Before starting your business, you must have a good knowledge of dropshipping, made your due diligence and ready to get started. However, if you really want to take your new venture very serious, then you should follow some financial and business procedures. While some are mandatory before you startup, others are great ideas to adopt. So, it’s better to deal with these ahead of time.
Get Ready to Be Committed
Just like many other business models, dropshipping requires commitment. Apparently, if you’re hoping to rake in six figures, perhaps few weeks into the business as part-time, it obvious you’re going to fail. Approach your business with a realistic view and give it time, then you will not be discouraged. Starting your dropshipping business requires time and money investment.
For beginners in dropshipping business, investing sweat equity and bootstrapping are paramount. Now, see why you would want to go for these than investing huge sums.
- understand the business operation properly.
- get to know your customers and understand your market better, and this leads to better business decisions.
- be clear about vanity projects that barely contributes to your business success
- sharpen your skills and develop new ones that make you a better online entrepreneur.
Obviously, many people are not ready to drop off their current job completely to find ways around their new online venture – dropshipping. Get this; you may not need to tender that resignation letter because it’s possible to retain your 9-5 job and still set up your dropshipping business gradually. When cash flow increases and your business grows, you can then move over to your online business completely.
In as much as entrepreneurs and business approach differ, it’s possible to earn $1,000 – $2,000 monthly in 12 months while spending about 10 to 15 hours every week on your new business. If you ever get the opportunity to work full-time on your business, it’s the nicest choice to improve your success potentials.
During the early days of your dropshipping business, massive and radical marketing is necessary. Analytically, it takes up to 12 months of intense marketing and full-time work to start making an average income of $50,000. While this may appear to be quite little for such efforts, you must have these in mind:
- Those are the initial and necessary effort. Once your business sets, you may not spend over 40 hours weekly on it.
- You’re not just creating an income stream but an asset that can be sold in the future, so it’s worth the efforts.
Starting and growing a successful dropshipping business don’t just lie on investing money. Outsourcing most times will cost you a fortune, but when you get in the trenches and do the work yourself, you can save a lot and cause better results.
While starting, it’s important to be in the clear picture of how everything goes, and build it from the bottom up. When you don’t have a good understanding of your business model properly, many people and experts at different stages will eat from your profits, and leave you with nothing in the end. In as much as you have to do most things yourself, you still need some external assistance.
Perhaps, around $1000 can help you get your business started and moving. This amount will go into web hosting, incorporation fee, suppliers and some other things.
Business Structure Decision
Without a doubt, if you have a long-term plan for your business, then you need to make it legitimate. However, this guide will not provide you with legal advice but can offer you a brief on three business structures that are common in the states.
Sole Proprietorship – If you need a business that gives you no personal protection against liability, then this is for you. It’s the most simple business structure and puts your personal properties into jeopardy if your business ever gets sued. No need for federal or state filings, just report your business income on your personal tax, that’s all.
Limited Liability Company (LLC) – LLC provides owner’s protection to a large extent. It sets up your business as a different legal entity, and in the case of liquidation or legal actions, your personal assets are protected somewhat. It comes with ongoing and incorporation fees and you may need to follow certain filing requirements.
C Corporation – Most of the significant businesses you see are established as C corporations – this business structure offers the maximum protection when done accurately. This option costs more and is subject to taxation as income doesn’t go through the stakeholders.
Now, the big question is, which business structure are you going to choose? Contacting a legal adviser for ideal and tailored advice is perfect. However, most beginner entrepreneurs often go for Sole Proprietor or LLC.
Obtaining an Employer Identification Number (EIN)
IRS advocates all businesses to have their EIN, as it acts as a Social Security number to their ventures. While filing taxes, opening bank accounts, applying for dropshipping accounts and many other activities related to your business, you’ll need EIN. The good news of it all is that getting EIN doesn’t cost a thing and it’s hassle-free.
Ordering Your Finances
Don’t make the common mistake of combining your business finance with your personal finance. Apparently, this makes accounting a difficult one and often brings confusion. In fact, it can lead to a personal assumption of the liabilities of your business and IRS frowns at it.
Ensure your personal and business finances are separate. Ensure you open new accounts in your new business name. These accounts should be:
Business Checking Account – It’s a good idea to operate all your business finances via one basic account. All expenses should be made from this account, and all deposits made into it. This calls for much easier and accurate accounting.
Credit Card – Having a business credit card is vital as it comes in handy during inventory purchases and business expenses. Because you’ll be buying from suppliers, you can make up rewards with the ideal reward travel cards. Capital One offers one of the best travel rewards program while Fidelity Visa/American Express gives the best cash-back program.
PayPal – It’s necessary to set up a separate PayPal account for your business if you’d like to accept PayPal as a means of payment.
Collecting Sales Tax
You’re entitled to collecting sales tax only if these hold:
- The state where you operate collects tax
- Someone in your state places an order
The implication is that buyers from states, other than yours (which collects tax) who place an order, will not have their orders taxed. Presently, this holds but may change over time. If you live in a state that charges sales tax, then get set to collect it from the local orders you get. Do well to reach out to your state’s Department of Commerce to register as a retailer and ask when to submit your tax.
Local Business Licenses
Some cities advocate businesses should get a license that should be renewed often. But to dropshipping firms, this may differ. As such, it’s important to check out your local laws and know how they want it.
Incorporating Outside the U.S
When international merchants incorporate a business in the states, they stand better chances of dealing with customers and dropshippers based in the U.S. This is often complex as the merchant is required to come to the U.S to pull through some paperwork, as well have a trusted partner who can assist. Sometimes, it entails hiring an agency to help you set everything up.There is more to getting the necessary legal backup and payment features. Having a store that lets you incorporate payment gateways easily without hassle or breach in the future crowns it all. You are looking to establish a long-term business and not just a one-off thing. So, you need to have a reputable website that is in line with your vision. Ali2Woo is your partner to help you achieve these goals.Next chapter: Choosing Where to Sell (Chapter 6)
Previous chapter: Choosing Products to Dropship and Competitor Analysis (Chapter 4)