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Do you have a small-work-at-home-hand-made business and want to make sure you have dotted all your i’s and crossed all your t’s as a legit business? This step by step guide will teach you how to register your small, hand-made business.
As a small business owner for 8 years now, it took a lot of trial and error, research and “OHHHHHH” moments to figure out that I wasn’t exactly in the legit zone of all the legal junk.
I’m assuming I’m not the only one who had a business idea and took off doing the fun stuff (working on my craft and making some money in return) but didn’t pay much attention to the boring stuff that is super important.
So you aren’t here for small talk, you want to know what to do to legalize your business so you can get back to the more important fun stuff in your biz!
Steps to register your small, hand-made business:
I am a Trello FIEND! SO I may or may not have made you a Trello Board just for registering your small, hand-made business… It’s pretty handy dandy. If you want to grab it HERE IT IS———–>
Register your small, hand-made business at city, county, state and federal levels:
- Choose Business Name
- Choose Entity
- Register with State (permit)
- Apply for EIN (IRS)
- Request RN number
- Request SBM number
- Obtain Business License
- Register DBA
- Consider Business Liability Insurance
- Open Business Bank Accounts and Social Media Accounts
Keep in mind, the total cost to register your small, hand-made business can be anywhere between $50-$300 depending on your location.
Suggestion: create a physical file folder and a digital file folder in your google drive to keep all of your small business registration documents/emails. I personally keep a physical copy of all of the hard copies I receive from each registration action, then I take photos of these or grab the emails to these and store them all in Trello.
Step 1: Choose Your Business Name
The most important first step for registering your business is…drum roll, please… deciding on a business NAME!
You need to decide on a name for your small, hand-made business before you can do ANY of the rest of the steps.
If you are conducting your business under your own personal name, you do not need to register your business DBA (Doing Business As, explained below in step 8). However, the benefits of registering your business name can protect all of the hard work, time, and money invested in your passion.
More and more people are choosing to name their business as their actual name. Naming your business by your actual name is less invasive when it comes to registration.
But if you do not want to name your business by your name, make sure to take your time deciding on a REALLY GOOD name for your business.
This part is very important. The most important. Take your time on this. It is a lot of work to change this later.
Your business name will be your brand and branding is the top priority for your business success. Your brand and business name will be what people remember and is what will stick when they think of your business.
This article will help you decide how to choose between your personal name or a brand name for your business.
Once you have chosen a name for your business, be sure to research it and make sure it has not already been taken through a google search, your local DBA, and the US Trademark website.
You want to make sure that what you name your business, no one else is using that name. This will protect you from infringement when you register your name with your county/jurisdiction. So go ahead and claim it before another business does. This allows you “first dibs” on the name of your choice for your business in the proper and legal way.
Step 2: Choose your Business Entity
As long as your business is making more than $1000 a year in sales, then you can decide on a business structure/entity to identify as for registereing your business.
There are 2 main business structures that you will most likely choose from. Of course, there are more complicated structures, but as a small, work at home biz, more than likely you will choose from the Sole Proprietorship or the Single Member LLC. As a beginner business owner, you really only need to consider one of these 2.
The type of business structure you choose determines the way you will pay taxes and insure your business.
In my example, as a cloth diaper seamstress and a blogger just starting out (under 10 years of business), Southern Comfort Fitteds/Living is registered as a Sole Proprietorship.
A Sole Prop is easy to form with very little paperwork, and no fees.
You can research the exact facts more in detail with the Department of Revenue and Department of State websites.
Each business structure has its laws for the type of business you have. If you are selling handmade items, it is best to read over the laws and guidelines for selling handmade items when choosing your business structure.
An LLC or Corporation will require you to conduct your business under a name other than the one you registered your LLC or Corp. So for example, if I registered my LLC as Southern Comfort Fitteds and started a cloth diaper line and wanted to call it Makayla’s Cloth Diapers, that would be a trade name under my LLC.
Once you have chosen a business structure it is time to register your small hand-made business with your state.
Step 3: Register with your State
You will be required to complete some forms depending on your state guidelines, the business structure you selected, and the type of business you are starting.
This registration can be called a sales tax permit, seller’s permit, vendor’s license or other.
Go back again and check out the Department of Revenue and State websites to find those forms and information you need.
Once you register your small, hand-made business with your state, make sure you know if you are required to collect and remit sales taxes in your state. You will need to know if you have a nexus in any other state as well. This will depend on the type of business you have.
By law, you will be required to collect sales taxes from sales within your state (or a nexus) state only.
Sales taxes in short is basically extra money you collect from your sales, that is NOT yours. This money will need to be handed over to your state each quarter or year (depending on your state).
Since we are talking about taxes, I have to take a moment to suggest the ultimate bookkeeping system to help you get started making a profit in your business. Check out the book Profit First by Mike Michalowicz. By taking your profit out FIRST after you make a sale and letting your business grow at its own natural pace using what is left after you take out the important funds is HANDS DOWN the way to grow and profit from all of your hard work. Profit First teaches you how to do this step by step. This is how I run my business financially and I wouldn’t do it any other way. If you want to learn this process grab your copy of the book!
You need to have a system in place to take that sales tax money and move it away from your business accounts, so you never even see it. You do NOT want to mistake this money as yours. This money is just money you collect, hold it for a hot minute, then give it to the state.
The reason behind doing this is because this is the way the state gets its fees for letting you sell products in the state you live in.
For more information about the sales tax laws in your state be sure to check out www.taxjar.com/states/. Check your state to understand the sales tax rules that apply to you. Most likely your state department of revenue will have the forms you need to file to obtain a tax permit.
RELATED: Personal Growth Books Everyone Should Devour
Step 4: Apply for Federal EIN
Go to the IRS website to register your business for an EIN (Employment Identification Number). This is also the same thing as your federal tax ID number.
An EIN is basically a number given to your business in place of your social security number. This number is how your business will be identified with the IRS when it comes to hiring employees, paying taxes, and more.
You are only required to obtain an EIN if you have employees. For most small businesses, this is optional. But even if you are not required to obtain an EIN, you should go ahead and do so.
Obtaining an EIN is easy, quick, and free on the IRS website HERE. If you have an EIN you can use this number on legal forms instead of your social security number.
You can also purchase wholesale, tax-free products with this number. And some affiliate companies require you to have this number as well.
Step 5: Request RN number
RN stands for Registered Number with the Federal Trade Commission (FTC). I know GEEZE! Another number to get!
This number is only optional if you sell a product that needs tags or labels.
This number will allow you to use it in place of your manufacturer name on your tags.
This can be beneficial if you choose to use multiple labels and tags on your products.
You can apply for an RN HERE. You only need to apply for this number one time and done.
Step 6: Request SBM Number
You guessed it. ANOTHER NUMBER!
SBM stands for Small Batch Manufacturer with the CPSC (Consumer Product Safety Commission).
Registering as a Small Batch Manufacturer allows you to use testing certifications of compliance from the manufacturer of the textiles or notions your purchase to create your products instead of having to pay for the lab testing yourself.
It also allows you to claim that many materials are completely exempt from testing based on their history of being safe and meeting federal standards.
Of course this number is only recommended if you offer a product.
You can apply HERE for your SBM number.
Step 7: Obtain a Business License
Most locations require you to obtain a business license before selling goods or services.
This is your city level registration and might require a fee. Contact your city office for the directions you need to register your business license in your city.
You will need this registration to before you can go to the next step.
Step 6: Register your DBA
ALMOST DONE! Your county/state level registration.
DBA stands for “Doing Business As” and this is business name you are doing business as.
Contact your county clerk office for your specific instructions to obtain your DBA.
If you re collecting money or advertising as anything other than your actual full name, you will need a DBA.
A DBA allows you to set up a business bank account within your county. It also allows you to legally operate under a tradename, also known as a “fictitious” name other than your own personal name, as discussed in Step 1.
Step 9: Consider Liability Insurance
If you want protection for your business, consider a general liability policy. However, this step is NOT mandatory.
What would happen if you make a huge mistake on an order and a client wants to take action against you? You could consider protecting you and your family with a basic general liability policy which could cost anywhere from $400-600 a year.
This is not something you should really need to worry about just starting off. Later, when your business has grown and you have many, many customers, then consider what your options are for protecting your business.
You can also cover many situations that could occur in the terms and conditions of your basic invoice as well as contracts with your customers.
Step 10: Open Business bank accounts and Social Media Accounts
You’ve completed all the paperwork for all the crazy numbers you need. You have a product and/or service. You have a business strategy. And now you are ready to run with the big dogs.
It is highly recommended to keep your business income and expenses separate from your personal finances. Contact the bank of your choice and open up a business account for your business finances.
And don’t forget to grab your copy of the Profit First book for opening up those business accounts!
It is also best to open up all new business accounts under your new business name on the social media platforms of your choice. This will keep your business efforts separate from your personal social media.
Business accounts on social media have many more options for running your business online with things like analytics, advertising, providing more information, and networking with your customers.
These are the 10 steps I took to complete my business registration after much research. It took me a long time to get all of this information and figure out exactly what I was suppose to do. So I know there are many others out there trying to do the same thing. That is why I compiled the list and simplified it as much as possible so all you have to do is print out your checklist. No need to go on a manhunt to figure it all out. Enjoy! Print out your checklist and mark off your steps as you go.
