Starting a craft business can be very profitable. With proper planning, execution and hard work, you can enjoy great success. Below you will learn the keys to launching a successful craft business.
Importantly, a critical step in starting a craft business is to complete your business plan. To help you out, you should download Growthink’s Ultimate Business Plan Template here.
14 Steps To Start a Craft Business:
- Choose the Name for Your Craft Business
- Develop Your Craft Business Plan
- Choose the Legal Structure for Your Craft Business
- Secure Startup Funding for Your Craft Business (If Needed)
- Secure a Location for Your Business
- Register Your Craft Business with the IRS
- Open a Business Bank Account
- Get a Business Credit Card
- Get the Required Business Licenses and Permits
- Get Business Insurance for Your Craft Business
- Buy or Lease the Right Craft Business Equipment
- Develop Your Craft Business Marketing Materials
- Purchase and Setup the Software Needed to Run Your Craft Business
- Open for Business
1. Choose the Name for Your Craft Business
The first step to starting a craft business is to choose your business’ name.
This is a very important choice since your company name is your brand identity and will last for the lifetime of your business. Ideally you choose a name that is meaningful and memorable. Here are some tips for choosing a name for your own craft business:
- Make sure the name is available. Check your desired name against trademark databases and your state’s list of registered business names to see if it’s available. Also check to see if a suitable domain name is available.
- Keep it simple. The best names are usually ones that are easy to remember, pronounce and spell.
- Think about marketing. Come up with a name that reflects the desired brand and/or focus of your craft business.
2. Develop Your Craft Business Plan
One of the most important steps in starting a craft business is to develop your business plan. The process of creating your plan ensures that you fully understand your market and your business strategy. The plan also provides you with a roadmap to follow and if needed, to present to funding sources to raise capital for your business.
Your business plan should include the following sections:
- Executive Summary – this section should summarize your entire business plan so readers can quickly understand the key details of your craft business.
- Company Overview – this section tells the reader about the history of your craft business and what type of craft business you operate. For example, are you a craft supply store, boutique, gallery, or an online craft business?
- Industry Analysis – here you will document key information about the craft industry. Conduct market research and document how big the industry is and what trends are affecting it.
- Customer Analysis – in this section, you will document who your ideal or target customers are and their demographics. For example, how old are they? Where do they live? What do they find important when purchasing products like the ones you will offer?
- Competitive Analysis – here you will document the key direct and indirect competitors you will face and how you will build competitive advantage.
- Marketing Plan – your marketing plan should address the 4Ps: Product, Price, Promotions and Place.
- Product: Determine and document what products/services you will offer
- Prices: Document the prices of your products/services
- Place: Where will your business be located and how will that location help you increase sales?
- Promotions: What promotional methods will you use to attract customers to your craft business? For example, you might decide to use pay-per-click advertising, public relations, search engine optimization and/or social media marketing.
- Operations Plan – here you will determine the key processes you will need to run your day-to-day operations. You will also determine your staffing needs. Finally, in this section of your plan, you will create a projected growth timeline showing the milestones you hope to achieve in the coming years.
- Management Team – this section details the background of your company’s management team.
- Financial Plan – finally, the financial plan answers questions including the following:
- What startup costs will you incur?
- How will your craft business make money?
- What are your projected sales and expenses for the next five years?
- Do you need to raise funding to launch your business?
3. Choose the Legal Structure for Your Craft Business
Next you need to choose a legal structure for your craft business and register it and your business name with the Secretary of State in each state where you operate your business.
Below are the five most common legal structures:
1) Sole proprietorship
A sole proprietorship is a business entity in which the craft business owner and the business are the same legal person. The owner of a sole proprietorship is responsible for all debts and obligations of the business. There are no formalities required to establish a sole proprietorship, and it is easy to set up and operate. The main advantage of a sole proprietorship is that it is simple and inexpensive to establish. The main disadvantage is that the owner is liable for all debts and obligations of the business.
A partnership is a legal structure that is popular among small business owners. It is an agreement between two or more people who want to start a craft business together. The partners share in the profits and losses of the business.
The advantages of a partnership are that it is easy to set up, and the partners share in the profits and losses of the business. The disadvantages of a partnership are that the partners are jointly liable for the debts of the business, and disagreements between partners can be difficult to resolve.
3) Limited Liability Company (LLC)
A limited liability company, or LLC, is a type of business entity that provides limited liability to its owners. This means that the owners of an LLC are not personally responsible for the debts and liabilities of the business. The advantages of an LLC for a craft business include flexibility in management, pass-through taxation (avoids double taxation as explained below), and limited personal liability. The disadvantages of an LLC include lack of availability in some states and self-employment taxes.
4) C Corporation
A C Corporation is a business entity that is separate from its owners. It has its own tax ID and can have shareholders. The main advantage of a C Corporation for a craft business is that it offers limited liability to its owners. This means that the owners are not personally responsible for the debts and liabilities of the business. The disadvantage is that C Corporations are subject to double taxation. This means that the corporation pays taxes on its profits, and the shareholders also pay taxes on their dividends.
5) S Corporation
An S Corporation is a type of corporation that provides its owners with limited liability protection and allows them to pass their business income through to their personal income tax returns, thus avoiding double taxation. There are several limitations on S Corporations including the number of shareholders they can have among others.
Once you register your craft business, your state will send you your official “Articles of Incorporation.” You will need this among other documentation when establishing your banking account (see below). We recommend that you consult an attorney in determining which legal structure is best suited for your company.
4. Secure Startup Funding for Your Craft Business (If Needed)
In developing your craft business plan, you might have determined that you need to raise funding to launch your business.
If so, the main sources of funding for a craft business to consider are personal savings, family and friends, credit card financing, bank loans, crowdfunding and angel investors. Angel investors are individuals who provide capital to early-stage businesses. Angel investors typically will invest in a craft business that they believe has high potential for growth.
5. Secure a Location for Your Business
When starting a craft business, you will need to find the right location for your shop. There are a few things to consider when choosing a location. First, think about what type of craft you want to sell. You will want to find a location that is convenient for your customers. You should also consider the cost of rent and other expenses, such as utilities and marketing. You also need to make sure that the location is zoned for commercial use.
6. Register Your Craft Business with the IRS
Next, you need to register your business with the Internal Revenue Service (IRS) which will result in the IRS issuing you an Employer Identification Number (EIN).
Most banks will require you to have an EIN in order to open up an account. In addition, in order to hire employees, you will need an EIN since that is how the IRS tracks your payroll tax payments.
Note that if you are a sole proprietor without employees, you generally do not need to get an EIN. Rather, you would use your social security number (instead of your EIN) as your taxpayer identification number.
7. Open a Business Bank Account
It is important to establish a bank account in your craft business’ name. This process is fairly simple and involves the following steps:
- Identify and contact the bank you want to use
- Gather and present the required documents (generally include your company’s Articles of Incorporation, driver’s license or passport, and proof of address)
- Complete the bank’s application form and provide all relevant information
- Meet with a banker to discuss your business needs and establish a relationship with them
8. Get a Business Credit Card
You should get a business credit card for your craft business to help you separate personal and business expenses.
You can either apply for a business credit card through your bank or apply for one through a credit card company.
When you’re applying for a business credit card, you’ll need to provide some information about your business. This includes the name of your business, the address of your business, and the type of business you’re running. You’ll also need to provide some information about yourself, including your name, Social Security number, and date of birth.
Once you’ve been approved for a business credit card, you’ll be able to use it to make purchases for your business. You can also use it to build your credit history which could be very important in securing loans and getting credit lines for your business in the future.
9. Get the Required Business Licenses and Permits
To start a craft business, you will need a business license and a sales tax permit. You may also need other permits, depending on the type of business you plan to run. Check with your local government to find out what licenses and permits are required for your business.
10. Get Business Insurance for Your Craft Business
The type of insurance you’ll need to operate a craft business will vary depending on the scope of your operations.
Some business insurance policies you should consider for your craft business include:
- General liability insurance: This covers accidents and injuries that occur on your property. It also covers damages caused by your employees or products.
- Workers’ compensation insurance: If you have employees, this type of policy works with your general liability policy to protect against workplace injuries and accidents. It also covers medical expenses and lost wages.
- Commercial property insurance: This covers damage to your property caused by fire, theft, or vandalism.
- Business interruption insurance: This covers lost income and expenses if your business is forced to close due to a covered event.
- Professional liability insurance: This protects your business against claims of professional negligence.
Find an insurance agent, tell them about your business and its needs, and they will recommend policies that fit those needs.
11. Buy or Lease the Right Craft Business Equipment
In order to run a craft business, you will need some basic equipment. This includes items such as a sewing machine, fabric, and scissors. You may also need a computer to create digital designs, and a printer to print your designs. Additionally, you will need to purchase any materials or craft supplies that you will be using to make your products.
12. Develop Your Craft Business Marketing Materials
Marketing materials will be required to attract and retain customers to your craft business.
The key marketing materials you will need are as follows:
- Logo: Spend some time developing a good logo for your craft business. Your logo will be printed on company stationery, business cards, marketing materials and so forth. The right logo can increase customer trust and awareness of your brand.
- Website: Likewise, a professional craft business website provides potential customers with information about the products you offer, your company’s history, and contact information. Importantly, remember that the look and feel of your website will affect how customers perceive you.
- Social Media Accounts: establish social media accounts in your company’s name. Accounts on Facebook, Twitter, LinkedIn and/or other social media networks will help customers and others find and interact with your craft business.
13. Purchase and Setup the Software Needed to Run Your Craft Business
To start a craft business, you will need some basic software, including a word processing program and a spreadsheet program. You may also want to consider using a customer relationship management (CRM) program to help you keep track of your customers and orders. Additionally, you may want to use a graphic design program to create your marketing materials and product designs.
14. Open for Business
You are now ready to open your craft business. If you followed the steps above, you should be in a great position to build a successful business. Below are answers to frequently asked questions that might further help you.
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How to Start a Craft Business FAQs
Is it hard to start a craft business?
No, it is not hard to start a craft business. There are some things you will need to do in order to get started. The most important thing is to have a clear idea of what you want your business to be and how you plan to manage it. You will also need to create a formal business plan and register your business with the state.
How can I start a craft business with no experience?
There are a few things you can do to start a craft business with no experience. First, you can do some research on the internet or in books to learn about the basics of starting a business. You can also attend craft shows, workshops, and classes to expand your skill set and prepare to open your business. You can also try to find a mentor who can help you get started in the craft business.
What type of craft business is most profitable?
The type of craft business that is most profitable is one that specializes in making and selling high-end crafts. These businesses often make crafts from expensive materials, such as gold and silver, and they typically sell their crafts for a high price.
Another profitable type of craft business is an online store. A successful online craft business can be profitable because it will typically have lower overhead costs than brick-and-mortar stores. Additionally, online stores can reach a larger audience than brick-and-mortar stores.
How much does it cost to start a craft business?
The amount of money you'll need to start a craft business varies depending on the type of business you want to start, the products you plan to sell, and your overhead costs. You may need as little as $100 or as much as $10,000 to get started.
What are the ongoing expenses for a craft business?
The ongoing expenses for a crafting business can vary depending on the size and scope of the business. However, some of the most common expenses include material, marketing, and shipping costs. It is important to track these costs carefully in order to stay on budget and maintain profitability.
How does a craft business make money?
Craft shop owners make money by selling their products to the public. This can be done in a variety of ways, such as through selling online, on consignment shops, flea markets, or at craft fairs. In addition, a handmade business may also offer custom orders or design work.
Is owning a craft business profitable?
Yes, it is a profitable business because a craft business offers unique products that people cannot find at big box stores. Customers appreciate the personal touch that craft businesses offer, and they love being able to support local businesses. In addition, craft businesses often have lower overhead costs than other types of businesses, which leads to greater profitability potential.
Why do craft businesses fail?
There are many reasons why other crafters fail, but the most common reasons are a lack of planning, marketing, and financial knowledge. Other factors may include not having a clear vision for the business, poor customer service, and not being able to produce a high-quality product.