To sell, or not to sell...

[Marilyn Norgart]

You don't necessarily need to file taxes as a business (depending on the state?), but creating a business is a lot better. If you classify it as a hobby with the IRS you pay taxes on gross income and there are strict rules on deductions for expenses. Right now I can't register as a business, so I'll probably start selling and reporting as a hobby (with insurance, because you also lose protections offered by registering as a business). If my website weren't essentially free I'd probably be losing money for a while.

what protections do you lose as a business? from what I can tell you cant deduct anything if its a hobby but still pay taxes on all income from it but it definitely is interesting

 

[shunt2011]

I file with the IRS as a business. And I don’t understand what protections you lose? And yes, as a business I did lose money in the beginning, but as a business I could write it off. Which helped with my taxes greatly. So I’m not understanding what you are trying to put across. I pay sales tax for the state on my sales. Couldn’t deduct anything as a hobby according to my accountant.

 

[MadTeddyBear]

Sorry, I may not have been clear. My issue with forming a legal business is I likely can't get the required business permits to operate out of our apartment. I'm looking into other options (or to see if I'm missing something), but claiming everything as a hobby is the backup plan. And selling as a hobby would likely be too expensive because none of the expenses can be deducted. If we assume a 30% income tax rate to be safe, you'd have to sell ~140% of whatever you spend just to break even. If I do start selling without an LLC, it'd be fully expecting to lose money and hoping to gain some experience and bring people to my website to buy more. If I can bring traffic to my website I can still make sales with virtually no overhead, without that I would probably just hold off until I could deduct my expenses.

It's not a great option... but it is an option.

The protections you lose are for selling as a hobby, not an LLC. Your business is responsible for any debts or lawsuits, not you personally. If something horrible happens then you just lose your business instead of possibly going personally bankrupt. But I'm guessing you already knew that .

 

[ilovebathing]

Take some time to design your brand. Also, never sell yourself short, do research on what others are pricing at. It’s ok to price competitively, just not too low. Visit your local farmers markets and vendor fairs and don’t be afraid to ask questions! Most importantly, perfect your craft, have lots of fun experimenting and finding recipes that work for you! Have your family and friends try them and see what they think. You’ll know when the time is right to decide to expand or keep it a hobby. It’s definitely not a cheap hobby, but it’s very rewarding! Don’t worry if business starts out slow, it takes time to build a customer base.

It's definitely a learning experience in terms of pricing competitively and branding. I think the second time around on renaming my brand, I am going to give myself a year or so to rethink on ingredients and what kinds of soaps I want to sell. In the beginning, it became such an addiction. I bought things that I haven't used, and whether I like certain items to go onto my product like micas etc. I sold some because it is definitely not something that is a "cheap" and people that don't make soap would not understand that wholeheartedly IMO. I am also a photographer and a visual artist, so that in itself is quite expensive! Now, I plan to slow it down a notch, learn from others, continue the creative process, and have fun again. It was quite stressful being on Etsy, so I'm not sure what to do with that site at this point. I was thinking of going on a vacation after my sale is over, so I can move forward in recreating a brand that I can be proud of...

 

[DWinMadison]

OT but a hot button for my husband and me...THE wife? She's YOUR wife. (end rant...not much of a ranter, am I?)

LOL... Hows about I manage my married, if it's all the same to you. You'll note I also referred to her as "my wife" in the first five words of the post. I have the utmost respect, love and admiration for the incredible woman with whom I've chosen to spend my life. I'm the single luckiest man on the planet because God gifted me with her 30 years ago next month. Thanks for sticking up for women everywhere, but rest assured, it was purely a term of endearment.

 

[earlene]

I think it's a matter of perspective of what is lost. I would rather lose my business than go personally bancrupt. So for me, from my perspective is that if I were sued as an individual selling soap I would be in danger of much worse than if my company were sued. Do I want to risk my home and my personal property for selling soap? Not on your life.

Oh, I see we are actually on the same page. It was a mis-reading of the way you said that. Clearly your later response clarified what you meant and I had not yet read that before my above statement.

 

[Donee']

So how is the selling going?
Feedback Feedback Feedback demmit - i cant wait for feeeedbackkkkkk

 

[cmzaha]

Sorry, I may not have been clear. My issue with forming a legal business is I likely can't get the required business permits to operate out of our apartment. I'm looking into other options (or to see if I'm missing something), but claiming everything as a hobby is the backup plan. And selling as a hobby would likely be too expensive because none of the expenses can be deducted. If we assume a 30% income tax rate to be safe, you'd have to sell ~140% of whatever you spend just to break even. If I do start selling without an LLC, it'd be fully expecting to lose money and hoping to gain some experience and bring people to my website to buy more. If I can bring traffic to my website I can still make sales with virtually no overhead, without that I would probably just hold off until I could deduct my expenses.

It's not a great option... but it is an option.

The protections you lose are for selling as a hobby, not an LLC. Your business is responsible for any debts or lawsuits, not you personally. If something horrible happens then you just lose your business instead of possibly going personally bankrupt. But I'm guessing you already knew that .

Do not bet on the fact you will not be responsible personally for business losses. Many times you can be held responsible.

 

[melinda48]

True! I think most people would be happiest working as the soap maker for someone running the business side, like an artist with an agent, almost

That is exactly the situation I am lucky enough to have.My husband, for many years, taught entrepreneurship at a local university and had his own business to boot. He is an outstanding resource. He keeps me accountable and enables me to enjoy the “making.”.

What a fantastic post. I have been at this since 2003. I am constantly amazed by the amount of soapers and bath and body "producers" that try a receipe that weekend and then are selling it on the market the following weekend. It makes for a bad reputation for all handcrafted soapers. There is a reason why there are bath and body regulations. When the day comes that the FDA decides to start going after the handcrafted market (and eventually they will) the "competition" will be cut down 90%.

I sincerely hope that does not happen for a long long time. The very last thing we need is more government regulation.

 

[sudszensoaps]

Hi! I wasn't sure if this was the right topic to post under, but I think it fits. I have only been making CP soaps for a little while now and am nowhere near ready to sell any. However, I was thinking down the line that it is something I would like to do once I perfect my recipe and test it out for awhile. I recently read a long post of all the things that one needs to keep in mind before selling or starting a business and I guess it kind of scared me away from it. My question is to all of those who sell their soaps, do you think it is worth it or would you recommend keeping it a hobby? Also, if you do suggest selling eventually, what kind of market is best? Craft shows? Etsy?
Thank you!

I started out with the intent to sell while working full time. I've been a small business owner before, and I don't like the tedium of owning a business. I decided to just sell to friends and family, and then to cover the costs. The soap making/selling market is saturated at this point and you would need something new and different to be successful.

Hi! I wasn't sure if this was the right topic to post under, but I think it fits. I have only been making CP soaps for a little while now and am nowhere near ready to sell any. However, I was thinking down the line that it is something I would like to do once I perfect my recipe and test it out for awhile. I recently read a long post of all the things that one needs to keep in mind before selling or starting a business and I guess it kind of scared me away from it. My question is to all of those who sell their soaps, do you think it is worth it or would you recommend keeping it a hobby? Also, if you do suggest selling eventually, what kind of market is best? Craft shows? Etsy?
Thank you!

I started out several years ago with the intent to sell soaps. I had been a small business owner before, and never liked the TDM of owning a business. I have since decided to only produce enough soap to sell to friends and family. And generally only to cover costs. The market for selling and making soap is pretty saturated right now, and you would need something really special to stand out.

 

[MadTeddyBear]

Do not bet on the fact you will not be responsible personally for business losses. Many times you can be held responsible.

That's true. From my (extremely limited) understanding you usually have to be doing something illegal, unethical, or negligent to be held legally liable, or have personal and business finances intermingled to be financially liable for a debt.

 

[cmzaha]

MadTeddyBear, in many cases especially when acquiring bonds and bank accounts for small business you end up being required to personally guarantee. So no, it does not mean you are doing anything illegal to be held responsible, and not intermingling finances. Corporations are not a guarantee you will be free of problems. Have good insurance

 

[kasilofchrisn]

from my understanding it depends on how you set your business up on whether or not you will be liable for business debts or expenses should the business fail or be sued.
From legal zoom:
https://info.legalzoom.com/llc-mean-end-company-name-4496.html
Limited Liability

The "limited liability" in LLCs refers to the fact that owners, called members, are protected from personal liability for the business actions of the company. Consequently, if the LLC is sued or runs up debt, the personal assets of members cannot, in most cases, be used to satisfy claims from plaintiffs or creditors. This is a feature that LLC members have in common with the shareholders of corporations. However, liability is "limited" because members are not immune to suits involving civil wrongdoing, also known as a tort.

 

[Lin19687]

I think in the end, no matter what you do, there is always a way from someone to take you to court ... and you could lose.

The joys of a sue happy world.

 

[earlene]

from my understanding it depends on how you set your business up on whether or not you will be liable for business debts or expenses should the business fail or be sued.
From legal zoom:
https://info.legalzoom.com/llc-mean-end-company-name-4496.html
Limited Liability

The "limited liability" in LLCs refers to the fact that owners, called members, are protected from personal liability for the business actions of the company. Consequently, if the LLC is sued or runs up debt, the personal assets of members cannot, in most cases, be used to satisfy claims from plaintiffs or creditors. This is a feature that LLC members have in common with the shareholders of corporations. However, liability is "limited" because members are not immune to suits involving civil wrongdoing, also known as a tort.

Exactly. Even an LLC is LIMITED. We owned a restaurant. It was an LLC. We were never personally sued, but if we had been guilty of some sort of civil wrongdoing in our business, we still could have been personally liable. The LLC would not have protected us from such a lawsuit. The same would be true of a soapmaker with an LLC. The question is really, what civil wrongdoing is the soapmaker likely to participate in? Hopefully no-one here will be doing that. But it can happen.

I agree whole-hardheartedly that good insurance is essential in any business, as Carolyn mentions. But even insurance won't guard against criminal intent, so that's another caveat. But then again, what soapmaker has criminal intent with their product? No one here, for sure!

 

[kasilofchrisn]

Lawsuits aside as that's a separate issue we were also discussing business debt.
If you formed a proper LLC you would not be liable for the debts of the business against your personal property.
Meaning they can't take your house or put a lien on it because you're soap business failed.
Now if you sold soap that you knew was moldy and somebody got sick from it and you were sued civily for that you would not be protected just because you had an LLC.
But as was said I don't see anybody here purposely doing something like that.
And yes insurance is always a good idea in situations like this.

 

[cerelife]

Before I started selling, I sat down with a lawyer to determine if spending the extra money to create a LLC would be preferable to a DBA.
I also contracted an accounting firm to do both my business taxes and our personal taxes and asked their advice as well.
They both gave me the same advice to go with a DBA for these reasons:
1) There was no real benefit to my creating a corporation since I didn't plan to establish lines of credit with vendors to purchase my supplies. In other words - I wouldn't be in the position of having outstanding debts if my business failed and the vendors sued for the debt.
2) If my LLC was sued for damages, I as the sole soapmaker/product creator would almost certainly be named personally in the lawsuit as well. Which means that our personal assets are now fair game.
And I just want to be clear on this since people have mentioned it - you don't have to have 'intent' to sell a dangerous/shady product to be sued. Anyone can sue you for the silliest of reasons, but they do have to prove that you were negligent or had 'intent' in order to win the lawsuit. Even if you win the lawsuit, you may be left with court/attorney fees unless you counter sue for these.
This is one scenario that the lawyer and I discussed:
A customer purchases a bar of soap/wax tart/etc. that smells good enough to eat and looks like food - then their child actually eats some of it. They take their child to the ER and then sue you for the bill and whatever else they can think up (mental distress/time off from work/etc) even though your product is clearly labeled as soap or whatever. Their main claim/basis for the lawsuit is that you didn't specifically say that this item was non-edible.
Of course this is completely outrageous and they would most likely never win such a case, but as the lawyer said: "As a LLC, you would have to defend both your corporation for allowing the product to be sold, and yourself personally as the maker of product in question."
And of course we have business insurance for nonsense like this, but the lawyer's advice was that if you ever get hit with frivolous lawsuit as a small business owner; file a countersuit to pay for your damages rather than file a claim with your insurance.

 

[Rune]

Hi! I wasn't sure if this was the right topic to post under, but I think it fits. I have only been making CP soaps for a little while now and am nowhere near ready to sell any. However, I was thinking down the line that it is something I would like to do once I perfect my recipe and test it out for awhile. I recently read a long post of all the things that one needs to keep in mind before selling or starting a business and I guess it kind of scared me away from it. My question is to all of those who sell their soaps, do you think it is worth it or would you recommend keeping it a hobby? Also, if you do suggest selling eventually, what kind of market is best? Craft shows? Etsy?
Thank you!

I don't sell, but I want to. I have a way to go before I'm ready to sell, though. Need more experience and get my recipe there I want it and such.

I don't know how things are in America, but I can sell for around $465 a year without paying any tax or make any business or things like that. I can just sell, and as long as I don't sell over that amount, it is considered a hobby and not a business. That is great, because I can start selling just like that and see how it goes and how I like it. Maybe you have similar rules in America, or other countries too? Worth checking out. But I know it is much harder to start selling for those located in an EU country. I do have some rules to follow, but not comparable to the EU.

My plan for selling is to use an online service we have called Epla (similar to Etsy, just much smaller scale) and on commission in one or two local shops. If that doesn't work, I will come up with something else. Probably try to sell abroad, if possible. This country is a liquid soap country. I can't even get my family to use my soaps. They have never tried them, actually. So selling can be hard in countries like this. We'll see. The positive thing is that the competition is low and prices quite high (not so good that the ingredients are too).

If you want to sell, I think you should when you are ready for it. Why not? You can always quit selling at any time. If you never try, you will never know if you hate it or love it. Just remember to charge a decent price for your soaps. It is handmade with love and good ingredients, not a Walmart product. Everybody lose when people try to compete with each other on prices. Nobody can make a profit when the prices fall in a never ending downward spiral.

 

[Dahila]

Rune from the moment I decide to make it a business (tiny one) I had the insurance coverage, I would not risk it, In Canada if you do not go over 30 thousand a year; sales you do not have to get gst (tax) number or take taxes from customers to send to government A lot of people sell in Canada without Business license and insurance but it it against the law, Everything that has contact with skin must be send (the formula) to Canada Health

 

[Rune]

Yes, America and insurance everywhere, of course. Luckily I don't need insurance here for selling soap. It have to be really, really bad if someone can press charges on me. As long as I mark the ingredients correctly and don't add anything not-approved for cosmetics, nobody can do anything. Perhaps if I make a very lye heavy soap that cause permanent damage to people, they can sue me. Nobody can sue me if they get severe allergic reactions and I have every ingredient written on the label and used ingredients sold to me as cosmetic safe. The customers are responsible for reading labels themselves. To sue people is a risky business in this country. If you lose, you will have to pay all the expenses. And that can be very serious high amounts. So people don't sue each other as often and for as little as in the US (I don't know how it is in Canada).

30 thousand, that is a very high amount. I can sell for 7.770 canadian dollars before I have to worry about VAT. But I will have to pay income tax if I sell for over 469 (roughly) US dollar, and register a company.

Luckily I don't have to send the formula for approval to Mattilsynet (food authority that also deals with cosmetics). But they have to do so in the EU.

I do have to make sure I follow the rules. The authority says: "Those who produce, import and sell cosmetics are responsible for complying with the regulations themselves". I see that not everybody do follow the rules and regulations in this country, but for me it is one of the most important things to do. It is safer to follow the rules strictly, not just for the customers but definately also for the seller.

We do have the strict EU regulation here for cosmetics, but I just have to make sure I follow it. Luckily I don't have to send everything to the authorities for approval. But they can do random checks at any times to see if it contains any harmful substances and things like that. Not that I have heard it have happened with handmade soaps, but the do check on a lot of things all the time.