Wednesday, August 20, 2014
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7 pitfalls to making your hobby a business

Your friends rave about the colorful scarves you knit for their birthdays.

7 pitfalls to making your hobby a business

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Your friends rave about the colorful scarves you knit for their birthdays. Or maybe co-workers encourage you to start selling the cookies you bring to the morning meetings. But before you create an Etsy store and sign up for an account with Square, it’s important to consider what it really means to try to profit from your passion.

"A lot of creative people don’t think about what it means to turn their hobbies into businesses," says Kari Chapin, author of The Handmade Marketplace: How to Sell Your Crafts Locally, Globally, and Online. "You go from being a potter to also taking on the role of accountant, photographer, Web designer, HR manager and errand person; there is a lot more to it than just deciding to start selling things."

If you’re thinking about turning your hobby into a business, first consider these 7 pitfalls.

1. The work is time-consuming

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One of the first lessons that Erin Francis learned when she started selling cake pops to her co-workers was that there was a difference between baking on weekends and turning the kitchen into an assembly line to accommodate orders.

"It took so much more time (to fill an order) than I thought it was going to," says Francis, a full-time legal assistant who runs a Richmond Hill, Ontario-based baking business Cake Pop It Like It's Hot on the side.

For creative entrepreneurs, balancing a 40-hour-per-week gig with a fledgling business can be one of the biggest challenges. You will need to set boundaries to keep a passion project from becoming overwhelming.

To keep from burning out, Francis requires customers to place orders in advance and places a cap on the number of orders she’ll accept at one time. She still pulls a few all-nighters, but the workflow is easier to manage.

2. A business requires planning

Your chances of success will be greatly diminished if you don't do some planning before you launch your business.

Researching prices of comparable products, establishing policies for returns and exchanges, deciding which forms of payment to accept and setting up applicable merchant accounts are all tasks that need to be completed before the first orders are filled.

For online sales, you’ll also need to photograph the products, inform customers about possible variations in colors and textures of handmade goods, and estimate shipping costs.

Maintaining good records that include the cost of supplies and shipping as well as the revenues generated — and, if needed, involving an accountant to prepare business tax returns — is an often-overlooked element of running a small business.

"Initially there is an expectation that the business will be as fun as the hobby … but it really morphs into something different," says Ann Johnson-Stromberg, communications and special projects manager for the Norcal Small Business Development Center Network in Arcata, Calif.

3. Start-up costs can be high

You might not sign a lease on a storefront or hire help to pack and ship handmade hats, but there are still up-front costs associated with launching a small business.

Kelly Rand, author of Handmade to Sell: Hello Craft's Guide to Owning, Running, and Growing Your Crafty Biz and co-founder of the Washington, D.C.-based nonprofit trade association Hello Craft, cites fees for craft supplies, business licenses, Web design and accounting as start-up costs many creative entrepreneurs forget to factor into their business plans.

"It takes a lot of resources to run a business," she says. "You often have to make an up-front investment to get the business off the ground."

To get a better idea of the estimated costs to launch a small business, ask entrepreneurs with similar businesses about their experiences; local networking groups and mentoring programs can also help you estimate possible up-front costs.

4. Demand is hard to gauge

You might hang a shingle hoping to sell a few handmade mugs and be inundated with orders. On the flip side, you could knit an entire line of dog sweaters that never sell.

While estimating demand is almost impossible, author Kari Chapin, who has written two books about building a craft business, suggests asking event organizers about the projected number of attendees.

"If 500 people are expected to walk through the doors, it’s safe to assume at least 200 will want a cupcake," she says.

For special events, Chapin suggests bringing enough inventory to cover 10 times the event fee. In other words, if it costs $100 to rent a booth at a craft fair, you should have $1,000 in merchandise available for sale.

But, Chapin says, "You never want to be stuck with more product than you can sell."

If products sell out, be sure to have a mailing list to get in touch with prospective customers when you have added new inventory.

5. You could lose cash

It’s one thing to be a talented baker and another to establish a business. Before maxing out the credit cards to get started, take time to figure out if you can cover your costs by selling your products.

Check out this blog post on Etsy for the formula determining a fair retail price. Pricing should account for materials, labor, expenses, profit and wholesale costs. But take note: If you have to charge $150 for a pair of socks because of the cost of supplies and the time it takes to knit them, starting a handmade sock business is not a good idea.

Ann Johnson-Stromberg of the Norcal Small Business Development Center Network also cautions entrepreneurs against setting prices too low to build interest and expecting customers to remain loyal when you raise your prices to cover your costs.

"You may also need to test the market by selling on a small scale first before settling on a final price," she advises.

6. Businesses require space

You might start out making necklaces at the kitchen table or knitting scarves in front of the TV, but as sales increase, so will the need for a dedicated space to create products, organize supplies and fill orders — not to mention hiding the mess.

Having a dedicated space to run a small business not only will reduce clutter in your home but might be essential to its long-term success.

Erin Francis, who owns the baking business Cake Pop It Like It's Hot, is content limiting sales of her cookies and cake pops to co-workers and accepting smaller orders that can be prepared in her kitchen. But she knows that if she wants to grow her business and start selling to the masses, she’ll need get to rent space in a commercial kitchen.

"If I have to rent a space, I’ll need to charge more," she says.

7. Customers need attention

There is more to turning a hobby into a business than making products to sell.

For Erin Francis, creating fanciful cake pops is the easiest — and most fun — part of her business Cake Pop It Like It's Hot. Most of her time is spent emailing reminders to place orders, creating new designs, experimenting with recipes for gluten-free or nut-free products to accommodate customer requests and responding to questions about packaging and deliveries – all before a sale ever is made.

Indeed, customer service might be as important as the product itself.

Although customer service keeps creative entrepreneurs from devoting their time to producing the products they are passionate about, most believe the opportunity to share their creations is worth the effort.

"I get so excited when someone places an order," Francis says. "I never expected people to want to pay for (my baked goods). It’s so cool."

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This article originally appeared on Interest.com.

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