Welcome to YourMarketingPodcast. This is Series One – How to Start a Successful eCommerce Business in Less than 30 Days. In this step-by-step guide, you will learn how to quickly launch an eCommerce store and start seeing those sales roll in! And here’s your host…Ishani DePillo. 

Hello, it’s Ishani. Thanks for being here. This is episode 3 of  “How to Start a Successful eCommerce Business in Less than 30 Days”. This is exciting – In Episode 1, you came with your product idea and in Episode 2, you’ve analyzed demand, competition, and profitability. Now, it’s time to complete some fundamentals of starting an eCommerce business. And we should get these going now, rather than waiting to do it later.

Today’s podcast is going over:

1. Setting up an entity, and how to determine which type is right for you
2. Setting up a business bank account and why it’s important to do so
3. Applying for a Seller’s Permit
4. Understanding Sales taxes for  your State
5. Exploring your funding options 

Before we get started, just a quick reminder that this podcast is about going over all the steps it typically takes to get an eCommerce store up and running, like what we experienced with launching Roam Often. But not every case is going to be similar to ours and different states have different regulations, always consult a professional accountant or attorney when needed. 

Okay, now that we have covered the disclaimer, let’s go over the first topic Setting up an entity. Generally speaking, there are 3 types of entities you will want to explore, LLC, S-corp, and C-corp.

There are a number of reasons for setting up a business entity. You want to limit your personal liability, maximize your tax benefits, your ability to raise money for your business and much much more.

Skip to 2:35 For those who are starting out, you are most likely going to be deciding between an LLC versus an S-Corp. 

LLC stands for Limited Liability Company and S-Corp is named after subsection S of Chapter 1 of the Internal Revenue Code. Both entities come with limited liability, meaning they shield your personal assets from business liability. 

For both entities, you are required to keep your finances separate – one for the business, one for your personal finances. And the best part? Both entities allow you to deduct expenses like travel, uniforms, computers, phone/internet bills, advertising costs, promotions, car expenses, and so on. There are some intricacies involved with these expenses, so always check with your accountant.

To be quite frank, many business owners just starting out will most do an LLC because it’s easy to set up, and depending on the state you are in, it will most likely cost less than a grand to get started. For example, an LLC formed in California can be done by:

1. Filing Articles of Organization with the California Secretary of State and the filing fee is $70 
2. Within 90 days of filing the Articles of Organization, the LLC must file a Statement of Information and the fee is $20.
3. Then annually, you must also pay an $800 franchise tax fee. 

Additionally, depending on how your business is set up and depending on who does your taxes, you could save on accountant costs because a single-member LLC doesn’t have to file a tax return for the LLC since it’s reported on their personal tax return. 

Also, you can elect to be taxed as an S-Corp while remaining an LLC. I highly recommend setting up an appointment with your accountant to figure out the best entity for you. And we did just that for both our businesses. 

One thing to note is that it’s beyond important that no matter which entity you go with to not pierce the “corporate veil” which means you have to operate the business entity completely independent of your personal income. If you don’t operate separately, you could lose the protection of your personal assets. 

S-Corps offer some key advantages, such as tax benefits when it comes to profits. Your accountant can advise you on when it makes sense to switch to an S-Corp. An S-Corp has to pay employees a “reasonable” salary; that includes you! A “reasonable salary“ is what the industry pays for a particular position. After payroll and other expenses, any remaining profits can be distributed to an S-Corp owner or owners,  if you have a partner, as dividends, which are taxed lower than income. For instance, you’re a Print Designer, turned eCommerce business owner, but the bulk of what you do for your eCommerce business is print design, then look up the salary for a Print Designer. Depending on where you live, it can be a range like $40K to $80K. It has to be reasonable. Let’s say you decide to go with $65K, based on your experience. After your salary is paid out, the remainder of the profits can be taken out as dividends and taxed at a lower amount. This can save you a lot in taxes. Plus, S-Corps are more favorable to investors and for IPO.

We had the chance to speak with Eric Aragon on this topic, a California licensed CPA and the owner of Aragon Accounting Corporation. His practical advice and unique experience are a couple of reasons why we think you’ll find his response very helpful.

• “As far as my background goes, it’s a little bit unique because I have been at the C-level as a CFO, worked for big companies and I try to bring all of that to help small business owners with tax, bookkeeping, and with strategy. It’s that kind of a combination of higher-level thinking that allows me to help provide value for small business owners. Just to give you a perspective C-Corps are companies like Microsoft and Apple. Those are all C-Corps who have to worry about double taxation. But if you’re confident that you have this business model that is going to need more money and you want to get investors, then we would typically say, ‘go with a C Corp.’ But again in most cases, unless you’re a doctor or accountant where the state restrictions won’t let you be an LLC, than you have to be a corporation, we almost always recommend that you go with the LLC. Because of the legal protections and, again my perspective, I think probably you know 90% of my clients have used an LLC and we are able to help them more because of that designation and the flexibility that it brings. So lots of cool options, but if you’re just getting started – go get an LLC. It’s really cheap to step up and then work with somebody that can help you know when the timing is right to transit the LLC into an S-Corp or partnership. When thinking of when it’s time to take the LLC to an S-Corp, it mostly revolves around how much money you are making in a particular year. Again though that is really income-based and a trigger point is somewhere right around $50K to $60K of net income. Just to keep in mind, net income is after you’ve deducted all of your expenses. Once you get to that threshold, you’re going to want to consider working on transitioning out of an LLC sole proprietorship and into an S-Corp. And part of the reason, just to give an explanation, all taxpayers have to worry about federal taxes and they have to worry about state taxes. But when your business owner, there’s a third tax and it’s called a self-employment tax. Self-employment tax is just another fancy word for payroll tax, where the IRS says, ‘hey you’re a business owner, we want to get our FICA.’ And in order to get that, they tax business owners an extra percentage and there’s this play where at a certain threshold with again right around 50 $60,000 a year, you can use that S-Corp to plan around and minimize that self-employment tax. That’s a key part of what we do with our clients and helping them pay less in taxes is knowing that trigger point and helping them transition out.“

Now the downside to S-Corps. There are a lot of guidelines, way more than LLCs, that you have to follow in order to qualify. For instance, you have to be a US citizen or resident, you can’t have more than 100 shareholders, you can only have one class of stock, you have to hold shareholder meetings, and there are many, many more. Consult your accountant or an attorney to learn all the ins and outs before you go down this route.   

Eric Aragon gave us some valuable insight into when it’s critical to seek a professional and when you can set up your entity yourself:

• “When you’re setting up a a new entity whether it’s an LLC, S Corp or C-corp, there’s kind of two routes basically you can go: there’s the do it yourself route or the use of a legal professional. These days with the technology world that we we live in, if it’s a really simple, just like one person set up and you don’t have to worry about like buy-sell agreements with a partner or buying a partner out eventually, and it’s just you, you can go do something like LegalZoom. It’s only going to cost you between $300 and $500 to do. If you’re getting into where there are multiple partners and there are some complications around how you’re going to share profits or you get into all these legal things like what happens if the owner passes away and who takes over, I would definitely recommend to get a competent lawyer and have them help you navigate some of those nuances, in order to protect yourself and make sure you and your partner are on the same page. So again, it just really boils down to how complicated is it and if you’re not sure, you know most CPAs and lawyers will do a consultation and they’ll give you some good advice on how to proceed. If it’s really simple, just you go to LegalZoom. You can again $300 to $500 and you can also get a free EIN number on the IRS website. Just again doing it yourself, but again if it’s complicated definitely go the lawyer route. If you like to learn more about us, you can go to www.ustaxstrategy.com.“

Skip to 13:17 You will need to apply for an EIN – which stands for Employer Identification Number.
If you are a sole proprietary LLC, you can use your social security number, but we highly recommend getting an EIN even then. You will use your EIN number frequently for most things related to your business so keep it in a safe but easily accessible place. For example, you will use it for business permits, to hire employees, file your taxes, etc. 

In fact, you’re going to need an EIN number to set-up a business bank account, which is the next item we are going to cover. Remember how I mentioned separating personal from business? A bank account JUST FOR the business is one way to keep your finances separate. Once you get your EIN number, we recommend you open a business account at the bank of your choice. There are a ton of different options to choose from, Bank of America, Wells Fargo, Chase, etc.

Review what benefits each bank offers for business accounts like 24/7 customer support, low interest rates, points for traveling, etc. Weigh the pros and cons, of course, and go from there.

Also, ask around to see which banks other business owners like. It’s important to feel confident in the bank you choose. I can’t really offer suggestions here because promotions are constantly changing and what makes sense for us might not make sense for yourself and your situation. The best advice we can give when it comes to picking a banking partner is:

• Be aware of the interest rates. Because you are just starting out, you might rely heavily on credit, so make sure you know how much the bank will be charging you on interest for loans and credit cards.
• Be aware of the fees. Ask if there are any fees for late payments, wire transfers, check stops, etc. You should know all the fees beforehand so you aren’t surprised. If by chance you do get charged a fee, call the bank, sometimes the bank will waive those fees. It never hurts to call in!
• Call the customer service support line to see what type of service they give. It will vary by which representative you get, but a simple call can help you see how their support works and give you an idea of how you will be treated in the future.

Skip to 16:22 Once your bank account is set-up, next is to apply for a Seller’s Permit in your state.

A seller’s permit allows you to purchase products or supplies at wholesale prices for the purpose of resale.

You will be required to collect sales tax from your customers in your state then report and pay those amounts to your state on a regular basis. We will go into more details about sales tax at a later episode; once you are ready to sell your product, make sure you sign up for a Seller’s Permit for your State by going online and filling out an application at your State Department of Revenue. Every state is different, so you will have to look up the requirements for a Seller’s Permit in your state. But you do need to get one!

Skip to 17:23 Okay, it’s time to talk about, “How are you going to fund your new product?”

There are several options available, some better than others in my opinion. I’m going to go over several options and maybe one of these options will be a fit. Don’t let the lack of funding stop you, get creative. Where there is a will there’s a way:

• You could try a Crowdfunding platform like Kickstarter, iFundWomen, Indiegogo, etc. On these platforms, you can raise capital to produce your product and it’s a great way to determine product demand. Just remember that:
  • You need to make it enticing. Offer small incentives to get people to donate, use strong marketing copy, and beautiful images or video of your product to entice people. Storytelling is super important here. We’ll cover imagery and storytelling in another episode so hold tight.
  • One thing worth mentioning is that you will have to drive traffic to your Crowdfunding page. Send it to friends and family, post on your social media channels, and you may even want to throw some Facebook ads together to get people to pledge.
  • Remember crowdfunding is a great way to get a new product or brand off the ground.
  • We interviewed Olivia Owens, the head of partnership at the crowdfunding platform, iFundWomen. I would pay very close attention to her advice, especially if you are considering going down the crowdfunding route!
    • “As a funding platform, iFundWomen offers crowdfunding. We are rewards-based crowdfunding, so that’s when you’re selling your products, services, content, and experiences in exchange for cash for your business. There is no equity exchanged, we really focus on debt-free capital. And we also offer different grant programs, so we reinvest 20% of our standard fees back into live campaigns on our platform. And, in addition, we partner with different brands, like VISA and Adidas, who want to put funds directly into the hands of women entrepreneurs. So throughout the year, we run programs with partners as well. I think the best source of funding for a new e-commerce business is simply debt-free Capital. So I would say take a look at the different Grant programs that are out there, and if they might align with your business, stage, or sector. And then I’d also say leverage crowdfunding as a way to get your business off the ground even if you just need to raise $5,000-$10,000, that’s money that doesn’t need to come out of your pocket. And it’s really an opportunity for you to start building a community around your business. It’s so crucial today. And giving people the opportunity to support you. It will likely surprise you on who shows up and will take you to that next level. I think one of the biggest challenges founders face with their business when starting their business and in general, is making the ask. No matter if you’re turning to your community or you’re trying to reach investors, making the ask is stepping out of your comfort zone and pushing you to be a little vulnerable when it comes to asking for support. And so my recommendation to overcoming that is to hone your pitch and your messaging behind, what your business is, the problem that you are solving, and how your product or service solves that problem. The more confident you feel about your pitch, the more you will come across as confident when making the ask. And people will believe in your confidence. A tip that I have for accessing funds is to think outside the box. I think when we talk to our entrepreneurs. When they come to us, when they think of crowdfunding, they immediately think of merchandise like t-shirts or tote bags that they can sell. But we really push our entrepreneurs to think about what are the things that they are already asking you for, what are the things that your friends are already saying like, ‘Oo I love when you do this” or that super expertise that you have. Leverage that to get your business off the ground. Whether your leading webinars or having 1-on-1 sessions or creating digital downloads, there are so many opportunities for you to leverage the skillset you have to get you to where you want to go.“
• Apply for a grant. A grant is technically free money! But nothing free is easy. There’s some time involved in drafting up an application, submitting documentation, and, of course, typically a rigorous review and approval process. You could put in a lot of effort here and receive nothing for your hard work. 
• Ask friends and family to borrow money. This one is hairy, in our opinion. Because you’re blending personal with professional and you’ll have a lot more riding on your success or failure. The key is to make sure your family and friends understand the risks, feel comfortable, and are on the same page with you and your vision for your brand. 
• Find an angel investor. An angel investor is an individual who is willing to provide you capital for a business start-up in exchange for ownership equity. And just like the name, they are angels who came to the rescue when no one else would back you. It can be tricky to get an angel investor to believe in you and your company. Some advice when pitching:
  • Have a clear exit strategy in mind – if things go south, what are your plans to mitigate risk? If things go well, are you planning to take the company public? To sell? Decide on all the exit strategies you have in mind prior to meeting with an investor.
  • Show your passion. Angel investors want to stand right beside you and believe that you will do anything to get this business up and running. Don’t be afraid to show how passionate you are about your eCommerce store and what goals you have for the future.
  • Partner with someone who has more experience than you or hire an experienced consultant/advisor to add to your credibility. You want the angel investor to have no fear.
  • Do the research and know your data inside out. You should be able to demonstrate expert knowledge when it comes to your product as well as the market. For example, know the market stats of the industry, demographic information, sales projections, etc. It’s your job to convince an angel investor that you know your stuff.
• Apply for a bank loan. Taking out a loan to fund your eCommerce venture can be nerve-wracking since you will have to pay it back with interest. And to be completely honest, it’s extremely rare for a bank to fund a start-up with no revenue, but they may give you a personal loan. Pay attention to the interest rates and payback terms though. 
  • Try SBA loans and microloans. The U.S. Small Business Bureau Administration has a microloan program that offers up to $50,000 for small businesses and some not-for-profit child care centers. Of course, given the current economic climate, with COVID-19, this program may be tapped out. Check out their website for the most up-to-date information on loans offered.
• You could also look for a loan from a private lender. There are companies out there that offer personal business loans to small business owners who typically don’t meet the high-standard requirements from banks. Just realize if you do get approved, you could be paying a higher interest rate and they may have shorter payback periods. So pay close attention. The last thing you need is to be in money trouble before your business takes off!
• Tap into your retirement savings. There is a loan option to rollover as business startups (ROBS) to move retirement accounts to invest in a startup or an existing business without paying income taxes or getting hit with withdrawal penalties. But this is super risky. Because if you tap into these funds and fail, you lose your nest egg. So try other options before you look into this option.
• Another option is to use credit cards. This is also risky! You could rack up a lot of debt very quickly. It’s definitely not the route we would recommend you to take, but it can free up some of your cash. If you do resort to this option, don’t overuse it and stay on top of credit card payments. Also, try to pay more than the minimum every month, so you don’t dig yourself too much into a hole with the interest rates.

Sometimes you don’t even need a lot of funding to purchase products. Perri from WONDERmart got started by working with artisans to sell their products on her eCommerce store by consignment. Here she is to tell her story:

• “So for the last five years, I’ve had this lofty idea of creating a platform to help other creatives succeed, since I was not really building out my personal creative path at the time and many of my friends are crafty, multi-talented folks, so I wanted to help them find their path. I actually started THE WONDERMART after an inspiring conversation that I had with a dear friend. She convinced me that my business idea was feasible and the very next day I LLCed. That was October 2018. Today, I’ve been in business for about a year, and my retail business supports 39 seriously-incredible New York State artisans from all different disciplines. To me, it’s been an incredible achievement to have built something that’s completely my own. I sell everything on consignment so there is a serious amount of trust and support that these brands are placing on me. Consignment is interesting because it really allowed me to get off the ground pretty quickly and not have to have a lot of start-up Capital to create my business. So you know whereas if I was to sell wholesale, I would need like probably a loan or something to help me kick off my business. Consignment has just been the easiest way for me to get started and most people are on-board with it. But if they’re not, it’s fine; I say like I’ll reach out to you when I’m able to take wholesale. Most people are like, ‘Ya, that makes sense. Let’s do it.’ It’s a pretty easy conversation. The brands that I represent keep 60% of every sale and I keep 40%. Nobody is complaining; we’re making money together. It’s been a really fruitful experience.“

I wanted you to hear that story to encourage you to think outside the box and just go for it. 

In this episode, we’ve covered a ton of the business fundamentals that goes into starting a company like setting up your business entity, obtaining a Seller’s permit, opening a business bank account, and funding your business. And you want to get these things going because these things take time! 

The next step is to build a brand for your product – I will be talking about how to build a brand story and how to connect with your buyers! I can’t wait for the next episode.

And if you haven’t already, you’ll want to sign up at yourmarketingpodcast.com/letsgo to receive email alerts. It’s so easy to get distracted and derailed during this process. And we want to see you launch your eCommerce store and crush your goals! These email alerts will keep you on task and come with even more resources so don’t forget to sign up. Thank you for listening to yourmarketingpodcast. See you next time!