One of the best things about being a small business owner is making money while doing something you love or something you are passionate about. This is especially true for cottage business owners who work long hours on their craft and sell it for a profit. The question is, by the time you spend long hours working on a project, are you actually making any money? Are the goods that you are offering worth the investment that you are putting into them? Here are some ways to make sure that your small business is actually turning a profit, and is not just a glorified hobby.
Include Labor Costs in Pricing
You would not go to an auto mechanic and expect him or her to work on your vehicle for just the cost of supplies. If he or she did, the shop would quickly end up closing, because there would be no income. The same is true for your cottage business. If you are only charging customers a small fee that barely covers the cost of supplies, you will not have enough money left to keep the lights on, let alone pay your taxes.
It is okay to start small, but think of it this way. The current federal minimum wage is around $7.25 per hour. In some states it is as high as $9. Do you really want to own a business that pays you less than minimum wage? If you are not calculating labor costs into your pricing, that is exactly what you are doing. For example: $100 for a small wedding cake may seem like a lot of money, but by the time you spend ten hours baking and decorating and another $25 on supplies, you have really only made about $7.50 an hour.
Protect Yourself With a Corporation
It seems like every day there is someone else on the news that is being sued and losing their business over a disagreement with customers. If it is not that, federal regulations always seem to be increasing on different artisan goods. Setting your small business up as a corporation such as an LLC protects your home and other assets in the event of litigation against your business.
Invest in Accounting Software
If you are only making a few sales a month, you may not think that having accounting software is worth your time. However, using an electronic bookkeeping system allows you to keep up with all of those small transactions throughout the year, making it easier to file your taxes when the time comes. Accounting software will also make it easier for you to track your expenditures in order to make sure that you are staying within your budget for the business, and some may even help you with inventory, so that you know when it is time to purchase supplies. An accountant like Homer Wilson & Co Ltd may be able to help set you up with the right kind of software for your company.
Your small business is worth more than just a hobby. By starting with these three simple tips, you can make sure that you are making money by doing what you love.