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Questions about starting bussniess


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Hello, Im at an intresting point in my life which can be a blessing or curse.. my job of 11 plus years is going through changes in which my hours will be cut basically in half....So Im left with either quiting and starting over or pursuing a pipedream I have had for years which is to open my own small bussniess selling items I make through my hobbies which iclude blacksmithing, lethearwork, fabercation and airbrushing. If I pursue the later i would still work where I currently am until I would be able to make my small bussiness profitable enough to quit the day job so to speak. I have been researching opening a etsy or ebay store to start off and posibbly looking into opening a booth at a trader bakers flea market...with the goal of oneday running a online based bussiness. My question  is for those of you who use blacksmithing as your sole source of income or as part of your income how do you do it legally speaking... I know if I make money I have to claim it on my taxes and from what I have been reading online sites such as etsy etc... you would have to charge sells tax if your state requires it. Which I live in Indiana and it does...So how to go about this, do I need to get a bussniess licence, tax id number, can I file it on my normal taxes, etc any help or info would be appreciated.

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Usually, business licenses are issued by local or county governments..you need to ask them about license requirements.  Sales taxes at the state level requires registration with the state and reporting/paying to the state.  Regarding income taxes, as a self employed sole proprietor you can file regular tax returns with the addition (Federal) of Schedule C for the self employed income and Schedule SE for the extra tax on that income.  Your tax id number is your social security number in this case.  Determine the business license requirements first then start in making/selling stuff.  If you're not a book keeper/accountant, then it's worth your time to consult with one for the details.

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When I started the shop, I drove to my local Indiana tax office (same one as for paying any other state taxes) and asked for the forms, filled them out and returned them the next day. Also when you are buying supplies for the business to make things for resale, you can fill out a form at that supplier and do not have to pay taxes at the time you get your supplies,  I have to charge the tax anyway when I sell, and have to report it anyway, so why pay it twice.  Also If you keep something for yourself, like to repair a woking tool, you have to report that and then pay sale taxes on it, So it is not a free ide, it is to help business get materials, without paying tax on the same thing twice.  They have a rules booklet (it is not too big or too hard to understand thankfully) and a tax schedule for up to $100 so you know the brackets on where to add or drop the extra cent for when the math isnt an even number.

 

Many places require you to have this tax number displayed, to even set up at the show or fairs, so I have a copy I keep in my receipts book to give them for their records when I apply, as well as another to display to keep the state happy.

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Biggest issue I see with guys who want to start any business has to do with the business end of things. I've seen quite a few businesses fail, not because the person can't do the work, or even that they don't do excellent work, it's the fact they can't "run" the business end of things. I know it's the hardest part of my business.

Many guys just want to look at the cash coming in. They forget about all the cash that also has  to go out. Big things are easy to keep track of. It's all the tiny ones that add up to big money and sink you. Example: a client wants you to build say a pot rack for them. You know materials should run you $100. You figure it will take you say 4 hours to build, and you'd like to make $25 an hour, so you [price it out at $200...  That's often how people typically price things. Problem is you didn't allow for your insurance, accounting fees, phone, business cards/advertizing, taxes/business license fees, electric, shop rental, heat, any tooling, fuel, consumable items like sand paper, grinding disks, Oxy Acet, finishing products etc. All of a sudden because you didn't buy these things at the time of the project and forgot to add them in, you end you paying to do the job rather than making money. It's even worse if something breaks on the job, say you burn up your grinder or you power hammer splits a die. Then you are in the hole super big really quick.

 Small guys often have a hard time breaking even especially if they are doing things part time. It's tough to add in all your true expenses and keep prices reasonable if you don't have a ton of work flowing thru. If your average expense per month is as little as say $200, It takes a lot of small jobs to absorb those costs. If that pot rack above is only one of two projects that month, you'd have to add at least another $100+ to the cost to break even. Lets say misc items like fuel/grinding disks etc added up to an additional $25. Now instead of your rack costing $200, all of a sudden it's up to $325. That might be too much for your customer to accept, and you loose the work.

I know a lot of guys who work full time in this economy that are willing to take in work even if they just break even simply so they can absorb some of those fixed costs per month. They don't put penny one in their pocket, but at least they aren't in the hole for all those bills like electric and insurance that don't stop coming in simply because you don't have work. My average expenses per month easily add up to $1000 when you figure in all my insurance both for the business and the work vehicles, phone, maintenance and fuel for the trucks to get to jobs and pick up materials. That doesn't even include rent, electric, heat etc. General misc stuff like sand paper, grinding disks etc can easily run me $500 even if I'm slow. Add in tool repairs, or replacements and such and I generally figure I need to have at least $2K every month plus materials just to break even. Then maybe I will get paid... That's assuming I don't come up short the month before, or maybe the month or two later.

I'm not trying to discourage you. I just want you to go into this with your eyes open and looking for all those hidden expenses. Like I say I've sen plenty of guys who think "side work" is a great way to make "free money" only to realize 6 months down the road that they are actually farther in the hole then they were before they started doing this. Good luck.

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Look at what electricians or mechanics or plumbers charge per hour, around here its about $120.00 per hour per man, they dont have to have forges/furnaces burning up fuel, power hammers which need proper foundations, welding sets, oxy sets, etc etc, mechanic basically a shed and a set of ring spanners (yes I know it takes more than that but you get the point) electrician, a pair of pliers a multimeter, and a screwdriver.  They have a lot less plant than us and they still go broke charging way more than us.

Don't sell yourself too cheap.

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Thanks for the advice guys...i understand all the concerns over the bussniess part of the bussniess . My goal right now is to help offset my income while getting my foot in the door of the busniess world...im thinking to start with a etzy store but idk much about it....if i start to due well ill hopefully grow into a bigger bussniess pursuits....anyone use etsy

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On 9/5/2013 at 9:57 PM, Matt Smith said:

. My goal right now is to help offset my income while getting my foot in the door of the busniess world...i

That's usually the typical mind set that gets people into trouble. They don't really track costs, so it looks like they are "making" money, when in reality they are loosing money. You build your widget and the material you buy cost you $5 and you sell it for $10 and you made money right? What's the big deal? The thing is you didn't add in the cost of that grinding disk you used, sand paper and paint etc that was sitting on the shelf. You "made" $5, but in reality your costs were actually higher. Next time you tell someone it's $10 for that widget, but you find out you are out of paint... No biggie, you run out and buy a can for $4.50. Opps, your profit just dropped to  50 cents and you still are on the same sand paper and grinding disk. Two or three weeks later you realize you need some sand paper and grinding stuff while at the store so you pick some up because they are on sale. But there's no project attached to these, so the costs get forgotten. Now you have to fill that propane tank or buy more coal...Was that figured in?

Small work like this is a good way to off set costs for a hobby. You know you are in the hole right from the start, and any thing sold is "found" money that you can put back in for more practice. It's sort of like paying to go to the movies and then finding out when you are there that they are giving a discount for that particular show. You planned to pay that money anyways, but you just didn't have to pay as much as you thought.. Small sales like this are a poor way to actually make a profit. To make money you need to know exactly what things cost and track them.

Those screws you tossed in with the hook probably cost you something even if we are talking pennies compared to the price of a 25 lb box of bulk screws. That box of screws isn't cheap though when you go to replace it. Trust me I burn tons of drywall screws for all sorts of misc jobs and hardly think about them when I grab a handful. I do sit up and pay attention when I have to go and replace that 25 lb box however since they can go up to almost $75 or even more for the exterior ones. Glup! That wasn't figured in the price... I make a point of tacking on at least $5-25 in "misc costs" now to all jobs even small ones just to help off set these small things that are hard to track consistently.

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Etsy is a crap shoot. I find the site to be difficult to navigate at times. I have some artist friends who are making money with Facebook sales. I have watched one friend move $500 paintings in 15 minutes after posting the finished project. He keeps people interested by posting progress pics of the current piece he is working on.

One thing about getting a business license is that you come under different regs then as a hobbyist. Where I live a home based ceramics studio is limited to 1 kiln that has to be electric, and 110 volt-yes very stupid. As a hobbyist you could have 10 kilns of various heating sources. Some areas do not allow blacksmithing as a business in residential areas, even though it can be done as a hobby. If you have to rent a building your income has to exceed what you could do from home by a mile.

As a former machine shop owner my best advice is go into this adventure debt free-no loans. Stuff happens , and you don't want to be deep in debt when it does. Look up Dave Ramsey's book Entreleadership.

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Thank for the advice guys .. i respect your concerns over the difficulties ..
of bussiness.. i am the type of person who doesnt do anything hap hazzardly i look st everything from all angles.. right. Now i am gathering information and weighing my options while decidinggetting what is the best way to approach this dream of mine

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I have a book where I keep all the pictures of work I do - next to each picture is a beakdown of material, tips and how to's, time schedual, sundries and above all a costing breakdown as per current steel prices etc (this MUST be kept up to date) and this is what I use to price every item I make. I then add my labour cost to the time schedual with a 25 - 35% mark up for sundries.

 

I hate doing this but I learnt the hard way that a record of work done makes for less mistakes, losses and a quicker more efficient job.

 

But the above being said - all the record keeping and the most beautifull work in the world won't pay the bills - You HAVE to market yourself extensivley - and this can be harder than a whole month of full days behind the forge. Flee markets work best as there is always feet and they are not always the same people - they also don't cost much besides a small fee and your time selling.

 

Never sell cheap, rather sit on an item untill the person who wants it comes arround and always have stock of saleable items - people buy what they can FEEL and see not always only what they can see from a picture. Most sales are impulsive, give a person time to think about it and they won't usually buy.

 

Hope this helps

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  • 1 month later...

SInce I am currently rebuilding my business plan I feel a slightly qualified to reply to this thread.   I started my shop 23 years ago to supplement my income and go to graduate school.   Never made it to grad school.   My business was born and built from a shoe string budget and run completely by the seat of my pants.   This approach has cost me a lot of money, created frustration and worst of all, has cut into my success.   I bumped along month to month, chasing money to pay bills, completely unaware of how to price jobs and seemingly in zero control of my future.   I was having fun and making good stuff, but never had a handle on the business end of things.   It was pure luck and hard headedness that kept the doors open.

 

Then about 10 or 12 years ago I attended a small business class put on by the Chamber of Commerce.   It was a several month long course that taught you to develop a business plan and examined all the business apsects of running a business.   From that class I created a business plan that was aimed understanding finances and growing the business in a focused direction instead of reacting to whatever came along.

 

Things picked up and I felt better about being in control of the business side of things.   So now I have an office manager and want to expand in a new direction, so I am sending her to the same course so she can rewrite the business plan.   We have gone through and reworked all of the figures and its an eye opening experience what it costs to produce a product.

 

The most important part about taking this business course is it gives you more control over you derstiny.   If you want to make large scale public sculptures, produce furniture or sell S hooks at a flea market, the basics are the same and you need to make a profit to make it worth the effort.

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  • 3 weeks later...

Start backwards - Find a blacksmithing operation you think is doing things right and beg your way in the door.  

 

Find out what you need to own and know before you've spent a dime of your own money.  Way too many folks are paying of educations that they aren't using.  Lots of new businesses go under every year and banks auction off tooling they didn't pay off.  

 

Keep in mind that small money stuff requires high volume to make it worthwhile.  If factories are your competition - you're in a bad spot.

 

Conversely, it's important to know who's got the money for big commissions.  Low barrier to entry stuff like Ebay, Etsy and the like does nothing to cull the herd to get you in front of deep pocket clients.

 

A successful business requires a sound customer base paying market value and earning you a profit.  Stuff that people like doing is going to crowd the ranks and tend to lower market value. 

 

Niche markets are tough to work out.  I wish you luck.

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  • 2 years later...

I have done a bit of this myself. A few years back I lost my job, so I opened up an Etsy shop and started selling my items. I had very low running costs, as I only had a small coal forge, I had an abundant supply of cheap coal, mild steel was not very expensive. But I find that many times people have a hard time finding YOUR item in the whole bunch of other similar items. What I have done then is I use social media and post photos of my work, and links to my store. I also for a time paid for my ads to be placed at the top. It brought in some cash flow, but it was not enough to make a living. I then expanded to doing some old time shows, where I was able to sell more too. One friend of mine gave me some good advice though. When you are blacksmithing for a business, do it more like an assembly line. For example, I made dinner triangles of three different sizes. One was made from 3/8" stock and was 10" each side, one was 1/2" stock and 12" each side, and the other one was 5/8" stock and 14" each side. I would get my material pre-cut from my supplier to 30", 36", and 42" respectively, and then I would have pieces that were 10", 12", and 14" long for the ringers. I then would make 10 triangles of the 10" all at once, then I would make the ringers. It really helped me a lot when it was a popular item. 

Of course I also tried to get creative about things too. such as I made sunflowers with saw-blades, but it also was the same where I dished 5 blades, then made the centres, and then the stems, and then welded them. 

I hope this helps for you!

Seth

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