View Full Version : Starting a knifemaking business


Bill Foote
02-18-2002, 12:23 PM
I progressed to the point of actually selling a few knives now and then. What is the standard way a knifemaker starts his business, tax wise? Incorporated, sole proprietor? Just wanna keep Uncle Sam off my back.

Don Cowles
02-18-2002, 12:52 PM
Sole proprietorsip is pretty common. Go to your county office and register the name of your business, open a bank account, apply for a state sales tax license, etc. Your banker can probably walk you through whatever you need to do for where you live.

Bill Foote
02-18-2002, 01:06 PM
Thanks, Don, I was hoping it would be an easy process. Hopefully not too expensive either.

Les Robertson
02-18-2002, 06:36 PM
Bill,

First, you find yourself a good CPA.

A CPA will be able to point out the advantages and some huge disadvantages of being a sole proprietorship.

At a minimum look at becoming a Limited Liability Corporation (LLC).

Most knifemakers don't realize that if someone cuts themselves with one of your knives, they can sue you (for them being stupid).

If you are a corporation, the person suing you can only go after your corporation's assests.

If you are a sole proprietorship, they can go after your person assets, including your house in most states.

Remember, you said you were interested in a business, not a hobby. So treat it as such.

Don is correct, you need to set up a seperate bank account. I would also apply for a business card and find out about the Bank's "Merchant Services" as you will want to set yourself up to take credit cards, especially if you are going to be on the web.

Find a bank that will give you the best package.

Jerry Fisk wrote a book on the business of knife making. I would recommend you find one of these and buy it.

As I would recommend this book to every knife maker out there. This Fisk guy seems to have done "ok" for himself.

Personally, my business is set up as a "C" corporation.

Yes, there is more paper work and there are a few disadvantages. However, the tax law is written to favor "C" corporations and take advantage of sole propritorship's.

Bill, one more thing. Spend the time and MONEY and get a good CPA. Don't skimp on cost when it comes to spending money for good advice. Saving a few hundred can cost you tens of thousands during the course of your business.

Remember, every penny you pay for business advice, CPA's, attorneys, classes, books, seminars....is of course deductable!

I have found in my business the more "Smart" money I spend, the more money I make.

Bill Foote
02-19-2002, 02:49 PM
Thanks Les and Don.
I spoke to one knifemaker that was asked for a taxpayer ID# at the Houston Show.
I talked to a good CPA. She's gonna help me set it up. A chapter 4 corporation is another option. I found it kinda crazy that if someone cuts themself with your knife they can sue you. I've seen alot of bandaids come out at knife shows. Thanks for the info and it doesn't hurt to CYA.
There's always the advantage of writing off your equipment, and I've spent alot lately.
Bill

primos
02-19-2002, 04:33 PM
Les,
Thanks for the great information. It is most helpful.

I can vouch for your recommendation of Jerry Fisk's book also. I have a copy. It's called "Handbook of Management and Organization for the Knifemaker". It is a 29 page powerhouse of information. No fluff in this one. Every sentence in the book is telling you something you need to know.

Here's what kind of stuff you'll find in this little jewel.

Full-Time vs. Part-time
- Disadvantages of Full-Time
- Disadvantages of Part-Time
- Advantages of Full-Time
- Advantages of Part-Time

Business Management
- Goal Setting
- Time Management
- Record Keeping
- Working Toward Better Quality

Ethics and Etiquette
- Client Relationship
- Maintaining a Good Relationship With Other Makers

Sales
- Advertising
- Brochures
- Correspondence
- Sales Records
- Shipping
- Show Sales
- Methods To Get Your Work Published
- Work Published

Finances
- How to Price Your Work
- Goal Setting Your Purchases
- Bookkeeping

He also provides a sample spec sheet and a sample expense statement.

I don't know if Jerry still has this book available. It has been out for quite a while. Maybe he will come by here let everyone know.

Roger Gregory
02-19-2002, 05:23 PM
Good advice as always from Les.

Terry, that book sounds like it would be useful for all sorts of sole-trader operations. If Jerry pops in to tell us whether the book's still available I might need one as well.

Roger

BCB27
02-19-2002, 07:40 PM
Great thread, guys. We don't hear enough about the business side of knives.
I think that Jerry's book is still available on the ABS website.

Brett

fisk
02-19-2002, 07:52 PM
Les and Terry
Thank yall for the kind words. But if I was real smart I could have held a good job instead of being self employed. I just mainly try to keep from being the largest collector of my own work.
Bill, there is a lot to this if you want to do it as a business. To be honest a lot of knifemakers are better off to leave it as a hobby, get some business cards and just simply pocket the money and go on. You really have to work at it if you want to do this as a business. I do not mind telling you anything I know about it, which is just what I have picked up along the way. As the old saying goes, I like old sayings, Most business do not plan to fail, they fail to plan. Only one in five business will survive its first 3 years last time I checked the figures.

To do this as a business.
Les is right incorporate. I incorporated as a sub chapter S. I own my own tools, I lease them to the Corp. If the Corp is sued there is nothing there but a truck and a few other things I can replace. I pay myself $250 take home pay each week. That is it. There are benifits and bonses to be had. See CPA.
There is many advantages if you want to do this as a business if you work at it. That is the difference between making it and not sometimes.
Also one of the most important things you need to do is subscribe to the "Cutting Edge" magazine from AG Russell. You must know what the second market is doing not only on your own pieces but others as well. For instance does a certain engraver add to or detract from the 2nd market price? Does adding a damascus spring on the folder add to or detract from the price? Does jigged bone resale good on damscus folders? Many things I learn from just studying that and asking questions. If you do not know any of the above questions how can you advise your clients on whether it is a stable purchase or not? {By stable I mean will he be able to recoop as much of his money as possible on the resale} And advise them you must. The end results are up to the most of the time but you must be able to point this out. If not this can really make your pieces look bad. Another purchase in a book is Les's. Not because he is here but because the book is a good one. He does a good job of explaining why and how to purchase a knife. If you are trying to sell a knife can you afford to be without a book that tells the collector in good sense of what to look for and how to buy it?
I have always looked at as I could not sell one man one knife and retire out of the business. I must have him come back. I have clients that have been with me for 14 years now. You must also learn how to grow you own clients. How to bring them in at entry level and have something for them to grow into with their buying purchases. Different levels I guess is a better way to say it. But there must be something there. You got to treat that client so that he knows he can play poker with you over the telephone.
I have learned a lot of things since the little book. One of the smarter things I have done lately is hire a secretary. When I would finish a knife I have to wrap it up and ship it. Go to the bank on occasions, run and get local supplies, pay bills, etc. For $5.50 a hour someone does this for me as well as answer the telephone. This saves at least half of a day many times and sometimes more. Having her makes me money. If I could not make a living making knives I would still make them and give them away if I had to, but I do choose to make a living at it so I have to work the business end of it.
Anyway anything I can help with just let me know. I will try and keep an eye on this thing for a few days.
fisk

Rob Simonich
02-19-2002, 08:20 PM
Les, Fisk, where do I get Fisks book? I am almost ready to turn the paperwork for a LLC Corp. I dont want to do the wrong thing!

Bill Foote
02-19-2002, 09:00 PM
Thanks an awful lot for the posts guys. I do want to change this hobby into a business. I'm getting Les' book to know about collecting, trends and value, Jerry's book for his business acumen and have an appointment with a CPA tommorrow after talking to five on the phone today. And Rob, make sure you know the difference between the Limited Liability Corporation and the Sub Chapter S Jerry was talking about. Just knowing I won't get hassled by the IRS or Shows is enough right now. I'm sure it will have it's finacial benefits as I improve my quality and thruput down the line.
I will post the results of tommorrows chat with the CPA.
Thanksall,
Bill

fisk
02-19-2002, 09:37 PM
Rob
If you want it you can get it from me or the ABS web site. My address is
Jerry Fisk
145 North Park Ave
Lockesburg AR 71846
$6.50 plus $4.00 shipping. It will be shipped priority US mail.
Talk with your CPA on what you do with your pieces and your designs , monies involved etc. They will be able to advise you which is best in your case.

Bill
You got it going your way bubba. If I can help just let me know.
Another thing is DO NAME IT BOBO'S KNIVES for instance. My Corp is named Circle F Enterprises for instance. This gives me a bigger blanket to put things under. If it is named _____ Knives then you are restricted to a point on what you can take off.
My medical insurance, life insurance etc is paid by the corp, key personel you know.
I do not own a auto for instance. The Corp owns it. I just drive it. The Corp gets a new truck every two years. Personal autos you cannot take the interest off from the payments. The Corp can. The Corp even bought my lawn mower, maintance of grounds.
I pay myself very little but then again, all I have to buy with it is tobacco. Corp pays for everything around here. The Corp sent my girl child to college. The Corp pays for my retirement program. I would suggest investing in something other than Firestone and Enron like I was doing. LOL.
This can be fun if you do it right but if you do not it will bite you on the butt.

primos
02-19-2002, 10:53 PM
I came over here to post where to get the book, but I see Jerry already came by. If you guys go ahead and spend that $6.50 plus $4.00 shipping, you won't be sorry.

As you can see from what Jerry posted here, he knows what he's talking about.

Bill Foote
02-19-2002, 11:57 PM
My books ordered through the ABS and I saw Bill Moran's video-Handles, Guards and Sheaths, so I got that, too. I see how this Business thing goes now, instead of spending 7, they got me spending $70! Can't wait to get that Wilton Tradesman wood/metal bandsaw for the company.
Seriously, you've all given me aloy I can bring to the table tomorrow, Thankyou.

Bill Foote
02-20-2002, 10:20 PM
Found a good CPA today. She started me on my my to an LLC (Limited Liabity Corporation). Here's what she proposed:
Go to website bizfilings.com (http://bizfilings.com) and place an order for an LLC.
Select company name and business purpose ("all lawful business" is recommended). Use your own name for Registered Agent ot there will be additional fees.Go for the basic fee of $125.00 (plus Texas fee in my case of $225.00).
Total $350.00.
When state documents are returned fax or email back to CPA. State will issue Tax ID #.
Setup seperate bank account for business( get business credit card and get setup to accept credit cards).
Get business cards.
Start logbook for sales and sales tax.
I was encouraged to measure shop and office dimensions for utility reimbursement.
get QuickBooks or Quicken software to track business transactions.
Lease your equipment to your company. List fair market value of used equipment. Keep receipts of new equipment.
You'll want to lease your equipment to your new company so it can't be taken from you if someone sues you because they cut there @#$%^ on your knife.
I've gone to the website, now waiting for snailmail forms. Their # is 800-981-7183.

Bill Foote
02-22-2002, 04:24 PM
Seems someone else has every company name I think up, that's the only holdback now. www.bizfilings.com (http://www.bizfilings.com) is very easy to work with, but the rest is on hold till I find a name that's not taken. That website and a good CPA as Les and Jerry suggested made it pretty easy. It cost $350.00 plus CPA fees. Subchapter S used to be the best way, now an LLC seems to be the best, for me, anyway. It's relatively new.

Bill Foote
03-09-2002, 04:41 AM
received Jerry Fisk's book. Highly Recommendable!
Thanks, Jerry. My new business name.....
Sharp Reflections LLC
Bill

aiiifish
03-30-2002, 05:26 PM
LLC's are great you have corprate type protection with the benifits of a sole propriater ie. only taxed once, no board elections ect. You can get the paperwork to set up a LLC from your states secretary of state, find an atty to recieve your process and mail the form back. In mississippi it cost a grand total of 50.00. Do it yourself and save 300.00. Also ,at least in my state, you can DBA [doing business as] under your LLC. Name the LLC what ever you want then on your business licence you put what you want your knife business called. ie. superfine LLC Dba john smith knifemaker. You still have the same protection.

Steve
Double S Custom

polarbearforge
04-16-2002, 12:49 AM
What about business liability insurance? I can see the advantages of the LLC, and will probably head that way, but I still haven't received a clear answer. I asked a while ago and nobody who responded said that they had it. If you do have it, my insurance contact suggested that I ask if I can find out the provider.

aiiifish
04-16-2002, 10:05 PM
My insurance falls under my other business. It's a biohazard reclamation company. I couldnt find insurance for a long time because no one wanted to touch it because of "biohazard". When we listed it as a Specialized Janatorial Service I got insurance no problem. You might try relisting, instead of knife making try say......tool maker. wouldn't be shading the truth it just wouldn't be as specific. Just a thought.

Steve
Double S Custom