Business Formation: What You Need Before You Start Your High-Ticket Drop Shipping Business

Business Formation: What You Need Before You Start Your High-Ticket Drop Shipping Business

There are some things you need before you go about starting a high-ticket drop shipping business, or any business for that matter. Before you go to start your business, it's really important to know what you're getting yourself into. I've created a video that addresses what commitments you'll need to make before you get started so you are prepared to make the investment in time and money. Watch the video and read below.

Get Committed To Your Business

Before we get into setting up your legal business structure, I want to make sure that you understand the time and financial commitments 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 business. Not just a hobby, but you're going to become a professional marketer.

Commitment is Passion

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 going to wake up earlier than usual and you're going to do work after hours, and you're going to be doing things on the weekend when you'd normally be watching Netflix or going out with your friends at night. You're not going to be doing that anymore. You're going to be working on your computer on your website.

Make Sacrifices

As I write this, I've sacrificed my Saturday evening that I would normally spend skateboarding or lounging and I'm writing this blog article. It's something I'm so passionate and excited about because I'm only 31 at the time of writing this and I know that this business will fuel my adventures for the rest of my life. I'm willing to "sacrifice" a bit of leisure time every day to spend building a business that can provide an income for me and my family for the rest of my life. I'm sure you are too.

It will feel mentally tough at first, 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 need to understand that it takes a lot of sacrifices. 

A lot of the normal things that people do every day are there because they think they have a "safe, secure job" and a lot of debt and an education that told them the "American dream" was to go into debt to get a degree they didn't need and get a job they hated, buy a house and cars they can't afford, start a family, and stay put as a servant to society for 40+ years until they retire, and then they can finally live the life of their dreams... I don't know about you, but that's not any sort of "Dream" life I want to live.

Be Your Own Boss and Break Free 

Building out an internet-based business like a high-ticket drop shipping eCommerce online retail Shopify store, like I teach how to do in my high-ticket drop shipping masterclass, is a great way to get out of that servant lifestyle. You can escape that rat race and break free of monotony into more of an exciting, thrilling, free life where you get to decide what you do with your time and where you want to work every day and where you want to travel any time of the year without asking for time off from any boss because you are your own boss.

Learn How To Communicate Effectively and Become A Connector

You're going to make a big time commitment. You're going to need to commit time to speak to customers and communicating with suppliers. It's the same thing in any business model, whether you're doing information products, whether you're doing affiliate marketing, or you're doing Amazon Kindle books, whether you're doing drop shipping, you're always going to be having to talk to customers and suppliers either through the written word or on the phone. 

For instance, with high-ticket drop shipping, you have suppliers and you have customers and you're going to need to be the person who goes back and forth between them. Affiliate marketing is similar because you're still going to have to talk to these vendors and you're going to talk to customers through the written word, usually through comment threads or forums. Kindle is similar as well because you're going to talk to people who are writing your books for you and then you're going to have to talk to the people who write you reviews. Amazon FBA also requires you to speak with your suppliers in China and provide customer service through Amazon. There is no online business model where you can completely hide behind your computer and avoid communicating with suppliers or customers, it's just not possible. To become successful online, you're going to have to get really good at communication, sales, and marketing.

No matter what the online business model is you're there as a connector of some kind of a product, information, or service to the person who's buying it. If you're the creator of that, then you're also the connector because you'll need to market what you create. You can just be the creator and partner with a connecting platform to find your customers for you, but you'll make a lot less money in the long run and you don't own your own platform so it's not worth as much money when you want to exit your business. I always recommend building your own marketing channel because that will greatly enhance your ability to sell your product and not rely on a third-party for sales and it will increase the multiple your business is worth.

Your Role In The Business Eco-System As A Retailer

In this model, specifically in high-ticket drop shipping, you're going to be the connector between the supplier of the product and the customer who wants to buy that product. This is also known as a middle-man. You're also going to have to invest some money, however, the investment is really low with drop shipping compared to other business models. The investment is only in a few hundred dollars to get started and then a few more hundred dollars to optimize your store for sales. Once you start getting sales, your profits will pay for your expenses and you can parlay profits into content.

Drop Shipping Is A Lean Startup Business Model

So as far as businesses go, drop shipping has very low financial requirements. 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.

Most of that upfront investment was product inventory and 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 are 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.

Almost everything you're going to be paying for during the startup phase is also a business write off, which can deduct from your net profits and is non-taxable, so consider that as a great benefit to this business model.

How To Form Your Legal Business Structure for High-Ticket Drop Shipping

Now that you have a great understanding of the mindset you'll need to develop for high-ticket drop shipping as well as the understanding of the market and this business model, it's time to dig into exactly what you need to get started with high-ticket drop shipping. 

    Decide Your Business Structure

    The first thing you have to decide is what your business structure will be. So there are a few different types I'll cover here. 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 my choices were for my situation. 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. Also, this information is based only on USA-based businesses. If you need information for creating a business structure outside the USA, please consult your local attorney or CPA or do some Googling yourself.

    If you've never heard of business structures before I'm going to 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.

    Sole Proprietorship and Partnership

    The first one is a sole proprietorship or a partnership. The reason why I grouped them together is that they both have no liability protection. Simply put, a sole proprietorship is a single entity business structure with no liability protection. It's the easiest and least expensive way to start a business but it doesn't protect your personal assets from business litigation. A partnership is very similar, however, you do have to file a different tax form, but the income tax liability is still known as pass-through, meaning the income, depending on how it is split in the partnership, is taxed only on your personal income tax return, not as a separate entity first. Sole proprietorships are also pass-through. With a partnership, you'll file an IRS form 1065, and with a sole-proprietorship, you'll file an IRS Schedule C.

    If you don't have huge houses, you don't have huge investment accounts in the millions of dollars or a whole lot of assets to protect, then it's okay to just go into business selling as a sole proprietor or a partnership because you don't need to protect any of your assets that you own personally. They both have no liability protection 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 a dba if the state requires it and an EIN number to open a bank account.

    Protect Your Assets By Creating An LLC (Limited Liability Company)

    The next type of business structure is an LLC. This is really popular, really easy to form, depending on the state that you form in they can be inexpensive to form, and it does provide you with liability protection. You do have to make sure your business is structured properly. So again, talk to a business banker, a CPA, or an attorney to make sure you structure everything properly so you really have the limited liability protection you signed up for. Once you know how to set up your LLC properly, you can use my recommended service INCFile to form your LLC.

    Making A Lot Of Money? File For S-Corporation Status - Small Business Corporation

    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 pay yourself a meager salary on payroll, like $30,000 a year, and take the rest of your profits as dividends, which are taxed a lot less than your regular income. However, you will have to pay payroll taxes in the state you filed in. In order to be classified as an S-corp, you need to file some paperwork with the IRS. You can form your LLC as an LLC taxed as a sole proprietor and then apply for S-corp status after that. Again, consult a CPA for the best guidance on what is required and what you will need to file for the state you live in.

    Get an EIN Number - Employer Identification Number

    EIN stands for employer identification number and that is issued by the IRS for free. Click here to apply for the EIN with the IRS. It's really simple and easy to set up. Just go there and follow the directions and tell them how your business is structured, what the name is, website address, phone number, etc. You can always change information later as well by writing them. It takes a few weeks to process so do that now before you start your website.

    Get Your Business Checking Accounts

    You need a business checking account and you need a business PayPal account. I use and recommend Wells Fargo for the business checking account, but you can also use Bank of America, Chase, or even Transferwise if you live outside the USA. PayPal, of course, is easy to use and easy to set up. 

    Get Your Business Credit Cards

    You need a business credit card, preferably one with a high limit. Read my list of the best credit cards for dropshipping. They come with cash back and miles rewards so you can make the most of your business spending. If you don't have good credit or have no credit, you can start with a secured credit card instead, you'll just need some cash up front like around $5,000-$10,000 to cover your cost of goods sold and on-going software expenses. 

    Get Your Seller's Permit

    The one thing suppliers will ask for besides your filled out dealer agreement form is your seller's permit from the state you formed in. The seller's permit will allow you to be tax-exempt with your supplier and collect sales tax on purchases that ship to your state and exempt yourself from being liable to pay taxes for any state either you or your supplier aren't located in.

    A seller's permit is issued by your state and you can find all the info for any state in the USA in our article about getting your resale license. Some states charge for it, some states don't, but regardless, you need to get that done now rather than later.

    Understand Your Sales Tax Liabilities

    It's important to understand your sales tax liabilities in the state that you're in. Let's say your home is in California, but 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. You can get a California seller's permit if you end up getting a lot of orders from California to avoid always having to absorb the cost of sales tax from your supplier. 

    If you want to become a digital nomad, it pays to relocate to a state that doesn't charge any income tax like Texas or Washington or Florida and set up your business in Wyoming because you won't have to file as an out-of-state business with your home state since it doesn't collect income tax. That's a hack I found out and that's what we are doing now and it is saving us from paying close to 10% additional income tax in the state of California which is where we lived before we started traveling the world full-time. 

    How To File Your LLC

    I use and recommend INC File for LLC formation. I've used them in the past for setting up LLC's. My LLC, E-commerce Paradise LLC, was set up using their services and they made it super easy. They even provide a year of registered agent services for free with your registration fee. 

    Get A Virtual Mailbox

    Set up a virtual mailbox address in any state by using the service I recommend called Traveling Mailbox. It's only $15 a month to start. I highly recommend using that service for an address in another state or within any state that you want to be in. It will provide you with privacy protection and make it look like you have an office or retail address to your suppliers.

    That's it! I know it was a lot, but it's all necessary to set up your online business. The next step is setting up your website, and as soon as that's done 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, you'll do just fine. 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. Your life is going to change for the good forever. 

      Why A Partnership Can Be The Key To Your Success with High-Ticket Drop Shipping

      Partnerships are a great way to start with any business and high ticket dropshipping is the same way since a lot of people are good at one thing but not on another thing. If you can find a partner that is good at other things that you are not good at, it will really enhance your ability to create a good business and also speed up the time that you will be able to build your business. 

      Things to contemplate when finding a partnership since the partnership is a lot like marriage. 

      • You must have a lot of shared time together. You spend a lot of time communicating with each other. 
      • You have to make sure to put a written down good partnership agreement. Make sure to include an exit plan in case one of the partners wants to exit the partnership. 
      • Create an official business. You can create a plain partnership that is not protected or start an LLC if the partners have assets to protect. Make sure to tax it as a partnership. You have to file an IRS form 1065. Depending on the state you are in, you might want to file a DBA. You might as well create a business account. 
      • A partnership is really important because you have somebody to bounce ideas with. Entrepreneurship is like a maze. You are trying to find the exit of the maze and if you don’t find it, you have to go back and find another path. For that reason, you can reach out to mentors and coaching to try to find out what that good path is. That will help you speed up the time to find success. 
      • Having a partner is really great because you can have someone to talk to before investing. They can also help you in trying to figure out things in general and relieving your stress. As an entrepreneur, you will be having stress most of the time and you need somebody to release the tensions. 

      Downsides of partnerships and things that can go wrong:

      • The other people lose focus or they start doing other businesses outside the partnership.  
      • Lack of business. If the business is going down, the partner will look for other places to make money. 
      • If the business is really good, the business partners get greedy.
      • Personal reason. They have realized that they want to do something else and they want to leave. 

      I started a partnership at the beginning.  He was an older gentleman of about 50 years old and he has an established business and established a credit line. I worked with him and he was willing to put his credit upfront as long as he got 50% of everything and I would sit down and do all the work in front of the computer. He is the one who calls the suppliers and talks to customers and does the sales. I was the one who takes orders over the phone and does the customer support after the sale. I worked a day job and he had a business. 

      To maintain the partnership, you should have good communication with the partner because as the business grows, there are new things that will come every time and new problems to solve. The business will evolve like relationships and you have to be willing to evolve and learn new things.

      I believe it is one of the best ways to get started. As long as you don’t get greedy, just be humble, and keep communications open. A partnership will really work as long as you give your best foot forward to it.  

      eCommerce Paradise was created by Trevor Fenner of Seattle, Washington in 2015 to help you, the entrepreneur, to start and scale your own eCommerce business selling high-ticket products online with the drop shipping fulfillment method so you can make more profit per sale, have a sustainable and evergreen online business, get started with very little upfront investment, and live a location independent lifestyle. Trevor owns multiple 7-figure High-Ticket Drop Shipping eCommerce stores and is a digital nomad, traveling the world while working remotely with the help of his team of over 10 virtual assistants from around the world. Trevor is currently located in Bali, Indonesia. Trevor is also a passionate skateboarder, surfer, scuba diver, photographer, environmentalist, outdoorsman, fitness and tattoo enthusiast.

      AFFILIATE DISCLOSURE: Some of the links on this page may be affiliate referral links. I will get a commission from the vendor when you make a purchase after clicking them at no added cost to you. As a result, many of them also provide you with a special discount just for using my link. You can go directly to their support if you have any issues with their software or product.

      Resources for Starting A High-Ticket Drop Shipping eCommerce Store

      These are the resources I've created to help you start your own high-ticket dropshipping eCommerce store:

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