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While you don’t officially need it to operate, there are several benefits of having an EIN (employer identification number) for your handmade skincare business.
From financial security to future endeavors, having an EIN at the very beginning of your entrepreneurial journey is a smart move.
In this article, we’ll discuss the facts behind employer identification numbers, why you would want one, how to get one online (it’s free!) and what to do once you have one for your skin care business.
An EIN (employer identification number) is a nine-digit number assigned by the IRS (United States federal government) to identify you, your business accounts, your tax returns, and other related documents.
In layman’s terms, it’s basically a social security number for your business.
Most handmade skin care businesses are run by one individual as a sole proprietor or single-member LLC.
If this is you, you do not technically need an EIN (yet).
However, if any of the following are true (or might be true in the future), you will need to get an EIN for tax purposes:
The IRS EIN questionnaire is here if you’d like to double-check to see if you need one.
I urge you to keep reading, as there are many benefits to having an EIN for your skin care business even if you don’t officially need one.
On all e-commerce marketplaces (like Etsy) or website builders (like Shopify), you are required to provide either your social security number or employer identification number to get set up.
Currently, fraud occurs much less with EINs on the off-chance should any of these sites be compromised. Consumer fraud with SSNs is somewhat common, whereas EIN fraud is not.
As most skin care businesses are home-based, we have a good chance of having a list of deductions to submit during tax time (office square footage, internet bills, vehicle use for post office trips, etc.).
You are more likely to receive a small business IRS audit if you submit business taxes and deductions under a social security number (versus an employee identification number).
Not all, but many banks require an EIN to open a business banking account.
You will want a separate bank account for your skin care business to both simplify your bookkeeping and also to limit liability in the case of a lawsuit.
My article on LLCs and skin care businesses covers the liability aspect in more depth, but for our purposes here, know that most banks require an EIN for business checking or savings accounts.
I’m a big fan of NOT putting yourself in debt to build your business. One of the perks of our industry is that we can start slowly and build without needing a ton of funding or supplies.
However, building your business credit to get that positive financial history for future opportunities is also smart.
You can begin this process slowly by applying to PayPal for Business account, and then branching out to larger things like business credit cards.
Starting this financial growth plan at the beginning will help you to be ready for other business opportunities when they arise.
Once you grow your business and your trustworthiness (as well as your credit discussed above), you may find yourself in need of a business loan to get a large-scale project off the ground:
While I again urge you to consider growing in a way that does not put you in debt, there can be financial benefits to considering a business loan.
Having an EIN for your business results in fewer steps in the loan process and speeds up the wait time for you overall.
Thinking into the future of your skin care business, keep in mind that an EIN is required to set up a payroll system.
It is also worth mentioning that while not required, providing an EIN in lieu of your SSN to vendors and other freelance workers for one-time help (such as graphic design, editing, etc.) makes you look more professional, as well as keeps your finances safe…which brings us back around to point number one!
The process of obtaining an EIN itself is very (very) simple, but there are a few things to consider before submitting your application.
Your EIN will be under your business name, so you’ll want to take the time to develop a slam-dunk name for your skin care business.
You will benefit greatly from taking the time to do target market research, play around with naming strategies, consider helpful taglines, and check for the availability of your desired business name.
As a skin care maker, I highly recommend forming an LLC for your skin care business.
This is also not required, but strongly suggested to protect your personal assets – creating skin care products to sell to others does not come without risks.
You can easily set up an LLC on your own (much more affordable than having someone do it for you), but prepare yourself for several action items.
After naming your skin care business and completing the optional LLC setup, you’re ready to grab your EIN.
Simply go here to complete the EIN application.
This is a one-page application that should take no more than 5 minutes to complete and your EIN is emailed to you directly afterward (free of charge).
After you are emailed your EIN, make sure you print it out and also keep a digital copy for your permanent records (the IRS will not send you another copy).
If you have already set up websites or payment processors for your skin care business such as Etsy, Shopify, PayPal, Stripe, etc. and used your social security number, go back to those sites and replace your SSN with the new EIN.
Using your new EIN, apply for a Paypal business account, business checking account, and/or a business credit card.
I have had a great experience with American Express (Blue Business Plus) credit card – a $0 annual fee card with points earned with each purchase.
Now that you’re on a roll with all these behind-the-scenes business to-dos, keep going by familiarizing yourself with the education and resources available at Paper + Spark.
Janet (the owner of Paper + Spark) is a CPA who specializes in helping small, handmade businesses with all things inventory, bookkeeping, and taxes.
She makes it all super easy to understand and is a wealth of knowledge (with a strong support team to answer any questions you have).
Paper + Spark resources that I own, LOVE, and couldn’t do business without:
Take a quick quiz here to see what spreadsheets are right for you and your skin care business setup!
No one wants to build a business by themselves! That’s doing it the hard way!
With the Skincare Business Branding Guide, you get step-by-step guidance to help you create the BEST branding for YOUR target market!
Christine is a certified aromatherapist, essential oil specialist, and organic skin care formulator. She loves empowering others with tools to make healthy changes and understand where natural options can be woven into the fabric of everyday routines.
