How did you find your CPA?

[Ephemerella]

Sparing everyone the boring details as its the same yarn as everyone else (I love making soap, love it so much I made too much, gave it all away so I got to had to make more, kept giving it away, and now people want to buy it, the concept of exchanging bars for benjamins tantalizes... this should be a cowboy song?!?), I am considering... maybe... possibly... perhaps... in another year or so because I move glacially... or maybe not because I'll probably wuss out in the end... selling.

So, I'm starting my due diligence to see exactly what this entails.

And I think the most logical place to start any new venture is with the scariest part, which (for me) is the legal, tax, and bookkeeping aspect. Get that buttoned up, and the rest is a veritable cakewalk. Right?

So question to all the sellers... how did you find your CPA? Specifically, are there individuals specializing in the handicraft market, and are they findable? You know, those who can guide you through the kooky IRS December inventory musical chairs and the not-for-the-feint-of-heart sales tax morass? (I'm a soon-to-be NY'er, by the way, they make taxes even MORE fun). Or is it more like getting references and then slowly, painfully, weeding through them all?

I currently have a CPA for my day job, and I will consult him when we meet in a few weeks, but I already know this isn't his thing.

Thanks all for any help! I'm looking at you @TheGecko

 

[AliOop]

Can't help with a CPA in your region of the country; hopefully Gecko can. I will chime in with the unsolicited bit of advice to buy insurance if you plan to sell or donate. Good insurance will protect you and your Benjamins far more than an LLC or a corp. A good place to buy insurance for soapmaking and handicrafts is the Handcrafted Soap & Cosmetics Guild. Good luck!

 

[Ephemerella]

@AliOop Already did it a little while back. When my mom excitedly told me she had given multiple bars to her friends at the Y because she was so proud of me I figured that was my sign. I actually took your advice and chose HSCG.

Thank you for that and all of the advice you share here. I wouldn't have known to be aware if it wasn't for folks like you who share their knowledge so generously.

 

[AliOop]

@AliOop Already did it a little while back. When my mom excitedly told me she had given multiple bars to her friends at the Y because she was so proud of me I figured that was my sign. I actually took your advice and chose HSCG.

Thank you for that and all of the advice you share here. I wouldn't have known to be aware if it wasn't for folks like you who share their knowledge so generously.

Good on ya, then! Hopefully a few more folks here can chime in re: the CPA thing. FWIS, we no longer live in Cali, but we still use our CPA from there. Once you find a good one, hang on to 'em!!

 

[MelissaG]

Believe it or not, Thumbtack. We had tried someone before that and she was terrible.

 

[TheGecko]

So question to all the sellers... how did you find your CPA? Specifically, are there individuals specializing in the handicraft market, and are they findable? You know, those who can guide you through the kooky IRS December inventory musical chairs and the not-for-the-feint-of-heart sales tax morass? (I'm a soon-to-be NY'er, by the way, they make taxes even MORE fun). Or is it more like getting references and then slowly, painfully, weeding through them all?

I currently have a CPA for my day job, and I will consult him when we meet in a few weeks, but I already know this isn't his thing.

Thanks all for any help! I'm looking at you @TheGecko

A business is a business is a business. Some just have more zeros than others. Drop me a line, I’ll be happy to answer whatever questions I have and guide you through the start-up process (no charge).

 

[johnnyusa]

If a business is a business is a business then 1800ACCOUNTANTS.com, but i found them to know very little about soap, like give me a write off for this older soap I put up on 50% sale bc I read somewhere I could get a write off for that- I had to be the one to suggest it to the accountant.
An accountant who understands the soaping business might be a plus.
I also use Thumbtack alot and have consistently found high-quality professionals on that platform.
I priced 1800accountants to incorporate a possible soap biz and do my taxes for a year at under $900.

@MelissaG , did you use the same CPA for incorporation as well as accounting? Similar fee structure?

 

[MelissaG]

If a business is a business is a business then 1800ACCOUNTANTS.com, but i found them to know very little about soap, like give me a write off for this older soap I put up on 50% sale bc I read somewhere I could get a write off for that- I had to be the one to suggest it to the accountant.
An accountant who understands the soaping business might be a plus.
I also use Thumbtack alot and have consistently found high-quality professionals on that platform.
I priced 1800accountants to incorporate a possible soap biz and do my taxes for a year at under $900.

@MelissaG , did you use the same CPA for incorporation as well as accounting? Similar fee structure?

I haven't incorporated. He recommended against it because the most I've ever made in a year is $4400. And frankly, that just brought me to break even. My next step is an LLC , but he recommends waiting until I've cleared more in a year before I do it. I trust his judgement. Heck, last year, he got money back for us so I don't see a reason to argue.

Right now, it pays us better for me to be a sole proprietor.

 

[johnnyusa]

I haven't incorporated. He recommended against it because the most I've ever made in a year is $4400. And frankly, that just brought me to break even. My next step is an LLC , but he recommends waiting until I've cleared more in a year before I do it. I trust his judgement. Heck, last year, he got money back for us so I don't see a reason to argue.

Right now, it pays us better for me to be a sole prop

Can one write off major expenses such as a website w/o incorporation? I might need a website.

 

[MelissaG]

Can one write off major expenses such as a website w/o incorporation? I might need a website.

Ye, they are considered business expenses.

 

[Zany_in_CO]

and now people want to buy it, the concept of exchanging bars for benjamins tantalizes... this should be a cowboy song?!?), I am considering... maybe... possibly... perhaps... in another year or so because I move glacially... or maybe not because I'll probably wuss out in the end... selling.

You don't need to be "a business" to start selling. You have a ready-made customer base and even potential "testers" willing to buy your soap AND give feedback. You don't even need to "sell" as such... your enthusiasm and knowledge of your product plus awesome fragrance is what sells soap!

I made my first soap at age 60 in 2003. I needed a hobby, not a "business" -- been there; done that -- too much stress! I was determined that my hobby would support itself. And it did. For the first 4 years, I sold soap and other bath & body products at my annual garage sales, making $350-$500 on average. Imagine my surprise when a young man purchased a few bars at my first garage sale. Imagine my surprise when, the next morning, a Sunday, I answered a knock at my door and there stood that same young man, along with his mother, his wife and two sisters... wondering if they could buy some more soap!!! Gladly, I opened the garage door, they went to the soap table and bought me out!

the scariest part, which (for me) is the legal, tax, and bookkeeping aspect.

Starting out, a check book is all you need to keep track of income and expenses.

With $500 "seed money" from our joint account, I opened dedicated savings and checking accounts for selling soap. I also had a dedicated Visa card. I used my Visa to buy everything I needed so I only had one check to write each month for supplies. Payments were deposited into the checking account. At the end of the year, income (deposits) - expenses (checks) = profit. Easy peasy. That went into savings for the next year. I made enough the first year to pay back the $500 loan plus more than enough $$ to buy supplies for the next year.

I currently have a CPA for my day job, and I will consult him when we meet in a few weeks, but I already know this isn't his thing.

In 2007, I was approached by a few members on the Southern Soapers Yahoo Group (now defunct) to make soap for them to sell. Before taking it on, I asked our CPA. "How much can I make without having to file income tax?" His answer: "Up to $3,000 is considered 'Casual Sales' (i.e., similar to selling your car to a private party). Anything over that is taxable." Hopefully, when you meet with your CPA he will be able to answer that question and you're good to go.

NOTE: $3,000 profit a year was enough to build a healthy savings account, pay for my continuing experimentation, and enough soap making to keep me happy without getting stressed out.

While doing "due diligence", I'd advise you to first determine your target $$$ per annum to make it worth your while to turn your now hobby into a thriving business. Reverse engineer that dollar amount to discover how many bars of soap you need to make to achieve that number.

HTH and Best of Luck!

 

[johnnyusa]

"How much can I make without having to file income tax?" His answer: "Up to $3,000 is considered 'Casual Sales' (i.e., similar to selling your car to a private party). Anything over that is taxable."

HTH and Best of Luck!

Kendra from modernsoapmaking.com just told me that threshold is now $600/year

 

[Zany_in_CO]

Kendra from modernsoapmaking.com just told me that threshold is now $600/year

YIKES!

I've heard rumblings that they're going to start taxing garage sales now too. So many people found that as a way to feed their families while unemployed during COVID lockdown. BOO HOO.

 

[Ephemerella]

@Zany_in_CO You are such an inspiration! Thank you!!!

 

[johnnyusa]

@Zany_in_CO You are such an inspiration! Thank you!!!

Yes, he totally is, isn't he?

 

[TheGecko]

If a business is a business is a business then 1800ACCOUNTANTS.com, but i found them to know very little about soap, like give me a write off for this older soap I put up on 50% sale bc I read somewhere I could get a write off for that- I had to be the one to suggest it to the accountant.
An accountant who understands the soaping business might be a plus.

The basics of business is the same the world over…money in/money out. No accountant is going to know every specific business (which would be impossible) which is why you break it down to one of thirty kinds of industry like...retail, non-profit, service, construction, manufacturing, etc or a general service/product based business. A brief description of what a soap maker does and I'm going to say, "Oh, you're in manufacturing/retail sales." That means that you will have two Inventory accounts on your Balance Sheet...one for ingredients and packaging, one for finished product. And since you tell me that soap needs to cure for several weeks, I'll add a third Inventory account for WIP. How I set up your P&L is going to depend on whether I am doing tax accounting or FC bookkeeping. And for what I bill out at, I'm going to recommend tax accounting.

And you can't write off items you put on sale unless you are selling it for less than what it cost you. Example: A packaged bar of soap costs me $2.73 and I sell it for $7.00. It isn't doing well so I put it on sale for $3.50...I'm still making a profit ($0.79) so there is nothing to write off. I'm down to the last bar and I just want to get rid of it so I sell it for $2.00...I can write off $0.73 as a loss.

 

[TheGecko]

YIKES!

I've heard rumblings that they're going to start taxing garage sales now too. So many people found that as a way to feed their families while unemployed during COVID lockdown. BOO HOO.

Yes and no. For the most part, money earned via a 'garage sale' is not taxable since you most often are selling personal items at a loss. But say you bought a painting for $20 and sold it for $100, you would be required to report the $80 has a capital gain on Schedule D. But honestly, the IRS doesn't really care about your yearly or bi-yearly garage sale, but they do care is you are having a full-on garage sale every week or every month because now that is a 'business'.

 

[Zany_in_CO]

they do care is you are having a full-on garage sale every week or every month because now that is a 'business'.

Good to know!

And you can't write off items you put on sale unless you are selling it for less than what it cost you. Example: A packaged bar of soap costs me $2.73 and I sell it for $7.00. It isn't doing well so I put it on sale for $3.50...I'm still making a profit ($0.79) so there is nothing to write off. I'm down to the last bar and I just want to get rid of it so I sell it for $2.00...I can write off $0.73 as a loss.

I like the way you think! If I were just starting out instead of winding down at this stage of my life, I would hire you as a consultant for stratgizing the basics of my B & B business.

That brings us to the subject of pricing. There should be enough "wiggle room" in the profit margin to do exactly that. I use a method for pricing I learned in retail:

RETAIL PRICE: 3.5 X $2.73 = $9.56/$10 (Round up) --- $7.27 PROFIT
WHOLESALE PRICE: 2.5 X $2.73 = $6.82/$7 (Round up) --- $4.27 PROFIT

Of course, the retail price depends on your customer base. As I would tell my wholesale customers, people who are willing to pay $7 for a bar of handmade soap are likely to pay $10. Reluctantly they would give it a go with fear and trepidation. But guess what? $10 was no big deal for the buyers.

NOTE: I got into making soap when the 3.5 oz. Mild Face Bar I was buying from DHC, a Japanese mail order company went up (over time) from $5 to $12!!! So there is that to consider.

If raising the price doesn't fly for your customer base, you have 2 choices. Either keep the price at $7 a bar and take the hit or find ways to reduce the "cost to make". For example, lard is less expensive than palm or shea butter and serves the same purpose. This would reduce the cost to make. You can reduce the cost of packaging by making equally attractive cigar bands like this on your home printer for around 5¢ each.

There are ways to reduce expenses, while maintaining quality and improve the profit margin. Time spent in that endeavor is well worth the time and effort.

HTH

 

[Ephemerella]

[enjoying the conversation while ]

 

[MelissaG]

Gecko, no matter how many times I see you talk about Accounting, it still makes my eyes cross in confusion. lol.