# When do I need to start a business?



## Firefighter (Oct 21, 2010)

I have been selling some things on Etsy and locally. Mostly cutting boards, band saw boxes, jewelry boxes and similar things. I don't intend to turn this into a full time business, but have talked with a local boutique store (I think boutique is French for "sells everything you don't need") about selling boards there. Do I need to carry insurance? How much and from what kind? What else am I forgetting? Should I just avoid this altogether?

I am really looking to make enough money to buy some more wood, add to the tool collection and basically make woodworking a self sustaining hobby, not pay bills or buy vacation homes. Any advice is greatly appreciated!!!

Also, on a different note, what should I expect for a pricing structure with a store selling my boards? Say I sell a board on Etsy or privately for $75. How should I suggest we set up our agreement?


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## TopamaxSurvivor (May 2, 2008)

IMO, I would declare my income to stay out of jail, write off your expenses, take income on a 1099 subcontractor from the boutique and stay as low a profile as possible. If you get into finished product insurance, ect , you won't make enough to break even. If you are worried about getting sued, don't do it. May consider a Limit Liability Co. Probably $75 a year to maintain with Sec of State?? May insulate you from some liability depending on you state laws.

Disclaimer, electrician, not atty, take with grain of salt!! )


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## Jered (Sep 15, 2010)

As a manufacturer, you could expect to pay at least $400 per year for insurance. They charge differently according to how much in annual sales you have but they have a minimum. I get mine through CBIC whose main business is bonding contractors but I have a wood manufacturer's policy through them.

In your case, I immediately thought about a kid breaking off a piece of one of your bandsaw boxes and getting it stuck in their throat. Then there is the possibility of a cutting board cracking then part of it falling on someone's toe. I personally feel much more comfortable having insurance.

I've sold some things on consignment and it seems stores typically want 30-50% of the sale price. I've had some people tell me 75% but that was before they had ebay, craigslist and etsy to compete with. Try not to think about that when you tell them a price though. Stick to prices you feel comfortable with and then mark it up from there to cover the chunk they are going to take. There is nothing worse than working your ass off only to be losing money or breaking even. If you will be selling things on consignment, be sure to get in writing how you will handle damaged merchandise.


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## live4ever (Feb 27, 2010)

Turning a hobby into a business is a slippery slope. It has its pros (expensing your shop would be great wouldn't it??) and cons, but as someone who previously turned a hobby into a business and wished he didn't, I would caution you to read and learn as much as possible before beginning this venture, and possibly stay away altogether.

I think it's very tempting for hobbyists to want the hobby to pay for itself. Unfortunately, it's a very thin line to walk to keep enjoying the hobby AND make the amount of money you want to make (just enough to cover the hobby itself). If things go well, it's also very tempting to get sucked in by early success into running a higher-profile business than you had originally planned on.

Understand these things:
1) You will significantly complicate your taxes, at the very least. At the most, you will not only do that, but involve yourself in a mess of paperwork and red tape, including obtaining a Federal Employee ID number (EIN). Depending on how you set your business up, you may be filing a separate tax return for the business entity. Should you get tired of your business venture, it takes more time, energy, and money to "make it all go away." 
2) Because you must charge sales tax on your tangible goods, you will need a seller's permit from the state. You will need to file and pay sales tax to the state quarterly. If you're late, you'll pay hundreds in penalties. Just one of the many responsibilities you will need to stay on top of.
3) As has been mentioned, some sort of business insurance is a good idea. Is it necessary? Probably not. But why take the risk? As a sole proprietor, you are putting yourself, your home, and your family in jeopardy should something go terribly wrong, like a lawsuit. That may be overly dramatic, but it's no joke.

What I hope is becoming clear is that to operate at the income level you are wanting (self-sustain hobby, buy wood, etc.), it's probably not worth your time/energy/money to operate a full-fledged business.

So the question becomes, at what level can/should you be operating? My friendly advice? Lay low for a few years and report income as "miscellaneous" on your personal tax return and don't bother trying to expense your tools and wood, at least until you figure out how much revenue you are actually going to be generating. If that income becomes significant relative to how much you pull in total, say over 20-25% of your total income, then consider going the whole nine yards.

I will say, from personal experience, the practical aspects of running a business can QUICKLY and possibly irreversibly ruin a hobby. I don't want to be a downer…just would want you to tread carefully.

Best of luck with whichever route you choose!


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## Jered (Sep 15, 2010)

The simplest way to start a business is to use your first and last name followed by a description of what you do. That way there is no need to file an assumed business name with the state. Well, that's how it works in my state. If you stay a sole proprieter, no need to get a federal ID or file separate taxes. Even a single member LLC will allow you to file one tax return for everything. Federal ID's are free and you just have to fill out a form online with the IRS to get one. You can always use your social security number instead but why put it out there more than it needs to be?

I only know the rules for Oregon and Washington but in these two states you don't need a reseller's license if you are a wholesaler. Oregon doesn't have sales tax and in Washington, wholesalers don't need to charge sales tax either. So setting up the business takes all of a couple of hours if you do it simply. If you live in a city, there are probably other minor things you would have to do. Talk to your accountant to see for sure.

That being said, you are not allowed to write off expenses if it is a hobby. You need to be making enough to cover all your expenses plus generate some sort of income or else the IRS considers it a hobby no matter if you have yourself set up as a business or not. This is to keep everybody from setting up businesses and claiming all sorts of personal expenses. So as has been stated, once you take this route you have to treat it more like a business and there goes your hobby.


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## woodspark (May 8, 2010)

Jeezzz, after reading all this stuff, I sure am glad I am living in Africa! I work wood for a living and it is nowhere near as complicated here….
Good luck brother!


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## Puzzleman (May 4, 2010)

My opinion is to set yourself up as an LLC or s-Corp. Your tax person can help you with figuring it out. This way your personal belongings (house, car, etc.) are protected from possible lawsuits to your business. The can only sue for what the company owns or has. Also too you can put the company out of business if you want.

Most importantly, you need to know if you want to be in business or be in a hobby. No one else can make the decision for you. If decide to stay as a hobby, you won't need all of the insurance but still set up a company to protect yourself. If decide to start a business, you still may not need the insurance.


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## Jered (Sep 15, 2010)

As Barry mentioned, once you start generating income, you are a business in the eyes of the IRS. So you may already be a business if your sales are more than your costs. Conversely, if you are not generating income, the IRS considers it a hobby and you can't deduct expenses no matter how many pieces of paper you have that say you are a business. And if you are using assets for both business and personal use, you are supposed to only depreciate a percentage of the total based on what percent of the use is business. That's how my CPA explained it to me.

LLC's can be set up to be taxed as corporations which has some benefits but only if you are making a decent amount of money. My accountant told me the threshold is about $50,000 net. They actually don't protect your personal assets much since most of the time you have to offer a personal guarantee when engaging in business activities. Cost me $200 to hear that from my lawyer so just thought I'd pass that along. Single member LLC's are basically sole proprietorships.

There are some benefits. I chose to change to an LLC so I could run multiple businesses under one entity. But like I said, according to my lawyer your personal assets can still be at risk.

From my many hours of time and money spent reading and consulting with accountants and my lawyer, keeping your business honest, keeping good records and having good liability insurance are the best things you can do to protect yourself.

I know some people were recommending setting up an LLC or s-corp and maybe they have more experience than me but the way I understand it, they don't protect you much if you are a small business, especially a one man business.

By the way, many CPA's will not charge for the initial meeting. At least where I live. Talk to a lawyer so you understand exactly what your liability is.


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## richgreer (Dec 25, 2009)

I was a small business owner at one time and I offer you some advice from a different perspective - -

To go into business you must have an abundance of drive and energy and be willing to work long hours (at least at first) to get your business off the ground. You will also need a heavy dose of perseverance because you will have many setbacks.

Once you have a reputation, things get a little easier. However, when you start you have to work your butt off to get sales.

Dedicate a lot of time to marketing (hustling). You may have the best products around but that means nothing if a lot of people don't know it.

Good luck.


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## TopamaxSurvivor (May 2, 2008)

CessnaPilotBarry is right about one man operations and liability behind the corporate veil. If that is the only reason you' re doing it, it isn't worth the expense. Liability is really an issue of how deep your pockets are assuming criminal negligence is not involved. Attys and insurance companies look to where they can recoup any losses. Doesn't really matter if you are at fault or not. If you have money to support legal actions, they will try to get it. I won't bother to tell you how I know. I'm just thankful competent fire marshal did a through investigation with good documentation.


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