Get legal: Start your business right
If you’re going to work with wholesale suppliers you need to be a legal business. There is no way around it. Wholesale suppliers cannot legally sell to anyone who is not a business entity and has a valid state seller’s permit.
Getting legal is not difficult and every business that wants to be successful needs to do it. The basic for forming a legal (retail) business in the U.S. is listed below. The actually requirements will vary from state to state. Check with your city, county, and state offices for the exact requirements where you live. I will provide links to additional resources as I can. Each step should be done in the order listed. Later steps will require information obtained in earlier steps.
1. Get an Employer Identification Number (EIN) – An EIN is also known as a federal tax identification number, and is used to identify a business entity that is legally separate from yourself. Getting an EIN is optional for a sole proprietorships and general partnerships unless they have employees. An EIN is required for all other business structures.
U.S. Internal Revenue Service
Phone: 1-800-829-4933
2. Register for a State Employer Identification Number (SEIN) – If you have or are going to have any employees you must obtain a SEIN. Getting a SEIN is optional for a sole proprietorships and general partnerships unless they have employees.
- In California: Am I Require to Register as an Employer
3. Register Fictitious Business Name – If your business name is not your own personal name, it’s referred to as an assumed, or fictitious, name. Registrations of this kind may also be known as a DBA, or “Doing Business As.” Depending on where you live, this registration can be obtained from a state agency or a city or county clerk’s office.
4. Get a Seller’s Permit – This is also known as a Use Tax Permit or Certificate. This permit authorizes you to collect sales on taxable items sold in your store. A seller’s permit is required for you to legally resell any item purchased from a wholesale supplier. Also, the wholesaler cannot legally sell you any business without a seller’s permit.
If you are drop shipping then a seller’s permit may be required in each state the wholesale drop shipper has a physical presence. Ask the wholesaler where their warehouses are located and about their sale tax requirements. Also check with each state where a warehouse is located.
5. Open a Business Bank Account – You need to keep your business and personal asset separate. If you use a single bank account for your personal and business finances then the IRS cannot tell which transactions are which and you may be subject to some hefty fines and penalties. You must have a separate business account. All business transactions are done through the business account. Personal transactions are done through your person account. This is especially important if you have a limited liability business structure. You will lose your limited liability status if your business and personal assets are not kept separate. If you plan to accept credit card payments from your customers you need to have a business bank account.
6. Open a Merchant Account – If your online store is going to accept credit card payments then you need a merchant account. When someone buys an item from you store and pays with a credit card, the credit card transaction is processed through your merchant account. The merchant account will verify the customer’s identity, collect the money from their credit card company, and deposit the money, minus a small fee, into your bank account.
Getting your business legal may seem overwhelming at first but is actually quite simple and well worth the time. Getting legal also allows you buy from wholesale suppliers which gives you access to many more products at lower prices then you are aready paying.
Here are some great additional resources for anyone wanting to start their own business:
- Business.Gov
- California Tax Service Center
- Starting Your Internet Business Right
- Free Product Sourcing Video Course
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