Monday, May 05, 2008

CRAFTY BUSINESS WITH LAURA-JEAN: Business licensing & registration (some textile-specific advice)

I'm sure this Crafty Business question will be of use to most budding craft entrepreneurs out there as it deals with the (for many) intimidating business of permits, licences, labelling etc. Contact Laura-Jean for advice on other stuff that freaks you out here.

crafty business

Q. This question has to do with all the technical side of selling textile goods?! I was just asked the other day if i had a CA number and I had no idea what it was! So after doing a little online research I found that to sell textiles you need a CA number and specific details on your labels... etc. So my question is at what point in a small crafty business do you think all of that stuff really comes into play?!

This might totally be a boring question for the blog... It's about the boring stuff on the business side of it all, but i just don't how badly I could get burned if i don't address this stuff early on in my business.


Avril Loreti

A. Good question Avril, and not boring! There are a lot of technicalities that can intimidate the average crafty gal out of trying to start her business! Although I don't do everything perfectly all the time myself, I do try, and I advise people who are starting out to try to get things organized when the business is small so it gets off on the right track.

For starters, the most important one is vendor's permit. You must have this to sell goods, even at craft shows. Some craft shows require proof of it, and I have heard stories of PST spies asking to see your vendor's permit, or worse, posing as a customer asking if they pay cash can they get a 'no tax' deal. Then they come back and audit you for not charging the proper tax! Yikes! Vendors permits are easy to get, and free! Check out their site. It's very straightforward and will help save you money. Some wholesale suppliers won't sell to you unless you have a vendor's permit, and by showing it and saying that it's a business purchase, you don't pay PST. (This applies to materials you'll resell, like fabric but not stuff you'll use yourself, like a sewing machine.)

You might as well register your business early on. If you are conducting business under your own name only (Jane Smith, but not Jane Smith Designs) you don't need to, but if you're serious about starting a real business, registering a name is a good idea. It costs $60 and you can find tons of info here about name searches (to see if anyone has that name already) and how to register. Once you've registered, you can set up a bank account in your business name. It's a great step for starting to keep your business finances separate from personal money, and means you can accept cheques written to your business name.

As for the CA number, I was under the impression as well that you do need one, but going to their website, I notice that maybe that's not the case. I'll have to admit I'm not an expert on this one, and I find their website doesn't do a great job of explaining what it's all about, but I'll give you my understanding of it. I think the purpose of a CA number is to tie someone to a garment (or textile product) being sold in Canada. This is to ensure that if I've labelled a sweater I made as 100% silk, but it's actually polyester, they know who to go after. Now, on their website, question 4 of the FAQ's seems to state that in lieu of a CA number someone can label with the full name and address of the dealer. I'm guessing that dealers typically opt for the CA number because it's shorter than printing the full name and address? But I'm not really sure. You can apply online, it costs $100 and takes a few days, but do you need it? For the past 10 years I thought so, and now it looks like no, as long as you still comply with the labelling requirements.

Depending on what type of product you're making, there may be specific regulations for it. I was totally surprised when I made up a few knitted pillows to try out in my booth at the One-of-a-Kind show and someone who polices that kind of thing showed up in my booth asking to see the labelling! (I had used pre-made pillow forms, so I was OK since they came with all the proper labels.) I know children's sleepwear has specific rules it must conform to. I'm sure any food items are subject to some regulations, and so on. Make sure you do the research starting out, so you don't find you just printed up 1000 labels that don't include all the info you need.

I'd say, in general, you won't go to jail if you sell an improperly labelled teddy bear at a craft show. I know someone who was found without a CA number, and she was just told to register for one. And that was the end of it. I suspect that any threats of big fines etc. in most of this kind of stuff are to prevent people from fraudulently selling misleadingly labelled products, and it would be very unlikely that it would be an anything other than a pain to be found to be doing something incorrectly when you are obviously a tiny business starting out. That said, why not just do it correctly from the beginning, as best as you can anyway?

One technicality that's super important from the beginning is getting your accounting system in order. Very briefly, you can claim all your business expenses against your income, so make sure you save all your receipts from all purchases for your business. You may want to get help when it comes time to do your taxes, as things are accounted for differently. Computer equipment, vehicle expenses, software, all your materials and a portion of your rent are all tax deductible, but in different ways. An accountant can help you save a lot on your taxes, especially when you're absorbing all those start-up expenses. In short, if you made $20,000 at your part-time job and spent $10,000 on business expenses, your taxable income goes down to $10,000.

For some people, they may read this and think "Of course!" but many people I know are so afraid of figuring this out, they just ignore it and don't realize how much money goes down the drain. Even myself, years into my business, I'd find myself not bothering with small expenses. I'd pick up garbage bags and Windex for my shop for six bucks, and then later that day take a taxi home because I was hauling too much merchandise to take my bike. While I was busy collecting up my receipts for yarn and fabric, I didn't think of these 'few dollars here and there' kind of expenses as worth tracking. Then I started to realize that just $8 a day comes to close to $3000 a year I should not be paying tax on. With that savings, I could buy a few pairs of Fluevogs full price each year! I also fell into a trap of thinking that if it was fun for me, it wasn't really a business expense. But my whole business is fun for me, so if I buy a magazine with "Top Spring Trends" on the cover, it's research for my business. If I go to the Clothing Show, my ticket is a business expense. Not tracking your expenses is throwing money away, so get in the habit early.

So all in all, my message is get your business started off right and keep it organized as you grow. It's so much easier, for example, if your first PST remittance is just a small amount, and you get used to how it works and get in the habit of getting it in on time. Then as your business grows and all the amounts of money grow, the whole thing will be just part of what you do, and not nearly as scary! It pays respect to your business to set it up right.

Best of luck with your business and thanks for the question!

Note: Guidance provided in this column is just that, guidance, but not legal advice. Please consult a legal adviser or the department responsible for licensing or registration for the final word on any of the topics discussed above.


Blogger Shiny Black Shoes said...

Ohhhh this is really helpful. thanks

11:36 a.m.  

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