Monday, January 14, 2013

Cottage Industry Laws

So you knit an awesome afghan/bake a great cake/whittle a beautiful headboard. Wanna start a business? Sure! Do what you love, and you’ll never work a day again in your life, right? But starting a business requires money. Which you don’t have. Or you wouldn’t need to start a business.

There exists, in the good ol’ U.S. of A., a business type called a 'cottage industry'. It’s basically a sole-proprietorship that you run out of your home. Sounds perfect, right? Let’s roll! I’ll start today!

Not so fast. Business in this country is regulated, heavily in some cases. There is a set of laws involving cottage industries, and pleading ignorance will not keep you from being heavily fined or shut down if you’re found in violation. Laws vary from place to place, so check your state, county and city websites for the particulars. But the most common issues concern what you make and where you make it.

Your Home
As mentioned, cottage industries are run from the home. But that’s not all there is to it. First, you have to check with the city to make sure your home is zoned for cottage industry (which is entirely separate from being zoned for business or residential use). Then, you have to check with your neighborhood association to make sure they’ll allow signage, the expected traffic, and everything else that comes along with business.

Will customers come to your home? Better have ample parking. Many places require that no more than 25 percent of your home’s square footage may be used for business purposes. Plan on selling food? Your kitchen usually has to be separated from the rest of the house and kept in Health Department-approved cleanliness.

Depending upon where you live, you may have to get a business license for your cottage industry. At the very least, you’ll have to register a fictitious name, unless you are doing business under your full, legal name. Even if local laws don’t require a business license, some other sales outlets do - many trade shows, fairs and green markets require your business to be fully registered before you can purchase a booth.

Don’t forget insurance! Liability insurance is a biggie. If customers will be coming to your home, speak to your home insurance rep to be sure you’re still covered.

Your Process
If you are producing food, you need to run your home kitchen like a professional kitchen. That means that Fluffy and Fido are no longer allowed in, and anyone who even stands near a prep area must wear a hair covering. In some places, you may even need to install special equipment (like the triple sink) that is used ONLY for your business, not family-related cooking.

Even if you’re not producing food, you may need additional equipment or permits if you use hazardous materials in the construction of your product - and we’re not talking uranium, here. Spray paint? Spray booth. Smelly glue? Vent hood. Welding? Not in this neighborhood, buddy.

Your Product
If you’re producing non-hazardous, non-food items, you’re probably okay. But bakers beware - there’s a whole mess of laws that govern what foods can and cannot be sold from a cottage industry. Baked goods are generally okay, as long as they don’t contain dairy as the main ingredient. Jams and jellies are usually fine, but not if they’re canned - home canning requires a whole other set of permits and inspections, and usually requires special equipment to ensure sterility.

Suddenly, starting your itty-bitty business just got intimidating. And if you become moderately successful, cottage industry laws will no longer apply - that’s right, after all this work, if you make over a certain dollar amount in sales, you qualify as a 'real' business and must redo the entire licensing/insuring/equipping process over again to a new set of rules. Oh yeah, and you have to find an appropriately-zoned place to do it, too, because you can no longer use your house.

That said, don’t let the legal stuff scare you. Invest a bit of money to hire a CPA who knows cottage industry law - it’s worth it in the long run. And when you finally do succeed in launching your afghan/cake/furniture empire, it’s the best feeling in the world.

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