Chap. 3 : Business Planning

This page is part of our Starting a Craft Business learning module.

It’s possible to turn a hobby into a business but it will require planning. There are many questions you will need to answer in order to develop your business plan. Sometimes it might seem overly complicated, but don’t forget that the agencies listed in Chapter 2 can help you to figure out what information you need for your business.

When preparing a business plan, you will have to imagine your first year of operations. If you have a small craft production business – making more of a product that you already make – that planning could be very easy. You might already have clients to sell to. You might be able to just multiply the amount of raw materials and the number of products you will be able to sell to get information about your costs and sales. You might be able to work from a space in your home that you already have set up.

But, if you are planning to expand your production beyond that, or to open a retail business, you will need to do some work to plan your business. Prepare by learning as much as you can about running a craft business. You don’t have to do that on your own; there are many agencies in Labrador that can help you, even if your business is just an idea right now.

Here are some of the things you might have to consider.

Your Business Idea

Can you describe your business idea? Talk to a friend, or imagine you are telling a friend about your business idea. Take a few notes and see if you can come up with a description of your business.

Are you producing crafts or selling retail, or both?
What are your products or services and what is special about them?
Where are you located? Why is this a good location?
Who you plan to sell to?
Describe yourself as the business operator.

How do you identify your products/services?

Whether you are a producer or are selling retail, have you identified what customers want to see more of?
Is there a gap in the market? For example are there visitors looking for souvenirs at a certain price and not being able to find them in local shops? Is there a different style, colour or size range that would sell better?
Consider the quality of your product, the uniqueness of your design, traditional designs, your skills, and how your product reflects a visit to this area.
Packaging and labelling is important. A hangtag tells the story and the story sells the craft. What story are you telling with your crafts?

What Type of Business: Sole Proprietorship, Partnership or Corporation?

If your business is a Sole Proprietorship, you are self-employed and you are doing everything yourself in order to operate the business. You, as the proprietor are personally liable for everything to do with the business. Many small businesses are sole proprietorships.

If your business is a Partnership, you and one or more other persons are working together to conduct your business. The responsibility for all aspects of the business would be shared among the partners, including responsibility for debts incurred by any of the partners on behalf of the business. Another form of partnership is a limited partnership—a legal partnership where some owners assume responsibility up to the amount invested. A legal partnership will have a partnership agreement that states what work each partner does and the financial contribution of each, and how the income will be shared.

If your business is a Corporation in Newfoundland and Labrador it is considered to be a legal entity that is separate from the owners and shareholders. Shareholders are not personally liable for the debts, obligations or acts of the corporation. A corporation has to be registered with the province and has to file annual return.

There are additional options for groups who want to start a business. They could consider a Not-for-Profit Corporation, a Co-op, even a Charity. There are different regulations for each type of business. Groups can contact their TCII (Department of Tourism, Culture, Industry and Innovation) Economic Development Officer for information.

Registration, Permits, Licences

You may need to register your business with the municipality. Each town has its own bylaws and regulations. There may be an annual fee or licence.

If you have a new building, there may be environmental and other considerations.

You will have to register with Canada Revenue Agency for a business number. You will need a business number if you are purchasing supplies wholesale, if you have employee payroll deductions and/or if you are collecting HST.

If your business brings in more than $30,000 per year you will have to register to collect and remit HST. If you do collect HST, you can also deduct the HST you pay on items you purchase for your business. For more information see GST/HST for Craft Businesses.

BizPaL (Business Permits & Licenses) is an online service offered by Industry Canada in partnership with provincial and municipal governments that provides Canadian businesses with access to information about permits and licenses. BizPaL may not have information for small municipalities, so you should also check with your town office.

What will you call your business?

Coming up with a name for your business that is unique, easy to remember, and tells customers something about the business can be a challenge. Try it out – see what others think when they hear it. Print it out – see how it looks on paper, on a business card or hangtag. Your name is part of the story you tell to the customer to help sell your crafts.

In order to protect your business name, you can register it with the province. Corporations have to register their name.

You can research business names on the provincial registry of deeds and companies to see if your business name is already in use and registered within the province.

Who is your market? Who will buy your crafts – how could you sell them?

Your market includes everyone you sell your products and services to, whether you are selling wholesale or retail. Understanding your market, and what they want and need will help you to make craft items, or products that will sell. In order to make your craft business successful over time, you may have to consider selling in different places and different ways. You may also have to consider making different types of products for different types of customers. How will you match your products to your clientele?

How will you reach your customers? Are you selling wholesale to existing craft shops that already have a client base? Are they shops that you already have a relationship with, or will you need to build a relationship?
Will you make products for the local market for visitors, or both?
Will you sell retail at craft fairs where you can reach a large number of people?
Will you sell online – from your own website, or from a marketplace like Etsy?
If you sell online, how will you ship items? What will it cost and how long will it take to reach customers?
Who are your competitors? How is your product or service different from what your competitors are offering? Have you researched the prices of competing products or services?

Operating a business: what are some of the considerations?

During the business planning phase you will need to imagine your costs to start the business and to operate the business during the first year.

Start-up costs may include:

Your workspace and renovations you may need.
Installation fees for utilities (e.g., phone, internet)
Financing
Raw materials
Equipment for your studio and office
Materials for your craft fair booth
Marketing materials – hangtags, business cards, online presence
For a retail space, you will also need to consider the cost of furnishings, cash register, debit machine, etc.
Skills development costs. You may need to learn a new skill related to producing crafts, or related to operating a business. Many of the support agencies listed in the previous chapter offer assistance with this.

Ongoing costs may include:

Utilities – heat light, phone, internet
Rent
Fees for craft fairs
Shipping costs
Financial costs: bank fees, accounting, insurance, permits
Possible legal fees
Employees

Cash flow projection:

You will have to consider how much money you will have coming in to the business and going out in costs over the entire year. That is your cash flow projection.
You may find that you have to spend more on materials and operating costs at some times of the year than you are bringing in in income. Your sales might be high at Christmas and during the tourism season, and slow during the rest of the year. This is something you will have to address in your business plan. Again, there are a number of agencies in Labrador that you can go to for help with this.

Craft production research:

Find out about requirements for labeling and safety regulations, for example, for products for children.
Find out about standard sizes.
Making samples and prototypes. Test the product and the market for it. What needs to be changed to make the product sell?
See if you can visit a similar craft business to see how they have set up their production, shop, etc.
Find reliable suppliers for good quality, appropriate raw materials. Consider shipping costs. If ordering from other countries, you will have to consider the exchange rate and duty as well.
You can develop a procedure, or checklist for quality control as part of your production process. You can find a quality standards discussion for traditional Labrador crafts on our Quality Standards page. We also have a copy of the old LCPA checklist.
Estimate your production costs. Make a prototype, do a sample run. Establish a wholesale and a retail price for each type of craft that you make. Your trial production run is a part of your start-up costs.
Product Line: As we learned in the pricing workshop, it is possible to earn more on some types of items than on others. Selling a lot of smaller souvenir items might be more profitable over the long term than selling a few high end items. Also, smaller items use up materials that may be left over from larger items. It is good to think about having a mix of products that would appeal to different buyers or be interesting at different times of the year.

Your schedule for producing crafts will depend on a number of factors including:

Length of time to get raw materials
Production time
Dates you need to have product for: e.g., Christmas craft fair, tourism season, cruise ship visit
Re-stocking: You may need to re-stock products at busy locations

Keeping records:

Operating a craft business is the same as any other business and you will have to understand the financial side of the business and keep good records. Some of the support agencies have skills development programs that can help you to learn what you need to manage the financial side of your business. You can also hire bookkeeping help, but remember that will be an additional business expense.

You’ll have to consider how you will keep your files. You must be able to find your paperwork at the end of the year, and it’s easier to keep track of if you start with a filing system.
Billing system. You will have to have a system for sending out bills and recording payments. This might be part of your bookkeeping system.
Bank account: You will have to set up a business bank account or credit union account separate from your personal account. Some fees may be different for business accounts.
Keeping track of your inventory and materials.
Keep a list of suppliers and costs that you can easily refer to when you need to reorder.
Shipping: You may be selling products outside of your local area and will have to know shipping times and costs beforehand. You will also have to have appropriate packing materials to make sure your products arrive in good condition. Make sure you have tracking and insurance on all of your packages.

Production: home-based business, or separate studio space?

Where will you make your products: will you have a home studio, or a separate space?
Consider the costs if you have make renovations at home to accommodate your studio.
Do you need a separate space for an office or is there a clean space in your production area that could work as an office? Remember, office equipment and supplies may not be safe in some studio environments.
Will you work year round, or seasonally?

Advantages of a home-based business:

Lower cost and no commute. A dedicated workspace in your home can be claimed as a business expense.
Your time might be better spent in a home based business because you can work around family schedules. On the other hand, working from home might include interference from family activities.

Considerations if you need to find a studio space:

Zoning regulations: check with your municipality to see if your chosen location is zoned for the purpose.
If you are renting, is heat and light included in the rent?
Is the lighting sufficient to do your work? Is there good natural light?
For many crafts there are special considerations, for example if you are doing metalwork or using a kiln you will have safety requirements to consider.
Is there a sink, bathroom?
Is there storage space?
Is there space to do office work in the studio?
Is there a phone line or cell phone service? If you are selling from the space you will need to be able to process credit cards.
If you will be inviting clients to your studio space, is it appropriate for that? Is it easy to access?
What equipment do you need? Will it fit in the space you have or are planning to use?

Retail space considerations:

What are your insurance needs?
What government regulations apply to your business – municipal, provincial, federal?
Will you need to hire employees?
Do you have sufficient space for your products, packaging, office?
Will you be producing crafts on site? Is there space for that?
Do you have a washroom that clients can use? If not, is there a public washroom nearby?
How will you display your products? Find out more on our Display Workshop page

If you have been able to imagine your business as you read through this section, you are well on the way to developing your business plan. It takes time to figure out everything, but there is always someone else who has been through something similar. You may find help from support agencies, from the internet or from people you know. Additional resources are listed in the next section.