With the rise in the cost of living and the move towards a better work/life balance, many people consider setting up a small business making and selling handmade crafts, either as a second income stream or their main livelihood.
If you have a talent for crafting, whether it’s crotchet, pottery, upcycling old furniture or painting, then you might be thinking of starting your own business. Selling sites, such as Etsy, have enabled thousands of people to market to a wider audience than just friends and family, and start a new career.
Turning a hobby into a business is often a cherished dream, but the difference between the two is considerable and if you want to keep on the right side of HMRC, starting out with a business plan which includes orderly bookkeeping is essential.
A sensible first step is to open a business bank account to keep your craft earnings separate from your personal finances. Not only will this mean you can see exactly how much you’re earning, but it will also make life a great deal easier when you have to do your self-assessment tax return. It’s also less tempting to dip into your work proceeds for personal use when you need to be ploughing them back into the business.
Another vital task is to keep track of all your paperwork. If you don’t set aside time to regularly collate receipts and other relevant paperwork, you will find it will take longer and be much harder to reconcile correctly. Make sure you don’t lose crucial time that could have been spent on knitting a jumper or re-upholstering a chair by blocking an hour out of your diary each week to complete this task. Important information that needs attention includes invoices and sales receipts, business purchases and expenses. You need to have a record of every sale made.
There are numerous websites for crafters to sell on, and if you’re using multiple sites it makes sense to record sales for each one; it’s also a good way to discover which ones bring in a steady stream of customers and which ones don’t. Likewise, you may find a particular item sells well but another one doesn’t, so careful record-keeping will enable you to concentrate on making your more popular pieces.
Setting up a business can be costly, especially as you won’t know initially how much stock you’ll need to keep up with sales. Paint, wool, clay or paper may not seem expensive, but if you make a successful start the amount will soon add up. If you’re aiming to branch out into jewellery-making, for example, silver and gold can be very pricey, depending on the fluctuations of the precious metals market. However, stock and raw materials can be claimed as allowable expenses, which means they won’t be taxed as part of your income. Allowable expenses also include marketing costs. For example, setting up a website to advertise your products, printing leaflets or advertising in local print media, printer ink and cartridges, and, crucially, packaging and postage, as you are likely to incur substantial costs delivering items to purchasers.
Finally, keep a close eye on your cash flow. If you can balance your incomings and outgoings and you know at any time roughly what these are, you’ll be in a good position. Bookkeeping software, such as Xero, can be a great help in giving an instant update.
Helping small businesses keep their bookkeeping on track is one of our specialities at AMR Bookkeeping. We’re a friendly team with years of experience and we love watching our clients’ businesses go from strength to strength. Give us a call on 01892 559480 or contact us through our website for some well-crafted advice.