by Nina Cooper.
Have you successfully turned your jewelry hobby into a part-time business? Are your clients thrilled with your work and clamoring for more?
Do you secretly suspect there is a vast untapped market for your jewelry if you just had a little more time to pursue the leads that keep falling into your lap?
If so, you are probably asking yourself the ultimate question: Is it time to quit my day job?
To answer this question, you need to take a hard look at several aspects of your business, including finance, marketing and production.
In addition, you should consider the impact of your decision on everyone involved and then decide if life as an untethered entrepreneur is for you.
Can You Afford to
Leave Your Day Job for Your
Some basic number crunching can give you an idea of whether or not quitting your day job is financially feasible.
How much money do you need to live on?
How much income does your business currently generate?
How much would sales need to grow in order to meet your financial needs?
It is impossible to answer these questions without examining your books.
Most of us in the world of jewelry hate accounting. While we revel in the challenge of assembling intricate designs, we cringe before the tedious task of tracking our revenue and expenses.
Setting up a consistent, dependable accounting system will save you a lot of grief as your company expands.
There are several good software packages on the market but it pays to invest in professional help to get your system modified to your specific needs.
These programs will automatically generate financial reports but you should still understand some of the basic concepts that underlay your profit structure.
Net profit is what is left over after subtracting variable and fixed costs from sales.
Variable costs rise and fall with sales. They include materials, labor and shipping.
Even if you make the jewelry yourself, you should count the cost of your production labor, first because it has value and second because you may need to hire help as your business expands.
Cost your time out at least the rate you would have to pay someone else to do the job.
Fixed costs include rent, long term loan payments, licenses and utilities. These costs remain relatively stable, even when sales fluctuate.
However, when a business expands considerably, fixed costs do eventually go up. For instance, if your business gets too big to operate out of your home, you will need a studio, and the studio rent will become a fixed cost.
Other fixed costs might include administrative expenses and marketing expenses such as advertising and trade show fees.
It is impossible to foresee all of your costs (did you remember business insurance?), so adding on a 10% contingency to both your fixed and variable costs is a wise precaution.
For more precision, you should also include the opportunity cost of your capital, that is, how much would your money be earning in a safe investment, like a treasury bond, if it weren’t tied up in your business?
In effect, you are loaning yourself money, and those funds come at a price, just like any other loan.
Now that you have an accurate reflection of your expenses you can calculate some useful figures.
Your Net Profit
Let’s start with net profit.
If you have sales of $150,000, with variable costs of $75,000 (50% of sales) and fixed costs of $50,000, your net profit is $25,000.
Your profit margin is the percentage of net profit over sales, in this case 16.6% ($25,000/$150,000).
Up to a point, profit margins will improve as sales rise because the fixed costs are spread out over a larger revenue base.
If sales rise to $200,000, variable costs will stay at 50% of sales and rise to $100,000 but fixed costs don’t change.
Your net profit would be $50,000 or 25% of sales.
For this reason, it is important to keep your overhead (fixed costs) as low as possible without compromising your company’s viability.
If you know how much money you need to live on and you have calculated your profit margin, you can estimate the level of sales necessary to reach your income goals.
For example, if you are aiming for $50,000 before taxes and your profit margin is 20% you need to set a sales target of $250,000.
If your sales are currently at $75,000, you will need to more than triple sales before you have sufficient income.
With this in mind, you can gauge how much of your savings you might need to tide you over as you build up your sales.
When setting an income goal, be sure to take into account the loss of any benefits like health care and pension plans that you might currently have through your day job.
These are personal expenses that will come out of your net profit.
Income taxes also come out of your net profit and keep in mind that self employment taxes add 15% to your tax bill!
Another valuable exercise is to approximate the dollars per hour you are currently earning running your part time business.
Add up all the time you spend on the business. Don’t forget purchasing, designing, producing, selling and paperwork.
Divide the amount of net profit you made last year by the true number of hours you worked.
How many hours a week would you need to work to support yourself at this rate?
As your business grows, you will delegate some of these tasks, but you will also assume new ones.
Will You Have Enough Capital
for Your Growing Jewelry Business?
On a sobering note, the results of a gem and jewelry arts business survey published by Lapidary Journal in Feb. 2000 indicated that 56 percent of those polled didn’t feel adequately compensated for their time.
Growing a business requires capital.
Capital can come from outside sources or from reinvested earnings.
Many people who have small part time businesses reinvest most, if not all, of their profit.
In this way, their businesses can expand without taking on debt.
It is important to recognize that if you quit your day job and need to live off your profits, you won’t have as much money left over to reinvest in inventory, supplies and equipment.
It is essential that you have enough working capital, money that stays in the business, to sustain the level of sales that you need to support yourself.
This money will be tied up permanently in inventory, equipment and day to day cash flow needs.
If you don’t have enough money in the business at this point, it is crucial to arrange funding up front from your savings, investment by a third party or a loan.
If you are not realistic about your capital needs, you could find yourself in a potentially bankrupting cash crunch.
Decide on Your Marketing Strategy
To maximize the chances of achieving your sales target, it is wise to examine your marketing strategy.
Who are your customers? How have you been reaching them?
Unless there is tremendous pent up demand for your work, you probably need to explore new marketing channels.
You can start by making a list of all the appropriate options. These might include home shows, craft shows, trade shows, sales reps, Web sites and print advertising.
All of these strategies have advantages and disadvantages.
For example, trade shows expose you to a large pool of potential buyers but the fees are high and you need to travel regularly to work the circuit.
Sales reps likewise increase your exposure but you lose control over how your work is presented and you have to budget for multiple sets of samples, an expense that can rapidly inflate your overhead.
A sales rep with multiple lines may not give yours the attention you think it deserves and commissions are, on average, a steep 15-20% of sales.
Knowing who your customers are, where they shop and what they read will help you concentrate your resources in the most efficient, effective manner.
At $3,000 -$4,000 a page, you don’t want to take out an advertisement in a trade publication unless you know a significant percentage of your customers subscribe.
Spending $4,000 – $10,000 to attend a trade show is heartbreaking if the buyers who attend don’t stock your style of jewelry.
Research is the key to avoiding these kinds of catastrophes. Talk to your customers and as many people in the business as you can track down.
Go walk a variety of different shows, cruise the Internet and check out the competition. In this manner you can choose a marketing strategy designed to reach the people most likely to purchase your product.
Achieving sales goals is only half of the equation. The other half is production.
Know Your Production Capacity
Production can make or break a company.
Buyers are generally unforgiving. If you miss a delivery deadline, orders often cancel.
You need to be reliable if you hope to build a portfolio of steady accounts.
Knowing your production capacity is the key to setting realistic delivery dates.
Labor and materials are the basic components of production.
Assuming you meet your sales targets, who will make the jewelry and where will you purchase the supplies?
If you are committed to making all of the jewelry yourself, don’t overestimate how much you can produce in a given week.
Remember that sales and administrative tasks will cut into your work day.
If you will need help, or more help than you currently have, you must decide whether to hire staff or subcontract the work to another shop, or even overseas.
Overseas production can reduce costs but raises issues of quality control and design interpretation.
When deciding whether to produce in-house, be sure to budget for payroll, space and equipment.
Don’t forget to include payroll taxes and workman’s compensation insurance. A business liability insurance policy is especially important if you have employees.
Preventing Problems with
Establish relationships with your suppliers and find out what the lead time is for ordering the materials in your line.
If you get a large order, you want to know exactly how long it will take to get your supplies.
Obviously, if the stones won’t arrive for six weeks, you can’t promise a four week turnaround.
It is crucial to give buyers this information up front.
Some materials are only available in limited or sporadic supply. If you plan to use them, stock up in advance and clearly label the product as a limited edition.
As a wise precaution, cultivate a second tier of back up suppliers by giving them regular orders throughout the year so that they have an incentive to accommodate you in a pinch.
Can You Handle Risk and Pressure?
Beyond the numbers and operating details, there are many important issues to consider before striking out on your own.
Have you thought about your risk profile? People generally fall along a continuum from risk averse to risk friendly.
Small businesses operate in a very risky environment.
Depending on your personality type, you might thrive on the challenge or develop a case of severely frayed nerves.
If you plan to delve into the quicksilver world of fashion jewelry you will face pressure to continuously come up with new “looks” and new designs.
In certain cases, you may need to present an entirely new collection every season.
Again, some people have an endless stream of new ideas while others might find their creative energy blocked by the unrelenting pressure of the marketplace.
Will You Still Enjoy Your Art
When it Becomes Work?
Any business requires numerous administrative duties.
If you are spending 70-90% of your time on sales, production and paperwork, it can be hard to make room for designing.
Don’t fool yourself into thinking that you can let someone else deal with all of the “business” issues. Even if you delegate, you need to supervise.
Can You Handle the Inevitable Mistakes?
Can you forgive your own mistakes? Even big expensive mistakes?
As your business grows you will be called upon to make innumerable decisions and judgment calls.
Every business is different and every business owner, to some extent, has to reinvent the wheel.
This process is messy and there will inevitably be disasters.
Successful entrepreneurs learn from their mistakes and move on.
Changes in Your
Home and Family Life
Naturally, any change in your life will affect family members as well.
If you have a partner with a steady job, it could provide a measure of stability as you make the transition.
On the other hand, if your partner is more risk averse than you are, the change could be a source of friction.
Having a solid business plan in place may reassure a nervous spouse but there are other, nonfinancial, repercussions as well.
There might be new demands on your schedule, such as more travel, that could be stressful on family life.
On the other hand, doing something you love for a living is a great model for kids and if you are happier, your family will surely benefit.
Making the Leap of Faith
There is no substitute for research and planning but in the end taking the leap into the professional leagues is an act of faith.
If you “follow your bliss,” as Joseph Campbell put it, you have the advantage of being true to your own nature, which is a source of strength and inspiration.
Regardless of the outcome, you will know that you gave it your best shot.
And who knows, you may become the next John Hardy.
Author Nina Cooper has 25 years of experience in the jewelry industry. Her company, Nina Designs, creates and markets exclusive sterling silver charms, pendants and jewelry findings. Her mission is to inspire jewelry designers around the world. Visit her website for free How To Videos.