I recently did another article where I mentioned starting a home based business instead of falling for one of those product job scams. I was very interested in this for a long time, and did a lot of research on it - So I thought i’d share for anybody who’s a little lost under the weight of paperwork, licenses, and how to get going.
When I was 17 years old I started a little side business that I’m sorry I didn’t keep up with, because I could’ve been happy doing it. Unfortunately I didn’t have any start up money, and didn’t know the first thing about real business anyway.
I used to be really big into trading cards so I had a very simple game plan that really is the basis for any business. You buy something cheap, and you turn around and sell it for a profit. The most fundamental thing about business really is the easiest to grasp. After you get your head around licenses, suppliers, licenses, and every other headache it’s really about turning a profit so you can keep going.
I would buy used games, and valuable collector cards from people for about 50 - 75% of their value, and then sell them on eBay. This worked because not everyone can buy, and sell on that site - They don’t have a credit card, and wanted to get cash fast for their stuff.
The only problem with this was that I did not have a reliable supply of merchandise. I couldn’t just call up a wholesaler, and tell him to deliver me products - There was hunting, searching, transit time, and making sure things were in their stated condition. (Which is the downer with used items of course!)
A while ago I started thinking about getting into retail sales the same way, but with a new game plan. Instead of picking, and hunting for used stuff I wanted to use real suppliers that would be reliable. It was a good plan, but their were a few things I didn’t take into account that may have changed my mind.
The first thing on your business agenda should be a game plan. You need to know what you want before you can figure out how to accomplish it. I read another blog where they made the statement ‘know the end before you write the beginning’ which is good advice! It’s much easier to plan something when you know how you want it to turn out.
Your first decision should be your business industry. The fact is that you just plain can’t sell everything to everyone. That’s what Wal-Mart is for, and you will not be able to compete with them. They recieve their merchandise in massive quantities from suppliers for all their stores. Hasbro reports that 20% of their sales come from Wal-Mart Stores Inc. alone. That’s a big number considering how large Hasbro themselves are.
Let’s say you decide that you want to be a video game merchant like I did. Sounds reasonable enough; especially if you supply people with games that are harder to find. Big stores like Wal-Mart, K-Mart, and Target will only stock the most popular titles, and so their may be a market for alternative selection.
Now you need to find some suppliers, and figure out pricing. There’s one problem with that though. No real whole salers will give you any pricing information until you provide them with your documentation. You’ll need to do some reading from other people in your business to figure out if it’s worth your while.
I dropped my ideas of selling new games, because quite frankly the price margins were not up to my standards. The reason I sold things for 50 to 75% mark up all those years ago was because that’s what I thought retail value was. The reality is that a retail merchant makes far less of a percentage than that. Most of their profit comes from bulk sales, and the video game industry is no exception.
The profit for me on new titles would be no more than $15 a game, and that’s before fees or expenses. Plus, the competition is stiff for that area. Take a look on ebay, and you’ll see there are many people selling those same games for less money than you can even turn a profit on.
The reason is because they’re a very large store, and can buy in huge quantities for big discounts. Other sellers might be selling so cheap, because of saturation. They over ordered, and need to clean out their ineventory before it has to go to the dollar bin. Technology cools down very quickly; timing is priceless.
If you’ve found something you think you can make money at then next you’ll be needing to do your paperwork. Unless you’re registered you’ll never be able to purchase for real whole sale prices. If a “wholesale” website tells you different then they can’t be trusted.
For some reason places make things much more difficult than they need to be, but that’s the government for you! If you’re going to be running an online business then you will probably only need about four documents. I’m going to use Florida for my example since that’s my home state, but you may have different requirements where you live. If you’re not sure go down to your local tax collector’s office, and they should have either a help desk or at least a pamphlet for new businesses.
The first pretty piece of paper you’ll need is called a DBA. This step is sort of optional, but only if you want to use your full name for your business. For example if you used ‘Joe Common’s Coffee House’ then you would not need a DBA. However, if you wanted to use something like ‘Joe’s Coffee House’ or ‘Coffee Gourment’ for a name then you would need to register.
Either way a DBA will only run you $50 (in Florida anyway), and will be registered to you for the next 5 years. This does not guarantee you any rights though, and you’ll need trademarking for that which is a whole different, complicated, and annoying ball game.
An EIN is an Employer Identification Number, and is used to identify your business. You can technically use your social security number instead if you’re a sole proprieter, but this wouldn’t be my choice option. For one; the government is pretty free with business information, and your full social security number could be floating around anywhere. Secondly, it doesn’t look as professional to potential business contacts like suppliers. It also surprisingly is free to register! Yes, something free from the Internal Revenue Service.
You’ll also probably need to get a business license for the county you work in. Since you’re shipping things online technically all your ‘business’ goes on in one county since that’s where you’re working. This operation is fairly cheap too, but my county didn’t allow online registration. Print out a nice little document, fill it out, and send the appropriate fees. Mine was aboiyt $15, but it will cost more money depending on your business type, number of employees, ect.
It was very hard for me to find this link though. I searched the internet high, and low, and finally found it had been moved to the county tax collector’s site. The state of Florida has some of the worst websites I’ve ever seen by the way. They’re hard to navigate, information is scattered, and half the links don’t work!
Sales And Use Tax Registration
Sales tax registration is the most important registration as far as your concerned. This is what allows you to buy your merchandise. Suppliers will always ask you for it before revealing their stock to you. You will be required to collect whatever percentage of sales tax your state charges, and send it off to the government. This can be per quarter or per month depending on how you decide to pay it.
Monthly, it is due the 15th, and considered late on the 20th where you will be charged a fee for non-payment of $50. This is important! Even if you owe no money; that’s $0.00 in taxes you must submit a payment! As stupid as this sounds you are required to submit a payment of zero dollars or you will be charged a standard late fee. This is how Florida works, but I assume other states are similarly stupid.
Congratulations! You’re an official business now that you’ve gotten all that garbage out of the way. Keep in mind there’s more paperwork to do if you plan on having a store location, are in a special industry, or other variables may also apply. If you’re for example in some type of repair business you may need special permits or licenses. Applying for a business checking account would be good too to keep your finances seperate. Most banks will offer a free and paid version of this depending on your needs. Including payroll services if you have more employees than just ‘me, myself, and I’.
Next you’ll need some suppliers; which can be one of the most frustrating things about starting a business. they are just plain difficult to find. A search for ‘whole sale supplier’ will provide tons of results, but probably none that you will want.
See, most of these people are not real wholesalers. They are middle men that buy from whole salers, and then make a profit through you. What’s the problem with that? Profit margin, is a huge dilemma. Similar to drop shippers except they sell products to you, and you are doing all the work. The “wholesale” price is marked up high, and you will not take away any money.
The most effective means I’ve found of searching for legitimate sources was just asking! Find out which manufactuer’s items you want to sell, and ask them where to go. They are always happy to help, becuase you will be making them more money. Here’s an example of a letter like the one I sent to Sony Computer Entertainment America when I was interested in shipping Playstation 3 titles.
‘Dear SCEA,
Hello, I’m a small business owner that is interested in carrying your products. Unfortunately I’m having a hard time locating any legitimate wholesalers of your merchandise. Do you have a list of your official wholesale partners or a business resources list you could point me to?
Thanks,
John Doe
John Doe’s Business
www.JohnDoesWebsite.com’
A friendly representative replied to me in about two days time with links, e-mails, phone numbers, and names of their official distributors. This tactic can be applied to pretty much anything you want to sell as long as you know who makes it. Everyone has a website now a days.
This should be what you need to get started, but growing your business is all up to you! Advertising will be crucial, and things might be slow at first. Some people report booming business in their first weeks - And others spend months to get started. You get what you put into something.
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