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{Part 3} Dig a Business Foundation: Structure | Oh My! Handmade

Also in this series: {Part 1: Website}  | {Part 2: Contracts} 

You are halfway through shoring up four critical aspects of your business foundation. Next we are going to focus on making sure your business structure is solid.

This group of tasks is my least favorite; they have very little creativity and involve lots of red tape! But I do them because keeping my business legit is my top priority, even when it involves tasks that I don’t like so much.

Business Type

Most creative business owners start by operating as a sole proprietor or a partnership. We do this because the cost is low and it’s easy to set up. Often the most difficult task in this process is a trip to City Hall to get a business license.
But as our businesses grow, operating as a sole proprietor or partnership often isn’t the best solution and many businesses opt to become a limited liability company (LLC) or a corporation. This is because of the legal concept of limited liability (Sorry, Canadians – LLCs only exist in the U.S.).

I like to think of the concept of limited liability as a fence. When in place, it puts a fence between your business life and your personal life.

Say your business gets sued. Maybe because someone slipped and fell during an open studio, because they had an allergic reaction to your products, or they took your e-course and implemented your ideas and their business tanked.

When you are operating as a sole proprietor or a partnership and they sue you and win their lawsuit, your business assets first will be used to pay the judgment. But if your business assets aren’t large enough to pay the judgment, then your personal assets must be used to make up the difference. This means that your home, your personal savings, and in some locations your spouse’s income might have to be used to pay that judgment.

However, if you are operating as an LLC or a corporation and they sue you and win their lawsuit, only your business assets can be used to pay the judgment. Your personal assets are off limits.

Determining when it’s time to make the switch is a balancing act. On one side you want to consider your risk of being sued, on the other your personal assets. If you have substantial personal assets, then even if your risk of being sued is low, changing over might be a good idea. If you have little personal assets then it would take a greater risk of being sued before the switch makes sense.

If you are not sure, pick up the phone and call your favorite attorney or accountant* and they can help walk you through how the switch will impact you and your business.

Appropriate Documents

If you are currently operating as an LLC or corporation, then pull out your business’ Operating Agreement or By-laws (If you don’t have this document, contact whomever helped you set it up and get a copy). These documents will list very specific items that you must keep in a central file. Often these are things like financial statements, tax returns, minutes of meetings, and the entity’s formation documents. Double check that you have all of the documents listed in your formation documents, and they are organized and easily accessible. If you’ve only got them electronically, make sure that they are backed-up regularly to another location or that you’ve got a printed backup.

The reason these documents are critical is they are required to keep the fence up around your business. These documents show that you are doing everything in your power to treat your business like a business, and not like your personal piggy bank. Keeping your business life separate from your personal life keeps the fence strong around your business.

Failing to keep these documents, holding meetings or other things that the Operating Agreement/By-laws require means you are poking holes in your fence. And if we poke holes, then when you get sued the opposing attorney will drive a bulldozer over your fence and your personal assets are once again up for grabs.

Licenses and Permits

Regardless of your business type, you probably need one or more license/permit to run your business. This could be as simple as a business license from your City. Or you may need a Seller’s permit so that you can purchase components at wholesale price and collect sales tax from consumers. I exclusively work with businesses in California, so this is my go-to resource for finding out what permits and licenses are required. Even if you don’t live here, it is a good jumping off point for thinking about the kinds of permits and licenses your business might need.

Team

At some point in your business, you’ll have to hire a team. If you are there, congratulations! This is a huge step.
As a business owner, hiring someone as an independent contractor and not as an employee sounds appealing. It eliminates the need for payroll, taxes, and worker’s compensation insurance. But calling someone by the wrong “name” can result in a huge tax bill and fines.

The rules vary a little country to country, but they all come down to the same principle: control.

They are an employee if you control how the work is done, what equipment they can use, and when they can do it. If they have the freedom to decide how to get to the final outcome, they use their own supplies, and they can do it at 2am or at 3pm; they are likely an independent contractor.

If you’ve currently got any independent contractors, evaluate who is the boss: you or them. And if you are, then switch them over to an employee.

{Part 3} Dig a Business Foundation: Structure | Oh My! Handmade

Print out the worksheet by clicking here or on the image above and pull out any business structure documents you can find: employee agreements, independent contractor agreements, formation documents, licenses, and permits.

As you work through the worksheet think about if any gaps exist between where your business is and where you want it to be. Maybe you need to talk to your CPA about switching over to a LLC, or you need to block off time to get your LLC paperwork in order. If you’ve got any gaps, take out your calendar and block off time to tackle these not-so-fun tasks.
Congrats! You’ve solidified your business foundation by getting your business structure secure. I’d love to know in the comments below the first gap you are going to tackle. Or if you are all squared away, let us know so we can give you a high five.

Kiffanie Stahle | The artist’s JD

artistsjd_2001Kiffanie Stahle is a lawyer, photographer, and small business owner. In April 2014, she created the artist’s JD, a place where creative business owners can get the tools and resources they need to tackle the legal aspects of their businesses. Kiffanie believes that the law doesn’t have to be scary or hard to understand. And she knows this to be true because she’s been practicing law since 2011. When Kiffanie is not creating art or running her business, you might find her concocting something in the kitchen, soaking up the sun, or plotting her next adventure.

WEBSITE | FACEBOOK | TWITTER | INSTAGRAM

This is part 3 of a 4 part series publishing every Thursday in January to help you dig a solid foundation for your business in 2015! Mark your calendars for a special Q & A#OMHG chat with Kiffanie on Twitter, January 29th from 1-2pm EST. 

Also in this series: {Part 1: Website}  | {Part 2: Contracts} 

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Krista RainCityKnitsThe Getting To Know series features interviews with makers, artists, designers and small business owners at all different stages of their careers. I’m always interested in how other adventurers in the world of creative entrepreneurship run their businesses, get inspired and how they got started in the first place.

I have the biggest crush on RainCityKnits! Cushy hand-dyed yarn in bold, bright modern hues. What’s not to love? Krista, the woman behind the brand, is all about sustainability, fun colours and some serious getting down to business.  Let’s get to know Krista: 

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Hi Krista! To start with, I’d love to know a little bit about you and your business.

I’m a Vancouverite who had to travel and live around the world to realize how much I loved my hometown. I learned to knit while on a university exchange in small town New Zealand: a country with more sheep than people.

RainCityKnits was born out of a love of bright colours – an antidote to the the endless grey season here on the West Coast. We strive to offer high-quality products that are ethically created, without compromising on aesthetic.

Prior to launching RainCityKnits, I worked internationally on issues of sustainability and social justice. My passion and commitment to these issues guide my business practices.

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What’s the story behind the name RainCityKnits?

Those of us who live in the Pacific Northwest are very familiar with rain. Vancouver is often referred to by locals as the Rain City. I wanted the brand to reflect the location from where RainCityKnits comes. Rain also evokes a desire to snuggle up in warm woolens so the name just fit. If I could go back and change things, I’d probably re-think the word “Knits” and go with “Dye Studio”.

Drying Yarn

How did you get into dyeing yarn?

Truthfully, I couldn’t find the colours that I wanted on the quality of yarn bases that I like to knit. My experience has been that bright yarn colours are often seen as childish. A function of this attitude is that the truly bright colours are often limited to acrylic or other “economical” yarns. I tried dyeing some bright colours on a lark one day and here I am.

Do you prefer dyeing or knitting?

I don’t really think I have a preference. They are different activities, performed in different contexts. Dyeing is more “organic” than knitting, in that you can experiment more while having successful results. Knitting is more regimented and repetitive. They appeal to different aspects of my personality.

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What have you been knitting with your yarns lately?

I’m currently working on a sweater coat by a Norwegian knitwear designer in our Steel Grey Worsted. I’m a huge fan of Nordic designs. I love the tendency toward “strong shapes” that are modern, simple and unfussy. I just finished a pair of socks that use our Graffiti yarn and Hot Pink accents by Vancouver-based designer Holli Yeoh.

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How would you describe your relationship with colour? Do you have a favourite?

I’m a huge fan of bright colours. I’m particularly interested in neons at the moment. I love seeing a super bright colour like Electric Coral paired in a sweater with a neutral like a cream-colour. Lucky me, neons are super popular at the moment, which is great. I’ll still love neon after the trends move on too.

Where do you find inspiration for your brand?

I take a lot of my inspiration from the street fashion I saw during my time living in London, UK. I admired the boldness of the younger Brits who aren’t afraid to mix colours and patterns together and thought “Why can’t this be the case with knitting too?”. I like the idea of taking something traditional like knitting and pushing toward a more modern aesthetic.

Yarn Drying-2

RainCityKnits seeks to use ethically sourced fibre. Could you tell us a little bit about that and why it’s important to you?

When RainCityKnits started out, I sourced all my Merino Wool from a Uruguayan mill. The employees there were organized as a Worker’s Collective – a popular way of structuring a labour force to ensure fair rate of pay. As the business has evolved, I’ve expanded my range of fibre to represent customer requests from a variety of suppliers. I work closely with yarn distributors to understand the supply chain involved in the cultivation of the fibre I use, favouring Fairtrade and Organic yarn bases where possible.

I am hoping to work with a local farm to source fibre closer to home in 2015.

Yarn Dyeing

What’s your best-selling item?

The best selling item at the moment is our Graffiti and Highlighter Yellow colourways. I think the craziness of these colours makes for fun knits and something a little bit different than what you might find elsewhere.

Which is your favourite item?

Personally, my favourite yarn colourway is Electric Coral. There’s something about this colour that just makes me so happy. I actively have to talk myself out of knitting everything from this colourway, with moderate success….

Yarn Drying

What does your typical work day look like?

One of the neat things about running RainCityKnits is that no two days are the same. There’s constantly a shifting list of priorities and tasks. That said, I’ve developed a bit of a structure to help me be as efficient as I can be. Mornings are spent taking care of admin stuff – responding to emails, invoices etc. The boring stuff to many makers, although I do enjoy getting things organized.

Lunch is spent at the dog park with my 2.5 year old Labrador Retriever, Pamela. Working in the neighbourhood means that I’m able to spend a lot of time with my dog. We have a group of “dog friends” over there who we meet at noon every day. This midday checkpoint actually helps keep me accountable timewise, which is perfect since I am easily distracted.

After lunch, I’ll head over to my studio to get the dyeing process started. I’m very lucky and the studio is located a short walk from our home in Railtown. The studio itself is part of an artist-run centre which offers 22 studios for rent at a really reasonable rate. This has allowed me to expand RainCityKnits.

I dye to order. To keep things organized, I work with a dye rotation schedule of about 14 days, which means I dye one colour once per fortnight. For example, I dye all my Hot Pink colours together on Day 1 and then my Vermillion (Red) colours on Day 2 etc. This leads to a slightly longer turnaround time for customer orders, however it means that I’m able to minimize wastage of water / dye and also to keep my wholesale customers happy too.

Throughout the day, I make a point to look at my social media – especially Instagram. This also helps to keep me feeling connected to the world outside! I love seeing what customers are doing with our yarn!

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What do you love about running your own business?

There’s so much that I love about running my own business. I think the best part of running RainCityKnits is that I have complete freedom to take the business in any direction that I choose. It turns out that I have a strong point of view about colour and I have found a way to share my viewpoint. I actually never considered myself to be artistic before I started RainCityKnits. Running my own business has allowed me to develop a creative part of myself that I haven’t given much credit to before. That part is pretty awesome.

I also really love the flexibility that running my own business provides me in terms of scheduling. I know this is one of the parts that appeals to many self-employed folks. That’s not to say that the hours aren’t long – they are! – but I am able to choose when I work.

What do you find the hardest?

The hardest part of running my business is flying solo a lot of the time. At first, working alone from home was a novelty. I’m quite a social person though and at this point, the novelty has worn off a bit. Loneliness is super common with self-employed folks, and emphasizes the importance in ensuring one has interaction with people outside of work through social activities, community involvement etc. Pamela the Lab and I have just signed up to be volunteer visitors at an Adult Day Centre, which we’re both excited about!

RCK - Portobello Cowl 2

Do you do many craft fairs?

I do 3-4 fibre related shows per year. In the beginning, I did do a few non-fibre specific shows and through that process, found out who my demographic really is: knitters, crocheters, so essentially fibre people.

The shows I attend – including the Knitter’s Frolic  in Toronto – are full of enthusiastic customers. I really love meeting customers face to face and sharing in their excitement. Working alone in the studio, it can be easy to forget about the big picture. When I go to a show, I’m reminded just how awesome fibre people are. The days may be long, but it’s totally worthwhile.

What do you do to get inspired when you’re feeling drained?

If I’m feeling drained, I’ll usually take a walk around the neighbourhood into adjacent Gastown and check out what people are wearing. I find that process really reinforces my overall vision by reminding me of what I love! We are a very urban brand so it makes sense to take inspiration from the heart of the city.

I also find that shifting gears away from work really helps me too. Meeting up with friends, doing something fun and non-work related and usually silly helps a lot. When I do return to work, I’m more inspired.

Elephant Mitt Close Up

If you could spend a day with any maker/artist, who would that be and why?

This is the toughest question yet! There’s such an insane amount of artistic talent out there. In terms of my own industry, I really admire Stephen West for his creative knit designs. He is someone who pushes the envelope in terms of re-imagining what knitwear can be and he’s gained a huge following from a diverse range of knitters too. I love seeing older folks knitting and wearing his designs. He proves that everyone can appreciate edgier styles.

I’ve just discovered visual artist Alison Shields who works out of the same artist centre as I do. She uses very simple tools – tracing paper and pencils – to create these layered drawings that are different than anything I’ve seen before. Her pencil drawings hint at natural landscapes without being too overt. I’d love to watch her creative process.

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What is one thing you wish you had known when you launched your business?

When I started, I had no idea that my little hobby would grow into a business. As a result, I didn’t have a bookkeeping system in place. When tax season rolled around, I had nearly a year’s worth of accounting to catch up on. My advice, boring though it may be, is to get some basic bookkeeping system set up. There are lots of online systems that can help – I personally love StitchLabs, which is geared toward crafters.

Also, if you plan to sell online through a platform like Etsy, be sure to do your research on your tax obligations to customers in the regions to which you sell. Again, not the most exciting way part of running a business but super important. You don’t want a nasty surprise at the end of the tax year when you find out that you should have collected tax from customers!

Treat yourself to some RainCityKnits goodness.

RainCityKnits yarn shop on Etsy

Connect with Krista

Instagram – @raincityknits

Blog – RainCityKnits

Ravelry – RainCityKnits group

Twitter – @raincityknits

Facebook – RainCityKnits

Pinterest – @RainCityKnits

What did you learn from getting to know Krista and RainCityKnits? Share with us in the comments!  

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{Part 1} Dig a Business Foundation: Contracts | Oh My! Handmade

Also in this series: {Part 1} 

I’ll admit it; I’m a total contract nerd. I’m the one that goes off in the corner and reads through every last word when I’m buying a new phone and they hand me a contract to sign.

So, I’m sad that contracts often get a bad rap. Since contracts really just define the boundaries of your relationship with the other party. They are there to say what you expect from each other, what the ideal outcome will be, and what happens if something gets off-track.

Having contracts that make sure you get paid, aren’t taken advantage of, and protect your creations are essential to the foundation of every creative business.

At minimum you should have two kinds of contracts in place for your business: client/customer contract and independent contractor agreement.

Client/Customer Contract

Getting paid by your clients and customers is how you keep the lights running, so it’s a no-brainer to have a solid contract with these people.

While I could give you a whole list of items that you could include in your contract, I think the following are the most critical.

What is being exchanged?

There’s a contract term called “mutual consideration”. This is a fancy way of saying that to have a valid contract both of you need to give something to the other party. This can take on many forms; it might be that one of you is providing services and the other giving cold hard cash. Or it could be that you allow someone to use your illustrations on their blog in exchange for publicity. The bottom line is we need to define what this exchange will be and clearly outline not only what’s included, but anything not included (in other words you should clearly outline the scope of the project).

What happens if the scope changes?

At some point the other party might ask you for a task outside the original scope. Because of this, it’s important to outline how this agreement can be changed. For example, if you sold 50 pieces of jewelry to a wholesale account and they’d like more do they have to order a minimum number of pieces? Can they do this via e-mail? If you provide graphic design and web design services and I hire you to create a graphic, but during the process we decide I need work done to my site, do we need a new contract? Or can we add an addendum to our current one?

What happens when we disagree?

If for some reason the two of you can’t agree on what the contract says, or if one of you is failing to live up to the promises you made in the contract, how will disputes be resolved? Do you have a mutual friend that you want to listen to your cases and then make a decision? Do you want an outside third-party, like a mediator, to be the one to make the decision?

How can we end this relationship?

While we hope that the contract will be a success, sometimes it’s just not a good fit and you need to get out. So you should outline how the contract can end. It might be that either of you can end the contract for any or no reason with 30-days notice. Or you could end it with 10-days notice if one of you fails to live up to your end the exchange.

Who owns the intellectual property?

If you are creating or exchanging something of a creative nature, you need to define who owns the intellectual property that will be created as a result of the contract. If you are collaborating, you might be co-owners. If you are the artist and they are giving you cash, you might retain the copyrights and only grant them a license to use your work.

Independent Contractor Agreement

At times, your business will be hiring independent contractors to help you. This might be a virtual assistant, a web designer, or a social media consultant. Some of these professionals will have their own contracts for you to sign, but many times you’ll be asked to provide a contract.

All of the items that we discussed for your client contract should be outlined here as well. In addition to these things you also should make sure that you are hiring them as an independent contractor and not as an employee. This assures that you are not responsible to pay their taxes or give them benefits.

When you are given a contract

Even though you have these contracts in your arsenal, it doesn’t mean that you’ll always get to use them. Sometimes the other side will want you to sign their contract.

This is where my biggest contract rule comes into play:

Never sign a contract you don’t understand

This is where most creative businesses get in trouble. They are given a contract, understand 90% of it, and sign it. Sometimes it works out, but occasionally, something goes wrong and they get upset about what the other side is doing. When I’m wearing my lawyer hat, my least favorite conversation to have with a creative is to tell them that I understand why they are mad, but there is really nothing we can do about it because the other side is a-ok according to the contract.

Having a process in place to evaluate and assess the contracts given to you is critical for securing your business foundation. Your process might involve Internet research to translate the legalese into English or you might have an expert on your team that you pass this task off to.

{Part 2} Dig a Business Foundation: Contracts | Oh My! Handmade

Click here or the image above to print out this worksheet and pull out your contracts. As you work through the worksheet assess if there are any gaps between where your current contract process is and where you’d like it to be. If you’ve got work to do, take out your calendar and block off time to tackle these issues.

Congrats! You’ve now reinforced the foundation of your business by getting your contracts squared away.

I’d love to know in the comments below which contracts you are going to tackle next. Or if you are all squared away, let us know so we can give you a high five.

Kiffanie Stahle | The artist’s JD

artistsjd_2001Kiffanie Stahle is a lawyer, photographer, and small business owner. In April 2014, she created the artist’s JD, a place where creative business owners can get the tools and resources they need to tackle the legal aspects of their businesses. Kiffanie believes that the law doesn’t have to be scary or hard to understand. And she knows this to be true because she’s been practicing law since 2011. When Kiffanie is not creating art or running her business, you might find her concocting something in the kitchen, soaking up the sun, or plotting her next adventure.

WEBSITE | FACEBOOK | TWITTER | INSTAGRAM

This is part 2 of a 4 part series publishing every Thursday in January to help you dig a solid foundation for your business in 2015! Mark your calendars for a special Q & A #OMHG chat with Kiffanie on Twitter, January 29th from 1-2pm EST. 

Also in this series: {Part 1}