Keep just a few things in mind to manage the finances for your craft business better.
Do not use personal funds.
While, it's true you are probably going to use your own funds for starting a business, avoid dipping into your personal accounts and savings for future business use.
Allocate the amount of funds you want to right in the beginning and then let the business returns provide for additional business expenditure, purchases and expansion.
Put Away One Year’s Expenses As Savings
This is a measure that is recommended if you are leaving a job to start a craft business, and you aim to replace your existing income with the income from the craft business.
The first thing to do is to calculate your average monthly expense. Do not leave out anything. Estimate the budget slightly on the higher side to compensate for any expense you might have missed out.
If you have this amount saved up, congratulations! You have achieved a major advantage. If you do not, do not be dejected. You can deal with a shortage of funds in any of the following ways.
- Continue to work in your current occupation and start the business part time. Continue with your job till you have saved up enough.
- Cutdown your expenses. You can meet one years expenses with your current amount of saving by cutting down on some non-critical expenses like eating out, changing house decor, making weekend trips etc. These sacrifices are only for a short time and only to help you gain financial freedom with your craft business.
Have a separate credit card that you use for your business expenses. If you have to get a new card, get a credit card with the lowest APR. This would reduce the burden of interest when you borrow against your credit limit and rotate the amount owed every month.
Businesses also have a credit rating. So use the business credit card responsibly to ensure that any future loans and financial assistance from lending institutions is not a problem.
A few pointers to keep a good credit rating for your business are:
- Never be late with your credit card payments, it's okay to rotate the balance by paying less than the full amount due.
- Never pay less than the minimum amount due and always a little more.
- Do not apply for and maintain too many credit cards. Get only the ones you need. Too much existing credit can make it difficult to get additional loans in the future when you need it.
- Keep the balance to credit ratio low. Do not keep your cards maxed out and ideally the amount you owe on the credit card should not exceed more than 50% of the total credit limit. You can always make an additional payment within a day or two of making an expensive and large purchase. This will keep the owed balance low when the credit card statement is generated at the end of the month.
Take out a small business loan.
It is best to take out a loan when things have started working for your business. At this point you know that putting in more money to expand will only result in greater profits. It is advised to start frugally with what you have and what you can afford without taking on the burden of debt.
Get additional funding when you begin to see the results.
Do not make new purchases.
We know how excited you are to start your business. But do not get carried away and sink funds into buying new shiny equipment just yet. Start with what you have and spend what is absolutely necessary. Trust us when we tell you there will be plenty of time to grow.
Selling online is not going to cost you a lot of money. Start with testing your craft on Etsy and eBay. We will be dealing with both of in more detail in future posts.
Work from home.
Working from home is always a great option. It works wonderfully well for a craft business. You can find the kind of space you require, reduce your overheads and start part time without having to hire anybody else.