But Honey, My Crafts Business IS a Job LEAVING THE SECURITY OF A FULL-TIME JOB CAN CAUSE STRESS IN A TWO-INCOME HOUSEHOLD by Frederick S. Brown

Work situation I recently quit my full-time corporate job at which I made a very good living. I was burned out and wanted to pursue my real interest: my own craft business. I have always pursued this business but only in my spare time. I decided to try to make it as a full-time artist. Living situation I am living at home with my wife. We have no children, and we own our home. My wife has a high-paying job and her salary covers all of our living expenses. Main obstacle I don't feel that I have complete support from my wife. She believes in it, but does not verbally support it. She let me quit my job, but is now saying, "When will you return to work?" Five-year goal In five years I would like to make an income of around $50,000-$60,000. Immediate goal I am looking for a way to show my wife where the business is and the direction it is going. If she is correct, and I should go back to corporate America, I will, but I need to do work on my end to see the big picture and get an accurate look at the business and the potential it may have.

BACKGROUND ON FREDERICK S. BROWN

A graduate of Yale University, Frederick S. Brown has worked for over 30 years in the field of personal finance. His background includes experience as a stockbroker, investment advisor, personal financial consultant/therapist, educator, author and financial writer. Brown has also taught courses in Personal Financial Management, Business Planning and courses based on his book, "Money and Spirit." Brown has also launched a Web site, www.moneyandspirit.com. The Web site features information designed to help visitors overcome their financial anxieties. Based in Santa Fe, N.M., Brown comes from a long line of bankers who founded Brown Brothers and Harriman, the oldest private bank in the United States.

Fred Brown:
Jeffrey's case is close to my heart as it involves a major financial issue that often comes up between couples when one party is interested in following creative work, and the other is afraid that the venture won't make enough money. I gained some insight into this knotty problem about a week before I heard Jeffrey's case. I was mediating a divorce case, and the husband was trying to negotiate a lower alimony payment. He was arguing that he shouldn't have to support his wife in her low-paying pottery business since he felt she was capable of going out and getting a better paying job.

I turned to the husband and said that his wife had chosen the pottery business because it fulfilled her spirit, and it had the potential to become a more profitable business. I added that he would have a difficult time negotiating a settlement if he was unwilling to accept her vocation. Later, I learned that the husband had been very unhappy in his high-paying job, and my words had struck a chord with him. He eventually agreed to supplement the income his wife was receiving from her craft business.

Thus, when Jeffrey told me that he needed to persuade his wife that he could make enough money in his crafts business, I felt I could help him.

I asked Jeffrey to send me materials about his business and himself. He sent a beautiful array of photos of his garden gifts, pins, broaches and enamel wares, a polished logo, financial figures showing good profit margins, order forms, a buyer's evaluation form, and a résumé that indicated that he had been a very accomplished designer before he set out on his own. In looking at this impressive material, I guessed that Jeffrey was a very capable person and that since he had produced all of this while working at a full-time job, I was confident that we could figure out a way to make this new business successful.

A fear of history repeating itself
When I asked Jeffrey about his wife's fears, he admitted that his wife had been previously married to a man who never worked, yet had a propensity for careless spending. One of the reasons that she had been attracted to Jeffrey was that he had a successful business life. She had lost respect for her first husband because he spent so much time in the stores and in front of the television, and she was afraid that Jeffrey would do the same when he left his job and started working on his "hobby" full time.

As soon as Jeffrey did leave his job, his wife started looking for other jobs for him since she was also a designer and had good connections. I asked Jeffrey if he would have the courage to turn down a job his wife got for him. He said that he might have to take the job if he couldn't show his wife that he could eventually make $55,000 in his business.

With that in mind, I set out to analyze the business. I first got assurance from Jeffrey that he had enough space and equipment to generate the kind of money he was hoping to make. Since Jeffrey had only $7,000 in cash and couldn't expect his wife to give him any money for his business, I felt that it was essential to know if he would need any additional equipment to produce his craft. He assured me that prior to leaving his full-time job, his equipment and space had been underutilized. At this point, he would not need to make any major capital purchases.

Analyzing the profit margin
Next we looked at Jeffrey's sales and profits. He had sales for three months of about $5,000. Net profits before taxes were $2,400. I divided his profits ($2,400) by his sales ($5,000) to get his profit margin (48 percent). I explained to Jeffrey that I felt this profit margin was good. I told him I believed his business had real promise for making him the money he needed. If the profit margin had been 10 percent or less, it would be much harder to make this money because he would have to sell a lot more products to get his returns.

I asked Jeffrey if he felt that he could maintain his rate of sales over the next year. He replied that he could do much more than that since he hadn't been working full time at it before. To get Jeffrey a base annual sales figure, I multiplied the $5,000 by four (since the $5,000 represented three months) and got $20,000. I explained that if he maintained his 48 percent profit margin he could net $9,600 ($20,000 x 48 percent). If he doubled these sales, he would make $19,200 (2 x $9,600).

Expanding sales for more cash
We then looked at Jeffrey's products to see how he could double his sales.

Among Jeffrey's photos were some shots of plates that he had enameled. I asked him about these plates, and he said he couldn't sell them very profitably and he was no longer going to make them.

However, he had been hired by local interior decorators and gift stores for several jobs to enamel decorations on walls and pottery. We analyzed what Jeffrey could charge for these jobs, what they cost him, and how long they would take, and found that if Jeffrey could do 10 of these jobs a year at roughly $2,000 per job he would earn $20,000.

Jeffrey was excited because he was sure that he could get at least this amount of work because he knew many interior decorators and store managers from his previous design work who would refer him business. Jeffrey lived in a wealthy community, and there were a lot of people there who wanted their walls and chinaware decorated.

Since Jeffrey was now working at his business full time, he was confident he could double his existing sales. We set the following goals based on his current sales. He could increase his annual sales to $12,000 by getting a second pin that he designed in a catalogue that was already successfully selling one of his broaches.

He could bring in another $8,000 annually by increasing his sales of pins in two local stores that he hadn't yet solicited. By expanding sales of his garden gifts to three local green houses, he could bring in $5,000 annually.

After making these estimations I totaled his estimated annual sales and got $45,000. Using a 48% gross margin I calculated that Jeffery would net about $21,600 if these projections worked out. We agreed that this would be a good start, and that his five-year goal was indeed attainable.

As I got off the phone, I was heartened by the thought that another craftsperson would be following his creative vision.

JUNE 2000: TABLE OF CONTENTS