*I am going to start with a disclaimer. Each business is going to be different, so some of the advice below might not work for you. Please read carefully and consult other sellers and/or professional help before doing something huge. Some of the stuff here should be straight forward and I am going to tell you what I have done. My advice is not flawless, so that is why I am advising you to check multiple sources for reference. I will try my best to include the resources in the post.*
So you are just starting out selling online and most likely you are overwhelmed with the amount of information out there. I am also going to guess that you are having trouble finding a true guide over the basic questions that most sellers have. Sure. You have seen some amazing posts (hopefully from us) that show ways to find products online or walk you through the process of ungating in shoes, clothes, and luggage, but you are really just looking for a post that talks about the business basics. Like that stuff you should have listened to in your business classes back in high school.
Here’s the deal. There is one major rule that you have to follow if you plan on selling $100 or $1,000,000.
Selling on Amazon is a business. Treat it like one.
With that being said, we need to go back to Entrepreneurship 101.
- You need a business plan. I’m not talking a 30+ page document that you are going to present to the bank, but you need some sort of a plan. In my personal opinion, a business plan should be around 1-2 pages and it should include the following information:
- Vision statement – I want you to write down why in the world you are starting to sell online
- Amount you are willing to invest – If you don’t write it down, you can never measure.
- Long term goals – I love to see 6 month, 1 year, 2 year, and 3 year goals. And don’t think these have to be exact goals. You are starting a new business. There is no way you know how it is going to play out. It’s ok to revisit the plan and adjust the goals.
- Short term goals – These should be action steps needed to reach your long term goals. Try to break it down into manageable chucks with deadlines.
- Business structure – We are going to talk about this below, but you will need to write down what kind of business you will be running.
- Payout structure – This is something that a ton of people struggle with and I am talking about it in more detail below. You need to have a written system in place that you will follow to determine when you will be paying yourself from this business.
- You need to take a serious look at the structure of your business. Do you want to be a sole proprietor or do you want to be a separate legal entity? I personally recommend that every seller consider the option of becoming an LLC. A list of the difference can be found here, but here is the main reason I make this suggestion: “It separates your business from your personal assets. If you fail or get sued, you will have a clear split in the eyes of the law.”
In a world of unknowns, I like to keep everything separate at all times. The process of becoming an LLC varies state by state, but I have found that it is generally pretty simple. There is a cost associated with the application (In Indiana, it was around $90).
- How in the world are you going to pay yourself? When a deposit hits from Amazon, will you reinvest or will you pay yourself? These are questions that you need to ask yourself long before you ever get that first deposit. In my personal opinion, here is my recommend breakdown for the first year of selling:
- First 3 months – 30% of profit into a savings account for taxes and 70% reinvested into inventory
- Next 6 months – 30% of profit into a savings account for taxes, 50% reinvested into inventory and 20% profit paid to you.
- Last 3 months – 30% of profit into a savings account for taxes, 30% reinvested into inventory and 50% profit paid to you.
- You will need to track everything. I’m talking receipts, costs of goods, expenses, etc. When you are first starting out, the best way to do this is by keeping all your receipts in a shoebox. It is always better to keep something if you aren’t sure than to throw it away.
Now I have also been asked about the order you should do all of this in. Here is my suggestion:
- Learn about selling on Amazon and start constructing a business plan (remember – it doesn’t need to be a novel). I would suggest starting here. You should also join this Facebook group.
- Ship in your first product (or products) and make your first sale.
- Continue to learn and grow your knowledge about online selling.
- Finish up your business plan. If you want a template, you can get it by signing up below.
- Set up an LLC (this should be done around 1 to 2 months after your first sale).
- Get an EIN number from the IRS. This can be done here.
- Open up a business checking and savings account (and credit cards if that is something you want).
- Start following your payout plan and make sure to put at least 20% back for taxes.
- If you haven’t already, upgrade your Amazon account to the professional level.
- It’s now time to look into an inventory/accounting system. We recommend Inventory Lab for this.
- Get your books in order. You will need to update the cost of good on Inventory Lab and start inputing your expenses into the system. It will suck doing this, but you need to make a habit of it. Bookkeeping is critical to a business.
- Around this time, I would start looking into collection sales tax (if it is needed) in the state you business is registered. A great resource can be found here.
- Number 12 will require that you get yourself a reseller permit (in most states). You will need to go through the process locally.
- Once you have that, you will need to adjust the settings in Seller Central to automatically collect sales tax for you.
- You will then need to file when it is time. We recommend using TaxJar to help with this.
- Now that you have a reseller certificate, it is time to set up your accounts with the stores you source at. This will allow you to purchase items without paying sales tax (since it is being collected from the end user).
- If you haven’t done so already, I would highly recommend reading this book.
- It’s now time to look into insurance for your business. I would recommend talking to my brother Nick Wilkey and reading this.
- Now is the time you should consider using additional services like a repricer or OAXRay.
- Keep improving, learning, and growing your business.
And that’s it! That should at least get you started in the right direction.