going from hobby to business..............
with Chan from Kids Art
Hi may name is Chantelle, mother of 4 boys, and I am addicted to no longer being an accountant but working for myself instead.
So in Nov 2007 I made the lifestyle decision that by the time my fourth son started school, that I could work from home & make enough of that extra cash to allow me to do this. So I had 4 years to prove to myself. So Kids Art (first called Affordable Kids Art, but someone had a similar name so that would only let me register Kids Art, but that’s another story), was born. Being a manufacturing accountant really gave me a great foundation for my business.
So 4 years is now up, and son 4 has turned 5 and is now heading off to “big”school in 1 week. Yippie! Yes, I have succeeded in building a small work at home business that brings in the secondary income to cover some bills, (phone, running car, broadband, extras for kids, extras for me, and some stashed cash shhh don’t tell hubby). Now in 2012 with no children at home, it is time to crank things up a notch.
from little things................................
I started small, very very small. I put my laptop on a desk in the corner of the bedroom and I kept $50 from the family budget, and headed off to the local store and purchased some canvases and some paint. Made a couple of gorgeous paintings, and sold them on eBay. Made a profit. Kept ALL the money.(the $50 I started with, and the profit I made, which was sales less eBay fees) Next time I went to the shop I purchased more canvases not as much paint, sold them on eBay, made more profit, kept all the money (investment + profit) , and went to the shop and brought even more canvases, and so the story goes and the hobby grew.
In April 2008, I kicked son 4 out of his bedroom, and set him up in a room with son 2 and made an “office”. I kept a nestle container (the plastic screw lid one), and any extra money not needed to purchased new canvases went into it. This was my “investment equity” which I would use to purchase new asssets ie a better printer/scanner, a new computer, and then eventually a website.
big things grow................from hobby to business
Okay so once I moved into the bedroom , I knew I was no longer a hobby, I was a business and was going to start to market and sell myself as a business I had to start digging around the internet to try and find all the facts that I needed to start a business. Now I was an accountant, but I had only ever worked in a HUGE company already established and had no idea of the legal and tax ramification for starting a new business, but I thought how hard can it be? Well days and days later of scrolling the internet, I finally found all the information I needed. I then
□ registered a business name,
□ applied for an ABN,
□ I even applied for GST, (to give the perception I was bigger than I was)
□ Got a business email address,
□ Setup PayPal as business account,
□ Set up a separate bank account for the business,
□ Got a PO Box, (so noone my home address, )
□ Website up and running and
□ Got an eBay Store.
□ Got business cards (wow that’s a great feeling)
The business took off, I had to stop hand painting everything and start getting my original artwork printed, I introduced new products (diversification), as the more you have the more you can sell. Offer different sizes in products, just like MacDonalds, Small, Medium and Large). Then I made the massive move from bedroom to the media / lounge room and took over the double garage. When you are on the internet, it is all about perception, people don’t know you are sitting in a spare room of the house, you need to appear professional and business like at all times when dealing with customers.
how did I do it?..............................
I put my success to the rapid business growth down to keeping ALL the money in the business, now this was easy for me to do, as it was not income we were relying on, hubby had a job and he thought it was just my “$2 hobby”. I used the money to stock up on raw materials, so canvases, clock frames, laminate, paper, etc etc. I purchased another new computer, I purchased all new office furniture, I had to buy shelves and benches for the work shop (garage), I would only use money from Kids Art to buy these assets. I kept control of my cash flow, in business Cash Flow is GOLD. You need to have money there, in the bank, just in case you need it. Now cash flow and profit are 2 completely different things, just because you are running a small profit does not mean that you have no cash. All your money could be tied up in raw materials, or stock, you need to make sure that you leave cash in the bank.
I kept my bookkeeping and record keeping from day dot systematic and controlled and used MYOB. Now I found this so important, it was easy to record sales, expenses, when I was selling one thing a week, but once the business took off I was so glad I had my record keeping sorted as I would have got completely out of control and I would not have been able to keep up with orders, and come tax time I would have been freaking out. It is easy to fix mistakes, and find loopholes in your record keeping when you only have one sale a week and you can fix it easily.
how to price your product.............................
How to price your product? This is a whole blog in itself. Now, there is NO formula when costing a product. Big business do a production/costing plan and work backwards. Profit margin is about 20% not 200%. When I first started, I just added $10 to a painting, wow, I was making money. Once things got busier, I doubled how much it cost me for canvas and paint. This however does not take into account all your costs. Expense of a product include how much the product costs plus the freight paid in, many businesses forget this rule when working their costings. Also, don’t forget to add in any selling fees when you sell your product, ie eBay fees, and PayPal fees, these need to be included in the cost of your product as well.
A popular formula is
Cost x 2 = Wholesale Price x 4 = Retail Price.
Due to my manufacturing background I decided to set up a product/costing plan for Kids Art as I wanted to know how much my products were costing me. Now this is pretty complicated. Put simply the Production Plan lists the number of units that must be produced during each budget period to meet sales needs and to provide for the desired profit. That could be for a future blog for those that manufacture.
To include labour costs or not? I don’t include labour costs, I consider the profit I make payment for my labour. Once I employ people then this will definatley change.
paypal, the truth............................
I originally set up PayPal to sell on eBay once they made it compulsory to offer it as a payment method. I was very sceptical about setting up a PayPal account, as I had heard some “stories” about them. But I have never looked back and I needed PayPal once I set up my website.
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See you next week!
Ali and Chan xxx
PayPal is basically a bank account, so in your bookkeeping you record it as such. PayPal is a payment gateway that allows you to accept payments online, without receiving your customers financial information it is HELD in your PayPal account, and then you transfer it your bank account. There are no fees to transfer money from your PayPal balance to your bank account. You can also purchase online and get supplies from other websites using your PayPal balance and keep your financial information safe. PayPal allows you to receive money in other currencies, and converts it to AUD dollars (or your countries currency). When you first open your PayPal there is a monthly withdrawal limits to how much you can transfer to your bank account, you can lift this limit in your PayPal account.
If you are a sole trader you should upgrade your PayPal account to a business account. If you set up a ecommerce website, with a shopping cart and have PayPal as a payment option, you will need a business account. The checkout process takes your customer to the PayPal payment gateway, once payment is made, PayPal redirects your customer back to your website.
PayPal is safe and secure to use, and help protect their customers against fraud with the Buyer Protection Program. This means that if a customer did not receive the item, or it is significantly different than described, they can open a dispute. PayPal automatically takes the money from your PayPal account balance and puts it on hold until the dispute is resolved. If the customer claims that the product was not received, you have to send PayPal proof that you posted the item to the buyers delivery address. If you cannot provide the appropriate documentation, the customer gets their money refunded.
Starting a business
Get the Right Advice
Once you have decided that you want to start a business, make sure you get some advice from the right sources for your tax obligations and entitlements.
- A financial advisor
- Small business advisory service
- Local council
- Chamber of commerce
- Visit www.business.gov.au
Are you a business?
Do you have some or all of the following characteristics, if yes, then you are carrying on a business
- Does your activity have a significant commercial character?
- Do you have more than just an intention to engage in business?
- Do you have the purpose of profit as well as the prospect of profit?
- Is there repetition and regularity to your activity?
- Is your business similar to other businesses in your industry?
- What is the size, scale or permanency of your activity?
- Is your activity planned, organised and carried on in a businesslike manner?
Different Business Structures
It is very important to choose the right business structure to suit your business needs
- Sole trader
Do I need to register a Business Name?
You can carry on a business in your own name without registering a trading name if you don’t change or add anything to your name. ie If your name is Jane Smith you don’t have to register a name to trade as J Smith or Jane Smith. But if you trade as Jane Smith Sewing, then you need to register the name with the relevant government bodies.
You need to register a business name before you apply for an ABN.
Do you need an ABN?
It is not compulsory to have an ABN.
You will need to have an ABN to
- Register for GST and other business tax registrations (ie PAYG withholding)
- Deal with other businesses, ie must be quoted on any Tax Invoice you issue
- Avoid having amounts withheld from payments. Businesses will be required to withhold 46.5% of nay payments they make to you unless you quote an ABN.
To set up an ABN go to www.abr.gov.au. You can also use this website to check an ABN that is quoted to you.
Do you need to register for GST?
If your annual turnover is below $75,000, you can choose to register for GST.
As soon as you realise that your current or projected turnover is $75,000 or more you have 21 days to register for GST.
Cash or non-cash basis?
To cash or non-cash that is the question. Basically Cash is recording transactions when they are paid, so if you get a bill for the telephone in June and you pay it in July, you cost it in July.
Non-Cash is accrual accounting, So if you get a bill in June and pay it in July, you cost it in June when the liability was made.
Make sure you keep good records.
Good business records will help you run and manage your business, and make sound business decisions, and keep on top of any liabilities (debts owed). You are required to keep records that explain all your business transactions.
Having good records will help you
- Monitor cash flow
- Monitor stock
- Determine costs and profitability
- Demonstrate your financial position when dealing with banks,
- Easy to pass on information to the accountant and when it comes to doing tax.
They must be kept in English and they must be retained for five years.
What is a financial year?
The tax year runs from 1 July to 30 June
Do I need to lodge a Tax Return?
Yes, you must lodge an income tax return for any year in which you carry on a business, even if you expect to have no income tax liability.
# This information is provided by the ATO a Guide for small business operators “Tax Basics for Small Business” NAT 1908-07.2011 available from www.ato.gov.au
*** Disclaimer – please note that the information in this blog is just a guide. Please seek out professional help and assistance if you require help or answers when setting up your business.
See you next week!
Ali and Chan xxx
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