HOBBY TO BUSINESS – Cost Control Is Key
Your hobby gives you the space you need that is all your own. It becomes part of your life and love of life. It is your place to go when the stresses of everyday life begins to weigh you down. It keeps you centered and you are good at it. People around you are drawn to the excitement and pride you project. Or maybe its your family heritage that you want to pass down as I did. Whatever drives you to pursue this, friends and family recognize the enjoyment you get out of it. It is a passion that everyone around you shares and suddenly people are saying, “ You know you should start a business”. What could be better then making money at something you love to do.
The ideas begins to keep you awake at night and you can hardly do anything else but think about how you can make your hobby a paying business where you can work on your own time, stay at home, do what you love and even make money.
Starting a business must start with a detailed business plan and a clear description of what your goals are. For me making Italian biscotti was not the goal, but the means to keep family traditions and recipes alive. We talked and joked about it for many years, Each time someone told us that we should sell our biscotti because no one makes them like we do anymore, the desire became more of a passion. Then one day, out of the blue my sister got laid off from her job and in this devastating moment, we said why not, lets do it.
We started down the path of making our dream become reality. Creating a business plan, baking every cookie that was in our family’s hand written cookbooks and pricing out the ingredients, timing each step along the way. When we made them for family events we didn’t consider the cost at all. The first decision we had to make when we realized how expensive they were was what compromises were we willing to make. Do we go for trying to make them less expensive or do we say this is what they cost and we are not going to compromise quality. We put everything down in an excel workbook, set our prices and took a shot.
First were the permits, licenses, packaging and administration as we started our business at home our overhead was less costly but not zero. The costs began to mount and we began to look again at ways to make our product price friendly. We wanted to keep our product authentic, the way our family made and packaged biscotti. We found a packaging manufacturer (Italian packaging), who was willing to sell directly to us eliminating the middleman and sell at lower volumes. Many of these companies sell huge volumns that most small business can’t afford or keep in inventory. Searching out wholesale prices, sales and discounts became an obsession. We buy items we need after the holidays when they go on sale for example. We now kept awake at night worrying about costs; quality was first and foremost so we had to diligently work at cost control, the key to any business success. Since my sister and I have had careers in business, we were already aware of the pitfalls and the things we had to consider from a business perspective. Our family has been in the food and restaurant business ever since our grandparents immergrated from Italy in 1912. We grew up in the business and know how difficult it is.
One other important finding was that all those people that pushed us to turn our hobby into a business were there for us in the beginning. We quickly found out however, that you can’t depend on your friends and family to be your main support and customers. People love the biscotti and buy them, but you can’t sustain a business with friends and family alone. You have to move this business into the market place. This means advertising, sales, insurance, administration, bookkeeping etc. Cost control becomes harder and harder as you enter the world of business and your pride and joy hobby begins to take on more pressure. Your dream hobby job is another reality.
It became clear that we needed something to help us keep costs in check. The excel workbook worked fine for a while but became cumbersome as we began to increase product varieties and production. We needed something easier and faster to make quick quotes, print labels, keep track of our customers, send invoices out and make bookkeeping easier. Reality kept creeping in.
My husband who has a software business offered to write a program for us based on the very detailed excel sheets we had developed over a two year period and the experience we had gained. He had prepared the basis of our excel program that led us in the right direction considering all aspects and factors that had to be considered, always allowing us to know every cost factor and what our profit margin was with every order.
As I began to communicate with others and read articles of people wanting to turn their hobby into a business, I realized that we had some experience that would help others and maybe prevent them from making costly mistakes. The program he developed is the cornerstone of our business and we decided to offer it to home and small to medium size businesses – an inexpensive program that was easy to use and affordable. The Bakers Pricing Software is the result of this effort and we hope it will help others like us reach their dream of bringing their hobby to the market place successfully.
We are currently developing an accounting program that will be integrated with the Bakers Pricing Software.
THE BAKERS PRICING SYSTEM
The Baker’s Pricing Software is a system that stores all essential data to price a product in a database. The most basic data is raw material information. It stores the name, description, vendor and price information and raw material properties such as whether it is perishable, the density if available in order to accommodate volume and weight input for recipes. The system allows quick updates to take care of changes be it price or vendor. Other key information needed for price calculation is stored in the Preferences: Labor cost, energy cost, overhead percentages, material loss percentage and last but not least the profit targets for retail and wholesale. These cost items and the raw material are the foundation for all subsequent calculations and it is extremely important that this data is not only entered carefully but also maintained on a continuous basis as most of the prices fluctuate!
The next step in the process after establishing the basic cost factors is entering the recipes for your products. You select from the list of raw materials available, add quantity and dimension for each ingredient, the amount of labor and the energy used. The cost for individual item wrapping is also added. You will also be asked whether the product can be used on a tray (the basic building blocks of an order) or not. For example a recipe for frosting would not be available for trays but could be entered as raw material and be available for other recipes. The last information to be entered about recipes are the yields, i.e. the number of items you get per recipe and per pound.
Trays of one or multiple recipe items are the building blocks to fill orders. Trays may be actual trays, but also boxes or more generic, sets of items that can be used for different orders. You can assemble trays by units or by weight (if you sell a pound of a recipe item for example). You can add packaging and transportation cost to the trays. The system will then calculate the retail and wholesale price you should charge to meet your profit objectives. You then fill orders using trays. An order is a customer-oriented record. You not only enter a unique identification and the client’s name but also the delivery date, the actual sales price and any additional delivery costs. The system then provides you with a sales and a reimbursement summary for the different expenses incurred. Last but not the least are the cumbersome health permit labeling requirements. The Bakers Pricing Software automatically creates labels for individual products or summary labels for trays.
Page examples and downloads can be found at http://www.pturo.com/