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Starting a Soap Business, Bubble by Bubble – Setting up the Business Side of things

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Starting a Soap Business, Bubble by Bubble – Setting up the Business Side of things

As creative types, we all have grand aspirations and dreams when it comes to starting our own soap business. We imagine either a cute, kitschey brick & mortar shop or a  kick ass e-commerce site with hundreds of sales on a weekly basis.  No more day job or douchey bosses…YAY!  Only…it’s not as easy or it doesn’t happen as quickly as we’d like to think.

Obviously, I’m assuming you’re already an amazing Soap Maker and you’re ready to take that next big business-ey step.  This is a general road map I used to start my own online business.  I’ve yet to open a brick & mortar shop so no advice on that unfortunately.  This is not the end all be all and I don’t claim to have all of the answers, just some.  Here goes:

Step 1

After you’ve chosen your business name, obtain your business’s Employer ID number.  It’s like your business’s social security number. Best part…it’s free!!  You can get it here.

Step 2

You’re going to want to separate your personal assets from your business assets.  The best way to do this is to set your business up as an LLC or a Corporation. There are plenty of other options…however, these two seem to be the best choices in my opinion. These two are your best options for separation of liability and pass through taxation.  The simplest way to distinguish between the two…an LLC does not require any additional annual paperwork BUT an S-Corp does.  I would choose the cheapest option.  I chose an S-Corp for this reason.  In my state, an LLC costs $300/year but an S-Corp costs $100/year.  I’d rather buy more fragrances with the extra money.

I’m going to over simplify a bit here… setting your business up as either one of these entities makes your business stand alone.  For example, if your business were to go bankrupt, only the business would suffer a bankruptcy…not you or your personal assets, just the business’s assets.  Please, feel free to do any additional research on these.  I’m really just summing it all up.

To file your business as an LLC or Corporation, there is NO need to spend a ton of extra money to do so.  Although, if you have the funds, by all means…hire someone to help you out.  As far as I know, each state has their own .gov sites where you can file all of the necessary paperwork online.  There are certain online legal companies that will charge you hundreds of dollars for this simple task.  For an example, check Tennessee’s online business filings here on their .gov site. As you can see, you can register your business online, submit annual reports for your s-corp and pay your sales tax… all online.

Just Google: register my business as an LLC or Corporation for your state.  Follow the link to your state’s .gov site.  The site will walk you through each step to register your business.  Be sure to print out everything and keep a paper trail of all applicable business documents.

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It was getting boring…here’s a quick laugh for ya!

STEP 3

Obtain your business license and register your business to collect your state’s sales tax.  This can all be done online as well through your state’s .gov site.  I know…your brain is probably ready to explode.  It’s a lot of initial work that we creative types really don’t want to have to do…but if you wanna become a bona-fide business…you gotta do the hard, boring stuff.  To help simplify things a bit…here’s a wonderful  alternative reference for permitting and business licenses through the SBA. Click me!

You can apply for your Sales and Use tax online. Again, this can be done through your State’s .gov site.  You can also pay your tax online.  Currently, this tax is only applicable for your specific state. A law was just recently passed requiring businesses with revenues exceeding a million in annual sales to charge sales tax for every state.  We’re the little guys, we don’t have to worry about that nonsense yet! Sales Tax that needs to be collected includes all of your internet sales made within your own state and local sales (like at a Craft Show or Farmers Market).  You can pay your sales tax quarterly or annually.  Quarterly tends to be a more affordable way to pay.  Simple math to pay your Sales Tax…Let’s say your Sales Tax is 10% and your in-state revenue for the current quarter was $300:

$300 (in-state revenue) x  .10 (10% sales tax) = $30 owed in State Sales Tax

Step 4

Open a business bank account to keep your personal and business finances separate.  Not only will this help you keep a solid grasp on monies coming in and out, but it will protect you if you ever get audited.

Step 5

GET INSURANCE!!!!! Before you sell anything.  We live in a sue happy society…don’t get caught with your pants down.  You have multiple solutions for insurance.  If this is your first year selling soap, you may not come close to $5,000 in revenue for your first year after all of your start up costs have been factored in.  For a cheaper alternative for insurance, check out RLI.  The policy will only be about $200-$250 per year but your revenues must be under $5,000 annually.  Once you break the $5,000 annual revenue mark,  get your insurance through the Handcrafted Soap & Cosemetic Guild OR the Indie Beauty Network.  With membership, they’ll both run you about $500 annually.  This will most likely be amongst your largest investments, but you HAVE to protect yourself and your business.  Insurance is a non-negotiable necessity.

Step 6

Have a good accounting system and inventory system in place.  If you decide to hire someone for this and can afford it….DO IT!  If not and you’re broke like me, I recommend Outright or QuickBooks for your accounting needs.  You have to get into the habit of tracking all monies going out and coming in.  Trust me this will save you so much time and energy in the long run! Keep all of your receipts and again, be sure to keep your business and personal finances separate.

For inventory, try out the SoapMaker 3 Software.  Or go old school with Excel…whatever works best for you and your budget…just be sure to track your supplies and product!

Step 7

Build a budget for your first year (then every year after that).  You’ll need some sort of guideline to keep your spending in check and something that will give you a physical example of your projections vs. your actual revenue and expenses.  I know this is difficult for a lot of people so you can hire out for this if you just can’t wrap your brain around it (seek out a local account) or you can Google the hell out of creating your own budget.  Here’s a decent article I found explaining how to set one up. Budget help, Click Me!!

Step 8

Kick back and have a margarita or a pint of ice cream! That was hard work and you haven’t even made any soap yet!

I think I’ve covered all of the start-up business topics without delving into branding, marketing, wholesaling and setting up shop.  Those posts will come later! Hopefully this was helpful and I know, it was sorely lacking in pictures so here’s one of my son riding my dog like a pony:

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2 responses »

  1. This is great! And perfect timing! I’m hoping to start selling my soap this fall and set aside this week to research the business side of it all. This helps so much!

    Reply

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