Advice for creatives starting out on the bumpy own business ride.
Designed for those who hedgehog when faced with money issues.
When you grow into a big bold successful business then employ someone to do this stuff properly.
In the meantime these strategies should get you through.
The advice is for the UK .
There we are, now we are safe, now you can cope
This is all going to be in your language, you will completely understand and be able to apply it
What you don’t need to do and what to do instead:
You need some sort of book-keeping record but one you understand and feel master of. If spreadsheets mystify you, don’t use them.
Accounts are simple. They record how much money comes in and how much you spend on the business. You need them to understand your business and to pay the taxman
Use an ordinary A4 blue* hardback notebook and a cardboard box. Keep both to hand and fill them in as it happens
* Thats a joke, don’t be silly it doesn’t have to be blue
In the book you put a heading INCOME with the year and then put the month then every time you receive money you fill in who from, what it was for, and how much . Annotate this in any way that could be useful to you so if you do a show bracket the sales at that show and label it
On the opposite page do the same but head it EXPENSES and there you fill in what you paid out for, then how much.
Keep the numbers at the end so they are easier to add up and round them all to the nearest £.
Then total that month. Keep your expenses and income separate just run totals.
In your CARDBOARD BOX put your spending receipts, they are for the taxman. At the end of the April to April year bag them up, label and KEEP. If you work from home put your utility bills in here as you can probably claim a portion against your tax bill.
This simple method shows you how you are doing, for a bigger view do a YEAR ON YEAR account.
Take the monthly income totals and at 3, 6,9 and 12 months total those. The next year fill in those figures alongside and if the total is up or down on the year before put an up or down arrow. The arrows tell you everything. In the third year you do two arrows for the previous two years.
Remember that your expenditure total for the year needs to be taken off your income for the year as that is your profit. Working monthly on expenditure off income is misleading. But do the totals monthly as you need to be aware how much you are spending, especially if it’s consistently above income as that way disaster lies.
Accountants come later, you use them to save on tax, but for that you need a proper income.
Employ a book-keeper before an accountant and don’t do that before you have a solid working business.
You need to do the books to begin with, so that you know what’s happening.
Keep records as above and phone your tax office after a few months when you have a business and tell them what you are doing and they will send you forms to register. They will also give you a phone number to get help with how it works and what your allowances are. Use that.
You don’t need a business account they are expensive.
If you have a shared bank account open one in your name, possibly in a different bank but it should be a personal account.
Then join something like Paypal so you can take credit cards. You will pay them commission on each transaction but there are no other costs.
You need a situation where if you earn nothing, you pay nothing.
Don’t it’s not an investment.
Until you have a proven product and sales you should not buy in bulk, it might make your price look attractive but its a red herring because:
If you buy 100 widgets for £100 the cost of each widget is only £1 but only when you have used all the widgets. If you sell just 5 widget using products the cost of each widget is then £20 See what I mean? Its cheaper to pay the higher individual cost.
Make to demand not to your expectations.
Don’t make product expecting high sales, that’s an expensive game
Establish a show fund
Right from the beginning put £30 a month in so when you are grown up enough for a big show you have the money which often has to be paid in advance. Return the stake to the fund after the show or as much of it as you have left. If you start with capital, lock £1000 into a show fund but don’t use it at all in the first year as you are too likely to crash and burn.
There are all kinds of pricing formulae and none of them work
Pricing handmade in the UK is an art not a science
This is why :
An acceptable price depends on who you are selling to
Different products have different price ceilings
There is a soft margin around prices which means you can put them up or down and make no difference to the sale so it always makes sense to push to the upper limit and formulae don’t do that.
Your circumstances determine what you need to charge
Labour cost is always a nonsense as you don’t just make you have to spend about 70% of your time trying to sell. That has to be paid for too
None of this stuff can sit in a formula you have to price , step back and think all the way round.
Your prices are more likely to be too low than too high.
Underpricing builds in failure.
How many you sell is irrelevant to profit.
If I sell 20 Lovelies for £2 profit each that is not as good as selling one Lovely for £42 profit.
Only consider wholesale if you enjoy repetitive making and can make a living from it.
Selling one expensive Lovely will take effort but selling 20 cheaper ones will not necessarily be easier.
So You Made It .
You can do what you need to do to know whats going on and to make the right decisions.
It isn’t really such a big deal after all.
Now you will have to find something else to worry about.
18 thoughts on “Cardboard Box Economics”
Hi Dixie, in the “Get an accountant” section you mention that after a few months of having a business you contact the tax office and tell them you are a business, surely this may lead them to think you have operated for longer and not paid tax? For example if you bought materials to build a stock for your first ever venture, a craft fair then after a few months you registered and put in receipts which showed you bought them 3 months before you registered then it may be look like you have been operating for a while longer? Would the best advice be to register straight away or am I over reacting a tad?
Dave I take your point but the Tax people only want to know about you when you start making enough profit to pay tax I say keep your receipts but hold off registering until you have proof you have a business. Then talk to them, always talk to them.
Ok Dixie thanks very much for the reply, it’s just that as there are a few horror stories about the “Wrath of the taxman on easy targets” just lately that It makes us think as people considering a new start a craft business that we wouldn’t want to fall under the spotlight before we have even got started, but I take your reply on board, makes sense.
Many thanks, Dave.
As long as you are creating a handmade product which you intend to sell yourself then I would wait and see but that is what I would do. But ring them, talk to them. At this stage you should not buy materials in bulk until you have proved to yourself there is a market that is willing to pay a price that gives you a living.
Don’t price at I bought 100 of these and so they cost me x each as they only cost you x each when you sold the hundredth one. Your product will change as it meets the market wrong bulk materials are total loss.
Good luck and be very very flexible and cynical .
This post is very helpful, thanks for that!
Interesting advice, but I think you’ll find it expressly against the terms and conditions of your personal bank account to use it for business purposes.
Very entertaining ! Really enjoyed reading it !
Wonderful advice and so easy to understand. Thank you for taking the time to write this post – it will help so many people just starting out.
Just managed to get round to reading this. I use spreadsheets, one for income, one for outgoings and connect them so the gross and net income are shown automatically. I then send this off to the taxman as my return and so far he/she is happy with it. Once I am rich and famous and earning a fortune I will need to do it properly but will be able to afford to pay an accountant to do it for me. Pricing things is my main bug bear. Whilst I make sure I am not underpricing and do make a profit, I can’t help feeling that I under-price some things but maybe self belief etc stop me charging more. So often people will pick something up admire it then see the price and put it back quickly. Now if you can tell me how to judge a good price for things I will be truly amazed and grateful LOL. Thanks again for the advice etc, always welcome and useful
Pete Hand turned wood is time consuming and the right price has to be substantial because of the nature of what you are making. You actually have no choice about your prices. You are not at liberty to put them down to a level that most people can easily afford. So you will always see people picking your pieces up and putting them down because the price is not with in their means. Their action is not a criticism of your price it is about the money they can afford to spend.
When it comes to it, either they go without the bowl they were attracted to, or you go without a living.
Go round your pieces and put up all the prices which you have a feeling are under priced. You will probably miss a few sales but when you do get a sale you will get a sensible profit. Sell one for a decent profit sell two for a marginal profit same income twice the work, a bit foolish don’t you think?
No, I cant tell you how to judge a good price for your things but I don’t need to as you already know, its just that you are scared to put it into action. Who dares wins.
Thank you for putting it all in common sense easy to understand terms, and I like your comment about wholesale
lovely post thank you for sharing xx hazel
I really enjoy reading your posts Dixie. This is a great way to de-mystify finances. I always learn a lot from these- things I can do to improve or flagging up those things I avioid doing or know at the back of my mind I am ignoring.
I think you have put your finger on it. Very little of this stuff is breaking new ground its more of a reminder that you need to sort it.
Its like saying ‘watch out!’ to someone walking down the street with a tenner hanging out of their back pocket. What is odd is how many people say ‘Thank you, you are quite right I shall do something about it, in fact I know I do that, and its stupid’ and carry on walking without pushing the note back into their pocket
Love this! Off out now to get book. Maybe blue.
Love the part about labour costs.
Thank you for making bookkeeping less scary.
Great and truthful post, really enjoyed reading it and will get my cardboard box at the ready.