Part 11: Your Business; Get Legal Or Get Cheated!
Are you an Ecommerce business owner, or do you just "play one on the Internet"? There is a difference, and that difference will hurt your business.
As I’ve said several times so far, when you sell products on the Internet, just like anyplace else, you need to be buying those products from a direct wholesale source. Most of the time, that's a Factory-Authorized Wholesale Distributor. If you’re not, you’re paying middleman markups that chip away at your profits until you’re barely making enough to pay your hosting fees. Sometimes I think that there are more middlemen on the Internet than there are Ecommerce sites, and they’re all targeting YOU!
Here’s a scenario:
John Doe wants to open an Internet store, and make lots of money. He's seen all the news items about new Internet millionaires. There are pictures of some of these people in the news and on the ‘Net, and some of them seem to be one sandwich short of a picnic.
“If they can do it, so can I!” he thinks, and starts to search around the ‘Net for information on starting a business. John is luckier than most…he comes across a good Internet Mall early in his search, and realizes that he can set up an Internet store quickly and easily. All is right with the world!
Only one thing left…what to sell?
John looks around the Internet for product distributors. He comes to our site, The Drop Ship Source Directory, and realizes he's found legitimate sources for over half a million name brand products, drop shipped at wholesale. Then he realizes that he will have to have a Tax ID number to buy from these distributors, because they are legitimate.
“Yechh!” thinks John. “Tax ID number?” That sounds like work. Worse, it sounds like LEGAL work. That’s a scary thing to most people, and John is one of them!
A little more searching, and John finds a web site called “Stuff R Us”. Stuff R Us is screaming at him: “Thousands of wholesale products you can sell on your website! NO investment for inventory! We send each item right to your customer! No shipping, no handling products, no minimums! Sign up with us and we handle everything! This is your road to Internet Riches!”
Well, that’s the road John was looking for, alright, so he happily sends his name and address to Stuff R Us along with his sign-up fee. Suddenly he can put all kinds of products on his web site, and all he has to do is email his orders to Stuff R Us, and they handle the rest. No paperwork, no hassles.
John is creating a new Internet millionaire, all right. No doubt about it. Unfortunately, it’s not him. It’s Stuff R Us.
Stuff R Us is a middleman. They sit between John and the REAL wholesaler. Every time John places an order with Stuff R Us, they turn around and place that same order with the real wholesaler, who sends it to John’s customer. John never knows this is happening.
Stuff R Us is marking up the real wholesale price to John. John will piddle along selling the same over-marketed imports as thousands of other Stuff R Us clients, at over-inflated wholesale prices.
Stuff R Us thinks this is great, and they’re laughing all the way to the bank.
So, where did John go wrong? What did he do to unwittingly get stuck in ECommerce’s biggest trap, the “middleman rut”?
It’s simple. He took the easy way out when searching for a supplier. Stuff R Us said, “we’ll handle everything”, and John said, “Hmmm, that sounds easy!” So, instead of bothering to do some simple legal paperwork for his business, John let Stuff R Us cheat him out of most of his profit, because it was easy.
Please remember the following two statements:
1.) You MUST work with REAL wholesale suppliers to be truly successful in Ecommerce.
2.) You cannot buy from a REAL wholesale supplier if you are not a LEGAL business.
Let me repeat that last one, for those who may have their Real Jukebox software turned up too loud:
YOU CANNOT BUY FROM A REAL WHOLESALE SUPPLIER IF YOU ARE NOT A LEGAL BUSINESS!
ANYONE who allows you to purchase wholesale products for resale without legal business paperwork is NOT a real wholesaler, and is taking profit that should be yours.
As you know by now, we publish a very thorough directory that helps people like John find and contact real wholesalers that will drop ship products to his customers. Every once in a while, we get an Email from someone who says, “Wait a minute, I don’t have to go through all this legal stuff to use the distributors YOU list. I can just go to Stuff R Us and do it the easy way!”
I have no doubt that Stuff R Us finds this absolutely hilarious.
Getting legal is not that hard. Don’t listen to the people who tell you that you don’t have to do it. Here are the basics (in the US):
1.) File your Business Name
You need an official business name that’s recognized by your state government. You can do this one of two ways.
A.) Corporation: You can file a corporation with your State. All States in the US have web sites where you can get information on this, and in many cases actually file your business papers online. I have links to the different sites for each State in the Resource Center on my web site, which we'll talk about later.
B.) Fictitious Name (or "DBA"): This is a simpler way to register your business, but it does not afford you the protections that a corporation does. This doesn’t cost as much as a corp. In some States, this is called a DBA (Doing Business As…), and is obtained from your local County Office building for a minimal fee. ($35 would be an average).
If you’re not sure which way you want to go, ask an attorney or accountant. There's got to be one in your family somewhere, right? :o)
2.) Obtain a "Tax ID"
In almost every State you are required to have a Tax ID. Some call it a Sales and Use Tax Certificate, some call it a Seller's Permit, etc. It's the same thing. It allows you to collect Sales Tax on sales you make within your own State. In Florida, we can get a Tax ID in about 15 minutes for $5. We must again show our Business Entity papers. This is done at the local State Tax Office. When you buy from a wholesale supplier, you will be asked to supply them with a copy of this certificate. They use it as proof to the IRS that they are not required to charge you tax on the products they sell you at wholesale.
3.) Open a Business Bank Account
If you’re going to do business, you must have a business bank account. You’ll need your Business Name papers. Here, we can open a business account for a deposit of $50 to $100. Almost all banks offer business accounts.
4.) Open a Merchant Account
The last thing you need is a Merchant Account. You’ll need everything you obtained in the steps above for this one.
This is the thing that allows you to accept credit cards from your online customers. Without this, you'll get nowhere. Online buyers are instant gratification junkies. They want it NOW! If they have to mail you a check, they'll go somewhere else and buy. Merchant accounts used to cost a thousand dollars and more to set up. They've come down a LOT. We just opened a new one for a one-time fee of less than $200, complete. Again, I'll show you my Resource Center, where you can get information on which Merchant Account providers are the best, a little later. The Merchant Account will collect funds from your customers’ credit cards, and deposit those funds in your business bank account. The Merchant Bank will charge you about 2.2% of the amount you charge your customer’s credit card, plus about 30 cents per transaction.
Your Merchant Banker will help you to incorporate your Merchant Account into your Internet store software.
There are also a couple of ways you can accept credit cards on the Internet without opening a merchant account, such as Paypal. There is info on them in the Resource Center too...we'll get to it. :o)
Well, there it is. That’s the "business end" of an Internet business. Sound complicated? It isn’t, really. Just take it step by step. Don’t let a few pieces of paperwork stop you!
As I said above, these are just guidelines. Some states may require an additional license, such as the inexpensive "Occupational License" used here in Florida. When you set up your Business Name, they will tell you if you need anything like that. If you have questions, please consult a professional.
Getting legal is not hard, and the benefits are tremendous. Don’t make money for a middleman…make it for yourself!
Next up...Part 12: Merchant Accounts