This is a piece I’ve been meaning to write for awhile. No excuses. Just haven’t done it, until now. And a word of warning, this is a long one.
Background: I have an AA degree in Accounting, and a Bachelor’s degree in General Business Administration, focusing in Management and Accounting. I had only just begun to consider starting up Crafts by Cori when I took Cost Accounting 1. This class laid the foundation for me to be able to accurately calculate my costs, down to the penny accurate.
That was the Spring of 2010. It has now been five years, and I’m reflecting on how things have been. There are five lessons/tips I’ve either learned the hard way or just figured out on my own:
- Know basic accounting.
This might sound like common sense, but I have a friend who also has her own business and she doesn’t keep track of anything. She claims she’ll figure it all out come Tax Time.
This is not a smart move in my opinion, because of the opportunity for documents and receipts to get lost. When my mom had her side business up and running, she used a very simple way of keeping track of her costs:
Start Up Funds
Less Product Costs
She essentially kept a running total. I use this method now, despite my accounting background and OCD desires to map everything out. Each year, I start with how much money I have for the business and add/subtract income/expenses when necessary. If you have Quicken Books or any bookkeeping software, it can generate reports for you at the end of the year.
- Purchasing product/raw materials.
When I first started my business in 2010, I was very conservative in my buying raw materials to make my product with. Then from 2011-2013, I seemed to go on a spending spree that didn’t spill over into 2014 because I was in an apartment where space was limited.
I have enough raw materials to make product for a couple of years before I need to restock. So now I’m doing the smart thing, and working through my stash.
So what’s the point of this section?
Beware the shopaholic tendencies and be smart about shopping for material. I’m also going to bring up my friend again. She is a self-admitted shopaholic who has more than enough supplies and materials to keep her creative mind busy for the next five years—at least! So if you know yourself and you also have shopaholic tendencies, my advice is only shop where there are really good sales and/or you have coupons. Then lock up the cards and sign up of websites until it’s time to order more.
- FIFO method of production.
This section piggybacks off Section 2. I shared that I have enough material to keep me busy for some time, and I’ll be employing the FIFO (First In, First Out) inventory system. Meaning I will be using whatever I bought first and work my way up through all my raw materials.
This is also a good method for keeping your supplies in check and hopefully note become a hoarder. I haven’t bought any yarn, except for a custom order, since November 2014. How do I know what’s to be used first? I got into the habit years ago of writing on the yarn labels the date on which I bought the yarn and how much I paid for it.
- Running Inventory & Cost List
My costs list also doubles as a quick inventory list, but I do have a separate inventory that is more in-depth.
My inventory lists items as individuals. For example, if I have 12 of a certain color of knitted dishcloth, on the cost sheet they are listed by color and brand with their cost, but on the inventory sheet I list Brand, Color, Type of Product, Material Cost, and Price per Item—for each one—12 times total.
I keep an inventory sheet for each year. When an item is bought I highlight it in yellow. It also helps me calculate the beginning and end of year inventory value for tax purposes.
- Customer Problems
If you choose to do custom orders, I hope your customer issues will be none or kept to a minimum. I recommend you write out an estimate for your customer, so you both will have an idea of the costs and what the desired final measurements are to be. Once all that is agreed upon, get a signature! I had a customer who was of the opinion that the final measurements for her order were not correct. Luckily, I had the Customer Order Contract she signed, where it had the desired measurement on it. When I re-measured the item and assured her it was the size she asked for, she paid and left with the item, although she still seemed to think I was in the wrong.
There’s a lot more to that story, but my point is: remember to be professional and have the signed paperwork to back you up. There are people in the world that will try to take advantage of you because you’re a small business and think you won’t fight them.
So these are the lessons I’ve learned in the five years I’ve been in business. Well, these are the big things. There are lots of little things I’ve learned from doing craft shows. The links below are for my business’s blog page/website and its Facebook page:
Crafts by Cori blog/website: https://craftsbycori.wordpress.com/
Crafts by Cori Facebook page: https://www.facebook.com/pages/Crafts-by-Cori/163136173711522
© Cori Large May 18-21, 2015