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Do you run your Etsy shop as a legitimate small business?

I hope that title's not offensive. I couldn't think of better language for it.

What I'm wondering is whether many (most? all?) shops on Etsy have gone through all the steps of setting up and running a government-recognized small business.

For example...

~~ Do you have a business license with your state?
~~ Do you have a business bank account?
~~ Did (or do) you have a formal business plan?
~~ Do you have an attorney specifically for your business?
~~ Do you have an accountant specifically for your business?
~~ etc, etc, etc

I'm not judging anyone who has or has not done all these things. I'm just a new shop owner (my shop isn't even up and running yet), and I'm trying to figure all this out. I want to give my business (my shop) the best chance at success possible, as well as to protect myself and my family. But I'm also on a very limited budget and need to prioritize carefully, especially with the more expensive things. So if there are steps that aren't that important or that can wait, I want to know that. On the other hand, I don't want to cut corners if that means breaking laws or Etsy rules, or otherwise posing risk to myself or anyone else.

Tell me about you and your Etsy shop, as a small business. Thanks!

30 Responses

No attorney, but I have a sellers's permit (for sales tax), an EIN, a witholding permit (since I have a part time employee), and so forth. But if you're a Sole Proprietor, there's nothing "wrong" with having just a personal bank account, it's just probably not a good idea.

I also have liability insurance due to the kind of products I sell and also Workman's Comp (for my employee).

I do my own taxes with (only about $20 to file my income taxes) and I use to keep my books (free!).
Yes, of course. But, I also sell offline (booths in antique malls) and have been doing so for years.

If you want to prioritize, I would say you do not need an attorney or accountant quite yet.

But, DEFINITELY get legal with your state and the IRS. Get appropriate business licenses, tax ID numbers, and register with your state. You can do all that simply by going to the Small Business Administration (ours is in our county courthouse). Set up a free appointment and they can handhold you through everything. Super easy. Also, in my state, registering can be done online.

I would strongly recommend having a second business account, too.

It's a good idea to have a business plan, but that can wait too
You didn't ask the big question, whether or not you charge and pay your state's sales tax. I'm a legitimate small business but I don't sell enough to warrant a business bank account, or attorney or accountant. But I do collect and pay sales tax.
I do exactly the same thing.
My state (Oregon) actually doesn't have sales tax, but now that you mention it, I guess I don't even know what that means for an online shop that (hopefully) sells to people in other states. When you pay sales tax, is it for the state you're selling out of?
This is where I am as well. I have a tax ID number but I am still so small that I don't need the others - yet. Hopefully I will need them all and really soon ;-)
I am at the same point as Eileen. I collect sales tax for CA and my income could be considered hobby income.
I've collected sales tax since 2009 with a state business ID, and filed a schedule C for the biz as well. But since I still haven't made a profit overall (getting closer), a business account would just be another expense. I guess I'll wait until I make enough to warrant it, or I am told I have to do so. I am able to do my own need for a lawyer - hope it stays that way. : )
the attourney bit sounds scary - is that necessary in the states?? :0 in the UK, I think its a bit simpler. You simply register online and set up a bank account and you're done.

I went through the Prince's Trust when starting up, which is a charity founded by Prince Charles to help young people start their own businesses. They provide funding (grants and loans) and great support from business know-hows which help you start up, all after you have completed a business plan. I'm not sure I would have done a plan if it wasn't compulsory to get the grant.

As for the accountant... i'm doing it myself for the time being. Maybe when more sales come in I'll palm that off to a professional!
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Inactive Etsy Member 10:55 am Jun 10, 2013 EDT
I have a business tax number, collect and pay the tax for my Canadian customers. I do my own taxes with turbo tax, do not have an accountant and work from my own personal bank account. I do my bookkeeping via intuit online for less than $10.00 per month. It all has been working great for the last 5 years.
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Inactive Etsy Member 10:58 am Jun 10, 2013 EDT
I have 68 sales on here... I did sign up for an EIN number but honestly, I can't afford to go much further until I start selling things on a consistant basis... that's what I'm waiting on :)
I have a business tax number for my state and will be submitting taxes for the first time this quarter. I guess I technically have an accountant for this business, although she was my family accountant already. My business isn't big enough to warrant it's own business bank account.
No attorney, no business plan. But yes to an accountant (who also handles my other business), yes to proper government filings (state and federal) and yes to a business bank account (separate from my other business).

OP, you're right to ask these questions and to be thinking of setting it up properly at the beginning, rather than having to backtrack later. If you miss doing things like paying state quarterly tax, it's probably just a fine at first. But federal income taxes are a different matter, and it's wise to get it straightened out early. A good accountant can make sure it's all done correctly, but if you persevere, you can probably do it yourself. It's a lot of paperwork, though.

I understand your question, but I want to clarify that every one of your steps is not necessary in order to be legal and tax compliant. Many people, like myself, choose to report and operate as sole proprietor. I have a tax guy, but a business license is not necessary. Registered, for me, simply means reporting my earnings, using my ss# as my tax i.d.. Different structures have their own hoops to jump through that may require an attorney to navigate, but for me, i get by with a qualified tax guy who helped me get things in order when i started, who I work with quarterly for schedule C estimates and gets me my payment vouchers for fed and state.

I often wonder what the percentage of Etsy shops are, that do not pay taxes. You'd think there would be heaps of tax related threads in the forum but my guess is a lot of people run when the T word is mentioned.
I would assume for the most part, shops that are legally registered are sole proprietorships. It's the most straightforward, and with the exception of collectives, makes sense for small businesses with no employees.
what rate of tax do you have to pay in the states? the UK is pretty decent for small business ie: sole traders just starting out. We have tax free earning up to £7k before we must pay tax, and £70K+ to pay VAT. Our only tax which is applicable from day one is National Insurance which pays towards your state pension and that starts at just £2.65 a week, but you start paying at £5K+

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