HOW TO START A COSMETIC BUSINESS: (ARTICLE WRITTEN FOR INDIAFILINGS.COM LEARNING CENTER SECTION)

The cosmetics industry is one that earns billions of dollars in sales per year. Whereas it used to be mainly multi-national corporations making money in the makeup business, today independent and artisan cosmetic companies are starting and growing into successful ventures. Starting a cosmetics business can be enjoyable and profitable, but requires thorough planning. Starting a cosmetics business from home can be an exciting and profitable venture. However, you must first decide how you will acquire the products. Some people make their own cosmetics, though this method can be costly and time consuming. Most people join a cosmetics direct sales organization. However, you may want to start from scratch, especially if you plan to sell more natural cosmetics.

INDIAN COSMETIC INDUSTRY:

Holding a rich heritage of cosmetic and beauty along its side, aesthetic makeup products is being used since olden days and nowadays it appear like a booming economy in India which would be the largest cosmetic consuming country in a next few decades. While the demand of beautifying substances are growing day by day, a large number of local as well as international manufacturers gradually extend their ranges and products in different provinces of India.  The size of Indian Cosmetics Industry globally is $ 274 billion, while that of the Indian cosmetic industry is $ 4.6 billion.

Since 1991 with the liberalization along with the crowning of many Indian women at international beauty pageants, the cosmetic industry has come into the limelight in a bigger way. Subsequently their has been a change in the cosmetic consumption and this trend is fueling growth in the cosmetic sector. Indian cosmetic Industry had rapid growth in the last couple of years, growing at a CAGR of around 7.5% between 2006 and 2008. While this is due to the improving purchasing power and increasing fashion consciousness, the industry is expected to maintain the growth momentum during the period 2009-2012.

BUSINESS ENTITY:

The sole proprietorship, partnership, limited liability company (LLC), limited liability partnership (LLP) and limited partnership (LP) business-structure types allow salon owners to calculate the salon's profit or loss from business and then pass on the net profit or loss to personal tax returns as income. An independently owned salon may choose a sole-proprietorship structure when the limited personal liability provided by an LLC is not necessary.

You could conduct your business under a Sole Proprietorship, but this makes you completely liable for anything bad that might happen as a result of your products. Likewise, partners in a salon business must choose between a regular partnership or an LLP. Since there are so many aspects of business structure that are available to consider, the business ownership type a salon uses may not be evident, particularly if it operates as a sole proprietorship or partnership.

OPENING BEAUTY BUSINESS AS FRANCHISEES:

Some beauty salons operate as part of a larger salon franchise. Opening a salon under a franchise agreement carries a fee but allows the owner to start a business with immediate brand recognition. Some classic examples are Naturals Salon & Spa, Lakme Salon etc., When a beauty salon belongs to a franchise, the salon is known as a franchisee of the larger brand. The distinction that exists between operating as part of a franchise and operating as an independent beauty salon with a unique trade name creates two different types of salon businesses. 

COSMETIC BUSINESS SET UP COSTS:

When people think of starting their own cosmetic line, the product development costs are what they generally think about. Basically, these costs include anything related to creating your product such as raw material costs, packaging, and labeling. It also includes the cost of production activities such as mixing the materials together and filling them into the packaging. Cosmetic formulations can run anywhere from Rs. 7/pound to Rs. 196/pound but on average products will cost about Rs. 65/pound. Packaging & labeling will cost another Rs. 65/unit. Adding in production and filling costs and average per bottle cost will be about  Rs. 131 –  Rs. 196/unit. But you can’t just make a few bottles at a time as you’ll have to buy minimum quantities of the raw materials and bottles. To get the costs to Rs. 131 – Rs. 196/unit you are going to have to make a minimum of 500 — 1000 units. If you make less your costs will go up significantly. So, figure this part of product development will cost you around Rs. 2,00,000.

A cosmetic business can be profitable but it is much more complicated than making a lotion in your kitchen and selling the product to a demanding public. When you figure in the costs of product development, business, and marketing you realistically need about Rs. 6,50,000 – Rs. 10,00,000 to invest up front. Once you start making sales you can make that money back but understand that this is the minimum amount you are going to need to get started.

PROCEDURE FOR STARTING A COSMETIC BUSINESS:

Step 1:

Set up a space in your home for working your business. Work out of a spare room, for example, if you want to potentially write your office space off for tax purposes.

Step 2:

Obtain a vendor's license for your cosmetics business because you will need to pay sales taxes. Register your business name as a doing business as if you create a fictitious name for your business. Apply for a vendor's license and DBA through government.

Step 3:

Select a direct sales company if you choose to use a direct sales supplier. Find your own wholesale supplier if you are starting your cosmetics business from scratch.

Step 4:

Call several of the cosmetics wholesalers. Make sure these wholesalers sell the products in which you are interested. Select the cosmetics wholesaler that offers you the lowest unit cost of products.

Step 5:

Order product samples, catalogs, price lists, order forms and gift bags from your direct sales company or wholesaler.

Step 6:

Decide where you will sell your cosmetics. Options include a mall kiosk or booth, online artisan marketplace, online auction website, e-commerce store, craft fair or through home parties. Selling your products online is the cheapest option, but it is a good idea to sell through multiple venues to maximize your profits.

Step 7:

Purchase the materials needed to produce your cosmetic products such as jars, tops, colorants, lip-safe flavoring oils, natural butters, essential oils and exfoliants from a supplier.

Step 8:

Place all customer orders each week through your direct sales company or wholesaler. Pay just the wholesale cost for all the items.

Step 9:

Develop a marketing plan for your cosmetics business. This can include launching a promotional blog or website, placing ads on blogs, forums and websites that your target market frequents, listing your company in online or print business directories, or joining a cosmetic industry association to network with suppliers.

TAX LIABILITY OF COSMETIC BUSINESS:

Any beauty business that is a franchisee or any cosmetic business that would have an annual taxable services billing of more than Rs.9 lakhs in any financial year must obtain service tax registration.

In addition to service tax registration, those beauty parlours that sell cosmetics or toiletries must obtain VAT registration from the sales tax department. VAT is applicable on cosmetic and toiletry products. Hence, Value Added Tax (VAT)  must be included in any sales of product happening within the cosmetic business.

Service tax registration can now be obtained easily online through IndiaFilings.com. For help and further information kindly contact IndiaFilings Business advisor immediately.