It's become more than a hobby, and I still enjoy it - I've had ever-increasing requests for custom rods over the last couple of years, word of mouth has been a powerful marketing tool (although I'm not marketing!). Since I do not have a business license, I usually end up giving them away as gifts, or as donations to help out local events and fundraisers. I cannot accept payment. I have seriously been considering obtaining a business license, but would this be feasible for a small-scale builder who may sell a dozen rods his first year?

Thank you for your thoughts, appreciated, Mike

Depends on the costs in your area. Here in Oregon I had to pay for the license and a permit to conduct a business in my home - it was a bit more than $100. Sure saves on components. I did have to get approval from my employer as well - we have this ethics thing that impacts outside employment. Ya word of mouth works pretty good - dontated parts of two rods to a salt water fishing convention and have about 8 rods from that and I'm almost too busy to get to my own

Shouldn't there also be a consideration about a corporation or similar and also insurance?

My attorney in Michigan advised me that I didn't need any type of product liability insurance. He couldn't think of any scenerio that could result in a successful litigation against a rodbuilder in Michigan. What could a fishing rod do to cause liability? Also, the fishermen assumes risk by fishing as well. Kind of the same as not being able to sue Nascar for getting hit with debris while sitting in the front row, you assume risk by participating. There is actually a legal term for this principle, can't think of it right now. For that same reason, he decided that for me a simple sole preprietorship(spelling?) was the best for me. Coporations are more to deflect both business debt, and litigation from personal. Other states will most likely vary. Check with an attorney to be sure.

Tony Childs
Eyefull Custom Rods
www.eyefullcustomrods.com

All I had to do was get a sales tax permit (in PA) and file my quarterlys under a sole proprietorship. I do about 10 rods a year and lots of repairs. well worth it for me.

I was going to call my Insurance guy since I have a licensed business if a chemical or my alcohol torch causes a problem would my home owners still cover me. Same for if a customer came by to PU a rod and slipped and fell.

Product defects - that is up to me. If the blank breaks and the mfg thinks they should replace the blank, than I'm going to try and get the components for the handle as well - not going to push it though. If it breaks and causes an injury - hum now that is an interesting one. I sure wouldn't want to be the one at the bench without an attorney

This is going to bring back a ton of people's thoughts. What it boils down to is how much risk are you willing to assume.

When I started a business in 2005, I consulted insurance, accountant, attorney, and my local SCORE group (If unfamiliar, SCORE is sponsored by the US Small BUsiness Admin and is made of working and retired executives and business owners to advise and educate entrepreneurs, usually free; can be found through your local Chamber of Commerce usually).

Here's what I Iearned from each that stands out:

Attorney - Form an LLC. You have protection afforded by incorporation.
Accountant - Form an LLC. I forget the legal terms, but basically I earn like a sole proprietor but have protection monetarily. My personal assets aren't tied to the business as with a sole proprietorship. You have 3 years to turn a profit before not justifying this as a hobby. PLus all those tools, etc are now cost of doing business and count as overhead, etc.
Insurance - if customers aren't in your house, safe. No product liability from the standpoint of manufacturing the rod. You're only an assembler and the parts have own warranties. Now, if the fool breaks the rod, falls on it, impales himself, and sues, you need protection there, but with an LLC basically they can (or should only be able to) take the business and that's about it.
SCORE - great help with business plan and overall planning on how to set things up. Also good for bouncing marketing and other planning ideas. One guy even gave me a couple things I'd never thought of to sell related to what I was doing at the time.

All of this varies by state according to the laws. Some of this could have changed since 2005 as well.

One thing to consider is once you set up a company, you can set up to pay wholesale for rod components with most vendors. Significant savings sometimes, so factor that into your budgeting/value pros and cons. You can also think of the money you spend up front for setting up as an investment that you can control the return percentage on.

Another thing is once you take on a formal business, you're going to invest more time in bookkeeping, not just rod building.



Edited 1 time(s). Last edit at 05/08/2008 09:28PM by Alex Dziengielewski.

Amazing... right here in South East Asia... we dont really have so much consideration. Unless we really go very big scale and rake in millions of dollars...

Thanks everyone - I really appreciate the input! As far as liability or insurance needs go - couldn't a rodbuilder be protected if the client initially signed a waiver covering any and all future miscues?

you will be required to pay excise tax.

set up a sole proprietorship. only costs me 50 bucks here in louisiana. at least you know you will be safe if you ever get audited.

there's no reason to set up a corporation or LLC unless you are a large company with employees. that is overkill

If the rod breaks and someone impales themselves, you are right, they may sue you. They will never beat you in court and recieve damages on this issue. If you throw a bowling ball up in the air and it crushes your skull, can you recieve damages from the bowling ball manufacturer, how about if you drop it on your big toe? A rod breaking is a reasonable and predictable "risk" of the sport of fishing. The user voluntarily assumes this risk. At least in Michigan they do. A simple small home business rider on your homeowners insurance will cover you for any slip and falls, you already are liable for that anyways. An LLC doesn't automatically seperate you from any risk whatsoever. That is why it is called a "Limited Liability" corporation. Your credit card will be in your name guaranteed by you, any loans will be your responsibility and on your credit report, any lawsuits in civil court can be directed to you personally just the same as any other business. You won't realize any corporate benefits unless you are a pretty large business. Have you ever seen any credit card application that doesn't have a clause to make you personally liable if your business/corporation fails, how about your bank in regards to loans? They all have personal liability guarantee clauses. The only debts you will be not liable for are any that are simply a contract between your business and the supplier(in the business name only). Any business has risks, but less risk than doing business illegally. Just be sure to consult an attorney and an accountant. Corporate tax rates also suck compared to small business taxes! One other thing. You can lose money indefinetly if you are willing to keep pouring your own personal finance into your business, nothing illegal about that. You will just get very large amounts of scrutiny from the IRS after losing for three consecutive years. It has nothing to do with being a hobby or not. If that were true GM, Ford, United Airlines, Northwest Airlines, etc..... would all be hobbies.

If the rod can be shown to have been poorly put together- and it breaks-causing injury- there could certainly be liability issues.

A couple of thoughts:

If you have an attorney who tells you "what could they sue you for?" you might want to look for another attorney. This one is setting you up to pay for his vacation home. The fact that someone might not win if they sue you has nothing to do with the fact that you'll pay an attorney to defend you against a claim if you don't have liability insurance. Trust me, liability insurance is the cheaper alternative.

Your homeonwer's insurance might or might not cover many of the situations described above. It depends on the claims agent and the selling agent, as well as the insurance company. And, you'll probably never recover replacement costs due to an incident, if you don't insure for replacement cost. You can run the cost of specialized insurance through the business.

The 3-year rule is a myth, just like the myths about the 5-year rule or the 7-year rule. If you get audited, and you have a little Sched C business or an LLC or just about any personal setup, and the auditor (Federal or State) decides he needs something to do for the rest of the week, he'll go after the business. That can be year 1, or year 3 or year 7, but trust me, they'll go back as far as they can once they get started.

In some states you can be a business without a business license and just a tax number (yes, you'll have a bunch of forms to fill out every month, quarter, and year, not just your income taxes). But your city or county may also have some interesting requirements about operating a business from home. You need to check those out too.

Uncle Russ
Calico Creek Rods

I made the leap myself. Setting up the business is pretty easy, at least in Maryland. The paperwork really isn't that much of a hassle, and I buy EVERYTHING through a credit card or money order so even if I lose the paperwork there is a record on file. I save a considerable amount on purchases, but this is largely offset by the state and federal taxes I now pay. Even though the hassles are minimal, they are still a hassle. I really doubt if it would be worth it if you make less than 20 or 25 rods a year.

The liability insurance will only kick in when you lose in court. It will not pay your legal fees from getting sued. Either way, you will pay an attorney. I havn't heard of any retail rod makers losing a court case because their shotty worksmanship caused someone to be impaled by their rods. Your liability insurance will not cover you if your worksmanship is proven to be shotty, they will have fine print to exclude negligence-remember they don't like to pay claims, ask people in New Orleans. Hopefully your work is better than retail? It all comes down to the old saying "tripping over a dollar to pick up a dime". I truly believe that anyone can sue anyone else for anything. Winning in court is a different story. Insurance companies will screw you just like an attorney. They love to sell you policies that you "can't live without". If you talk to a product liability attorney, they will tell you that the risk for a rod maker is almost non existent when compared to other products and services. If you believe that you need liability insurance, then by all means buy it. If you read my post, I didn't state that my attorney coudn't think of any thing that you could be sued for, I stated that he couldn't imagine any instance that would result in having to pay a settlment. If you are in business long enough, you will be sued for something, almost a guarantee. I live in an area that isn't considered a flood zone. I guarantee that a record rainfall could cause flash flooding that would put me under water. Should I go out and purchase expensive flood insurance, build an ark? Every day in business we face risk. Each business owner has to decide how much they can live with. Another thing to consider is that if you have liability insurance, you make yourself a better target for litigation. There is money available if you lose. Without liability insurance a person will have to weigh the cost of a long court battle (paying attorneys) vs. the business not having didly squat to pay a judgement if one is even achieved. It is all called risk-six one way, half dozen the other.

I would like to make ONE point. IMO,If you are going to base any business decisions on info that you receive from virtual strangers on the internet who may or may not be familiar with your state, county and city (yes, they all have different rules), you are really asking for trouble!!!! When the IRS or state, county or local authorities knock on your door and you say that Mike Barkley told me this is how to do it, they are NOT going to be impressed!.

I would strongly suggest that you talk to a small business accountant/attorney in YOUR community as YOU and ONLY yo will be liable for any business decisions you make. I did notice that in only one response were the words Excise Tax even mentioned. The Federal Excise Tax on Fishing tackle sales is separate from all the other things that you have to deal with.

I want to make it very clear that I am NOT criticizing ANY of the posts or information posted here. Everyone is trying to be helpful but pay the bucks and get solid info based on YOUR situation and location.

Mike (Southgate, MI)
If I don't want to, I don't have to and nobody can make me (except my wife) cuz I'm RETIRED!!

The IRS website has some great resources for guiding you through the process. They have a link to the small business administration which will guide you step by step through the process. Also, check your state dept. of revenue site for similar information. In my instance my County required me to file DBA papers, but my City didnt want anything. So just check with all possible jurisdictions.

Scott Sheets
www.smsrods.com

All great advice. At a minimum, you should consider the following:

State business license fee, if any.
City or county license fee, if any.
CPA fees (you should consult a CPA at a minimum) try to find one that has knowledge of small manufacturing business and the federal excise tax you will have to claim and pay on every rod you sell.
Attorney's fees: consider these after you talk to the CPA.
Record keeping time and extra filing during tax time.

If you get through this list and want to continue then forge ahead.

Good luck!

Terry

I have some friends with under 18 year olds who are thinking of doing what's been covered in this post. Can an under 18 year old do the things above, or do they need their parents to co-sign such as registering as a business with the county/state?

Thanks,
Mo