The Three Types of Arts and Crafts Businesses

Service, Merchandising and Manufacturing Companies

Woman in a shop
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There are three different types of companies and each type of company will have a slightly different financial statement presentation. The main difference is with the cost of goods sold. Service companies usually won't have a cost of goods sold as they aren't selling a product, they are selling an idea. As the other two company types are selling a tangible product, they will have a cost of goods sold.

Arts and Crafts Service Company

Examples of services type companies are doctors, accountants, architects, actuaries, and lawyers. One type of art or craft business that would fall under this classification would be an art or craft designer who comes up with the designs for other related businesses but doesn't make any product for resale.

One example of this can be a fabric designer. Fashion designers come to a business looking for specific surface design of fabric for their garments. They come up with the pattern, design and color scheme, and use software to replicate the design in a shareable image file that the designer can send to their fabric dyers. They are paid for design work but not involved in the manufacturing process.

If you only make design prototypes, that type of craft business would also fall into the service category. One example, a jewelry designer that designs and makes a sample piece of jewelry based on the customer's, maybe a jewelry manufacturer's, specs. In essence, these types of arts or craft businesses are consultants.

One major tipoff that you're a service type of craft company is if you don't have any appreciable inventory. Most service type companies only make purchases for the job at hand so they won't carry an inventory, purchases will be expensed. If they do retain some purchases, the amount is inconsequential, especially when compared to a merchandising or manufacturing company.

Arts and Crafts Merchandising Companies

These are retail businesses such as a gallery, craft store, online shop, or boutique. A merchandiser purchases goods from an art or craft business and in turn sells the goods to the end user, a consumer like you. In many cases, arts and crafts businesses are both merchandising and manufacturing companies. You handcraft your products and sell them yourself either online, at shows, or in a storefront.

It is the best of both worlds if an artist or crafter can generate enough business to have their own retail location to sell their products.

Arts and Crafts Manufacturing Companies

This type of business makes tangible arts and crafts products that are sold to either merchandiser or directly to the customer. Going back to the service company jewelry designer, after creating the prototype, instead of selling the design to another manufacturer, the jewelry designer creates multiple copies of the piece of jewelry and sells the jewelry to either merchandisers or the consumer.

As you can tell, it's possible for you to wear different company type hats as an owner of an arts or crafts business. If you make and sell your product directly to the customer, you are both a merchandiser and a manufacturer. If you make your product and sell it to a merchandiser, you're a manufacturer only. Designers who only sell the concept have a service type business.