Starting a Business

[Anndreak]

I've had some interest in some of the goods I've been making. I've already sold 3 bags to friends and some other small items. I am curious about those who have taken to making enough product to attend vendor/art shows exc... what are the steps in becoming an actual business. I don't fully understand the following;

-Wholesale pricing - if you are not paying sales tax on your own purchases, then you charge sales tax on your products? What if not everything you use was purchased wholesale? Maybe I am over thinking this part?

-How do you figure out if you need to charge sales tax?

-Pricing your items to make a profit?

- Any other advice, or resources on what to do... I've never done anything like this before.

Thank you in advance!

[Lobo]

You are in Arizona. I am in Colorado. Laws vary from one state to another, so whatever I offer may not be accurate for your use.

Generally speaking, if you engage in business activity you will have to apply for and maintain a business license in your city/county/state and you will be required to collect and remit sales taxes on your retail sales, and submit required sales tax returns to your local/state taxing authorities. Business personal property (tools, equipment, inventory, material, supplies, etc) may also be subject to "use taxes", depending on the laws in your state of residence.

Failure to comply with sales and use tax laws may subject you to civil (fines, impoundment of property, seizure of premises, etc) or criminal penalties (fines, imprisonment, etc).

Most suppliers will require that you have an appropriate business license in order to allow you to purchase materials and supplies without paying sales taxes. Such purchases are generally exempt from sales taxes, as the products are intended to be resold for taxable profit.

If you do business via the internet (website, social media marketing, etc) there are recent changes in the laws that may require you to collect and remit sales taxes even on sales to those customers outside your state of residence. This is an entirely new area of law that may require some study or advice from an attorney.

Wholesale pricing generally refers to the prices charged to other business outlets purchasing your goods for resale. When engaging in such sales you should verify that the business has an appropriate sales tax license and record that information; otherwise you might find yourself paying the sales taxes out of your own pocket at tax return time.

In addition to sales and use taxes you will be required to pay federal, state, and (if applicable) local income taxes on your profits. Be prepared to produce accurate records of all of your expenses in producing the income, and file your returns as required to avoid penalties. Federal income tax must be paid quarterly based upon your estimated annual profits.

Pricing your products in order to make a profit must take into account all of your expenses of production including the costs of all materials, supplies, promotional/advertising expenses, postage/shipping costs, internet service fees (website), telephone and other communications, bank service fees, etc, etc, etc. You must also consider the expenses involved in maintaining your production facility (even if it is only a portion of your home used for business use). Perhaps it does not need to be said, but after reading the preceding several paragraphs you will understand that operating a business involves MUCH MORE TIME than that required for producing your products (record keeping, tax returns, etc), so hourly computations are relatively meaningless.

I was in the business for 43 years, of which 31 years were part-time as a sideline business and 12 years were full-time. In my experience, every hour of production time (bench time, pounding hides, producing products, etc) requires at least another hour of administrative time to get all the rest of the stuff done. If you are doing custom work (specific products made to customer specifications) you may find that the time spent on dealing with the customers is far greater than the actual time required to do the work (and far more demanding and frustrating).

I hope this helps. Running a business is a full-time affair. There are no such things as days off, weekends, holidays, or vacations. It will always be the central part of your life.

The leather business provided me with a good little side income for many years, then it allowed me to retire very comfortably, but it literally consumed my days and nights for decades. I made a lot of money, but I missed out on a lot of things that most working folks take for granted (like days off, weekends, holidays, vacations, fishing trips, hunting trips, you name it).

Be careful what you wish for because you might just get it!

[LatigoAmigo]

3 hours ago, Anndreak said:

what are the steps in becoming an actual business

You might want to have an accountant help you set up your books so you will have a clear understanding of inventory control and depreciation. Setting up your books will work best on the front end of your business rather than trying to tie it all together at tax time. For example, you need to understand how to value a partially used bottle of dye and half a hide, not to mention depreciating your hand tools and sewing machine.

[JLSleather]

STEP 1: Never rely on the answer to a question like that from the internet.  STEP 2:  Consider whether you should even ask a question like that on the internet.  Now, that out of the way    

Lobo's answer above has some information that has to be considered, but it's the TIP of the iceberg.  I don't think any of us here are actually qualified to answer that question for you, certainly not completely.  But, a few points to consider:

First point ... MOST (near all) people you'll find on this site are NOT business people. 

• Some of them have registered a business and are "doing it right". 
• Some are registered, but blindly stumbling through the day to day and will likely have a reckoning coming when they find what they were REALLY supposed to be doing and paying.
• Some call themself a 'business', but aren't in any real sense of the word.

Next, Lobo hit on one big one here recently.  Nearly every state now collects sales tax on purchases made in other states.  And it's not just states.. often taxes have different rates for counties or cities within the same state.  Used to be fairly simple.. Iowa has a 6% sales tax, and all but a couple of the 99 counties added 1% to that.  Now, I think it's 43 states we collect sales tax in.  I say THINK because i am a LONG way from figuring out all this new stuff.  Even the IRS states that they don't expect businesses to get it right for possibly first couple of years.  Ignorance won't "save' you of course... just means a lot of businesses will be getting notices 2 or 3 years from now saying you owe more than you thought.  

I could go on and on, but in the end you HAVE TO have a tax person (at least one).  Intelligent people could learn the tax law themselves, but by the time you got if 'figgered' it will change.  No substitute for a guy who just does that.  Similarly, I could probably tan my own leather.. but I wouldn't' get anything ELSE done.

INVENTORY is an issue for the vast majority of the honest ones (the others, I'll leave to themselves).  Do you know how much you currently have?  Raw materials, hardware, tools/tooling, vehicle(s), stock (if offered), .... any assets owned by the business.  Do you know the age and/or value of these things?  Any of it already depreciated, or is it all new?

Each his own, right?   But I assure you this is the wrong place to look for the information you need.

[chuck123wapati]

I majored in business administration , first thing they taught us, get  professional help!! The classes are so you can attempt to understand what they are doing for you.

[Handstitched]

 G'Day, @Anndreak

Everything I say here is for Australia , and won't apply to you.

Setting up a small business for myself , although daunting ( at the same time exciting) ,   was easier than I thought, but I am a sole trader, work for myself and have no employees .  But I did get help and a lot of advice from professionals . I also did a business course** . When I registered as a business, I had to apply  for an ' ABN' Australian Business Number' .  Here in Oz, anyone in any type of  business or trade has to have  one.   We simply can't buy & sell, trade  ( legally)  without it.

Registered tradies can't work without it . 

It allows me purchase stock supplies etc.  wholesale.

But we have this crazy taxation system  called ' GST ' in Australia, ' Goods & Services Tax ' .  10% GST is added to everything, from a new car  to a .... new ....can of soft drink, to the hides I buy,     even on some S/H goods .   It can be a mine field of confusion, it was controversial  when it was introduced, still is. It scared the hell out of me and nearly put me right off. But with help, I got my head  around it, sort of. 

All I can say Anndreak  , is,  get help, don't go doing  it by yourself , and don't be discouraged , despite how confusing or daunting  it may be . If your heart is set on going into business, you go for it .  If you want something bad enough, you'll do it.  

** I hate Excel , always  have,  always will, and will never use it again  

HS

 

[OldRedMule]

Ya’ll make opening a business sound rather scary and where does profit come in? Everyone wants a piece. I’m not sure it’s worth the effort....

[Spyros]

Pay an accountant for half an hour to walk you through the basics in sales tax and registering a business.  It's different from place to place.

Don't price your items to make a profit, price them to what they're selling for.  Then figure out if you're actually making a profit at those prices and that will tell you if you want to really invest in business.

 

 

 

 

[Tugadude]

On 10/25/2020 at 10:04 AM, OldRedMule said:

Ya’ll make opening a business sound rather scary and where does profit come in? Everyone wants a piece. I’m not sure it’s worth the effort....

I realize this is an old message, but still wanted to respond to it.  I've known several who have started their own business including my parents.  I got to see first-hand the challenges they faced.  Later on, when I entered the business world, I had the fortune and misfortune to work with several "start ups".  To me the successful ones had at least one thing in common and that was an understanding of business and/or they hired someone who did.  I saw a few who started into business only to find out it wasn't as easy as they pictured and they eventually succumbed.  One grew too large, too fast, and ended up literally leaving the state.  Millions of dollars in bills remained unpaid.  A sad ending to what could have been a solid, profitable company.

Now I know that nobody here is likely to be jeopardy of owing millions, but the fact remains that you really do need to do your homework.  

As far as pricing, I saw that as one of the biggest problems the new companies faced.  In order to attract business, many sold their services below the competition.  I guess they figured they'd get a base of business going and then raise prices.  Sometimes that can work, especially if you have resources, either your own or from an investor.  Unfortunately lack of capital has sunk many, who didn't foresee trouble on the horizon.  All it takes is for one large customer to slow pay or no pay and they are sunk.  At least in the beginning.  

Much more to say and many more stories I could tell, but the one thing I've learned is that just because you're good at something, like leatherwork for example, doesn't mean you're cut out to be in business.  Many talented people have tried and failed because they failed to understand what it takes to run a profitable business.  

So if you are itching to start your own, either get educated yourself or work with someone who can help you steer the ship.  There are tons of free seminars and websites dedicated to helping small businesses.  Take advantage of those too.

[Alsopp]

In my opinion, not enough goods for the exhibition. 
What makes them unique? Is there any individual design?

[NerdyLeather]

When I started selling my handmade jewelry, I was just as lost. Here's what I learned:

Wholesale pricing and sales tax are two different things. Wholesale is about getting goods at a cheaper price because you're buying in bulk. Sales tax, on the other hand, is something you'll have to charge your customers if your state laws require it. If you're in the US, the sales tax laws can vary from state to state, so it's best to do some homework on this.

Pricing items for profit was a challenge for me too. What helped was first figuring out the cost of materials and labor, then adding a markup for profit. It took some trial and error, but eventually, I found a sweet spot where my customers felt they were getting value for money, and I was making a decent profit.

Running a business is a learning curve, and there's always something new to learn. I found that reading up on various topics and connecting with others who had been there was a big help. It's great that you're reaching out and asking these questions!

When I was in your shoes, I realized that I was learning so much about the business that I decided to share my experiences in a blog. For a more in-depth look at these topics and more, you could visit here. It's packed with articles from my journey to building a few successful businesses.