Business Formation: What You Need Before You Start Your High-Ticket Drop Shipping Business
Follow these 6 Simple Steps!
Starting a dropshipping business can be exciting. However, it can also be daunting if you don’t know what you’re doing. To make your business formation seamless and straightforward, we’ve laid out the top six things you need to manage before starting your high-ticket drop shipping business.
1. Choose a Business Structure
In starting a business, you need to select your business structure carefully. This will define the way on how you will run your business from a legal perspective. In the United States, there are four kinds of business structures, including sole proprietorship, partnership, limited liability, and corporation. Each one comes with different tax requirements and liabilities.
Sole Proprietorship – This is by far the simplest business structure that one can have. In Sole Proprietorship, the owner has full control over the business and is tasked to manage its records.
Home-based businesses, small shops, and one-person consulting services are some businesses that are usually formed under sole proprietorship. However, it’s worth noting that while Sole Proprietorship is the most straightforward business structure, it does not come with any liability protection.
Limited Liability Company – One of the more prevalent business structures today is the Limited Liability Company (LLC). This business structure is a hybrid that combines the characteristics of a sole proprietorship, partnership, and corporation. The best thing about LLC is that it’s relatively easy to set up and comes with liability protection – perfect for those looking for better flexibility and increased protection.
Partnership – When two or more people come together to form and run a business, that is what you call partnership. In this kind of business structure, each partner has an equal share in the business’ profits and losses. Businesses under partnership also hold the partners accountable for the financial debts and obligations of the company.
Corporation – This business structure is the most complex type where the business’ obligations and liabilities are separated from the owners’ responsibilities. Unlike sole proprietor businesses and partnerships, corporations’ taxes are collected as separate entities at corporate tax rates.
The best choice for a startup brand is to set up an LLC business. Besides the reason that it’s highly practical to form, it also gives you liability protection for your assets. To do this, you can either get assistance from a business strategist, an accountant or a lawyer; or you can sign up for business formation services for faster results. If you need a reference, here are the best business formation services for high-ticket drop shipping.
2. Get an Employer Identification Number (EIN)
Another facet of business formation is obtaining an Employer Identification Number. EIN is a unique number for businesses explicitly designed for tax purposes and is issued for free by the IRS. A more straightforward way to look at it is that it’s somewhat similar to a Social Security Number for businesses.
If you’ve decided to have a Sole Proprietorship, then having an EIN is not a requirement since you’ll be paying taxes through your record. However, there are some benefits of having an EIN even if you’re running a sole proprietorship business, including brand credibility boost, protection from identity and tax theft, and it prepares you ahead of time since you’ll still be required to get an EIN when your business grows eventually.
On the contrary, EIN is a requirement for an LLC, Partnership, and Corporation. Applying for EIN is pretty easy so long as you have the complete details of your business. You need to fill out an application form and wait for it in a few days or weeks.
Registering for an EIN is free and can be done online. However, you should file for an earlier application for EIN to allow for some allowance if you have a target launch date since it typically takes weeks for processing.
3. Business Checking Accounts
As for your financials, you need to have a business checking or PayPal account. You’ll need this to get paid in the dropshipping business. There are several good banks that you should check out, including Wells Fargo, Chase, and Bank of America. There’s also PayPal and TransferWise if you’re managing your funds outside of the U.S.
For starters, it may seem that your account can still handle your business. However, in managing a business, all your business transactions shall be distinct from your transactions. By having your business account, you’ll be managing your finances better, including your taxes and all other business expenses.
4. Business Credit Card
Having a credit card is indispensable in any drop shipping business. Your credit card will be used mostly to pay your suppliers and all the tools that run your store, including Shopify. Aside from that, your business credit card can be used for all your business spending. Without a credit card, you will not have any means to pay for your suppliers since most dropshipping suppliers prefer credit card payments.
The perfect business credit card offers you a high limit with massive perks and rewards. This allows you to get the maximum value from every purchase. For starters, a business credit card that offers excellent cashback rewards should be the most practical choice. On the other hand, if you’re a frequent traveler, finding a business credit card that offers excellent mileage and other travel perks should be your top choice.
If you’re looking for a good selection of credit cards, we came up with a list of the best credit cards for your personal and business needs.
The most practical choice is to get yourself a business credit card and another for your personal purchases. For business credit cards, it’s best to find one which offers massive cash backs, so you get the best value for every dollar that you spend. Finding a credit card that can offer great mileage and booking discounts shall be of significant consideration for digital nomads or business travelers.
5. Apply for a Seller’s Permit
Another thing that you need to have before starting your dropshipping business is a Seller’s permit. A Seller’s permit is a state license that allows you to sell products or services and collect taxes from your customers. The said permit allows the State to monitor and control how businesses collect and pay taxes to them. Many suppliers also require this permit to get a dealer account as this will prevent you from getting charged with sales tax for every order you place with your supplier.
It’s always best to know first which permits and licenses you need to secure before launching your dropshipping business to ensure that you are doing business legally. Failing to do so will cost you a significant amount of money for the fines and penalties you will face. Here’s a guide on how to apply for a Seller’s permit in your State.
6. Sign Up for a Virtual Mailbox
To formalize your dropshipping business, you need to sign up for a virtual mailbox in any State that you want to be in. Your virtual mailbox will provide you with a physical address, so it will appear like you have a business office. This will work in your favor, especially if you plan to be a digital nomad moving forward.
In choosing a virtual mailbox, it’s best if you sign up for a virtual mailbox service that has a vast network across the globe, accessible 24/7, and offers a variety of security features to ensure that all your incoming mails and parcels are correctly handled. By doing so, you’ll be sure that you can easily access your mails anytime and from anywhere. If you don’t know where to start, here are the best virtual mailbox services for entrepreneurs and digital nomads.
Now that you know the things that need to be settled before you start your dropshipping business, you must have a 100% understanding of the kind of business that you are diving into. So, it would help if you covered the basics first...
Understand the Drop Shipping Business Model
Even if you’ve already decided that drop shipping will be your business model, you must have a solid understanding of this kind of business. For starters, you need to know the difference between dropshipping and a traditional retail eCommerce store. If you need a refresher on that, here’s an explainer on what is dropshipping.
On the other hand, you also need to know the main difference between the standard drop shipping business model and the high-ticket drop shipping business.
What to expect?
While there is no doubt that dropshipping is one of the simplest forms of eCommerce, you are still expected to do your fair share of work to jumpstart your business successfully. It can’t work if you’ll just depend on all the dropshipping tools available to you. Instead, it would help if you combined strategy and hard work while leveraging all available tools.
A typical day in the dropshipping business mainly revolves around supplier coordination, marketing, and customer support. This is unlike any other eCommerce business, which deals with merchandising and inventory as well.
Once you have these fundamental aspects and a solid understanding of the business, you should be able to start building your high-ticket drop shipping business in no time.
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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. Trevor owns multiple 7-figure eCommerce stores and is a digital nomad, traveling the world while working remotely with the help of his team of virtual assistants from around the world. Trevor is currently located in Bali, Indonesia, and is a passionate skateboarder, surfer, scuba diver, photographer, environmentalist, outdoorsman, fitness and tattoo enthusiast.
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