So you’re looking to launch your online business, but you’re not sure what you have to get done before you make your website on Shopify, contact your first supplier, or get your first sale?
Then grab a pen and paper and listen to today’s podcast, where I cover my business checklist that will help you get started without missing any important details.
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What's up everybody, Anton Kraly here from ecommercelifestyle.com, and welcome back to the podcast. So a big question that I get either via email or over on our YouTube channel is from people that are just getting started with their online store and they want to know what they actually have to get done prior to launch. So kind of the technicalities. And this is outside of how to pick a niche, how to get suppliers, how to get traffic. All that stuff you can learn more about on my free training over at dropshipwebinar.com. I'll post the link to that in the description by the way, dropshipwebinar.com, but once you know all that stuff and you understand how to build the business, then the question is, well, what do you actually have to get done before you make that website on Shopify? Before you contact your first supplier? Before you get your first sale? So I want to cover a business checklist in this podcast, go over a couple of different options you have and then let you know what I do and what I recommend. So with that being said, let's go ahead and get into today's episode.
Okay, so the first thing we should talk about are your business formation options. Now what do I mean by that? I mean actually making a business entity if you choose to do so that you'll do business as. And you do have options here. So it's important we covered both of them. Now, the first would be that you just do business as a sole proprietor, which is the easiest way to go. And for example, that would be if I wanted to launch a new business, but instead of actually forming a business, I just said, "Okay, I'm doing business as Anton Kraly." Now I could do any business I want. I could sell the desk that I'm at, I could sell the camera lens that I'm talking into, but instead of actually making a business separate than myself, I would do business as myself.
And that doesn't mean my website is going to be antonkraly.com or anything, it just means for tax purposes that I am a sole proprietor. It also carries some different legal obligations with it. So if you're doing business as yourself, it means that you're open to more exposure basically. And because you are the business in that case, let's just say you have a net worth of $0.5 million and something goes wrong in your business, knock on wood, but let's say somebody sues you for $0.5 million. If you're doing business as yourself and you're that business, then you're $0.5 million in cash or in your home or whatever it is, is open for lawsuits because you're the business. And that's the first big reason why people do foreign business entities and why, well, it's one of the reasons why I recommend doing it. Another one is tax benefits, but we'll get into that a little bit later in this podcast.
But your other option is if you don't want to do business as a sole proprietor is you can form a different business entity. Now know that I'm recording this podcast as a business owner, not as an accountant, not as a lawyer. So seek legal advice. There's the disclaimer, but if you form a business entity, there's two main options that most people go with. Yes, there's other options out there, but there's two main ones that make up most businesses out there, especially small businesses. And the first is forming what's known as an LLC the other one is forming what's known as an S corporation, a subchapter S corporation.
Now some people get confused about this and rightfully so. It is kind of confusing, but you can actually form an LLC and then choose to have that taxed as an S corp. You have to opt in to that with the IRS, but you have that option too. So if you're listening to this or watching this and you already formed an LLC and you want to be taxed as an S corp, talk to your accountant. But again, you can submit paperwork and have your LLC taxed as an S corp. Some of the benefits of forming one of these entities outside of yourself, the main one, like I just talked about, the liability is now transferred to the actual business instead of you. And what that means is assuming you do everything right, you don't commingle funds and whatnot. If again, knock on wood, you ever get in trouble with your business, then your business is liable, not you personally because you're doing business as your entity. You're the owner of that entity, but that entity is separate from yourself.
Now another benefit of having one of these corporations set up either an LLC or going the S corp route is that taxes work differently. So when you're a sole proprietor, all the money just flows into you, but when it comes through the LLC or through the S corp, it can come in different ways, which means it can fall into different categories, different tax categories. Again, speak to an accountant or a lawyer if you prefer to find out how those work and how they'd affect you in your own situation, but that is a big benefit of forming an actual entity.
Now after you figure that out and write and you check that off, like you know that you're either a sole proprietor or you're forming a business, then you know what you could tell your suppliers. The next thing that you have to figure out is how you're going to basically identify yourself as a taxable entity. Now when you're doing things like reaching out to suppliers and getting approved for accounts, they're going to ask you for a tax ID number. Now the tax ID number is also known as an EIN number, stands for Employer Identification Number. They're the same thing. They're free to get online. It's super easy from the IRS. I'll post the link in the description. You could do it yourself. Takes like five to 15 minutes, but you can either choose to get, again, an EIN or you can use your Social Security number.
Now, again, I recommend you use an EIN number because that keeps your business purposes separate than your personal. And what that means is basically when suppliers are charging you for orders and whatnot, and you're getting wholesale costs and you're not paying sales tax and any of that, it's because you're doing business as your business and that's where the tax invoices are being sent to you basically. So at the end of the year, and if this is getting like over anybody's head and too technical, I apologize, but it's important to know. But let's just say you do business with your EIN number and over the year you buy $100,000 worth of products at wholesale costs. These are products you sold by dropshipping. Then at the end of the year when your supplier is doing their taxes, they're going to say, "Hey, this tax ID number associated with Anton's business, or your business, bought $100,000 worth of product from us." So that's where that number will come into play in one of the places.
Another place will be when you're opening business banking accounts. If you're going to do that, we will get to that, but you would use your EIN number. Again, it's also called a tax ID number. I know it's confusing, but you would use that when you're opening up your business accounts. And same things like when you're signing up with softwares online and they're asking you is this a business or a personal account? If you go the tax route of having that EIN number, you'll say it's a business. This is the business name, this is our EIN number and you'll be using that instead of, again, your Social Security number across the internet, which is a good thing, even if it was only for privacy. But like I've already mentioned, that covers a lot more than that.
Now, the next thing in your checklist that you need to figure out once you know if you're going to be a sole proprietor or a business entity and once you have your EIN number is do you need to collect sales tax and pay sales tax and do you need a sales tax certificate? Now, different states have different rules. Some states have no sales tax, some do. What you need to look at is what state you are doing business in, what state your business is located in, which may be where you're located, and see if they have sales tax. And if they do, you're going to need to go online, Google your state name, Google sales tax certificate and fill out whatever application you need to fill out to get one. And what that allows you to do is basically pay sales tax to the state where your business is located.
Now, you might be thinking, "Well, I heard about nexuses and sales tax nexuses. How does that work?" And while that is more and more of a thing, especially in the past couple of years, it really only comes into play once you're meeting different thresholds of sales in different states. And a lot of them are like $100,000 plus. The website taxjar.com, which by the way, has a great app for Shopify, has really good information on this. So I will link to that again in the description. You can read more about it there. But for most people in the beginning, all you need to figure out is does my state require sales tax? And if it does, then you have to go online and check off that you got your sales tax certificate. That way you can charge tax in your state when order is shipped there and you can pay sales tax to your state.
The final thing that you need to figure out in this online store checklist when you're starting a new online store is what are you going to do for banking? Now, you can use a personal checking account for your business. Like I mentioned earlier though, that has different liabilities associated with it because if you're saying to the IRS and to your suppliers that, "Hey, my personal bank account is the business bank account," then they'll be fine with it. They'll approve you, they'll charge you frauders, but if anything ever happens, even if you have a separate business entity and you're using your personal account, then what happens is it's known as commingling funds and your personal assets can now be up for grabs. Again, knock on wood, in the event of a lawsuit because you're mixing your finances.
Now, with that being said, I'll just let you know when I got into eCommerce, I was like 18 maybe 19 years old and I had no assets. So I personally started as a sole proprietor. I used my personal account and then as I made money, I went to an accountant, I set up an S corp, I set up all the business things that needed to be set up. So you have options. Just know what's best for you and maybe the way you figure that out is by speaking to an accountant or a lawyer. So the option that I would recommend is you do set up a new business account. It just keeps things cleaner and it lets you actually see your money better, not by mixing it in. So you would open a business checking account.
There are tons of different banks online that offer free business checking accounts. You would open it with your business name, you would open it with your EIN number. And if you need banking advice like what bank should you go to, my advice is if you use a bank for your personal account and you're happy with them, just call them, go to their website, whatever, look for a link that says open a business checking account, enter your information and you'll be good to go. And then that's the bank account you'll have your money get deposited into when you get sales and then that's the account you'll link to either your debit card or credit card when suppliers charge you for orders.
Now, that brings us to the last thing you need to figure out in this new online store checklist, and that is are you going to have a business credit card? Now, I highly recommend you do because there's a ton of benefits to running one of these stores with the credit card. One is all of your ad costs can get charged to that credit card. Another is all of your costs of goods, the actual product costs, can get charged to that credit card. And what that means is you can build up points really quickly whether you use that for miles or the cash back or rewards, whatever it is you want, you can really build up points fast here. So I personally use the American Express Platinum Card just because it's very hands off, but I do recommend you open up any kind of business credit card.
Just know a couple of things going into it. One is because I'm assuming if you're listening to this, your business is brand new. You're not going to basically get off the line with the card. You have to co-sign for it. So even though it will be opened in the name of your business, you'll co-sign on personally meaning if you owed a lot of money and your business went under, you would still be responsible for it. Again, any credit card company's going to tell you that because if you're new, that's just the way it works. You have to build up business history before you can get your personal name off it.
And the other thing I'll say is if you're starting and you don't have credit, it's fine. You can just get a debit card linked to your business checking account. Use that to pay your suppliers and your ad costs. And what I'd recommend you do as soon as you start to build up a bank roll in your account is make sure you get what's known as a secured credit card, which is basically the bank telling you, "Okay, we'll give you $3,000 of credit if you put $3,000 into a CD with us." A certificate of deposit. And if you do that, they know that their credit is safe because they're holding your money, you'll earn an interest on it too. It's like nothing but you'll still an interest, but what that will allow you to do is prove to the banks and prove to the credit bureaus that you're credit worthy. And then your $3,000 limit will become $5,000 and $10,000 and $20,000 and $100,000 and then eventually unlimited with American Express, and you can charge whatever you want and build a ton of points.
So that's the checklist guys. Those are the things you need to know. Again, I personally started as a sole proprietor. I got an EIN number online and I use my personal checking account, but as soon as I made money, I did what I recommend pretty much everybody do, which is form an actual business. It could be an LLC or it could be an S corp or it could be an LLC that you elect to have taxed as an S corp. go ahead and get your EIN number online. Make sure if your state requires it that you get a sales tax certificate there and then open up a business account, a business checking account in your business name, and if you can, go ahead and get a credit card as soon as possible in your business name and start using it for all of your software costs, your ad costs, your product cost, the suppliers, and watch the points stack up.
So hopefully you found this one helpful guys. I know it was a little bit more advanced than a typical podcast. If you've got value, as always, I would really appreciate it if you can go over to Apple Podcasts and leave a review. And as always, if you want to get started, you're like, "Okay, this makes sense, but how do I pick a product? How do I find suppliers? How do I get traffic?" Be sure you go over to dropshipwebinar.com, D-R-O-P-S-H-I-Pwebinar.com, and I will see you over there for a free training. Thank you.