How to Start a Craft Business

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How to Start a Craft Business

Whether you’re a talented candlemaker, have been perfecting your line of bath bombs, or knit beautiful throws that your whole family loves, you could be looking at a business opportunity if you have talent as a crafter. Crafting doesn’t have to just be a hobby, and there are many ways to use your skills to build a business. While craft businesses tend to be smaller, they can be rewarding both financially and in terms of the enjoyment you’ll get out of the venture. Whether you’re looking for a part-time business to run on the side or have bigger dreams of crafting to support yourself and your family, here’s what you should know about starting a craft business.

Business Overview

Craft businesses offer crafters the opportunity to transform a hobby or passion into a business opportunity. Crafters who build businesses sell their handmade products to others through a variety of outlets. Many use third-party websites like Etsy and eBay or even create their own through Shopify or Wix, while craft shows, flea markets, fairs, and festivals offer additional retail opportunities. Some crafters may even open up small shops or pop-up stores or sell their products on consignment through gift shops and other retail locations.

The products sold within the crafting industry are varied and can consist of everything from handcrafted furniture and holiday decorations to beauty products, clothing, and blankets. Consumers buy these products for various reasons, but their appeal includes the fact that they’re handmade, are sometimes one-of-a-kind, and are often customized.

The craft industry is saturated, so if you want to build a profitable business, you’ll need to find ways to differentiate your business and products. It’s best to start by researching the existing businesses and their products. Then, try to find a way to do things differently or consider which products aren’t currently offered. Buyers have thousands of products to choose from on sites like Etsy, so focus on building a product and a brand that will stand out.

Starting a craft business doesn’t require a large financial investment, and it’s something that you can do in your spare time without taking the leap into a full-time business. Look for ways to save money throughout the process, like by taking a photography course so you can take your own product photos. It’s also important to familiarize yourself with the sales portals that you’ll be using. If you’re selling on Etsy and eBay, research the fees that you’ll pay as well as the sites’ return and buyer dispute policies. The same is true of PayPal and other online payment platforms. By staying aware of your costs and carefully building your business, you may grow it into a large and successful operation.

Industry Summary

From 2011 to 2019, the craft industry has demonstrated steady retail sales. According to Statista, in 2011, sales were $98 billion. Sales stayed at or rose over $98 billion for the next eight years, coming in at $1 billion in 2019.

Because so many craft businesses are often microbusinesses or are run as hobby businesses, it’s difficult to get comprehensive data on the number of businesses in existence. However, a look at Etsy can give us a sense of some of the craft industry. Wunderlabel states that Etsy has approximately 2.1 million sellers. Of those sellers, 87% are women, and 90% of sellers own their own business. While craft businesses can bring in full-time income, 81% of Etsy sellers anticipate that they’ll only earn supplemental income with their businesses. Etsy businesses contribute an average of 12% to a household’s income. However, the largest Etsy businesses have gross sales of $290,000 and are staffed by an average of three employees.

Industry Trends

Many trends shape the crafting industry. The Craft Industry Alliance notes that trends tend to involve popular colors that can frequently change. For 2020, expect to see more classic blues and chartreuses. These colors may be present in everything from garments to household elements to logos.

Like so many industries, crafting is also becoming more eco-friendly. This trend is evident in the use of natural dyes and secondhand materials and the popularity of mending to reduce textile waste.

Certain crafts have also gained recent popularity. Stained glass is a highly trendy craft, and embroidery and other customization crafts continue to be popular. Digital and machine crafting is also becoming more common, thanks to the availability of more affordable 3D printers and laser cutters.

Even the wellness industry is affecting the craft industry. With an increased focus on self-care, crafters create products for relaxation and pampering, like bath salts, bath bombs, and soaps.

Target Market

A craft business’ target market will partially depend on the types of products it produces. Target markets may be homeowners looking for creative décor ideas, professionals or parents who want to indulge in some self-care with quality bath products, adults looking for a special gift for a wedding, bridal shower, birthdays, and more.

What skills are needed to run this business?

Starting a craft business doesn’t require a business degree, but certain skills and experiences can increase the business’s chances of success.

Crafting experience. Many crafts can be easily learned, but it’s helpful for a business owner to have plenty of experience with crafting to produce consistent quality products. While buyers understand and value that they’re purchasing a handmade item, they’ll still expect the item to be a quality piece.

Creativity. A creative nature is a benefit for any crafter, both when coming up with ideas for new crafts and marketing the business.

Customer service skills. Customer service is an important aspect of running a successful craft business. A craft business owner will need great customer service skills, both in-person and over the phone or email.

Business knowledge. While a business owner may have experience in crafting, it’s also important to have business knowledge to help with properly pricing products, tracking inventory, tracking payments and taxes, and other operational details. These skills can often be learned by taking an introductory business course online or at a local community college.

Marketing skills. Marketing is a major part of running a craft business. A business owner doesn’t just need to be a crafter – they need to be a marketer, too.

Checklist for Starting a Craft Business

If you’re thinking about starting a craft business, it’s important to do your research first. Here is a checklist to help you get started.

Step 1: Write your Business Plan

After coming up with the idea, the next step in starting your business should be to write a business plan.  Not only will a bank require you to have a business plan, but multiple studies have shown that a business plan helps increase the odds of starting a successful business.

Related: How to write a business plan

Step 2: Form a Business Entity

A business entity refers to how a business is legally organized to operate. There are four primary business entities to choose from, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.

When deciding on which business entity is best for a craft business, it normally comes down to the sole proprietorship and Limited Liability Company.

A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay. The corporation can be a good choice because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.

That leaves the sole proprietorship and LLC.

The sole proprietorship is the least expensive and easiest entity to start which is appealing. The downside is the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.

Related: Guide to forming your LLC
 

Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.


Some popular LLC formation services include:


IncFile - $0 plus state fees & free registered agent for 1 year!

IncAuthority - $0 plus state fees & free registered agent the first year!

ZenBusiness - $49 plus state fees & free registered agent for 1 year!

Step 3: Select your Location

Most craft businesses are started from home in a space like a spare room or a basement. As a business grows larger, it may be necessary to invest in a rental workspace. Rental costs will depend on the size and location of the space.

Related: Choosing a business location

Step 4: Apply for Business Licenses and Permits

While there aren’t typically licenses specifically for craft business, some of the common local, state, and federal registrations most craft businesses may need to include a sales tax permit and possibly an Employer Identification Number.

Related: Common business licenses, permits, and registrations by state

Step 5: Sign-up with Vendors

When first starting out, it may be easier to go to a retail craft store; however, suppliers may offer more selection, convenience with shipping, and the opportunity to get a discount by purchasing in bulk.

Step 6: Find Financing

Coming up with a good business idea and having the skills to run it are one thing, but getting the funding to start a craft business is another.  Most craft businesses are very inexpensive to start and won’t need funding, but if you plan to get a loan, it can be difficult since a majority of the costs will go towards the inventory of an untested product.  In order to get a loan, the borrower(s) will need to have good credit and be able to personally invest 15-25% towards the total start-up costs.

Related: Finding the money to start a business

Step 7: Open a Business Bank Account

Keeping your small business and personal finances in separate bank accounts is important to track the income and expenses of your business and identify trends.
 
Many banks offer free business checking accounts, so be sure to find a cost-effective option for your business.

Step 8: Get your Marketing Plan in Place

Marketing can be one of the largest expenses that craft businesses face. The industry is competitive, so businesses need to market to set themselves apart and reach potential customers.

Marketing activities can include building a website, maintaining social media profiles on Facebook, Instagram, Twitter, and Pinterest, advertising online, handing out business cards at craft shows, and more.

Related: Low-cost ideas to market a new business

One important task while working on the marketing is developing an online presence. A website developer may be out of the budget, but Wix makes it easy for non-technical people to get a website running quickly and affordably.

Step 9: Get Business Insurance

There are several types of insurance to consider when starting a craft business. A few of these include:
– General liability insurance protects the business if customers are ever injured while on the business’ property or because of injury caused by the business’s products. This insurance policy can cover expenses like legal fees and medical bills.
– Commercial property insurance can help to cover the cost of equipment and inventory that’s damaged or destroyed during an event like a fire.  If you are working out of your home, be sure to check your homeowner’s policy to make sure business activity is included.
– Worker’s compensation insurance helps to cover expenses like lost wages and medical bills if an employee is ever hurt while on the job.

The cost to insure a craft business will vary depending on many factors, like if customers are coming to your home office, the value of your equipment, and whether you have employees. To get the most accurate idea of what to budget for insurance, request quotes from multiple insurance providers. Then, compare not only the premiums but also look at how the quotes stack up in terms of coverage limits, exclusions, and deductibles, compare, too.

Related: Common types of business insurance

Step 10: Hire Employees

While a craft business is smaller, it’s possible that the business owner can handle all of the work alone. As that business grows, the owner may choose to bring on an employee to help with the workload, whether that’s shipping orders or helping staff tables at events. According to PayScale, sales clerks earn an average of $10.31 per hour.

If a business hires employees, it’s important to also budget for other expenses, like paid time off, health insurance contributions, and worker’s comp insurance.

Related: Hiring your first employee

Step 11: Set up an Accounting System

Setting up an accounting system for your craft business is critical to the long-term success of your business.

Staying on top of taxes not only keeps the business out of trouble with the government, but the numbers can be used to track and monitor trends and cash flow in the business and maximize profits.

Related: Setting up the accounting for your business

The thought of accounting can be intimidating for a lot of new entrepreneurs. There are a number of ways of handling bookkeeping, from DIY to hiring a bookkeeper. These include:

- Pen and paper - Low expense, but difficult to track.
- Spreadsheet - Low expense, but easy to make errors.
- Accounting software - Medium expense, but owner typically inputs expenses. Some great accounting software programs include Freshbooks or Wave Accounting.
- Hire a bookkeeper - Higher expense, though very affordable at $100-$200 per month in most cases. A dedicated bookkeeper will probably save money because, in addition to handling all of the bookkeeping (so you can focus on the business), they also provide personalized tax advice and ensure the business is in compliance.

Find bookkeepers in your local area or use a service like 800Accountant.

How much does it cost to start a craft business?

One of the great benefits of starting a craft business is that it’s highly affordable. You can start a small business out of your home for a minimal investment, often under $1,000. Even if you want to expand to a larger business with more equipment, this tends to be a highly affordable industry.

Common startup costs for a craft business include:
– Equipment such as tools, lighting for product photography, etc.
– Craft supplies
– Shipping materials
– Website
– Signage
– Working capital for wages, insurance, internet, inventory, etc.
– If you plan to sell your inventory at craft sales or other events, then you may need to invest in a vehicle with a large cargo capacity.

How much money can you make with a craft business?

Craft business profits vary widely. Keep in mind that while many crafters see their business’ income as supplemental, it is possible to build a craft business into a full-time venture. Factors like the business’s years in existence, its profit margins, the types of products it sells, and even its location can all affect its income.

Are there grants to start a craft business?

It’s extremely rare to find a grant to start a craft business. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.

Legitimate federal grants can be found at Grants.gov and you can check on your state’s economic development office to see if they have any grants available.

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