Turning a hobby into a business?

[CraftyJen]

I've been thinking about this for a while-at the moment I'm just making candles/tarts for family and freinds but have been thinking of doing it properly by doing craft fairs and putting some on Coriandr (I've already registered so I'm halfway there), but I could do with a bit of guidance please.

How do you work out incomings/outgoings if you've already got most of the equipment/supplies etc (some from a year or more ago and no invoice), and have made quite a bit out of that but given it out for free or just the cost of 'ingredients'?

Also what sort of prices do you think I should be charging (do you follow a formula eg: actual cost X ?= price for customers), and would you charge a different price if you were delling to a shop?

And lastly (unless I've forgotton something!) how important is insurance? Could I just put in a safety leaflet with orders as I'm not sure how well they'll sell and £64 is quite a bit if none sell-obviously it's a lot less than somebody suing you but how likely is that?

Thanks very much for any help as I feel a bit in limbo at the moment!
;)

[sparkysdad]

Not a candle maker, but some of what you ask is basic to most business set ups..

With regard to the equipment issue, I suspect that the Inland Revenue will not allow you to offset the cost against tax if you already own the equipment, and have done so for some time and lack documentation.

A quick call to the IR helpline should clear that one easily.. the same should apply to basic stock.. if that is the case, you might be better off using current stock for personal and gifts.. and buying "new" for your business.

As for your "costs" I would forget what you have/have used.. just look up the cost of ingredients, work out what/how much you need for each candle and apportion a percentage according to that.. then if wax goes up 10% you know how much more every candle will cost to make etc.

For Equipment you need to discuss with Inland Revenue how long you can take to write off the purchase price against tax.. there is generally a set period, though low cost items can usually be set against a single year, in which case you claim the cost of new equipment in a year, and then claim no further allowances for it. For pricing purposes, you need to assess how durable the item is.. for example if a mould is £50 and will make 500 candles before it needs replacing, it costs 10p per candle so add that to your basic production cost.

Don't forget to factor in your time for making the candles, plus the time you spend packaging marketing selling and dispatching.. once you have your basic cost, I would suggest you decide your price according to how many you want/need to sell.. if you only expect to sell 30 a week, you need to make more profit per candle than if you sell 300..

Remember that you should effectively make money twice - your wage for the production process, and your "profit" on sales.. if your business did well, you might need to employ someone to do some or all the tasks to ennable you to be more productive. If adding a salary puts the cost of manufacture up, you probably haven't priced your good accordingly...

What to charge wholesale and retail is a complex issue.. it depends on volume, and also where you and the wholesale buyer intend to sell.. Personally, I would make my wholesale price around 30 - 40% lower than the price you intend to retail at.. that means a retailer can make a decent profit, but find it difficult to undercut you.. then you both operate on a fairly level playing field, and you win both ways.. I would also specify a minimum wholesale order - price or units so you dont have folk buying "wholesale" just to cut the price for personal use..

If you are looking long term, and aiming for a decent turnover, you need to do some big maths - for example what is your maximum output per week/month before you need more people, more equipment or more space.. then work out the point where that expansion is cost effective...

If you can do 300 units a month, and make £12,000 a year for you, 301 candles a month would wipe your total profit out based on hiring an additional employee on minimum wage.. so to justify the expansion you have to be sure you can regularly do 450 a week for example.. However that sort of consideration is probably some way down the line, and you can get free business advice as a small/new business from Business Link.

Lastly, Insurance.. if your first thought is "£64 is a lot of money if I dont sell any candles" give up now!! If you don't have the confidence and belief in your product yet, you need to put that in place with some proper business planning, and product testing.. then when you are confident you will sell XXX candles a year, the £64 will seem insignificant.. Whatever you do, dont proceed without insurance if you are selling a product! :D

[sparkysdad]

you might find this (http://www.craftsforum.co.uk/showthread.php?t=25214) thread useful to read also - lots of sound advice about making a business of your hobby/craft and whats involved.. ;)

[CraftyJen]

Oh my goodness, that's a lot to thik about lol! :behindsofa:
I did wonder about getting a new 'set' of wax and stuff for selling to the public, but I've just bought about 1kg of wax to make some for a freinds Mum as I'd nearly run out.
I'm not thinking of doing it as a main business-more of a sideline to make a few pennies as I'm working anyway. I was trying to work out the other day what price I need to put on each candle and how many I'd need to sell to get the insurance fees back. Would it help if I said they cost *roughly* 75p to make? I was thinking of around £3 each, but I've seen some for £5 (not exactly the same but still cupcake sized) so I'm not quite sure-I don't want to underprice them and make other people look bad IYSWIM;).
i think I might try it for a year and see what I get at the end of it-am I right in thinking you won't get charged for registering your business late if your profit is less than £5000?
Thanks:D

[wendy]

You'd be better off registering anyway. They do their best to be helpful. If you work, you may be able to offset any loss (investment in your business) against tax you pay as an employee. I don't know of any guideline that says it's ok to apply late if you earn under a certain amount, but they have been known to waive the fine for late registration for people on low incomes. That's not to say they'd do it for you!!!;)

Charging less than someone else for a similar product won't always make them look bad, and could work the opposite way. People don't always have faith in a product which is perceived to be too cheap. It's also about presentation, value, image, confidence, etc. Have a think about why you buy certain things - you may not always buy the lowest-priced item, even when you're on a budget.

When you price your candles, don't just take into account paying your insurance fees. You also need to take into account the cost of getting these in front of a customer and marketing: craft fair stalls, website, petrol money, packaging, stationery (business cards/leaflets) etc, as well as your labour costs.

Good luck!

[sparkysdad]

. People don't always have faith in a product which is perceived to be too cheap. It's also about presentation, value, image, confidence, etc. Have a think about why you buy certain things - you may not always buy the lowest-priced item, even when you're on a budget.

When you price your candles, don't just take into account paying your insurance fees. You also need to take into account the cost of getting these in front of a customer and marketing: craft fair stalls, website, petrol money, packaging, stationery (business cards/leaflets) etc, as well as your labour costs.

Good luck!

Wendy makes very valid points about the way the "invisible" costs mount up.. you would do well to consider just how many candles you need to sell to make those costs viable.. or you may just be better off financially speaking making gifts for friends and family..

[urbtaf]

Sorry but do not sparks dad talk a load of crap, a i wish i had done what you are talking about but he never did it.

[beckyboo]

Sorry but do not sparks dad talk a load of crap, a i wish i had done what you are talking about but he never did it.

here we go again, another riveting reply
sparky may at times waffle , but he does not talk crap...
he will help anybody and everybody and always always does it politely, he does not feel the need to slander and run at stupid o'clock in the morning nor does he bear grudges to people on the forum.

Seems just lately there has been alot of back biting to sparkys dad and too be honest i've read and read alot of his replies that have caused this , one in particular was a very flippant , lighthearted remark that caused a bad rep, and could see nothing wrong with his initial posts and definatly nothing that would cause people to slander him

If you don't like what someone says then move onto the another thread or make a valid point of disagreement rather than slander them

It is only a forum , it's ment to be fun !!!

[greannancrafts]

Sorry but do not sparks dad talk a load of crap, a i wish i had done what you are talking about but he never did it.

I agree with Beckyboo, sparkysdad at least takes time to give lenghty well thought replies, which can at least be read and are coherent.

If a post is not appreciated why answer it?


The quoted response is so grammatically incorrect it just doesn't make any sense at all.

Maybe English is not the posters first language.

Jane

[wendy]

Sorry but do not sparks dad talk a load of crap, a i wish i had done what you are talking about but he never did it.

I really must disagree. After all, he was quoting me!!:D

I think what sparkysdad means is that either you take into account all costs when pricing your goods, and become a business which (eventually) makes money, or you treat it as a hobby.

Sparkysdad has helped a lot of people on this forum with detailed and helpful responses.

[AnnieAnna]

Hush hush. Peace and love. Lets get back to CraftyJen's dilemmas.

Crafty Jen - if you have just bought a load of wax and kept the receipt and get yourself registered for tax fairly quickly you should be able to put it down as a tax allowance expense. You are allowed a month to get your act together before you should register when setting up a business. If you are clever you can make the start date of starting your business the day before the date on the receipt.

Then just chill. Don't get too hung up about about having lost the opportunity not to pay £1 to the tax man here and another £1 there. (This used to be good advice when I thought my taxes were going to hospitals and edcuating the kiddies but now I'm paying for duck houses and moats I'm tempted to rethink!!!!!) Your life isn't depending on your candle sales, you day job will keep you bouyant.
If you care that much about the money you have spent on equipment you can build the cost into the price of your candles.
Or you could think I bought this candle stuff to have fun. I've had the fun. Isn't it wonderful that I can start my business without having to spend loads on equipment first.

Undercutting your rivals' prices is mean. They might be dependant on their candle sales to keep a roof over their heads and feed their kiddies.

But it's a cut throat world and undercutting can work.

But it's stupid. If you start to get huge orders because your prices are low you'll be finding yourself working all hours for 50p an hour and start questioning why are you doing this? And you can't keep it up.

Swings and roundabouts :) Glasses half full :) etc :)

AnnieAnna

[Peter]

Sorry but do not sparks dad talk a load of crap, a i wish i had done what you are talking about but he never did it.
Final straw - banned for 'flaming' repeatedly.

[Millsy83]

here we go again, another riveting reply
sparky may at times waffle , but he does not talk crap...
he will help anybody and everybody and always always does it politely, he does not feel the need to slander and run at stupid o'clock in the morning nor does he bear grudges to people on the forum.

Seems just lately there has been alot of back biting to sparkys dad and too be honest i've read and read alot of his replies that have caused this , one in particular was a very flippant , lighthearted remark that caused a bad rep, and could see nothing wrong with his initial posts and definatly nothing that would cause people to slander him

If you don't like what someone says then move onto the another thread or make a valid point of disagreement rather than slander them

It is only a forum , it's ment to be fun !!!

I can't rep you - need to spread the luuurrvve first ;)
Totally agree with this. If Sparkysdad replies to your post you know are getting an honest, frank response. And it seems like he has a wealth of knowledge that needs to be shared

[beadsbydesign]

Hush hush. Peace and love. Lets get back to CraftyJen's dilemmas.

Crafty Jen - if you have just bought a load of wax and kept the receipt and get yourself registered for tax fairly quickly you should be able to put it down as a tax allowance expense. You are allowed a month to get your act together before you should register when setting up a business. If you are clever you can make the start date of starting your business the day before the date on the receipt.

AnnieAnna

You are actually required to register as self employed with the IR within three months of starting your business.

[CraftyJen]

Thanks for all your helpfull replies (well, all except one what was that all about?!:mad:).
I'm not really hung up about the tax thing-well I suppose I am in a way-i just wanted to get things clear in my head before jumping in with both feet so to speak;)
I know what you mean AnnieAnna about other people selling their wares as a means to keep a roof over their heads, so I don't want to be too cheap, but on the other hand I don't want to charge too much
Jen xx:mf:

[matt.chatterley]

Final straw - banned for 'flaming' repeatedly.

Very short aside (and a diversion from the topic - sorry everyone, please don't hit me!)...

Peter... seriously..

I hadn't seen any posts from you for ages (seems you made them, and I missed them!) - and was even starting to worry a bit about where you'd vanished to!

But it seems you're back!! :D

[matt.chatterley]

OK. Going to go back to the first post and give my view!

1. As far as equipment/etc goes, figure out how much it cost you (ignore materials), and how long you expect it to last for - e.g. we rate server hardware as lasting for 2-3 years, thus giving us a cost per year.

2. I think you already know the cost of ingredients for each product?

3. I don't know about insurance, but you'll need to take this and any other fixed costs into account - e.g. advertising budget, and so forth.

So now you have (assuming one product), two figures:

a) Fixed costs per year
b) Cost per item made

Work out roughly how many you aim to sell in a year - if you were wanting to make a "profit" (being strict), then you'd need to ADD the yearly costs, divided by the number you aim to sell - to each one.

(Alternatively, ignore some things e.g. equipment, etc as an investment - this is kinda upto you!)

Then you need to account for:

Your time - this is very precious, especially if you're doing something skilled or creative (which you are - both!) :)

And your profit margin! Don't make the mistake of simply saying that the payment for your time is your profit - a good rule of thumb which I suggest is to add minimum wage, plus a bit, to your products - before markup - so that if you need to involve someone else at a later stage, you don't have to reprice everything and alienate all your return customers!

Sounds a bit scary and excessive in a way, but you never know what will/wont take off!

Profit margin is entirely upto you. We apply different percentages to different products/services - partly to match market conditions and partly to ensure pricing is 'fair'..

Good luck though, pricing is always one of the stickiest areas.. :)

[sparkysdad]

Work out roughly how many you aim to sell in a year - if you were wanting to make a "profit" (being strict), then you'd need to ADD the yearly costs, divided by the number you aim to sell - to each one.

Also need to take in to account the minimum you need to make/sell to make your fixed costs "cost effective".



Sounds a bit scary and excessive in a way, but you never know what will/wont take off!

Often it takes almost the same amount of effort to set up the foundations of a hobby business generating a bit of extra cash as a full scale income generating one, though admittedly, the necessary work to develop and grow the full scale business can be very daunting but hugely rewarding!



Good luck though, pricing is always one of the stickiest areas.. :)

isnt it just, and plenty of evidence of that on the forum..

[matt.chatterley]

Also need to take in to account the minimum you need to make/sell to make your fixed costs "cost effective".

...

Often it takes almost the same amount of effort to set up the foundations of a hobby business generating a bit of extra cash as a full scale income generating one, though admittedly, the necessary work to develop and grow the full scale business can be very daunting but hugely rewarding!

...

isnt it just, and plenty of evidence of that on the forum..

Was going to leave reputation, but it wouldn't let me, so I'm replying!

1. Cost Effective - good point! Should have said that. More coffee required..

2. Yup. I think it may even take more, because you have to take so many precautions to shield yourself from risks, etc. Best bit here? Never. Ever. Ever. Underestimate how rewarding it is to run your own business. It's amazing. It's also amazingly hard and stressful, but on the whole, worth it!

3. Too true!

:)

[AnnieAnna]

What do you guys think of this thought?
If all this is doing Crafty Jen's head in....
look at your rivals' prices and pitch yours in the middle somewhere?
That's so lazy, isn't it?
Maybe use their prices to check back to after you've come up with your own prices. If you are way below - you've forgotten something, if you are way above.....er..........you might not sell many.
AnnieAnna

[wendy]

What do you guys think of this thought?
If all this is doing Crafty Jen's head in....
look at your rivals' prices and pitch yours in the middle somewhere?
That's so lazy, isn't it?
Maybe use their prices to check back to after you've come up with your own prices. If you are way below - you've forgotten something, if you are way above.....er..........you might not sell many.
AnnieAnna

It may be a lazy way of pricing, but if you look at enough rivals' prices, it should work!!!

There are bound to be some who have underpriced, for lack of foresight/experience/research/confidence, but by and large, if you're looking at experienced sellers, you'll get a good idea of what is a good price.

Maybe something to think about, Jen?

[CraftyJen]

Ooh now there's an idea *runs off to google some candles*
It's not lazy really though, it's 'market research' innit:p