership agreement that discuss potential sticky situations and how they will be handled, should they occur. The agreement should also dictate what to do if one partner wants to withdraw or dissolve the partnership, as well as the proper way to exit the business. For example, you can include a clause that prevents one of the partners from leaving or being relieved of duties without a thirty-day advance notice. If that partner is the sole person who knows how to operate the press, you’ll need that time to find someone to fill that role. The payout can vary according to the partner’s reason for leaving and adherence to the exit policy; this too should be specified in the agreement.
When disputes break out between partners, the root of the problem can often be traced to divergent financial expectations, differing management and work styles, or dissimilar views and goals. A common partnership conflict happens when one partner emerges as the dominant worker or the more talented artist. The partner who is working harder or producing better work can become resentful, especially if she feels that the other partner is riding on her coattails. And when things don’t work out, sadly, the price is sometimes friendship. Saying “it’s nothing personal; it’s just business” is hardly sufficient to save a friendship destroyed by a business divorce. In reality, business is often very personal. You will need to be mindful of this when considering creating a partnership with friends.
Above all, you should know yourself well: If you are fiercely independent with a Type A personality, then don’t start or join a partnership. Go solo and save yourself the potential heartache and stress. If you like working with other individuals, you might consider creating or joining a collective so that you could still maintain your business autonomously. If a friend has a great skill to contribute to your venture, consider paying her an hourly wage and skipping the partnership. A solo operation can be just as influential and successful as a group-owned venture. An advantage to being a sole proprietor is that all the work stems from your hands—you get to see firsthand the value of your hard work and, as a happy consequence, reap all the financial rewards for yourself.
The legal structure of your business determines your personal liability and also the taxes you’ll have to pay. Structures that limit your liability are C corporations, S corporations, and limited liability companies (LLCs). These structures are usually subject to an annual tax and are filed with the state agencies that handle business filings (e.g., in Illinois, the secretary of state governs these matters). In the event that someone claims your business has harmed them—say, a client suffers a concussion from slipping on spilled ceramic glazing during a visit to your studio—an incorporated structure will protect your individual assets (like your home), and only the assets of the business can be seized. In general, craft businesses that operate out of a home are relatively innocuous and don’t deal in inherently risky activities, so creative-business owners usually choose unincorporated options. To know what is best for your company, get a recommendation from a professional, such as an attorney or an accountant who specializes in small businesses. Also, check www.irs.gov for more information.
This is the route most creative-business owners take when they are going solo, without any employees. This structure doesn’t require any formal documentation to say that you are a sole proprietor. Come tax time, all your company’s profits and expenses are filed on a form called Schedule C (Profit or Loss from Business).
If your business is a group endeavor, you should have a partnership agreement ironed out that dictates each partner’s responsibilities and what percentage each partner owns of the company (see “A Team or Solo Effort,” page 41, for more information). When you file your taxes, your accountant will file a U.S. Return of Partnership Income.
A limited partnership has two levels: general and limited. General partners are responsible for running the business and are liable for the debts and agreements made on behalf of the business. Limited partners are financial backers who have no control over the business but who share in the profits and losses based on what they put into the business.
A C corporation offers limited liability and can be formed with the help of an attorney or accountant. You will need to file paperwork outlining the names of the officers, directors, and shareholders. However, C corporations are subject to double taxation—the company pays taxes on the profits and then each shareholder pays taxes on the money taken from that profit.
An S corporation has the benefit of limited liability without the double taxation issue of a C corporation. It requires hiring an attorney or accountant to file the paperwork for you.
LLC is a favorite corporate structure for small business owners. It has limited liability and allows more shareholders than an S corporation. You will need to file an operation agreement with a state agency. Also, an LLC doesn’t require an attorney or accountant to file.
Unless you’ve got a seven-figure trust fund or a winning lottery ticket in hand, money might well be an issue as you start your new business. Happily, many craft businesses can be started as sideline careers and don’t require a lot of start-up capital. You don’t need employees right away, you don’t necessarily need to buy a lot of equipment, and you can work from home to keep overhead low. If you need extra funding, you could consider taking a job that directly relates to your business, like becoming a salesperson at a bead shop.
Choose a company name
File a trademark
Decide on company’s legal structure
Check your location for zoning regulations
Apply for a Fictitious Business Name statement (DBA)*
Apply for a business license
Apply for a seller’s permit*
Apply for a Federal Tax ID (EIN)*
Discuss home and business liability insurance with an agent
Open a business phone line
Open a business checking account
Get IRS publications for small businesses
Get health insurance before you quit your day job
Reserve a domain name for your Web site
Sign up for social media outlets like a blog, Facebook, or Twitter
*May not apply to all businesses
If you plan to work on your business full-time, you will need to take stock of your financial situation. Many business consultants recommend saving up at least a year’s worth of living expenses before launching your business. To determine your living expenses, you should accurately calculate your monthly expenses (down to the tin of mints you purchased this afternoon). If your financial reserves match a year’s worth of expenses, that’s great news—consider a huge financial burden lifted. (Just make sure you act responsibly toward yourself: no dipping into your personal savings for business expenses.) If you don’t have enough, or any, savings, you’ll have to figure out how you will afford these living expenses. Maybe you need to obtain a loan, cut back on expenses, move back in with your parents, or ask a partner or spouse with sufficient income to pay for the bulk of the bills.
All business-related expenses should come out of your business checking account or be put on the business credit cards. But beware: it’s very easy and common to run up debt. Apply for credit cards with low APRs and don’t max out your credit cards: stay as debt-lean as possible. The toll on your credit score and your nerves just isn’t worth it. You could also secure a small loan from your bank; depending on how much you need, the bank may require a copy of your business plan. Another option is to talk to a lender about securing a small business loan from the federal government’s Small Business Administration (SBA). If you ask a friend or family member for the money, clarify the deal before agreeing—are they offering you a loan that accrues interest, or expecting equity in your business with a return on their investment? And remember, even if the loan is coming from family, it’s crucial to put the agreement in writing.
In most cases, you’ll probably be your own patron—using savings or debt financing. If so, start your business humbly: be prudent with your purchases and keep your overhead very low. Resist the temptation to buy fancy equipment right away or rent a spacious studio. Instead, you should operate with use-what-you’ve-got principles—work from home and find access to equipment without buying it (e.g., using equipment at a local community arts center). If you commit to expensive items or a lease agreement early on without knowing how much money you will make, you’ll have to pay for these things even if business is slow.
In the first year or two, you should expect your business to make a small profit, and whatever income you do earn should be reinvested to grow the business. Even though you’re the owner, you’re often the last in line to get paid. So, being a business owner means frugality will be in order. To conserve cash without breaking your creative spirit, look for substitutes for those everyday luxuries: turn down takeout and get to know your inner chef, and, of course, as a crafty individual, you should make gifts instead of buying them. Little savings such as these can go a long way.
Despite having a creative job sculpting body armor for the San Francisco Opera, Beth Weintraub still yearned for a career that was more expressive of her inner voice. Longing to spend more time doing printmaking, she set off to become an independent artist. In the beginning, the business (creating metal artwork and prints made from hand-painted etchings) was off to a slow start, grossing only $11,000 in the first year. A transformation took place when she came up with the novel idea of selling her etched metal plates as pieces of modular art along with the prints generated from those plates, turning both ends of the printmaking process into a salable product. (Imagine if a painter sold his paintbrushes as well as the canvas as works of art!) Eight years later, she has three part-time employees and rakes in enough in annual sales to allow her to own a coveted 4,500-square-foot warehouse studio in San Francisco. Beth’s company is a testament to the importance of honing your business acumen. So take note: you don’t need to starve for your art.
Before I started my business, I took a fourteen-week course through the Renaissance Entrepreneurship Center in San Francisco. It introduced simple business concepts and how to create a business plan. The course showed how to calculate the cost to make any product, whether a piece of art, a muffin, or even a song! And more important, I learned how much you have to sell in order to make a living. I really learned how to think like a businessperson to promote my art.
In the beginning, I did nearly all the work. Occasionally, I would need help with tasks like drilling holes or something. I used to make these etched metal, square, tetrahedron bowls, where I would be drilling ten thousand holes for a week! When I had knee surgery two and a half years ago, I was out for three months. And it became apparent that I needed an assistant to pick up the slack. So I hired an assistant who helps me with the modular art pieces I do now. Even if you’re hurt or sick, you still have to run the business. That experience taught me how to let go of parts of the business.
I have a three-piece minimum. I designed my art so that it looks best in a group. Each modular piece introduces a different shape or form so that, when they’re grouped together, the eye is tickled. When buyers think of buying just one, they realize it just doesn’t look as good—so they end up buying at least three to make it work. This works great for the galleries and retailers, because they end up selling three pieces at a time. I make sure that I send them language to train their staff so that they’re versed on how to sell it. This type of hand-holding, or educating people on your art, really increases sales.
I’ve been exhibiting at the New York International Gift Fair twice a year since 2001, and I do the California Gift Show in Los Angeles occasionally. It’s funny, because no one attends a gift show intending to buy fine art, but, believe me, they end up walking out with an order for a few of my pieces. In the past, I participated in the American Craft Council Show in Baltimore and the Rosen Show in Philadelphia. I wasn’t prepared for the retail part of the Baltimore show, and I also realized that I didn’t want to deal too much with the end user, so I didn’t do that show again. I’ve also done a show in London called Top Drawer. It wasn’t a smashing success, but I walked away with international connections.
Yes, a mass-merchandising home furnishings company was offering etched metal art that looked like my work—they didn’t even bother to change the size or the type of illustration. It’s such a cheap and bad version of my work. People have contacted me asking if I was working with that company. It really just cheapens my brand. I had a lawyer look into it and tell me that it is not necessarily a copyright infringement issue, but might instead be a trade dress issue—the company is trespassing on my brand.
I do feel that my style and concept for how I show my work has been spread thin in many ways, by various companies taking on just one ingredient or idea from my work. This is totally allowable and doesn’t offend me at all; it just shows how a few original people actually do affect the design and home décor market. I see it all the time: talent is emulated, product follows, and public acceptance of new ideas evolves. So I have to keep up and change what I do and how it looks if I want to continue to sell work. Little by little I’ve been trying to move away from that business model and concentrate on fewer, large commissions—it’s a luxury that comes from years of making contacts and delivering quality work.
I did take action by way of a cease-and-desist letter from a large, prominent law firm specializing in intellectual property. It was the most expensive letter I have ever imagined, but the response was good enough. The company claimed that they had not copied my work, but would discontinue sales and marketing of the series of works in question. I would never want money from a company like that, and I’m really against licensing my imagery for reproduction as cheap art—this is my personal position. Some artists feel it’s better to get a small sum for their work, since clearly the copying will occur with or without an artist’s approval. This could work for a painter perhaps, but I already have the ability to make multiples as a printmaker. I don’t need to devalue my work by offering cheaper versions of it. I can and do consider licensing for things other than my work medium; for example, I have designs that are sold on Flip video cameras and T-shirts through the Gap RED campaign.
It’s really great. I think every artist fantasizes about having their own warehouse to do their art. I know I’ve been dreaming about it for a long time. I’m not a spiritual type, but I really think visualization works. If you can visualize it, you can work toward it. I had been working out of a live/work apartment, and had frankly outgrown it. I was renting other spaces in the building for additional work space. Then I thought, why not get a warehouse and live and work there! I found this run-down brewery in the Mission District. It’s 4,500 square feet with three stories. It needed a lot of work: engineering, plumbing, painting, you name it. I pursued an SBA loan instead of a commercial loan because it required 10% down instead of 30%. And the process was much easier than I thought it would be! I think it helped that my business was established with an eight-year track record. I had an accounting software program that generated my profit and loss statements as well as sales figures, so those were easy to provide. I think the banker was just blown away at how organized and prepared I was—that was probably surprising coming from an artist.
For most small business operations, being a bookkeeper is one of the least exciting, but one of the most important, hats you must wear. It is not a job to take lightly. As managing business finances can be tedious and time-consuming, you should create an efficient record-keeping system from the very beginning. Bookkeeping means keeping complete and accurate records of your business’s income and expenses. You need to be a paper hoarder—keeping copies of invoices, bills, checks, and receipts and filing them in an organized manner. In addition to creating a paper
filing system, everything needs to be logged as well. When you get a parking receipt at a trade show, it should be put into record-keeping books or software and then filed. You also need to keep track of business- related mileage that you’ve driven.
There are several ways to maintain your books: the old-school way (i.e., writing things down in ledgers) or the technology-age way (i.e., using an accounting management system like QuickBooks or Peachtree). The latter is the preferred method for most small businesses, as it can help you create and track unpaid invoices, monitor purchases and inventory, and print checks. But bookkeeping software can run you a couple hundred dollars, not to mention the software is made for accountants and can be quite sophisticated. In addition to learning the software, you will need to learn accounting lingo. An alternative is to hire an accountant to set your company up in an accounting program and then give you a tutorial.
If you plan to manage finances without a computer accounting program, you will still need to have basic accounting know-how, such as how to create appropriate income and expense accounts. You can take workshops or classes on small business operations to help you understand things like deductible expenses and to help you manage record-keeping. It’s fine to start your business using handwritten invoices and sales receipts; just make sure you make copies for your files. You will need to be especially disciplined and organized in regard to your accounts receivable (or outstanding invoices); make sure you have a reliable method for keeping track of who has paid and who hasn’t. And remember that if you’re confused about bookkeeping, it’s best to consult with an accountant before tax time; backtracking over an entire year’s worth of income, expenses, and associated paperwork can be a horrendous headache.
Owning a business changes your schedule and your lifestyle: you’ll essentially have less free time and, possibly, less money. It is important to discuss this with important people in your life, like your spouse, domestic partner, roommates, and children. You also might want to consider having the important people in your life involved in some aspect of your business so that you aren’t isolated from them too often, and so they feel like they share in the success of your company.
