Craft Venture: accounting for overhead, part II

Hi everyone! Last week, we started talking about incorporating overhead expenses in your products’ prices. Did you spend some time this week looking at how you calculate and your overhead expenses? The exercise is a little daunting, but easier than you might think, once you get started!

One way to get started is to create lists of all possible expenses associated with your business. Many of those expenses are materials and supplies that you use to make or package your products, including materials for shipping. These are quantifiable (measurable) expenses that are part of direct cost of making and shipping your product.

Other expenses are not direct costs of making your product, but are certainly expenses you incur as part of your business. Marketing and promotion expenses, such as your banner ads and fliers you made for a craft show. Equipment that you use for your business:  printer, computer, silk screening equipment, kiln, etc. Expenses related to your studio, office, or other space that you use for your business, like electricity, internet cable or dsl, fax and phone. Fees and dues, which may include your business license, dues for your chamber of commerce membership, dues for your Trunkt portfolio. (Your office/studio expenses could be for your home office/studio, or leased/rented space – make sure you understand what those expenses are and what portion you may claim for taxes as well as for overhead – I recommend talking with an accountant [CPA].)

If you’re a hobbyist, you might not be as interested in capturing your overhead. If you’re relying on your business for your livelihood, or simply want to make sure your prices account for all expense associated with your business, you should be very interested in overhead! If you don’t have medical, dental and life insurance through a salaried job, are you purchasing your own insurance for you and your family (working in healthcare, I encourage all of you to make sure you’re covered – just one root canal or one emergency room visit could break you if you don’t have insurance!)? If you have employees, are you required to carry worker’s compensation and medical insurance for your employees? Be sure to also include your business insurance (if you’re not carrying that, you may want to look into doing so – you’d hate to lose all of your supplies and inventory in a disaster!).

Talking with a CPA is absolutely invaluable to understand how to record all of your expenses, particularly when you file your taxes. If the thought of creating spreadsheets makes you faint, there are many financial professionals who sell premade spreadsheets for you to use in your business (just try searching for “accounting” or “spreadsheet” at Etsy!)

Even as I encourage you to detail all of your overhead expenses, you’re the only person (along with your friendly CPA) who can determine what those expenses are, and how much of them to include in your overhead rate. I suspect you’ll be very surprised by the results – it’s a bit of a shock to realize how much your overhead is!

Here are some resources that may help you!

Small Business Association:  national and local

National Federation of Independent Businesses

Sample Estimate of Start Up Costs (template)

Business Owner’s Toolkit

I’d love to hear what you think! Were you surprised at the results of detailing your overhead?

Next week, we’ll talk about your materials and supplies expenses!

Image credits:  Pearly whites by it’s beautiful; 2)  Brain lightbox anatomical illustration by munstre