Small Business

[Jack Wood]

A friend of mine who makes turkey calls and sells them at various trade shows and craft fairs told me that I need to do the same for my scroll saw pieces. He told me that setting your self up as a small business and using the tax breaks afforded them has allowed him to fund his hobby and make some cash too. How easy is this really and most importantly do you place your self in any financial risk by doing so? Thanks for any advice!

[Jeff Sudmeier]

Jack,

Any business that I would start would be an LLC (Limited Liability Company). It is something like $140 for the licence in Wisconsin. Basically the business is then completely separate from your other personal assets. If the business fails, they can take all of the business assets but they can't take your personal assets (house, etc).

The downfall is that you would probably buy your tools under the business, so they could be taken if the business failed and debts had to be paid...

[Lee Schierer]

Uncle Sam will want his share of the profits. Make sure you look at the tax aspects of a hobby business and be careful what you deduct. The IRS can get pretty picky over what constitutes business use of a house or part of a house.

[Hal Peeler]

Insurance could also be an issue. My homeowners policy will not cover my shop if I am running a business out of it.
Hal

[Jack Wood]

Yeah nothing is ever as easy as it sounds is it? I really don't want to sour my "hobby". A friend suggested talking to an accountant to see what is involved and how to go about it. As they say, it takes money to make money. Thanks for the advice everyone!

[Alan Turner]

In terms of liability for a defective turkey call, I think he is on pretty safe ground.

[Keith Ratliff]

Get a Great(not good) lawyer, If you got a friend who is a lawyer offer up diner for a sit down on the subject of starting your small business. Accountants mess up everything. Also you may find that re-deeding the part of your land where your shop sets and having it zoned for B-3(in my state) is worth it. or having the entire property re-zoned....Allot of counties and cities will change your zoning so you can have a small business and allow your wife to lease your property to your company....tax break. Later
Keith

[Ray Bersch]

Jack,
Allow me to change the approach here. Businesses are not established for the tax breaks, they are established for profit - even if it doesn't work out that way. If you feel that you can produce enough product to sell at a price that will give you an acceptable return for your efforts AND if you are really interested in doing it then I suggest you get going and do it.

But take a hard look at the effort/reward issue for the product that you will produce and be real with yourself. For example, hand scroll saw work, a craft and a great hobby, usually takes many hours to produce just one item - and when you are finished with that one you have to start on the next one - assuming you already have the skills, each unit takes the same amount of time to produce - so say you can sell 10 in a weekend - or maybe 20 - or 50, whatever....will you be able to sell these at a price that will cover your costs plus an acceptable amount to you for the efforts you put into it? And don't forget the time that you are spending at the craft fair and the costs and effort to set up and break down at each fair.

There are some folks who produce products that are of such quality or are in such demand that they can charge a handsome sum for each piece and make a respectable, perhaps substantial, profit - all the better. There are others who truly enjoy the process - from the labor involved to the contact with the public and other crafters - that the process is part of the reward. Only you can decide what is important to you. Oh, and if the government allows you to write off your travel costs, depreciate your tools, and deduct some telephone expenses, all the better.

If you decide to do this just get started and do it. Keep good records of your expenses and of the income and move on with it. Forget the liability issues and stay away from accountants and lawyers and corporate structure and all that stuff for awhile - you will be in a craft business, what harm can you do?? You can be a sole proprietor, ie, a business with no formal structure such as a corporation or Limited Liability Company or partnership - none of that. Just comply with whatever state regulations are required to register as a business and comply with sales tax issues (use the name John Wood for the business identification - its your name so there is none better), use your personal social security number and home address - done.

If you think the IRS will allow you to write off all of your equipment and cover lots of your personal expenses in return for selling a few pieces of scroll saw work per year then go back to what your mother taught you about free lunches - (Actually, the IRS will allow you to do this, but not for long and, if audited, the payback is a witch with a capital B.)

Now for those that worry about all the liability issues that a business conjures up and all the ways to protect yourself against such issues (What if I hit someone with my car, what if one of my pieces falls off a wall and hits a kid on the head, what if, what if.....) I invite you to the real world - no corporate structure protects an individual from his or her personal actions - so, if you do something that puts others in jeopardy you will be sued personally. And if you borrow money as a small business you will also personally guarantee the loan - so you are on the hook. (Understand, I am talking about a craft business here.)

Ok, what's your next question?

Ray<O</O<O</O

[Ian Barley]

Ray - Thanks for taking the time to type out exactly what I was thinking.

[Jack Wood]

Well I think that I have gotten the input I needed on this and I am not going to mess up my "refuge" that I have constructed for my self out back of my house in my "fortress of solitude" It means more to me to be able to shut out the real world for a while than to drag it along with me everywhere I go. Ray your line about "too good to be true" is a real good piece of advice, thanks!

[Jim Becker]

I also really like what Ray wrote on this subject. It illustrates why I've never seriously considered making the jump from doing woodworking purely as an avocation rather than a business. That said, I've been considering starting to sell some of my turnings, not so much to make money although that is always appreciated, but to provide an additional outlet for my work. One can only put so much in one's own house and gift so much to one's friends. The real issue I'll have there is that if it goes beyond a few hundred bucks in a year of mad-money, I'll have to deal with declaring the income and that complicates my tax situation...'just another thing to take enjoyment away from something I love to do for mental health reasons...

[Michael McDuffie]

What Ray said.

Times two.

I jumped in with both feet and no clue.

I now have a $1000.00 a month lease payment that I make out of pocket because I'm no salesman and maybe a bit naive.

Michael

[Ray Bersch]

Jim, what you want to do is probably what Jack should do - sell a few things as an outlet for your work - make a few bucks so you can buy another Festol - keep it fun - and off the books. Not high on the IRS list of good things to do, but who's looking?

Michael, your situation is a bit different. You've made the jump and now there is water swirling around your knees - I suspect you thought of pulling the plug but were afraid to reach down lest the alligators get you. I think most successful entreprenuers have had water up to their nostrels once or twice but they were successful not just because they perservered but because they found the problem and then found the solution to the problem. You did not say you don't like what you are doing, you did not say you don't have the $1,000 per month to pay the rent - but you did say you are not a salesman - and that implies what you feel to be the problem - so go find a salesman! I mean it - there are lots of ways to sell when you are not a salesman - there are those that will act as a broker or a commissioned salesperson, you can take your product to a consignment shop, you can ask your wife! In fact, my wife and I bought a pine hutch one nice Sunday last year from a person in a little antique shop in Chester, NJ. Turns out the lady is the wife of the man who set up a furniture business and was about to go bust when his wife took over the sales - She did not own the shop we visited, nor did she manage it. She had convinced the owner to carry their products on consignment (ie: the shop did not pay for the inventory) and she agreed to work at the shop two Sunday's a month to help sell the products - we had to wait eight weeks to get delivery. See my point? If you want some more ideas, send me a PM.

Good luck to all.

Ray

[Michael McDuffie]

Ray,
Thank you for the kind words of support.<O

I'm actually beginning to see some light at the end of the tunnel. I've no intention of giving up but every now and then the thought of the toys I could be buying instead gets me down a bit.

One of my customers is going into production soon on the Cryptex thing described in Dan Brown's Da Vinci Code. Could be worth several thousand pieces a year.

Another told me Tuesday that she is thinking something up that will run 100,000 pieces a year.

My third customer isn’t selling as well as he had hoped but may take off this summer with the rowing season.


Michael

[Ray Bersch]

Michael, Cool!! Mayber there is an investment opportunity here?? Hope all goes well.

Ray