FASHION LAW FRIDAYS: COTTAGE INDUSTRIES AND THE MYTH OF THE $100 STARTUPby Attorney Judith Elaine Hoover on 08/10/12
FASHION LAW FRIDAY: COTTAGE INDUSTRIES AND THE MYTH OF THE $100 STARTUP
I am currently working with two small businesses, one makes accessories and the other makes dresses. I don’t want to discourage either of their enthusiasm, but both entrepreneurs were operating under the myth that they could start up their businesses for a mere $100.00. Every cottage industry handicraft business needs to know, if the busienss wants to sell products and operate legally in the state of California, it is going to cost more than $100.00.
Here, are some costs my client Sally is facing right from the start, and this is exclusive of the costs to actually make her accessories.
Business Permits and Home Occupational Permits
Sally will need a business permit for the city she is based out of. Business permits in the Inland Empire counties run from $50-100. Sally plans to run the business from her home so she will need a home occupational permit. Home occupational permits in the Inland Empire counties run from $25-200.
Fictitious Business Name
If she plans on using the cute name she has chosen for her business, she will need to obtain a fictitious business name. The fee in San Bernardino county is $45.00, but that does not include the cost of newspaper publication, which is approximately $50-$200.
Business Entity Registration
If she wants to protect herself from liability, she will need to form a limited liability company or corporation. The filing fee for a limited liability company, which has fewer formalities, is $90.00. Then add to that the $800 Franchise Tax Board minimum for each year her business is in operation.
To operate legally she will need to obtain a tax identification number and obtain a seller’s permit from the Franchise Tax Board. To keep track of money she receives she will also need to open a separate bank account to track the money from sales and sales tax received on her products.
A. Craft Stall: Stalls at local farmer and craft markets can cost up to $100.00 or more.
B. On-line Marketplace: There are posting fees on most handmade marketplaces.
C. Website: Setting up a website that is going to be seen and is optimized takes money, or a lot of know-how and time. There are also fees to register a domain name. There are fees to set up on-line shopping carts. (There are great services that keep those costs minimal.)
CHECKLIST OF STARTUP COSTS
1. Fictitious Business Name: $45.00
2. Publication of Fictitious Business Name: $50.00
3. Business Permit: $50.00
4. Home Occupational Permit: $25.00
5. Limited Liability Company Registration with Secretary of State: $90.00
6. Minimum Franchise Tax Board Tax: $800.00
7. Costs of Opening a Bank Account for the Business: $100 (minimum deposit)
This does not include trademark registration with the State of California or the United States Patent and Trademark Office.
I am not trying to discourage anyone or cause anyone to despair trying to begin a small fashion line of clothing, accessories, t-shirts, or other handicraft products. However, I am trying to dispel the myth that it can be done legally for a mere $100 bucks.
So what should the strategy be for a startup handicraft business? Save, Save, Save money! You can obtain a low interest loan from the Small Business Administration. You can borrow from friends and family if there are no strings attached to those loans. Keep experimenting with products while you save!
The key thing is to plan to take your business seriously from the beginning. Plan the start-up costs. Plan the maintenance costs. Plan for your success from the get go!
Keywords: Small Business, Cottage Industry, Handmade Goods, Handicraft, Fashion Law, Business startup
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