Archive for the Ecommerce 101
March 9th, 2012
This is an overview of the basic steps that will help assure that you are working within the US legal boundaries so you don’t get any surprises later. This is for informational purposes only and in no way constitutes legal advice. You should always consult with your lawyer or your accountant to decide what best fits your needs.
Sole Proprietor or LLC?
Choosing the structure of your business depends on a couple of factors, the first being, what the limits are in your state. Most small business begin as a sole proprietor, because it is the least expensive route to starting your own company. For those who work as a sole proprietor, all that needs to be done tax-wise is a Schedule C on a personal return. The reported business income goes into your personal taxes instead of a separate entity as a corporation.
While it may be less expensive to start as a sole proprietor, there is a legal aspect to consider. Those who work solo have no legal protection over personal assets. This translates to you being liable from a personal standpoint for actions that occur within your work – so if someone wants to sue you, your assets (home, car, savings, etc) are at risk. Even though a LLC or corporation may be a little more expensive to start, they do give you the protection over personal assets.
Here is a comparison between a Sole Proprietorship (DBA) and a LLC (Limited Liability Company):
Advantages of a Sole Proprietorship
Lower start up costs
No annual compliance
Ease of accounting
Ease of tax preparation
Disadvantages of a Sole Proprietorship
Personal liability exposure
It may limit ability to raise future capital
It may limit the transferability of business assets
Advantages of a LLC
No double taxation
Can have multiple members
Personal liability insulation
Can be broken into shares
Disadvantages of a LLC
Subject to self-employment tax
Lack of uniformity among limited liability company statutes
Do You Need A Business License Or Permit?
You should check with your local city or county government to make sure you are in compliance. Some home businesses are exempt, but most businesses do need a license. This helps with planning for tax reasons and the county growth. Permits are required for certain occupations or businesses.
What Corporate Forms Should You Use?
There are three primary forms used for businesses. You should consult with your lawyer or your business accountant to decide which form is best for your business. Most small businesses choose either a “S” corporation or LLC (Limited Liability Company) since these two forms put a limit on your personal liability, yet still allow the profit and loss statements to be filed under the individual returns. There is also the “C” corporation form.
Special Tax Numbers
Having a special tax number is safer for sole proprietors than giving out your social security number, so even with the smallest business it is advisable. To get your EIN or employer ID number, all you have to do is call the business line with the IRS and you can have it assigned over the phone or you can visit the their website IRS.gov to apply for it as well.
If you are a corporation or have employees that are on your payroll, you will need an Federal Employer ID number. This number is assigned and puts your business on the IRS’s books. State ID numbers may be assigned, depending on the laws in your own state. The best way to figure out if you need a state number is to visit StateLocalGov.net for a quick reference and further directions on what to do.
Depending on your business, if you are going to be reselling goods purchased, you will need to sign a resale license or statement of intent. This states that the end consumer will be paying the sales tax and you will be exempt as the “middleman”.
If you are not using your name for your business you will need to file a DBA so people will know who owns the business. You can also often open a separate checking account under the DBA name, which will allow you to write checks with your business name printed on it.
Starting a business takes a lot of planning and hard work, but with the right steps planned ahead, you can avoid a lot of tax and legal issues at the end of the year. Make sure you are working with a good accountant and remember it’s fine to start small.
March 6th, 2012
There are basically three different types of suppliers: dropshippers, wholesalers and manufactures. If you don’t already have products to sell then using a dropshipper is probably the best place to start to test out the waters.
To begin with it may be best to try and find a drop shipper as this involves little risk on your part and means you won’t be storing any stock yourself. The idea behind dropshipping is quite simple. You accept orders and payment from customers for goods that you advertise on your website. You don't hold any stock of these goods. Instead you place an order with the dropshipper who delivers the goods directly to your customer's address. The paperwork accompanying the delivery will make it appear that the goods were delivered directly from your business. Your customer pays the retail prices fixed by you, while you pay the wholesale price from the supplier, thereby making a profit.
This said, do remember that you will always pay a little more for a product when buying from a dropshipper as they do most of the hard work, such as packing and shipping.
Its also worth noting that you can always use a dropshipper in the beginning even with a small profit margin or even no profit just to test whether the products sell. Once you know they do, you can source them cheaper from a wholesaler and start making better profit margins – by using this method you eliminate the risk of buying a load of stock from a wholesaler only to find that it doesn’t sell!
Wholesalers typically have a minimum order value which can be a problem when you first start out as you don’t really want to spend a $1000 on stock you are not certain you will sell.
However sometimes it is possible to get them to reduce this amount if you explain you are just starting out etc.
Many wholesalers use the minimum order to filter out the people trying to make a few bucks selling their products cheap from the house and in a way it can be beneficial to you too. Some people are happy to make just a few hundred extra dollars a week selling products online with a tiny profit margin but unfortunately that kills it for anyone with a business that has overheads.
In order to make a decent living selling online you need to pick products with a decent profit margin so make sure you check that the wholesalers are giving you true trade prices and be sure to appear as though you are a proper established business.
Sometimes even the wholesalers will deliver straight to your customer too if you ask, particularly when the item is large so always ask.
The trick is with wholesalers to buy from them what you need and don’t get sucked in to buying a wide variety of products with first proving that they sell. You can even sell the products on your website and THEN order them in from your wholesaler removing any risk of being stuck with slow selling stock.
Just be sure that your shipping times displayed on your website allow enough time for you to order in the product from your wholesaler and then re-ship it out to the customer.
Try to make sure you have multiple wholesale suppliers for your products as often they will be out of stock when you need it, so if one’s out hopefully the other will have it in stock.
The time to consider importing is when you have a successful ecommerce store and not before. Importing products can get you them cheaper but it does have pitfalls. I would recommend using an experienced import agent at least for the first few times you import goods. You will be expected to buy in large quantities direct from the manufacturer usually either a 20ft or 40ft container load of products.
February 29th, 2012
This can typically be overwhelming as there may be thousands of products to choose from, but what I would advocate in the beginning is to pick something you will know a little about.
It's possible you have a hobby such as decorating, horse riding or you are a keen gardener. For those who have a genuine interest in something, it will always be more pleasurable to run a business related to it and you're able to use your understanding and expertise.
All the same, this inevitably is to do with selling products online and if your particular interest has small amount of followers it may not be suitable to set up a business around it. It’s all about supply and demand and if there is little demand for your products or service then you really can’t expect to be really successful.
Here are several informative things to consider when thinking of what you would like to sell online:
- Could it be easily shipped by mail?
- If it can be shipped, is it most likely to arrive in one piece?
- How much space does the product take to store it?
- Would you buy this product online?
- Will there be a good assortment of related products you can also sell?
- Is the product liable to generate repeat sales or is it a one time deal?
- Will the product often change and need to always be updated?
All these things are worth contemplating prior to you go building an online store.
Presuming you don’t really have any particular hobbies or interests and therefore are entirely stuck for ideas of what to sell, then take a look at what exactly is selling the best on eBay or Amazon.
To summarize, the ideal items, simple to send, unlikely to break during shipping and not too size-able if you don’t have much room at home or in your office to store them.
The items are in a niche, because it’s quicker to setup a website that targets a niche rather than large wide range market place. Mainly because they’ll probably be some big players within the big markets already. However should you select a niche, then you have a high potential for being in position to dominate.
But you also need related products. And again, the merchandise that generates repeat customers are ideal. Still that’s not to say that you can’t generate a lot of money selling one-time deal merchandise either.