As discussed in Chapter 3 of our Dropship Blueprint eCommerce training course, it's important to be prepared when you reach out to manufacturers and/or distributor-wholesalers to request a reseller-account. There are a handful of things you can do to look much more legit and professional to suppliers, increasing your chances that they'll be willing to set you up with a dealer account.
Broad Spectrum of Scenarios
Every supplier is different. On one end of the spectrum, you've got the manufacturers of "household name" type brands that are sold at your local Walmart (Sony, Samsung, Nike, L'Oreal, Pampers, Singer, etc.). On the other end of the spectrum, you've got "ma & pa shops" you've never heard of. Obviously, most suppliers will fall somewhere in the middle.
The type and extent of preparation you'll want to do before reaching out to the supplier largely depends on where you think they fall in this continuum. If you're trying to get set up as a reseller for a major corporation that manufactures a well-known brand name, you might have to do quite a bit to impress them. (Sometimes you'll be surprised, though ... we were able to set up a reseller account with Singer Co. for a sewing machines store we built a couple years back without much effort at all.) On the other hand, if you're trying to set up a reseller account with an unknown brand whose website says "Yes, we dropship!" and has a dealer application readily available to fill in or download, you probably don't need to do any preparation. Just fill out the application, and you're set!
The point I'm trying to make is this: don't do any more than you have to do in order to secure the supplier account. Here, I'll be outlining several tasks you may want to consider doing. Very, very rarely will you need to do all of them (or more than just 1 or 2 of them). I'd say that most suppliers fall on the easy, don't-need-to-do-much end of the spectrum. Each one of the tasks listed below are optional. I'll go through them in order, starting with the tasks I'd recommend more commonly.
Optional Task #1. Register a Domain Name (Usually Recommended)
- Almost all suppliers will expect you to have a domain-name (you are, after all, an online store!)
- Even if they don't ask you what it is over the phone, it's almost always requested on the dealer application
- We recommend registering your domain name at NameCheap
- Read through the 'Register a Domain Name' section on this training page for advice and instructions on registering a new domain name
Optional Task #2. Register a DBA or Business Entity (Generally Advisable)
- This is much easier & much more affordable than most people think
- Contacting suppliers as "John Smith, the VP of Operations at Infinity Marketing Group" is much more impressive and professional than contacting them as "Joe Blow, a guy who wants to sell your products"
- In most states, you can register a dba for just $20-30, which will not require any additional tax returns to be filed
- Registering a DBA will enable you to get a sellers-permit (make sure to click on this link to learn what a Seller's Permit is) in your DBA's name, which many potential suppliers will require you to have
- We recommend using a generic (non-niche-specific) DBA or business name so you can use it for operating multiple, unrelated stores (examples: Omni Sales Company, Infinity Marketing Group, Olympus Ventures, DKH Enterprises, etc.)
- See the sections below for extensive information about registering a DBA or setting up a business entity
- If you are NOT a resident of the USA, you'll want to set up a US-based Limited Liability Company (LLC)
What Type of Business Entity is Best?
This section discusses the various types of US business entities. We'll go over the advantages and disadvantages of each type of entity, and we'll talk about how each is taxed. (Keep in mind that we are NOT tax attorneys or CPAs).
We'll just go over the fundamentals and basics of business entities and taxation based on our experience and the research we've done. We strongly encourage you to consult with an attorney and/or CPA to gain a full understanding of these concepts and to understand what your tax and reporting requirements will be.
Option 1: No Formal Business Entity (Sole Proprietor)
You do NOT have to set up a business entity in order to build and operate your own online store. So please don’t let the dread of governmental “red tape” stop you from pursuing this great opportunity! Keep in mind that you can always start off without creating a business entity and then add one later once you’re up and running and generating income. You don't need to have a business entity from day 1.
If you don’t set up an official business entity, you will automatically (by default) be what is called a sole-proprietor. It is the simplest form of business ownership. As a sole proprietor, there is really no distinction between you and your business ... you are one and the same. As a sole proprietor, you will report your business’ revenue and expenses on your own personal tax return (Form 1040) using 'Schedule C' (which is a standard part of the 1040). This is great, since it means you won’t have to file a separate tax return for your business.
The biggest drawback to the sole proprietorship is that you are personally liable for business-related obligations (such as company debts, losses, or legal claims). That may sound a little scary, but in reality, unless you’re planning to sell a high-risk, potentially harmful product, legal liability is probably not a huge concern.
In most states, you don't need to file anything with the state in order to start operating a business as a sole proprietor. But keep in mind that most cities and many counties require all businesses (even home-based sole proprietorships) to register with them and get a business license and possibly a zoning permit. (In practice, a lot of businesses are small enough to get away with ignoring these requirements, but be advised that you could be subject to back taxes and/or penalties if it’s caught.)
To learn more about being a sole proprietor, see this page at About.com
Option 2: Sole Proprietor with a DBA
This option is really more of an "upgrade" of option 1 than it is a separate option, but we'll call it option 2 just to clarify how it differs from option 1. Basically, you operate your business as a sole proprietor (as explained in option 1 above) but you have a business name (a DBA) to add professionalism and legitimacy to your operation. DBAs really give you the best of both worlds! You can do business using an official-sounding business name (instead of your own personal name) without having to create a formal business entity. With a DBA, you can operate as "JS Enterprises" rather than operating as yourself, John Smith. You can also get a sellers-permit in your DBA's name, which your supplier will most likely require you to have in order to set up a dealer account.
DBA stands for 'Doing Business As'. Some states use slightly different terms, such as 'Assumed Business Name (ABN)' or 'Fictitious Business Name'. But they all mean the same thing and can pretty much be used interchangeably. We'll use the term DBA just to be consistent.
You do have to register a DBA (it's not automatic), but the process is incredibly easy and usually pretty cheap (usually only $20-30). In a few states you register your DBA with the Secretary of State, but in most states you’ll register it at the county level. Click here to see state-by-state instructions for how to register a DBA. (If this link doesn’t give you what you need, just call your county clerk’s office to find out its procedures, requirements, and fees.)
If you get a DBA, your income tax reporting requirements are exactly the same as if you did not have a DBA (i.e. exactly the same as being a sole proprietor, as outlined in option 1 above).
For more info on DBAs, see this page on About.com
Option 3: Limited Liability Company (LLC)
The LLC is probably the easiest and simplest option for those who want an actual business entity. LLCs are easy to set up, they provide a personal shield against legal liabilities of the business, and they are very easy from a tax treatment standpoint. They basically combine the best features of sole proprietorships and corporations.
LLCs are technically taxed as partnerships and report their income and expenses on a separate tax form called Form 1065. However, there is a very helpful exception that applies in most cases: as long as you are the sole owner of the business (it’s okay if your spouse co-owns it with you, as long as you file a joint tax return), you can just report the business’ activities on ‘Schedule C’ of your personal tax return (Form 1040), just like a sole proprietor. So, as long as you qualify for this exception, LLCs are taxed the same way sole proprietors are taxed! (See option 4 below to learn about tax treatment of an LLC when you do NOT meet this exception.)
LLC owners are protected from personal liability for business debts and claims. So if the business owes money or faces a lawsuit, only the assets of the business are at risk. Creditors usually can’t reach your personal assets, such as your house or car. (Regardless of what type of entity you form, you can lose this protection by acting illegally, unethically, or irresponsibly.)
For more info on LLCs, see this page on SBA.gov
Option 4: Partnership
The partnership entity is quite similar to an LLC and has been around for a lot longer. In fact, LLCs were created as kind of a hybrid between partnerships and corporations, offering the best features of both. Honestly, we don’t see any reason to go with a partnership rather than an LLC, but it’s something you may want to discuss with your attorney and tax accountant.
That said, we will take the opportunity here to go over the tax treatment of both a partnership AND an LLC (option 3 above) when you co-own the business with another person who is NOT your spouse. As we said above, LLCs are generally taxed as partnerships (unless you specifically elect to be taxed as a corporation) so the tax treatment for LLCs (with multiple, non-spouse owners) and partnerships (with multiple partners) is the same.
Multi-owner LLCs and partnerships are required to file a Form 1065. This is really just an "informational tax return" because the LLC (or partnership) is NOT a taxable entity. It does NOT pay taxes. LLCs and partnerships are referred to as "pass-through entities" because the net earnings of the business "pass through" to the owners of the business, who are responsible for paying their own personal share of the tax. The informational Form 1065 simply shows the income and expenses of the business, and what portion of the net income belongs to each owner/partner. For example, if the LLC (or partnership) had $100,000 of net income and was owned 50/50 by two people, then each owner’s share of the net income would be $50,000. That $50,000 of net income would be reported on a form called a K-1, which would be given to each owner/partner. Each owner/partner would then report his/her $50,000 share of the business' earnings on his/her own personal tax return (Form 1040).
Aside from the administrative hassle of having to file a separate tax return for the business (instead of just reporting the business' income and expenses on your personal 1040), this tax treatment is quite favorable. The business' income is taxed, of course (there's no way to get around that), but it's only taxed ONCE (at the individual level). In option 6 below, you will see that the income of regular corporations (C corps) is taxed 2 times: first at the business entity level and then again at the individual level.
For even more info on partnerships, see this page on SBA.gov
Option 5: S Corp (Small Business Corporation)
We don’t want to get too technical here about all the ins and outs of the tax system, but an s-corp can certainly be the way to go in certain situations. Really, S Corps are very similar to LLCs ... but there are two major differences (the first is negative, the second is positive):
- S Corps always have to file a separate business tax return (Form 1120-S), even if you are the sole owner of the S Corp
- Using an S Corp can help you save some money on self-employment tax (aka payroll tax or Social Security & Medicare taxes)
Just like partnerships and multi-owner LLCs, an S Corp is a "pass-through entity" where the income of the business "passes through" to the owners of the company and each individual owner reports his/her share of the business’ net income on his/her personal tax return (1040). So here again, the S Corp does NOT pay any taxes; it is only required to file an informational return (Form 1120-S) which basically just tells the IRS what income it can expect to see reported on each owner’s personal tax return. Again, this isn't a bad tax situation; it just means you have to (hire somebody to) prepare the informational Forum 1120-S for your business each year.
Regarding the 2nd point listed above, S Corps can be useful to reduce self-employment tax in cases where your business starts to make a lot of money. With ALL of the other entity types we’ve discussed above (sole proprietors, DBAs, LLCs, and partnerships), 100% of the business’ net income (revenue minus expenses) is subject to self-employment tax (also known as SE tax, payroll taxes, FICA taxes, or Social Security/Medicare ... all these terms are synonymous). But with an S Corp, you can pay yourself a salary (which can be less than the net income, as long as it’s "reasonable") and only that salary amount is subject to self-employment tax. Then you can take the remaining amount of the business' net income as a “distribution” (not as salary), which is NOT subject to self-employment tax. Of course, to be able to do all of this you have to set up payroll services, which can be an administrative burden.
Like with all issues pertaining to entity selection and tax compliance, we strongly recommend that you obtain the advice of an attorney and/or tax accountant before you proceed.
To learn more about S Corps, see this page on SBA.gov
Option 6: Traditional Corporation (C Corp)
Corporations (sometimes called ‘C Corporations’ to distinguish them from S Corporations) have a place in big corporate America, but they don’t make sense for what you’re doing here. Most of the advantages of a C Corp have to do with issuing stock, paying dividends, "going public", transferring ownership, and those kinds of things (which probably don’t matter to you). But C Corps have a MAJOR downside: double taxation! All the earnings of the C Corp are taxed at the corporate level (the C Corp actually pays taxes itself). Then, whatever is left over after paying Uncle Sam is distributed to the shareholders (owners) of the company ... and they each have to pay taxes again! So unless you really want to pay taxes twice, we would advise against creating a C Corp.
If you are the sole owner of the business OR if you co-own the business with your spouse (with whom you file a joint tax return): We would recommend going with either option 2 (Sole Proprietor with a DBA) or option 3 (LLC). From a tax standpoint, these two options are exactly the same. You won’t have to file a separate business tax return; you can just report the business’ income and expenses on your personal 1040 (Schedule C). Being a sole proprietor is easier and cheaper to get started than creating an LLC; the only real-downside is that you don’t get that "corporate shield" of legal liability protection. If you go the sole proprietor route, we strongly recommend that you pay the small fee to get a DBA so your business looks more professional to suppliers and so that you can get a seller’s permit.
If you co-own the business with somebody other than your spouse: In this case, we would recommend creating an LLC (option 3). You will have to file a Form 1065 each year (which is an administrative hassle), but the business itself doesn’t get hit with taxes; the business’ income simply "passes through" to you as an owner. Plus, you get the personal protection against legal liabilities of the business.
If your business makes a lot of money: As explained above, S Corps can save you a fair amount of money on self-employment tax when you have substantial net income. But they do present the administrative hassles of processing payroll (and all the payroll tax requirements that come with it) and of filing a Form 1120-S every year. You may want to keep the S Corp option in mind for a future date, but if you’re just starting out you probably want to keep it simple and go with a Sole Proprietor or LLC for now. You can always "upgrade" to an S Corp later on.
If you're not a resident of the USA: Since you don't have a Social Security Number, you don't have the option of operating as a sole proprietor & you won't be able to set up a DBA. So your best option is to set up an LLC in the United States. There are several companies out there that can set up an LLC for you; just search Google.
Final recommendation ... Remember that we are not CPAs and that this is only a summary of the fundamentals and basics. We strongly urge you to consult an attorney and/or CPA to gain a full understanding of these concepts and to understand what your tax and reporting requirements will be.
How to Register a DBA or Business Entity
Regardless of which type of business entity you decide to set up (or if you decide to just go with the default Sole Proprietor option with a DBA), there are a five steps for registering your business:
1. Decide which type of business entity you want to create.
2. Decide on a name for your business, as discussed on this page.
a. If you will be a Sole Proprietor and want to get a DBA, this is the step where you will file for your DBA by following the instructions for your state at this page
b. If you plan to create a business entity (LLC, partnership, S Corp, or C Corp), you generally don't need to file anything at this step (unless you’re afraid that the business name you've chosen will be taken, in which case you would want to submit a form to reserve the name). But check this page to make sure there are not business name filing requirements in your state.
3. Obtain your federal tax ID number (Employer Identification Number, or EIN) by filling out this online form for free.
4. Register your business with your state and obtain your seller's permit. This page provides links for each state, which will take you to the page where you register your business and obtain your seller’s permit.
a. There are 2 main things you're doing at this step:
1. Registering your business entity
2. Obtaining your seller's permit (aka tax permit or sales tax ID)
b. Please note that the page we're linking to above also contains links for 'Worker's Compensation' agencies and 'Unemployment Insurance Tax' agencies. Unless you plan to have employees, you do NOT need to worry about registering with these agencies or paying these taxes.
5. Obtain licenses and permits. Most businesses are required to obtain some type of business license or permit (usually from your county or city) to legally operate. Call your county clerk's office to get information about what type(s) of licenses and/or permits you may need. Be sure to let them know that you are online-only and that there will be no customers visiting your place of business and buying things (which is likely your home at this stage). In some states, that distinction will prevent you from having to obtain a business license of any kind (other than a seller's permit/sales tax certificate).
Advice for Non US Residents
A fairly good-sized percentage of Store Coach members live outside the USA. Here are answers to a lot of the questions we've been asked by our friends overseas ...
Question: I live outside the USA. Will the Store Coach process work for me?
Answer: Yes! Over the last few years, we've coached and mentored hundreds of people living outside the United States. They have been very successful using the Store Coach process, either to build stores targeting online shoppers in their own country or to build stores targeting the US market (more on that immediately below). The process we teach works no matter what country you live in. You can be very successful with Store Coach.
Question: Should I target the US market or my home country?
Answer: The US market is the largest online shopping market in the world. Thus, building a store that targets the US market gives you the most upside potential for sales & profits. As a foreigner, there are a few extra steps you may (but may not) need to take to set up a store targeting the US market ... but it's worth it! Many people before you have done it and are reaping the benefits. And we provide a lot of resources (see below) to help you do it yourself. Now, do you have to target the US market? No! Shopify, our top-recommendation for your store platform, works perfectly for non-US stores (with all the necessary language, currency & localization options). So if you want to build a store targeting your home country, you can definitely do so. In some niches, it's easier to rank in your home country and it may even be easier to get suppliers in your own country, too.
Question: If I target the US market, do I need to set up a US business entity? If so, what are the tax implications?
Answer: First off, it depends on whether you're planning to build a traditional ecommerce store (where you sell products to the customers) or an affiliate-product-store (where you promote another site's products and earn an affiliate commission). If you go the affiliate route, you do not need a US business entity.
If you plan to build a traditional ecommerce store, the question of whether you need to set up a US business largely depends on whether the supplier(s) you're trying to get a reseller account set up with require you to have a US business entity or not. Some suppliers based in the US won't require you to have one, but many will. It just depends on the supplier. I'd recommend contacting the suppliers first (before setting up a US business entity) and inquiring about it towards the end of the conversation, after they've already said they'll set you up with a reseller account.
Question: I really want to build a store targeting the US market, but I simply cannot get a supplier to dropship for me (because I'm not in the US). What can I do?
Answer: First off, have you set up a US business entity? If not (and if you really want to work with this supplier), you should consider doing so. If you do have a US business entity, don't even tell the supplier that you yourself do not live in the United States! They don't need to know that. All they need to know is that your company is based in [such-and-such state] & that your EIN # is XX-XXXXXXX and your state seller's permit license # is XXXXXXXX. You're a legitimate, licensed US business!
What if you still can't get US-based suppliers to work with you (even with a US business entity)? There are 2 good options. The first is to find a NON-US supplier who ships to the US. The second is to become an affiliate for other sellers, rather than trying to sell the products yourself. Many companies have affiliate programs, where you can earn commissions by sending customers (who end up purchasing a product) to their store. Besides store owners within a specific market, huge online retailers like Amazon.com have affiliate programs as well. You can sign up as an affiliate (which is almost always free) and promote their products. (Note: Later on, once your store ranks well in Google, you can always go back and contact the supplier(s) again and see if they're willing to work with you at that time. You'll find that many of them will say yes once you've established good rankings & get a lot of traffic.)
Question: How do I pay US-based suppliers?
Answer: Most US-based suppliers will accept PayPal payments. For those suppliers that won't, you'll likely have to pay them using a credit card (VISA or MasterCard, usually) or a pre-paid US debit card.
Question: How do I collect payments from US customers who make purchases at my store? Do I need a US bank account?
Answer: You do NOT need a US bank account. For those living in Canada, our friends at Durango Merchant Services can set you up with a very low-cost merchant account (same rates & terms as US citizens) that will allow you to accept all major credit cards right on your website. For all other countries, we've provided a list of affordable credit card processing options here. And, of course, we recommend that all store owners (regardless of the country they live in) set up a free PayPal account and accept PayPal payments as well (in addition to accepting credit cards on-site through a merchant account).
Optional Task #3. Create a Simple "Placeholder Site" on Your Niche-Specific Domain Name
You'll save a few bucks buillding your placeholder site on WordPress, so we have included the steps here for how to do that. Please be sure to read our "IMPORTANT NOTE" following these steps for why we normally set our "dummy sites" up on Shopify, instead.
- This gives potential suppliers something to actually look at when they visit your domain name
- Setting up a simple "placeholder" site is very quick & easy ...
- Sign up for BigScoots web-hosting
- "Link" the domain name you purchased to your web hosting account (instructions for NameCheap)
- Install WordPress (instructions) on your web hosting account
- Consider getting a professional store logo
- Using WordPress, create 3-4 simple page: home page, 'About Us' page, 'Contact Us' page, etc. (instructions)
- Sign up for BigScoots web-hosting
- After you've secured a supplier account and are ready to build your store, it's very easy to "transfer" your domain name to your ecommerce store
Optional Task #4. Get a Toll-Free Number & Display it on Your "Placeholder" Site
- Having a toll-free number makes you look much more professional and legitimate
- It will separate you from the dime-a-dozen upstarts on eBay, Etsy & the like
- You'll most likely be getting a toll-free number in Phase 3 anyway, so you're just getting it a little earlier
- We use and recommend Phone.com
Optional Task #5. Create a Simple Corporate Site for Your Business
- A corporate site is like the online "headquarters" for your business
- This is different from the "placeholder site" in option 3 above ...
- A "placeholder" site is built on the domain name you're eventually going to use for your ecommerce store & focuses on that specific niche
- A corporate site is built on a different domain name that matches your business name & focuses on your overall business
How to Create a Simple Corporate Site
Having a professional-looking corporate website is a great way to make a good first impression on a potential supplier. Having a corporate website allows you to ...
- show pontential suppliers the online "headquarters" of your company
- use your business' domain name in your email address (i.e. email@example.com instead of firstname.lastname@example.org)
- give potential suppliers the impression you are a well-established business
We used to own a company called Store Chain, Inc., which was an S Corp registered in the state of Idaho. We used this business entity to operate all of our ecommerce websites under. We have gotten all of our services under this business name: our toll-free number, our merchant account, a free business checking account with a Visa debit card, etc. We also registered the domain name StoreChain.com and built a very basic corporate website there. This also allowed us to have email accounts that ended in @storechain.com. When we would reach out to suppliers, we could say...
"Hi, my name is Dave Hermansen, Vice President of Operations with Store Chain, Inc. We specialize in building specialty ecommerce stores focused around very specific niche markets. We have identified your market as the one we'd like to build our next niche store around, and we'd like to feature your products. Can we discuss how we may be able to work together?"
This sounds far more professional than approaching a potential supplier as "Joe Blow" who wants to sell their products! IF you also took the time to create a "placeholder website" for your soon-to-be-launched ecommerce store, as outlined in Option 3 above (in addition to building a company site), you can add the following statement to the dialogue above ...
"We have already registered XXXXXXX.com and are ready to add your products and make your brand the focal point of our store."
Steps to Create a Simple Corporate Website
- Register a domain name
- Set up web hosting
- Install WordPress
- Get a professional logo
- Choose your theme
- Add your basic company details
Step 1. Register a domain name
For only $6-10 a year, you can register a domain name for your corporate website. If you can't get the .com version of your domain name like we did, try a hyphen between the words or add a short filler word like "inc", "co" or "hq" to the end of it. The domain name registrar we personally use and recommend is NameCheap.
Step 2. Set up web hosting
If you haven't already done so, it's time to get a BigScoots web hosting account.
NOTE: Once you set up your BigScoots account, you will be emailed with your account details. Be sure to save this email or copy those details to a Usernames & Passwordsspreadsheet on your computer. You will need the hosting account nameservers to "point" (or link) each domain name to your BigScoots web hosting account. You can point your domains at your hosting account by logging into your NameCheap registrar account and updating each domain's nameservers to whatever nameservers are given to you by BigScoots.
Step 3. Install WordPress
Installing WordPress on your hosting account is simple, fast and free. Just follow the steps in this tutorial.
Step 4. Get a professional logo (optional)
If you are in a financial position to do so, it is recommended to order a professional logo for your company. Of all the design factors on your corporate website, none is as important as the logo. It can truly make the difference between a mediocre and an amazing corporate site!
Step 5. Choose your theme
Once you have installed your WordPress blog, you'll want to choose a professional-looking theme. Click here to browse hundreds of free (and cheap) WordPress themes and to access step-by-step instructions on how to change your WP site's theme (it's really easy).
Now, just use WordPress to create your home page, About Us page, Contact Us page or any other pages you'd like to create. (If you're not sure how to create pages in WordPress, here's a short tutorial. You can also find hundreds of video tutorials by searching for 'create website using WordPress' or 'create pages in WordPress' or something similar.)
A mission statement and some basic details about your company are ideal for this content. Once you feel that your main few pages have an adequate amount of content, you'll be ready to start reaching out to potential suppliers with much more confidence.
Optional Task #6. Create a Full-Blown Affiliate Product Store (Rarely Necessary)
- It's rarely necessary to create a full-blown affiliate-product-store in preparation to contact suppliers
- This is kind of a last-resort option if you really want to get into a niche but none of the suppliers will take you seriously without a full-blown site
- To build a full-blown affiliate store with products on it ...
- Jump over to this article for info on signing up as an Amazon affiliate
- Jump ahead to Phase 3 for instructions on building your Amazon affiliate store
- Then come back to this training page & continue through the end of Phase 2 to contact suppliers and set up a reseller account
- Jump over to this article for info on signing up as an Amazon affiliate
Complete as many of these tasks as you feel are necessary to approach the potential suppliers you've identified...
- Register a domain name at NameCheap (usually recommended)
- Register a DBA or business entity & obtain a sellers-permit (generally advisable)
- Create a simple "placeholder site" on your niche-specific domain name using BigScoots & WordPress (consider getting a professional logo)
- Get a toll-free number from Phone.com and display it on your "placeholder" site
- Create a simple corporate site for your business (consider getting a professional logo)
- Create a full-blown affiliate product store (rarely necessary)