Hobby vs Home Business; perks and pitfalls

[Shannon McMurrin]

We are looking into the possibility of a startup of sorts next year, and are wondering what your opinion is...hobby vs home business. What are the pros and cons of each, what is your experience? (We gather insurance, particularly when a claim is in the works, can be an issue)

Also, is it unreasonable to want to clear $10k a year from a one laser operation? (Not planning on specializing in any one thing at this point, though it is not out of the question)

Thanks!

[Dan Hintz]

Plenty of old threads to look through, so I would suggest starting with the search tool to avoid any of us rehashing old material. After that, feel free to ask questions not answered in the other threads.

$10k is quite doable for someone starting out, IMO...

[Frank Corker]

I agree with Dan, you should wade through the previous posts, all your answers will be answered and you will gain invaluable knowledge. Your most expensive bit is going to be the machine, they are not cheap!

[Tim Bateson]

...$10k is quite doable for someone starting out, IMO...

I disagree... unless you are working the business near full time. Gross, maybe a slim possibility for a full-time hard worker, but clearing, not much of a chance.

I think if you read the suggested previous posts on this subject, you will see what I mean.

[Shannon McMurrin]

I've been following along since August, and have spent this morning looking through the archives. Unfortunately I haven't been able to find anything on hobby vs home business, yet. I'm still looking - unfortunately I need sleep!

$10 - 15k is our goal, not where we wish to start. Sound more reasonable?

[Rodne Gold]

10k profit is $50 a day , you would work roughly 200 days in a year ...you will probably net 20% if you are *lucky* , so you need to do at least $250-$300 a day turnover. Your capital investment on a good mainstream machines + bits and bobs would be around $25k all in and you need to amortise it completely over 3-5 years. Before you start , you have a $5-8000 a year overhead just on this
If you are one of many in your area you are going to come up against a lot of opposition that are better equipped and more experienced than you are...the question you have to ask yourself is why would anyone want to use YOU --IE what are you offering better than anyone else - and believe me if the answer is price - it wont wash.
If you are the only kid on the block , well you might have a good chance. Bear in mind that established players with overheads and rental to pay , hate garage start ups in their territory with a passion and this will not help either.
Buy a cheap chinese laser as a hobby , your capital investment will be very low , less then $3k IMHO and treat it AS a hobby , if you manage to develop markets and or a gizmo of some sort , then all is good , if not , you havent taken a bath and lost the farm.

[David Fairfield]

10k a year is definitely doable and a perfectly reasonable goal. But consider that you need to get past a learning curve, create a portfolio of designs, make contacts and find your niche. These things take a hell of a lot of time, so in my case, it took longer than a year to get to that point. It was frustrating.

Nice thing about lasering from home is overhead and material costs can be very, very low. And as far as start up businesses go, your initial investment is relatively low. You'd risk a hell of a lot more opening a bakery for example.

Worse comes to worse, check the prices on the used machines. They don't sell cheap, so besides your time and effort, your only other major business risk is the difference between used and new.

I think the issues are more personal than business. Aptitude, graphics talent, self motivation, time available, financial margins, and that sort of thing. Only you can answer those.

Dave

[Dave Johnson29]

We are looking into the possibility of a startup of sorts next year, and are wondering what your opinion is...hobby vs home business.

Hi Shannon,

Unless you are already comfortable with software like Corel etc, then there is a steep learning curve with the graphics side of it.

You need to decide whether to go with a Chinese laser for $3K+ or a local manufactured and supported one. Do a search here on "Rabbit" lasers and James Jargoski for the Chinese ones. He is the local Chinese laser guru.

A lot of people here started with an idea in mind, engraving for instance, but after some time are now making money with their laser on totally different projects. It is a matter of finding and falling into a niche.

The $10K is doable certainly but not straight away. As has been noted here you need to develop the skills to run the software and the laser. These machines are not like a printer where you put in paper and toner and "print.". You need to learn and understand how they behave with different materials and artwork. Even the same model from the same manufacturer will have it's individual quirks to figure out and learn -- and burn. :eek::)

As to Hobby v Business, there is only one option as I see it and that is make it a business. Looking for $10K+ income puts you in the sights of the City Zoning department for a home based business, the City Business License department, the State Sales Tax department and the IRS.

I would storngly suggest talking to a real CPA, not just a bookkeeper and create an S-Corp. Once granted by the IRS, your business income flows straight to your personal income so you are not Taxed twice. With the S-Corp you have a lot of advantages for depreciation, costs etc.

For me it is a no-brainer on Hobby v Business.

[Martin Boekers]

Much can depend upon your "social/business network" when starting out.

Learning the software is a pretty big curve, much more than learning the laser.

If you can make the ARA show this week GO! If not NBM Show is another choice. (not a great show, but just starting out, I definantly would try to make it.)

Some vendors won't sell to you with out a tax ID # so be aware of that.

A business plan will help define your target work.

Putting out a "shingle" out won't neccessarily bring in work.

Don't believe the "hype" that your told before you purchase your laser, on just how much money you will make by putting a name on a piece.


Check this thread out;

http://www.sawmillcreek.org/showthread.php?t=127296&highlight=buying+laser


Welcome aboard and good luck!

Marty

[Mark Winlund]

Also, is it unreasonable to want to clear $10k a year from a one laser operation? (Not planning on specializing in any one thing at this point, though it is not out of the question)

Thanks!

Not a chance.... listen to Rodne.

Mark

[Shannon McMurrin]

I'd love to make a show, unfortunately that isn't possible right now. I am an OTR trucker with zero free time at the moment. Don't worry, I absolutely do not believe the fairy tales I've heard from vendors (Trucking recruiters promised me 100k a year starting out - HA! That was a big practical joke. I've been disillusioned of any notion of easy money since then) I won't be making any final decisions until 2011.
I hadn't looked into the Rabbits, but I will be. It may sound strange, but my preference would be to do all the little trinkets that people don't buy during a recession. I grew up doing craft shows and fairs with 4 generations of my family, and loved every show! I've been looking at Epilog for the service and warranty, as I do not have any laser experience.
Unfortunately I don't have theluxury of picking this up as a hobby, as Rodne suggests. It's got to be all in or nothing, as I will not have an alternate income source after September. I will have the money to do this right, and enough capital to live 3 to 5 years without making a cent - but it will have to turn a profit after that, or I'll have to come back to trucking. The good news is that I only require 10 - 15K a year to live, maybe less after I get settled in. I will be moving to a rather poor, unincorporated area. There are no building codes, or business zoning, there is no county government, and not much in the way of business beyond logging and mining.
Dave - thanks for your input on business vs hobby. It seems that business is indeed the best way to go. There seem to be advantages to all sorts of things when done as a home business, despite a higher startup cost. Profits, taxes, deductions, insurance, liability, marketing. I will definitely talk to a CPA about this!

[David Fairfield]

Hey Shannon

The trinket market has a bad rap. You have to make a lot and sell a lot just to break even, and the competition is fierce. You will be competing with pennies-per-hour Chinese labor. That said, there is money in trinkets if you have a good concept and hustle like mad. Sounds like you already have some experience.

You might consider subcontracting some of your ideas to an established laser operator, at least at first. That way you can test the waters without making a big investment. And while you are subcontracting, look at other sources of customized nick nacks. Laser-only might not be your best plan.

Dave

[Tim Bateson]

If it's the craft shows you like, then you have a hobby, not a business. I say this because there is ZERO money in crafts. No one pays for quality and everyone wants a bargain. If you devalue your time spent on the crafts to $0/hr you may make a little money (material costs vs sale price only).
Everyone will love & rave about your works, but it stops there.

I too love doing this type of work, but I just can't compete in that market. Worked my butt off and sold a lot of crafts, but at very little profit.

Having said that, I have been able to narrow down to just a couple craft items that do sell at a moderate markup. I'm not talking about making mega $, just spear pocket change. In this one case it sells because it's exclusive.... and for my quality - of-course.

[Rodne Gold]

I would try set up a deal with the logging and mining company re engraving and other services like signage and the like , that might just be the bread and butter and you can dabble with trinkets for the jam.
You can make money with trinkets if you supply others for them to sell at craft fairs.
I would use the laser in a few ways for this , I would produce masters out of perspex for keytags , golf pitch repairers , bottle openers , cell charms , table clip on weights , fridge magnets etc and have them spun cast in pewter or zinc.
You could also produce a range of cell phone charms , cheap earings , pin on badges , necklaces etc in perspex , formica , wood , engraving laminates and the like and wholesale these. Small items are cheap in materials and take no time to make.
For example , a small pendant dolphin set of earings in multicoloured acrylic would cost literally pennies to make , the material wont even be one square inch and it shouldnt take longer than 20 seconds to cut em (each)..you could sell em for $1.50 a pair and probably make at least 150% profit.
This is just me , but I wouldn't get involved with authorities and legalities in this business till you are ACTUALLY making some money or profits.

[Tim Bateson]

Rodne, I do believe you may be the king of this biz, however...


...You can make money with trinkets if you supply others for them to sell at craft fairs.

100% Agree - see below


...the material wont even be one square inch and it shouldnt take longer than 20 seconds to cut em (each)..you could sell em for $1.50 a pair and probably make at least 150% profit...

95% Disagree - What about the time to design, cleanup, assembly, selling, billing, shipping/transport, or the time wasted in a 1 or 2 day event (assuming you would be the seller). That's what I meant about devaluing your time. I do however think that there is profit to be made here, but utilizing your 1st point about selling in bulk for someone-else to assemble & sell.

[Rodne Gold]

Tim , I agree with you re wholeasle qty , we do assemble em tho - using unskilled minimum wage labour at round $3 an hr - typically 70-100 pairs an hour. I dont have issues with cleanup on most substrates cos we leave protection on when cutting.
I even go a lot further , I supply the guy that buys em a free desktop display unit for every 1000 pairs he buys , he supplys these to flea market operators and shops for countertop display.
Cost me round $20 per shot to make, but it aids his sales and thus mine as the shops/end sellers get a deal if they take the display + some qty and when the display has a pair or 2 missing , they reorder to "fill it up". He has been quoted cheaper prices to make these , but the service we give seem to keep him loyal...

[Tim Bateson]

Your experience makes you the king Rodne.

[Dan Hintz]

using unskilled minimum wage labour at round $3 an hr
Minimum wage here in the States is $7.25/hr, and even at those prices people don't stay around too long without a raise within the first couple of months. I've seen quite a few who weren't worth your $3/hr, so there's not a lot of hope for low-dollar items here...

[David Fairfield]

Rodne, the resident Wizard, makes a really good point about the low dollar stuff. Just laser it, and leave the rest to the distributor. Of course, you have to get a gig with a distributor first!

Doohickeys that require assembly do not necessarily require your labor, or hired hands. Hobby people and part time craft show people do not flinch at buying stuff which requires assembly.

Lasering is not classic assembly line manufacturing. Its more a bizarro world of cottage industry nano ecomomics.

Dave

[Dee Gallo]

Doohickeys that require assembly do not necessarily require your labor, or hired hands. Hobby people and part time craft show people do not flinch at buying stuff which requires assembly.
Dave

In fact, a lot of the crafters/scrapbookers will buy much more than one set of earrings at a time to feed their hobbies. They are always looking for something to use which they cannot make themselves and even more unique, cannot buy from another vendor.

But you are still talking about low-end buyers. The only reason I can make money with my laser (without working 24/7) is that I cater to high-end buyers. It's worth cultivating a garden which will blossom and produce good profits than to feed a lot of stray cats. Sorry for mixing metaphors, but it sounded good at the time...:)

I will put an idea out there for anyone who might want to try it: there are some parents who spend waaaay too much money on their little kids' toys and there is also a culture of encouraging kids to collect small things going on right now. Come up with a line of small high-end items which require no skill to use and you can develop a market. I think a good easy place to start would be a funky building block set, with unusual shapes (not just cubes), with a good twist like engraved ethnic decorations for collecting. Mayan, Chinese, Russian, Egyptian, Martian, etc. come to mind. You can add vehicles, people, animals, whatever. Market to the super expensive stores in big cities and designers. Just thinking out loud.

cheers, dee

[Martin Boekers]

Tim, your right, from everything thing I've seen here with Rodney, if there's a way to make money he will show us how!

The main thing it seems is to set up a network with the crafters and fleamarketers. Once that is set-up you can take it from there.

I have a friend with a sign shop over here, you wouldn't believe the $$ he makes with his water jet during slow periods. He has created files for stained glass patterns that fit within a standard sized area.

These are cut out patterns such as birds, flowers designs etc. Each packet may have 10-20 pieces that make up the whole pattern.

He sells these to craft and hobby stores who the retail them. These cut outs are then bagged and shipped (not assembled) He does well with these and does it on signage work down time a win win for him!

For us to make the mark up after expenses that Rodne makes we would sell for 3-4 dollars each. not to far away from standard name tag territory,
but still give the retailers a bit of mark up room. The main thing is setting up a network of retailers.


Marty

[Bill Cunningham]

Minimum wage here in the States is $7.25/hr, and even at those prices people don't stay around too long without a raise within the first couple of months. I've seen quite a few who weren't worth your $3/hr, so there's not a lot of hope for low-dollar items here...

Up here, the minimum wage in Ontario is $10.00, + the employers share of Canada Pension Plan, (un) employment insurance, Health tax, and probably a few more I've forgotten, but generally raises your employee cost to beyond the reach of a lot of small businesses. But hey!! The U.S. seems to be going that direction, so you'll know all about it before long!

[Rodne Gold]

Im in South Africa , 40% unemployment rate , floods of refugees from the rest of Africa , labour is quite cheap in $ terms here , had I wanted to employ illegals I could get away with $10 a day.
The thing with a laser is that you have to be inventive and be a partner to your customer - many times I have had ideas that I could implement myself and make more profit on , but don't have the correct infrastructure to properly implement , so the idea is to find a partner to do the hard work and share the profit.
As an Example , I market to the signage guys with the main message of "Let us be the guys who do your fiddly , don't want to touch , pain in the ..s jobs , you pick up and make the money"

PS as an aside , the best Ideas I EVER had was totally rejected/ignored by our govt.

Eskom , our nationalised energy supplier is staffed by morons , the failure to plan for expansion has led to undercapacity leading to huge serieses of rolling blackouts and major business disruption. the issue is that at peak demand times , whole areas had to be shut off. I developed a real cheap solution , a sub $50 4 channel circuit breaker switch with a SIM in it to be supplied free to consumers . This would allow ESKOM , using our extensive cell infrastructure to selectively turn off circuits within a home or business , starting out with non essential circuits like a geyser, outside parking lot lights etc. This would have relieved pressure on the system without have NO electricity at all , would have provided work for many unemployed in terms of installation and would have saved $billions in terms of reducing the need for many more power stations. The consumer would have benefitted via a 5% cash back payment for electricity consumed via the switch , the consumer could also control it via their cell phone , bypass it if they wanted , would have been informed when their circuit was being switched off and switched on .
One of the biggest problems came when electricity was once agian restored , the sudden peaks of demand made the supply unstable and many electronics used to be destroyed cos of these peaks and dips on switch on , the sim arrangement meant that one could turn on in a rolling gentler fashion.
2 years on , we in a worse predicament re electricity and our govt are now dickering around with a solar geyser plan at round $2500 an installation whereas if they had implemented my device - which by the way , I gave FREE to our nation , stating that I didn't want to make money on it, we would have probably reached a critical mass in terms of installations and the need for total blackouts would have been obviated.
But alas , we live in africa , where the prime aim of politicians is to enrich themselves and most countries are ruled by despots and dictators. No wonder the world looks on us with dismay....
Sorry for the political rant at the end..but that's the way it is..

[Dan Hintz]

Rodney,

We already do something similar here in the States for air conditioning. A/C eats up quite a bit of our daily energy and our systems are also becoming stressed in some sreas, so for a discount on your electric bill the company will install a box that allows them to remotely kill power to your A/C. It's done during peak hours, and it's supposed to be sequenced...something like up to 15 minutes downtime per hour.

[Mark Ross]

Plus depending on where you live, don't forget to factor in money for a good scrubber or else your neighbors will complain about the smell. We get our acrylic in 4X8 sheets. Do you have room for saws, storage racks and all the other stuff?

I wouldn't count on 10k profit the first year. 10k gross, you could do that on one really LARGE job.

[Rodne Gold]

Dan , some homes here are also equipped with ripple voltage switches where a local municipality can switch off a geyser with some sort of signal on the electrical line. Most folk disable these - no payback for using em.

The SIM/sms idea means that the whole country can be controlled from one venue by the power suppliers themselves , the ripple switch works , but each municipality has to be contacted and various switches have to be thrown. Way too late to stop total shutdowns.
One of the really big problems we face here too are the substations whose switches are rated for x amount of cycles , surges are killing these too.

The concept of switching devices using SMS's is not new , in fact I use a device made by one of my customers , the GSM commander (google it) , but the concept of linking it up to a DB board to implement demand side management is.
The home unit had 4 chans , but industrial units had 16 channels thus enabling very fine tuning of non essential power shutdowns.
For example a mall would have been able to shut down external parking lights , then signage , then extraneous internal lights and finally maybe elevators and till points.
Apart from that , the power utility could have done extremely selective targetting , from a single house to a suburb to nationwide. They could have also targetted in other means , like industrial installations at night , city buildings at night and so on.
Fortunes were made and spent on generators here , at horrendous cost per kw/h due to rolling blackouts - traffic lights were shut off and so on leading to chaos. Our 6kva Yammy gennys use 5 litres of petrol an hour at $1.25 per litre , or in excess of $1 per kw/h , our electricity price is 6c per kw/h.
This could have been totally obviated or avoided had this plan been put into operation.
PS I did send a journalist in California a copy of my 28 page plan (Which I have attached to this post - you can wade thru it and tell me what you think :) when I read about power problems they were having there.
I documented the plan and had it notarised in Jan 08..and as I say , so far no real response. I cant really see any flaws in it and neither can anyone who has read it , apart from the fact that a power utility has the power to "invade" your home in terms of switching stuff off - but then they have even more power by shutting everything off.
Right now , our power utility has announced a 30% power price increase PER YEAR for the next 3 years - Ah well so is life....

[Dan Hintz]

Wow, that's a 220% total increase. We had something similar happen here (MD) a couple of years ago, but the price has since dropped back to a (somewhat) more reasonable value. I think prices more than tripled in some areas, but have since backed off to about 150% of original values. Makes me very happy we have a wood stove in the basement, as long as they don't raise the price of wood ;)

[Shannon McMurrin]

Mark, we'll be building a garage/shop for this venture, with plenty of room for the rest of the toys. We also have no fear about our neighbors complaining - the nearest one is 3/4 miles away! Our biggest concern about them is theft, as our shop will have to be built away from the main house in order to get electricity to it as the house is too far from the grid to tie in. We're going to have to research some sort of remote monitoring.

[Bill Cunningham]

Our local hydro, also has a deal that will throttle back AC for a discount. But it wont work with my hybrid heatpump/Nat.gas system. They have just installed gps controlled "smart meters" that monitor your time/usage Once fully implemented, you can connect to, and read your meter over the web. You get billed less for non peak power usage. Our peak power cost including all taxes etc. works out to .13 a kwh

[John Noell]

But alas , we live in africa , where the prime aim of politicians is to enrich themselves and most countries are ruled by despots and dictators. No wonder the world looks on us with dismay....
Sorry for the political rant at the end..but that's the way it is.. Sad to say, we are rather familiar with the concepts of despot and dictatator ourselves.

[Tania Duper]

Getting back to the thread...

Keep in mind, a gross of $10k/yr. is around $2k/yr. net. You're better off working at McDonald's for minimum (just under $16k/yr) and you get a free meal while you work.

If you live in/move to Michigan, you can buy a house for $1 and drastically lower your expenses:
http://www.guardian.co.uk/business/2010/mar/02/detroit-homes-mortgage-foreclosures-80

It all depends on one's creativity in how they can use it, a niche market, and their local environment makes a huge difference as well.

An example of thinking of a niche market is a company that I used to work for not too long ago. Each time a Walgreens, CVS or even a Wally-Mart takes over a pharmacy, they need someone to convert the customer data from system X to system Y, that the acquisition company uses. Nobody does this, but one company, that eventually split into two companies. Several millions of dollars per year are spent in doing this data conversion, but who else is there to do it? The data structures from both pharmacy systems involved aren't exactly public knowledge, so reverse-engineering is needed and cooperation is zero. Granted, this has nothing to do with the engraving industry but we need to think outside the box and often times something that is totally obvious (a local pharmacy acquisition) and right in front of our faces is a huge, un-tapped market or business opportunity. We have to stop and imagine the steps that people go through, depending on the thing being observed, and see if there's anything in there we can do with the laser.

The economy is going to get worse, so we need to focus on 2 types of opportunities, things people "need" (vs. "want") and cheap entertainment that people without jobs can afford.

Most people who have found something that generates decent profits will not share their secrets with the rest of the class since it doesn't take much to compete (as most of us are laser owners).

One needs to be obsessed with this business and look at the people around you, or even in distant places, and think of ways to use your laser to fill a void.

If plan A isn't working out, move to plan B. While moving from plan A to Z, always try to think of new applications and markets for the laser along the way. Talk to friends and family about their ideas and bounce your ideas off of them. Think about moving to a different city or a different country.

I wouldn't worry about legal corporation stuff or renting out a commercial space until you have the work to support it. If too many potential customers are turning you down because you lack the licenses, etc., then file the needed documents. Remember, you can be incorporated in another state (use a resident agent in that state) while living in your current state.

[Allan Wright]

Keep in mind, a gross of $10k/yr. is around $2k/yr. net.

Although I think that's pretty accurate for strict engraving jobs, the profit margin all depends on the product. My gross is about $12k/yr and my net is about $5500 of that. At least that's what I had to pay federal taxes on! If I had any other expenses I sure would have claimed them.

My business is far from what others here would consider as a typical laser business though. I use my laser to make RC aircraft kits. While the laser is a HUGE part of the business, there are other factors that help. I run my business strictly for fun, and only 'work' about 15-20 hours a month. Should I desire to clear $10k I'm sure I could manage that by increasing my work time. I prefer to keep it small.

If you want to clear $10k with a laser, it's possible, but I would think you'll need to be looking 'outside the box' a bit as far as your business plan and/or product goes.