Question of the Week: Do I Need a Business License?


As far as Business Licenses go, every state and usually every major city within that state each have different rules, limits, restrictions and regulations when it comes to what constitutes a “hobby” and what qualifies as a “business”. In general, many states have minimum income requirements that must be met before a license is required. Please visit your state’s licensing department website to research the details of acquiring a business license in your area.

The question of the week is:

My business is super-micro-tiny and not bringing in a whole lot of income.
Do I need a business license to operate my business?

first lemonade stand by InspirationDC via flickr

For the sake of brevity, let’s assume that you’ve already researched your local laws on running a business in your area and found that there is a minimum earning limit of $600 per calendar year before a business license is required. We’ll also assume that your business has not earned more than $600 in one year thus far, so the real question becomes:

If I don’t earn enough to require a license, why should I consider getting one now?

There are quite a few good reasons why getting  a business license now would be good for growing your business. Here are just a few…see how important they will be to your business in the near future:

  • • You are putting together a business plan for this year that will grow your business
  • • You plan on buying a large bulk of supplies for the inventory to implement those plans
  • • You plan on spending a good amount of your marketing budget on business cards, website development, etc.
  • • Your business was brand new last year and you plan on continuing  to grow it even further it this year

If you are planning on growing your business this year, then you will need the benefits that having a business (and resale) license affords for your business. Some of the benefits include:

  • • Buying your supplies at wholesale prices – usually 50% or more off the regular list price
  • • Opening accounts with your usual suppliers that would allow you to pay for your purchases up to 30 days later
  • • Discounts at local retail suppliers – anything from wholesale pricing to non-tax on cost of goods / supplies

Oh the other hand, if you are not planning to grow your business at all this year, then it might be a good idea to wait on that license until you are certain that you are going to stick with this “making money by making stuff” idea and are ready to move forward.

What do you think? Are you ready?

Business license owners, please tell us: When did you know you were ready to get your business license?



Quick Tip – To Sale or Not to Sale?



When sales are slow, more often than not, the first thing we think is:

“Maybe I should offer a discount. That will make people buy stuff, right?!”

salesale by xrrr via flickr

Well, hold on for a minute. Consider this first: There are lots of reasons why things don’t sell. Many of those reasons have nothing to do with you, your business or even your prices:

• They don’t have the money to buy right now even if it were on sale
• They do have the money but won’t buy right now no matter what the price
• Their cat is sick and they need to go to the vet
• (Insert reason that has nothing to do with you or your business here)

Unless you already have an established customer base that you are rewarding for shopping regularly, having a site-wide sale* should really only be used to clear out old / discontinued inventory and/or to make room for new inventory – and it should be clearly stated as such.

(*having a sale is different from running a coupon promotion that drives traffic to your site – we’ll talk about that in a future post)

Why?

Having too many sales or discounting your products might get you a few sales in the short term, but in the long run, it can drain your profit margin, damage your shop’s credibility and sometimes create customers who will always expect to get your work for less all of the time – instead of VALUING it for exactly the great quality work it is!

You work hard and your designs should be something you are very proud of and if you want to take your business to the next level, you’ll be better off NOT setting the precedent that you are the shop that never sells anything for full price.

Better customer service costs little to nothing, so instead, strive to be the shop that represents the best quality products, offers quick shipping and has really great communication with buyers at all times.

I mean, really…that’s the kind of shop you’d want to buy from, isn’t it?

Now tell us: What is the most successful promotion you’ve run in your shop or have seen in other shops?

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Friday Feature – FreelanceSwitch Hourly Rate Calculator (updated)


On Fridays I’ll feature some of my favorite websites, books, shops, artists and other creative inspirations. If you have something you’d like me to feature, please contact me with your ideas! I’d love to know what you have in mind!

This week:

Hourly Rate Calculator (no longer available – please see update info below)

Ever wonder what your absolute hourly rate would have to be in order for you to pay for all of your business *and* personal expenses with only your business to bring in the income? Well, wonder no more!

Here is a really wonderful hourly rate calculator that is a straight forward, plug-in some numbers and and hit the “calculate” button to help you come up with not only your hourly rate for a profit but also your “break-even” hourly rate as well. In other words, the minimum you could earn per hour in order to just break even and not see any profit. No profit = no business. No business = no quitting your day job. Simple equations for difficult obstacles indeed.

From the FreelanceSwitch.com/rates web page:

What is This?
We have developed this hourly rate calculator to give you a guide based on your costs, number of billable hours and desired profit. It is a simple tool for you to play with.

Remember your hourly rate should always take into account factors like market demand, industry standards, skill level and experience – things that unfortunately we can’t put into a calculator!

This is an eye opening and sometimes fear inducing concept for many creative entrepreneurs. After all – if you knew how much you *should* be making, then you would pretty much have to figure out a way to get your hourly rate to the place it needs to be, right?

without fear by sam UL via Flickr

You can do it. I believe in you!

So tell us: Have you used a rate calculator like this before? Did you agree with the results?

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
UPDATE

It looks like the Freelance Switch calculator is no longer available, but the kind folks at Motiv told me about their free online calculator available here: http://motivapp.com/freelance-hourly-rate-calculator

It’s a really great tool and will help figure out a basic budget for any business – I highly recommend it!

From the Motiv website:

 

How This Calculator Works

 

The Freelance Hourly Rate Calculator will help you determine what you need in order to support the lifestyle that you desire.
By entering information into each field, you can calculate an hourly rate based on your costs, number of billable hours, and desired annual profit.

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Raising Your Prices = Scary?


Afraid to raise your prices? Yeah, well I have some thoughts on that too.

When it comes to fear, the only thing it is ever going to do for your business is hold you back from living your dreams. We must be stronger than our fears if we are going to make a living doing what we love.

argh by s h a r ithis is what I think of pricing (I’m just like you)

I’ll be totally honest. I am not immune to these fears. I have under-priced much of my work for a long time too. After a long hard look at my own true cost of materials, time and overhead, I raised my prices in one of my shops by almost 20% in one day. No announcement. No excuses. No explanation.

Was I scared? Yep. I was at first. I wondered if my sales would cease to exist. I wondered if I should have said something first. I worried that maybe I was just fooling myself into thinking that I knew what I was doing. Blah Blah Blah. Fear sucks and then you have to get over it by just DOING it. (sorry, but Nike has a point there.)

I got over it by counteracting my fear with a large dose of REALITY: I realized that if anyone was truly waiting to buy my work then they would just have to pay a little more for it. They could also choose to email me begging for a discount explaining that they were saving their pennies for two years just to buy one of my pieces – and I’d probably give it to them if they asked nicely enough. But you know what? I sold something two days later with no problem or mention of my prices at all.

That proved to me that any imagined problems that I thought I was going to cause by raising my prices were just that: Make Believe!

You see, what I have learned and now know for sure:
The true value of my work is not only based in the time and materials I use. I also offer very high-quality handmade products with really great customer service. I always make sure to offer lots of communication during the process to let them know how much care goes into every single order. I work hard for my customers and they reward me by ordering their stuff from me — even though similar products are easily found on the same site for 1/2 the price!

Still not convinced?
Consider this: Just WHO are the throngs of “customers” that you *think* you are sparing by keeping your prices too low? Are they really buying dozens of items every week because you are underpricing your work? Are they emailing you all the time telling you how thankful they are that they can afford your work and please don’t ever raise your prices? Where are they when you really need to make a sale? Do they come out of the woodwork when you need them to or are you still struggling to figure out how to *reach* them?

If you’re going to be afraid of raising your prices, then please do yourself a favor and do NOT blame your imaginary customers for holding you back. They are not the problem. Figure out what your true fears are and counteract them with the harsh reality of the situation: You need to make a living at this and you must do whatever what it takes to get yourself there. (The “whatever it takes” generally equals Confidence in your work, by the way)

Oh, and IF by some strange coincidence those “customers” are real, then look at it this way — You wouldn’t want them for customers anyway, right? I mean, seriously – who wants to sell to a bunch of selfish, greedy people who don’t value you or your work ?

Not me.

(note: Due to excessive spam on this post, I’ve disabled comments. Feel free to contact me if you have something to share 🙂



Pricing Your Work — prologue


Pricing handmade work is one of the biggest hurdles for an artist to jump when building a business. Making a profit doing what we love to do challenges our beliefs about what we, and our work, are worth; and yet we struggle with making enough to make a decent living.

If you find that you’re not making enough money selling what you make at wholesale, then more often than not, your pricing is not at the right level.  Like anyone with a “real job” you need to make a decent amount of money to live. In order to do that, you must price your work to accommodate both true retail and wholesale if you ever hope to “quit your day job”.

My advice to new creative entrepreneurs has always been to structure your pricing so that – at *wholesale* you are doing back-flips over your prices every time you sell even ONE of them. Then, double that price to arrive at your true retail price. The true retail should be the price you’re selling to the public (on etsy, your website, etc). Then when a wholesale buyer comes a’calling, you can confidently tell them that your wholesale prices are 1/2 of your retail price. (this is industry standard, btw)

For many creative businesses, this means doubling your prices RIGHT NOW. Yes. I said DOUBLE your prices *RIGHT NOW*. I mean, why not? If you’re struggling every day wondering why you can’t get ahead in your business, then you’re not making enough to make a living. If you’re not making enough then you need to do something very different even if it scares you.

Okay okay. Before you shut your eyes and cover your ears, please consider this:

If you don’t think your work will sell for double what you are selling it for right now, then it is likely that one of these three points applies to your business:

  1. You are not your target market.
  2. You are not selling to the right market.
  3. Your work is not ready for market.


If you aren’t your target market
, then perhaps you really don’t know what someone will pay for your work. Oftentimes the work we do needs to be priced well beyond what even we can afford in order to make a profit. But you know what? That’s okay! It’s really truly okay to market to a new group of people that has more disposable income than you do right now. If you make real efforts to grow your business, you’ll need more money to grow so you need to aim higher if you are ever going to make a living making stuff.

If you aren’t selling to the right market, then no matter what you do, you will never grow your business. You will be too busy having “blowout” sales, giving away free shipping or free merchandise to the wrong group of people. Think outside of your current audience and increase your business’ perceived value. Match the customer you want to sell to. Appeal to their sensibilities and they will respond by buying what you make. If you change your thinking about who your customer is then you will be able to grow your business.

If your work isn’t ready for market, then you have work to do. Maybe you need to find a better supplier for your materials. Maybe you need to purchase some equipment to help you make your stuff faster. And — sorry if this hurts your feelings, but it is entirely possible that you just aren’t skilled enough to make a living making whatever it is you’re making right now. Keep practicing and keep moving forward. After all — experience is gained by doing, not wanting.

Bottom line:
Your business will never grow if you do not price your work at true retail. If you keep undercutting yourself, it will always be a struggle and that is just not a fun way to live. You deserve to receive a fair price based on your time, materials, market research and product viability. Do your research, get better at making things and price your work accordingly. An artist’s true confidence shows clearly in their pricing. Be confident and do the work. It’s the only way to find success.



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