Here’s the next article in our Work at Home Series by Patrice Lewis. She writes for my favorite magazine Countryside and I just love her articles on working at home.

If Your Home Craft Business Fails….
Blame the Boss
by Patrice Lewis
http://patricelewis.com

Part I:
Sensible Business Practices for the Self-Employed

It’s something none of us like to think about: the failure of our home business.

And the trouble is, most home business failures can be attributed to one person: the boss.

Look in the mirror.

In our current society, the status of victimhood has been elevated to an art. Nothing is our fault. If I rob a bank, it’s because I was having a bad hair day and oh yeah, I was abused as a child. But be responsible for my actions? Never.

That’s an extreme example. But if our home business fails, it’s not easy to blame the boss. We’d rather blame the economy (and yes, sometimes this IS a factor), our spouse, the kids, the dog, the weather, or the stupid customers who don’t recognize a brilliant product when they see it.

There is no doubt that certain factors not under our control can influence the success or failure of a home business (Hurricane Katrina comes to mind), but the fact remains that most businesses fail for one of two reasons: (1) poor business practices; and (2) nobody wants the product.

In this article, we will examine how poor business practices can make your home business fail. In Part II, we will examine what to do when nobody wants your product.

Poor Business Practices
When we lived in Oregon, we knew a couple who tried to open a small boating resort on a lake. On the surface, they had everything going for them: stunning location, beautiful cabins, splendid culinary skills, gracious hospitality, and reasonable prices.

However, their business failed, and in retrospect it is easy to identify a number of reasons why. It had everything to do with poor business practices.

When they purchased the property, the cabins and facilities were adequate but not “pretty.” The infrastructure was sound, but things were a bit shabby. They spent tens of thousands of dollars fixing up the buildings and grounds to make them shine.

While it might be argued that this makes sense – after all, clients often demand perfection – our friends poured ALL their money into the “glitter” of how the place looked, and spent little on advertising or the financial end of running a business.

For instance, they did not have a merchant services account (the ability to accept credit cards). Imagine. Let’s say you want to make a reservation at a resort. You call, schedule the dates, and then the hostess tells you to mail a check to secure the reservation.

What?

The fact is, people are busy and/or lazy. And like it or not, a lot of purchases depend on instant gratification and spur-of-the-moment desires. How many people will actually get around to sending in their check? Something on the order of twenty-five percent.

In other words, you’ve just lost out on 75% of your potential business by not having a merchant services account.

This applies even more strongly to anyone doing retail sales of any kind, such as your home craft product. We speak from experience here.

When we started our business, somehow we were convinced that we were too small to have a merchant services account. We could be paid by either check or cash. Whenever we did a craft show of any sort, the first question interested customers would ask is whether we could accept credit cards. When we replied in the negative, three out of four times people would regretfully put the product back and walk out of the booth.

Don’t get me wrong, I’m perfectly aware of the potential evils of credit cards. I’m also aware that you must pay a percentage of your sales to the credit card companies. However, the reality is that most people prefer to conduct transactions via credit card. Paying three percent of your hard-earned money to the credit card companies is better than paying nothing at all because you have no sales.

Nor am I saying that all home businesses need a merchant services account, but it would have been a tremendous boost for a boating resort. And I know for certain that it was a tremendous boost for us.

Bad Decisions
Our friends with the boat resort made some additional poor business decisions.

They didn’t register with the local Chamber of Commerce, or the state or county professional tourism associations. Their only publicity consisted of word of mouth and some brochures, which were wordy and printed on poor-quality paper (actually, they were merely ordinary black-and-white paper run off on a copy machine).

The prices they had established for renting cabins and boats, and for providing meals, were modest…so modest that they were well below the competition. While this might seem to be a good thing, in reality it meant that they couldn’t make enough money to pay for the cost of upkeep and taxes.

Worst of all, because of a poor credit history, our friends took a private mortgage loan on their property, paying somewhere on the order of 19% interest while working modest jobs (store clerk and office manager) to support themselves while waiting for the boating resort to take off. In the end, the cost of the renovations as well as the huge mortgage payments that were due each month far surpassed their potential income even if all the available rooms had been filled every day of the month.

It’s this last bit that doomed them. They didn’t charge enough for their rooms and meals, and so even if their resort was full to capacity year-round, they wouldn’t make enough money to pay their mortgage. They had extended themselves too far.

In the end, their property was repossessed by the private mortgage lenders.

A Business Costs Money
Poor business practices account for a surprising number of business failures. We all go into business with stars in our eyes, convinced that we’ll make enough money selling our marvelous product or services to live our dream of being self-employed. It’s when we quit our day jobs and are no longer receiving that nice, steady, dependable paycheck to put a cushion between us and our bills, that reality sets in. If your dream is to work at home, to be with your family, to not have a commute, then it can be a bitter, bitter thing when the dreams fail and your business folds.

Taxes must be paid. Advertising must be paid for. You must purchase the raw materials to make your product. You need to pay for shipping. You need to pay for food, gas, motel, and booth fees if you do craft shows. You need to pay your merchant service fees. It goes on and on and on.

Therefore it behooves you to look at all the expenses associated with running your business. It is, after all, a business.

Read that last line again: this is a business. Many people don’t look at their home business with enough “seriousness.” They forget that it’s just a business, like any other business, and needs to be handled with the same degree of professionalism.

One difficulty my husband and I encountered when we first started our business was, frankly, being too nice. We were desperate for sales and didn’t want to insult anyone or scare anyone off. We generously (stupidly) shipped our tankards to customers before they paid for them. We cringed at the thought of insisting that people pay us in advance for sending them stuff. When customers gave us a sob-story about how they didn’t have the money to pay us at the moment, we gritted our teeth but said we understood. Gosh, everyone gets into a financial bind occasionally, right?<
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It took getting screwed over and over again before we started getting hard-nosed about getting paid before (how’s that for a concept?) we shipped the product.

Oddly enough, no one has ever been offended by such a request. Imagine that.

Sensible Business Practices
How can you tell if your product is a hot enough item to sell well? One tried and true method is test marketing. The best time to test-market your product – pay attention now – is before you quit your day job.

(On a personal note, I should add that this is NOT how we started our own home craft business. We jumped in with both feet first – quit our jobs, moved to the country, started the business. As a result, we were dirt-poor for nearly a decade before we managed to crawl out of the hole we had dug. Along that journey, we made every business mistake that it’s possible to make. That’s why I’m writing these articles – so you can learn from, and avoid, the mistakes we made.)

A test market – whether it’s a craft fair, or some other selling venue – is not all that determines whether a product will sell. You might have the most wonderful product in the world, but if your businesses practices are poor (your booth fee is late, your check bounced, you yelled at the craft coordinator) then your product sales will decrease (because you’ll be kicked off the site or not invited back next year).

Additionally, if you make it hard for customers to buy your product (you won’t open a merchant services account, you stubbornly insist that you are right about something and your customer is an idiot, you don’t have a webpage, an email address, or a working phone number), then your sales will go down. Duh.

In the case of our friends’ boat resort, it failed because they hadn’t considered that a home business can fail for the same reasons a “regular” business can fail – cost versus income. They didn’t keep an eye on the bottom line. They over-extended themselves with major financial costs (doing home improvements on credit, dealing with a high-interest private mortgage lender) while neglecting some of the minor financial costs that would have improved their business (registering with tourism associations, joining the Chamber of Commerce, acquiring a merchant services account, better publicity).

Home business owners also tend to underestimate the time and cost it takes to do something. It’s common for people who work at home to have three or four major and important projects going simultaneously – this is almost unavoidable on a homestead – and that it’s necessary to budget your time, money, and strength accordingly.

So be sensible about applying sound business practices. Pay your bills on time. Treat your customers fairly. Keep your word.

A Lifestyle
A few years ago, I taught a couple of community college adult-ed courses on opening a home craft business. An amusing incident occurred during one of these courses.

Since my husband and I work full-time on our business – it is our livelihood, how we bring in our income, how we support our homestead, how we pay our bills – I approached my teaching in the same manner. I made the assumption that the students were interested in achieving the goals of working in their craft full-time.

Throughout the course, I discussed such things as wholesale versus retail, merchant services accounts, taxes, burnout, efficiency, pricing, consignment, professionalism, etc., etc…..

Finally, one woman piped up. “This is a whole lot of work!” she exclaimed. “It would almost be a full-time job!”

I was so startled by her comment that all I could reply was, “Well, yes. That’s the idea.” What I wanted to say was, “Well, duh.” My goal was to help these people get off the daily nine-to-five commute grind. What a lot of folks didn’t realize is that just because you’re working at home, you’re working.

That’s right, you’re working. Working from home requires time, commitment, resources, dedication, and business sense. It does not mean you’ll be lounging your days in a hammock. That’s not a home business, that’s a vacation.

The woman who made the comment was juuuuuust coming to that conclusion. I’m not sure she liked the idea, either.

And that’s one of the reasons why so many home businesses fail: people don’t take it seriously. They don’t treat it like a business. They think it’s a lark, something to do for fun. They make some crafts in their spare time, and do a couple of local Christmas craft fairs every year, and call it a business. That isn’t a business, that’s a hobby. It’s important to know the difference.

Out of all the students in my classes, there was only one woman whose business, I felt, was likely to succeed. In my opinion, she was doing everything right.

She had not overextended herself financially. She kept her expenses down by converting her garage into a workshop. She kept her day job, and worked on the craft business evenings and weekends. She refused – absolutely refused – to pay for any raw materials or tools except as she could afford them. She did a lot of market research. She was perfecting the art of assembly-line production, so she would be in a position to wholesale her products.

Her ultimate goal was very specific: to be able to sell enough of her craft products to meet her business and personal expenses, so that she could quit her day job and work full-time at home. As a result, she was working sensibly toward her goal.

This is what I urge anyone considering a home craft business to do: be sensible, start slowly, don’t quit your day job, have goals.

If your goal is to ditch the commute and work at home in a home craft business, then you need to approach it with the same sensible, sane, practical decision-making processes you would use if you were, say, purchasing a franchise or opening a retail store.

Sensible business practices. It will save your home business – and your fanny.

Patrice Lewis is co-founder of Don Lewis Designs (patricelewis.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.