To sell or not to sell...

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Ugeauxgirl

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So I'd decided not to sell soap. I just retired a year ago from a very stressful career and I wanted to enjoy my hobby as just a hobby. I gave a lot of soap away, but now people are asking to buy it. Quite a few people have said that it has improved their itchy skin, eczema, etc. People have asked for wedding favors etc. And my girlfriend who is a pediatrician asked for some to give to her eczema patients- along with a business card, which I don't have cause I don't sell soap. Three friends have sent me a flier about a Christmas craft event at a local school- $30 for a table.

I don't think I want to market soap, but I'd like to sell my extras, and maybe a loaf here or there. What is the absolute minimum I need to do this? I'm in the US. Insurance? Can I just sell it DBA or do I need to form an LLC? Do I want to do this? Somebody talk me out of it!
 

AliOop

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If you spend any money at all on your soap "business," the best and first place is always insurance. That will give you far better protection than an LLC.

Insurance will pay for the lawyer to defend you - an LLC doesn't do that.

Insurance will also pay for any judgment against you - an LLC doesn't do that.

Insurance costs are often lower than the initial incorporation and ongoing fees (tax returns, etc.) associated with an LLC.

For the full protection of an LLC, you must keep a separate bank account and scrupulous records to show that you aren't commingling personal assets with LLC assets. Any significant commingling will void the protection against a personal judgment. With insurance, it doesn't matter whether you commingle, have an LLC, don't have an LLC - it covers you.

Also, a good many folks simply don't have any assets that are subject to judgment. You have a homestead exemption for your house (unless you have equity over the homestead amount). At least one vehicle and all retirement savings are exempt from judgment. If you have significantly more than that, then perhaps an LLC is good for you... but insurance is almost always better.
 

AliOop

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If you do have assets, then definitely get insurance. Make sure it covers cost of defense, not just cost of judgment. There are some threads here about insurance for soapmaking that might be helpful to get you started with finding a place to buy it.
 

lucycat

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You do need insurance and that will be the factor for you in selling. I use HSCG and membership and insurance was $450 this year for 1 million in liability. If you only sell 450 bars of soap in a year then you have $1 cost per bar in insurance and you will need to consider that in your selling price. You can see it is easy to manage insurance cost if you are selling 4500 bars a year where the cost would average .10 per bar, but a lot harder if you sell a small number. Figure out your costs of raw materials so you know what this is on a per bar basis. Then add in the insurance. Then you can work on ideas of how many bars you want to sell and whether it can work. You can quickly see that if you don't sell many bars the insurance can seem too expensive for you to sell at all. Also, friends who have received soap for free may not have the same idea as you of an appropriate sales price.

You don't have to have a LLC. You can talk to a lawyer but liability if you are the person who makes your products and sells your products liability isn't always limited in an LLC. If you sell as an individual proprietor you will just report your income on a schedule C on your tax return. You will also need to learn about the requirements for sales tax in your state. That is a pain but it isn't hard.

How you sell and how much is really a personal decision. You don't have to go in for a big business but you do need to be aware of the point at which the additional costs you have will be offset by the number of bars sold.

There used to be another company that sold insurance if your sales were under $5000. I don't remember the source or if it is still there. If it is then the costs were low enough to try for a year or two and see if it works for you.
 

Catscankim

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I do not have assets (unless you consider my 2004 chevy colorado an asset....TAKE HER IF YOU MUST lol)

I used to not have insurance because I was selling small scale, like friends and such. Then I had one girl approach me one day that she "scratched the [heck] out of her arm from the shell on top of the soap". "Ummm..the shell is made of soap and what kind of special person physically injures themselves with soap." she assumed the shell was real and ran with it. Her husband confirmed that she did not hurt herself with the soap and in fact loved it. Sparing you most of the details :lol:... Her arm had no scratches on it, and I shoved $8 down her shirt to return the money lol. I have so many words for this type of person. Not worth it.

ok I have to edit here...I have known this girl and her sister for 14 years...this wasn't a random customer that I had this encounter with LOL. I wouldn't shove money down a customers shirt if they weren't happy LOL

Anyway. That very day was the day that I decided to purchase insurance for my soap. And it opened up avenues for other selling, mostly small scale so far because that is all I have time for. But at least I have peace of mind that nobody is going to make a claim on my colorado LOL.

Hiscox is what I have. They let you put a small down payment and pay monthly installments.
 

TheGecko

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I don't think I want to market soap, but I'd like to sell my extras, and maybe a loaf here or there. What is the absolute minimum I need to do this? I'm in the US. Insurance? Can I just sell it DBA or do I need to form an LLC? Do I want to do this? Somebody talk me out of it!
You'll want insurance to protect yourself. Registering as a DBA will allow you to open a separate bank account, but won't protect your personal assets as much as being a single-member LLC will (I can help you with that) and it's not that expensive.

You'll also need to check with local ordinances. Some localities require a license and have specific rules and regulations when it comes to 'public traffic'. You also may have an issue that you use Sodium Hydroxide. Katie at Royalty Soaps found herself having to move her studio after someone reported her because of that (she has a video on what she went through).

I'm in Oregon. I am a single-member LLC...costs me a $100 a year. The EIN from the feds was free and I don't need state number (also free) since I don't have employees. My locality doesn't require licensing and I have searched city code with regards to any Sodium Hydroxide issue and haven't found any. I have no 'public traffic' and 'commercial deliveries' traffic is limited to USPS, FedEx and UPS.
 

AliOop

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Can those of us not in business have folks who want our soap by special request reimburse us for our expenses? Would that solve @Ugeauxgirl’s dilemma? (Mine too!)
That can limit but doesn't eliminate liability in the event the soap "injures" someone. That typically would be due to an allergic reaction of some sort.

For anyone considering an LLC, sure to check into all the costs where you are located. In California, the set-up process is very easy and inexpensive; the whole thing can be done online in a few minutes. However, the minimum LLC tax is $800 per year (even if you make zero profit or sell zero products) -- AND you have to file an annual tax return for the LLC, separate from your personal tax return. That could result in additional accounting costs unless you are comfortable doing your own returns.

Also, if you are from another state and sell products in California, you must register your out-of-state LLC with the CA Secretary of State's office -- and pay the $800 minimum annual tax and file an annual return, just as if you were a California LLC.

All that to say, it's good to think about and explore all these issues. I always recommend that you talk with your tax person to determine what makes sense for your specific situation and location. There is no one-size-fits-all when it comes to choosing the right business model for your small soap business.
 

TheGecko

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Can those of us not in business have folks who want our soap by special request reimburse us for our expenses? Would that solve @Ugeauxgirl’s dilemma? (Mine too!)
Yes…and no. It’s complicated and convoluted. There are hobbies, then there are Hobbies, and then there is business. And in @Ugeauxgirl’s case with the doctor…very dangerous territory.

As long as you are giving the soap to a few family members and friends with no money exchanging hands, it’s hobby…no harm, no foul. But once you accept money…whether it is profit, break even or a “donation”, not only are you incurring legal liability, your hobby is now a Hobby and you have to report that money to the IRS. But because you are a Hobby and not a business, you don’t get to offset the ‘income’ with expenses.

As for the ‘dangerous territory’…it has to do with ‘drug claims’. Unless you are licensed by the FDA, you can’t sell or promote soap to help/cure itching skin or eczema, etc. You can’t even say that your soap is ‘moisturizing’ without falling under the jurisdiction of the FDA for making cosmetic claims.
 

Cat&Oak

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At first I went with sole proprietorship and quickly changed to an LLC because I wanted my business separated from my assets. Insurance as everyone has said is a must. I went with the soap makers guild. It goes beyond that though. County and state licenses, registration for taxes, inspections etc. It gets expensive quickly, a few thousand just for initial set up. Alot depends on your state and its particular requirements.
 

Peachy Clean Soap

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If you do have assets, then definitely get insurance. Make sure it covers cost of defense, not just cost of judgment. There are some threads here about insurance for soapmaking that might be helpful to get you started with finding a place to buy it.
That can limit but doesn't eliminate liability in the event the soap "injures" someone. That typically would be due to an allergic reaction of some sort.

For anyone considering an LLC, sure to check into all the costs where you are located. In California, the set-up process is very easy and inexpensive; the whole thing can be done online in a few minutes. However, the minimum LLC tax is $800 per year (even if you make zero profit or sell zero products) -- AND you have to file an annual tax return for the LLC, separate from your personal tax return. That could result in additional accounting costs unless you are comfortable doing your own returns.

Also, if you are from another state and sell products in California, you must register your out-of-state LLC with the CA Secretary of State's office -- and pay the $800 minimum annual tax and file an annual return, just as if you were a California LLC.

All that to say, it's good to think about and explore all these issues. I always recommend that you talk with your tax person to determine what makes sense for your specific situation and location. There is no one-size-fits-all when it comes to choosing the right business model for your small soap business.
Wow your information is worth it's weight in GOLD, Much Appreciation 🤗❤.
 

Peachy Clean Soap

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I do not have assets (unless you consider my 2004 chevy colorado an asset....TAKE HER IF YOU MUST lol)

I used to not have insurance because I was selling small scale, like friends and such. Then I had one girl approach me one day that she "scratched the [heck] out of her arm from the shell on top of the soap". "Ummm..the shell is made of soap and what kind of special person physically injures themselves with soap." she assumed the shell was real and ran with it. Her husband confirmed that she did not hurt herself with the soap and in fact loved it. Sparing you most of the details :lol:... Her arm had no scratches on it, and I shoved $8 down her shirt to return the money lol. I have so many words for this type of person. Not worth it.

ok I have to edit here...I have known this girl and her sister for 14 years...this wasn't a random customer that I had this encounter with LOL. I wouldn't shove money down a customers shirt if they weren't happy LOL

Anyway. That very day was the day that I decided to purchase insurance for my soap. And it opened up avenues for other selling, mostly small scale so far because that is all I have time for. But at least I have peace of mind that nobody is going to make a claim on my colorado LOL.

Hiscox is what I have. They let you put a small down payment and pay monthly installments.
Great Info. Is this insurance private & for soapers? hope thats not a stupid Q. 😉.
 

Peachy Clean Soap

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So I'd decided not to sell soap. I just retired a year ago from a very stressful career and I wanted to enjoy my hobby as just a hobby. I gave a lot of soap away, but now people are asking to buy it. Quite a few people have said that it has improved their itchy skin, eczema, etc. People have asked for wedding favors etc. And my girlfriend who is a pediatrician asked for some to give to her eczema patients- along with a business card, which I don't have cause I don't sell soap. Three friends have sent me a flier about a Christmas craft event at a local school- $30 for a table.

I don't think I want to market soap, but I'd like to sell my extras, and maybe a loaf here or there. What is the absolute minimum I need to do this? I'm in the US. Insurance? Can I just sell it DBA or do I need to form an LLC? Do I want to do this? Somebody talk me out of it!
Such a complement on your soap' must be fantastic for so many people requesting more. Congratulation 🥂🤗. Thank you for posting your Q. this is such valuable information for all of us. 💫👍🏼
 

JoyfulSudz

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That can limit but doesn't eliminate liability in the event the soap "injures" someone. That typically would be due to an allergic reaction of some sort.
I'm curious: If a soap label lists all its ingredients, shouldn't it be the responsibility of the user to be aware of their own allergies and avoid those substances?
I recognize that we in the US live in a fairly litigious society and often wonder what happened to the concept of personal responsibility.
 

TheGecko

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If a soap label lists all its ingredients, shouldn't it be the responsibility of the user to be aware of their own allergies and avoid those substances?
One of my first soaps contained Walnut Shells. Right on the label, in CAPITAL LETTERS, BOLD, RED it said: CONTAINS WALNUT SHELLS. Had a customer look at both the front and back of the soap, then ask if it contained anything that she might be allergic too. When I asked what her allergies were, she said she had a nut allergy.

Again...CAPITAL LETTERS. BOLD. RED. It was even in a larger font and on it's on line.

When I pointed it out, she claimed that she didn't see it.

Anyone want some Walnut Shells?
 

paradisi

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Avoiding allergens wouldn't protect you from correctly labeled but lye heavy soap. Or a contaminated lotion.

Lots of other potential problems out there. I've been injured by a cosmetic but it wasn't allergy. The label was correct but the formulation was awful.

I didn't sue but I did have medical bills.
 

JoyfulSudz

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I totally agree, @paradisi , about issues with formulations and safe soaping practices. It is reasonable to expect a product is made with care and safe to use. I'm so sorry you had to go through that.
Allergies though I do think are the responsibility of the end user, and I think it is good practice to provide an accurate listing of ingredients.
 
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