Hey guys, welcome back to the Ultimate Guide to Drop Shipping. In this video we're going to be talking about starting your business. Starting your business is important before you actually build your website because you're going to need a few of these business things to be done in order to setup your merchant accounts, to get paid, and you're also going to need certain legal forms to be setup before you get suppliers. Okay? With that said, it's really important to get this brief overview, and pay attention, because a lot of the things in here are easy to do, and yet they are super, super important to your success.
Let's get into first things first guys, I just want to make sure that you understand the commitment required in order to start one of these businesses. This is a real business, okay? So if you've never been involved in business before, understand that businesses take a lot of time. If you're working a day job, or if you're consumed with all sorts of hobbies and stuff like that, you're going to have to make sacrifices with your time. You're going to have to become passionate and make a hobby out of your e-commerce. Not just a hobby, but you're going to become a professional marketer.
So, this should be something that you are so excited about doing that you just can't wait to get to the coffee shop and sit down on your laptop and do more of it and learn more of it. It should be something so exciting that you're gonna wake up earlier, that you're going to do work after hours, that you're gonna be doing things on the weekend when you'd normally be watching Netflix or going out with your friends at night. You're not gonna be doing that anymore. You're gonna be working on your computer on your website.
Yes, I know it sounds terrible but trust me, it's worth it. If you want to live a location independent and time independent, financially free lifestyle like we do then you have to to understand that it takes sacrifice. A lot of the normal things that people do every day are there because they have a safe, secure job, right? And so building out an e-commerce business drop shipping store is a great way to get out of that servancy, that slavery kind of lifestyle, that rat race kind of lifestyle and to break into more of a exciting, thrilling, free life where you get to decide what and where you go and do at any part of the day, any time of your day in life. So there you go.
So you're going to make a big time commitment. You're gonna need to commit time to talking to customers and talking to suppliers. It's in the same thing in any business model, whether you're doing information products, whether you're doing affiliate marketing, you're doing Amazon Kindle books, whether you're doing drop shipping, you're always gonna be having to talk to customers and suppliers either through the written word or through the spoken word.
So, for instance, with drop shipping you have suppliers and you have customers and you're gonna need to connect the two. With affiliate marketing is the same way, you're gonna have to talk to these vendors and you're gonna talk to customers through the written word. With Kindle it's the same way, you gotta talk to people who are writing your books for you and then you're gonna have to talk to the people who write you reviews so that's one way.
So no matter what the online business model is you're there as a connector of some kind of a product information service whatever to the person who's buying it. Or you're the creator of that and then you're also the connector. Or you're just the creator and you hire a connector to find you customers, either way.
But in this model, specifically in e-commerce drop shipping, you're going to be the connector between the supplier of the product and the customer who wants to buy that product. With that said you're also going to have to invest some money. So, the investment is really low with e-commerce like I've said in the first video or two. The investment is only in a few hundred dollars to get started and then a few more hundred dollars to grow beyond that and then maybe a few hundred dollars, a thousand dollars to scale beyond that even.
So as far as businesses go, usually businesses cost tens of thousands of dollars to start. I actually went through the process of starting physical brick and mortar storefront back when I was doing my first e-commerce business. I wanted to become a clicks and mortar business and that cost me around $30,000 and that was for the bare minimum. I didn't really have that great of a store. I actually ended up shutting it down six months later because I was so tired of it.
And most of that was product inventory and a small portion of that was fixing up the place, adding all sorts of fixtures and paint and paying for overhead, the rent, and the electricity, and the insurance. So there's a lot more costs involved with other types of business models whereas the online business model you have a laptop computer, so you have to pay for that, you have your hosting, you have any kind of other services you need to use online that costs money, and then you have your regular lifestyle expenses. So it's not a whole lot more than that.
Now, because you'll be having to make sacrifices maybe you can consider that as a cost but a lot of this cool stuff, a lot of this stuff you're going to be doing is also a write off, a business write off, so consider that as a great benefit to this business model.
So with that said, the first thing you have to decide upon when you're building your business, when you start it and actually get going is your business structure. So there's a few different types I'll cover right now. Now, I just want to clarify and add a disclosure here that I'm not a CPA or a lawyer so this is not official advice. This is just coming from my experience and what's available out there and what my choices were for the best for my position. Now this might work for you as well, it might not though. You might have a different situation, a different asset structure so you should consult a CPA or attorney based on your assets to what business structure you should start.
But if you've never heard of business structures before I'm gonna go over the three most common types right now. And really only two of them are types that you need to know about these days. So the first one is the sole proprietorship or a partnership and they both are taxed similar ways. But sole proprietorship are just you and I. We're a single person, single entity and we don't have any major assets to speak of, right?
We don't have huge houses, we don't have huge investment accounts in the millions of dollars. So we don't have a whole lot of assets to protect and so it's okay to just go into business selling as yourself because you don't need to protect any of your assets that you own personally. Now with that being said a partnership is kind of similar. It's two people that come together and neither of them really have assets they want to protect or need to protect so they form a partnership and it's taxed a little bit differently even [inaudible 00:06:11] sole proprietorship but similar things apply to it.
So, they both have no liability but they're also very cheap and very easy to start up. In fact, they don't really require any official formation or documentation besides the other things I'm gonna mention here in this video.
The next type of business structure is an LLC. Really popular, really easy to form, but it does provide you limited liability protection and that's the important concept to apply. You do have to make sure your business is setup properly. So again, talk to a business banker, talk to a CPA, talk to an attorney to make sure you structure everything properly so you really do have the limited liability protection. But LLC's, depending on the state that you form in are very inexpensive to form.
The next type that you should get if you make a lot of money through your business is an S corporation because an S corporation allows you to- and of course, like I said, talk to an attorney, talk to a CPA, get actual advice but S corporation- and LLC can be taxes over proprietor or taxes and S corp but an S corp is separate, it's a different thing if you want to form an S corp. And really an S corp is a C corp that is actually taxed as an S corp.
I know it sounds really confusing and it is, it's quite confusing so like I said talk to an attorney or CPA. But I never actually formed an S corp because I didn't need to so I'm just going to say what an S corp is, the benefit it provides is that you can actually pay yourself as an employee and pay yourself a minimum amount, like 30,000 a year or something like that and then take the rest our as dividends that are taxed at a lower tax rate.
So that's why people do it a lot but most people just go with the LLC because it's cheap and easy to form. You can tax yourself as a sole proprietor, keep sit really simple and you still have the LLC protection. So that's what I recommend.
Now, that's how I do it, that's for my asset class. That's not for you and your position so make sure that you understand that and you go out and seek the advice of an actual CPA. With that being said let's get on to the first bit that you'll need after you set up either your sole prop or LLC and that is the EIN number.
EIN stands for employer identification number and that is issued by the IRS for free. So there's a link below in the description where I will give you a link to apply for the EIN with the IRS and it's really simple and easy to set up and you just go there and follow the directions and tell them how your business is structured, what the name is it, website address, phone number, all that good stuff, okay?
So you'll need to get the EIN. It takes a few weeks to process so do that now before you start your website. And then next thing is setting up your business accounts, right? You need a business checking account, you need a PayPal account, and you need a credit card. So those are all really important things to do. You want to set all those up.
I use Chase so I recommend them for the business checking account. PayPal of course is easy to use and easy to set up and I recommend for credit cards that you look for business rewards. Credit cards, either cash back or points rewards and I recommend you looking for them that come with bonus points.
Now if you go to e-commerce paradise dot come slash resources there are actually four or five, maybe more business rewards credit cards and each of them comes with big bonus rewards. So I highly recommend checking those links out. You'll get 50 to 100,000 in bonus rewards just by setting up through my link so definitely check out e-commerce paradise dot com slash resources, link is in the description below.
Alright, and then the thing you really need more than any of this stuff, the most important part of this puzzle is your seller's permit. It's the way you'll be able to collect sales tax and it's also the way you'll be able to exempt yourself from having to charge sales tax in particular states that you aren't in.
So a seller's permit is issued by state so if you just type in seller's permit and then your state into Google you should be able to find either the direct link or the tax jar dot com article. So you have to do that and some states charge for it, some states it's free so just definitely get out and get that done.
And by the way, with a seller's permit sometimes they won't allow you to sign up with a virtual office address like a registered agent address, they need your physical address so if you start your LLC in a non-sales tax income state like Wyoming for instance but you're located in a different state they're actually going to use the address in that different state on the seller's permit and that's perfectly fine to do, just understand that and give them that address, okay? Easy enough.
But just understand your sales tax liabilities in the state that you're in, right? Let's say you're located in California, well if your business is in Wyoming you're still going to have to charge California sales tax and you're still going to have to pay California state income tax even though your business is located in Wyoming.
Now Wyoming does not charge any income tax, they charge four percent sales tax. No income tax though, so it's important to understand that concept and again talk to an attorney or a CPA.
Alright, and if you're outside the US it can be really complicated to do this whole process but the bottom line is that a lot of people do do it and it's not that bad. So definitely consult a business like Incfile. I suggest Incfile, I've used them in the past for setting up LLC's. E-commerce paradise dot com slash resources and there's the link in there or you can just go to e-commerce paradise dot com slash incfile, I-N-C-F-I-L-E.
If you're outside the US you can hire them and they'll set up your entire LLC for you and they can get you all your documentation for you and set you up with a registered agent address for a year for free included with the cost.
Okay, so with that being said you'll still need to get the seller's permit yourself and you still need to get the EIN if you don't want to pay for their service. But it's quite a bit easier to do and also by the way you can set up a virtual mailbox address in any state by using the service I recommend called Traveling Mailbox and it's in the resources page and you can also go to e-commerce paradise dot com slash traveling mailbox.
It's only $15 a month to start. So I highly recommend using that service for a address in another state or within any state that you want to be in. So, there you go guys, that's it. That's how you set up your business for drop shipping e-commerce. It's for the online business drop shipping model and we'll get into the next video, the next video is all about actually setting up your website and evaluating other sales channels to sell in them.
So that's the next step and as soon as that's done if we can get suppliers and then we can optimize and launch and start making some sales and I know it's a lot but it's worth it and if you're in this for the long run, if you're watching right now I know you're committed to it and congratulations for being committed because you're making a huge change in your life and your life is going to change for the good forever. So, thank you so much for tuning in and we'll see you in the next video.