The Business Behind Starting an E-Commerce Store – Newbie Guide – Tax Guide – Basic Inventory

This guide is targeted at newbies who are going to run an e-commerce store. A big part of the deal is getting the store open and getting sales to come in, but a very important overlooked part is the business aspect. I have witnessed business owners that open up e-commerce stores, make lots of money fast, and in 3 months time have gone completely out of business and are broke, possibly even in debt. You don’t want to by the Joe.

You don’t need an master’s degree in business to know the basics to owning your own e-commerce store. Actually, what you do need to know is short and sweet. At least the basics so you don’t go broke anyways. There are always going to be improvements and new knowledge to save you more money, but for now lets just discuss the basics.

The first rule of business I am going to lay down is , TAXES! You have to pay tax on every dollar you bring in. I live in the United States so I am going to use my country, city, and states rules to make an example for you. I am not an accountant and I do not know every little detail about what taxes are due where. But the basics should be the same.

Now assuming you don’t have any employees and you are a sole proprietor (Your husband or wife doesn’t count as an employee so they can help) you will owe these taxes.

  • Sales Tax
  • County and/or City Taxes
  • State Taxes (Not all states)
  • Federal Income Tax
  • Your Social Security and Medicare often referred to as self employment taxes

If you have employees you will need to add a few more places to pay taxes to. We aren’t going to cover that in this article, but I will cover it later. We will also be covering where to pay these taxes and how to setup these accounts later as well. Follow the guides on my blog for more information.

After you figure out what you are going to pay in taxes the next thing you are going to need to learn about is profit and loss. If you make ten thousand dollars next month but it costs you eleven thousand to make it, then you are going out of business. So many new time e-commerce store owners get lost in the fact that they are making money that they forget to account for how much they are spending. Things like office supplies, rent, taxes, credit card processing fees, etc. Can get completely forgotten about until its to late and you can’t get caught up.

My absolute best suggestion for anyone starting an e-commerce store is to get either an accountant or accounting software from day one. If I could stress any of the hard lessons I learned it was not doing one of those two. I personally recommend quick-books online. It’s not very much, I think I pay less than $20 per month, but it’s worth every cent. I will allow you to sync your website sales, your bank accounts, your receipts and even pays your taxes for you. It saves hundreds of hours over the course of a year and helps make sure you don’t make a mistake that can cost you big.

After you get your accounting and taxes figured out its time to do real business work. I say that because unless you have a clear understanding of those previous two you will go out of business in the first year. Your next big obstacle is going to be inventory, unless you are providing a service, and if that’s the case just ignore my section on inventory. You have two major options for inventory, you can either buy it to resell or make it yourself. Yes I know you can drop-ship and affiliate sell etc. Those are more advanced tools and will be discussed in detail later. For now we are covering a basic E-commerce shop.

If you choose to buy your inventory for resale you need to make sure there is enough margin for you to make money. If you buy something for $10 and sell it for $15 that sounds great right? Wrong, if you sell it for 15 it cost you 10 to buy it, 3 to ship it, 1 for shipping supplies, 1.50 for credit card fees. Now you already are in the hole and we haven’t factored in overhead such as rent, electric, internet, quick-books/accountant, computers, etc. You get the idea. After all of that where is your money?

My general rule is I try to mark items up 300% if they fall between the $10-100 category. You can mark larger items up less and be OK and for items under $10 mark them up as much as you can and have them still sale. I try really hard not to work with items under $10 because online there isn’t much margin for them, in most cases. I will discuss more on inventory sourcing and advanced cost analysis, but for now just get an idea of what you want to sell. If other people are selling it, so can you.

Depending on the item you are buying depends on how much start-up money you will need. Most of the other stuff will be extremely cheap. Taxes aren’t due unless you make money, quick-books is cheap, web hosting is cheap, etc. Inventory can be $10,000+ for most business. Yes you can start up an e-commerce store for $500, its just not as easy. If that is the kind of money you are working with don’t quit your day job just yet. You can always start small and build your way up. I suggest for those kind of start-ups strongly considering places like eBay and Amazon to get your feet wet before diving head first into a full e-commerce site.

Once you get a basic idea behind your business plan then it’s time to do some research, plan time to work on this, and take action. I strongly recommend spending as much time as you can studying other sellers, product trends, costs, etc. until you feel good about you site. I will cover so much more in individual articles soon. So stay tuned and good luck!