Grocery Shrink

When you start a new business there are certain legal matters that need to be taken care of.  I’m not a lawyer or a tax expert, I’m just speaking from experience of being a business owner in Missouri.  I encourage you to seek out the details of the laws in your own state.

Ficticious Name Registry:  This is taken care of with your home state if your business name does not contain your legal name.  It does not reserve your business name exclusively for you, but just lets the state know who is behind the name.

Sales Tax ID:  You need to register for this if you are selling tangible goods.  You will be required to file quarterly sales taxes the first year and if your in state sales are sufficiently low then you can switch to annual paying sales tax.  Having this registration lets the state know if you don’t pay your tax so they can come and find you.  It also is what you need to buy merchandise at wholesale prices for resale and to avoid paying sales tax yourself on any items you plan to resell.

Business License:  Check with your city government here.  Usually this is only required if you will have a brick and morter building or be inviting large amounts of business to your home.  I didn’t need one for my limited amount of custom sewing that didn’t bring much traffic to my neighborhood.

Permit:  This may be necessary if you plan to advertise with flyers door to door or on car windshields.

Copyright:  You may file for a copyright for any original work (music, writing, sewing patterns, art, recipes) that you plan to sell.  There are also “poor man’s” copyright options that may or may not hold up in a court of law.  If you feel like copyright applies to you, be sure to do due diligence with your research about it.  This is a good place to start:  http://www.copyright.gov/

Patent:  This protects any invention or tangible good that is uniquely yours.  Find out more here:  http://www.uspto.gov/

Trademark:  This protects your logo and or your business name/slogan so no other company can use it.  http://www.uspto.gov/

Other legal business formations:  such as partnerships, c-corps, s-corps, etc.   You’ll need to find other help to sort all this out, but the easiest way to start a business is as a sole proprieter and just file your business related income on your regular tax return with your household.  You may want to look at other types of business formation when your business assets or liabilities become so large that you need to separate from your household to protect your personal assets. 

If you have a home business there are lots of income tax deductions available to you, but you will also be responsible for paying self employment tax (basically social security) on your wages.  If you work for someone else they typically pay that for you.  Also, if you make a certain amount of money on your business, you will need to file quarterly estimates for your taxes.  Failing to do this will bring penalty fees and other unpleasantries (like a huge tax bill at the end of the year.)  Be sure to seek out advice on this before disregarding it.

A simple way to be ready for tax time:  Get 12 manilla envelopes and label one for each month of the year.  Keep your sales slips, business expense receipts (including phone bills/internet if it applies and postage) and mileage records in this envelope.  On the last day of the month write the totals on the outside of the envelope for:  Gross income, expenses, and business related mileage. Group each set of records together with a paper clip and put them back in the envelope.   Then start fresh in the next envelope for the next month. 

You may also have home office deductions or deductions for equipment that you can claim at the end of the year.  If you purchased inventory to sell, that purchase price is not deductible until you sell the item.  That is why most businesses conduct an inventory at the end of the year to double check the amount of inventory that they can deduct.

There are limitless ways to design your business to bring in cash.  Some are passive forms of income and some require daily work.  Here are just a few examples to help you write this part of your business plan.

1.  Trading time for money:  This is one of the fastest ways to get the cash flow going.  This might be custom sewing, babysitting, house cleaning, painting, construction, teaching music lessons, tutoring, etc.  The biggest downfall to this plan is it requires time to make money and the hourly wage is set–so in order to increase your income you have to spend more time.  A lot of mamas need to spend their time in other ways.  This is not a bad way to start the cash flow ball rolling, but I encourage you to build a next step into your plan that will allow you to increase your salary without increasing your time spent.

2.  Trading Product for Money:  If the product is one you make yourself, then you are also trading time for money.  Under this level, there are several options.  You can carry an inventory (be sure to plan for space to store it, )  You can drop ship or basically sell a product that another person manufacturers and ships, or you can sell used merchandise (your own or other you have purchased at garage sales) on ebay or craigslist.  The big risk here is you can end up with product that doesn’t sell, losing part of your investment money.  Drop shipping fixes this, but you also earn a much lower percentage.  If you are trading product for money, aim for 50% or more in profit off the sale price of the item.  Ideally you’ll want to sell a product that runs out, like household supplies, groceries, candles, or cosmetics.  This keeps your customers coming back for reorders.  It is less expensive to keep a customer you’ve already won, then to constantly seek to replace them.

3.  Trading information for money:  This can be based on the other types of businesses but greatly reduces your time spent and increases the possibilties for profits.  If you have a fantastic house cleaning business, you could teach others how to keep their own home or to build a profitable business of their own.  If you enjoy custom sewing baby products, you might publish your original patterns for a profit.  This way you only have to create the item once, but you can sell it thousands of times with no new time spent.  Within your field of expertise you can create ebooks, electronic patterns, videos (homemade is fine if it is clear and gets the information across,) teleseminars, conferences, etc.

For the most profitable business, you will have more than one way to make money. Perhaps while you are still doing custom sewing, you launch your pattern business.  Or clean houses and teach housekeeping classes at the same time.  The trick is to never stop learning and perfecting you skills in your chosen field.  Be the go to expert that everyone is searching for.  And be confident in your knowledge while still recognizing the need to learn more.

Many of the popular companies you recognize (such as Dave Ramsey, Pampered Chef, Gooseberry Patch, Mary Kay, and Thirty-One) started with someone in their living room.   It grew to something much bigger, because they constantly reevaluated their business plan and changed slightly the way they made money until it grew exponentially.

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Pricing

Basic Economics tels us:  The higher you price things, the less you will sell.  The lower your price things the more you will sell.  But if you price things too low, the perceived value goes down and the item becomes less desireable.  There’s a pivotal pricing point that you will find from experience. 

To become a millionaire, all you need to do is help 1 million people enough that they each give you $1.  My home state has 5 million people, I only need to reach 1/5th of them to become a millionaire.  The United States has 307 million people.  The world has 6.9 billion people.  Find a way to reach them and you have it made.  Or, offer a product for considerably more and reach less people.  I have a friend who offers a detailed online seminar twice a year for $1,000 each to only 200 people each time.  But when she fills both online seminars, she makes $400,000 a year. 

There are also simple ways to earn money with a blog.  We’ll talk about this on Saturday.  Friday, I want to go into some business housekeeping such as staying within the law, building your business without debt, and basic record keeping skills that will make you happier at tax time.  Monday I’ll show you the best and lowest cost ways I’ve found to advertise.

My pattern business went okay, but was not the smashing success I had hoped for.  My advertising consisted of a link at the end of my email signature and my market niche was very small.  Only the nursing mother who favored plain style dressing would be interested in my first designs.  Still I managed to sell patterns a few at a time and brainstormed ways to get the word out for free.  (More on what I did to increase sales in a future post)

Right before my first line of patterns was printed, we became debt free by following the steps in the Total Money Makeover.  Because of the unusual way we sacrificed, we won the Total Money Makeover Contest and a trip to the Bahamas with an interview on the Dave Ramsey Show.  I thought if he would just ask me about what I did to make money, I might be able to spread the word about my tiny company on national radio and sell a few more of the 4,000 patterns that were just delivered to my door.  He never asked, so I tried to sneak it in only to be interrupted many times.  The most I could get out was….”I’m trying to start a home business…”  He Interrupted, “You need to start a home business teaching others to be you.” 

What? Me? I was a young mother struggling to figure out how to get my children cared for and educated, a meal on the table, and clean clothes in the drawers.  My house was a perpetual den of chaos as I tried to find a balance between my household duties and bringing in a little income on the side.  What did I have to teach?  Then I thought about it again, he was talking about those things.  How we did those things while living bottom dollar to get out of debt.  When we got home, I decided to write a book and write down the frugal things that I did out of necessity in a step by step process than anyone could learn and do.  The only problem, publishers weren’t ready for the book.  They wanted to see me build a blog with a following and prove there was a market for yet another money saving book.  Then I needed to be willing to travel the country promoting my book if and when they decided to take it.

I looked into self publishing, but the costs involved would prevent me from moving forward on my other dreams and I would have to find a place for the thousand of copies of hard back books beside the 4,000 patterns I had just ordered.  As I researched I found that many real authors urged against self-publishing since it can brand the author as inferior for the rest of his career.  So,  I burned the book to CD and offered it on my pattern design site as a full color file to be read on screen.

While I was working on all these things, my children continued to grow and their needs did with it.  They had dreams that needed lessons to develop and it all took money.  When my grocery ads came in the paper, there was a notice that they needed a carrier to deliver the ads to my neighborhood for $20 a week–just the amount I needed to buy the lessons for my children.  I was hired on the spot and delivered the ads on foot to my neighborhood, carrying the papers in a double stroller, for over a year.  On sunny days it was wonderful to be out in the fresh air.  But when it rained or snowed, I had to be out there just the same.  I became pregnant and fell on the ice.  That was enough for me.  There had to be an easier way to earn the money I needed for the lessons.

About that time, I had my first Mary Kay facial with the famous Andrea Shields.  I don’t know why I said yes, I didn’t wear makeup or do much with skin care.  My clothing style was very plain and frumpy and I didn’t have money to spend.  But I really liked the girl on the phone.  After the facial she asked me if I’d like to join her team.  She said I could make $200 in one show in less time than it took me to throw 200 papers for $20.  “Me?  Did you look at me?”  She said she liked my drive and could teach me what I didn’t know to succeed.  I looked at my datebook and told her I would be available to start a new business in 6 months and I penciled her in.  She thought she’d never see me again, but in 6 months I signed the papers and order my beauty case. 

Andrea was true to her word.  I did everything she told me to do and began selling product and using it myself.  I loved how my skin looked.  I loved my new confidence and that I had a better option to making money that didn’t involve slipping and sliding on the ice.  The optional weekly meetings taught me a lot of business skills that helped me grow my other 2 businesses to new levels.  I made new friends, and some of them took the time to show me how to style my own hair.  All of a sudden all people were the same in my eyes.  I didn’t need to be afraid of the “pretty girls” that used to tease me or shun me in Jr. High for my lack of style know how.  They were people just like me, made and loved by God, with dreams and fears.  I used to sit in the meetings and just cry, because for the first time I felt as valuable as any other person in the room.

Awhile after that, a local mother who purchased and read my Grocery Shrink ebook, read it and loved it.  She called the local news station to suggest a story and they followed up right away.  The local area responded enthusiastically to the story about the Grocery Shrink and the station came back for a follow up.  Soon another station asked for the story, then a radio station, and the National Enquirer.  During all that media coverage I was struggling to figure out how Internet business worked.  My website stunk, my blog was 2 hours old, and I was just learning how to capture a lead.  I’m ashamed that most of that media coverage was wasted as far as my business building went…but I hope I can help others learn from my mistakes.

So here I am with a 10,500 subscribers  waiting to hear from me each week.  I average between $50-100 a day of passive income as I teach other women to sew or shrink their bills while carving out time for my family.  The rare times I need a sitter for work is when Darren and I get to fly to a new city for a television appearance or when I teach a live conference.  I have a lot to learn yet to building my business and income to where I’d like it to be, but I want to share with you what I know now in the next few days ahead.  I’ve also asked other home business owners to share with you too. 

Tomorrow we will talk about skills and lifestyle.  We’ll use the answers to the questions I give you tomorrow to help build your first business plan.

Today I’m launching a 3.5 week series on home based business.  For the first post, I’d like to tell my story and how it evolved into the 3 businesses I currrently run. 

Ever since a child I’ve dreamed of ways to make money.  I had a lemonade stand, participated in garage sales, and designed crafts that I hope to sell one day in my trinket store.  During High School I worked as a paige and then a clerk at our Public Library and loved it!  I also volunteered a few weeks out of the summer teaching at summer camps.  My main  job during that time was figuring out how to get scholarships.   Piecing them from here and there, they added up to a full ride for my 4 year teacher education.  While in college I also worked on campus as a Math Tutor and continued my library job in the summers, while adding a part time secretary position for the State of Kansas.

After graduation, I became a 5th grade math teacher.  The first year of teaching I got married in December.  The second year of teaching, my first daughter was born in January.  I had always thought I would be a stay at home mother, but my husband was in graduate school and without my income, we were stuck.  So I tearfully kissed my baby goodbye each morning and finished out the year.  That was one of the hardest things I’ve had to do.  While I was working, I was filled with guilt for leaving my baby behind and for burdening my family with her care.  At the end of the year, I couldn’t think about doing it one more time, and resigned.

Thankfully, my husband graduated that May and found a job at a local tax firm.  I quickly found out how hard it is to be a stay at home mom.  It is hard but worth it and I hope to never go back. 

The next year, a friend of mine started a historical bookstore in Nauvoo, Illinois and asked me if I would make some period crafts to sell in her shop.  My mother designed the convertable apron/bonnet pattern that I still sell at www.blesseddesigns.net and I started sewing.  I could work while my baby was asleep and enjoyed the craft.  Though after about 200 bonnets, it was getting old fast.  While the bookstore was open over the next decade I made about 1,000 bonnets and saved most of  the money I earned in a “seed money” account to start my next business venture.

During my bonnet sewing period, I also taught music lessons–piano and voice.  Sometimes I worked for cash, and sometimes traded for things like babysitting or raw milk.  I also crocheted doilies and made other little crafts to sell.  My childhood dream of owning a trinket shop was swirling in my mind and with the birth of the internet, a brick and mortor store wasn’t necessary.  I had 2 children aged 2 and under and started to see my laundry and dishes pile up as I tried to work and spend time with the children each day.  As I thought about my dreams for the future, I realized that trading my time for money wasn’t going to get me there.  I simply didn’t have enough time in my day to care for my family and work the hours to meet our goals. 

I decided to design and sell sewing patterns.  I could create the item once, print it and sell it hundreds of times with no new time spent.  My sewing skills were upper beginner level, I didn’t have any idea how to draft patterns or change them from one size to the other, and the printing options were expensive and mind boggling.  Undaunted, I drove back to my old library and asked for university books on all the subjects I didn’t know anything about.  They were able to borrow the books from universities free of charge to me and I built my own free home study course on pattern production while my children played at my feet.

It took 3 years for me to gain the knowledge I needed to design and print my first 3 patterns.  McCalls pattern company printed the designs for me and I insisted on driving the package there personally to get a tour of the plant.  They were very complimentary of my work and were gracious to give me the tour I craved, though were puzzled about my excitment.  To them it was just a dark warehouse full of machines.  To me it was the place where dreams were made. 

I’ll finish my story tomorrow.  Here’s the main point I want you to remember today: 

While trading time for money is a fast way to get the cash flow going, build your long term business plan around trading knowledge for money.