One Year Wiser

This post is pretty wordy, so bare with me here. ;-)

This month marks one year since I first decided to make my idea of starting my own little jewelry business a reality.
I did some things right, and I did some things wrong. I'd be lying if I said I wouldn't change a thing, but I am glad I decided to jump right into it. If I'd hesitated, waiting until I knew exactly how to do each and every little thing perfectly, I'd have been paralyzed with fear and never actually done anything.

RESEARCH

I didn't neglect to prepare altogether. I spent an awful lot of time perusing the IRS website. I considered what kind of business structure to choose. I decided a sole proprietorship made the most sense for now.

I also read the IRS Tax Guide for Small Businesses publication several times. And printed it out. And put in a binder for future reference. Seriously, if you think you want to start your own small business, consider this mandatory reading material. And if you're going to be selling a product, read the part about inventory more carefully than I did. (More about that later...)

REGISTERING

From what I gather, this is the part that seems to intimidate a lot of people the most: registering your business and obtaining whatever license(s) you need to make sure you're operating legally.
I decided to register right away rather than start out as a hobby and convert to a business after the fact. I knew from the start that my intent was to make at least a modest profit, and if I had a loss my first year I wouldn't be able to claim that loss on my tax return unless I was registered as a business. Not to mention, if I did manage to turn a significant profit, I didn't want to risk getting audited and being penalized for not paying taxes on my earnings!

I did a little research here and found out exactly what I needed to do to start a business in NJ. As it turns out, in my case I simply had to register as a business and get a license to collect sales tax.

Since I live right on the border of NJ & PA, I also registered to collect sales tax there so I could do craft shows, jewelry parties, etc. in that state as well. I had to register as a "transient vendor" since my business is based outside of PA.

The specific rules may be different depending on the state, county, and municipality where you live, but I only had to file a total of 3 (short!) forms to make things official It's really not as difficult as it might seem, I promise!

FINANCING

Naturally, I needed a means of buying supplies to make my jewelry. I was prepared to put my own money into my business, since I wasn't planning on making a huge initial investment. But I wanted to make sure whatever purchases I made were clearly for business, and not personal, purposes.

So as soon as my business was registered, I signed up for a business credit card. This was the first real goal I set for myself: Charge my initial supplies and try to make that money back in time to pay my first bill in full. Mission accomplished. :-)

Now, the ideal situation would be to have a totally separate checking account for my business right from the start. But considering the fact that I wasn't accumulating a lot of cash, just reinvesting it into my business, I didn't want to risk dropping below a minimum balance and getting charged an unnecessary fee each month.

Instead I was stuck depositing money to pay my Mischievous Kitty credit card bills and such through personal checking, which I've really hated doing. However, I'm finally at a point where I can open a business checking account, and I'm incredibly excited to do so!

RECORDKEEPING

Spreadsheets

I designed a workbook in Excel that has served very nicely so far. I have a sheet for Expenditures and another for Inventory/Sales, and each of those feeds directly into my cash flow statement. I can use formulas and filters to figure out what types of pieces are selling best, how much sales tax I need to remit for each state, whether I made a profit monthly, yearly, or cumulatively. I also use the spreadsheet to track my business-related mileage so I can take a deduction for that when I do my taxes at the end of the year.

I'm continuously tweaking it, but it served its purpose quite nicely when I filed my 2009 taxes. I had no problem taking my records for revenue and expenses for the most part... except when it came to calculating cost of goods sold. Which brings me to the one area where I really wish I'd done a better job:

Inventory

This is where I let myself down, considering I have a business degree. I should have known better, but I was so excited to dive right into my business that I didn't think about the difference between tracking inventory for resale versus manufacturing.

If you're planning on buying and selling finished products, inventory is pretty straightforward. Decide whether you want to use FIFO or LIFO, then track the cost and sales price of each piece.

If you're manufacturing something, it's a bit more complicated, and I failed in a major way. I tracked how much, say, a string of beads or a length of chain cost, but I didn't break it down to cost per bead or per foot of chain. What a headache when I had to figure out cost of goods sold at tax time.

Lesson learned. Now I'm tracking how much each individual component cost and recording the materials cost for each finished product. Is it tedious? Yes. But considering the time it will save me in in the future, it's totally worth it!

BRAND IDENTITY

I really needed this first year to develop a brand identity. I wasn't really sure what I was doing when I started out, so I spent a lot of time playing around, experimenting with different styles and materials. Very few pieces were alike, but they did have a similar aesthetic. I've settled into a somewhat vintage style using mostly natural materials like semi-precious stones, pearls, coral, etc., occasionally working actual vintage components into my pieces. This sort of style makes sense, since my company is named after my grandmother. ;-)

After a year, I have a better feel for what will sell, and my pieces are becoming less eclectic and more focused. Most of what I've been making lately has been variations on just a handful of styles, instead of being completely all over the place, like it was in the beginning. It's not fully reflected on my Etsy shop yet, but as I have time to photograph new pieces I think it will become more apparent.

Speaking of which, I'm hoping that by getting a bit more focused in the styles of jewelry I make, I'll be able to reuse more product photos on Etsy, which would save me a TON of time.

One thing I really wish I'd done from the start was establish more brand identity with my packaging. This was a step in the right direction. But I'm still stuck with your standard, boring price tags and earring cards for shows. I have some ideas though. Once I get a chance to test them out, I'll share them here. :-)

MARKETING

I haven't done a heck of a lot of traditional advertising. Initially this decision had more to do with budget than anything else. I advertised a bit online, and it appeared to get me a handful of sales, but nothing earth-shattering.

I quickly found that one of the best forms of advertising is free: word of mouth. I've made more sales based on someone seeing my jewelry being worn by someone else (or me!) and wanting to get something like it than for any other reason.

The result has been a lot of in-person sales, but less online. I have mixed feeling about this. Do I want to focus more on getting online sales in the coming year? Or keep my focus primarily on craft shows and jewelry parties?


I think the biggest surprise for me as I write this is that one of the areas I felt I did worst (or at least was most hesitant to attack) was marketing/branding. My concentration within my business degree was marketing! If anything, I'd have expected to drop the ball on accounting and render myself completely incapable of properly completing my Schedule C. But aside from my little inventory snafu, I think I did pretty well in that regard.

I suspect the reason for that is the fact that I was more worried about the areas I perceived as my weaknesses and put more effort into them. On one hand, this approach was a disadvantage during my first year. But on the other hand, I managed to hammer out the areas I expected to have trouble with right away, and now I am more free to focus on the things that come more easily to me.

Can't wait to see what Mischievous Kitty Jewelry's second year in business will bring!