How NOT to Finance a Home Craft Business
Patrice Lewis
plewis@rezmail.com
www.donlewisdesigns.comMany people have plans to someday start their own home craft business, one that ideally would replace their outside income with income earned at home. They dream about giving up the commute. They fantasize about working at home, spending more time with their spouse and kids, and having the time to putter around the house and yard.
Usually these dreams and plans come about because the person in question is looking at the idealistic lifestyle of someone who already has an established and successful home craft business. Look at these people! Aren’t they lucky! They don’t have to drive through the snow to get to an office! All they have to do is walk across the driveway and they’re at work!
The trouble with this vision is that the wanna-be entrepreneur is only seeing a “snapshot” of the business-owner’s current success, and they assume it sprang - boing! - effortlessly into being, sort of like those nifty mushrooms that grow overnight on your lawn. No preparation, no planning, just boing.
NOT.
Rather than comparing an established home craft business to those rapid mushrooms, you should compare it to an oak tree: slow to get started, but sturdy and strong once it’s established.
This should be the pattern for your home craft business.
“Boinging” into Business
Go back to those dreams of working at home, of making your income from your own labor, of avoiding the commute, of spending more time with your family, et cetera. These are sweet dreams and there is no way I want to discourage them. I just want to make you see them realistically.
Spurred by these wonderful fantasies, some people decide on a product to make (boing!), quit their jobs (big boing!), use their credit card to purchase the necessary raw materials and tools (boing!), pay rent on a shop space instead of using their garage (boing!), and begin production.
Then comes reality. As I mentioned in my last article (“It Takes Time”), most home craft businesses don’t start out with a bang (or a boing). They grow slowly, like those oak trees.
The folks who “boing” into business are in for a nasty financial shock if things don’t go exactly as they fantasized.
Startup Costs
This is all fine and good, but what about the nitty-gritty financing of a home craft business? Where do you get the money for that?
Here is an example of do-what-we-say-not-what-we-do: don’t quit your day job. I’ll expand on this in my next article, but for now I’ll simply leave it at this: don’t quit your day job. Trust me on this.
Now for the bright side: getting the tools and raw material for starting a home business may be easier than you think. Most people don’t just pluck a successful home craft business idea out of thin air. They start the business by expanding an existing hobby, talent, skill, or trade. That means that many times they already have the basic tools or materials or knowledge needed to make the product.
What kind of tools do you need? Will you need a sewing machine, a quilting machine, a bandsaw? If you already know how to sew or quilt or do woodworking, chances are you’ve learned your techniques on your own tools and equipment. Now is your chance to utilize these existing tools to start your home craft business.
Or, alternatively, think of a home craft product that is compatible with the tools you already own. Tools such as a sewing machine or a band saw are versatile and easily adaptable to any number of crafts. You might be an expert in making lavender-velvet frammerjammits for all the grandkids, but now you can expand your repertoire by making and selling blue satin nig-nogs as well, which are more marketable and have a wider appeal.
Do you have space on your property to run a business? If you have close neighbors, they may object to loud power tools. (Despite our nearest neighbors being a quarter mile away, we still won’t run our noisiest tools after nine o’clock at night lest we disturb them.) Do you have a shop or a garage or a spare bedroom you can devote to your business? Do you have a computer for billing and internet purposes? Are you prepared for shipping?
Sacrificing for a Reason
Finding the money for a start-up small business is not easy. It’s not supposed to be easy. If it were easy, everyone would be doing it. Like anything worth doing, it usually requires a complete philosophical change from immediate gratification to deferred rewards.
So how do you raise the cash for all the tools and supplies you might need? How about for the advertising, display or show fees, raw materials, etc.? How can you do this without going into debt?
You use the principles of deferred rewards. If you had plans to buy a new (pick one) computer / car / dress / kitchen appliance / vacation trip / restaurant dinner / lawn mower / iPod / whatever, don’t. But do take the amount of money you saved and apply it to the business instead.
Have a favorite vice? Buy cheaper cigarettes (or quit altogether) and apply those funds to the business. Or buy your wine by the box instead of by the bottle and do the same.
But whatever you do, make sure it’s a real savings and not a phony one. You’re not saving money by resisting an impulse purchase. You don’t save $50,000 by not buying the yacht unless the yacht was in your budget to start with.
Rather, your choices should be: The old refrigerator is dying. Do I spend $1200 and get a new fridge with the ice cube maker and water dispenser in the door? Or do I spend $100 at the used appliance store and make do for another couple of years?
Deferred Gratification
Even if you’re as thrifty as can be and apply all your spare money toward funding the business, life can get in the way.
When our daughters were small, we called them Shop One and Shop Two. That’s because our workshop at the time consisted of a 10x10 chicken coop. Much of the time, shop work either spilled over outside (in good weather) or into the house (in bad weather). Or, to put it another way, we frequently lived in our shop.
Whenever we were poised to spend the money and build an actual shop – an honest-to-goodness real shop, with room to move around without bruising an elbow on the bandsaw - another “blessed event” would occur and we had to pay hospital bills instead (that’s why we called the kids Shop One and Shop Two). Fortunately we stopped at two kids and were eventually able to scrape together the money to build a proper shop (20x20 feet, palatial when compared to the chicken coop).
However, the five years we spent working in cramped quarters didn’t stop us from expanding our business. Despite the adverse circumstances, our home craft business was still our primary source of income. It just took creativity and a willingness to accept deferred gratification. We didn’t go into debt and build a shop at a time we couldn’t afford it. We waited. Our girls learned to crawl and then walk among piles of half-finished tankards, and for years I did housework around stacks of clamps, mounds of rubber hosing and rubber bands, gallon jugs of glue, and other tools of our trade.
Shrug. It’s a living.
The Debt Trap
Coupled with the desire to work at home is the frequent wish for instant business success (boing!), an irrational desire to have everything go perfectly from the beginning and to have your business become a rousing success without much effort. Boing.
Yeah, that would be nice. I’d like to win the lottery, too.
However, this little “boing” fantasy is a dangerous trap, because sometimes it translates into a spending spree. You whip out your handy credit card and purchase all the tools, equipment, supplies, and raw materials to make your product. You set your workshop up with Geppetto-like beauty and precision. Then you stand back and think, “Okay, finally! Now I can go into business.”
Bad idea.
Don’t ever, ever, ever, ever, ever, ever, ever, ever go into debt to start your home business. Aside from the idea that going into debt is wrong to begin with, there is the very real possibility that your business will fail for whatever reason, and then you’re left with the bitter regret of a failed business AND heavy debt to boot.
This is another example of “do what I say, not what I do.” When my husband and I started our home craft business in 1993, that’s exactly what we did: went into debt.
I’ll make some excuses for this, namely that our business was our sole source of income and frequently, in those early days, our modest living expenses outstripped our ability to pay our bills. Sometimes a critical tool (such as the belt sander or planer) would up and die, and we had to order a new one and put it on the credit card because we sure as heck didn’t have the money to pay cash for it. Sometimes a baby was born (remember Shop One and Shop Two?) or a medical accident would happen (like the time Don sliced off the tip of his thumb on the band saw) and we had to pay hospital bills.
Nevertheless, I will never, ever advocate these tactics for the reasons I mentioned above: if the business fails, you’re still saddled with the debt. In our case, it took years to dig ourselves out of the debt-laden hole we dug while getting our business on its feet. Had we properly planned things, the debt (and stress) could have been avoided.
Give yourself time to develop your customer base, increase the speed and efficiency in making your product, and develop your marketing knowledge. Don’t sink yourself into debt getting started because of wishful thinking or misplaced optimism. Obviously you’ll need the raw materials and tools to make the product, but work your way up towards better items as you begin to bring in income.
The Lure of Debt
Recently, while discussing frequent flyer miles with a business friend, I remarked that we seldom fly anywhere, in part because of the cost.
“I charge all my business expenses on my credit card,” he replied. “That way I earn so many frequent flyer miles that I can fly just about anywhere for free.”
“Hmmm,” I observed. “We never use our credit card for business purchases.”
“You don’t?” he asked, genuinely surprised. “Then how do you pay for your raw materials?”
Now it was my turn to be surprised. “With cash, of course,” I replied. “Or rather, with a check.”
“Everything?”
“Everything. We prefer not to establish credit with a company because we don’t want to get socked with a bill thirty days later, after we’ve used up the material. If we pay for everything up front, it’s over and done with.”
This concept seemed to baffle the fellow, though he agreed it was a cleaner way to do business…even if it didn’t earn us frequent flyer miles.
Credit card companies make it so temptingly easy to get into debt. Just think of all the frequent flier miles we could accrue if only we bought our supplies with the credit card!
But unless you are disciplined enough to pay off that credit card in full every month, this is too simple (and deep) a trap to fall into. And frankly, if you’re financially able to pay off the credit card every month, why the heck are you using the credit card to begin with?
If you like the convenience of a credit card (and are good at keeping track of your expenses), try a debit card instead.
For the small home craft business, it is a far safer and more intelligent proposition to keep your business transactions clean and simple. Pay cash.
Reality Check
What are some of the things you’ve heard you’re supposed to do before starting a business?
You MUST have a business plan. Otherwise you will fail.
You MUST incorporate. Otherwise you will fail.
You MUST establish credit. Otherwise you will fail.
You MUST buy only the best (equipment, supplies, etc.) because quality and façade (how others see you) are what’s important.
Must must must. Why must we do things this way?
In part, it’s because most business advice applies to larger enterprises than a home craft business. If you’re renting office space in a fancy high-rise building in the downtown portion of a large city, then it implies that you won’t be churning out hand-made quilts or wooden tankards with the aid of one employee (your spouse).
But millions of businesses have started modestly, with used equipment, borrowed spaces, and yes, sometimes less-than-quality raw materials (I won’t tell if you won’t tell). There is no better and more satisfying thing than to start this way, because then your successes have been earned by the sweat of your brow.
One of the most successful home businesses we know is a couple who started an oil-and-incense business on a card table in their spare bedroom. Fifteen years later they employ five people, rent a large warehouse, and supply stores all over the country.
Dream big, start small. Don’t do the opposite.
Remember: Bill Gates started in his garage. You can too.
Patrice Lewis is co-founder of Don Lewis Designs (
www.donlewisdesigns.com).
She and her husband have been in business for fourteen years.
The Lewis’s live on forty acres in north Idaho with their two homeschooled children,
assorted livestock, and a shop which overflows into the house with depressing regularity.
